1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended June 28, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from to
Registration Statement (Form S-4) Number 33-56517
CURTICE-BURNS FOODS, INC.
(Exact name of registrant as specified in its charter)
New York 16-0845824
(State of incorporation) (IRS Employer Identification Number)
90 Linden Place, PO Box 681 Rochester, NY 14603
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 383-1850
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant:
NONE
Number of common shares outstanding at August 8, 1997:
Common Stock: 10,000
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FORM 10-K ANNUAL REPORT - 1997
CURTICE-BURNS FOODS, INC.
TABLE OF CONTENTS
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PART I
PAGE
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ITEM 1. Description of Business
General Development of Business...................................................................... 3
Narrative Description of Business ................................................................... 3
Financial Information About Industry Segments........................................................ 5
Packaging and Distribution........................................................................... 5
Trademarks........................................................................................... 5
Raw Material Sources................................................................................. 6
Environmental Matters................................................................................ 6
Seasonality of Business.............................................................................. 7
Practices Concerning Working Capital................................................................. 7
Significant Customers................................................................................ 7
Backlog of Orders.................................................................................... 7
Business Subject to Government Contracts............................................................. 7
Competitive Conditions............................................................................... 7
New Products and Research and Development............................................................ 8
Employees............................................................................................ 8
Cautionary Statement on Forward-Looking Statements................................................... 8
ITEM 2. Description of Properties................................................................................ 9
ITEM 3. Legal Proceedings........................................................................................ 10
ITEM 4. Submission of Matters to a Vote of Security Holders...................................................... 10
PART II
ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters................................. 11
ITEM 6. Selected Financial Data.................................................................................. 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 12
ITEM 8. Financial Statements and Supplementary Data.............................................................. 18
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 37
PART III
ITEM 10. Directors and Executive Officers of the Registrant....................................................... 38
ITEM 11. Executive Compensation................................................................................... 41
ITEM 12. Security Ownership of Certain Beneficial Owners and Management........................................... 43
ITEM 13. Certain Relationships and Related Transactions........................................................... 43
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................... 45
Signatures............................................................................................... 48
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Curtice-Burns Foods, Inc. (the "Company" or "Curtice Burns") is a producer and
marketer of processed food products, including canned and frozen fruits and
vegetables, canned desserts and condiments, fruit fillings and toppings, canned
chilies and stews, salad dressings, pickles, peanut butter and snack foods.
On November 3, 1994, Pro-Fac Cooperative, Inc. ("Pro-Fac") acquired Curtice
Burns (the "Acquisition"), and Curtice Burns became a wholly-owned subsidiary of
Pro-Fac. Pro-Fac is an agricultural cooperative corporation formed in 1960 under
New York law to process and market crops grown by its members. The purchase
price and fees and expenses related to the Acquisition were financed with
borrowings under a new credit agreement (the "New Credit Agreement") with CoBank
ACB (the "Bank"), and the proceeds of the Company's 12.25 percent Senior
Subordinated Notes due 2005 (the "Notes"). Pro-Fac has guaranteed the
obligations of the Company under the New Credit Agreement and the Notes. As a
result of the indebtedness incurred in connection with the Acquisition, Curtice
Burns has higher interest expenses than prior to the Acquisition.
Upon consummation of the Acquisition, Pro-Fac and Curtice Burns entered into the
Pro-Fac Marketing and Facilitation Agreement (the "Pro-Fac Marketing
Agreement"). The New Credit Agreement and the Notes restrict the ability of
Pro-Fac to amend the Pro-Fac Marketing and Facilitation Agreement. The New
Credit Agreement and the Notes also restrict the amount of dividends and other
payments that may be made by the Company to Pro-Fac.
The Pro-Fac Marketing Agreement provides for Pro-Fac to supply crops and
additional financing to Curtice Burns, for Curtice Burns to provide a market and
management services to Pro-Fac, and for Pro-Fac to share in the profits and
losses of Curtice Burns. Pro-Fac is required to reinvest at least 70 percent of
the additional patronage income from Curtice Burns back into Curtice Burns. To
preserve the independence of Curtice Burns, the Pro-Fac Marketing Agreement also
requires that certain of the directors of Curtice Burns be individuals who are
not employees or shareholders of, or otherwise affiliated with, Pro-Fac or the
Company ("Disinterested Directors") and requires that certain decisions,
including the volume of and the amount to be paid for crops received from
Pro-Fac, be approved by the Disinterested Directors. See further discussion of
the relationship with Pro-Fac in NOTE 2 to the "Notes to Consolidated Financial
Statements."
In January of 1995, the Boards of Directors of Curtice Burns and Pro-Fac
approved appropriate amendments to the Bylaws of Curtice -Burns Foods, Inc. to
allow the Company to qualify as a cooperative under Subchapter T of the Internal
Revenue Code. A private letter ruling agreeing to this change was received from
the Internal Revenue Service in August 1995. The effective date of the change
was June 25, 1995. As a cooperative, patronage income is deductible to the
extent distributed to its members.
Accordingly, taxation on patronage income is only imposed at the patron level.
Under the Pro-Fac Marketing Agreement, Curtice Burns manages the business and
affairs of Pro-Fac and provides all personnel and administrative support
required. Pro-Fac pays Curtice Burns a quarterly fee of $25,000 for these
services. See "Certain Transactions."
NARRATIVE DESCRIPTION OF BUSINESS
The Company sells products in three principal categories: (i) "branded"
products, which are sold under various Company trademarks, (ii) "private label"
products, which are sold to grocers who in turn use their own brand names on the
products and (iii) "foodservice" products, which are sold to foodservice
institutions such as restaurants, caterers, bakeries, and schools. In fiscal
1997, approximately 52 percent of the Company's net sales were branded and the
remainder divided between private label and foodservice. The Company's branded
products are listed under the "Trademarks" section of this report. The Company's
private label products include salad dressings, salsa, fruit fillings and
toppings, canned puddings, canned and frozen vegetables, Southern frozen
vegetable specialty products, and frozen and breaded products which are sold to
customers such as A&P, Brunos, Kroger, Piggly Wiggly, Safeway, SuperValu, Topco,
Wegmans and Winn-Dixie. The Company's foodservice products include salad
dressings, pickles, fruit fillings and toppings, canned and frozen vegetables,
frozen Southern specialties, frozen breaded and battered products, canned
puddings, cheese sauces and canned and frozen fruit, which are sold to customers
such as Carvel, Church's, Disney, Foodservice of America, KFC, MBM, McDonald's,
PYA, and Sysco.
Comstock Michigan Fruit ("CMF"), Southern Frozen Foods and Brooks Foods: During
fiscal 1997, these three separate divisions were consolidated and are now
headquartered in Rochester, New York. The consolidated entity represents Curtice
Burns largest business unit. This business unit produces products in several
food categories, including fruit fillings and toppings; aseptically-produced
products; canned and frozen fruits and vegetables and popcorn. Well-known brand
names include "Chill Ripe," "Comstock," "Greenwood," "Just for Chili,"
"McKenzie's," "McKenzie's Gold King," "Pops-Rite," "Rich and Tangy," "Silver
Floss," "Super Pop," "Southern Farms," "Thank You," "Tropic Isle," and
"Wilderness." In fiscal 1997, approximately 36 percent of net sales for these
businesses represented branded products, approximately 25 percent represented
private label products and approximately 39 percent represented
foodservice/industrial products.
This business unit is a major supplier of branded and private label fruit
fillings to retailers and to foodservice institutions such as restaurants,
caterers, bakeries and schools. On July 21, 1995, the Company acquired Packer
Foods, Inc., and merged this pie filling operation into its existing business.
(See further discussion in NOTE 3 of "Notes to Consolidated Financial
Statements.")
Aseptic operations produce puddings and cheese sauces for sale. The aseptic
production process involves preparation of the product in a sterile environment
beginning with batch formulation and continuing through packaging. As a result,
once packaged, the product requires no further cooking. The Company believes its
aseptic production is a state-of-the-art facility. In 1997, the Company's
aseptically processed puddings and aseptically processed cheese sauces held a
significant portion of the national foodservice market.
This business unit processes fruits and vegetables under Company brands and
private labels. Additional products include value-added items such as canned
specialty fruits and frozen vegetable blends. Success in the fruit and vegetable
processing business is driven, among other things, by an ability to control
costs. This objective is managed through capital investments and the
modernization of processing equipment, modifications to product mix, and
refinement to advertising strategies. In fiscal 1997, $9.6 million was invested
in capital improvements.
This Curtice Burns' business unit is also one of the nation's leading suppliers
in the production and sale of frozen, Southern-specialty products such as
black-eyed peas, okra, Southern squash, and Southern specialty side dishes that
include summer squash casserole, Southern-style creamed corn, and Southern-style
black-eyed peas in a savory sauce.
Canned beans and tomato products are sold in several Midwestern states under the
Brooks label. The category includes value-added items such as Chili Hot Beans
and stewed tomatoes.
Subsequent to fiscal 1997, the Company and Flanagan Brothers, Inc. of Bear
Creek, Wisconsin, contributed all of their assets involved in sauerkraut
production into one new entity. This new entity, Great Lakes Kraut Company, will
operate as a New York limited liability company, with ownership split between
the two parties. This joint venture includes the Silver Floss brand, the No. 1
selling sauerkraut brand in the US, and Krrrrisp Kraut, the No. 1 selling
refrigerated poly-bag brand in the country.
During fiscal 1997, Curtice Burns sold its private label canned vegetable
operation to Seneca Foods, along with its Blue Boy brand. Included in this sale
were the Leicester, New York manufacturing facility and LeRoy, New York
distribution warehouse. The disposal did not include the Greenwood and Silver
Floss labels, or sauerkraut, glass beets, or frozen vegetable businesses. This
transaction also included an agreement requiring Curtice Burns to handle all
vegetable sourcing for Seneca Foods at its New York plants.
On June 27, 1997, URS Logistics, Inc. ("URS") acquired the Company's frozen
foods distribution center in Montezuma, Georgia. In addition, the two companies
entered into a long-term logistics agreement under which URS will manage this
facility and all frozen food transportation operations of Curtice Burns in
Georgia and New York.
Curtice Burns Foods is renaming this combined business and will announce the
name in the second quarter of fiscal 1998.
Nalley Fine Foods: Nalley is headquartered in Tacoma, Washington. It markets
canned meat products such as chilies and stews, pickles, salad dressings, peanut
butter and syrup, which are sold throughout the Northwest and Western United
States and Western Canada. Approximately three-quarters of Nalley products are
branded; however, private label accounts for a growing percentage of Nalley
business.
The Nalley products have been a vehicle for both geographic expansion and line
extension. Several of Nalley's products have leading market shares in the
Pacific Northwest, such as chili and "Nalley" and "Farman's" pickles. In the
Pacific Northwest, the Company's "Nalley" and "Bernstein's" brands of salad
dressings have a combined market share of approximately 20 percent.
In line with the growing trend toward private label, Nalley has been
aggressively pursuing this growing business segment. Specifically, Nalley is
executing its store label strategy on specialty products, such as chili and
salsa, salad dressings and canned soups. The private label customer base
continues to expand on a national basis and includes Winn-Dixie in the
Southeast, Wegmans in Upstate New York, Topco in the Midwest, and Ralph's,
Safeway, QFC, Albertsons and Western Family on the West Coast. Specialty
businesses, such as International, continue to grow in both branded and private
label products.
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In April 1997, the Company acquired certain businesses from Nalley Canada Ltd.,
a privately held, independent snack food company and former subsidiary of
Curtice Burns. The acquired Canadian operations include a $12 million consumer
products business that includes Nalley's chili and snack dips; Adams Natural
Peanut Butter; Bernstein's Salad Dressings; LaRestaurante Salsa and other niche
dressing and sauce products marketed throughout the western Provinces of Canada.
Snack Foods Group: During fiscal 1997, two of the Curtice Burns' snack
businesses, Snyder of Berlin and Husman Snack Foods, were united under one
management group. The two entities combined resources to obtain the most cost
efficient operations. Tim's Cascade Potato Chips represents the Company's other
snack food operation. A brief description of each follows:
Snyder of Berlin: Snyder of Berlin, located in Berlin, Pennsylvania,
produces and markets several varieties of potato chips in distinctive
silver-colored bags, as well as several varieties of corn-based snack
products in conventional packaging, primarily under the "Snyder of
Berlin" brand. Snyder products are recognized for their unique taste
and freshness among users in Mid-Atlantic states, which are some of the
country's highest per capita snack consumption markets.
Husman Snack Foods: Husman Snack Foods, located in Cincinnati, Ohio,
manufactures and markets potato chips, popcorn, and cheese curls and
distributes other snack items in Cincinnati and Dayton, Ohio and areas
of Northern Kentucky. Husman creates a unique product niche by
customizing its product development and promotions to local tastes.
Multi-packs and licensing agreements with local restaurants are two
ways Husman creates its value-added proposition.
Tim's Cascade Potato Chips: Tim's Cascade Potato Chips, located in
Auburn, Washington, produces kettle-fried potato chips, popcorn, cheese
curls, and snack mix in the Washington, Northern Idaho, Oregon, and
Montana area. Kettle frying produces a potato chip that is thicker and
crisper than other potato chips.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of the Company is principally conducted in one industry segment,
the processing and sale of various food products. The financial statements for
the fiscal years ended June 28, 1997 and June 29, 1996, which are included in
this report, reflect the information relating to that segment for each of the
Company's last three fiscal years. The fiscal 1995 amounts, which are also
included in this report, are the total of Predecessor and Successor entities.
PACKAGING AND DISTRIBUTION
The food products produced by the Company are distributed to various consumer
markets in all 50 states as well as in Canada. Branded lines of the
CMF/Southern/Brooks business unit are sold through food brokers which sell
primarily to supermarket chains and various institutional feeders. Nalley has
its own sales personnel responsible for sales within the Pacific Northwest and
uses food brokers for sales in other marketing areas. Snyder's, Tim's and Husman
products are marketed through distributors (some of which are owned and operated
by the Company) who sell directly to retail outlets in the Midwest, Mid-Atlantic
and Pacific Northwest.
Customer brand operations encompass the sale of products under private labels to
chain stores and under the controlled labels of buying groups. The Company has
developed central storage and distribution facilities that permit multi-item
single shipment to customers in key marketing areas.
Curtice Burns Express ("CBX"), a subsidiary of the Company, is a licensed common
carrier with authority in 48 states. It is used by the Company to obtain
backhaul volume on shipments via the Company's trucks or contract haulers. The
other divisions of the Company lease their equipment to CBX for these backhauls.
TRADEMARKS
The major brand names under which the Company markets its products are
trademarks of the Company. Such brand names are considered to be of material
importance to the business of the Company since they have the effect of
developing brand identification and maintaining consumer loyalty. All of the
Company's trademarks are of perpetual duration so long as periodically renewed,
and it is currently intended that the Company will maintain them in force. The
major brand names utilized by the Company are:
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Product Brand Name
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Chilies, stews and soups Brooks, Mariners Cove, Nalley, Riviera
Fruits and vegetables Brooks, Chill-Ripe, Gold King, Gracias, Greenwood, Hoosier Sweets, Just for Chili, McKenzie's,
McKenzie's Gold King, Naturally Good, Ritter, Southern Farms, Southland, Thank You, Tropic Isle
Fruit fillings and toppings Comstock, Globe, Gracias, Thank You, Wilderness
Peanut butter Adams
Pickles Farman's, Nalley
Popcorn Pops-Rite, Super Pop
Puddings Gracias, Thank You
Salad dressings Bernstein's, Bernstein's Light Fantastic, Nalley
Sauerkraut Silver Floss, Farman's
Snack food Cheese Pleezers, Husman, La Restaurante, Snyder of Berlin, Thunder Crunch, Tim's Cascade Chips,
Naturally Good, Matthews
Syrup Lumberjack
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RAW MATERIAL SOURCES
In fiscal 1997, the Company acquired approximately 71 percent of its raw
agricultural products from Pro-Fac. The Company also purchased on the open
market some crops of the same type and quality as those purchased from Pro-Fac.
Such open market purchases may occur at prices higher or lower than those paid
to Pro-Fac for similar products. See further discussion of the relationship with
Pro-Fac in NOTE 2 to the "Notes to Consolidated Financial Statements."
The vegetable and fruit portions of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This results in depressed selling prices and reduced
profitability on the inventory produced from that year's crops. Excessive rain
or drought conditions can produce low crop yields and a shortage situation. This
typically results in higher selling prices and increased profitability. While
the national supply situation controls the pricing, the supply can differ
regionally because of variations in weather.
The Company purchases all of its requirements for nonagricultural products,
including containers, in the open market. Although the Company has not
experienced any difficulty in obtaining adequate supplies of such items,
occasional periods of short supply of certain raw materials may occur.
ENVIRONMENTAL MATTERS
The disposal of solid and liquid waste material resulting from the preparation
and processing of foods and the emission of wastes and odors inherent in the
heating of foods during preparation are subject to various federal, state, and
local environmental laws and regulations. Such laws and regulations have had an
important effect on the food processing industry as a whole, requiring
substantially all firms in the industry to incur material expenditures for
modification of existing processing facilities and for construction of new waste
treatment facilities. The Company is also subject to standards imposed by
regulatory agencies pertaining to the occupational health and safety of its
employees. Management believes that continued measures to comply with such laws
and regulations will not have a material adverse effect upon its competitive
position.
Among the various programs for the protection of the environment which have been
adopted to date, the most important for the operations of the Company are the
waste water discharge permit programs administered by the environmental
protection agencies in those states in which the Company does business and by
the federal Environmental Protection Agency. Under these programs, permits are
required for processing facilities which discharge certain wastes into streams
and other bodies of water, and the Company is required to meet certain discharge
standards in accordance with compliance schedules established by such agencies.
The Company has to date received permits for all facilities for which permits
are required, and each year submits applications for renewal permits for some of
the facilities.
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While the Company cannot predict with certainty the effect of any proposed or
future environmental legislation or regulations on its processing operations,
management of the Company believes that the waste disposal systems which are now
in operation or which are being constructed or designed are sufficient to comply
with all currently applicable laws and regulations.
The Company is cooperating with environmental authorities in remedying various
leaks and spills at several of its plants. Such actions are being conducted
pursuant to procedures approved by the appropriate environmental authorities at
a cost that is not material.
Expenditures related to environmental programs and facilities have not had, and
are not expected to have, a material effect on the earnings of the Company. In
fiscal 1997, total capital expenditures of Pro-Fac and the Company were $13.7
million of which approximately $2.0 million was devoted to the construction of
environmental facilities. The Company estimates that the capital expenditures
for environmental control facilities, principally waste water treatment
facilities, will be approximately $0.8 million for the 1998 fiscal year.
However, there can be no assurance that expenditures will not be higher.
SEASONALITY OF BUSINESS
From the point of view of sales, the business of the Company is not highly
seasonal, since the demand for its products is fairly constant throughout the
year. Exceptions to this general rule include some products that have higher
sales volume in the cool weather months (such as canned fruits and vegetables,
chili, and fruit fillings and toppings), and others that have higher sales
volume in the warm weather months (such as potato chips and condiments). Since
many of the raw materials processed by the Company are agricultural crops,
production of these products is predominantly seasonal, occurring during and
immediately following the harvest seasons of such crops.
PRACTICES CONCERNING WORKING CAPITAL
The Company must maintain substantial inventories throughout the year of those
finished products produced from seasonal raw materials. These inventories are
generally financed through seasonal borrowings.
A short-term line of credit is extended to the Company under agreements with
CoBank, ACB. This line of credit is used primarily for seasonal borrowing, the
amount of which fluctuates during the year. The line of credit is subject to
annual renewal.
Both the maintenance of substantial inventories and the practice of seasonal
borrowing are common to the food processing industry.
SIGNIFICANT CUSTOMERS
The Company's one principal industry segment is not dependent upon the business
of a single customer or a few customers. The Company does not have any customers
to which sales are made in an amount which equals 10 percent or more of the
Company's net sales. The loss of even its biggest customer would not have a
materially adverse effect on the Company.
BACKLOG OF ORDERS
Backlog of orders has not historically been significant in the business of the
Company. Orders are filled shortly after receipt from inventories of packaged
and processed foods.
BUSINESS SUBJECT TO GOVERNMENTAL CONTRACTS
No material portion of the business of the Company is subject to renegotiation
of contracts with, or termination by, any governmental agency.
COMPETITIVE CONDITIONS
All products of the Company, particularly branded products, compete with those
of national and major regional food processors under highly competitive
conditions. Many of the national manufacturers have substantially greater
resources than the Company. The principal methods of competition in the food
industry are ready availability of a broad line of products, product quality,
price, and advertising and sales promotion.
In recent years, and particularly when various food items are in short supply,
the constant availability of a full line of food items and the ability to
deliver the required items rapidly and economically have been among the most
important competitive factors in the markets in which the Company operates. The
Company believes that it is competitive with national brands in this area since
distribution of many of its regional brands and custom-pack food items are
limited to areas which can easily be served from its production and distribution
facilities. In this way, the problems inherent in attempting to supply markets
remote from its principal areas of operation are minimized, and the marketing
area is commensurate with the production and storage facilities.
Quality of product and uniformity of quality are also important methods of
competition. The Company's relationship with Pro-Fac gives the Company local
sources of supply, thus allowing the Company to exercise control over the
quality and uniformity of much of the raw product which it purchases. The
members of Pro-Fac generally operate relatively large production units with
emphasis on mechanized growing and harvesting techniques. This factor is also an
advantage in producing uniform, high-quality food products.
The Company's pricing is generally competitive with that of other food
processors for products of comparable quality. The branded products of the
Company are marketed under regional brands and its marketing programs are
focused on local tastes and preferences as a means of developing consumer brand
loyalty. The Company's advertising program utilizes local media, national
magazines, and in-store promotions.
Although the relative importance of the above factors may vary between
particular products or customers, the above description is generally applicable
to all of the products of the Company in the various markets in which they are
distributed.
Profit margins for canned and frozen fruits and vegetables are subject to
industry supply and demand fluctuations, attributable to changes in growing
conditions, acreage planted, inventory carryover, and other factors. The Company
has endeavored to protect against changing growing conditions through
geographical expansion of its sources of supply. The Company has emphasized the
merchandising of its own brands and expanded service and product development for
its high volume private label and foodservice customers. The percentage of sales
under brand names owned and promoted by the Company (including franchise brands)
amount to approximately 52 percent; sales to the foodservice industry
(restaurants and institutional customers) represent approximately 24 percent;
private label sales currently represent approximately 20 percent; and sales to
other manufacturers are approximately 4 percent of total sales.
An estimate of the number of competitors in the markets served by the Company is
very difficult. Nearly all products sold by the Company compete with the
nationally advertised brands of the leading food processors, including Borden,
DelMonte, Green Giant, Heinz, Frito-Lay, Kraft, Vlasic, Birdseye, and similar
major brands, as well as with the branded and private label products of a number
of regional processors, many of which operate only in portions of the marketing
area served by the Company. While the major brands are dominant in branded
products on a national level, the Company believes that it is a significant
factor in many of the marketing areas served by one or more of its regional
brands.
NEW PRODUCTS AND RESEARCH AND DEVELOPMENT
The amount expensed during the last three fiscal years on Company-sponsored and
customer-sponsored research activities relating to the development of new
products or the improvement of existing products was not material, and the
number of employees engaged full-time in such research activities is also not
material. While the Company operates test kitchens and pilot plants for the
development of new products, the emphasis generally has been on the development
of related products or modifications of existing products for the Company's
brands and customized products for the Company's private label and foodservice
businesses. No new products which require the investment of a material amount of
assets have been publicly announced.
EMPLOYEES
As of June 28, 1997, the Company had 3,363 full-time employees, of whom 2,599
were engaged in production and the balance in management, sales and
administration. As of that date, the Company also employed approximately 321
seasonal and other part-time employees, almost all of whom were engaged in
production. Most of the production employees are members of various labor
unions.
The Company believes its relationship with its employees is good.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the SEC in its rules,
regulations, and releases. The Company desires to take advantage of the "safe
harbor" provisions in the Act for forward-looking statements made from time to
time, including, but not limited to, the forward-looking information contained
in the Management's Discussion and Analysis (pages 12 to 18 and other statements
made in this Form 10-K and in other filings with the SEC.
The Company cautions readers that any such forward-looking statements made by or
on behalf of the Company are based on management's current expectations and
beliefs but are not guarantees of future performance. Actual results could
differ materially from
<PAGE>
those expressed or implied in the forward-looking statements. Among the factors
that could impact the Company's ability to achieve its goals are:
the impact of strong competition in the food industry;
the impact of weather on the volume and quality of raw product;
the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance;
the continuation of the Company's success in integrating operations and the
availability of acquisition and alliance opportunities; and
the Company's ability to achieve the gains in productivity and improvements
in capacity utilization.
ITEM 2. DESCRIPTION OF PROPERTIES
All plants, warehouses, office space and other facilities used by Curtice Burns
in its business are either owned by Curtice Burns or one of its subsidiaries or
leased from third parties. All of the properties owned by Curtice Burns are
subject to mortgages in favor of the Bank. In general, each business unit
occupies offices, processing plants and warehouse space. Some business units
have processing plants located in rural areas that are convenient for the
delivery of crops from Pro-Fac members and warehouse locations dispersed to
facilitate the distribution of finished products. Curtice Burns believes that
its facilities are in good condition and suitable for the operations of the
Company.
Four of the properties are held for sale. These properties are located in Alton,
New York; Rushville, New York, Mt. Summit, Indiana; and Wall Lake, Iowa.
The following table describes all facilities leased or owned by the Company
(other than the properties held for sale and certain public warehouses leased by
the Company from third parties from time to time). Except as otherwise noted,
each facility set forth below is owned by the Company.
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FACILITIES UTILIZED BY THE COMPANY
Type of Property (By Business Unit) Location Square Feet
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CMF/SOUTHERN FROZEN FOODS/BROOKS:
Office building, manufacturing plant and warehouse Benton Harbor, MI 239,252
Distribution center Coloma, MI 400,000
Manufacturing plant and warehouse Fennville, MI 350,000
Canning plant and warehouse Lawton, MI 142,000
Warehouse Sodus, MI 243,138
Warehouse and office; public storage facility1 Vineland, NJ 191,710
Freezing plant; warehouse; office and dry storage Barker, NY 123,600
Freezing plant Bergen, NY 138,554
Cold storage and repack facility and public storage warehouse Brockport, NY 429,052
Cutting, curing and packaging plant Gorham, NY 55,534
Canning plant and warehouse; freezing plant Oakfield, NY 263,410
Canning plant and warehouse Red Creek, NY 153,076
Cutting, curing and canning plant Shortsville, NY 111,946
Cutting and curing plant Waterport, NY 21,626
Manufacturing plant Ridgway, IL 50,000
Distribution and warehouse North Bend, NE 50,000
Office, freezing plant, cold storage and repackaging facility Montezuma, GA 591,300
Office, freezing plant and cold storage Alamo, TX 114,446
</TABLE>
<PAGE>
FACILITIES UTILIZED BY THE COMPANY
<TABLE>
Type of Property (By Business Unit) Location Square Feet
<CAPTION>
<S> <C> <C>
NALLEY FINE FOODS:
Office building, warehouse and tank farm Enumclaw, WA 87,313
Office building, manufacturing plant and warehouse Tacoma, WA 412,564
Parking lot and yards1 Tacoma, WA 305,470
Warehouses1 Tacoma, WA 568,556
Receiving and grading station1 Cornelius, OR 11,700
Receiving and grading station1 Mount Vernon, WA 110,806
Receiving and grading station1 Aurora, OR 6,800
Office building - Fuller Building1 Tacoma, WA 60,000
SNACK FOODS GROUP:
Office, plant and warehouse Berlin, PA 190,225
Administrative, plant, warehouse and distribution center - Tim's1 Auburn, WA 34,000
Plant, warehouse, and distribution center - Matthews1 Auburn, WA 37,442
Office, plant and warehouse Cincinnati, OH 113,576
Distribution Center Elwood City, PA 8,000
Distribution Center Monessen, PA 10,000
CORPORATE HEADQUARTERS:
Headquarters office1 (Includes office space for CMF/Southern Frozen Foods/Brooks
as well as a Corporate Conference Center) Rochester, NY 62,500
1Leased from third parties, although certain related equipment is owned by the
Company.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than routine litigation
incidental to the business to which either the Company or Pro-Fac is a party or
to which any of their property is subject. Further, no such proceedings are
known to be contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
All of the capital stock of the Company is owned by Pro-Fac Cooperative, Inc.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Curtice-Burns Foods, Inc.
FIVE YEAR SELECTED FINANCIAL DATA
(Dollars in Thousands)
<CAPTION>
Fiscal Year Ended June
1997 1996 1995* 1994 1993
------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales $730,823 $739,094 $748,525 $ 829,116 $ 878,627
Cost of sales 539,081 562,926 530,139 592,621 632,663
--------- --------- --------- ---------- ----------
Gross profit 191,742 176,168 218,386 236,495 245,964
Selling, administrative, and general expenses (145,392) (156,067) (159,937) (186,934) (207,119)
Gain on sale of Finger Lakes Packaging 3,565 0 0 0 0
Restructuring (including gains from disposal) 0 (5,871) (8,415) 7,768 (61,037)
Change in control expenses 0 0 (2,150) (3,500) 0
Gain on assets net of additional costs incurred as a
result of a fire 0 0 4,154 0 0
---------------------------- ---------------------------------------
Operating income/(loss) before dividing with Pro-Fac 49,915 14,230 52,038 53,829 (22,192)
Interest expense (35,030) (41,998) (32,414) (18,205) (19,550)
---------- ---------- ---------- ---------- ----------
Pretax income/(loss) before dividing with Pro-Fac and before
cumulative effect of an accounting change 14,885 (27,768) 19,624 35,624 (41,742)
Pro-Fac share of (income)/loss before cumulative effect of
an accounting change (7,442) 9,037 (9,616) (16,849) 21,800
----------- ---------- ----------- ---------- ----------
Income/(loss) before taxes and cumulative effect of
an accounting change 7,443 (18,731) 10,008 18,775 (19,942)
Tax (provision)/benefit (3,668) 6,853 (6,026) (8,665) (3,895)
----------- ---------- ----------- ----------- -----------
Income/(loss) before cumulative effect of an accounting change 3,775 (11,878) 3,982 10,110 (23,837)
Cumulative effect of an accounting change before
dividing with Pro-Fac 4,606 0 0 0 0
Pro-Fac share of an accounting change (2,859) 0 0 0 0
----------- -------------------------- ------------- -------------
Net income/(loss) $ 5,522 $(11,878) $ 3,982 $ 10,110 $(23,837)
=========== ======== ========= ======== ========
Balance Sheet Data:
Working capital $ 84,060 $107,875 $144,171 $ 104,049 $ 100,422
Ratio of current assets to current liabilities 1.8:1 2.0:1 2.3:1 1.7:1 1.6:1
Total assets $542,561 $634,250 $672,284 $ 446,938 $ 493,729
Long-term debt and senior-subordinated notes (excludes
current portion) $222,829 $309,683 $343,665 $ 79,061 $ 85,037
Long-term obligations under capital leases (excludes
current portion) $ 817 $ 1,125 $ 1,620 $ 124,973 $ 154,102
Other Statistics:
Average number of employees:
Regular 3,507 3,886 3,838 5,169 5,325
Seasonal 1,068 1,478 1,540 1,596 1,347
<FN>
* Represents the results of operations for both the Predecessor and Successor
entities for fiscal 1995.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion is to outline the most significant reasons for
changes in net sales, expenses and earnings from fiscal 1995 through fiscal
1997. The following comparisons to fiscal 1995 present the results of the
Company during the period prior to its acquisition by Pro-Fac, ("Predecessor
entity") as well as the period subsequent to its acquisition, ("Successor
entity"). The financial statements of the Predecessor and Successor entities are
not comparable in certain respects because of differences between the cost bases
of the assets held by the Predecessor entity compared to that of the Successor
entity as well as the effect on the Successor entity's operations for
adjustments to depreciation, and interest expense.
The following tables illustrate the Company's results of operations by business
for the fiscal years ended June 28, 1997, June 29, 1996, and June 24, 1995, and
the Company's total assets by business as at June 28, 1997 and June 29, 1996.
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
CMF, Southern Frozen Foods, and
Brooks Foods1 440.2 60.2 431.2 58.4 419.5 56.0
Nalley Fine Foods 182.4 25.0 189.2 25.6 181.2 24.2
Snack Foods Group 67.3 9.2 63.7 8.6 60.5 8.1
----- ----- ----- ----- ----- -----
Subtotal ongoing operations 689.9 94.4 684.1 92.6 661.2 88.3
Businesses sold or to be sold2 40.9 5.6 55.0 7.4 87.3 11.7
----- ----- ----- ----- ----- -----
Total 730.8 100.0 739.1 100.0 748.5 100.0
===== ===== ===== ===== ===== =====
<FN>
1 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
2 Includes the sales of Finger Lakes Packaging, the portion of the canned
vegetable business sold, Nalley Canada Ltd., and Nalley US chips and Snacks
business. See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
</TABLE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
----- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CMF, Southern Frozen Foods, and Brooks Foods2 40.5 81.1 26.5 186.6 42.2 81.2
Nalley Fine Foods 10.8 21.7 (2.9) (20.4) 18.7 35.9
Snack Foods Group 5.9 11.8 4.1 28.9 3.6 6.9
Corporate overhead (10.5) (21.0) (6.8) (47.9) (10.3) (19.8)
----- ----- ---- ----- ----- -----
Subtotal ongoing operations 46.7 93.6 20.9 147.2 54.2 104.2
Businesses sold or to be sold and other non-recurring3 3.2 6.4 (6.7) (47.2) (2.2) (4.2)
----- ----- ----- ----- ----- -----
Total 49.9 100.0 14.2 100.0 52.0 100.0
===== ===== ==== ===== ===== =====
<FN>
1 Excludes cumulative effect of an accounting change. See NOTE 1 to the "Notes to Consolidated Financial Statements."
2 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
3 In fiscal 1997, such amount includes the operating earnings and gain on the
sale of Finger Lakes Packaging, operating activities of the canned vegetable
business, final settlement of an insurance claim, and a loss on the disposal
of property held for sale.
</FN>
</TABLE>
In fiscal 1996, such amount includes restructuring initiatives and operating
activities of both Finger Lakes Packaging and the canned vegetable business.
<PAGE>
In fiscal 1995, such amount includes change in control expenses, a gain on
assets resulting from a fire and operating activities of Finger Lakes
Packaging, the canned vegetable business, Nalley Canada Ltd., and the Nalley
US Chips and Snacks business.
See NOTE 3 to the "Notes to Consolidated Financial Statements."
<TABLE>
EBITDA1,2
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
----- ----- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
CMF, Southern Frozen Foods, and Brooks Foods3 57.1 74.4 44.4 101.6 55.0 72.7
Nalley Fine Foods 16.2 21.1 2.3 5.3 22.9 30.3
Snack Foods Group 7.6 9.9 6.0 13.7 5.4 7.1
Corporate (10.1) (13.1) (6.9) (15.8) (10.6) (13.9)
----- ----- ---- ----- ----- -----
Subtotal ongoing operations 70.8 92.3 45.8 104.8 72.7 96.2
Businesses sold or to be sold and other non recurring4 5.9 7.7 (2.1) (4.8) 2.9 3.8
----- ----- ---- ----- ----- -----
Total 76.7 100.0 43.7 100.0 75.6 100.0
===== ===== ==== ===== ===== =====
<FN>
1 In conjunction with the Acquisition, net assets were adjusted to fair
market value and additional debt was incurred. Accordingly, depreciation
and interest expense have increased, making year-to-year comparisons
difficult to analyze. Nonetheless, earnings before interest, taxes,
depreciation and amortization (EBITDA) for ongoing businesses can be
compared. EBITDA does not represent information prepared in accordance with
generally accepted accounting principles, nor is such information
considered superior to information presented in accordance with generally
accepted accounting principles.
2 Excludes cumulative effect of an accounting change. See NOTE 1 to the
"Notes to Consolidated Financial Statements."
3 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
4 In fiscal 1997, such amount includes the operating earnings and gain on the
sale of Finger Lakes Packaging, operating activities of the canned vegetable
business, final settlement of an insurance claim, and a loss on the disposal
of property held for sale.
</FN>
</TABLE>
In fiscal 1996, such amount includes restructuring initiatives and operating
activities of both Finger Lakes Packaging and the canned vegetable business.
In fiscal 1995, such amount includes change in control expenses, a gain on
assets resulting from a fire, and operating activities of Finger Lakes
Packaging, the canned vegetable business, Nalley Canada Ltd., and the Nalley US
Chips and Snacks business.
See NOTE 3 to the "Notes to Consolidated Financial Statements."
<PAGE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
6/28/97 6/29/96
% of % of
$ Total $ Total
----- ----- ------ -----
<S> <C> <C> <C> <C>
CMF, Southern Frozen Foods and
Brooks Foods1 329.0 60.6 339.5 53.5
Nalley Fine Foods 144.4 26.6 134.1 21.1
Snack Foods Group 26.7 4.9 27.8 4.4
Corporate 42.5 7.9 71.6 11.3
----- ----- ----- -----
Subtotal ongoing operations 542.6 100.0 573.0 90.3
Businesses sold or to be sold2 0.0 0.0 61.3 9.7
----- ----- ----- -----
Total 542.6 100.0 634.3 100.0
===== ===== ===== =====
<FN>
1 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
2 Includes Finger Lakes Packaging and the portion of the canned vegetable business sold to Seneca Foods. See NOTE 3 to the "Notes
to Consolidated Financial Statements."
</FN>
</TABLE>
CHANGES FROM FISCAL 1996 TO FISCAL 1997
Net income for fiscal 1997 of $5.5 million represented a $17.4 million increase
over the prior year's loss of $11.9 million. Total EBITDA before cumulative
effect of an accounting change was $76.7 million for the year ended June 28,
1997 versus $43.7 million in the prior year. EBITDA for ongoing business reached
$70.8 million versus the prior year's $45.8 million. This significant
improvement reflected the benefits from numerous initiatives, the focus of which
was the implementation of a strategic plan that outlined several major efforts
including debt reduction and structural changes.
During fiscal 1997, the outstanding debt of the Company was reduced by $86.8
million. Ongoing efforts to improve cash flow through inventory control and the
proceeds received from the sales of Finger Lakes Packaging, the New York canned
vegetable business, the Georgia distribution center, and the sale of idle assets
were the primary factors in the reduction of debt and related interest expense.
Structural changes within the Company's business units included a review of the
Nalley operations and the consolidation of several other operations. EBITDA for
the Nalley business unit was $16.2 million for the year ended June 28, 1997
versus $2.3 million in the prior year. These results were driven by
organizational changes and the absence of the significant start-up costs for the
new salad dressing line which were incurred throughout fiscal 1996. In addition
during fiscal 1997, the Company completed the restructuring program begun in the
fourth quarter of fiscal 1996. These efforts focused on consolidation of the
Southern Frozen Foods and Brooks operations into CMF and the consolidation of
support services such as human resources and agricultural services.
Net Sales: Total net sales in fiscal 1997 decreased $8.3 million or 1.1 percent
compared to the prior year period. Net sales from ongoing operations, however,
increased $5.8 million or 0.8 percent. This increase is primarily attributable
to increased volume and improved pricing at both CMF and the Snack Foods Group.
The vegetable and fruit categories at CMF have experienced improved pricing due
to overall demand and increasing sales to new customers.
Increases at the Snack Foods Group are attributable to successful
sales/marketing efforts and the acquisition of Matthews Candy Company during the
fourth quarter of fiscal 1996.
Gross Profit: Gross profit of $191.7 million in fiscal 1997 increased $15.5
million or 8.8 percent from $176.2 million in fiscal 1996. This increase is
attributable to improved margins in all business units. Improved pricing in the
vegetable, fruit, and popcorn categories at CMF have increased profitability
from a year ago. Nalley's, which in the prior year experienced extremely high
start-up costs on the new salad dressing line, has managed through those issues
and has significantly improved margins.
Increased sales from the Snack Foods Group also improved profitability.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $10.7 million as compared with the prior year.
This decrease is net of the inclusion of expenses (approximately $5.6 million)
relating to the Company's incentive program. Payments under the incentive
programs are attributable to the significantly improved earnings. Overall, the
net decrease is attributed to a $5.8 million decrease in selling, advertising,
and trade promotions expenses resulted from
<PAGE>
decreased spending at Nalley's. Reductions in other administrative expenses
accounted for $10.5 million and were primarily attributable to benefits from the
restructuring initiative that began late in fiscal 1996. These initiatives
included the consolidation of the administrative functions at CMF, Southern
Frozen Foods, and Brooks locations, and the sale of Finger Lakes Packaging.
Gain on Sale of Finger Lakes Packaging: On October 9, 1996, the Company
completed the sale of Finger Lakes Packaging to Silgan Containers Corporation,
an indirect, wholly-owned subsidiary of Silgan Holdings, Inc., headquartered in
Stamford, Connecticut. A gain of approximately $3.6 million was recognized on
this disposal. The Company received proceeds of approximately $30 million which
were applied to Bank debt. The transaction also included a long-term supply
agreement.
Interest Expense: The decrease in interest expense of $7.0 million or 16.6
percent resulted from both the inventory reduction and cash flow management
programs initiated in fiscal 1996 as well as the debt reduction in fiscal 1997
attributable to the sales of Finger Lakes Packaging, the canned vegetable
business, and idle facilities.
Provision for Taxes: The provision for taxes in fiscal 1997 of $3.7 million
changed $10.6 million from the benefit of $6.9 million in fiscal 1996. The
provision for taxes in fiscal 1997 results from increased earnings. The
Company's effective tax rate in fiscal 1997 was 49.3 percent. The Company's
effective tax rate is negatively impacted by the non-deductibility of goodwill.
A further discussion of tax matters is included at NOTE 6 to the "Notes to
Consolidated Financial Statements."
Cumulative Effect of a Change in Accounting: Effective June 30, 1996, accounting
procedures were changed to include in prepaid expenses and other current assets,
manufacturing spare parts previously charged directly to expense. Management
believes this change is preferable because it provides a better matching of
costs with related revenues. The favorable cumulative effect of the change (net
of Pro-Fac's share of $2.9 million and income taxes of $1.1 million) was $1.7
million. Pro forma amounts for the cumulative effect of the accounting change on
prior periods are not determinable due to the lack of physical inventory counts
required to establish quantities at the respective dates.
CHANGES FROM FISCAL 1995 TO FISCAL 1996
EBITDA from ongoing businesses declined $32.2 million from $76.5 million in the
prior year to $44.3 million in fiscal 1996.
Depressed vegetable pricing significantly impacted the Company's financial
results as well as much of the industry. The Company's vegetable category, which
includes significant segments of CMF and Southern Frozen Foods, experienced a
71.2 percent reduction in EBITDA compared to the prior year. Improvements in
earnings of other product lines at CMF offset the vegetable earnings reduction.
Issues impacting Nalley results included the costly start up of the dressing
plant, other manufacturing variances and increased promotion expenses. Nalley
EBITDA was $20.6 million lower than the prior year. Several steps were taken to
address these problems, including senior management changes at the division.
A major inventory reduction program across all divisions was implemented in
fiscal 1996. Long-term debt was reduced $37.5 million in fiscal 1996 due to the
cash flow generated from these programs and from additional payments to the
Company by Pro-Fac. (See NOTES 2 and 5 to the "Notes to Consolidated Financial
Statements.")
During the fourth quarter of fiscal 1996, the Company initiated a corporate-wide
restructuring program. The overall objectives of the plan were to reduce
expense, improve productivity, and streamline operations. Efforts focused on the
consolidation of operations and the elimination of approximately 900 positions.
Reductions in personnel included operational and administrative positions. The
total fiscal 1996 restructuring charge amounted to $5.9 million, which included
a fourth quarter charge of approximately $4.0 million, primarily comprised of
employee termination benefits, and approximately $1.9 million for strategic
consulting which was incurred throughout the year
Net Sales: The Company's net sales in fiscal 1996 of $739.1 million decreased
$9.4 million or 1.3 percent from $748.5 million in fiscal 1995. The net sales
attributable to businesses sold or to be sold were $55.0 million in fiscal 1996
compared to $87.3 million in fiscal 1995. The Company's net sales from ongoing
operations were $684.1 million in fiscal 1996, an increase of $22.9 million or
3.5 percent from $661.2 million in fiscal 1995.
Gross Profit: Gross profit of $176.2 million in fiscal 1996 decreased $42.2
million or 19.3 percent from $218.4 million in fiscal 1995. Of this net
decrease, a $14.0 million reduction was attributable to businesses sold or to be
sold. The remaining decrease of $28.2 million from ongoing operations was the
result of variations in volume, selling prices, costs, product mix, and
increased depreciation due to the Acquisition.
<PAGE>
Reductions at the Company's CMF/Southern Frozen Foods operations primarily
relates to depressed vegetable pricing.
Reductions at the Company's Nalley operation relates to higher costs on all the
product lines, but particularly in salad dressings due to plant start-up
activities.
Restructuring: Restructuring expenses, as described above, amounted to $5.9
million in fiscal 1996. Restructuring expenses in fiscal 1995 of $8.4 million
reflect the impact of the sale of certain assets of the Nalley US Chips and
Snacks business and other expenses relating to the disposal of this operation.
Change in Control Expenses: Change in control expenses recorded in fiscal 1995,
amounting to $2.2 million, reflected non-deductible cost relating to the sale of
the Company (primarily legal, accounting, and investment banking fees).
Gain on Assets Resulting From Fire Claim: The gain on assets resulting from the
fire claim recorded in fiscal 1995 amounted to $4.1 million. This amount
represented the replacement value in excess of the depreciated book value of the
building and equipment destroyed on July 7, 1994 at Southern Frozen Foods. This
amount is net of additional costs incurred.
Selling, Administrative and General Expenses: Selling, administrative and
general expenses in fiscal 1996 of $156.1 million decreased $3.8 million or 2.4
percent from $159.9 million in fiscal 1995. This net decrease of $3.8 million
includes:
<TABLE>
(In Millions)
<CAPTION>
Businesses
Sold or
to be Sold Ongoing Total
<S> <C> <C> <C>
Change in trade promotions, advertising and selling costs $(8.3) $0.7 $(7.6)
Change in other administrative expenses 2.5 1.3 3.8
------ ----- ------
$(5.8) $2.0 $(3.8)
===== ==== =====
</TABLE>
The $0.7 million decrease in trade promotions, advertising and selling costs at
the Company's ongoing operations is the net from increased costs at Nalley of
$3.7 million (primarily in the canned and dressing product lines), increased
costs of $1.0 million at the Snack Group offset by decreases at CMF/Southern
Frozen Foods/Brooks of $4.0 million (primarily in the filling and topping
product lines).
The $1.3 million increase in other administrative costs attributable to the
Company's ongoing operations was primarily related to increased expense at
Nalley. The increased expense at Nalley included administrative expenses which
previously had been allocated to Nalley Chips and Snacks and Nalley Canada Ltd.
The disposal of these businesses did not eliminate centralized functions leaving
costs which will be reduced over a period of time.
Interest Expense: Interest expense in fiscal 1996 of $42.0 million increased
$9.6 million or 29.6 percent from $32.4. million in fiscal 1995. This increase
was primarily attributable to the increased borrowing and increased rates
related to the Acquisition of the Company by Pro-Fac. The impact of the
Acquisition was reflected for the full year in fiscal 1996 and for a partial
year in fiscal 1995.
Benefit/(Provision) for Taxes: The benefit for taxes in fiscal 1996 of $6.9
million compared to a provision of $6.0 million in fiscal 1995. A further
discussion of tax matters is included at NOTE 6 of "Notes to Consolidated
Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the "Consolidated
Statement of Changes in Cash Flows" for fiscal 1997 compared to fiscal 1996.
Net cash provided by operating activities decreased in fiscal 1997 primarily due
to an inventory-reduction program that favorably impacted fiscal 1996 cash flow.
Cash flow was also positively impacted in fiscal 1996 due to the receipt of
approximately $8.5 million in insurance proceeds compared to the final
settlement of $4.0 million received in fiscal 1997. Earnings, however, were
greatly improved in fiscal 1997.
<PAGE>
Net cash provided by investing activities increased significantly in fiscal
1997, primarily due to the sales of Finger Lakes Packaging, a portion of the
canned vegetable business, the Georgia distribution center, and the idle
facilities. These actions were part of an overall initiative in fiscal 1997 to
reduce the Company's outstanding debt. Management believes that the significant
reduction in debt will provide the Company with the added financial flexibility
needed to operate the business. All proceeds from asset sales were applied to
Bank debt in accordance with the terms of the New Credit Agreement. Fiscal 1996
results included proceeds from the disposition of Nalley's Ltd. and the
acquisition of Packer Foods. The purchase of property, plant, and equipment in
both years was for general operating purposes.
Borrowings: Under the New Credit Agreement, as amended, Curtice Burns is able to
borrow up to $66.0 million for working capital purposes under the Seasonal
Facility, subject to a borrowing base limitation, and obtain up to $18.0 million
in aggregate face amount of letters of credit pursuant to a Letter of Credit
Facility. The borrowing base is defined as the lesser of (i) the total line and
(ii) the sum of 60 percent of eligible accounts receivable plus 50 percent of
eligible inventory. On June 28, 1997, Pro-Fac established a seasonal line of
credit with the Bank. In doing so, the Bank limited the Company's availability
under the Seasonal Facility to $66.0 million less outstanding borrowings of
Pro-Fac. Pro-Fac's outstanding borrowings under their seasonal line were $7.0
million at June 28, 1997.
The Company believes that the cash flow generated by its operations and the
amounts available under the Seasonal Facility should be sufficient to fund its
working capital needs, fund its capital expenditures and service its debt for
the foreseeable future.
As of June 28, 1997, (i) cash borrowings outstanding under the Seasonal Facility
were zero and (ii) additional availability under the Seasonal Facility, after
taking into account the amount of the borrowing base and Pro-Fac's outstanding
borrowings, was $59.0 million. In addition to its seasonal financing, as of June
28, 1997, the Company had $34.2 million available for long-term borrowings under
the Term Loan Facility.
The New Credit Agreement and Indenture requires that Pro-Fac and Curtice Burns
meet certain financial tests and ratios and comply with certain other
restrictions and limitations. As of June 28, 1997, the Company is in compliance
with, or has obtained waivers for, all such covenants, restrictions and
limitations.
Short- and Long-Term Trends: Throughout fiscal 1997 the Company has worked
toward accomplishing the restructuring initiatives begun in fiscal 1996. During
fiscal 1997, this program focused on debt reduction. Ongoing initiatives will
include a focus on the Company's core businesses and growth opportunities. A
complete description of the acquisition and disposal activities completed is
outlined at NOTE 3 to the "Notes to Consolidated Financial Statements."
The vegetable and fruit portions of the business, which includes CMF/Southern
Frozen Foods, can be positively or negatively affected by weather conditions
nationally and the resulting impact on crop yields. Favorable weather conditions
can produce high crop yields and an oversupply situation. This results in
depressed selling prices and reduced profitability on the inventory produced
from that year's crops. Excessive rain or drought conditions can produce low
crop yields and a shortage situation. This typically results in higher selling
prices and increased profitability. While the national supply situation controls
the pricing, the supply can differ regionally because of variations in weather.
The effect of the 1996 growing season on fiscal 1997 financial results has been
a minor improvement from the prior year.
Supplemental Information on Inflation: The changes in costs and prices within
the Company's business due to inflation were not significantly different from
inflation in the United States economy as a whole. Levels of capital investment,
pricing and inventory investment were not materially affected by the moderate
inflation.
Other Matters:
Restructuring: During the fourth quarter of fiscal 1996, the Company initiated a
corporate-wide restructuring program. Approximately $4 million of the
restructuring charge comprised employee termination benefits. During fiscal
1997, approximately $2.0 million of this reserve was liquidated. It is
anticipated that the remaining reserve will be liquidated during the first
quarter of fiscal 1998.
Information Services Reorganization: On June 19, 1997, Systems & Computer
Technology Corporation ("SCT") and the Company announced a major outsourcing
services and software agreement effective June 30, 1997. The ten-year agreement,
valued at approximately $50 million, is for SCT's OnSite outsourcing services,
ADAGE ERP software and implementation services and assistance in solving the
Year 2000 issue.
<PAGE>
Product Recall: In February 1997, the Company issued a nationwide recall of all
"Tropic Isle" brand fresh frozen coconut produced in Costa Rica because it has
the potential to be contaminated with Listeria monocytogenes, an organism which
can cause serious and sometimes fatal infections in small children, frail or
elderly people, and others with weakened immune systems. Any material costs
associated with this recall are anticipated to be covered under the Company's
insurance policies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
INDEX TO FINANCIAL STATEMENTS
ITEM Page
<CAPTION>
<S> <C>
Curtice-Burns Foods, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................... 19
Reports of Independent Accountants...................................................................................... 20
Consolidated Financial Statements:
Consolidated Statement of Operations and Accumulated Earnings/(Deficit) for the years ended
June 28, 1997, June 29, 1996, and June 24, 1995..................................................................... 22
Consolidated Balance Sheet at June 28, 1997 and June 29, 1996......................................................... 23
Consolidated Statement of Cash Flows for the years ended June 28, 1997, June 29, 1996, and June 24, 1995.............. 24
Notes to Consolidated Financial Statements............................................................................ 26
</TABLE>
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the financial
statements and related notes which begins on the page following the "Report of
Independent Accountants." These statements have been prepared in accordance with
generally accepted accounting principles.
The Company's accounting systems include internal controls designed to provide
reasonable assurance of the reliability of its financial records and the proper
safeguarding and use of its assets. Such controls are monitored through the
internal and external audit programs.
The financial statements have been audited by Price Waterhouse LLP, independent
accountants, who were responsible for conducting their examination in accordance
with generally accepted auditing standards. Their resulting reports are on the
subsequent pages.
The Board of Directors exercises its responsibility for these financial
statements. The independent accountants and internal auditors of the Company
have full and free access to the Board. The Board periodically meets with the
independent accountants and the internal auditors, without management present,
to discuss accounting, auditing and financial reporting matters.
/s/ Dennis M. Mullen /s/ Earl L. Powers
Dennis M. Mullen Earl L. Powers
President and Vice President Finance
Chief Executive Officer Chief Financial Officer
August 1, 1997
<PAGE>
Report of Independent Accountants
To the Shareholder and
Board of Directors of
Curtice Burns Foods, Inc.
In our opinion, the consolidated statements of operations and accumulated
earnings/(deficit) and of cash flows listed under Item 8 of this Form 10-K
present fairly, in all material respects, the results of Curtice Burns Foods,
Inc. and its subsidiaries ("Predecessor Company") operations and cash flows for
the period from June 26, 1994 to November 3, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Predecessor Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, as of November 3, 1994, the
Predecessor Company became a wholly owned subsidiary of Pro-Fac Cooperative,
Inc. In conjunction with this change in ownership, identifiable assets and
liabilities were adjusted to reflect their fair values at the date of
acquisition.
Our audit of the consolidated financial statements also included an audit of the
financial statement schedule listed in the accompanying index and appearing
under Item 14 of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein for the period from June 26, 1994 to November 3, 1994 when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Rochester, New York
August 1, 1997
<PAGE>
Report of Independent Accountants
To the Shareholder and
Board of Directors of
Curtice Burns Foods, Inc.
In our opinion, the consolidated balance sheets and related consolidated
statements of operations and accumulated earnings/(deficit) and of cash flows
listed under Item 8 of this Form10-K present fairly, in all material respects,
the financial position of Curtice Burns Foods, Inc. and its subsidiaries
("Successor Company") at June 28, 1997 and June 29, 1996, and the results of
their operations and their cash flows for each of the two fiscal years ended
June 28, 1997 and June 29, 1996 and the period November 4, 1994 to June 24,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Successor Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in NOTE 1 to the "Consolidated Financial Statements," the Successor
Company changed its method of accounting for spare parts in 1997.
As discussed in Note 2 to the financial statements, as of November 3, 1994, the
Predecessor Company became a wholly owned subsidiary of Pro-Fac Cooperative,
Inc. In conjunction with this change in ownership, identifiable assets and
liabilities were adjusted to reflect their fair values at the date of
acquisition.
Our audits of the consolidated financial statements also included an audit of
the financial statement schedule listed in the accompanying index and appearing
under Item 14 of the Form10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein for
the fiscal years ended June 28, 1997 and June 29, 1996 and the period November
4, 1994 to June 24, 1995 when read in conjunction with the consolidated
financial statements.
PRICE WATERHOUSE LLP
Rochester, New York
August 1, 1997
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Operations and Accumulated Earnings/(Deficit)
(Dollars in Thousands)
<CAPTION>
Fiscal 1995
11/4/94 - 6/26/94 -
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
<S> <C> <C> <C> <C>
Net sales $ 730,823 $ 739,094 $ 471,904 $276,621
Cost of sales 539,081 562,926 334,329 195,810
--------- --------- --------- --------
Gross profit 191,742 176,168 137,575 80,811
Selling, administrative, and general expenses (145,392) (156,067) (99,361) (60,576)
Gain on sale of Finger Lakes Packaging 3,565 0 0 0
Restructuring charge 0 (5,871) 0 (8,415)
Change in control expenses 0 0 0 (2,150)
Gain on assets net of additional costs incurred as a result of a fire 0 0 (2,315) 6,469
--------- --------- --------- --------
Operating income before dividing with Pro-Fac 49,915 14,230 35,899 16,139
Interest expense (35,030) (41,998) (24,790) (7,624)
--------- --------- --------- --------
Pretax income/(loss) before dividing with Pro-Fac and before
cumulative effect of an accounting change 14,885 (27,768) 11,109 8,515
Pro-Fac share of (income)/loss before cumulative effect of an
accounting change (7,442) 9,037 (5,554) (4,062)
--------- --------- --------- --------
Income/(loss) before taxes and cumulative effect of an accounting change 7,443 (18,731) 5,555 4,453
Tax (provision)/benefit (3,668) 6,853 (3,291) (2,735)
--------- --------- --------- --------
Income/(loss) before cumulative effect of an accounting change 3,775 (11,878) 2,264 1,718
Cumulative effect of an accounting change before
dividing with Pro-Fac 4,606 0 0 0
Pro-Fac share of an accounting change (2,859) 0 0 0
--------- --------- --------- --------
Net income/(loss) 5,522 (11,878) 2,264 1,718
Accumulated (deficit)/earnings at beginning of period (11,878) 0 0 58,121
Less cash dividends declared (5,522) 0 (2,264) (1,390)
--------- --------- --------- --------
Accumulated (deficit)/earnings at end of period $ (11,878) $ (11,878) $ 0 $ 58,449
========= ========= ========= ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
<CAPTION>
ASSETS
6/28/97 6/29/96
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,836 $ 8,873
Accounts receivable trade, less allowances for bad debts of $970
and $836, respectively 48,661 47,259
Accounts receivable, other 2,813 8,959
Current deferred tax asset 8,198 11,724
Inventories -
Finished goods 87,904 97,018
Raw materials and supplies 27,001 33,556
-------- --------
Total inventories 114,905 130,574
-------- ---------
Prepaid manufacturing expense 8,265 11,339
Prepaid expenses and other current assets 6,323 1,066
Current investment in Bank 946 0
-------- --------
Total current assets 192,947 219,794
Investment in Bank 24,321 24,439
Property, plant, and equipment, net 217,923 268,389
Assets held for sale 3,259 5,368
Goodwill and other intangible assets less accumulated amortization of
$10,053 and $5,961, respectively 96,429 103,760
Other assets 7,682 12,500
-------- --------
Total assets $542,561 $634,250
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
6/28/97 6/29/96
Current liabilities
Current portion of obligations under capital leases $ 558 $ 547
Current portion of long-term debt 8,075 8,075
Accounts payable 49,231 54,661
Income taxes payable 5,152 3,836
Due to Pro-Fac 4,312 2,215
Accrued interest 8,540 9,447
Accrued employee compensation 11,063 8,368
Other accrued expenses 21,956 24,770
-------- --------
Total current liabilities 108,887 111,919
Long-term debt 62,829 149,683
Senior subordinated notes 160,000 160,000
Obligations under capital leases 817 1,125
Deferred income tax liabilities 40,902 51,572
Other non-current liabilities 22,687 20,746
-------- --------
Total liabilities 396,122 495,045
-------- --------
Commitments and Contingencies
Shareholder's Equity:
Common stock, par value $.01; 10,000 shares outstanding, owned by Pro-Fac 0 0
Additional paid-in capital 158,317 151,083
Accumulated deficit (11,878) (11,878)
-------- --------
Total shareholder's equity 146,439 139,205
-------- --------
Total liabilities and shareholder's equity $542,561 $634,250
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
<CAPTION>
Fiscal 1995
11/4/94 - 6/26/94 -
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ 5,522 $(11,878) $ 2,264 $ 1,718
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities -
Restructuring and disposals:
Restructuring and net (gain)/loss from disposals (3,565) 5,871 0 5,567
Including net operating losses subsequent to decision to dispose 0 0 0 2,848
Gain on assets resulting from fire claim 0 0 0 (6,469)
Amortization of goodwill and other intangibles 4,092 3,422 2,618 753
Amortization of debt issue costs 800 800 600 0
Depreciation 22,680 26,081 13,864 6,228
Cumulative effect of an accounting change (4,606) 0 0 0
Provision/(benefit) for deferred taxes 2,787 (6,853) 4,705 (4,205)
Provision for losses on accounts receivable 445 528 91 292
Equity in undistributed earnings of Bank (1,143) (1,532) (1,288) 0
Change in assets and liabilities:
Accounts receivable (1,856) 11,309 11,540 (12,722)
Inventories (1,636) 33,347 67,022 (70,961)
Income taxes payable/refundable 205 4,879 (1,043) 1,491
Accounts payable and accrued expenses (3,253) (15,200) (13,140) (5,662)
Payable to/receivable from Pro-Fac 466 2,754 (20,098) 9,650
Other assets and liabilities 548 (1,514) 15,029 11,714
---------- -------- --------- ---------
Net cash provided by/(used in) operating activities 21,486 52,014 82,164 (59,758)
---------- -------- --------- ---------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (16,876) (18,038) (26,891) (5,689)
Proceeds from disposals 74,683 5,005 0 0
Proceeds from investment in CoBank 315 0 0 0
Cash paid for acquisition 0 (5,785) 0 0
---------- -------- --------- ---------
Net cash provided by/(used in) investing activities 58,122 (18,818) (26,891) (5,689)
---------- -------- --------- ---------
Cash Flows From Financing Activities:
Receivable from/payable to Pro-Fac 0 0 (42,000) 42,000
Proceeds from issuance of short-term debt 0 0 0 30,000
Proceeds from issuance of long-term debt 18,000 5,400 359,000 10,886
Payments on short term debt 0 0 (30,000) 0
Payments on long-term debt including acquisition-related financing fees (104,854) (43,056) (178,015) (350)
Payments on capital leases (503) (825) (1,259) (11,344)
Stock activity relating to Predecessor's equity 0 0 0 52
Amounts paid to shareholders for acquisition 0 0 (167,800) 0
Capital contribution by Pro-Fac 7,234 10,000 3,888 0
Cash dividends paid to Pro-Fac (5,522) 0 (2,264) (1,390)
---------- -------- --------- ---------
Net cash (used in)/provided by financing activities (85,645) (28,481) (58,450) 69,854
---------- -------- --------- ---------
Net change in cash and cash equivalents (6,037) 4,715 (3,177) 4,407
Cash and cash equivalents at beginning of period 8,873 4,158 7,335 2,928
---------- -------- --------- ---------
Cash and cash equivalents at end of period $ 2,836 $ 8,873 $ 4,158 $ 7,335
========== ======== ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for :
Interest (net of amount capitalized) $ 35,587 $ 41,508 $ 17,531 $ 6,967
========== ======== ========== =========
Income taxes, net $ 676 $ (703) $ 5,567 $ 1,417
========== ======== ========== =========
Acquisition of Packer Foods and Matthews Candy Co.:
Accounts receivable 0 $ 1,282 $ 0 $ 0
Inventories 0 3,902 0 0
Prepaid expenses and other current assets 0 270 0 0
Property, plant and equipment 0 6,044 0 0
Goodwill 0 493 0 0
Deferred tax asset 0 264 0 0
Accounts payable 0 (4,954) 0 0
Accrued expenses 0 (418) 0 0
Other non-current liabilities 0 (1,098) 0 0
---------- -------- ---------- ---------
Cash paid for acquisition $ 0 $ 5,785 $ 0 $ 0
========== ======== ========== =========
</TABLE>
<PAGE>
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows (Continued)
(Dollars in Thousands)
<CAPTION>
Fiscal 1995
11/4/94- 6/26/94-
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
<S> <C> <C> <C> <C>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In conjunction with the purchase of certain businesses of Nalley Canada Ltd.
by Curtice Burns in fiscal 1997, the following non-cash transactions occurred:
Notes forgiven $4,986 $ 0 $ 0 $0
====== ==== ======== ==
In conjunction with the purchase of Curtice Burns by Pro-Fac during fiscal 1995,
the following non-cash transactions occurred:
Transfer of Investment in CoBank from Pro-Fac 0 0 21,619 0
Debt forgiven by Pro-Fac 0 0 110,576 0
Other assets contributed by Pro-Fac 0 0 5,000 0
------ ---- --------
$ 0 $ 0 $137,195 $0
====== ==== ======== ==
Capital lease obligations incurred $ 206 $113 $ 1,562 $0
====== ==== ======== ==
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
CURTICE-BURNS FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which 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 reporting period. Actual results could differ from these
estimates.
Curtice Burns is a producer and marketer of processed food products, including
canned and frozen fruits and vegetables, canned desserts and condiments, fruit
fillings and toppings, canned chilies and stews, salad dressings, pickles,
peanut butter and snack foods. The vegetable and fruit product lines account for
approximately 70 percent of sales. The Company's products are primarily
distributed in the United States.
The Company is a wholly-owned subsidiary of Pro-Fac Cooperative, Inc.
("Pro-Fac"). The financial statements contained herein present the results of
the Company during the period prior to its acquisition by Pro-Fac (the
"Predecessor entity") as well as the period subsequent to its November 3, 1994
acquisition (the "Successor entity"). The financial statements of the
Predecessor entity and Successor entity are not comparable in certain respects
because of differences between the cost bases of the assets as well as the
effect on the Successor entity's operations for adjustments to depreciation and
interest expense. The Acquisition was accounted for using the purchase method of
accounting. In conjunction with the change in ownership all identifiable assets
and liabilities were adjusted to reflect their fair values at the date of
acquisition.
Fiscal Year: The financial statements of the Predecessor entity include the
period from June 26, 1994 through November 3, 1994, the acquisition date. The
financial statements of the Successor entity include the period from November 3,
1994 through June 24, 1995, the fiscal year end (see NOTE 2 of "Notes to
Consolidated Financial Statements"). The fiscal year of the Successor entity
corresponds with that of its parent, Pro-Fac, and ends on the last Saturday in
June. Fiscal 1996 comprised 53 weeks and fiscal 1997 and 1995 each comprised 52
weeks.
Consolidation: The consolidated financial statements include the
Company and its wholly-owned subsidiaries after elimination of
intercompany transactions and balances.
Change in Accounting Principle: Effective June 30, 1996, accounting procedures
were changed to include in prepaid expenses and other current assets,
manufacturing spare parts previously charged directly to expense. Management
believes this change is preferable because it provides a better matching of
costs with related revenues. The favorable cumulative effect of the change (net
of Pro-Fac's share of $2.9 million and income taxes of $1.1 million) was $1.7
million. Pro forma amounts for the cumulative effect of the accounting change on
prior periods are not determinable due to the lack of physical inventory counts
required to establish quantities at the respective dates.
Reclassification: Certain items for fiscal 1996 and 1995 have been reclassified
to conform with fiscal 1997 presentation.
Cash and Cash Equivalents: Cash and cash equivalents include short-term
investments with maturities of three months or less. Short-term investments
amounted to $5.3 million at June 29, 1996. There were no such short-term
investments at June 28, 1997 or June 24, 1995.
Inventories: Inventories are stated at the lower of cost or market on the
first-in, first-out ("FIFO") method. Reserves recorded at June 28, 1997 and June
29, 1996 were $362,000 and $485,000, respectively.
Investment in CoBank ("The Bank"): The Company's investment in the Bank is
required as a condition of borrowing. These securities are not physically issued
by the Bank, but the Company is notified as to their monetary value. The
investment is carried at cost plus the Company's share of the undistributed
earnings of the Bank (that portion of patronage refunds not distributed
currently in cash).
Manufacturing Overhead: Allocation of manufacturing overhead to finished goods
produced is on the basis of a production year; thus at the end of each fiscal
year, manufacturing costs incurred by seasonal plants, subsequent to the
previous pack, are deferred and included in the accompanying balance sheet under
the caption "Prepaid manufacturing expense."
Property, Plant, and Equipment and Related Lease Arrangements: Property, plant,
and equipment are depreciated over the estimated useful lives of the assets
using the straight-line method, half-year convention, over 4 to 40 years.
<PAGE>
Assets held for sale are separately classified on the balance sheet. The
recorded value represents an estimate of net realizable value.
Lease arrangements are capitalized when such leases convey substantially all of
the risks and benefits incidental to ownership. Capital leases are amortized
over either the lease term or the life of the related assets, depending upon
available purchase options and lease renewal features.
Other Assets: Other assets are primarily comprised of debt issuance. Debt
issuance costs are amortized over the term of the debt. Amortization expense
incurred in fiscal 1997, 1996, and 1995 was $800,000, $800,000, and $600,000,
respectively.
Income Taxes: Income taxes are provided on income for financial reporting
purposes. Deferred income taxes resulting from temporary differences between
financial reporting and tax reporting are appropriately classified in the
balance sheet.
Pension: The Company and its subsidiaries have several pension plans and
participate in various union pension plans which on a combined basis cover
substantially all employees. Charges to income with respect to plans sponsored
by the Company and its subsidiaries are based upon actuarially determined costs.
Pension liabilities are funded by periodic payments to the various pension plan
trusts.
Goodwill and Other Intangibles: Goodwill and other intangible assets include the
cost in excess of the fair value of net tangible assets acquired in purchase
transactions and acquired non-competition agreements and trademarks. Goodwill
and other intangible assets, stated net of accumulated amortization, are
amortized on a straight-line basis over 5 to 35 years. The Company periodically
assesses whether there has been a permanent impairment in the value of goodwill.
This is accomplished by determining whether the estimated, undiscounted future
cash flows from operating activities exceed the carrying value of goodwill as of
the assessment date. Should aggregate future cash flows be less than the
carrying value, a writedown would be required, measured by the difference
between the discounted future cash flows and the carrying value of goodwill.
Commodities Options Contracts: In connection with the purchase of certain
commodities for anticipated manufacturing requirements, the Company occasionally
enters into options contracts as deemed appropriate to reduce the effect of
price fluctuations. These options contracts are accounted for as hedges and,
accordingly, gains and losses are deferred and recognized in cost of sales as
part of the product cost. These activities are not significant to the Company's
operations as a whole.
Casualty Insurance: The Company is insured for workers compensation and
automobile liability through a primarily self-insured program. The Company
accrues for the estimated losses from both asserted and unasserted claims. The
estimate of the liability for unasserted claims arising from unreported
incidents is based on an analysis of historical claims data.
Earnings Per Share Data Omitted: Earnings per share amounts are not presented,
as subsequent to November 3, 1994, the Company is a wholly-owned subsidiary of
Pro-Fac.
Environmental Expenditures: Environmental expenditures that pertain to current
operations are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations that do not contribute to current
or future revenues are expensed. Liabilities are recorded when remedial
activities are probable, and the cost can be reasonably estimated.
Advertising: Production costs of commercials and programming are charged to
operations in the year first aired. The costs of other advertising promotion and
marketing programs are charged in the year incurred. Advertising expense
incurred in fiscal year 1997, 1996, and 1995 amounted to $8,376,000, $9,831,000,
and $13,150,000, respectively.
Disclosures About Fair Value of Financial Statements: The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments:
Cash, Accounts Receivable, Accounts Payable, and Other Accrued
Expenses: The carrying amount approximates fair value because of the
short maturity of these instruments.
Long-Term Investments: The carrying value of the Company's investment
in CoBank was $25.3 million at June 28, 1997. As there is no market
price for this investment, a reasonable estimate of fair value is not
possible.
Long-Term Debt: The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the
same remaining maturities.
<PAGE>
New Accounting Pronouncements: During fiscal 1997, the Company adopted Financial
Accounting Standards Board Statement No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation" As the Company's Long-Term Incentive Plan is a
compensatory plan, the adoption of SFAS 123 had no significant impact on
operations.
NOTE 2. CHANGE IN CONTROL OF THE COMPANY
In 1993, the Company's management and Board of Directors began exploring several
strategic alternatives for the Company, including a possible sale of all the
equity of the Company. Those activities ultimately resulted in the Company
entering into an Agreement and Plan of Merger with Pro-Fac and its subsidiary
PFAC on September 27, 1994 (the "Merger Agreement"). On November 3, 1994, PFAC
merged into the Company, making the Company a wholly-owned subsidiary of
Pro-Fac.
In connection with the acquisition, PFAC sold $160.0 million of 12.25 percent
Senior Subordinated Notes (the "Notes") due 2005 and entered into a credit
agreement (the "New Credit Agreement") with the Bank, which provided for a term
loan, a term-loan facility, a seasonal-loan facility, and a letter-of-credit
facility. All obligations of PFAC under the Notes and the New Credit Agreement
have become obligations of the Company.
The Acquisition was accounted for using the purchase method of accounting. In
conjunction with the change in ownership all other identifiable assets and
liabilities were adjusted to reflect their fair values at the date of
Acquisition. These allocations were finalized in fiscal 1996. In recording the
transaction, approximately $121.5 million was recorded to adjust property,
plant, and equipment to fair market value, and the asset lives were adjusted for
assets acquired. In addition, approximately $110.0 million of goodwill and other
intangible assets were recorded as the excess of purchase cost over net assets
acquired. Included in this amount was approximately $42.0 million for deferred
tax adjustments to properly reflect the effects of the acquisition in accordance
with the SFAS No. 109, "Accounting for Income Taxes." (See further discussion of
tax matters at NOTE 6 to the "Notes to Consolidated Financial Statements.") The
resulting annual amortization of goodwill and other intangible assets will
approximate $4.0 million using lives ranging from 5 to 35 years. There were no
other significant changes to accounting policies as a result of the Acquisition.
Following, in capsule form, is the consolidated, unaudited results of operations
of Curtice Burns Foods for the fiscal year ended June 24, 1995, assuming the
acquisition by Pro-Fac took place at the beginning of the fiscal year. The
column headed "Actual" for June 24, 1995 is the total of Successor and
Predecessor entities.
<TABLE>
(In Millions)
<CAPTION>
Fiscal Year Ended
(Pro Forma is Unaudited)
June 24, 1995
Actual Pro Forma
<S> <C> <C>
Net sales $748.5 $748.5
Income before taxes $ 10.0 $ 7.0
Net income $ 4.0 $ 2.9
</TABLE>
Agreements with Pro-Fac: The Company's contractual relationship with Pro-Fac is
defined in the Pro-Fac Marketing and Facilitation Agreement ("Agreement"). Under
the Agreement, the Company pays Pro-Fac the commercial market value ("CMV") for
all crops supplied by Pro-Fac. CMV is defined as the weighted average price paid
by other commercial processors for similar crops sold under preseason contracts
and in the open market in the same or competing market area. Although CMV is
intended to be no more than the fair market value of the crops purchased by
Curtice Burns, it may be more or less than the price Curtice Burns would pay in
the open market in the absence of the Agreement. For the fiscal years ended
1997, 1996, and 1995 the CMV for all crops supplied by Pro-Fac amounted to $51.4
million, $44.7 million, and $55.9 million, respectively.
Under the Agreement the Company is required to have on its board of directors
some persons who are neither members of, nor affiliated with Pro-Fac
("Disinterested Directors"). The number of Disinterested Directors must at least
equal the number of directors who are members of Pro-Fac. The volume and type of
crops to be purchased by Curtice Burns under the Agreement are determined
pursuant to its annual profit plan, which requires the approval of a majority of
the Disinterested Directors. In addition, under the agreement, in any year in
which the Company has earnings on products which were processed from crops
supplied by Pro-Fac ("Pro-Fac Products"), the Company pays to Pro-Fac, as
additional patronage income, 90 percent of such earnings, but in no case more
than 50 percent of all pretax earnings of the Company. In years in which the
Company has losses on Pro-Fac Products, the Company reduces the CMV it would
otherwise pay to Pro-Fac by 90 percent of such losses, but in no case by more
than 50 percent of all pretax losses of the Company.
<PAGE>
Additional patronage income is paid to Pro-Fac for services provided to Curtice
Burns, including the provision of a long term, stable crop supply, favorable
payment terms for crops, and the sharing of risks of losses of certain
operations of the business. Earnings and losses are determined at the end of the
fiscal year, but are accrued on an estimated basis during the year. For the
fiscal years ended 1997, 1996, and 1995 such additional patronage income/(loss)
amounted to $10.3 million, $(9.0) million and $9.6 million, respectively. Under
the Indentures related to the Notes, Pro-Fac is required to reinvest at least 70
percent of the additional Patronage income in Curtice Burns.
The capital contribution of Pro-Fac to the Company at acquisition primarily
included the cancellation of indebtedness and capital lease obligations.
Subsequent to the acquisition date, Pro-Fac invested an additional $21.1 million
in the Company (including reinvested Additional Patronage Income).
NOTE 3. RESTRUCTURING, ACQUISITIONS, AND DISPOSALS
Information Services Reorganization: On June 19, 1997, Systems & Computer
Technology Corporation ("SCT") and the Company announced they signed a major
outsourcing services and software agreement effective June 30, 1997. The
ten-year agreement, valued at approximately $50 million, is for SCT's, OnSite
outsourcing services and ADAGE ERP software and implementation services.
Nalley Canada Ltd.: In April 1997, the Company acquired certain businesses from
Nalley Canada Ltd., a privately held, independent snack food company and former
subsidiary of Curtice Burns. The acquired Canadian operations include a $12
million consumer products business that includes Nalley's chili and snack dips;
Adams Natural Peanut Butter; Bernstein's Salad Dressings; LaRestaurante Salsa
and other niche dressing and sauce products marketed throughout the western
Provinces of Canada. The purchase price of approximately $5.0 million was paid
through the forgiveness of various long-term receivables issued to the Company
in connection with its sale of the stock of Nalley's Canada Ltd. in 1995.
Brooks Foods: On April 30, 1997, Hoopeston Foods acquired certain assets from
the Brooks Foods operating facility. The purchase price of approximately $2.1
million was paid with $400,000 in cash and a $1.7 million ten-year note. The
proceeds were applied to outstanding Bank loans. No significant gain or loss
occurred as a result of this transaction. In addition, the two companies entered
into a copack and warehouse agreement under which Hoopeston will produce,
package, and warehouse certain products.
Georgia Frozen Distribution Center: On June 27, 1997, URS Logistics, Inc.
("URS") acquired the Company's frozen foods distribution center in Montezuma,
Georgia. In addition, the two companies entered into a long-term logistics
agreement under which URS will manage its facility and all frozen food
transportation operations of Curtice Burns in Georgia and New York. The Company
received proceeds of approximately $9.1 million which were applied to
outstanding Bank loans. No significant gain or loss occurred as a result of this
transaction.
Sale of New York Canned Vegetable Businesses: On May 6, 1997, Seneca Foods
Corporation ("Seneca") acquired the Curtice Burns Leicester, New York production
facility and the LeRoy, New York distribution center, as well as the Blue Boy
brand.
Seneca and the Company have also forged a long-term strategic alliance to
combine their agricultural departments into one organization to be managed by
Curtice Burns. The objective is to maximize sourcing efficiencies of New York
State vegetable requirements for both companies. This agreement initially has a
minimum ten-year term.
The Company received proceeds of approximately $29.4 million which were applied
to outstanding Bank loans. No significant gain or loss occurred as a result of
this transaction.
Finger Lakes Packaging: On October 9, 1996, the Company completed the sale of
Finger Lakes Packaging, Inc. ("Finger Lakes Packaging"), a subsidiary of the
Company to Silgan Containers Corporation, an indirect, wholly-owned subsidiary
of Silgan Holdings, Inc., headquartered in Stamford, Connecticut. A gain of
approximately $3.6 million was recognized on this transaction. Proceeds from
this sale were applied to outstanding Bank loans. The Company received proceeds
of approximately $30.0 million.
The transaction also included a long-term supply agreement between Silgan and
Curtice Burns.
Packer Foods: On July 21, 1995, the Company acquired Packer Foods, a privately
owned, Michigan-based food processor. The total cost of acquisition was
approximately $5.4 million in notes plus interest at 10 percent to be paid until
the notes mature in the year 2000. The transaction was accounted for as a
purchase. For its latest fiscal year ended December 31, 1994, Packer had net
sales of $13 million, operating income of $300,000, and income before
extraordinary items of $100,000. Packer Foods has been merged into the Company's
CMF operations.
<PAGE>
Matthews Candy Co.: In the fourth quarter of fiscal 1996, the Company acquired
Matthews Candy Co., a privately owned Washington-based snack food distributor.
The total cost of the acquisition was approximately $0.4 million and was paid in
cash. Matthews Candy Co. has been merged into the Tim's Cascade Chips operation
of the Company's Snack Foods Group.
Restructuring initiatives resulted in the following charges to earnings of the
company in fiscal 1996 and 1995:
Fiscal 1996 Restructuring Charge: During the fourth quarter of fiscal
1996, the Company began implementation of a corporate-wide
restructuring program. The overall objectives of the plan were to
reduce expenses, improve productivity, and streamline operations.
Efforts focused on the consolidation of operations and the elimination
of approximately 900 positions. The total fiscal 1996 restructuring
charge amounted to $5.9 million. This amount included a fourth-quarter
charge of approximately $4.0 million which was primarily comprised of
employee termination benefits, and approximately $1.9 million for
strategic consulting incurred throughout the year. Reductions in
personnel included both operational and administrative positions.
Fiscal 1995 Restructuring Charge: Included in fiscal 1995 results was a
restructuring charge of $8.4 million to reflect the estimated impact of
the sale of certain assets of the Nalley US Chips and Snacks operation
and other expenses relating to the disposal of this operation. On
December 19, 1994 this operation was sold for approximately $2.0
million. This sale was contemplated by Pro-Fac in conjunction with the
acquisition.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT AND RELATED OBLIGATIONS
The following is a summary of property, plant and equipment and related
obligations at June 28, 1997 and June 29, 1996:
<TABLE>
(Dollars in Thousands)
<CAPTION>
June 28, 1997 June 29, 1996
Owned Leased Owned Leased
Assets Assets Total Assets Assets Total
<S> <C> <C> <C> <C> <C> <C>
Land $ 5,755 $ 0 $ 5,755 $ 6,005 $ 0 $ 6,005
Land improvements 2,061 0 2,061 2,641 0 2,641
Buildings 80,907 645 81,552 97,855 690 98,545
Machinery and equipment 167,043 2,397 169,440 190,423 2,509 192,932
Construction in progress 13,053 0 13,053 11,881 0 11,881
-------- ------ -------- -------- ------ --------
268,819 3,042 271,861 308,805 3,199 312,004
Less accumulated depreciation 52,194 1,744 53,938 42,042 1,573 43,615
-------- ------ -------- -------- ------ --------
Net $216,625 $1,298 $217,923 $266,763 $1,626 $268,389
======== ====== ======== ======== ====== ========
Obligations under capital leases1 $1,375 $1,672
Less current portion 558 547
------ ------
Long-term portion $ 817 $1,125
====== ======
<FN>
1 Represents the present value of net minimum lease payments calculated at the
Company's incremental borrowing rate at the inception of the leases, which
ranged from 6.3 to 9.8 percent.
</FN>
</TABLE>
Interest capitalized in conjunction with construction amounted to approximately
$342,000 and $470,000 in fiscal 1997 and 1996,
respectively.
<PAGE>
The following is a schedule of future minimum lease payments together with the
present value of the minimum lease payments related to capitalized leases, both
as of June 28, 1997.
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal Year Ending Last Capital Operating Total Future
Saturday In June Leases Leases Commitment
<S> <C> <C> <C>
1998 $ 783 $ 5,368 $ 6,151
1999 556 4,248 4,804
2000 125 2,522 2,647
2001 92 1,115 1,207
2002 66 444 510
Later years 200 71 271
------ ------- -------
Net minimum lease payments 1,822 $13,768 $15,590
======= =======
Less amount representing interest 447
Present value of minimum lease payments $1,375
</TABLE>
Total rent expense related to operating leases (including lease arrangements of
less than one year which are not included in the previous table) amounted to
$11,204,000, $10,927,000, and $10,297,000 for fiscal years 1997, 1996, and 1995,
respectively. The fiscal 1995 amount is comprised of $4,280,000 for the
Predecessor entity and $6,017,000 for the Successor entity.
NOTE 5. DEBT
Bank Facility: The Bank Facility includes Term Loan, Seasonal Facility, and
Letter of Credit facilities. The outstanding
borrowings under the Term Loan were $65.2 million at June 28, 1997.
The Seasonal Facility provides seasonal financing of up to $66.0 million. The
Letter of Credit Facility provides $18.0 million.
Guarantees and Security: All obligations under the Bank Facility are
guaranteed by Pro-Fac and certain subsidiaries of Curtice Burns (the
"Subsidiary Guarantors"). The Company's obligations under the Bank
Facility and Pro-Fac's and the Subsidiary Guarantors' obligations under
their respective guaranties are secured by all of the assets of the
Company and each guarantor, respectively.
The Bank has extended to a portion of the Term Loan Facility for a
limited period of time certain fixed rates that were in effect with
respect to indebtedness repaid to the Bank on November 3, 1994. The
weighted-average rate of interest applicable to the Term Loan was 8.60
percent per annum for fiscal 1997.
Borrowings under the Seasonal Facility are payable at the expiration of
that portion of the facility, which is December 1997; except that for
15 consecutive calendar days during each year, the borrowings under the
Seasonal Facility must be zero.
<PAGE>
Short-term borrowings for the three years ended June 28, 1997 were as follows:
<TABLE>
(Dollars in Thousands)
Fiscal Fiscal Fiscal
1997 1996 19951
<S> <C> <C> <C>
Balance at end of period $ 0 $ 0 $ 0
Rate at fiscal year end 0.0% 0.0% 0.0%
Maximum outstanding during the period $65,000 $94,000 $94,000
Average amount outstanding during the period $24,900 $53,700 $66,500
Weighted average interest rate during the period 7.3% 7.4% 7.3%
<FN>
1 The above amounts include borrowings from commercial banks and from Pro-Fac
under existing and pre-existing loan agreements.
</FN>
</TABLE>
The Letter of Credit Facility provides for the issuance of letters of
credit through December 1997. Management anticipates timely renewals of
both the Seasonal and the Letter of Credit facilities.
Certain Covenants: The Pro-Fac Bank Guarantee requires Pro-Fac, on a
consolidated basis, to maintain specified levels with regard to working
capital, tangible net worth, fixed charges, the incurrence of
additional debt, and limitations on dividends, investments,
acquisitions, and asset sales. The Company is in compliance with, or
has obtained waivers for, all covenants, restrictions and requirements
under the terms of the borrowing agreement.
Commitment Fees: The Bank assesses commitment fees of 0.55 percent on
the seasonal line and 0.25 percent on the unused portion of the Term
Loan.
Fair Value: Based on an estimated borrowing rate at fiscal year end
1997 of 8.7 percent for long-term debt with similar terms and
maturities, the fair value of the Company's long-term debt outstanding
under the New Credit Agreement was approximately $64.8 million at June
28, 1997.
Based on an estimated borrowing rate at fiscal year end 1996 of 9.6
percent for long-term debt with similar terms and maturities, the fair
value of the Company's long-term debt outstanding under the New Credit
Agreement was approximately $149.6 million at June 29, 1996.
The Senior Subordinated Notes ("Notes"): The Notes are limited in aggregate
principal amount to $160.0 million and will mature on February 1, 2005. Interest
on the Notes accrues at the rate of 12.25 percent per annum and is payable
semi-annually in arrears on February 1 and August 1.
Guarantees and Security: The Notes represent general unsecured
obligations of the Company, subordinated in right of payment to certain
other debt obligations of the Company (including the Company's
obligations under the New Credit Agreement).
Certain Covenants: The Notes limited the amount Pro-Fac can borrow from
the Company to $10.0 million and provided that, if Pro-Fac borrowed
from a source other than the Company, Pro-Fac was restricted from
borrowing from the Company. On June 28, 1996, Pro-Fac established a
line of credit with the Bank and, therefore, no longer can borrow from
the Company.
The Notes also limit the amount and timing of dividends and other
payments ("Restricted Payments") from the Company to Pro-Fac or to
holders of other Curtice Burns debt or equity. No dividends or other
Restricted Payments may be made if there is an existing event of
default under the Notes or if Curtice Burns' Fixed Charge Coverage
Ratio (as defined in the Indenture, a ratio of cash flow to interest
and tax-adjusted dividends) for the preceding four quarters is not at
least 1.75 to 1.00. The amount of all dividends and other Restricted
Payments subsequent to the date of the
<PAGE>
Indenture is subject to an overall limit that is based on the Company's
net income and the amount of additional equity invested in the Company.
Fair Value: Based on an estimated borrowing rate at 1997 fiscal year
end of 11.1 percent for borrowings with similar terms and maturities,
the fair value of the Notes was $174.7 million at June 28, 1997.
Based on an estimated borrowing rate at 1996 fiscal year end of 12.5
percent for borrowings with similar terms and maturities, the fair
value of the Notes was $156.7 million at June 29, 1996.
Other Debt: Other debt of $5.7 million carries rates up to 11.0 percent at June
28, 1997.
Maturities: Total long-term debt maturities during each of the next five fiscal
years are as follows: 1998 through 1999, $8.1 million each; 2000, $9.0 million,
2001, $15.5 million, and 2002, $10.1 million. Provisions of the Term Loan
require annual payments in the years through 2000 on October 1 of each year in
an amount equal to the "annual cash sweep" (equivalent to approximately 80
percent of net income adjusted for certain cash and non-cash items) for the
preceding fiscal year as defined in the Bank Facility. As of June 28, 1997, the
Company had satisfied its obligation under this provision. Provisions of the
Term Loan also require that cash proceeds from the sale of businesses be applied
to the Term Loan.
NOTE 6. TAXES ON INCOME
Taxes on income before the cumulative effect of a change in accounting include
the following:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal 1995
11/4/94 - 6/26/94 -
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
<S> <C> <C> <C> <C>
Federal -
Current $ 567 $ 0 $(1,368) $ 5,834
Deferred 2,639 (5,990) 3,810 (3,529)
------ ------- ------- -------
3,206 (5,990) 2,442 2,305
------ ------- ------- -------
State and foreign -
Current 314 0 (46) 1,106
Deferred 148 (863) 895 (676)
------ ------- ------- -------
462 (863) 849 430
------ ------- ------- -------
$3,668 $(6,853) $ 3,291 $ 2,735
====== ======= ======= =======
</TABLE>
A reconciliation of the Company's effective tax rate to the amount computed by
applying the federal income tax rate to income before taxes and cumulative
effect of a change in accounting is as follows:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal 1995
1/4/94- 6/26/94-
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
<S> <C> <C> <C> <C>
Income tax provision/(benefit) at 34% in 1997 and 1996 and 35% in 1995 $2,530 $(6,380) $1,942 $1,558
State income taxes, net of federal income tax effect 484 (859) 552 294
Goodwill amortization 1,041 784 637 167
Dividend received reduction (472) (521) 0 0
Non-deductible legal and advisory expenses 0 0 0 753
Other, net 85 123 160 (37)
------ ------- ------ -------
$3,668 $(6,853) $3,291 $2,735
====== ======= ====== ======
Effective Tax Rate 49.3% (36.5)% 59.3% 61.4%
====== ======= ====== ======
</TABLE>
<PAGE>
The deferred tax (liabilities)/assets consist of the following at June 28, 1997
and June 29, 1996:
<TABLE>
Fiscal Fiscal
1997 1996
<S> <C> <C>
Liabilities
Depreciation $(49,357) $(61,350)
Non-compete agreements (462) (766)
Long-term receivables (538) (426)
Prepaid manufacturing (3,215) (4,411)
Other (215) (39)
-------- --------
(53,787) (66,992)
-------- --------
Assets
Inventory 2,322 2,203
Allowance for doubtful accounts 377 313
Capital and operating loss carryforwards 6,147 27,090
Accrued employee benefits 3,431 3,014
Insurance accruals 2,058 2,031
Pension/OPEB accruals 7,128 6,368
Restructuring reserves 1,332 1,731
Promotional reserves 1,592 0
Other 2,908 2,377
-------- --------
27,295 45,127
-------- --------
Net deferred liabilities (26,492) (21,865)
Valuation allowance (6,212) (17,983)
-------- --------
$(32,704) $(39,848)
======== ========
</TABLE>
During fiscal year 1997, the Company utilized $22.1 million of net operating
loss carryforwards ($8.6 million of tax). Additionally, approximately $5.1
million of net operating loss carryforwards ($1.7 million of tax) were
transferred from Pro-Fac.
The benefits for these net operating losses had been recorded in previous years.
During fiscal year 1996, the Company sold the stock of its wholly-owned
subsidiary Curtice Burns Meat Snacks, Inc. Substantially all of the assets of
this subsidiary were previously sold. The sale resulted in a capital loss of
$36.3 million ($14.2 million of tax). As of the date of sale, a full valuation
allowance had been recorded against the capital loss carryforward as it was more
likely than not that a tax benefit would not be realized. During fiscal year
1997, however, the Company disposed of its Finger Lakes Packaging subsidiary,
its New York canned vegetable operation, and a distribution center in Georgia.
As a result of these disposals, the Company utilized $21.6 million of its
capital loss carryforward. As the related valuation allowance was established in
conjunction with the acquisition of the Company by Pro-Fac, the recognition of
this capital loss carryforward reduced goodwill in fiscal 1997. As of June 28,
1997, the Company has $14.7 million of a capital loss carryforward available.
The capital loss carryforward expires in 2001, and any future recognition of
this capital loss carryforward will also reduce goodwill.
In January 1995, the Boards of Directors of Curtice Burns and Pro-Fac approved
appropriate amendments to the Bylaws of Curtice Burns to allow the Company to
qualify as a cooperative under Subchapter T of the Internal Revenue Code. In
August 1995, Curtice Burns and Pro-Fac received a favorable ruling from the
Internal Revenue Service approving the change in tax treatment effective for
fiscal 1996. Subsequent to this date, a consolidated return has been filed
incorporating Curtice Burns and Pro-Fac. Tax expense is allocated to Curtice
Burns based on its operations.
NOTE 7. PENSIONS, PROFIT SHARING, AND OTHER EMPLOYEE BENEFITS
Pensions: The Company has primarily noncontributory defined benefit plans
covering most employees. The benefits for these plans are based primarily on
years of service and employees' pay near retirement. The Company's funding
policy is consistent with the funding requirements of Federal law and
regulations. Plan assets consist principally of common stocks, corporate bonds
and US government obligations.
The Company also participates in several union sponsored pension plans. It is
not possible to determine the Company's relative share of the accumulated
benefit obligations or net assets for these plans.
<PAGE>
Pension cost for fiscal years ended 1997, 1996, and 1995 includes the following
components:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal 1995
11/4/94- 6/26/94-
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
<S> <C> <C> <C> <C>
Service cost -- benefits earned during the period $ 2,888 $ 3,141 $ 2,427 $ 1,270
Interest cost on projected benefit obligation 6,461 6,544 4,365 2,225
Return on assets
Actual gain (4,884) (19,430) 0 (1,717)
Net amortization and deferral (4,063) 12,123 (4,789) (678)
------- -------- ------- -------
Total gain (8,947) (7,307) (4,789) (2,395)
------- -------- ------- -------
Amortization of transition amount 0 0 0 (265)
Amortization of prior service cost (22) 0 0 61
Amortization of (gain)/loss (811) (64) 0 57
------- -------- ------- -------
(431) 2,314 2,003 953
Union and other pension costs 282 385 147 1,182
------- -------- ------- -------
Net pension cost $ (149) $ 2,699 $ 2,150 $ 2,135
======= ======== ======= =======
</TABLE>
As a result of the change of control of the Company, the plan assets and
obligations were remeasured on November 3, 1994, and the entire balance of the
transition obligation, unrecognized prior service costs, and outstanding gains
and losses totaling approximately $5.2 million were adjusted at the time of the
acquisition.
The pension plan's funded status was as follows:
<TABLE>
(Dollars in Thousands)
<CAPTION>
June 28, 1997 June 29, 1996 June 24, 1995
------------- ------------- -------------
Assets Assets Assets
Exceed Exceed Exceed
Accumulated Accumulated Accumulated
Benefits Benefits Benefits
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(72,223) $(74,108) $(65,350)
======== ======== ========
Accumulated benefit obligation $(75,138) $(77,035) $(69,449)
======== ======== ========
Projected benefit obligation $(84,280) $(85,307) $(78,809)
Plan assets at fair value 88,979 89,716 74,897
-------- -------- --------
Plan assets in excess of/(less than) projected benefit obligation 4,699 4,409 (3,912)
Unrecognized net (gain)/loss (15,913) (18,456) (8,787)
Unrecognized prior service cost (243) (266) 0
-------- -------- --------
(11,457) (14,313) (12,699)
Union and other pension plans (2,125) (2,318) (2,243)
-------- -------- --------
Pension liability $(13,582) $(16,631) $(14,942)
======== ======== ========
</TABLE>
In 1997, the assumed discount rate, assumed long-term rate of return on plan
assets and the assumed long-term rate of compensation increase were 8.0 percent,
10.0 percent, and 4.5 percent, respectively. The year-end projected benefit
obligation decreased by approximately $2.6 million due to the increase in the
discount rate from 7.75 percent to 8.0 percent.
In 1996, the assumed discount rate, assumed long-term rate of return on plan
assets, and the assumed long-term rate of compensation increase were 7.75
percent, 10.0 percent, and 4.50 percent, respectively. The year end projected
obligation increased by approximately $7.6 million due to the decrease in the
discount rate from 8.5 percent to 7.75 percent.
<PAGE>
In 1995, the assumed discount rate, assumed long-term rate of return on plan
assets, and the assumed long-term rate of compensation increase were 8.50
percent, 10.0 percent, and 4.50 percent, respectively.
Postretirement Benefits Other Than Pensions: Generally, other than pensions, the
Company does not pay retirees' benefit costs. Isolated exceptions exist, which
have evolved from union negotiations, early retirement incentives and existing
retiree commitments from acquired companies.
The Company has not prefunded any of its retiree medical or life insurance
liabilities. Consequently there are no plan assets held in a trust, and there is
no expected long-term rate of return assumption for purposes of determining the
annual expense.
The plan's funded status was as follows:
<TABLE>
(Dollars In Thousands)
<CAPTION>
June 28, 1997 June 29, 1996
<S> <C> <C>
Accumulated postretirement benefit obligation:
Fully eligible active participants $ 169 $ 141
Other active participants 75 108
Retirees 2,360 2,446
------- -------
Total 2,604 2,695
Less Plan assets at fair value 0 0
------- -------
Accumulated postretirement benefit obligation in excess of fair value of assets (2,604) (2,695)
Unrecognized gains (378) (443)
------- -------
Accrued postretirement benefit cost $(2,982) $(3,138)
======= =======
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal 1995
11/4/94- 6/26/94-
6/24/95 11/3/94
Fiscal 1997 Fiscal 1996 Successor Predecessor
<S> <C> <C> <C> <C>
Service cost $ 8 $ 23 $ 15 $ 8
Interest cost 199 222 154 74
Net amortization and deferral (15) 0 0 46
---- ---- ---- ----
Net periodic postretirement benefit cost $192 $245 $169 $128
==== ==== ==== ====
</TABLE>
The weighted-average, assumed discount rate used to measure the benefit
obligations was 7.75 percent at the beginning and 8.00 percent at the end of
fiscal 1997. The change in the discount rate caused the accumulated
postretirement benefit obligation to decrease by approximately $53,000.
The annual rate of increase in the per capita cost of health care benefits was
assumed to be 10.0 percent for 1997 and 11.0 percent for 1996. The rate was
assumed to decrease gradually to 5.0 percent by the year 2007 and remain at that
level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation (APBO) and the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost as
follows:
<PAGE>
<TABLE>
(Dollars in Thousands)
<CAPTION>
Successor
Fiscal 1997
Current 1% Higher
Trend Trend
<S> <C> <C>
APBO $2,604 $2,696
Service cost + interest cost $ 207 $ 215
</TABLE>
Profit Sharing/401(k): Under the prior Deferred Profit Sharing Plan and the
Non-Qualified Profit Sharing Plan, the Company allocated to all salaried exempt
employees a percentage of its earnings in excess of 5.0 percent of the combined
long-term debt and equity (as defined) of Pro-Fac and the Company. In fiscal
1995, $1.4 million was allocated to the plans.
On October 1, 1995, the Company merged the Deferred Profit Sharing Plan into the
401(k) Investment Plan. Under the new combined plan, the Retirement Savings and
Incentive Plan ("RSIP"), the Company makes an incentive contribution to the Plan
if certain pre-established earnings goals are achieved. The maximum incentive
contribution is 3 percent of base salary earned during the fiscal year. In
addition, the Company contributes 401(k) matching contributions to the Plan for
the benefit of employees who elect to defer a portion of their salary into the
plan. During fiscal 1997 and 1996 the Company allocated $500,000 and $400,000,
respectively, in the form of matching contributions and $400,000 and $211,000,
respectively, in the form of incentive contributions for the benefit of its
employees.
Long-Term Incentive Plan: On June 24, 1996, the Company introduced a long-term
incentive program, the Curtice Burns Foods Equity Value Plan, which provides
performance units to a select group of management. The future value of the
performance units is determined by the Company's performance on earnings and
debt repayment. The performance units vest 25 percent each year after the first
anniversary of the grant, becoming 100 percent vested on the fourth anniversary
of grant. One-third of the appreciated value of units in excess of the initial
grant price is paid as cash compensation over the subsequent three years. The
final value of the 1997 performance units is determined on the fourth
anniversary of grant. The total units granted were 176,278 at $25.04 per unit,
and 7,996 at $13.38 per unit in June 1997, and 248,511 at $13.38 per unit in
June 1996. In fiscal 1997, approximately $1.5 million was allocated to this
plan.
The value of the grants from the Curtice Burns Foods Equity Value Plan will be
based on the Company's future earnings and debt repayment.
Employee Stock Purchase Plan: During fiscal 1996 the Company introduced an
Employee Stock Purchase Plan which affords employees the opportunity to purchase
semi-annually, in cash or via payroll deduction, shares of Class B Cumulative
Pro-Fac Preferred Stock to a maximum value of 5 percent of salary. The purchase
price of such shares is par value, $10 per share. During fiscal 1997 and 1996,
31,435 and 33,364 shares, respectively, were held by employees, and 833 shares
were subscribed to as of June 28, 1997.
NOTE 8. SUBSEQUENT EVENTS AND OTHER MATTERS
Formation of New Sauerkraut Company: Subsequent to fiscal year-end, on July 1,
1997, the Company and Flanagan Brothers, Inc., of Bear Creek, Wisconsin,
contributed all their assets involved in sauerkraut production into one new
sauerkraut company. This new company, Great Lakes Kraut Company, will operate as
a New York limited liability company, with ownership split between the two
companies. Management anticipates the alliance will positively impact fiscal
1998 earnings.
Legal Matters: The Company is party to various litigation and claims arising in
the ordinary course of business. Management and legal counsel for the Company
are of the opinion that none of these legal actions will have a material effect
on the financial position of the Company.
Commitments: The Company's Southern Frozen Foods Division has guaranteed an
approximate $1.4 million loan for the City of Montezuma to renovate a sewage
treatment plant operated in Montezuma on behalf of the City.
Southern Frozen Foods Fire: In July 1994, a plant operated by the Company's
Southern Frozen Foods Division, located in Montezuma, Georgia, was damaged by
fire. All material costs associated with the facility repairs and business
interruption were covered under the Company's insurance policies. A gain on
assets destroyed in the fire was recognized by Curtice Burns prior to the
Acquisition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Management and Directors: Effective upon consummation of the Acquisition,
Pro-Fac established a management structure for the Company, providing for a
Board of Directors consisting of one management director, Pro-Fac Directors and
Disinterested Directors. The number of Pro-Fac Directors is equal to the number
of Disinterested Directors. The Chairman of the Board is a Pro-Fac Director. The
management and directors are listed below. The Company may in the future expand
the Board of Directors, but Pro-Fac has undertaken to cause the Company to
maintain a Board on which the number of Pro-Fac Directors does not exceed the
number of Disinterested Directors. Both the New Credit Agreement and the
Indenture provide that there will be a Change of Control if, for a period of 120
consecutive days, the number of Disinterested Directors on the Board of
Directors of the Company is less than the greater of (i) two and (ii) the number
of directors of the Company who are Pro-Fac Directors.
Set forth below is certain information concerning the individuals who serve as
directors and officers of the Company as well as other corporate officers and
the individuals who serve as presidents and chief executive officers of certain
of the Company's divisions.
<TABLE>
Year of
Name Birth Positions
<CAPTION>
<S> <C> <C>
Dennis M. Mullen(1) 1953 President and Chief Executive Officer and Director
Roy A. Myers 1931 Retired President and Chief Executive Officer and Director
William D. Rice 1934 Senior Vice President Strategic Development and Secretary
Diana Bartalo 1946 Treasurer and Director of Financial Reporting
Robert E. McMahon 1941 Vice President Management Information Systems
Earl L. Powers 1944 Vice President and Chief Financial Officer
Beatrice B. Slizewski 1943 Vice President Corporate Communications
Lois J. Warlick-Jarvie 1958 Vice President Human Resources
Stephen R. Wright 1947 Executive Vice President Agriculture
Carl W. Caughran 1953 President and Chief Executive Officer of Nalley Fine Foods
Bernhard Frega 1950 President and Chief Executive Officer of CMF
Tim Kennedy 1948 President and Chief Executive Officer of Tim's Cascade Chips
David R. Ray 1945 President and Chief Executive Officer of Husman and Snyder
Robert V. Call, Jr.(2) 1926 Director and Chairman of the Board
Bruce R. Fox(2) 1947 Director
Cornelius D. Harrington, Jr.(3) 1927 Director
Steven D. Koinzan(2) 1948 Director
Walter F. Payne(3) 1936 Director
Frank M. Stotz(3) 1930 Director
<FN>
(1) Management Director.
(2) Pro-Fac Director.
(3) Disinterested Director.
</FN>
</TABLE>
Dennis M. Mullen has been the President and Chief Executive Officer since
January 1997 and a Director of the Company since May 1996. He was Chief
Operating Officer from since May 1996 to January 1997 and Executive Vice
President since January 1996. He had been President and Chief Executive Officer
of CMF from March 1993 to May 1996. He was Senior Vice President and Business
Unit Manager Foodservice of CMF from 1991 to 1993, and Senior Vice
President-Custom Pack Sales for Nalley from 1990 to 1991. Prior to employment
with the Company, he was President and Chief Executive Officer of Globe Products
Company.
<PAGE>
Roy A. Myers was President and Chief Executive Officer from November 1994 to
January 1997. Mr. Myers retired in January 1997. Prior to his retirement Mr.
Myers served as a Director and Executive Vice President of the Company from 1987
to the completion of the Acquisition (at which time he was appointed the Chief
Executive Officer). He served as Vice President-Operations of the Company from
1985 to 1987 and as Vice President of the Company from 1983 to 1985. He has been
an employee of the Company or a predecessor to the Company since 1955 in various
other capacities including Industrial Relations Manager, Operations Manager and
President of the Corporate Services Division. He was General Manager of Pro-Fac
from 1987 until the completion of the Acquisition, having served as Assistant
General Manager from 1983 to 1987.
William D. Rice has been Senior Vice President Strategic Development since
February 1997 and Secretary of the Company since 1989. He was Chief Financial
Officer from 1969 to February 1997. He was Treasurer of the Company from 1975 to
1996. He was Vice President-Finance of the Company from 1969 to 1991. He was
Assistant Treasurer of Pro-Fac from 1970 to February 1997 (Management Chief
Financial Officer for Pro-Fac).
Diana Bartalo has been Treasurer since March 1996 and Director of Financial
Reporting since 1992; Assistant Treasurer from 1988 to March 1996; Corporate
Accounting Manager 1976-1992. She held several administrative staff positions
1970-1976 and has been Assistant Treasurer of Pro-Fac since 1987.
Robert E. McMahon has been Vice President Information Systems since November
1993; prior to that he was Vice President, Information Systems for the CMF
Division 1992-1993 and Director of Corporate Information Systems since December
1991. He joined the CMF Division as Systems Integration Manager in 1989 and
became Director of Information Systems for that Division in 1990. Prior to
employment with Curtice Burns, he held management, executive and technical
positions with such organizations as Abbott Labs, BASF, IBM, MTech, and Price
Waterhouse LLP.
Earl L. Powers has been Vice President and Chief Financial Officer since
February 1997. He was Vice President and Corporate Controller from March 1993 to
February 1997, and Vice President Finance and Management Information Systems,
CMF Division of the Company from 1991 to March 1993. Prior to joining the
Company, he was Controller of various Pillsbury Company divisions 1987-1990 and
various other executive management positions at the Pillsbury Company 1976-1987.
Beatrice B. Slizewski has been Vice President of Corporate Communications for
Curtice Burns and Pro-Fac since March 1995. She joined the Company as Director
of Corporate Communications in 1991. Prior to joining Curtice Burns (1988-1991),
she worked as a marketing and public relations consultant for J.P. Associates, a
business consulting agency in Rochester, New York. Previous food industry
experience includes 14 years with the R.T. French Company (1974-1988) -- eight
years in public relations and six years in various accounting functions.
Lois J. Warlick-Jarvie has been Vice President Human Resources since January
1993; Corporate Director Human Resources July 1991 to January 1993; Manager
Compensation, Benefits and Risk Management January 1989 to July 1991; various
administrative staff positions within the Company 1982 to 1989.
Stephen R. Wright has been Executive Vice President since November 6, 1996. He
was Senior Vice President - Procurement of the Company from November 1994 and
Vice President -- Procurement for the Company from 1990 to November, 1994,
having served as Director of Commodities and Administration Services for the
Company from 1988 to 1990. He became General Manager of Pro-Fac in March 1995.
Carl W. Caughran has been President and Chief Executive Officer of Nalley Fine
Foods since March 1996. Prior to joining the Company, he was Vice
President/General Manager of Borden's Eastern Snacks Group 1993 to 1995, Vice
President/General Manager of Borden's Western Snacks Group 1991 to 1993, and
held various executive positions at Borden 1983 to 1991.
Bernhard Frega has been President and Chief Executive Officer of CMF since May
1996. He had been Executive Vice President and Chief Operating Officer of CMF
from December 1995 to May 1996. Prior to that he held increasingly responsible
positions at CMF, beginning in 1974 in sales and marketing. He became Marketing
Director in 1984, Vice President Private Label in 1987 and Senior Vice President
for Consumer Products in 1995.
Tim Kennedy has been President and Chief Executive Officer of Tim's since its
acquisition by the Company in 1989. Prior to that, he was President and Chief
Executive Officer at Tim's which was a privately-held corporation since its
inception in 1986.
David R. Ray has been President and Chief Executive Officer of Husman since
1995. He was Executive Vice President and Chief Operating Officer of Husman 1990
to 1995 and Director of Sales for Chips and Snacks at Nalley 1987 to 1990.
<PAGE>
Robert V. Call, Jr. has been a Director of the Company since the completion of
the Acquisition. Mr. Call had been a Director of the Predecessor entity since
1986 until completion of the Acquisition (at which time he resigned and was
reappointed). He has been a Director of Pro-Fac since 1962. He was President of
Pro-Fac from 1986 to March 27, 1995, having served as Treasurer from 1973 to
1984. He has been a member of Pro-Fac since 1961. He is a vegetable, fruit and
grain farmer (My-T Acres, Inc., Batavia, NY).
Bruce R. Fox has been a Director of the Company since the completion of the
Acquisition. He has been a Director of Pro-Fac since 1974. He was Treasurer of
Pro-Fac from 1984 until March 27, 1995, when he was elected President. He has
been a member of Pro-Fac since 1974. Mr. Fox is a fruit and vegetable grower
(N.J. Fox & Sons, Inc., Shelby, MI).
Cornelius D. Harrington, prior to his retirement, was President of the Bank of
New England-West in Springfield, MA or a predecessor to the Bank of New
England-West from 1978 to December 1990. He was Chief Executive Officer of the
Bank of New England-West from 1984 to December 1990. Until 1987, he served as
Chairman of the Board of Directors of BayState Medical Center in Springfield,
MA. He has been a Director of the Farm Credit Bank of Springfield since January
1994.
Steven D. Koinzan has been a Director of the Company since the completion of the
Acquisition. He has been a Director of Pro-Fac since 1983. He was Secretary of
Pro-Fac from March 1993 until March 27, 1995, when he was elected Treasurer. He
has been a member of Pro-Fac since 1979. Mr. Koinzan is a popcorn, field corn
and soybean farmer (Koinzan Farms; Norden, Nebraska).
Walter F. Payne has been a Director of the Company since January 1996 and
President and Chief Executive Officer of Blue Diamond Growers since 1992. He
held various positions at Blue Diamond Growers between 1973 and 1992. He is
currently on the Board of Directors of the Almond Board of California and the
International Nut Council, a board alternate for the National Council of Farmer
Cooperatives, and a member of the Board of Trustees for the Graduate Institute
of Cooperative Leadership.
Frank M. Stotz has been a Director of the Company since the completion of the
Acquisition. Mr. Stotz retired in 1994 from his position as Senior Vice
President - Finance of Bausch & Lomb Incorporated. Before joining Bausch & Lomb
in that capacity in 1991, Mr. Stotz was a partner with Price Waterhouse. He
joined Price Waterhouse in Chicago in 1954, was admitted to partnership in 1966
and retired from the firm in 1991 to join Bausch & Lomb. From 1980 to 1991, he
was partner in charge of the Rochester office of Price Waterhouse. Mr. Stotz
serves on the Boards of Trustees of St. John Fisher College, The Genesee
Hospital, The Rochester Center for Governmental Research and The Automobile Club
of Rochester. He is also a member of the Bishop's Council of the Catholic
Diocese of Rochester.
Term of Office: All directors of the Company will hold office from the date of
election until the next annual meeting of the shareholder or until their
successors are duly elected and qualified. Each executive officer of the Company
will hold office from the date of election until his successor is elected or
appointed.
There are no family relationships between any Director, executive officer, or
any person nominated or chosen by the Company to become a Director or executive
officer. Officers of the Company serve for a term of office from the date of
election to the next organization meeting of the Board of Directors or until
their respective successors are elected and qualified, except in the case of
death, resignation, or removal.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables show the cash compensation and certain other components of
the compensation of the chief executive officer and certain other most highly
compensated executive officers of the Company, earned during fiscal years ended
June 28, 1997, June 29, 1996, and June 24, 1995 (collectively, the "Named
Executive Officers").
<TABLE>
Executive Compensation
Summary Compensation Table
<CAPTION>
RSIP/
Matching
Contributions
Annual Deferred
Compensation1 Profit
Name and Principal Position Year Salary Bonus2 Sharing
<S> <C> <C> <C> <C>
Dennis M. Mullen - 1997 $349,181 $210,000 $ 8,013
President and Chief Executive Officer 1996 $216,107 $ 0 $ 1,465
1995 $179,558 $ 71,207 $ 7,265
Roy A. Myers - 1997 $224,000 $125,280 $ 2,736
Retired President, Chief Executive Officer, and Director 1996 $410,154 0 $ 2,672
1995 $339,927 $200,539 $10,609
William D. Rice - 1997 $259,422 $107,000 $ 5,990
Senior Vice President Strategic Development and Secretary 1996 $249,642 0 $ 1,656
1995 $240,065 $116,143 $ 9,791
Stephen R. Wright 1997 $180,043 $ 80,000 $ 4,321
Executive Vice President 1996 $156,789 0 $ 1,627
1995 $128,685 $ 51,628 $ 4,520
Earl L. Powers 1997 $187,179 $107,000 $ 4,492
Vice President Finance and Chief Financial Officer 1996 $157,990 0 $ 1,642
1995 $150,392 $ 60,333 $ 6,099
Bernhard Frega 1997 $175,769 $ 90,000 $ 4,341
President and Chief Executive Officer of CMF 1996 $141,677 0 $ 1,675
1995 $119,600 $ 42,500 $ 4,539
<FN>
1 No Named Executive Officer has received personal benefits during the
period in excess of the lesser of $50,000 or 10 percent of annual salary.
2 Pursuant to the Management Incentive Plan of the Company (the "Incentive
Plan"), additional compensation is paid if justified by the activities of the
officers and employees eligible under the Incentive Plan and by the earnings
of the Company and of Pro-Fac Cooperative, Inc. ("Pro-Fac").
</FN>
</TABLE>
<PAGE>
<TABLE>
Long-Term Incentive Plan - Awards in Last Fiscal Year
<CAPTION>
Estimated Future Payouts
(b) (c) Under Non-Stock Price Based Plans
Number of Shares Performance or Other (d) (e)
(a) Units or Other Period Until Maturation Threshold Target
Name Rights Granted (1) or Payout ($ or #) ($ or #)(2)
<S> <C> <C> <C> <C>
Roy A. Myers 0 6/25/2001 $0 $0
Dennis M. Mullen 32,085 6/25/2001 $0 $0
William D. Rice 23,636 6/25/2001 $0 $0
Stephen R. Wright 13,970 6/25/2001 $0 $0
Earl L. Powers 14,056 6/25/2001 $0 $0
Bernhard Frega 15,041 6/25/2001 $0 $0
<FN>
(1) On June 25, 1997, the Company issued performance units under the Curtice
Burns Foods Equity Value Plan ("EVP") to a select group of management. The
future value of the performance units is determined by the Company's
performance on earnings and debt repayment. The performance units vest 25
percent each year after the first anniversary of the grant, becoming 100
percent vested on the fourth anniversary of grant. One-third of the
appreciated value of units in excess of the initial grant price is paid as
cash compensation over the subsequent three years. The final value of the
1997 performance units is determined on the fourth anniversary of grant.
(2) The value of the June 25, 1997 grants from the Curtice Burns Foods Equity
Value Plan will be based on the Company's future earnings and debt
repayment. The beginning value of these performance units was set at a
level requiring improved earnings and debt-repayment performance. The
target payouts shown above are based on the value of the performance units
at fiscal 1997 earnings and debt levels and would yield no payout from the
plan at those levels. If future performance equals fiscal 1997 performance,
no payouts will be made from the plan relative to the options granted on
June 25, 1997.
</FN>
</TABLE>
Retirement Plans: The Company's Master Salaried Retirement Plan (the "Pension
Plan") provides defined retirement benefits for its officers and all salaried
and clerical personnel. The compensation upon which the pension benefits are
determined is included in the salary columns of the "Summary Compensation
Table."
For retirement before age 65, the annual benefits are reduced by an amount for
each year prior to age 65 at which such retirement occurs so that if retirement
occurs at age 55, the benefits are 70 percent of those payable at age 65.
The approximate number of years of Plan participation under the Company's
Pension Plan as of June 28, 1997, of the Executive Officers listed in the
Summary Compensation Table are as follows: Roy A. Myers-34, Dennis M. Mullen-7,
William D. Rice-25, Stephen R. Wright-23, Earl L. Powers-5, and Bernhard
Frega-21.
On January 28, 1992, the Company adopted an Excess Benefit Retirement Plan which
serves to provide employees with the same retirement benefit they would have
received from the Company's Master Salaried Retirement Plan under the career
average base pay formula, but for changes required under the 1986 Tax Reform Act
and the compensation limitation under Section 401(a)(17) of the Internal Revenue
Code, which was $150,000 on January 1, 1994, having been revised in the 1992
Omnibus Budget Reform Act.
<PAGE>
The following table shows the estimated pension benefits payable to a covered
participant, at age 65, at the specified final average pay, and years of
credited service levels under the Company's Master Salaried Retirement Plan and
the Excess Benefit Retirement Plan.
<TABLE>
Pension Plan Table
Years of Plan Participation
Final ----------------------------------------------------------
Average Pay 15 20 25 30 35
- ----------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $22,142 $ 29,008 $ 35,775 $ 42,721 $ 49,805
150,000 27,392 36,008 44,525 53,221 62,055
175,000 32,642 43,008 53,275 63,721 74,305
200,000 37,892 50,008 62,025 74,221 86,555
225,000 43,142 57,008 70,775 84,721 98,805
250,000 48,392 64,008 79,525 95,221 111,055
275,000 53,642 71,008 88,275 105,721 123,305
300,000 58,892 78,008 97,025 116,221 135,555
325,000 64,142 85,008 105,775 126,721 147,805
350,000 69,392 92,008 114,525 137,221 160,055
375,000 74,642 99,008 123,275 147,721 172,305
400,000 79,892 106,008 132,025 158,221 184,555
</TABLE>
Termination Protection Provisions: The Company has adopted a Salary Continuation
Agreement for Mr. Mullen, whereby, two years of salary and benefit continuation
will be provided if Mr. Mullen's employment is involuntarily terminated on or
before December 31, 1998, for reasons other than for "cause" as such term is
defined in the Agreement.
Directors Compensation: In fiscal 1997, non-employee directors who were
designated by Pro-Fac received an annual stipend of $6,000 per year, plus $200
per day for attending Board or Committee meetings. In fiscal 1997, all other
outside directors, Messrs. Harrington, Payne, and Stotz received an annual rate
of $18,000 in addition to $600 per day. The Chairman of the Board receives a
fixed amount in lieu of the standard attendance fees and annual stipend. The
Company accrued an annual stipend of $24,700 for Mr. Call as Chairman of the
Board. Mr. Myers was not paid directors' fees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is owned by Pro-Fac
Cooperative, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Borrowings by Pro-Fac: The Indenture governing the Notes permitted the Company
to make demand loans to Pro-Fac for working capital purposes in amounts not to
exceed $10.0 million at any time, each such loan to bear interest at a rate
equal to the rate in effect on the date of such loan under the Seasonal
Facility. The loan balance was required to be reduced to zero for a period of
not less than 15 consecutive days in each fiscal year. Except for the foregoing
provision and except for Pro-Fac's guarantee of the Notes and the New Credit
Agreement, as long as Pro-Fac has the right to borrow under the Pro-Fac
Marketing and Facilitation Agreement, the Indenture does not permit Pro-Fac to
incur any other indebtedness. During fiscal 1996, Pro-Fac repaid amounts due the
Company and incurred debt from the Bank.
Equity Ownership in CoBank: As part of its historical lending arrangements with
the Bank, which is a cooperative, Pro-Fac made investments in the Bank. Pro-Fac
made these investments through (i) a capital purchase obligation equal to a
percentage, set annually based on the Bank's capital needs, of its interest paid
to the Bank and (ii) a patronage rebate on interest paid by Pro-Fac to the Bank
based on the Bank's earnings, which is paid in cash and capital certificates.
The investments in the Bank represent a percentage of the previous five-years'
average borrowings from the Bank. As of June 28, 1997, the amount of the
Company's investment in the Bank was approximately $25.3 million.
Purchase of Crops From Pro-Fac: Each of the members of Pro-Fac sells crops to
Pro-Fac pursuant to a general marketing agreement between such member and
Pro-Fac, which crops in turn are sold to the Company pursuant to the Pro-Fac
Marketing and Facilitation Agreement. During fiscal 1997, the following
directors and executive officers of Pro-Fac directly or through sole
proprietorships or corporations, sold crops to Pro-Fac and provided harvesting,
trucking and waste removal services to Curtice Burns for the following aggregate
amounts:
<PAGE>
<TABLE>
RELATIONSHIP GROSS PURCHASES
NAME TO PRO-FAC IN FISCAL 1997
<CAPTION>
<S> <C> <C>
Dale E. Burmeister............... Director 183,000
Robert V. Call, Jr............... Director 2,254,000
Glen Lee Chase................... Director 199,000
Tommy R. Croner.................. Director and Secretary 261,000
Robert DeBadts................... Director 422,000
Albert P. Fazio.................. Director and Vice President 144,000
Bruce R. Fox..................... Director and President 935,000
Steven D. Koinzan................ Director and Treasurer 475,000
Kenneth A. Mattingly............. Director 806,000
Allan W. Overhiser............... Director 30,000
Paul E. Roe...................... Director 733,000
Darrell Sarff.................... Director 75,000
</TABLE>
DIRECTORS AND OFFICERS LIABILITY INSURANCE
As authorized by New York law and in accordance with the policy of that state,
the Company has obtained insurance from Chubb Group Insurance insuring the
Company against any obligation it incurs as a result of its indemnification of
its officers and directors, and insuring such officers and directors for
liability against which they may not be indemnified by the Company. This
insurance has a term expiring on August 15, 1998, at an annual cost of
approximately $80,000. As of this date, no sums have been paid to any officers
or directors of the Company under this indemnification insurance contract.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The Following Appear in ITEM 8 of This Report
<TABLE>
ITEM Page
<CAPTION>
<S> <C>
Curtice-Burns Foods, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................. 19
Reports of Independent Accountants.................................................................................... 20
Consolidated Financial Statements:
Consolidated Statement of Operations and Accumulated Earnings/(Deficit) for the years ended
June 28, 1997, June 29, 1996, and June 24, 1995................................................................... 22
Consolidated Balance Sheet at June 28, 1997 and June 29, 1996....................................................... 23
Consolidated Statement of Cash Flows for the years ended June 28, 1997, June 29, 1996, and June 24, 1995............ 24
Notes to Consolidated Financial Statements.......................................................................... 26
<FN>
(2) The following additional financial data are set forth herein:
</FN>
</TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
SCHEDULE II
Curtice-Burns Foods, Inc.
Valuation and Qualifying Accounts
For the Three Fiscal Years Ended June 28, 1997
<CAPTION>
Fiscal 1995
11/4/94- 6/26/94-
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor* Predecessor*
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Balance at beginning of period $ 836,000 $ 673,000 $ 683,000 $1,066,000
Additions charged to expense 446,000 537,000 91,000 292,000
Deductions (312,000) (374,000) (101,000) (427,000)
----------- ----------- ---------- ----------
Balance at end of period $ 970,000 $ 836,000 $ 673,000 $ 931,000
=========== =========== ========== ==========
Inventory reserve**
Balance at beginning of period $ 485,000 $ 144,000 $ 0 $ 379,000
Net change (123,000) 341,000 144,000 635,000
----------- ----------- ---------- ----------
Balance at end of period $ 362,000 $ 485,000 $ 144,000 $1,014,000
=========== =========== ========== ==========
Tax valuation allowance***
Balance at beginning of period $17,983,000 $ 7,366,000 $ 0 $ 0
Net change (11,771,000) 10,617,000 7,366,000 0
----------- ----------- ---------- ----------
Balance at end of period $ 6,212,000 $17,983,000 $7,366,000 $ 0
=========== =========== ========== ==========
<FN>
* Valuation accounts were revalued by the acquiring company.
** Difference between FIFO cost and market applicable to inventories.
*** See further discussion regarding tax matters at NOTE 6 to the "Notes to
Consolidated Financial Statements."
</FN>
</TABLE>
Schedules other than those listed above are omitted because they are either not
applicable or not required, or the required information is shown in the
financial statements or the notes thereto.
<PAGE>
(3) The following exhibits are filed herein or have been
previously filed with
the Securities and Exchange Commission:
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter of fiscal 1997.
<TABLE>
(c) EXHIBITS:
<CAPTION>
Exhibit
Number Description
<S> <C>
3.3(2) Certificate of Incorporation of Curtice Burns.
3.4(3) Bylaws of Curtice Burns.
10.1(2) Indenture, dated as of November 3, 1994 (the "Indenture"), among PFAC, Pro-Fac and IBJ Schroder Bank & Trust
Company ("IBJ"), as Trustee, as amended by First Supplemental Indenture, dated as of November 3, 1994, each
with respect to Curtice Burns' 12.25 percent Senior Subordinated Notes due 2005 (the "Notes").
10.2(2) Term Loan, Term Loan Facility and Seasonal Loan Agreement, dated as of November 3, 1994, among Springfield Bank
for Cooperatives (the "Bank"), Curtice Burns and PFAC.
10.3(2) Parent Guaranty, dated as of November 3, 1994, by Pro-Fac in favor of the Bank.
10.4(2) Parent Security Agreement, dated as of November 3, 1994 between Pro-Fac and the Bank.
10.5(2) Mortgage, Open End Mortgage, Deed of Trust, Trust Deed, Deed to Secure Debt, Purchase Money Mortgage, Assignment,
Security Agreement and Financing Statement dated November 3, 1994 among PFAC, Curtice Burns and the Bank.
10.6(2) Marketing and Facilitation Agreement, dated as of November 3, 1994, between Pro-Fac and Curtice Burns.
10.7(2) Management Incentive Plan, as amended.
10.8(2) Supplemental Executive Retirement Plan, as amended.
10.10(2) Master Salaried Retirement Plan, as amended.
10.11(2) Non-Qualified Profit Sharing Plan, as amended.
10.12(2) Excess Benefit Retirement Plan.
10.13 Salary Continuation Agreement - Dennis M. Mullen.
10.14(1) Modification A of Term Loan, Term Loan Facility, and Seasonal Loan Agreement, dated as of January 26, 1995,
between Curtice Burns and the Bank.
10.15(1) Second Amendment to Non-Qualified Profit Sharing Plan.
10.16(3) Modifications B - D of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Curtice Burns and
the Bank.
10.17(4) Modifications E - F of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Curtice Burns and
the Bank.
10.18(4) Equity Value Plan Adopted on June 24, 1996.
10.19(4) Seasonal Loan Agreement Between Pro-Fac and the Bank Dated June 28, 1996.
10.20 Modifications G - K of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Curtice Burns and
Bank.
10.21 OnSite Services Agreement with Systems & Computer Technology.
10.22 Raw Product Supply Agreement with Seneca Foods Corporation.
10.23 Reciprocal Co-Pack Agreement with Seneca Foods Corporation.
18(5) Accountant's Report Regarding Change in Accounting Method
</TABLE>
<PAGE>
(c) EXHIBITS (Continued):
<TABLE>
Exhibit
Number Description
<CAPTION>
<S> <C>
21.1 List of Subsidiaries.
27 Financial Data Schedule.
<FN>
(1) Incorporated by reference from Registration Statement No. 33-60273.
(2) Incorporated by reference from Registration Statement No. 33-56517, as amended.
(3) Incorporated by reference from the Registrant's 1995 Annual Report on Form 10-K.
(4) Incorporated by reference from the Registrant's 1996 Annual Report on Form 10-K.
(5) Incorporated by reference from the Registrant's First Quarter Report on
Form 10-Q.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CURTICE-BURNS FOODS, INC.
Date: August 21, 1997 By: /s/ Earl L. Powers
Vice President Finance and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints DENNIS M. MULLEN and EARL L. POWERS, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments to this Annual Report on Form
10-K and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Robert V. Call, Jr. Chairman of the Board; Director August 21, 1997
(ROBERT V. CALL, JR.)
/s/ Bruce R. Fox Director August 21, 1997
(BRUCE R. FOX)
/s/ Cornelius D. Harrington Director August 21, 1997
(CORNELIUS D. HARRINGTON)
/s/ Steven D. Koinzan Director August 21, 1997
(STEVEN D. KOINZAN)
/s/ Walter F. Payne Director August 21, 1997
(WALTER F. PAYNE)
/s/ Frank M. Stotz Director August 21, 1997
(FRANK M. STOTZ)
/s/ Dennis M. Mullen President and Chief Executive August 21, 1997
(DENNIS M. MULLEN) Officer and Director
(Principal Executive Officer)
/s/ Earl L. Powers Vice President Finance and August 21, 1997
(EARL L. POWERS) Chief Financial Officer
(Principal Financial Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
NO ANNUAL REPORT OR PROXY MATERIAL HAS BEEN SENT TO REGISTRANT'S SHAREHOLDER AND
NONE IS INTENDED TO BE SENT.
1
EXHIBIT 10.13
SALARY CONTINUATION AGREEMENT
This Agreement, dated the 4th day of June, 1996, between Curtice Burns
Foods, Inc., a New York corporation (the "Employer"), with offices at 90 Linden
Place, Rochester, New York 14625, and Dennis M. Mullen (the "Employee"),
residing at 35 Whitestone, Lane, Rochester, New York.
WHEREAS, the Employer employs the Employee, and the Employee shall
serve as the Employer's chief operating officer commencing effective May 27,
1996 and shall serve as the Employer's president and chief executive officer,
commencing effective January 2, 1997, and
WHEREAS, the Employer and Employee wish to provide for the continuation
of the Employee's salary in certain events of termination of employment,
NOW, THEREFORE, the parties agree as follows:
1. CONSIDERATION. The parties hereby acknowledge that this
Agreement is entered into for good and sufficient consideration, the receipt
of which is hereby acknowledged by each of the parties.
2. COMPENSATION AND BENEFITS.
(a) Salary. As compensation for services of the Employee, the
Employer shall pay to the Employee an annual salary determined from time to time
by the Board of Directors of the Employer, in accordance with its compensation
policies.
(b) Incentive Compensation. In addition, the Employee shall
participate in, and shall be entitled to, additional compensation under the
Employer's Management Incentive Plan and Deferred Profit Sharing Program at an
entitlement rate to be determined from time to time by the Board of Directors of
the Employer, in accordance with its compensation policies.
(c) Benefits. The Employee shall be entitled to receive health
insurance, disability insurance, and all other employee benefits consistent with
the Employer's employee benefit policies for executives as determined from time
to time by the Board of Directors of the Employer. Notwithstanding the
foregoing, the Employee expressly acknowledges that the salary continuation
benefits under this Agreement are provided in lieu of any other severance
arrangements normally provided by the Employer to its executive employees.
(d) For purposes of this Agreement, the Employee's "Salary"
shall mean the sum of (i) the Employee's annual salary, as then in place at the
time of such determination, and (ii) the average Management Incentive Program
and Deferred Profit Sharing Program awards received by the Employee for the two
(2) most recently completed fiscal years of the Employer.
<PAGE>
3. TERMINATION.
(a) Death. If the Employee dies during employment with the
Employer, the Employer shall continue the Employee's salary, defined in Section
2(d), for a period of twenty-four (24) months. Such salary continuation payments
are in addition to all life insurance benefits the Employee is entitled to
receive under any life insurance policies provided to the Employee pursuant to
Section 2(c). The Employer may, in its sole discretion, acquire a life insurance
policy or policies to fund any obligation it may have under this Section 3(a).
Such salary continuation payments shall be paid to the Employee's estate.
(b) Disability. If the Employee becomes disabled due to a
physical or mental disability, the Employer shall continue the Employee's
salary, as defined in Section 2(d), for a period of twenty-four (24) months from
the date of the Employee's disability; provided, however, that such salary
continuation payments shall be offset by the amount, if any, which the Employee
shall receive under any short-term or long-term program of the Employer. The
Employer may, in its sole discretion, acquire a disability policy or policies to
fund any obligation it may have under this Section 3(b). For purposes of this
Section 3(b), the Employee shall be deemed disabled if the Board of Directors of
the Employer shall in good faith find, on the basis of medical evidence
submitted to it, that the Employee suffers from a mental or physical condition
or impairment which precludes the resumption of his usual and customary duties,
and if such impairment or condition is likely to last for a period of more than
six (6) months. In the event of a disability, the Employee's Salary shall be
determined as of the date of the onset of the Employee's disability and the
twenty-four (24) month salary continuation period shall be measured from the
date of the onset of the Employee's disability.
(c) Termination Without Cause. The Employer may terminate the
Employee without cause. For purposes of this Agreement, the term "cause" shall
have the meaning set forth in Section 3(d) hereof. In the event the Employer
terminates the Employee without cause, the Employer shall continue the
Employee's salary, as defined in Section 2(d), for a period of twenty-four (24)
months.
(d) Termination for Cause. The Employer may terminate the
Employee for cause. For purposes of this Agreement, the Employer shall have
cause to terminate the Employee in the event of (i) Employee's conviction of or
plea of guilty or nolo contendere to a felony, or (ii) the Employee's commission
of a fraudulent or deliberately dishonest act which has an adverse impact on the
business of the Employer, or (iii) the Employee's material breach of this
Agreement or the terms and conditions of his employment. In the event the
Employee is terminated for cause, the Employer shall have no further obligation
under this Agreement.
(e) Voluntary Termination By the Employee. The Employee may
terminate employment voluntarily upon reasonable notice to the Employer. If the
Employee terminates employment voluntarily, the Employer shall have no further
obligation under this Agreement.
<PAGE>
4. CHANGE OF CONTROL.
(a) Notwithstanding the provisions of Section 3, in the event
of a Termination, as defined below, of the Employee within two (2) years after a
Change of Control, as defined below, the Employer shall continue the Employee's
Salary as defined in Section 2(d), for a period of twenty-four (24) months.
(b) Termination. For purposes of this Section 4, "Termination"
shall mean (i) termination by the Employer of the employment of the Employee for
any reason other than on account of the Employee's death, disability, or for
cause, as defined in Section 3(d), or (ii) resignation of the Employee for Good
Reason, as defined below.
(c) Change of Control. For purposes of this Section 4, a
Change of Control shall be deemed to have occurred if (i) anyone other than
Pro-Fac Cooperative, Inc. or any of its affiliates, including a "group" (as
defined in Section 13(d)(3) of the Securities and Exchange Act of 1934 (the
"1934 Act")) becomes the "beneficial owner" (within the meaning of Section 13d-3
under the 1934 Act) of a majority of the common stock of the Employer; or (ii)
the Employer is a party to a merger, consolidation, or other business
combination in which it is not the surviving corporation, or sells or transfers
all or a major portion of its assets to any other person (any of the foregoing
constituting a "Business Combination"); or (iii) as a result of, or in
connection with, any cash tender or exchange offer, purchase of stock, Business
Combination, or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were directors of the Employer
before the Transaction shall cease to constitute a majority of the Board of
Directors of the Employer or any Successor Corporation. "Successor Corporation"
means the surviving, resulting or transferee corporation in a Business
Combination, or if such corporation is a direct or indirect subsidiary of
another corporation, the parent corporation of such surviving, resulting or
transferee corporation.
(d) Good Reason. For purposes of this Section 4, "Good Reason"
shall mean the occurrence of one of the following events: (i) the assignment of
the Employee to any duties materially inconsistent with the Employee's
positions, duties, responsibilities and status with the Employer immediately
prior to the occurrence of a Change of Control; or (ii) a reduction in the
Employee's annual salary; or (iii) the Employer requires the Employee to be
based anywhere other than his office location immediately preceding the
occurrence of the Change in Control or one of the principal executive offices of
the Employer; or (iv) the liquidation, dissolution, consolidation or merger of
the Employer or transfer of all or a significant portion of its assets, unless a
successor or successors (by merger, consolidation, or otherwise) to which all or
a significant portion of the Employer's assets have been transferred assumes all
duties and obligations of the Employer under this Agreement. The Employee's
right to terminate employment for Good Reason shall not be affected by the
Employee's incapacity due to physical or mental illness. The Employee's
continued employment shall not constitute a consent to or waiver of rights with
respect to any circumstances constituting Good Reason herein.
5. BENEFITS. In the event the Employee is entitled to salary
continuation payments under the provisions of subsection (a), (b), or (c) of
Section 3 or under the provisions of Section 4, the Employer shall continue to
provide to the Employee during the period of such salary continuation payments
all welfare benefits on the same terms and conditions as the Employer is
providing such benefits to its executive employees under its employee benefit
policies for executives. For purposes of this Section 5, welfare benefits shall
include, by way of example and not limitation, health insurance benefits, life
insurance benefits, disability insurance benefits, and the like, and shall
exclude, by way of example, and not limitation, participation in any defined
benefit plan, defined contribution plan, ss.401(k) plan, or non-qualified
deferred compensation plan.
6. MISCELLANEOUS.
(a) Unfunded Plan. This Agreement shall not require the
Employer to segregate any assets with respect to the benefits which may be paid
under it. Neither the Employer nor the Board of Directors shall be deemed to be
a trustee of any amounts to be paid under this Agreement. Any liability of the
Employer shall be based solely upon the contractual obligations created by this
Agreement and no such obligations shall be deemed to be secured by any pledge or
an encumbrance on any property of the Employer.
(b) Termination and Amendment. This Agreement shall remain in
effect until December 31, 1998 and shall thereupon terminate; provided, however,
that the termination of the Agreement shall not impair or abridge the
obligations of the Employer accrued prior to the date of such action. Prior to
December 31, 1998, this Agreement shall be amended, abandoned, or terminated
only with the written consent of the Employee prior to the effective date of
such amendment, abandonment, or termination.
(c) Governing Law. This Agreement shall be governed by
the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement has been executed on the date first
above written.
CURTICE BURNS FOODS, INC.
By: /s/ Robert V. Call, Jr.
Title: Chairman of the Board
/s/ Dennis M. Mullen
Dennis M. Mullen
2
1
EXHIBIT 10.20
SECOND MODIFICATION OF GUARANTY
This Modification of Guaranty dated October 8, 1996 made by Pro-Fac Cooperative,
Inc. ("Guarantor") modifies the Guaranty dated as of November 3, 1994, as
amended, made by Guarantor in favor of the Springfield Bank for Cooperatives,
now known as CoBank, ACB.
The Guaranty referenced above is modified as follows:
(1) Section 10 entitled Financial Covenants is modified by striking out
subsections 10.1 and 10.6 respectively entitled Minimum Working Capital and
Capital Expenditures and substituting new subsections 10.1 entitled Minimum
Working Capital and 10.6 entitled Capital Expenditures reading as follows:
10.1 Minimum Working Capital. The Guarantor will achieve and maintain
consolidated working capital of not less than Ninety Million Dollars
($90,000,000) as of September 30, 1996 and the end of each month thereafter.
10.6 Capital Expenditures. The Guarantor and its Subsidiaries will not
purchase any fixed or capital assets (collectively, "Capital Expenditures") in
any Fiscal Year of the Guarantor and its Subsidiaries in excess of $20,000,000
in the aggregate.
The Guaranty is hereby amended accordingly but otherwise shall remain in full
force and effect.
IN WITNESS WHEREOF, Pro-Fac Cooperative, Inc. has executed and delivered this
Modification of Guaranty on October 22, 1996.
PRO-FAC COOPERATIVE, INC.
By /s/ William D. Rice
Its Assistant Treasurer
<PAGE>
CoBANK, ACB
LOAN AGREEMENT NO. T-6184-G,
T-6186-G, S-6183-G, and S-6181-G
As of October 8, 1996
CURTICE-BURNS FOODS, INC.
- --------------------------------------------------------------------
MODIFICATION OF
TERM LOAN, TERM LOAN FACILITY AND SEASONAL LOAN AGREEMENT
IT IS AGREED, That the Term Loan, Term Loan Facility and Seasonal Loan Agreement
dated as of November 3, 1994, entered into between Curtice-Burns Foods, Inc.
(successor to merger between PF Acquisition Corp. and Curtice-Burns Foods, Inc.)
("Borrower") and Springfield Bank for Cooperatives, now known as CoBank, ACB
("Bank"),as previously amended is hereby further amended as follows:
(1) Section 2.13 entitled Interest is modified by deleting subsection b in its
entirety and therefor a new subsection is substituted reading as follows:
(b) The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of the Loans made under this Agreement, other than with
respect to each Tranche of Fixed Rate Program Loans prior to the relevant
Tranche Maturity Date therefor:
(i) for a Prime Loan, at a rate per annum equal to (A) with
respect to the Term Loan and Term Loan Facility Loans, the Prime Rate plus
one-half percent (.50%), and (B) with respect to the Seasonal Loans, the Prime
Rate;
(ii) for a LIBOR loan, at a rate per annum equal to (A) with
respect to the Term Loan and Term Loan Facility Loans, the LIBOR Rate plus two
and six-tenths percent (2.6%); and (B) with respect to the Seasonal Loans, the
LIBOR Rate plus two percent (2%); and
(iii) for a Treasury-Based Loan, at a rate per annum equal to
(A) with respect to the Term Loan and Term Loan Facility Loans, the
Treasury-Based Rate plus three percent (3%), and (B) with respect to the
Seasonal Loans, the Treasury-Based Rate plus two and twenty-five hundredths
percent (2.25%);
The Borrower agrees to execute such additional documents, including amendments
and modifications of the Seasonal Note, and to take such other action as may be
reasonably requested by the Bank to give effect to this Modification.
The Term Loan, Term Loan Facility and Seasonal Loan Agreement is hereby amended
accordingly but otherwise shall remain in full force and effect.
All terms of the Term Loan, Term Loan Facility and Seasonal
Loan Agreement and any other related loan and collateral documents (collectively
"Loan Documents") remain in full force and effect and are hereby ratified and
confirmed, except to the extent modified by this Agreement, by Borrower.
All Financial Statements and disclosures submitted to the Bank
under the Loan Documents are true and accurate in all material respects. Except
as previously disclosed to the Bank, there has been no material adverse change
in the financial condition or operations of Borrower.
The Loan Documents are not subject to any offset, claim, or defense by Borrower.
All liens granted by Borrower to the Bank (i) remain in full force and effect,
(ii) are not subject to any claim or defense, and (iii) retain a first priority
lien position.
To the best of Borrower's knowledge, there are no liens, other than liens
granted under the Loan Documents, on any real or personal property of Borrower.
CoBANK, ACB (formerly known as Springfield
Bank for Cooperatives)
By /s/ Ralph T. Lawrence
Its Vice President
ACCEPTED AND AGREED TO: 10/22/96
(Date)
CURTICE-BURNS FOODS, INC. (successor to merger between PF
Acquisition Corp. and Curtice-Burns Foods, Inc.)
By /s/ William D. Rice
Its Senior Vice President
ACKNOWLEDGED AND AGREED TO: 10/22/96
(Date)
PRO-FAC COOPERATIVE, INC.
By /s/ William D. Rice
Its Assistant Treasurer
ACKNOWLEDGED AND AGREED TO: 10/22/96
(Date)
CURTICE-BURNS EXPRESS, INC.
CURTICE-BURNS MEAT SNACKS, INC.
FINGER LAKES PACKAGING COMPANY, INC.
HUSMAN SNACK FOODS COMPANY, INC.
KENNEDY ENDEAVORS, INCORPORATED
NALLEY'S CANADA LIMITED
QUALITY SNAX OF MARYLAND, INC.
SEASONAL EMPLOYERS, INC.
PRO-FAC HOLDING COMPANY OF IOWA, INC.
By /s/ William D. Rice
Its Vice President
<PAGE>
CoBANK, ACB
LOAN AGREEMENT NO. T-6184-H,
6186-H, S-6183-H, and S-6181-H
December 20, 1996
CURTICE-BURNS FOODS, INC.
MODIFICATION OF
TERM LOAN, TERM LOAN FACILITY AND SEASONAL LOAN AGREEMENT
IT IS AGREED, That the Term Loan, Term Loan Facility and Seasonal Loan Agreement
dated as of November 3, 1994, entered into between Curtice-Burns Foods, Inc.
(successor to merger between PF Acquisition Corp. and Curtice-Burns Foods, Inc.)
("Borrower") and Springfield Bank for Cooperatives, now known as CoBank, ACB
("Bank"),as amended, is hereby further amended as follows:
(1) Section 1.1 entitled Defined Terms is modified by changing the definition of
"Maximum Credit" to, at any time, Seventy-Six Million Dollars ($76,000,000).
(2) Section 2.7 entitled Seasonal Loan Facility is modified by limiting the
Seasonal Loans to an aggregate principal amount not to exceed at any time
outstanding the lesser of (a) the lesser of (i) Seventy-Six Million Dollars
($76,000,000) and (ii) the Borrowing Base, and (b) the Curtice -Burns Maximum
Credit (the "Seasonal Loan Commitment").
Section 2.7 entitled Seasonal Loan Facility is further modified to
allow the Bank to make Seasonal Loans to the Borrower from time to time during
the period from January 3, 1997 through December 31, 1997. The Bank may, at its
option, renew the Seasonal Loan Commitment for one or more successive one
(1)-year periods from and after December 31, 1997.
(3) Section 2.9 entitled Repayment of Seasonal Loans is deleted in its entirety
and therefor a new section is substituted reading as follows:
Repayment of Seasonal Loans. The principal amount of the Seasonal Loans
shall be repaid in full on or before January 1, 1998, provided, however, that to
the extent the outstanding amount thereof exceeds, at the end of any month, the
Borrowing Base at the end of such month, such excess(es) shall be immediately
due and payable upon demand by the Bank.
<PAGE>
(4) Section 2.14 entitled Fees is modified by deleting paragraph (b) in its
entirety and substituting a paragraph reading as follows:
(b) Commitment Fee. In consideration of the Bank's Commitment to make
Term Loan Facility Loans on the terms and conditions set forth in this
Agreement, the Borrower agrees to pay to CoBank a commitment fee on the average
daily unused portion of the Term Loan Facility Commitment at the rate of; (i)1/4
of 1% per annum on the first $71,800,000; and (ii) 45/100 of 1% per annum on the
portion above $71,800,000, payable monthly in arrears on the first day of each
month during the period from January 1, 1997 through and including September 1,
1999. The Commitment Fee shall be in addition to all interest and other sums and
charges due and payable with respect to the Term Loan Facility Loans.
(5) Section 2.14 entitled Fees is modified by deleting paragraph (c) in its
entirety and substituting a paragraph reading as follows:
(c) The Borrower agrees to pay an origination fee ("Origination Fee")
of 55/100 of 1 percent (.55%) on the Seasonal Loan Facility to be billed by the
Bank.
(6) Section 3.1 entitled Letter of Credit Accommodations is modified to allow
the Bank to provide the Borrower with a Letter of Credit Facility during the
period from January 3, 1997 through December 31, 1997. The Bank may, at its sole
option, renew the Commitment for Letter of Credit Accommodations for one or more
successive one (1)- year periods from and after December 31, 1997.
(7) Schedule 3.2 entitled Letter of Credit Fees and Commissions is modified by
deleting it in its entirety and substituting a new schedule reading as follows:
Issuance Fee for each Letter of Credit Accommodation issued:
1% of the face amount of the Letter of Credit Accommodation.
All terms of the Term Loan, Term Loan Facility and Seasonal
Loan Agreement and any other related loan and collateral documents (collectively
"Loan Documents") remain in full force and effect and are hereby ratified and
confirmed, except to the extent modified by this Agreement, by Borrower.
All Financial Statements and disclosures submitted to the Bank
under the Loan Documents are true and accurate in all material respects. Except
as previously disclosed to the Bank, there has been no material adverse change
in the financial condition or operations of Borrower.
The Loan Documents are not subject to any offset, claim, or defense by Borrower.
All liens granted by Borrower to the Bank (i) remain in full force and effect,
(ii) are not subject to any claim or defense, and (iii) retain a first priority
lien position.
To the best of Borrower's knowledge, there are no liens, other than liens
granted under the Loan Documents, on any real or personal property of Borrower.
<PAGE>
(The Borrower agrees to execute such additional documents and to take such other
action as may be reasonably requested by the Bank to give effect to this
Modification.
The Term Loan, Term Loan Facility and Seasonal Loan Agreement is hereby amended
accordingly but otherwise shall remain in full force and effect.
CoBANK, ACB (formerly known as Springfield
Bank for Cooperatives)
By /s/ Ralph Lawrence
Its Vice President
ACCEPTED AND AGREED TO: 12/26/96
(Date)
CURTICE-BURNS FOODS, INC. (successor to merger between PF
Acquisition Corp. and Curtice-Burns Foods, Inc.)
By /s/ William D. Rice
Its Senior Vice President
ACKNOWLEDGED AND AGREED TO: 12/26/96
(Date)
PRO-FAC COOPERATIVE, INC.
By /s/ William D. Rice
Its Assistant Treasurer
ACKNOWLEDGED AND AGREED TO: 12/26/96
(Date)
CURTICE-BURNS EXPRESS, INC.
HUSMAN SNACK FOODS COMPANY, INC.
KENNEDY ENDEAVORS, INCORPORATED
SEASONAL EMPLOYERS, INC.
PRO-FAC HOLDING COMPANY OF IOWA, INC.
By /s/ William D. Rice
Its Vice President
<PAGE>
CoBANK, ACB
LOAN AGREEMENT NO. T-6184-I,
T-6186-I, S-6183-I, and S-6181-I
May 27, 1997
CURTICE-BURNS FOODS, INC.
MODIFICATION OF
TERM LOAN, TERM LOAN FACILITY AND SEASONAL LOAN AGREEMENT
IT IS AGREED, That the Term Loan, Term Loan Facility and Seasonal Loan Agreement
dated as of November 3, 1994, entered into between Curtice-Burns Foods, Inc.
(successor to merger between PF Acquisition Corp. and Curtice-Burns Foods, Inc.)
("Borrower") and Springfield Bank for Cooperatives, now known as CoBank, ACB
("Bank"),as amended, is hereby further amended as follows:
(1) Section 1.1 entitled Defined Terms is modified by changing the definition of
"Maximum Credit" to, at any time, Sixty-Six Million Dollars ($66,000,000).
(2) Section 2.7 entitled Seasonal Loan Facility is modified by limiting the
Seasonal Loans to an aggregate principal amount not to exceed at any time
outstanding the lesser of (a) the lesser of (i) Sixty-Six Million Dollars
($66,000,000) and (ii) the Borrowing Base, and (b) the Curtice -Burns Maximum
Credit (the "Seasonal Loan Commitment").
(3) Section 3.7 entitled L/C Limit is modified by increasing the L/C Limit
outstanding at any time to Eighteen Million Dollars ($18,000,000).
All terms of the Term Loan, Term Loan Facility and Seasonal
Loan Agreement and any other related loan and collateral documents (collectively
"Loan Documents") remain in full force and effect and are hereby ratified and
confirmed, except to the extent modified by this Agreement, by Borrower.
All Financial Statements and disclosures submitted to the Bank under the Loan
Documents are true and accurate in all material respects. Except as previously
disclosed to the Bank, there has been no material adverse change in the
financial condition or operations of Borrower.
The Loan Documents are not subject to any offset, claim, or defense by Borrower.
All liens granted by Borrower to the Bank (i) remain in full force and effect,
(ii) are not subject to any claim or defense, and (iii) retain a first priority
lien position.
To the best of Borrower's knowledge, there are no liens, other than liens
granted under the Loan Documents, on any real or personal property of Borrower.
<PAGE>
The Borrower agrees to execute such additional documents and to take such other
action as may be reasonably requested by the Bank to give effect to this
Modification.
The Term Loan, Term Loan Facility and Seasonal Loan Agreement is hereby amended
accordingly but otherwise shall remain in full force and effect.
CoBANK, ACB (formerly known as Springfield
Bank for Cooperatives)
By /s/ Ralph Lawrence
Its Vice President
ACCEPTED AND AGREED TO: May 27, 1997
(Date)
CURTICE-BURNS FOODS, INC. (successor to merger between PF
Acquisition Corp. and Curtice-Burns Foods, Inc.)
By /s/ Earl L. Powers
Its Vice President
ACKNOWLEDGED AND AGREED TO: May 27, 1997
(Date)
PRO-FAC COOPERATIVE, INC.
By Earl L. Powers
Its Vice President
ACKNOWLEDGED AND AGREED TO: May 27, 1997
(Date)
CURTICE-BURNS EXPRESS, INC.
HUSMAN SNACK FOODS COMPANY, INC.
KENNEDY ENDEAVORS, INCORPORATED
SEASONAL EMPLOYERS, INC.
PRO-FAC HOLDING COMPANY OF IOWA, INC.
By /s/ Earl L. Powers
Its Vice President
<PAGE>
THIRD MODIFICATION OF GUARANTY
This Modification of Guaranty dated May 27, 1997 made by Pro-Fac Cooperative,
Inc. ("Guarantor") modifies the Guaranty dated as of November 3, 1994, as
amended, made by Guarantor in favor of the Springfield Bank for Cooperatives,
now known as CoBank, ACB.
The Guaranty referenced above is modified as follows:
(1) Section 10 entitled Financial Covenants is modified by striking out
subsection 10.1 entitled Minimum Working Capital and substituting new subsection
10.1 entitled Minimum Working Capital reading as follows:
10.1 Minimum Working Capital. The Guarantor will achieve and maintain
consolidated working capital of not less than Fifty-Five Million Dollars
($55,000,000) as of May 31, 1997 and the end of each month thereafter.
The Guaranty is hereby amended accordingly but otherwise shall remain in full
force and effect.
IN WITNESS WHEREOF, Pro-Fac Cooperative, Inc. has executed and delivered this
Modification of Guaranty on May 27, 1997.
PRO-FAC COOPERATIVE, INC.
By /s/ Earl L. Powers
Its Vice President - Finance
<PAGE>
CoBANK, ACB
LOAN AGREEMENT NO. PROSEAS-B
May 27, 1997
PRO-FAC COOPERATIVE, INC.
MODIFICATION OF
SEASONAL LOAN AGREEMENT
IT IS AGREED, That the Seasonal Loan Agreement dated as of June 28, 1996,
entered into between Pro-Fac Cooperative, Inc. ("Borrower") and CoBank, ACB
("Bank") is hereby amended as follows:
(1) Section 1.1 entitled Defined Terms is modified by changing the definition of
"Maximum Credit" to, at any time, Sixty-Six Million Dollars ($66,000,000).
(2) Section 2.7 entitled Seasonal Loans is deleted in its entirety and therefor
a new section is substituted reading as follows:
Seasonal Loans. The Bank agrees upon the terms and subject to the
conditions set forth in this Agreement to make Seasonal Loans (the "Seasonal
Loans" or "Loans") to the Borrower from time to time during the period from
January 3, 1997 through December 31, 1997 in an aggregate principal amount ( the
"Seasonal Loan Commitment" or "Commitment") not to exceed the lesser of (a) the
lesser of (i) $20,000,000 and (ii) the Borrowing Base and (b) the Pro-Fac
Maximum Credit. Within the limits of the Seasonal Loan Commitment, the Borrower
may borrow, repay pursuant to Section 2.16 and reborrow under Section 2.7 The
Bank may, at its option, renew the Seasonal Loan Commitment for one or more
successive one (1)-year periods from and after December 31, 1997.
All terms of the Seasonal Loan Agreement and any other related
loan and collateral documents (collectively "Loan Documents") remain in full
force and effect and are hereby ratified and confirmed, except to the extent
modified by this Agreement, by Borrower.
All Financial Statements and disclosures submitted to the Bank
under the Loan Documents are true and accurate in all material respects. Except
as previously disclosed to the Bank, there has been no material adverse change
in the financial condition or operations of Borrower.
The Loan Documents are not subject to any offset, claim, or defense by Borrower.
All liens granted by Borrower to the Bank (i) remain in full force and effect,
(ii) are not subject to any claim or defense, and (iii) retain a first priority
lien position.
To the best of Borrower's knowledge, there are no liens, other than liens
granted under the Loan Documents, on any real or personal property of Borrower.
<PAGE>
The Borrower agrees to execute such additional documents and to take such other
action as may be reasonably requested by the Bank to give effect to this
Modification.
The Seasonal Loan Agreement is hereby amended accordingly but otherwise shall
remain in full force and effect.
CoBANK, ACB
By /s/ Ralph Lawrence
Its Vice President
PRO-FAC COOPERATIVE, INC.
By /s/ Earl L. Powers
Its Vice President - Finance
33
1
EXHIBIT 10.21
ONSITE SERVICES AGREEMENT
INTRODUCTION
THIS AGREEMENT is entered into between Curtice Burns Foods, Inc.
("Client") and SCT Software & Resource Management Corporation ["SCT (TMD)"], a
wholly-owned subsidiary of Systems & Computer Technology Corporation, on the
Effective Date of June 18, 1997
BACKGROUND
SCT (TMD) is in the business of providing computing services to the
commercial market. SCT (TMD) and Client desire to enter into this Agreement
pursuant to which SCT (TMD) will plan, manage, provide and operate certain
information systems environments for Client, all in accordance with the terms
and conditions of this Agreement and as more fully set forth in the Scope of
OnSite Services described in Exhibit A.
Accordingly, the parties agree as follows:
TERMS AND CONDITIONS
SECTION 1. DEFINITIONS. The following definitions will apply to the terms used
in this Agreement:
"ADAGE Software" means those certain software products identified in
the License Agreement, for which SCT (MDS) granted Client a license to use as
provided for in the License Agreement.
"Agreement" means this OnSite Services Agreement.
"Application Software" means the application computer programs,
manuals, documentation and other related materials.
"AWP" means, in each instance, the Annual Work Plan described in
Exhibit A to be developed under this Agreement by SCT (TMD) for Client, as each
such Annual Work Plan may be updated by the parties from time to time.
"Cause" means termination of employment by or for any one of the
following: (a) an employee's voluntary resignation from employment; (b) the
death or disability of an employee; (c) the continuing failure by an employee
substantially to perform his or her duties and obligations of employment; or (d)
the willful misconduct of the employee.
"Client Contract Administrator" means that person designated by Client
to serve in such position under Section 4.2 of this Agreement, including such
person's successor(s) in that position.
"Confidential Information" means: (i) all Application Software and
Systems Software which is licensed or otherwise provided to a party with notice
of its confidential nature or restrictions as to its use; (ii) all business,
financial, statistical, personnel and technical data in tangible and/or
intangible form which a party maintains as confidential (including without
limitation Client's customer lists); and (iii) any information which is defined
as confidential by law, expressly deemed confidential in this Agreement, or
provided or disclosed, by one party to the other, with notice of its
confidential nature.
"Commencement Date" means June 30, 1997.
"Effective Date" means the date first identified in this Agreement as
the "Effective Date."
"Excluded Expenses" means those information technology expenses
described in Exhibit D(1), the costs for which Excluded Expenses are not
included in the amounts payable to SCT (TMD) under this Agreement but for which
Client, and not SCT (TMD), will remain responsible.
"Hardware" means any and all computers, disk drives, tape drives,
terminals, printers, and other computer hardware and related peripheral
equipment.
"Included Expenses" means those information technology expenses
described in Exhibit D(2), the costs for which Included Expenses are included in
the amounts payable to SCT (TMD) under this Agreement and for which SCT (TMD),
and not Client, will remain responsible, subject to the conditions of Section 6.
<PAGE>
"Intellectual Property Rights" means all patents, patent rights,
copyrights, copyright registrations, trade secrets, trademarks, service marks,
trademark and service mark registrations, goodwill pertaining to trademarks and
service marks, and Confidential Information.
"License Agreement" means that certain Software License and Services
Agreement entered into by and between Client and SCT (MDS) on or about the
Effective Date, pursuant to which, inter alia, SCT (MDS) granted Client a right
to use the ADAGE Software and agreed to provide Client with certain
implementation, support and training services in connection with the ADAGE
Software, all under the terms and conditions of such License Agreement, and for
the fees specified therein.
"Location" means, collectively and individually, Client's data
processing facilities in Rochester, New York and Tacoma, Washington.
"Maintenance Agreement" means that certain Software Maintenance
Agreement entered into by and between Client and SCT (MDS) on or about the
Effective Date, pursuant to which, inter alia, SCT (MDS) agreed to provide
Client with certain maintenance for and upgraded versions of the ADAGE Software
under the terms and conditions of such Maintenance Agreement, and for the fees
specified therein.
"Network" means, in each instance, an arrangement of data processing
communications peripherals operating with prescribed protocols, all of which, in
concert, allow computing devices to interface with one another across a defined
area or region.
"OnSite Services" means the information technology services described
in Exhibit A to be provided by SCT (TMD) under this Agreement..
"Operational Responsibility" means management, technical,
troubleshooting, backup and other services to operate the applicable Hardware,
Systems Software, and Application Software.
"Prime Rate" means interest at a fluctuating rate per annum which at
all times will be the lowest rate of interest generally charged from time to
time (determined as of the first business day of each week, which rate will
remain in effect until the first business day of the immediately succeeding
week) by Mellon Bank, N.A., Philadelphia, PA and publicly announced by Mellon
Bank, N.A. as its so-called "prime rate."
"SCT Executive Director" means the SCT (TMD) employee designated by SCT
(TMD) to serve in such position under Section 4.1 of this Agreement, including
such person's successor(s) in that position.
"SCT (MDS)" means SCT Manufacturing & Distribution Systems, Inc., an
affiliate of SCT (TMD) that is also a wholly-owned subsidiary of Systems &
Computer Technology Corporation.
"Secured Early Termination Fee" means the additional applicable amount
payable to SCT (TMD) upon the termination of this Agreement, as set forth in
Section 6.4, which Secured Early Termination Fee is to be secured by a letter of
credit as provided for in that certain schedule attached to this Agreement as
Exhibit F. ,
"Service Enhancement Request" means a request by Client pursuant to
Section 12 that SCT (TMD) provide Supplemental Services, in a written form
signed by both parties and expressly amending this Agreement.
"STIP" means the "Short Term Improvement Plan" described in Exhibit A.
"Supplemental Services" means those additional and separately billable
services which are beyond the OnSite Services described in Exhibit A, and which
SCT (TMD) may otherwise provide at the written request of Client.
"Systems Component" means, alternatively, Hardware, Systems Software
or Application Software.
"Systems" means Hardware, Systems Software, and Application Software,
operating together.
"Systems Software" means the operating systems, database management,
fourth generation computer language facilities, tools, and other systems
software and related documentation contained in the Systems.
<PAGE>
"Transitioned Employees" means those individuals who, as of the
Commencement Date, were employees of Client in the Transitioned Positions,
accept an offer of employment with SCT (TMD) as provided for in Section 4.5 of
this Agreement.
"Transitioned Positions" means the Client information technology
positions identified in Exhibit C, which Transitioned Positions will be assumed
and staffed by SCT (TMD) as of the Commencement Date.
"Unsecured Early Termination Fee" means the applicable amount payable
to SCT (TMD) as set forth in Section 6.3, upon the termination of this
Agreement.
"Without Cause" means any termination of employment with SCT (TMD)
other than for Cause.
SECTION 2. SERVICES.
2.1 Included Services. SCT (TMD) will furnish the Client with: (a) the
specific OnSite Services described in Exhibit A in connection with the Systems
Components specifically listed in Exhibit B(1); (b) the use of the Systems
Components generally described in Exhibit B(2); and (c) the specific OnSite
Services described in Exhibit A in connection with the Systems Components
generally described in Exhibit B(2). These OnSite Services, as described in this
Agreement and Exhibit A, are the basis for the financial terms set forth in
Section 6 of this Agreement. This Agreement specifically excludes any
responsibility for providing any services other than those services specifically
set forth in Exhibit A in connection with the Systems Components identified in
Exhibit B(1) and generally described in Exhibit B(2). The Operational
Responsibility for any Systems/Systems Components in addition to those listed in
Exhibits B(1) and B(2) [excepting specifically that SCT (TMD) will assume
Operational Responsibility for the substitutional Systems/Systems Components
generally described in Exhibit B(2) as part of the OnSite Services, and not as
Supplemental Services] will be added at Client's request at a later date,
subject to availability of SCT (TMD) personnel and expertise, pursuant to an
approved Service Enhancement Request (See Section 12).
2.2 Supplemental Services. SCT (TMD) may provide Supplemental Services,
subject to the availability and expertise of SCT (TMD) personnel, at such
additional cost for such Supplemental Services as agreed to by both parties in a
Service Enhancement Request.
SECTION 3. CERTAIN CLIENT OBLIGATIONS.
3.1 Location of Systems. Client will not remove all or any part of the
Systems for which SCT (TMD) has Operational Responsibility from the Location on
or after the Commencement Date without first obtaining SCT (TMD)'s prior written
consent. Neither Client nor SCT (TMD) will remove any markings appearing on any
Hardware, Application Software, or Systems Software signifying ownership
thereof. Notwithstanding the foregoing, Client may relocate its existing data
center to a different Location at Client's sole cost and expense. In such event,
and in addition to all other amounts payable under this Agreement, Client will
reimburse SCT (TMD) for all costs incurred by SCT (TMD) as a result of such
relocation, including relocation and termination costs in connection with SCT
(TMD) personnel providing OnSite Services. In addition, the parties agree to
negotiate in good faith to determine how SCT (TMD) will additionally be
compensated under this Agreement for any increase in costs (such as, but without
limitation, any increased labor costs resulting from Client establishing a
Location in an area with a higher cost of living) that SCT (TMD) realizes as a
result of such Location change.
3.2 Access. Client agrees to permit SCT (TMD)'s authorized personnel,
and third parties as may be authorized by SCT (TMD), access to both the Systems
for which SCT (TMD) has Operational Responsibility, and to such information,
data, data communication services, and communication lines, at such times and
for such purposes as reasonably necessary or appropriate to permit SCT (TMD) to
perform its obligations under this Agreement. Notwithstanding the foregoing,
however, SCT (TMD) will be responsible for maintaining the confidentiality of
such Client Confidential Information as may be accessed by such third parties so
authorized by SCT (TMD) as provided for in this Section 3.2, and will employ
appropriate measures (such as having such third parties execute a
Client-approved non-disclosure agreement) to so protect such Confidential
Information of Client.
3.3 Operation of Systems. In order to permit SCT (TMD) to perform its
obligations under this Agreement, except as otherwise provided for in this
Agreement, no party other than SCT (TMD) will operate the Systems for which SCT
(TMD) has Operational Responsibility, either on site or remotely, without the
prior written consent of SCT (TMD). SCT (TMD) personnel will comply with the
rules of Client with respect to access to Client's offices, data and records.
3.4 Availability of Client Personnel. Upon SCT (TMD)'s reasonable
request, Client agrees to make its personnel, including appropriate professional
personnel, administrative personnel and other employees, reasonably available
for consultation at mutually convenient times to facilitate SCT (TMD)'s
fulfillment of its obligations under this Agreement.
<PAGE>
3.5 Facilities and Services to be Provided by Client. Client will
provide to SCT (TMD) use of the following in order to permit SCT (TMD) to
perform its obligations under this Agreement:
(a) Appropriate, reasonable floor and office space and
modifications to space and facilities (if applicable) for the Systems for which
SCT (TMD) has Operational Responsibility, and for all SCT (TMD) personnel
providing OnSite Services, and security and janitorial support for such
facilities;
(b) Utilities, including special power and air conditioning
reasonably required for operation of the Systems for which SCT (TMD) has
Operational Responsibility. Such utility services will include continuous
electrical power and environmental conditioning capacity (including without
limitation a back-up power supply) to meet vendor specifications for operation
of the Systems for which SCT (TMD) has Operational Responsibility, and for
storage of computer supplies;
(c) General office equipment, such as desks, chairs, computer
workstations with Client-standard software and printing capability, files,
supplies, report reproduction capability and telephone service reasonably
requested by SCT (TMD) to accommodate SCT (TMD) personnel rendering the OnSite
Services, in support of Client business activities;
(d) Fire protection equipment to protect against the
destruction of the Systems and computer data stored on-site;
(e) Storage facilities for historical files and back up
materials with which to rebuild data and systems files in the event working
files are destroyed;
(g) On-site storage for expendable computer supplies to
provide a working level of such supplies on hand at all times, with immediate
access to a minimum five (5) days of supply and three (3) day access to a
minimum thirty (30) day supply;
(h) Parking spaces at the same cost and to the same extent
parking is available to Client's employees.
3.6 Client Users. Client will be responsible for and inform SCT (TMD)
in writing of the users authorized to access any of the Systems for which SCT
(TMD) has Operational Responsibility, describing specifically the rights and
types of access each user is granted. Client will not change such rights or
types of access without first informing SCT (TMD) in writing of such change. SCT
(TMD) will not be responsible for any program malfunction or breach of security
caused by any use of such Systems by anyone other than SCT (TMD), whether or not
such user has the right to access the Systems; however, SCT(TMD) will provide
required support to identify, rectify and recover from any such program
malfunction, subject to Client's agreement in any such instance to reallocate
SCT (TMD) personnel providing OnSite Services for that purpose.
3.7 Physical Support. Any changes in physical support provided by
Client (e.g., planned water or power outages and repair work) will be promptly
brought to SCT (TMD)'s attention to allow SCT (TMD) to evaluate the impact on
computer center operations and, where possible, to take action to minimize the
effect on such operations.
3.8 Ownership.
(a) SCT (TMD) will have no ownership, leasehold and/or other
proprietary interest in the existing Systems Components identified in Exhibit
B(1).
(b) As part of the OnSite Services, SCT (TMD) will, during the
term of this Agreement, provide Client with the beneficial use of the Systems
Components generally described in Exhibit B(2). Provided that Client has then
paid to SCT (TMD) all amounts due and owing under this Agreement (including
without limitation both the applicable Unsecured Early Termination Fee provided
for in Exhibit E and the Secured Early Termination Fee provided for in Exhibit
F), upon the expiration or earlier termination of this Agreement, SCT (TMD) or
its financial assignee will convey or arrange to convey to Client an ownership
interest in and to the Hardware listed on Exhibit B(2), and a continuing right
of use for the Systems Software and Application Software. Client agrees to
cooperate with SCT (TMD) and/or its financial assignee, and to execute such
documents as are reasonably necessary to effect conveyance of the aforesaid
interests in the Hardware, Systems Software, and Application Software generally
described in Exhibit B(2) to Client. Until such time as SCT (TMD) has conveyed
or arranged to convey to Client the ownership interest in and to the Hardware
listed on Exhibit B(2), and a continuing right of use for the Systems Software
and Application Software, Client, at its expense, agrees to maintain
comprehensive property and casualty insurance on such Exhibit B(2) Systems
Components for the full replacement cost therefor [SCT (TMD) acknowledging that,
as of the Effective Date, such coverage would be subject to a $500,000
deductible, but for which deductible amount Client will remain responsible], and
further agrees to take such actions as are reasonably necessary to name SCT
(TMD) or its financial assignee as an additional insured under all such
coverage. Client will provide SCT (TMD) with certificates evidencing such
insurance coverage and SCT (TMD)'s (or its financial assignee's, as applicable)
status thereunder as an additional insured from time to time upon SCT (TMD)'s
reasonable request therefor. Such coverage will be primary coverage for such
Systems Components notwithstanding any insurance SCT (TMD) may maintain in
effect therefor.
(c) Notwithstanding any other provision of this Agreement,
including without limitation Section 3.8(b) above, until such time as Client has
paid to SCT (TMD) all amounts to be paid to SCT (TMD) under this Agreement,
including without limitation the applicable Unsecured Early Termination Fee
provided for in Exhibit E and the Secured Early Termination Fee provided for in
Exhibit F, Client will not sell, gift, transfer, assign, pledge, hypothecate,
divest or otherwise convey or provide any other party with any interest in or to
the Hardware, Systems Software, and Application Software generally described in
Exhibit B(2). Further, and without limitation, Client will execute such
documents as are necessary, including without limitation executing Uniform
Commercial Code financing statements in favor of SCT (TMD) or SCT (TMD)'s
financial assignee (as otherwise permitted under this Agreement), for recording
as a matter of public record.
3.9 New Systems. SCT (TMD) and Client will cooperate and in
good faith mutually agree on the Hardware, Systems Software or Application
Software to be acquired for the good faith estimated capital amounts identified
in Exhibit B(2). SCT (TMD) and Client acknowledge and agree that the acquisition
of such different Hardware, Systems Software, and Application Software may
result in increased expenses and the need or desire for additional services, if
the Hardware, Systems Software and/or Application Software so acquired exceeds
in cost the amounts identified therefor in Exhibit B(2). SCT (TMD) will not be
responsible for any additional services or increased expenses resulting
therefrom unless an approved Service Enhancement Request is executed by the
parties pursuant to which SCT (TMD) will provide the Supplemental Services
specified in the approved Service Enhancement Request. Conversely, to the extent
that expenditures for any Systems Components from the estimated capital amounts
identified in Exhibit B(2) are less then the amounts identified in Exhibit B(2),
SCT (TMD) will credit the amount of such difference against the amounts
otherwise due and owing from Client to SCT (TMD) under this Agreement.
SECTION 4. PERSONNEL
SCT (TMD) will designate an SCT Executive Director, who will be
physically located at Client's Rochester, New York Location, and who will be
responsible for coordinating SCT (TMD)'s efforts in providing the OnSite
Services and for communicating with the Client Contract Administrator with
regard to the OnSite Services and the parties' obligations under this Agreement.
SCT (TMD) may make a change in the SCT Executive Director upon providing Client
with prior written notice that SCT (TMD) is making such change; PROVIDED,
however, that, subject to the conditions set forth in the following sentence,
SCT (TMD) will not make such a change in the SCT Executive Director without
first obtaining Client's written consent until such time as the SCT Executive
Director has served in the capacity for at least twelve (12) months. Client
acknowledges that SCT (TMD)'s ability to so retain the SCT Executive Director
are limited by certain factors beyond the reasonable control of SCT (TMD), such
as the continued employment by SCT (TMD) of the SCT Executive Director or the
death or disability of the SCT Executive Director. Client will have the right to
request the removal of the SCT Executive Director if Client reasonably considers
the SCT Executive Director to be unacceptable. If, after consultation with SCT
(TMD), Client so requests in writing that SCT (TMD) effectuate a change in the
SCT Executive Director position, describing in detail the reason for Client's
decision, SCT (TMD) will replace the existing SCT Executive Director, at no
additional cost to Client therefor.
4.2 Client Contract Administrator. Client will designate a Client
Contract Administrator who will be responsible for communicating with the SCT
Executive Director with regard to the OnSite Services and the parties'
obligations under this Agreement. If Client decides to make a change in such
position, Client will provide SCT (TMD) with written notice that Client is
making such change.
4.3 Other Services. SCT (TMD) personnel may occasionally perform
services for Client at other locations or for others at the Location as long as
the provision of such other services does not have a material adverse impact on
SCT (TMD)'s performance of the OnSite Services.
4.4 Non-Hiring of Employees. Except as specifically provided in this
Agreement, during the term of this Agreement (including any extension thereof)
and for a period of six (6) months thereafter, neither party, nor any party's
related or affiliated organization, will solicit for hire, offer to hire, hire
or in any way employ, engage the services of or otherwise compensate any
employee of, or persons who have been employed during any term hereof by the
other party, without obtaining the prior written consent of the other party.
Notwithstanding the foregoing, the following exceptions will apply:
(a) If this Agreement expires or is terminated, Client may
hire or employ SCT (TMD) employees who were Transitioned Employees and who are
at the time of termination of this Agreement permanently assigned to Client's
site;
(b) Subject to the enforceability of this provision under
applicable law, and except as the parties may otherwise agree to in any
instance, neither SCT (TMD) nor Client may hire or solicit for hiring any
employee who is no longer employed by the other and whose employment with the
other had ended for a period of six (6) months or more prior to the date of the
offer of employment by such other party; and
<PAGE>
(c) Either party may immediately hire or solicit for hiring
any former employee of the other if such other party involuntarily terminated
such former employee's employment with the other party for any reason other than
for avoiding any "no hiring" period described in Section described in this
Section 4.4.
4.5 Use of Client Personnel. Client and SCT (TMD) have agreed that SCT
(TMD) will be hiring a number of Client's current employees. In this
connection:
(a) Client will make available to SCT (TMD) for hire by SCT
(TMD) all of Client employees who, as of the Effective Date, were serving in the
Client positions identified in Exhibit C. SCT (TMD) and Client will review, on a
case by case basis, whether SCT (TMD) will offer employment to any Client
employee who served in a Client position identified in Exhibit C but who, for
reasons of incapacity or disability (such as, but without limitation, a Client
employee unable to work at such time because of an injury covered by Client
under Workers Compensation), was not serving in such position as of the
Effective Date. Each such person will become a Transitioned Employee upon
his/her acceptance of employment with SCT (TMD). Except as specifically provided
to the contrary herein, all Transitioned Employees will be retained for thirty
(30) days after the Commencement Date (the "Transition Period"). SCT (TMD) may
terminate any Transitioned Employee during the Transition Period only for Cause.
SCT (TMD) will not be obligated to pay any Transitioned Employee that is
terminated for Cause during the Transitioned Period after the date of such
termination.
(b) During the Transition Period, SCT (TMD) will review the
work performance of each Transitioned Employee. Client agrees to indemnify,
defend and hold SCT (TMD) harmless from, against and in respect of any and all
damages, losses, deficiencies, liabilities, costs and expenses (including
attorneys' fees and expenses) resulting from, relating to or arising out of the
lawful termination of employment with SCT (TMD) of any Transitioned Employees on
or before the expiration of the Transition Period. Client also agrees to
indemnify, defend and hold SCT (TMD) harmless from, against and in respect of
any and all damages, losses, deficiencies, liabilities, costs and expenses
(including attorneys' fees and expenses) resulting from, relating to or arising
out of any claim by a Transitioned Employee against SCT (TMD) based on facts or
allegations which occurred, or promises which were made by Client, prior to the
Commencement Date. SCT (TMD) agrees to indemnify, defend and hold Client
harmless from, against and in respect of any and all damages, losses,
deficiencies, liabilities, costs and expenses (including attorneys' fees and
expenses) resulting from, relating to or arising out of the termination of
employment with SCT (TMD) of any Transitioned Employees after the expiration of
the Transition Period, except with respect to any vacation, sick, and personal
day pay or any benefits of a similar nature accrued prior to the Commencement
Date.
(c) Client will provide to SCT (TMD) an accounting of
vacation, sick, and personal days, or other similar benefits, accrued as of the
Commencement Date for all Transitioned Employees who are retained by SCT (TMD)
beyond the Transition Period. Client will be responsible for any liability to
any Transitioned Employee in connection with all such benefits accrued by such
Transitioned Employee prior to the Commencement Date.
SECTION 5. TERM
Subject to the events of termination of Section 13, the initial term of
this Agreement will commence on the Commencement Date and continue for a period
of 120 months.
SECTION 6. FINANCIAL TERMS
6.1 Fees. For the OnSite Services, SCT (TMD) will invoice Client on the
first business day of each month during the term of this Agreement, one-twelfth
(1/12th) of the applicable "Annual Payment" amount set forth in the schedule
contained in Exhibit D. The amounts payable to SCT (TMD) under this Agreement
include certain fees that would otherwise be paid to SCT (MDS). Supplemental
Services will be invoiced monthly, as such Supplemental Services are provided.
All amounts invoiced under this Agreement will be due thirty (30) days from the
date of invoice issuance.
6.2 Annual Labor Cost Adjustment. For each July 1 during the Term
(beginning July 1, 1998), SCT (TMD) will calculate an annual labor cost
adjustment to the "labor component" of each payment set forth in Exhibit D, with
such annual labor cost adjustment to be no less than five percent (5%) and no
more than seven percent (7%) for any given one (1) year period, all calculated
as follows: If on January 1, 1998, and on any January 1 thereafter during the
term of this Agreement, the Consumer Price Index for Urban Wage Earners and
Clerical Workers, US average, presently published by the Bureau of Labor
Statistics of the Department of Labor, is higher than the Consumer Price Index
on January 1 immediately prior thereto (for this purpose, the latest January 1
being called the "Current Index" and the immediately preceding January 1 being
called the "Base Index"), then on each subsequent July 1 during the term of this
Agreement (beginning July 1, 1998), the "labor component" of each payment set
forth in Exhibit D for the year beginning on that July 1 will be deemed,
automatically without any further act by either party, increased accordingly to
reflect the percentage increase of the then-Current Index over the then Base
Index (subject to the limitations provided for above), compounded in each year
by the labor cost adjustment applied for each previous year that this Agreement
was in place. SCT (TMD) will calculate the annual labor cost adjustment and
inform Client in writing of the results of the calculation.
If, for any period, SCT (TMD) believes that the labor cost adjustment provided
for in this Section 6.2 should be increased above seven percent (7%) for any
year beginning July 1 to reflect labor cost increases which have occurred
because such increase does not adequately cover increasing labor costs, then the
parties will negotiate in good faith to determine whether the "labor component"
of each payment set forth in Exhibit D will be increased to reflect all or any
such portion of such labor cost increases.
Without limiting any of the foregoing, promptly after receipt of Client's
reasonable request therefor, SCT (TMD) will provide Client with data (such data
which might include, without limitation, labor cost and wage statistics for the
information technology industry from established survey providers for such
information) supporting the provision of the labor cost adjustments made
pursuant to this Section 6.2.
6.3 Unsecured Early Termination Fee. Client will pay SCT (TMD) the
applicable Unsecured Early Termination Fee pursuant to the provisions of Section
13.3. Without limiting the foregoing, Client acknowledges and understands that
its obligation to pay SCT (TMD) the Unsecured Early Termination Fee is in
addition to, and not in lieu of, Client's obligation to secure payment of and to
remit payment of the Secured Early Termination Fee and/or any other amounts to
SCT (TMD)for OnSite Services/Systems Components provided by SCT (TMD) through
the date of expiration or earlier termination of this Agreement as otherwise
provided for in this Agreement, but all without prejudice to SCT (TMD)'s other
rights and remedies in the event of Client's material breach of this Agreement.
6.4 Secured Early Termination Fee and Letter of Credit. Client, at its
sole cost therefor, agrees to secure its obligation to pay to SCT (TMD) the
Secured Early Termination Fee set forth in Exhibit F with an irrevocable letter
of credit issued in favor of SCT (TMD) by CoBANK of Denver, Colorado. Such
letter of credit must be in a form first approved by SCT (TMD), and will require
payment to SCT (TMD) of the Secured Early Termination Fee in the applicable
amounts provided for as of the dates in Exhibit F upon the expiration/earlier
termination of this Agreement pursuant to the provisions of Section 13.3. Client
will cause the letter of credit so securing payment of the Secured Early
Termination Fee to be issued in favor of SCT (TMD) within fifteen (15) days
after the Effective Date of this Agreement, and such letter of credit will
remain in full force and effect in the applicable amounts and for the period
provided for in Exhibit F. Without limiting the foregoing, Client acknowledges
and understands that its obligation to secure payment of and to in fact pay to
SCT (TMD) the Secured Early Termination Fee is in addition to, and not in lieu
of, Client's obligation to remit payment of the Unsecured Early Termination Fee
and/or any other amounts to SCT (TMD) for OnSite Services/Systems Components
provided by SCT (TMD) through the date of expiration or earlier termination of
this Agreement as otherwise provided for in this Agreement, but all without
prejudice to SCT (TMD)'s other rights and remedies in the event of Client's
material breach of this Agreementpre.
6.5 Client Financial Responsibility/ Reconciliation Processes. Client
will be responsible for all costs associated with Client data processing
incurred through June 29, 1997, inclusive. SCT (TMD) will assume the
responsibility for all costs associated with Client data processing incurred on
or after the Commencement Date, excluding those costs set forth on Exhibit D(1),
which pre-Commencement Date data processing costs will remain the responsibility
of Client. In reviewing the Client financial records referenced in Section 6.8
below, SCT (TMD) has assumed that Client incurred data processing costs ratably
over the course of a year. As soon as reasonably practicable, the parties will
reconcile the costs incurred (as opposed to amounts expended) for Client data
processing through June 29, 1997, and the parties will adjust the costs between
themselves accordingly.
6.6 Taxes. Taxes [other than taxes on SCT (TMD)'s net income, gross
receipts, capital stock, or Included Expenses and associated Hardware] imposed
by any taxing authority and based upon any OnSite Services or other goods and
services furnished, or payments made under this Agreement, will be the
responsibility of Client and will be payable in addition to all other amounts
and charges.
6.7 Interest. Without waiving any other right, balances of any kind
past due in excess of thirty (30) days will bear interest at the lesser: of the
Prime Rate plus three (3%) percent per annum; or the highest rate permitted by
the laws of the State of New York.
6.8 Pay Agent Status. Client hereby designates SCT (TMD) as Client's
pay agent for data processing related purchases and acquisitions, so that SCT
(TMD) can, on behalf of Client, make payments to vendors providing goods and/or
services to Client of the type for which SCT (TMD) assumes Operational
Responsibility under this Agreement. Client covenants and agrees that it will
promptly take all actions reasonably necessary to effect such designation of SCT
(TMD) as Client's pay agent as provided for in this Section 6.8.
6.9 Client Financial Representations. Client has represented to SCT
(TMD) certain financial and budgetary information concerning Client's costs for
providing data processing services for which SCT (TMD) will now be providing
OnSite Services, and Client acknowledges that SCT (TMD) has materially relied on
Client representations in determining the OnSite Services to be provided by SCT
(TMD) and the amounts to be paid by Client under this Agreement.
6.10 Good Faith Management of Included Expenses. Exhibit D(2) sets
forth an annual limitation on Included Expenses. SCT (TMD) has made a good
faith estimate of such annual Included Expenses amounts based upon information
provided by Client to SCT (TMD). Accordingly, SCT (TMD) agrees to use good
faith efforts in managing expenditures under such Included Expenses amounts,
and, prior to any such expenditure, to notify Client of the amount and the
purpose for any expenditures that would materially exceed such amounts. For
any expenditure that would so materially exceed such annual Included Expenses
amounts, the parties agree to negotiate in good faith as to how the costs for
such excess amounts will be borne by the parties.
6.11 Rights of SCT (TMD) Regarding Financial Assignee of SCT (TMD).
Notwithstanding the restrictions provided for in Section 15.3 of this Agreement,
Client acknowledges that SCT (TMD) intends to engage the financial services of a
third party bank, leasing company or similar financing entity, for the purpose
of assisting SCT (TMD) in financing all or some portion of the transactions
provided for in or otherwise contemplated by this Agreement. The parties further
agree that it is in their mutual best interest under this Agreement for SCT
(TMD) to so engage such financial services. Client agrees that SCT (TMD) may,
for the purpose of procuring or retaining such financing from such third party,
assign certain of its financial rights (as opposed to its obligations to provide
the OnSite Services) under this Agreement to such third party, such assignable
rights to include, without limitation, SCT (TMD)'s rights under or in connection
with Section 3.8(c); SCT (TMD)'s right to receive payment from Client under this
Agreement upon Client's receipt of written notice from SCT (TMD)'s financial
assignee demanding that such payments be made to such SCT (TMD) financial
assignee instead of to SCT (TMD) [the parties acknowledging that Client's
remittance of such payments to SCT (TMD)'s financial assignee is such instances
will act to satisfy Client's obligation to otherwise remit such payments to SCT
(TMD)]; and the like. To that end, Client will cooperate with SCT (TMD) and SCT
(TMD)'s financial assignee to effect any such assignment of rights by SCT (TMD),
such cooperation to include, without limitation and without prejudice to any
claims or defenses that Client might otherwise have, executing such reasonable
documentation to effect such assignments as may be reasonably requested by SCT
(TMD) or its financial assignee. The parties further agree that, subject to all
other terms and conditions of this Agreement, Client's payment to SCT (TMD)'s
financial assignee of any amounts that Client would otherwise pay to SCT (TMD)
will not relieve SCT (TMD) of its obligation to provide the OnSite Services, and
will not act to permit any degradation in SCT (TMD)'s performance of such OnSite
Services.
SECTION 7. INSURANCE.
SCT (TMD), at its expense, will secure and maintain at all times during
the period of performance of this Agreement, insurance as set forth in Section
7.2 below. In this connection:
7.1 Certificates of Insurance. Upon receipt of Client's written request
therefor, SCT (TMD) will provide Client with certificates of insurance
(including certificates for renewal coverage, as applicable) with respect to the
insurance maintained by SCT (TMD) as provided in Section 7.2 below.
7.2 Amounts of Insurance; Cross Indemnity.
SCT (TMD) agrees to maintain the following insurance:
(a) Workers' Compensation and Employers' Liability with Workers'
Compensation coverage that meets the requirements of the States of New York,
Washington, Michigan and Georgia, and Employers' Liability coverage with limits
of $500,000 each accident; $500,000 for injury by disease; and $500,000 each
employee for injury by disease.
(b) Disability benefits liability coverage to comply with the laws of
the State of New York, Washington, Michigan and Georgia.
(c) Commercial general liability insurance (including coverage for
liability assumed under this Agreement) for bodily injury and property damage,
personal injury and advertising injury, with limits of (i) $1,000,000 each
occurrence and (ii) $2,000,000 annual aggregate.
(d) Excess "umbrella" liability covering bodily injury, property
damage, personal injury and advertising injury with a limit of not less than
$10,000,000.
(e) Client will be named as an additional insured under the policies
described herein and all policies will be endorsed so that the insurer agrees to
provide 30 days written coverage to Client in the event of cancellation,
non-renewal or material change in coverage.
<PAGE>
(f) Notwithstanding any other provisions of this Agreement, SCT (TMD)
and Client each agree that, with respect to damage to property covered by
insurance, the party suffering the loss will release the other party from any
and all liability with respect to such loss to the extent that such loss is
recoverable from insurance proceeds.
In the event any act or omission of a party or its employees, servants,
agents or representatives causes or results in (i) loss, damage to or
destruction of property of the other party or third parties, and/or (ii) death
or injury to persons including, but not limited to, employees or invitees of
either party, then such party will indemnify, defend and hold the other party
harmless from and against any and all claims, actions, damages, demands,
liabilities, costs and expenses, including reasonable attorneys' fees and
expenses, resulting therefrom. The indemnifying party will pay or reimburse the
other party promptly for all such loss, damage, destruction, death or injury.
SECTION 8. COOPERATION
The parties acknowledge and agree that performance under this Agreement
will require the continued definition and setting of priorities, the balancing
of competing tasks and schedules, and the adjustment of priorities over
different tasks and different schedules. The parties will define the activities,
schedules, and deliverables, and relative priorities with respect thereto, for
each year during the term of this Agreement by means of the AWPs. SCT (TMD) and
Client agree that they will each use good faith and reasonable efforts to
define, plan, coordinate and execute the different priorities and schedules
agreed to by the parties within the scope of this Agreement. In the AWPs,
objectives will be established and will be subject to the priorities approved by
Client, based on the services to be provided in each calendar year during the
term of this Agreement as more specifically described in the Scope of Services
set forth in Exhibit A.
SECTION 9. REMEDIES
9.1 DISCLAIMER OF WARRANTIES. SCT (TMD) HEREBY DISCLAIMS ALL WARRANTIES
OF ANY KIND, INCLUDING BUT NOT LIMITED TO, ANY EXPRESS WARRANTIES NOT
INCORPORATED INTO THIS AGREEMENT AND ANY IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE IMPOSED BY LAW OR WHICH COULD OTHERWISE
ARISE IN CONNECTION WITH SCT (TMD)'S PERFORMANCE UNDER THIS AGREEMENT.
9.2 LIMITATION OF LIABILITY.
(A) EXCEPT IN CONNECTION WITH BODILY INJURY (INCLUDING DEATH)
OR PHYSICAL DAMAGE TO TANGIBLE PROPERTY SOLELY CAUSED BY SCT (TMD) [FOR WHICH
SCT (TMD)'S LIABILITY WILL INSTEAD, AND NOT ADDITIONALLY BE LIMITED BY AND
SUBJECT TO THE AVAILABILITY OF THE INSURANCE PROCEEDS UNDER THE INSURANCE
COVERAGE THAT SCT (TMD) IS OBLIGATED TO MAINTAIN UNDER SECTION 7 OF THIS
AGREEMENT), SCT (TMD) AND CLIENT ACKNOWLEDGE AND AGREE THAT IN NO EVENT WILL SCT
(TMD)'S LIABILITY TO CLIENT, IF ANY, FOR ANY CLAIM OR REASON WHATSOEVER RELATING
TO THE SUBJECT MATTER OF THIS AGREEMENT EXCEED THE GREATER OF: (1) FIVE MILLION
DOLLARS ($5,000,000); AND (2) THE FEES FOR ONSITE SERVICES THAT CLIENT, THROUGH
THE DATE THAT SUCH LIABILITY FIRST AROSE, ACTUALLY PAID TO SCT (TMD) FOR ONSITE
SERVICES IN THE YEAR THAT SUCH LIABILITY FIRST AROSE AND IN EACH OF THE TWO (2)
IMMEDIATELY PRECEDING YEARS.
(B) EXCEPT IN CONNECTION WITH A MATERIAL BREACH OF ITS
OBLIGATIONS REGARDING CLIENT'S CONFIDENTIAL INFORMATION, SCT (TMD) WILL NOT BE
LIABLE FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT
LIMITATION LOSS OF PROFITS, LOSS OF DATA, AND LOSS OF REVENUES, EVEN IF INFORMED
OF THE POSSIBILITY THEREOF IN ADVANCE. EXCEPT IN CONNECTION WITH A MATERIAL
BREACH OF ITS OBLIGATIONS REGARDING SCT (TMD)'S CONFIDENTIAL INFORMATION, CLIENT
WILL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION LOSS OF PROFITS, LOSS OF DATA, AND LOSS OF
REVENUES, EVEN IF INFORMED OF THE POSSIBILITY THEREOF IN ADVANCE.
(C) THE LIMITATIONS SET FORTH IN THIS SECTION 9.2 APPLY TO ALL
CAUSES OF ACTION IN THE AGGREGATE, INCLUDING WITHOUT LIMITATION BREACH OF
CONTRACT, BREACH OF WARRANTY, SCT (TMD)'S NEGLIGENCE, STRICT LIABILITY,
MISREPRESENTATION, AND OTHER CAUSES OF ACTION BASED ON SIMILAR LEGAL THEORIES.
(D) SCT (TMD) AND CLIENT FURTHER ACKNOWLEDGE AND AGREE THAT
THEY ARE ENTERING INTO THIS AGREEMENT ON THE UNDERSTANDING THAT THE FEES FOR THE
GOODS AND SERVICES TO BE PROVIDED UNDER THIS AGREEMENT HAVE BEEN SET TO REFLECT
THE FACT THAT CLIENT'S REMEDIES, AND SCT (TMD)'S LIABILITY, WILL BE LIMITED AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, AND IF NOT SO LIMITED, THE FEES FOR THE
SAME WOULD HAVE BEEN SUBSTANTIALLY
<PAGE>
HIGHER. THE PARTIES HAVE AGREED THAT THE LIMITATIONS SPECIFIED IN THIS SECTION
9.2 WILL SURVIVE AND APPLY EVEN IF ANY LIMITED REMEDY SPECIFIED IN THIS
AGREEMENT IS FOUND TO HAVE FAILED OF ITS ESSENTIAL PURPOSE.
9.3 Internal Resolution Procedure. In the event that the parties have
any disagreement, dispute, breach or claim of breach, non-performance, or
repudiation arising from, related to or in connection with this Agreement or any
of the terms or conditions hereof, or any transaction under this Agreement
including but not limited to either party's failure or alleged failure to comply
with any of the provisions of this Agreement (hereinafter collectively the
"Dispute"), the parties will first conduct a multi-stage procedure as follows,
it being agreed that for purposes of this Section 9.3, any reference to a
particular representative of a party will also be deemed to include such
particular representative's duly authorized successor or designee and such other
persons as each party deems appropriate:
(a) A party will provide notice to the other party of a Dispute, a copy
of which also will be sent to the Client Contract Administrator and the SCT
Executive Director. Within ten (10) business days of the giving of such notice
of a Dispute, the Client Contract Administrator and SCT Executive Director will
conduct a meeting either to: (i) resolve the matter and set forth such
resolution in writing or (ii) define the Dispute in writing including a
description of the position of each party and the other projects and tasks which
would be affected by the proposed resolution submitted by the Client Contract
Administrator and by the proposed resolution submitted by the SCT Executive
Director. A copy of the writing described in this Section 9.3(a)(i) and (ii)
will be provided to the persons who are to receive notices pursuant to this
agreement in accordance with Section 15.1.
(b) If the Client Contract Administrator and SCT Executive Director are
unable to reach an agreement pursuant to Section 9.3(a) above, then within ten
(10) business days after such meeting, the Vice President of SCT (TMD)
responsible for the implementation of this Agreement (the "SCT (TMD) Vice
President") and the Vice President/Information Systems and Technology of Client
will meet in Philadelphia, Pennsylvania to attempt to reach a resolution of the
matter in light of the description of the Dispute submitted by the parties and
further discussion among and between the parties and their respective
representatives. If they are unable to resolve the Dispute, they will further
define the Dispute in writing based upon discussions held at their meeting, if
appropriate. A copy of the writing described in this Section 9.3(b) will be
provided to the persons who are to receive notices pursuant to this agreement in
accordance with Section 15.1.
(c) If the SCT (TMD) Vice President and the Vice President/Information
Systems and Technology of Client are unable to reach an agreement pursuant to
Section 9.3(b), then within fifteen (15) business days after such meeting, the
President of SCT (TMD)'s Technology Management Division and the Vice President,
Finance/Chief Financial Officer of Client will meet in Philadelphia,
Pennsylvania, which meeting will also be attended by the SCT (TMD) Vice
President and SCT Executive Director and the Vice President/Information Systems
and Technology of Client and the Client Contract Administrator, to attempt to
reach a resolution of the matter in light of the description of the Dispute
submitted by the parties and further discussion among and between the parties
and their respective representatives. If they are unable to resolve the Dispute,
they will further define the Dispute in writing based upon discussions held at
their meeting, if appropriate. A copy of the writing described in this Section
9.3(c) will be provided to the persons who are to receive notices pursuant to
this agreement in accordance with Section 15.1.
(d) If the President of SCT (TMD)'s Technology Management Division and
the Vice President, Finance/Chief Financial Officer of Client are unable to
reach an agreement pursuant to Section 9.3(c), then within fifteen (15) business
days after such meeting, the Chief Executive Officer of SCT (TMD) and the Chief
Executive Officer of Client will meet in Philadelphia, Pennsylvania, which
meeting will also be attended by the party representatives identified in each of
the preceding subsections of this Section 9.3, to attempt to reach a resolution
of the matter in light of the description of the Dispute submitted by the
parties and further discussion among and between the parties and their
respective representatives.
(e) If the parties are unable to resolve the dispute after following
the procedures set forth in subparagraphs (a) through (d) of this Section 9.3,
each party may require the other party to submit to mediation for a period not
to exceed thirty (30) days. A party may require mediation by providing the other
party, within ten (10) days after the meeting has taken place as contemplated by
subparagraph (d) of this Section 9.3, a notice of demand for mediation, which
also will be filed with the American Arbitration Association ("AAA") in
Philadelphia, PA. Within ten (10) business days after the demand for mediation,
representatives of the parties will agree on the selection of the mediator, who
will be experienced in the computer services and software area and who will be
on the list of mediators that exists or is compiled by the AAA. In the event the
parties cannot agree upon the selection of a mediator, the AAA rules for the
selection of a mediator will be followed, except that the selection will be a
person experienced as provided in the immediately preceding sentence. The
parties will move with all deliberate speed to commence the mediation
proceedings and will negotiate in good faith in an attempt to resolve the
Dispute. If the Dispute cannot be resolved within thirty (30) days of the
appointment of the mediator, the parties are entitled to pursue all their
remedies at law and in equity. Each party will pay one half of the fees of the
mediator.
<PAGE>
(f) If the parties are unable to resolve the dispute after following
the procedures set forth in this Section 9.3, the parties are entitled to pursue
all their remedies at law and in equity. Notwithstanding the provisions of this
Section 9.3, either party may seek equitable relief at any time without the
necessity of first complying with the provisions of this Section 9.3.
SECTION 10. CONFIDENTIALITY.
10.1 Confidential Information. Both parties agree that:
(a) This Agreement and the terms and conditions contained
herein are the Confidential Information of SCT (TMD).
(b) Neither party will disclose any Confidential Information
of the other party to any third party without first obtaining written consent;
(c) Each party will limit dissemination of the other party's
Confidential Information only to those employees, contractors and agents who
require access thereto to perform their functions under this Agreement and who
sign appropriate nondisclosure agreements to protect such information;
(d) Each party agrees to return the Confidential Information
to the disclosing party upon receipt of written request therefor, except that
Client may keep an archival copy of this Agreement for its records, subject to
all the terms and conditions contained in this Agreement relating to
confidentiality;
(e) Each party agrees that the standard of care to be applied
in the performance of the obligations set forth above will be the standard of
care applied by the receiving party in treating its own Confidential Information
of like importance, but at least reasonable care to prevent unauthorized
copying, use, publication or disclosure.
(f) Subject to Section 10.2, each party acknowledges and
agrees that, in the event of its threatened or actual breach of the provisions
of this Section 10.1, damages alone will be an inadequate remedy, such breach
will cause the other party great, immediate and irreparable injury and damage,
and such other party will therefore be entitled to injunctive and other
equitable relief in addition to, and not in lieu of, any remedies it may have at
law or under this Agreement.
10.2 Exceptions to Confidentiality. The obligation of nondisclosure of
Confidential Information as set forth in Section 10.1 will not apply to any data
or information that:
(a) Was already rightfully in the possession of the receiving
party or any of its related companies prior to disclosure and without
obligation of confidentiality;
(b) Was independently developed by employees having no
access to Confidential Information;
(c) Was rightfully received from a third party without
restrictions on disclosure or use;
(d) Was available by inspection of products or services
marketed without restrictions, offered for sale or leased in the ordinary course
of business by either party hereto or others; or
(e) Was required to be produced or disclosed pursuant to
applicable laws, regulations or court order, provided the receiving party has
given the disclosing party the opportunity to defend, limit or protect such
production or disclosure, and such disclosure is not greater than what was
required to be produced or disclosed.
10.3 Survival Of Obligations; Severability. Section 10 is severable
from all other provisions of this Agreement and will stand on its own and remain
in full force and effect as if it is an agreement unto itself supported by valid
consideration, receipt of which is hereby acknowledged by the parties. The term
of the provisions of this Section 10 will survive termination or expiration of
this Agreement or any determination that this Agreement or any portion hereof or
Exhibit hereto is void, voidable, invalid or unenforceable.
SECTION 11. APPLICATION SOFTWARE RIGHTS.
11.1 Rights to Existing Application Software. Except as otherwise set
forth in this Agreement, Client will retain such right, title and interest in
and to the Application Software listed on Exhibits B(1) and B(2) as it had prior
to the Commencement Date of this Agreement [or, the case of Application Software
generally described in Exhibit B(2), such right, title and interest in and
thereto as
<PAGE>
Client is to be granted upon the acquisition of such Application Software, it
being understood that nothing in this Section 11.1 is intended to, and will not
act, to limit in any way Client's obligations under Section 3.8(c) of this
Agreement], and except as otherwise provided for in this Agreement, SCT (TMD)
will have no right, title or interest in or to such Application Software for any
purpose except, to the extent permitted by the applicable agreement relating
thereto, the right to use, modify, enhance and operate such Application Software
in order to perform services under this Agreement and as may be expressly set
forth herein or in a separate written agreement executed between the parties.
Client acknowledges and understands that SCT (TMD) may be prohibited from using,
modifying, enhancing or operating certain Application Software and Systems
Software set forth in Exhibits B(1) or B(2)as a result of restrictions contained
in Client's license agreement in connection therewith. Client will use its best
efforts to grant, or have granted to, SCT (TMD) the right to use, modify,
enhance and operate such Application Software and Systems Software. SCT (TMD)
will have no responsibility to use, modify, enhance or operate any such
Application Software or Systems Software until SCT (TMD) is permitted to do so
by the (as appropriate, amended) terms of any applicable license agreement or by
applicable law.
11.2 Rights to Newly Developed Application Software. Without limitation
or prejudice to any provision of the License Agreement, SCT (TMD) will own all
right, title and interest to any (i) new Application Software developed by SCT
(TMD) pursuant to this Agreement and (ii) modifications, enhancements, or
improvements to Client's existing Application Software or Application Software
of third parties developed by SCT (TMD) pursuant to this Agreement, to the
extent the license agreement relating to such Application Software of third
parties does not grant exclusive rights in any modifications, enhancements and
improvements thereto to the licensor of such Application Software ("Developed
Software"). SCT (TMD), without additional charge therefor, will grant Client a
perpetual, non-exclusive, non-transferable license to use, for Client's in-house
computing operations pursuant to the terms and conditions of this Agreement and
Exhibit G, such Developed Software.
SECTION 12. SERVICE ENHANCEMENT REQUEST.
Client may request changes to, modifications of, and extra work in
addition to that identified in Exhibit A by submitting a Service Enhancement
Request to SCT (TMD) from time to time during the term of this Agreement. SCT
(TMD) will not unreasonably reject any Service Enhancement Request. Upon the
parties' execution of a Service Enhancement Request, the amount to be paid SCT
(TMD) under this Agreement and the time of performance will be adjusted as
specified in the Service Enhancement Request. All such work will be executed
under the terms and conditions specified in this Agreement.
SECTION 13. TERMINATION.
13.1 Events of Termination. This Agreement may be terminated:
(a) By either party, to the extent permitted under applicable
law, if the other ceases to function as a going concern, becomes insolvent,
makes an assignment for the benefit of creditors, files a petition in
bankruptcy, permits a petition in bankruptcy to be filed against it and such
petition is not dismissed within sixty (60) days of filing, or admits in writing
its inability to pay its debts as they mature, or if a receiver is appointed
over a substantial part of its assets;
(b) By SCT (TMD) for Client's failure to pay any invoiced
Exhibit D amount or other material fees/charges under this Agreement by thirty
(30) days after the payment due date [provided that upon SCT (TMD)'s failure to
so receive payment by the end of such thirty (30) day period, SCT (TMD) must
first provide Client with a notice that SCT (TMD) has not received such payment,
and upon SCT (TMD)'s receipt of such past due payment prior to the expiration of
fifteen (15) days after Client's receipt of such notice, such payment default
will be deemed cured), it being understood by SCT (TMD) that Client may elect to
make payment to SCT (TMD) with an express reservation of rights to assure
continued performance by SCT (TMD) under this Agreement pending resolution of
any disputes;
(c) By either party by reason of any other material breach of
this Agreement by the other party which breach has not resulted in a reasonably
acceptable plan for remedy or cure or which breach has not been remedied or
cured after at least (90) days written notice delivered by the aggrieved party
to the other party.
13.2 Transition Plan Upon Expiration or Termination. Upon the
expiration or termination of this Agreement, SCT (TMD) will provide a transition
plan to Client at least sixty (60) days (or such shorter period that may be
dictated by the circumstances of the termination of this Agreement) prior to the
termination date hereof. The transition plan will provide that Client will have
the right to extend offers of employment to SCT (TMD) employees as set forth in
Section 4.4(a). Client may not extend such offers of employment to personnel
more than six (6) months prior to the scheduled transition date unless SCT (TMD)
notifies Client that it intends to transfer an employee, in which case Client
may make an offer to such employee immediately upon such notification. Offers of
employment will identify the position being offered, annual salary, benefits,
date of next review, and the manager to whom the employee will report.
Employment with Client for the employees accepting the offers of employment will
be the date of transition
<PAGE>
of OnSite Services back to Client under this Agreement. The transition plan will
identify positions requiring transition, procedures in place supporting all
responsibilities to be transitioned, documentation of existing personnel
actions, and existing or planned projects and support activities.
13.3 Payment of Unsecured and Secured Early Termination Fees. Client
acknowledges and understands that SCT (TMD) is entering into this Agreement on
the understanding that the fees for the goods and services to be provided by SCT
(TMD) to Client pursuant to this Agreement are based on a long term relationship
and that an early termination of this Agreement will have a significant
financial impact on SCT (TMD). Accordingly, upon the termination or expiration
of this Agreement:
(a) Client will pay to SCT (TMD) the applicable Unsecured
Early Termination Fee set forth in Exhibit E based on the increase or decrease,
as applicable, in the Unsecured Early Termination Fee during the calendar year
in which the effective date of termination occurs. For any date falling between
the dates listed in Exhibit E, the amount of the Unsecured Early Termination Fee
will be calculated by straight line interpolation using the two dates between
which the termination date falls and prorating the respective amounts on a daily
basis. The Unsecured Early Termination Fee will be due within thirty (30) days
after the effective date of termination of this Agreement. The applicable
Unsecured Early Termination Fee reflects in part the unamortized costs which
will be incurred by SCT (TMD) as a result of an early termination of this
Agreement. The Unsecured Early Termination Fee is not in the nature of, and will
not be deemed to be, a penalty or liquidated damages, and is due and payable to
SCT (TMD) in addition to, and not in lieu of, the Secured Early Termination Fee.
Notwithstanding the payment of the Unsecured Early Termination Fee by Client,
both SCT (TMD) and Client will be entitled to pursue all their respective rights
and remedies, both at law and in equity.
(b) Client will additionally pay to SCT (TMD) the Secured
Early Termination Fee set forth in Exhibit F based upon the dates provided for
in Exhibit F for maintaining the letter of credit securing the amount of such
Secured Early Termination Fee. For dates falling between the dates provided for
in Exhibit F, the amount of the Secured Early Termination Fee on the applicable
date will be the date on Exhibit F that immediately precedes the date in
question. Upon the termination or expiration of this Agreement, SCT (TMD) or its
financial assignee will have the right to draw upon such letter of credit for
payment of the Secured Early Termination Fee. The applicable Secured Early
Termination Fee reflects in part the unamortized costs which will be incurred by
SCT (TMD) as a result of an early termination of this Agreement. The Secured
Early Termination Fee is not in the nature of, and will not be deemed to be, a
penalty or liquidated damages, and is due and payable to SCT (TMD) in addition
to, and not in lieu of, the Unsecured Early Termination Fee. Notwithstanding the
payment of the Secured Early Termination Fee by Client, both SCT (TMD) and
Client will be entitled to pursue all their respective rights and remedies, both
at law and in equity.
13.4 Rights and Duties Upon Termination. Upon the expiration or
termination of this Agreement and in consideration of Client's payment to SCT
(TMD) of all amounts and charges due to SCT (TMD) in accordance with this
Agreement with or without any reservation of rights by Client:
(a) Each party will cooperate reasonably and in good faith
with the other and/or its designees, so that the transition of OnSite Services
rendered under this Agreement will be timely and efficient and implemented in a
manner so as not to unduly interfere with Client's orderly conduct of its
business or SCT (TMD)'s other operations.
(b) All Client's Confidential Information will be promptly
delivered or returned (as applicable) to Client.
(c) All SCT (TMD)'s Confidential Information will be promptly
delivered or returned (as applicable) to SCT (TMD), except that Client will be
entitled to keep a copy of this Agreement even though this Agreement is the
Confidential Information of SCT (TMD). Client will permit SCT (TMD) access to
remove any of the foregoing and will not inhibit or prevent SCT (TMD) from doing
so in any manner.
(d) All office furniture, equipment, documents, records, books,
tapes, disks and files provided by Client (which have not been disposed of with
Client's permission) will be returned to Client in substantially the same
condition as received, ordinary wear and tear excepted.
(e) Subject to Client's payment to SCT (TMD) of all amounts due
and owing under this Agreement, including without limitation both the applicable
Unsecured Early Termination Fee and the applicable Secured Early Termination
Fee, as part of its undertaking in connection with the transition plan referred
to in Section 13.2 above, all as otherwise provided for in this agreement, SCT
will use diligent efforts and take all action reasonably necessary (including
without limitation executing and filing in appropriate jurisdictions UCC
security interest releases) to promptly convey or arrange to convey to Client
title in and to the Hardware to be listed on Exhibit B(2) and a continuing right
of use for the Software to be listed on Exhibit B(2), free and clear of any
security interests therein, including without limitation the security interests
that Client was required to provide to SCT (TMD) or its financial assignee
pursuant to Section 3.8 [SCT (TMD) representing that it will use the proceeds of
<PAGE>
the payment of the applicable Unsecured Early Termination Fee and the applicable
Secured Early Termination Fee to such effect such unencumbered title for such
Exhibit B(2) Hardware to Client, and to pay to SCT (MDS) any sums due and owing
under either the License Agreement and/or the Maintenance Agreement]. Further,
SCT (TMD) and SCT (MDS) will work with Client Cin good faith to assist Client in
transitioning its relationship for the ADAGE Software from SCT (TMD) directly to
SCT (MDS) under the License Agreement and Maintenance Agreement, as applicable.
Such assistance will include, without limitation, promptly reconciling all
appropriate ADAGE Software services and financial transactions for or in
connection with the ADAGE Software, and using diligent, good faith efforts to
minimize any impact that any early termination of this Agreement might otherwise
have on Client's implementation of the ADAGE Software. 13.5 Survival of
Obligations. All Client's obligations relating to SCT (TMD)'s Confidential
Information, Client's indemnity and payment obligations, the obligations of
Client to respect SCT (TMD)'s Intellectual Property Rights, and the provisions
of this Agreement which by their terms survive termination of this Agreement,
will survive termination of this Agreement for any reason. Termination of this
Agreement by either SCT (TMD) or Client according to the terms hereof will be
without prejudice to the terminating party's other rights and remedies under
this Agreement, both at law and in equity.
SECTION 14. SITE REFERENCE.
Client agrees upon SCT (TMD)'s prior and reasonable request to act as a
reference site for SCT (TMD) in connection with the services provided under this
Agreement. In this connection, Client will, upon timely receipt of notice
thereof, make its facilities and personnel reasonably available to SCT (TMD) as
reasonably requested by SCT (TMD) to permit SCT (TMD) to provide site visits to
current and prospective clients and to demonstrate any or all of the services
provided by SCT (TMD) to Client under this Agreement.
SECTION 15. GENERAL.
15.1 Notices. Any notice required or permitted by this Agreement will
be in writing and accomplished by registered or certified mail, personal
delivery, or overnight courier. Such notice will be deemed to have been
delivered three (3) days after it has been mailed by such certified or
registered mail, one day after it has been delivered to the overnight courier,
or upon delivery if sent by hand delivery:
If to SCT (TMD):
SCT Software & Resource Management Corporation
Great Valley Corporate Center
Four Country View Road
Malvern, Pennsylvania 19355
ATTENTION: President, Technology Management Division
With a copy to the same address, ATTENTION: General Counsel
If to Client:
Curtice Burns Foods, Inc.
90 Linden Place
Rochester, New York 14603-0881
ATTENTION: Vice President, Information Systems and Technology
With a copy to the same address, ATTENTION: Chief Financial
Officer
or to such other persons or addresses which Client or SCT (TMD) may from time to
time designate in writing to the other.
15.2 Waiver. Waiver of strict performance of any provision of this
Agreement will not be deemed a waiver nor will it prejudice the waiving party's
right to require strict performance of the same provision or any other provision
in the future unless such waiver has rendered future performance commercially
impossible.
15.3 Assignment. Except as otherwise specifically provided for in this
Agreement, neither this Agreement, nor any of either party's rights or
obligations under this Agreement [except, in the case of SCT (TMD), as otherwise
provided for in Section 6 of this Agreement], will be assignable without the
prior written consent of both parties. For purposes of this Agreement, the
acquisition of
<PAGE>
all or substantially all of SCT (TMD)'s outstanding capital stock or assets by a
third party (that is, by an entity NOT controlled by, controlling or under
common control with SCT (TMD)'s parent company, Systems & Computer Technology
Corporation) will constitute an "assignment" requiring the prior written consent
of both parties.
Notwithstanding the foregoing, however, subject to the conditions and
limitations hereinafter set forth, Client may assign this Agreement to any
parent holding company of Client; or to any entity in which Client or its parent
holding company has the right to elect a majority of directors, directly or
indirectly, to the remotest tier; or to any entity formed or acquired after the
Effective Date in which Client or its parent holding company has the right to
elect a majority of directors, directly or indirectly, to the remotest tier; or
to any other surviving entity which results from a merger, acquisition or the
consolidation of Client; (any of the foregoing being referred to as a
"Controlled Affiliate"); PROVIDED, HOWEVER, that if immediately after any of the
foregoing events, the total employment of Client and all its Controlled
Affiliates is not greater than twice the employment of Client and all its
Controlled Affiliates as of the Effective Date. Prior to the effectiveness of
any assignment permitted under this paragraph, Client must notify SCT (TMD) of
such assignment, and the Controlled Affiliate to which Client so assigns its
rights under this Agreement must execute an amendment to this Agreement [in a
form reasonably acceptable to SCT (TMD)] specifying that such Controlled
Affiliate assignee agrees to be bound by all terms and conditions of this
Agreement. Further, in the event of an assignment pursuant to this paragraph,
Client will guarantee such Controlled Affiliate's obligations arising under or
in connection with this Agreement, and Client agrees to execute such
documentation as SCT (TMD) may reasonably request to evidence and effect such
Client position as guarantor. Still further, SCT (TMD)'s obligations regarding
the nature, extend, scope and SCT (TMD) staffing requirements in providing
OnSite Services to such Controlled Affiliate may not be materially greater than
the same obligations that SCT (TMD) had in providing OnSite Services to Client.
A party's failure to abide by the restrictions contained in this
Section 15.3 will constitute a material breach of this Agreement giving rise to
a right of termination of this Agreement by the non-breaching party.
15.4 No Authority. Neither party will have any authority, and neither
party will represent that it has any authority, to assume or create any
obligation, express or implied, on behalf of the other party, except as provided
in this Agreement. Each party is an independent contractor, and this Agreement
will not be construed as creating a partnership, joint venture or employment
relationship between the parties or as creating any other form of legal
association that would impose liability on one party for the act or failure to
act of the other party.
15.5 Governing Law. This Agreement will be interpreted by the laws of
the State of New York.
15.6 Severability. If any part of this Agreement is found to be
invalid, all other provisions will remain in full force and effect and the
provisions found invalid will be enforced to the maximum extent enforceable by
law.
15.7 Force Majeure. Neither party will be liable for any delay or
failure to perform its obligations under this Agreement to the extent that such
delay or failure is caused by a force or event beyond the control of such party,
including without limitation, war, embargoes, strikes, governmental
restrictions, riots, fires, floods, earthquakes, or other Acts of God.
15.8 Further Assurances. Each party will execute, acknowledge and
deliver all documents, provide all information, and take or forbear from all
such action as may be necessary or appropriate to achieve the purposes of this
Agreement.
15.9 Alterations. The waiver, amendment or modification of any
provision of this Agreement or any right, power or remedy under this Agreement,
whether by agreement of the parties or by custom, course of dealing or trade
practice, will not be effective unless in writing and signed by the party
against whom enforcement of such waiver, amendment or modification is sought.
15.10 No Third-Party Beneficiaries. Nothing contained in this Agreement
will be construed to give any person other than SCT (TMD) and Client any legal
or equitable right, remedy or claim under or with respect to this Agreement.
15.11 Copies of Agreement. This Agreement may be executed in any number
of copies, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
15.12 Incorporation by Reference. The Exhibits attached hereto are an
integral part of and are hereby incorporated by this reference into this
Agreement and made a part hereof.
<PAGE>
15.13 Number and Gender. All terms and words used in this Agreement
regardless of the number and gender in which they are used, will be deemed and
construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context or sense of this Agreement or any
paragraph or clause herein may require, the same as if such words have been
fully and properly written in the number and gender.
15.14 Headings. The headings of sections and paragraphs, if any, to the
extent used herein are for convenience and reference only, in no way define,
limit or describe the scope or intent of any provision hereof, and therefore
will not be used in construing or interpreting the provisions hereof.
15.15 Client Delay. Any delay, obstruction, or hindrance by Client
which materially impacts SCT (TMD)'s ability to perform its obligations under
this Agreement in a timely manner will excuse a delay in SCT (TMD)'s performance
of its obligations under this Agreement, it being agreed by the parties that SCT
(TMD) will use good faith efforts to minimize the period of any such excusable
delay on the part of SCT (TMD).
15.16 Consents and Approvals. Whenever the consent or approval of a
party under this Agreement is required, the consent or approval, if required to
be obtained from SCT (TMD), must be given by a Senior Vice President or the
President of SCT (TMD)'s Technology Management Division, and if required from
Client, must be given by Client's Vice President/Information Systems and
Technology.
15.17 Right to Subcontract. SCT (TMD) will have the right to enter into
subcontracts with other parties to provide certain of the services to be
provided by SCT (TMD) under this Agreement, although SCT (TMD) will remain
responsible to Client for the performance of any services performed by the
subcontractor.
15.18 Modification of Exhibits. The parties acknowledge that their
intent is to enter into a long term relationship under the terms of this
Agreement. Accordingly, as their respective priorities are modified during the
Term, they will negotiate in good faith to make appropriate revisions and
adjustments to this Agreement, including without limitation to the Exhibits of
this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
SECTION 16. ENTIRE AGREEMENT
THIS AGREEMENT SIGNED BY BOTH PARTIES CONSTITUTES A FINAL WRITTEN
EXPRESSION OF ALL OF THE TERMS OF THIS AGREEMENT AND IS A COMPLETE AND EXCLUSIVE
STATEMENT OF THOSE TERMS. NEITHER PARTY WAS INDUCED TO ENTER INTO THIS AGREEMENT
BY ANY STATEMENTS OR REPRESENTATIONS NOT CONTAINED IN THIS AGREEMENT. ANY AND
ALL REPRESENTATIONS, PROMISES, WARRANTIES OR STATEMENTS BY ANY PARTY OR ITS
AGENTS THAT DIFFER IN ANY WAY FROM THE TERMS OF THIS AGREEMENT WILL BE GIVEN NO
FORCE OR EFFECT. THIS AGREEMENT WILL BE CHANGED, AMENDED OR MODIFIED ONLY BY
WRITTEN INSTRUMENT SIGNED BY BOTH CLIENT AND SCT (TMD) AND WHICH WRITTEN
INSTRUMENT EXPRESSLY AND UNAMBIGUOUSLY STATES THAT A PURPOSE THEREOF IS TO
CHANGE, AMEND OR MODIFY THIS AGREEMENT. THIS AGREEMENT WILL NOT BE MODIFIED OR
ALTERED BY ANY COURSE OF PERFORMANCE BY EITHER PARTY, OR BY USAGE OF THE TRADE.
ANY PURCHASE ORDER OR SIMILAR DOCUMENT WHICH MAY BE ISSUED BY CLIENT IN
CONNECTION WITH ANY SERVICES TO BE PROVIDED UNDER, OR ANY OTHER MATTER RELATING
TO, THIS AGREEMENT WILL BE FOR CLIENT'S INTERNAL PURPOSES ONLY AND ANY TERMS AND
CONDITIONS WHICH MAY BE INCLUDED IN SUCH PURCHASE ORDER OR OTHER DOCUMENT WILL
NOT MODIFY IN ANY MANNER ANY OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND
WILL NOT BIND SCT (TMD) IN ANY MANNER AND WILL BE COMPLETELY INEFFECTIVE AND
UNENFORCEABLE AGAINST SCT (TMD), EVEN IF IT IS INITIALED, SIGNED, OR
ACKNOWLEDGED BY A REPRESENTATIVE OF SCT (TMD). THIS AGREEMENT INCLUDES ALL OF
THE FOREGOING PROVISIONS AS WELL AS ALL EXHIBITS ATTACHED HERETO.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
affixed hereto as of the date first above written.
SCT SOFTWARE & RESOURCE CURTICE BURNS FOODS, INC.
MANAGEMENT CORPORATION
By:/s/ Cathy Welsh By:/s/ Dennis M. Mullen
Name and Title: Cathy Welsh Name and Title: Dennis M. Mullen,
President President & CEO
Consent:
SCT MANUFACTURING &
DISTRIBUTION SYSTEMS, INC.
By: James D. Bennett
Name and Title: J.D. Bennett, Dep. General Counsel
<PAGE>
EXHIBIT A
SCOPE OF SERVICES
SCT (TMD) will provide Client with OnSite Services described in this Exhibit A.
The OnSite Services described in this Exhibit A will be the basis for the joint
development of the Short Term Improvement Plan (STIP) and the Annual Work Plans
(AWP), as more fully described in this Exhibit A. These Plans will identify,
more specifically, objectives, programs and schedules to be implemented during
the term of the Agreement, as prioritized by the Client in such Plans. The
parties agree that appropriate implementation details and procedures for all
functions and services described in this Scope of Services will be incorporated
in a procedures manual ("Procedures Manual"). During the Term, the Parties may
also agree on different or additional services and amend this Scope of Services
or the Procedures Manual in writing accordingly.
I. GENERAL
SCT (TMD) will, as more specifically described in this Exhibit A, operate
and manage Client's computing and network environments identified in
Exhibits B(1) and B(2). The Management Information Systems ("MIS") staff
will be available as required to support normal business operations and
to meet the performance commitments. SCT (TMD) will provide personnel and
supplies for the overall management and operation of the above identified
Client's operations and the management and operation of individual
projects in connection therewith in accordance with the AWP. The parties
acknowledge that, from time to time in a given year, the AWP may need to
be amended to reflect changes in the Client's prioritization of OnSite
Services that would otherwise have been provided thereunder.
II. PLANNING AND PROGRESS REPORTING
A.Planning.
SCT (TMD) will provide technology planning services as specified in
this Exhibit A at the strategic, tactical, and operational levels. SCT
(TMD) will develop and maintain the STIP and AWPs, specifying the
service delivery objectives for the time-frames covered by these plans.
Client will participate with SCT (TMD) in the development of the STIP
and AWPs, and have responsibility for establishing appropriate
priorities and policy directions.
1. Short-Term Improvement Program.
Timing. Within ninety (90) days of the Commencement Date, SCT (TMD),
with the cooperation of Client, will develop the STIP for
Client review and approval. The STIP will address initial
priority issues and quality improvement opportunities.
Scope. The STIP will identify actions to:
o Provide short-term service improvements;
o Continue delivery of computer services;
o Identify areas of technology requiring further review during
the AWP process; o Resolve existing critical application
problems;
o "Freeze" the Systems to be replaced by the ADAGE Software at
their respective status as of the Commencement Date, without
further modification except with the approval of the Client
Contract Administrator;
o Identify plans and projects to be completed within the 1998
fiscal year; and
o Validate plans and projects (that is, those produced by
Client prior to the Commencement Date) to be completed in
order to achieve year 2000 Software compliance.
As an addendum to the STIP, in conjunction with the ADAGE Software
project, a master implementation schedule will be provided for the
Hardware, Software and Systems Software to be acquired for
Client's beneficial use as provided for in Exhibit B(2) and
otherwise in this Agreement. A tentative high-level ADAGE Software
implementation schedule is attached to this Exhibit A as
Attachment 1. The parties acknowledge and agree that the actual
master implementation schedule developed and included in the STIP
will vary from Attachment 1 based on a variety of factors, such
as, without limitation, Client's approval of the STIP itself; the
sophistication and complexity of the Exhibit B(2) Hardware,
Software and Systems Software actually selected; the dates upon
which the Exhibit B(2) Hardware, Software and Systems Software are
in fact selected and subsequently acquired; the agreement of the
parties as to whether SCT (TMD) should modify the Application
Software or Client should modify its business processes to address
differences between Client's business processes and the
functionality of the Application Software in question; and the
availability of affected Client personnel to participate in
planning and training sessions. In developing the STIP
implementation schedule, however, the parties agree to use good
faith efforts to conform to the high-level implementation schedule
in Attachment 1.
2. Annual Work Plan.
Timing. SCT (TMD), with the cooperation of Client, will develop an
AWP by May 1998 for the year commencing July 1, 1998, and
thereafter, by May of each year for each following fiscal
year during the term of this Agreement.
<PAGE>
Scope. The AWP will identify recommended initiatives and services
which are consistent with the direction established in the
STIP and the annual AWPs. The AWP will identify activities,
schedules, and deliverables for the OnSite Services to be
provided under this Agreement. Specific components of
computing which the parties anticipate will be included in
the AWP include:
o Application Software;
o Hardware and Systems Software environment;
o Network structure supporting Client's information users;
o User-based information access and management methodologies and
services; and
o Ongoing operations and production services supporting
Application Software and Client users.
The AWP will incorporate, in pertinent part, the master
implementation schedule (more fully described under the STIP,
above) for the Hardware, Software and Systems Software to be
acquired for Client's beneficial use as provided for in B(2) and
otherwise in this Agreement.
3. Client Approval of STIP and AWPs
After delivery of the STIP and each AWP, the Client Contract
Administrator will have thirty days to review the plan and to notify
SCT (TMD) in writing of its approval or disapproval thereof, and in the
event of disapproval, the Client Contract Administrator will set forth
the reasons for its disapproval in sufficient detail to permit SCT
(TMD) to modify the Plan to the Client Contract Administrator's
reasonable satisfaction. If after such thirty days have passed and the
Client Contract Administrator fails to so notify SCT (TMD), the Plan
will be deemed approved by the Client.
4. Disaster Recovery Plan
Timing. SCT (TMD) will develop and deliver a disaster recovery plan
by not later than twelve (12) months after the Commencement
Date. The disaster recovery plan will set forth the
procedures to be followed in order to resume Client's
information service operations in the event of fire or other
disaster that creates or results in a long-term interruption
of data processing operations at the Tacoma, Washington or
Rochester, New York Locations.
5. Staff Development Plan
SCT (TMD) will provide to the Client, within six (6) months of the
Commencement Date, a "Training and Development Plan" which will plan
for the education and training of the Transitional Employees.
B. Progress Reporting
1. Annual Report
A report outlining SCT (TMD)'s progress against the STIP (during the
first year of the Agreement) and thereafter, the AWP for the prior
fiscal year (commencing with a report on year ending June 30, 1998)
will be provided to Client Contract Administrator by forty-five (45)
days after the end of each fiscal year during the term of this
Agreement.
2. Progress Report
Progress Reports will be provided on a monthly basis to Client Contract
Administrator. These reports will outline service delivery, project
status and issues requiring the attention of Client Contract
Administrator.
3. Annual Client Survey
SCT (TMD) will provide Client with a survey to be distributed to the
relevant users supported under the scope of this Agreement containing
such questions as mutually determined by the SCT Executive Director and
the Client Contract Administrator. SCT (TMD) will provide Client with
the results of the survey.
<PAGE>
III. GENERAL MANAGEMENT AND BUSINESS OPERATIONS - MIS DEPARTMENT
A. Executive Management
SCT (TMD) will provide management services as required in support of
Client's executive level management, including:
o Strategic technical leadership, planning, consulting and
guidance;
o Assistance to Client executive management in the establishment
of policies and procedures governing the access, use and
control of information resources;
o Strategic operations consulting and guidance;
o Management recommendations in support of Client operations; and
o Management of external computing and technology related vendor
relationships.
B. Operational Management
SCT (TMD) will provide operational management services in connection
with Client's computing environments to monitor and control the
delivery of the OnSite Services identified in this Agreement,
including:
o Tactical leadership, planning, consulting and guidance in
the computing area;
o Tactical operations management consulting and guidance;
o Project management of application support and computing
improvement projects;
o Monitoring SCT (TMD)'s provision of OnSite Services to ensure
the services are consistent with established Client policies
and each AWP;
o Coordination of the deployment and assignment of SCT (TMD)
corporate staff to complement and augment SCT (TMD) site-based
staff;
o Management of SCT (TMD) site-based and SCT (TMD)
corporate-based staff performing OnSite Services for Client;
o Support of Client's information systems related committees
and sub-committees; and
o Development of information technology policies and
procedures in connection with Client's information systems.
C. Strategic, Tactical and Operational Planning
<PAGE>
SCT (TMD) will provide Client with assistance to plan and define a
program for Client's computing environment, including:
o The joint development of the STIP, AWPs, and Training
and Development Plan;
o Management and coordination of the development of the Plans,
above;
o Evaluation of new technologies and their applicability to
Client's computing operations; and
o Assistance in the development and review of the project
plans for the major projects included in the relevant AWP.
D. Management Reporting
SCT (TMD)'s Director will meet at least monthly with the Client
Contract Administrator to review the status of day-to-day operations, to discuss
issues which have arisen, and to review plans for the upcoming month. In
addition, at either party's reasonable request from time to time during the
performance of this Agreement, the Client Contract Administrator and SCT
Executive Director and any other personnel designated by either the Client
Contract Administrator or the SCT Executive Director will meet to review the
progress of the parties under this Agreement.
Specific reporting to Client will include:
o Monthly reporting to the Client Contract Administrator on
all major aspects of computer services; and
o Providing reports periodically and upon special requests as
reasonably requested by Client including: weekly, monthly,
quarterly and annual and other cyclical printed reports at a
time mutually agreed to by the Client and SCT (TMD).
E. Business Operations
SCT (TMD) will provide business support functions for Client's
computing environment, including:
o Implementing management reporting mechanisms as described in
D. above;
o Developing a Management Information Services Department
Policies and Procedures Manual;
o Putting in place procedures and controls for managing
Department assets: hardware and software inventory
management; forms and supplies management; office equipment,
and hardware/software service contracts;
<PAGE>
o Putting in place procedures for measuring and monitoring
organizational performance;
o Participating in annual Client budget process;
o Working with Client to implement controls and procedures for
acquisitions of supplies/services, and other administrative
requirements agreed upon by SCT (TMD) and Client and;
o Cooperating with all Client internal and external audits.
IV. APPLICATION SOFTWARE SERVICES
A. Application Software Support
SCT (TMD) is responsible for managing the support of the Application
Software identified in Exhibit B(1)/generally described in Exhibit B(2)
and specified in the AWPs. SCT (TMD)'s responsibilities include:
o Maintain all existing Client application software until its
planned replacement by the ADAGE Software or other Software,
as applicable;
o With the Client, identify existing Client application
software not replaced with the ADAGE Software and undertake
the conversion necessary for Year 2000 compliance. Such
conversion effort will consist of up to eight (8)
person-years absent Client-requested reallocation or
supplementation of SCT (TMD) personnel resources providing
OnSite Services;
o Provide the necessary MIS resources to support the
implementation of the ADAGE Software. Without limiting the
foregoing, SCT (TMD) will not modify the ADAGE Software in
such a manner as would abrogate the limited warranty
therefor provided to Client by SCT (MDS) under the terms of
the License Agreement, without first obtaining Client's
approval in any instance;
o Definition of Application Software specifications to be used
in evaluating new software solutions for the user community;
o Management and coordination of third party software vendors
in carrying out their agreements;
o Testing, as required to validate processing, data integrity,
year 2000 compliance and/or performance, prior to the
implementation of Application Software;
o Scheduling of production and test parameters consistent with
established procedures;
o Convert, or in certain instances, manage the conversion of
data from existing Application Software to the new
environment;
o Providing for the development of interfaces between the
Application Software. Such interface development effort will
consist of up to eight (8) person-years absent
Client-requested reallocation or supplementation of SCT
(TMD) personnel resources providing OnSite Services; and
o Production turnover of all Application Software.
B. Application Software Maintenance
SCT (TMD) is responsible for ongoing maintenance of the Application
Software operational on the computer systems identified in Exhibit
B(1)/generally described in Exhibit B(2). Client agrees that
modifications or enhancements to the Systems to be replaced by the
ADAGE Software are to be minimized and performed only upon compliance
with the software modification process as defined in the Procedures
Manual . These responsibilities include:
o Analysis of all modifications agreed to by SCT (TMD) and
Client for compliance with established policy and
procedures;
o Designing and monitoring changes;
o Performing program changes in accordance with the
specifications;
o Testing program changes;
o Documenting changes made;
o Implementing changes into production environment, and;
o Avoiding continued use of unsupported software.
<PAGE>
C. Data Management
SCT (TMD) is responsible for managing the following aspects of Data
Management:
o Data Integrity;
o Back-up and Recovery;
o Third-party access;
o Security, and;
o Availability.
D. Service Request Processing
SCT (TMD) is responsible for continued support of user community's ad
hoc requests and short range deliverables consistent with the
specification of available resources allocated in the AWP and the
approval of the Client Contract Administrator. This includes:
o Logging of each request, including the requested delivery
time-frame;
o Ensuring appropriate business review and prioritization;
o Tracking each request as progress is made on tasks identified;
o User notification of status of request if completion is
delayed;
o User interaction on matters involving information technology
and its use in their area;
o Definition and clarification of issues to enable appropriate
action to be taken;
o Analysis of service, maintenance, and enhancement requests;
o Designing application changes for consistency with existing
technologies and policies; and
o Programming to complete the agreed upon service requests.
V. TECHNICAL OPERATIONS
SCT (TMD) will have responsibility for the operation and management of
the mainframe and client server environments in Tacoma, WA. and in
Rochester, NY as well as remote access to those systems. SCT (TMD) will
operate the existing mainframe systems in both locations until the
planned transfer of the mainframe environment in Tacoma, WA to
Rochester, NY. After transition to Rochester, NY., SCT (TMD) will
operate the mainframe environment only in Rochester, NY. SCT (TMD) is
responsible for the following in connection with the Hardware, Systems
Software and Application Software identified in Exhibit B(1)/generally
described in Exhibit B(2).
A. General Operations
o Operations and personnel to provide delivery of production
computer services;
o Interaction with the user community to understand their
information requests and provide coordinating assistance in
obtaining computer services;
o Preparing and publishing written reports relative to
computer resource utilization, personnel activity, system
performance/stability and user support activities;
o Establishment and maintenance of standards and procedures
for computer operations;
o Planning for short- and long-term growth potential,
including computer capacity planning, facility planning and
Hardware/Software installation planning.
<PAGE>
B. Operations Support
o Monitoring system functions through the use of command
consoles, network monitoring tools, and ancillary support
devices;
o Monitoring system commands issued by the system such as tape
mounts, console replies, printer operation and control unit
operation;
o Maintenance of records and documentation relating to Hardware
and Application Software failures and the provision of notice
of such failures to the appropriate personnel;
o Provision of backup for files and maintenance of tape
rotation policies;
o Provision of assistance and support in problem determination;
o Maintenance of an inventory of computer supplies, including
tapes, ribbons and paper.
C. Technical Services Support
1. Systems Software
SCT (TMD) is responsible for supporting the maintenance of the Systems
Software identified in Exhibit B(1)/generally described in Exhibit
B(2). The goal of this function is to maintain vendor-supported
releases and modification levels of Systems Software without
sacrificing system reliability and availability.
SCT (TMD) is also responsible for maintaining the performance of
Systems Software, including when necessary:
o Altering of system parameters to maintain the performance
and efficiency of the Systems Software;
o Researching, testing, and evaluating available vendor
provided Systems Software.
2. Support Software
SCT (TMD) is responsible for maintenance of all vendor-supported
utility and related software utilized in support of Client's Systems
and related Application Software identified in Exhibit B(1)/generally
described in Exhibit B(2). The goal of this function is to maintain
releases and modification levels of the system support software without
sacrificing System reliability and availability.
SCT (TMD) is responsible for maintaining the effectiveness of the
system support software, including when necessary:
o Vendor contact, coordination and management of vendor
supplied software maintenance;
o Maintenance of the release and modification levels of
existing system support software;
o Supporting an ongoing program for the evaluation of
available application and support utility packages for
Client's use; and
o Monitoring utilization of existing system support software
and providing management reports depicting results with
recommendations for future support.
3. Technical Support
SCT (TMD) is responsible for providing technical support in the form of
consultation, problem determination, and general assistance to Client's
data processing community. The goal of this function is to provide the
benefit of systems programming knowledge and expertise to the Client.
This support is provided in the following categories of service:
o Technical direction;
o Problem resolution; and
o Documentation.
<PAGE>
Activities in support of this function are:
o Developing policies and procedures for access to the support
staff;
o Developing reply and escalation procedures for inquiry
follow-up and tracking; and
o Providing statistics and information in the form of
management reports that will allow Client to evaluate the
overall performance of the technical support function.
4. Capacity Planning
SCT (TMD) will periodically review and notify Client promptly in
writing when the System, the Hardware, the Systems Software, the
Application Software or any portion thereof, as identified in Exhibit
B(1) or generally described in Exhibit B(2) is being used to a capacity
at which the Client should consider any upgrade, enhancement and/or
addition to prevent the same from failing to meet reasonable
performance standards.
D. Production Services
SCT (TMD) is responsible for the maintenance and enhancement of
Client's production environment identified in Exhibit B(1)/generally
described in Exhibit B(2). SCT (TMD) is responsible for maintaining
site standards which include production programs, control files and
production documentation. In addition to the foregoing, SCT (TMD) will
monitor changes in the production environment, logging and tracking
problems that develop. These activities include:
o Change Management;
o Problem Reporting;
o Production Documentation Maintenance;
o Production Environment Maintenance; and
o Security Administration.
E. Production Control
SCT (TMD) is responsible for the following:
o Job scheduling;
o Job setup;
o Job submission and checkout;
o Output distribution consistent with existing practices;
o Problem resolution.
F. Data Administration and Security
SCT (TMD) is responsible for those tasks necessary to create and
maintain the data bases essential to the systems identified in
Exhibits B(1) and B(2). These responsibilities include:
o Design of data bases and associated file structures;
o Provide internal training of technical staff to provide
knowledge of data management processes;
o Monitoring of data usage to identify patterns, abuses, and
tuning recommendations with available tools;
o Development and maintenance of recovery procedures for
restoration of the data bases and files to the most current
version possible;
o Perform error correction efforts to correct specific data
integrity problems caused by logical or physical errors;
o Perform problem resolution activities to identify and
correct processing errors causing corruption to data bases
and files;
o Perform capacity planning to provide for availability of
resources for the storage and retrieval of data;
<PAGE>
o Provide vendor interaction to maintain relationships with
required providers of data base software and support products;
o Provide support for data translation or conversion, and;
o Provide support for remote third party real-time access.
G. Microcomputer Services
Microcomputers and local area networks (LANs) listed on Exhibit
B(1)/generally described in Exhibit B(2) are supported through
"Technical Services" and "Application Services". SCT (TMD) will
provide the following additional services in connection with those
microcomputers listed on Exhibit B(1)/generally described in Exhibit
B(2).
1. Consulting
SCT (TMD) will provide user consulting services for standard
microcomputer packages identified in Exhibit B(1).
2. Installation and Relocation
SCT (TMD) will provide configuration, installation, and relocation
services for the Client workstations listed in Exhibit B(1)/generally
described in Exhibit B(2).
3. Service
SCT (TMD) will provide maintenance and repair services for all
microcomputers and terminals used in conjunction with the Services
provided in this Agreement either internally or by contracting with a
maintenance vendor. SCT (TMD) will ascertain the number of Client
microcomputers and terminals in use as of the Commencement Date as part
of the inventory to be conducted to ascertain the computing environment
pursuant to Exhibit B(1). SCT (TMD) will provide appropriate
maintenance and repair services within an environment where
microcomputers are refreshed on a four year cycle.
4. New Microcomputer Configuration
Definition of the standard microcomputer will take place for each year
after the first year as part of the AWP process.
VI. DATA NETWORK MANAGEMENT
SCT (TMD) will:
o Provide management, consultative and administrative support
for Client's data network and operating environment, and;
o Be responsible for maintaining Client's network plan,
schematics, and end-user documentation relating to Client's
plan for the management of the wide area and local area
networks.
Changes in Client's wide area and local area networks are expected to
occur over time. SCT (TMD) will inform Client of additional operational
support needs if delivery of other obligations is negatively impacted
by this growth. At such point, SCT (TMD) will notify Client of the need
to consider additional resources. The metric used to determine the
staffing levels required to support the networks will be defined in the
Procedures Manual and will change over time due to changes in
technology and/or tools. SCT (TMD) will provide senior network
technical and administrative support to perform these wide area and
local area network services.
Client and SCT (TMD) will periodically review the nature of the
services required in connection with management of Client's wide area
and local area networks, and will determine whether additional
resources are appropriate to support such wide area and local area
management services, and if so, the manner in which such services will
be provided, e.g., via additional Client resources or via Supplemental
Services from SCT (TMD).
<PAGE>
VII. HELP DESK CENTER AND STAFFING
SCT (TMD) will:
Provide a centralized help desk which will be the focal point
for end user support services for Client users. The services
provided by the help desk include:
o Responding to requests from Client staff for
service/support;
o Assistance in the operation of supported applications
identified in Exhibits B(1) and B(2);
o Coordinate hardware acquisition and maintenance;
o Guidance on procedures which support Client computing;
o Support during SCT (TMD)'s posted operating hours, as
such hours are mutually agreed to by Client and SCT
(TMD) and as described in the Procedures Manual;
o On-site consultation and support;
o Automated tracking and reporting software for help desk
operations;
o Route and track calls which require escalation to the
specialized support teams; and
o Maintenance of a technical library of the
documentation, as available from SCT (TMD) and/or as
provided to SCT (TMD), for the Software being supported
by SCT (TMD).
For every 150 additional workstations added to Client's physical
inventory after the Commencement Date of this Agreement (beyond a total
of 800), one additional microcomputer specialist will be required to
augment the help desk staff. SCT (TMD) will notify Client in writing of
the additional costs required to provide such increased staff. Client
will notify SCT (TMD) in writing, by not later than thirty (30) days
after SCT (TMD) provides Client with notice of the additional staff
required, of its desire and intent to acquire the additional staff. If
no notice is provided to SCT (TMD) in connection with Client's election
in connection with the acquisition of such staff, SCT (TMD)'s help desk
support will not be increased.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
VIII. PERFORMANCE MEASUREMENT CRITERIA AND REPORTING
For Client to measure SCT (TMD)'s performance, specific service
components and measurement criteria will be defined for the Systems in
production. In conjunction with the development of the AWP, SCT (TMD) will, by
not later than 180 days after the Commencement Date, collect statistics on,
evaluate, measure, record and provide service levels in connection with the
current, or desired, as mutually agreed to by the parties, baseline performance
of the Systems (the "Baseline Service Levels"). The performance measures set
forth in this Section VIII of Exhibit A apply only to the operation of the
Systems to be provided to Client by SCT (TMD) under the terms of this Agreement.
Notwithstanding the foregoing, neither the Baseline Service Levels nor the
performance measures set forth in this Section VIII of Exhibit A will apply in
the case of a declared disaster (a "Declared Disaster"), as such term is defined
in the disaster recovery plan to be provided by SCT (TMD) to Client under the
terms of this Agreement (the "Disaster Recovery Plan"). The Disaster Recovery
Plan will specify performance measures which will apply in the case of a
Declared Disaster.
MONTHLY PERFORMANCE REVIEW
A monthly review of performance will be held between the SCT Executive
Director and the Client Contract Administrator. SCT (TMD) will notify Client, as
part of the monthly review meeting, of any performance variances and actions
planned to address such variances. SCT (TMD) will not be responsible for
variances from performance measurements resulting from situations beyond the
control of SCT (TMD). If such variance is due to situations within the control
of SCT (TMD), the SCT Executive Director will be required to provide an
explanation of those variances and plans to bring those criteria within the
Performance Levels.
ANNUAL REVIEW
SCT (TMD) will provide, as part of its annual report, an analysis of
SCT (TMD)'s performance against the measurement criteria set forth in this Part
VIII of Exhibit A. Client will notify SCT (TMD) in writing, within ten (10)
business days after the annual review meeting, of any specific areas in which
SCT (TMD)'s performance is inconsistent with the report. If Client fails to so
notify SCT (TMD) of any inconsistencies within the ten (10) business days, such
performance will be deemed consistent with the report. If Client so notifies SCT
(TMD) of any specific areas of inconsistency, SCT (TMD) will have ten (10)
business days to formally respond to Client, either accepting Client's
objections or providing Client with additional information supporting SCT
(TMD)'s analysis. In any event, SCT (TMD) will not be responsible for variances
from performance measurements resulting from situations beyond the control of
SCT (TMD). By mutual agreement, these may be revised to reflect changes in
relevant service components and appropriate performance objectives. The
Performance Goal identified for each service component is that level of
performance which SCT (TMD) will strive to attain. The Performance Level for
each service component is that level of performance which SCT (TMD) should
consistently provide, in all material respects, over an extended period of time
during the term of the Agreement. In addition to the performance criteria set
forth below, each AWP will include, as applicable, standards, such as program
schedules, against which SCT (TMD)'s performance of the tasks identified therein
can be measured.
Management
Timeliness of Status Reports: Status reports will be provided monthly
and annually. Formats of status reports will be mutually agreed to by the SCT
Executive Director and the Client Contract Administrator.
Performance Goal: 100% within one day of schedule
Performance Level: 99% within one week of schedule
Production Services
Job Turnaround: Measures the timeliness for the
processing of scheduled production batch jobs by SCT (TMD).
Performance Goal: 95% within 24 hours
100% within 48 hours
Performance Level: 90% within 24 hours
99% within 72 hours
Timeliness of Reports: Measures the timeliness of the delivery of
centrally printed production reports to the end user departments where
appropriate.
Performance Goal: 90% within 2 hours of scheduled delivery
Performance Level: 90% within one business day
<PAGE>
Change Management: Measures the effectiveness of management
in planning and controlling changes to the production environment.
Performance Goal: 99% of changes to the production environment
will be processed and controlled through a
formal Change Management process
Performance Level: 90% of changes to the production environment
will be processed and controlled through a
formal Change Management process
Technical Services Support
Systems Software Currency: Measures the effectiveness of maintaining
Systems Software to appropriate levels of currency.
Performance Goal: Maintain all Systems Software components to
within two major vendor recommended releases of currency
Performance Level: Maintain all Systems Software components to
within three major vendor recommended releases of currency
Critical Problem Resolution: Measures the effectiveness in providing
timely responses to reported Systems Software problems which affect production
system availability, to the extent SCT (TMD) receives support or resolution from
the Systems Software supplier.
Performance Goal: 95% of problems are resolved within 2 hours
of the receipt of the problem report
99% of problems are resolved within 24 hours
of the problem report
Performance Level: 90% of problems are resolved within 24 hours
of the receipt of the problem report
99% of problems are resolved within 72 hours
of the problem report
Non-Critical Problem Resolution: Measures the effectiveness in
providing timely responses to reported Systems Software problems which affect
production system performance or function but do not affect availability, to the
extent SCT (TMD) receives support or resolution from the Systems Software
supplier.
Performance Goal: 95% of problems are resolved within one week
of the receipt of the problem report
99% of problems are resolved within 30 days
of the problem report
Performance Level: 90% of problems are resolved within two
weeks of the receipt of the problem report
95% of problems are resolved within 60 days
of the problem report
Unscheduled Systems Software and Application Software Outages: Measures
the overall effectiveness of the change and problem management functions in
limiting the frequency of production system outages caused by Systems Software.
Performance Goal: 99% up time measured monthly against wall clock
Performance Level: 97.5% up time measured monthly against wall clock
Application Software
Application Software Enhancements: Measures the effectiveness of
completing and implementing
requested and approved
enhancements to Application
Software.
Performance Goal: 95% completed within the approved schedule
once final requirements have been approved
Performance Level: 90% completed within 30 days of the approved
schedule once final requirements have been
approved
Application Software Maintenance: Measures the effectiveness of
completing and implementing
required maintenance to the
Application Software.
Performance Goal: 95% completed within the approved schedule
once final requirements have been approved
Performance Level: 95% completed within two weeks of the
required schedule once final requirements
have been approved
Help Desk
Responsiveness: Measures the effectiveness of Level 1 support through
the percent of calls closed during the first call.
Performance Goal: 80% closed during the first call
Performance Level: 70% closed during the first call
Technical Support: Measures the effectiveness of the Level 2
technical support through the percent of calls
closed within a specific time-frame.
Performance Goal: 90% closed within 24 hours of the call being
forwarded to "level 2" status
Performance Level: 80% closed within 24 hours of the call being
forwarded to "level 2" status
<PAGE>
ATTACHMENT 1 TO
EXHIBIT A
(See attached)
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT B(1)
EXISTING SYSTEMS COMPONENTS FOR WHICH SCT (TMD) HAS OPERATIONAL RESPONSIBILITY
By not later than ninety (90) days after the Commencement Date, SCT (TMD) will
validate and update the list of the Systems Components installed and in use by
Client as of the Commencement Date SCT (TMD) acknowledges receiving as of the
Effective Date, and which list is deemed incorporated herein by this reference
as fully as if written out below). SCT (TMD) will formally update Exhibit B(1)
as part of each AWP. Exhibit B(1) will be deemed amended to include each Systems
Component for which SCT (TMD) provides Client with a right of use during the
Term. Without limiting the foregoing, SCT (TMD) will formally update Exhibit
B(1) as part of each AWP.
<PAGE>
EXHIBIT B(2)
REPLACEMENT SYSTEMS COMPONENTS FOR WHICH SCT (TMD) WILL HAVE
OPERATIONAL RESPONSIBILITY
Based on the following budget limitations, SCT (TMD) will provide Client with
the right of use for the following substitutional Systems over the Term:
<TABLE>
Amount
<S> <C>
Desktop Workstations $ 750,000
Local Area Network Servers $ 100,000
Desktop Software (including ADAGE Software peripheral $ 150,000
Systems)
ADAGE Software - Application Software $1,000,000
ADAGE Software Implementation [includes estimated travel $1,350,000
and living expenses for SCT (MDS) implementation
personnel]
</TABLE>
As part of each AWP, SCT (TMD) will annually update Exhibit B(2) by providing a
listing of all Systems components for which SCT (TMD) has, through the date of
such AWP, obtained a right of use for Client, and such updated Exhibit B(2) will
be deemed automatically incorporated into this Agreement.
<PAGE>
EXHIBIT C
TRANSITIONED EMPLOYEE POSITIONS
<TABLE>
Location Position FTE
<CAPTION>
<S> <C> <C>
At Montezuma, GA Network Administration 1
At Tacoma, WA Application Developer 1
Computer Operator 1
Enterprise Network Manager 1
Network Administrator 1
Network Support Administrator 1
Network Technician 2
Operations Supervisor 1
Process Analyst 1
Project Manager 1
User Training Specialist 1
At Rochester, NY Application Developer 8
Computer Operator 1
Dir. of Tech. Services Network 1
Dir. of Tech. & Development 1
Dir. of App. Tech. & Development 1
EDI/EC Specialist 1
Network Administration 2
Operations Supervisor 1
PC Tech. Support Specialist 1
Process Analyst 1
Project Manager 3
Sr. Computer Operator 1
Systems Programmer 1
User Training Specialist 1
At Benton Harbor, MI Network Administrator 1
--
Total 37
==
</TABLE>
<PAGE>
EXHIBIT D
PAYMENT SCHEDULE
<TABLE>
Contract Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Payment $5,000,000 $5,200,000 $5,200,000 $5,200,000 $5,200,000 $5,200,000 $5,100,000 $4,849,000 $4,400,000 $4,400,000
</TABLE>
<TABLE>
Contract Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Labor Component$4,155,000 $3,893,000* $3,130,000* $2,526,000* $2,535,000* $2,440,000* $2,440,000* $2,410,000* $2,410,000*$2,410,000*
<FN>
* Represents portion of Annual Payment that is subject to Cost of Living Adjustment, as provided for in Section 6.2 of Agreement.
</FN>
</TABLE>
<PAGE>
EXHIBIT D(1)
Excluded Expenses
Data Processing costs associated with the support of equipment and Systems
not identified in Exhibits B(1) and B(2).
License Fees and maintenance costs for the ADAGE Software (and related
software licensed under the License Agreement) in excess of the number of
concurrent users licensed in Exhibit 1 of the License Agreement.
Costs associated with Curtice Burns retained positions.
<PAGE>
EXHIBIT D(2)
<TABLE>
INCLUDED EXPENSES
Contract Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Not to Exceed $2,329,000 $1,734,000 $1,684,000 $1,043,000 $1,024,000 $1,025,000 $1,025,000 $1,026,000 $1,027,000 $1,022,000
Amount
</TABLE>
This Exhibit D(2) represents one component of the total cost of OnSite Services.
The expenses on this Exhibit D(2) are representative of data processing
operating costs such as, but not limited to, the following: Hardware
maintenance, supplies, communications lines, technology refreshment, etc. The
Included Expenses are subject to the conditions of Section 6 under this
Agreement.
<PAGE>
EXHIBIT E
UNSECURED EARLY TERMINATION FEE SCHEDULE
The Unsecured Early Termination Fee will be prorated to the effective date of
termination.
<TABLE>
Date Amount
<CAPTION>
<S> <C>
As of the Effective Date $ 888,000
June 29, 1998 $ 888,000
June 29, 1999 $1,763,000
June 29, 2000 $2,783,000
June 29, 2001 $2,995,000
June 29, 2002 $3,322,000
June 29, 2003 $3,418,000
June 29, 2004 $2,234,000
June 29, 2005 $1,227,000
June 29, 2006 $ 624,000
June 29, 2007 $ 0
</TABLE>
<PAGE>
EXHIBIT F
<TABLE>
SECURED EARLY TERMINATION FEE SCHEDULE
Date Amount
<CAPTION>
<S> <C>
As of the Effective Date $3,700,000
June 30, 1998 $4,300,000
June 30, 1999 $3,600,000
June 30, 2000 $2,500,000
June 30, 2001 $1,200,00
June 30, 2002 $ 0
</TABLE>
<PAGE>
EXHIBIT G
DEVELOPED SOFTWARE LICENSE TERMS
SCT (TMD) grants Client a perpetual, non-exclusive, non-transferable license to
use, execute and copy as needed to use the Developed Software, in both object
code and source code form, at any locations and on any number of processors and
related peripherals, all in accordance with all other terms and conditions of
the Agreement. Any rights not expressly granted in this Agreement are expressly
reserved.
(1) Client will not disclose all or any part of the source code for the
Developed Software to any person except: (i) Client employees with a "need to
know"; and (ii) consultants with a "need to know" who, prior to obtaining access
to the Developed Software, have executed a non-disclosure agreement
substantially in a form acceptable to SCT (TMD).
(2) Client can copy the documentation for the Developed Software as
needed for its use in accordance with the terms of the Agreement.
(3) Client is prohibited from causing or permitting the reverse
engineering, disassembly or decompilation of the Developed Software. Client will
not allow the Developed Software, in whole or in part, to be exported outside of
the United States of America, in any manner or by any means, without in each
instance obtaining SCT (TMD)'s prior written consent (such consent which SCT
(TMD) will not unreasonably withhold or delay) and, if required, a validated
export license from the Office of Export Administration within the U.S.
Department of Commerce and such other appropriate United States governmental
authorities.
(4) Client may modify, improve, enhance and compile the Developed
Software. Client may develop software derivative of or interfacing with the
Developed Software.
(5) Client is prohibited from removing or altering any of the
Intellectual Property Rights notice(s) embedded in or that SCT (TMD) otherwise
provides with the Developed Software. Client must reproduce the unaltered
Intellectual Property Rights notice(s) in any copies that Client makes of the
Developed Software.
(6) Subject to the payment terms provided for in this Agreement, the
provisions of the license granted hereunder and all related rights and
obligations, will survive the term or termination of this Agreement for any
reason.
12
EXHIBIT 10.22
RAW PRODUCT SUPPLY AGREEMENT
THIS AGREEMENT is effective as of May 5, 1997 by and between Curtice
Burns Foods, Inc., acting through its Comstock Michigan Fruit Division ("CMF")
and Seneca Foods Corporation ("Seneca"). Seneca cans vegetables at plants
located in western New York in Geneva, Marion, Leicester, East Williamson and
Newark (the "Seneca Plants"), as well as at plants in other states. CMF operates
plants in western New York for the production of canned and frozen vegetables at
Bergen, Oakfield, Barker, Gorham, Shortsville and Waterport (the "CMF Plants").
By this agreement, the parties agree to coordinate the procurement of
certain vegetables to meet their requirements which are to be obtained either
(a) from crops grown in western New York or (b) from crops needed for processing
at their plants in New York that are grown outside New York ("Raw Products") so
as to achieve economies of production and delivery of Raw Products for
processing. They have agreed that CMF shall be responsible for procuring all Raw
Products for delivery to both the Seneca Plants and the CMF Plants.
It is therefore agreed as follows:
1. Term and Exclusivity. Beginning with the western New York 1997 growing season
and continuing through the western New York growing season of 2006, CMF agrees
to obtain and deliver to Seneca and Seneca agrees to purchase from CMF green
peas, snap beans, sweet corn, red beets, carrots and cabbage as required for
processing by Seneca at the Seneca Plants. On April 28 of each year commencing
in 1998, the term of this Agreement shall be extended for one additional year,
without action by either party, unless prior to April 28 either party gives
notice that it will not agree to any additional extensions of the term. In the
event of such notice, the term of the agreement shall be fixed and not be
subject to any additional automatic extensions.
2. Raw Product Plan. The quality, quantity and variety of Raw Products
of Seneca and the location to which they are to be delivered shall be as
established in an annual raw product plan (the "Seneca Plan") and attached to
this Agreement as an addendum. The Seneca Plan shall also include, as
attachments, grower contracts agreed upon by both parties for that plan year.
The Seneca Plan for the 1997 growing season is attached hereto as Exhibit 1. For
each subsequent year during the term of this agreement, Seneca shall deliver to
CMF an estimated Seneca Plan no later than January 15 of the year preceding the
growing season for that year.
<PAGE>
The parties shall consult thereafter and come to agreement no later than
the following March 1 as to the final Seneca Plan for the growing season of that
year.
3. Quantity of Raw Products. It is the expectation of the parties that
Seneca shall purchase from CMF each year during the term of this agreement
approximately 244,000 tons of Raw Products, based upon the historical
requirement of Seneca for 160,000 tons of Raw Products and the 84,000 tons which
have been required for the canned vegetable business purchased by Seneca from
CMF as of May 5, 1997. The parties recognize and acknowledge that such quantity
will vary from year to year as required by economic conditions. However, in any
event, Seneca agrees to purchase from CMF a minimum of 84,000 tons of Raw
Products each year during the term of this agreement, whether processed in the
Seneca Plants or processed for canning by CMF on Seneca's behalf at the
Oakfield, New York plant of CMF.
4. Raw Product Procurement. It is the responsibility of CMF to select
the growers and to contract and arrange for the growing and harvesting of Raw
Products each year in accordance with the Seneca Plan. CMF shall also be
responsible for the delivery of the Raw Products for processing on a timely
basis in accordance with the production schedule for the location to which such
crops are to be delivered, as specified in the Seneca Plan. Through its field
service employees, CMF shall inform Seneca on an as-required-by-Seneca basis
concerning the prospects for harvest of the Raw Products to be processed under
the current Seneca Plan. CMF agrees its field service employees will provide 24
hour service. Seneca may reject Raw Products which upon inspection by Seneca
fail to meet the quality requirements or pesticide limitations set forth in the
Seneca Plan.
5. Processing. It is the responsibility of Seneca to receive and
process the Raw Products as delivered in accordance with the Seneca Plan. Seneca
shall notify CMF as soon as possible of any anticipated inability of Seneca to
accept and process Raw Products in accordance with the Seneca Plan. To the
extent Seneca fails to accept Raw Products as specified in the Seneca Plan, and
provided Raw Products are available at the time, Seneca may decide to release
such products to CMF either for its use or for sale on the open market. If all
available Raw Products are not processed or sold, the remaining Raw Products
will be considered Bypassed Crops. Compensation for Bypassed Crops will be
determined as described in Section 12 of this agreement.
<PAGE>
6. Title and Risk of Loss. Title to the Raw Products shall pass from
CMF to Seneca upon delivery and acceptance at a Seneca Plant in accordance with
the Seneca Plan. Risk of loss of the Raw Products shall remain with CMF until
the time of such delivery and acceptance, at which time such risk of loss shall
pass to Seneca.
7. Facilities at Seneca Plants. Seneca has previously conducted field
services for the Seneca Plants through its own employees, most of whom have
become employees of CMF providing comparable field services as provided in this
Agreement. Seneca agrees to provide, at no cost to CMF, office space and
secretarial assistance at each of the Seneca Plants which is comparable to such
facilities as were provided by Seneca for field service purposes when such
services were performed by employees of Seneca. Seneca also agrees to permit CMF
to install, at the expense of CMF, mainframe computer terminals and related
equipment in each of the Seneca Plants for the use of the CMF field staff in
performing its obligations under this agreement.
<PAGE>
8. Pricing. The price to be charged by CMF for its services under
this agreement is to be determined as follows:
a. For all Raw Products sourced in New York State and
delivered to Seneca Plants pursuant to this Agreement which CMF has contracted
to obtain at the commercial market value ("CMV") thereof, Seneca shall pay CMF
the CMV of such Raw Products. CMV shall be calculated in the same manner as
determined between CMF and Pro-Fac Cooperative, Inc. ("Pro-Fac") for the same or
similar raw products sold by Pro-Fac to CMF in accordance with the current CMF
Raw Product Plan for the CMF Plants (the "CMF Plan"). The parties agree to
confer as to those situations where CMF shall procure Raw Products at a price
different from CMV. In such instances as CMF contracts for Raw Products required
for the Seneca Plan and for the CMF Plan at a price which is different from CMV
(the "Contract Products"), then Seneca shall pay for such Contract Products as
follows:
(i) Where the price of Contract Products exceeds CMV, Seneca shall pay for
such Contract Products supplied for the Seneca Plan a portion of the excess of
such price above CMV equal to that portion of such excess price as the
requirement for such crop as specified in the Seneca Plan bears to the combined
requirements for such crop as specified in the Seneca Plan and CMF Plan
together. For example, assume the contract price for corn is $10 per ton greater
than CMV, that Seneca requires 60,000 tons of corn under the Seneca Plan, that
there are 100,000 tons of corn required by Seneca and CMF together, that 20,000
of such 100,000 tons are Contract Products, that the total excess of the
Contract Products price over CMF is thus $200,000, and that CMV is $50 per ton.
Seneca will pay CMV of $3.0 million plus $120,000, for a total of $3,120,000 for
its corn. CMF will pay CMV of $2.0 million plus $80,000, for a net total of
$2,080,000 for its corn.
(ii) Where the price of Contract Products is less than CMV, Seneca shall
pay less than CMV by an amount equal to that portion of such lower price as the
requirement for such crop as specified in the Seneca Plan bears to the combined
requirements for such crop as specified in the Seneca Plan and CMF Plan
together. For example, assume the facts are the same as set forth above except
that the contract price for corn is $10 per ton less than CMV, resulting in a
total variance of $200,000 below CMV. Then Seneca will pay CMV of $3.0 million
less $120,000, for a total of $2,880,000 for its corn. CMF will pay CMV of $2.0
million less $80,000, for a net total of $1,920,000 for its corn.
<PAGE>
As required for payment and other purposes under this Agreement, CMV or an
average of CMV and the cost of the Contract Products shall be estimated in
accordance with the practices of CMF and Pro-Fac and shall be finally determined
for each growing season on or before December 31 of each year.
b. Raw Products obtained for Seneca by CMF pursuant to this
agreement from sources outside New York State will be priced at the cost to CMF
for such Raw Products.
c. In addition to paying the price for Raw Products as
provided above, Seneca will also reimburse CMF for the acquisition costs
incurred by CMF in delivering Raw Products to Seneca Plants, including, without
limitation, harvesting, hauling, insect control, insurance and any other
expenses incurred in connection with the delivery of Raw Products to the Seneca
Plants. The costs of CMF shall be determined in accordance with historical
accounting practices of CMF and be open for review by Seneca as provided in
Section 19. It is also agreed that Seneca shall deduct from amounts owed to CMF
an amount equal to the value of services and supplies provided by Seneca to CMF
for the production and delivery of Raw Products to Seneca.
d. Seneca will also reimburse CMF for its cost of providing
other field services pertaining to the sourcing of Raw Products for Seneca
incurred in connection with the performance by CMF of its responsibilities under
this agreement. In determining such cost, expenses will be allocated on a
tonnage basis between field services provided for Seneca and field services
provided for CMF with regard to obtaining and delivering Raw Products to the CMF
Plants. Accordingly, Seneca shall pay CMF as such reimbursement a percentage of
the total cost of such field services equal to the percentage of the total tons
of Raw Products delivered to Seneca over the total tons of Raw Products
delivered to Seneca and CMF.
e. For purposes of this Section 8, the costs of CMF shall be
determined in accordance with historical accounting practices of CMF and shall
be subject to audit by Seneca as provided in Section 19.
9. Terms of Payment.
a. The purchase price set forth in Section 8(a) and (b) shall
be paid as follows: For peas, Seneca shall pay 50% of the purchase price no
later than August 15 of the year of delivery and the remaining 50% no later than
December 15 of the year of delivery. For all other Raw Products Seneca shall pay
50% of the cost of such crop within 30 days of delivery to a Seneca
<PAGE>
Plant and the remaining 50% no later than the following
February 15. CMF shall invoice Seneca for deliveries on a weekly basis. The
invoices shall indicate the due dates for payment.
b. CMF shall invoice Seneca monthly for its costs incurred
which are payable by Seneca as provided in Section 8(c) and (d), and Seneca
shall pay CMF the invoiced amounts within 30 days of receipt of such invoice,
except that 75% of hauling and harvesting charges shall be paid within 15 days
of receipt of such invoice and the final 25% 30 days after the last harvest date
for the crop to which such hauling and harvesting relates.
10. Crop Shortfall. If CMF invokes the provisions of force majeure
pursuant to Section 17 of this agreement, CMF may reduce the quantity of the
affected categories of Raw Products sold to Seneca below the quantity required
pursuant to the Seneca Plan for the year, but only to the extent necessary to
allow a pro rata allocation between Seneca and CMF, based upon the Seneca Plan
and the CMF Plan, of the actual production of the affected categories of Raw
Products. In determining such a pro rata allocation, CMF shall provide Seneca
with sufficient information from the CMF Plan for the applicable growing season
pertaining to the affected categories of Raw Products to establish that the
reduction of Raw Products provided to Seneca is in accordance with this Section
10. Notwithstanding the foregoing, any category of Raw Product of a particular
grade provided only to Seneca and not to CMF, or grown from seeds designated by
Seneca for a particular product required by Seneca (the "Seneca Products"),
shall be provided solely to Seneca and shall not be subject to a pro rata
allocation in the event of a crop shortfall. In the event of a crop shortfall
for any category of Raw Products, Seneca shall have the right, at its option, to
purchase additional quantities of such Raw Products of a lesser grade or quality
than was specified in the applicable Seneca Plan. Such additional quantities
shall be subject to proration between CMF and Seneca as provided above.
11. Overproduction. If crop yields for a growing season result in an
excess of Raw Products beyond the volumes contemplated in the Seneca Plan and
the CMF Plan, ("Overproduction"), then (subject to the provisions of Section
13), CMF and Seneca shall purchase such Overproduction, on a pro rata basis
determined based on requirements for such Raw Products as are specified in the
Seneca Plan and the CMF Plan. In determining such allocation, CMF shall provide
Seneca with sufficient information from the CMF Plan for the applicable growing
season pertaining to the affected categories of Raw Products to establish that
the Overproduction allocated to Seneca is in accordance with this Section 11.
Notwithstanding the foregoing, any Overproduction of the Seneca Products, as
defined in Section 10, shall be allocated solely to Seneca under this Section
11.
<PAGE>
12. Facilities Operated by Seneca or CMF Located Outside of New York
State. To the extent that raw product is available from Seneca or CMF facilities
located outside of New York State, and provided there is insufficient Raw
Product available under this Agreement, each company has first priority use of
its own raw product from outside of New York State, and the other company shall
then have second priority use of such raw product over third parties. It is
agreed that raw product processed from company owned facilities located outside
of New York State will not be considered in any of the pro rata allocations as
identified in Section 10.
13. Bypassed Crops. Raw Products fit for harvesting and suitable for
processing under the provisions of the Seneca Plan which are not harvested at
the direction of Seneca shall be referred to as "Bypassed Crops." Payments by
Seneca for Bypassed Crops shall be governed by the provisions of this Section
13. The quantity of the Bypassed Crops shall be determined by harvesting a
portion of the planting, sampling, or some other means acceptable to the parties
to determine the yield of the unharvested acreage and the amount of Bypassed
Crops. Initially, the value of such Bypassed Crops shall be the price which
would have been payable had such Bypassed Crops been harvested and delivered in
accordance with the Seneca Plan, less any cost not incurred for harvesting and
delivering such Bypassed Crops as set forth in the Seneca Plan, and plus any
costs associated with determining the yields of the unharvested acreage of the
Bypassed Crops. The value of the bypassed crops shall be held in a "bypassed
pool", which shall be established for each commodity separately. Compensation to
cover the expense of the bypassed pool shall be shared equally between
Seneca/CMF and the growers for that specific commodity, such that the growers
contribute 50% of the expenses and Seneca/CMF match the grower contributions, to
a maximum dollar value equal to 7% of the total value of that commodity. Any
expenses that exceed the 7% limit shall be borne by the growers if the excess is
the result of agricultural perils, and if the excess is the result of plant
operations issues shall be borne by Seneca and/or CMF. The allocation of the
excess, if any, between Seneca and CMF shall be mutually agreed upon at the end
of each growing season.
14. Sale of Overproduction and Bypassed Crops. To the extent that
neither Seneca nor CMF want the Overproduction allocable to them as provided in
Section 11 or Bypassed Crops as provided in Section 13, then CMF will make
commercially reasonable efforts to sell such Overproduction and Bypassed Crops
at the highest available price under such terms and conditions as are acceptable
to CMF. The net proceeds from any such sale shall be retained by CMF and shall
be deducted from the amount otherwise payable by Seneca to CMF pursuant to
Section 8(a), 8(b), 11 and 13.
<PAGE>
15. Seeds and Proprietary Information. Two classes of seeds from which Raw
Products are to be grown for Seneca and CMF are contemplated by this Agreement:
Generic Seed and Proprietary Seed. a. Generic Seed: To the extent that such seed
is available from Seneca, CMF agrees to buy, and Seneca agrees to sell, such
seeds at the actual cost paid by Seneca for such seed. Payment by CMF for such
seed shall be made by a deduction of the cost thereof from the first payment of
the purchase price of such Seneca Products pursuant to Section 9. The parties
agree that CMF will thereafter resell such seed to their growers at the actual
cost paid by CMF for such seed. CMF agrees to direct the growers to whom seed is
sold by CMF to comply with any usage restrictions applicable to such seed which
may be required by Seneca. b. Proprietary Seed: Proprietary Seed as used in this
Agreement shall refer to seed which comprises trade secrets of The Pillsbury
Company ("Pillsbury"). To the extent the Proprietary Seed is available from
Seneca, Seneca agrees to provide such seed to CMF at its effective cost. CMF
shall, in turn, provide such seed at no cost to growers. In consideration of
being granted access to Pillsbury's trade secrets, CMF agrees to enter into an
agreement with Pillsbury in the form attached hereto as Exhibit 2, and shall
include within its standard grower contracts any restrictive provisions required
by Seneca or Pillsbury. All trade secret and other intellectual property rights
embodied in the Proprietary Seed provided by Seneca to CMF shall remain the
property of Pillsbury and may be used solely for the production of crops for
Seneca. No transfer of such rights shall be accomplished by any other
agreements, and CMF will not transfer such seed or crops grown from such seed to
any other party. The provisions of Section 14 hereof shall not be applicable to
crops resulting from Proprietary Seed unless crops are sold as ensilage or the
like.
16. Sweet Corn Ensilage. CMF shall sell or otherwise dispose of all
sweet corn ensilage created as a result of the growing of Raw Products pursuant
to this Agreement. Initially, CMF shall retain the proceeds from the sale of
such ensilage, and Seneca shall reimburse CMF for any cost incurred in disposing
of such ensilage attributable to the Seneca Plants to the extent that such costs
exceed the proceeds of the sale. On an annual basis, such costs shall be
invoiced by CMF and paid by Seneca, and to the extent the proceeds from sale of
ensilage attributable to Seneca Plants exceed such costs, CMF shall pay such
excess to Seneca.
17. Pesticide Treatment and Records. CMF agrees to direct the growers
of Raw Products to be sold to Seneca pursuant to this Agreement to use only
those pesticides that are registered under the applicable provisions of the
Federal Insecticide, Fungicide and Rodenticide Act and to use those pesticides
in a matter consistent with their labeling. CMF will use reasonable efforts
consistent with industry standards to assure compliance with such requirement by
the growers who produce Raw Products for Seneca pursuant to this Agreement. CMF
will provide to Seneca records of all pesticide applications to Raw Products
delivered to Seneca Plants
<PAGE>
pursuant to this Agreement. Such records shall be supplied at the time of
delivery of such Raw Products at the Seneca Plants. Seneca shall have the right
to restrict the use of certain pesticides if in its opinion it is in its best
interest. Such restrictions will be identified in the annual Seneca Plan.
18. Force Majeure. If the performance of any part of this Agreement by
either party is prevented, hindered or delayed by reason of any cause or causes
beyond the control of such party due to acts of God, war, riot, fire, explosion,
flood, sabotage, inability to obtain raw materials or fuel or power,
governmental laws, regulations or orders, breakage of machinery or any cause
beyond the reasonable control of such party, or labor unrest, strike, lockout or
injunction, as the case may be and which cannot be overcome by due diligence,
the party affected shall be excused from such performance to the extent that it
is necessarily prevented, hindered or delayed thereby. During the continuance of
any such happening or event, this contract shall be deemed suspended so long as
and to the extent that any such cause prevents or delays its performance. Any
reduction of deliveries of Raw Products by CMF excused by this Section 18 shall
be handled as a crop shortfall pursuant to Section 10.
19. Audit. Within one year following the reporting by CMF to Seneca of
costs claimed by CMF to have been incurred under this Agreement (or of the
proceeds of sale in excess of costs under Section 16), Seneca shall have the
right on reasonable notice to CMF to examine the pertinent records of CMF to
verify the accuracy of costs (or proceeds under Section 16) so reported by CMF
and the appropriateness of the allocation of such costs (or proceeds). However,
CMF shall not disclose to Seneca any cost data other than that necessary to
permit such verification by Seneca. Should any disagreement arise as to such
costs which Seneca and CMF are unable to resolve, the matter shall be referred
for resolution to a Big-Six public accounting firm mutually acceptable to and
independent from Seneca and CMF (the "Accountant"). Upon the engagement of the
Accountant, Seneca and CMF shall each submit a statement to the Accountant
setting forth its respective position regarding the disagreement. The
determination of the Accountant shall be conclusive and binding upon the
parties. An adjustment, if any, to Seneca's cost shall be made in accordance
with the Accountant's determination. All fees and expenses of the Accountant in
performing its duties hereunder shall be shared equally by Seneca and CMF, each
of which hereby agrees to pay its share of such fees and expenses.
20. Indemnification. Each party hereto agrees to fully indemnify, defend
and hold the other party harmless from any and all claims, complaints, losses,
costs, expenses, damages or fees (including reasonable attorneys' fees) arising
from or associated with any failure by such party to comply with the terms,
undertakings or commitments set forth in this Agreement. Each party waives any
claim, or right to seek indemnification, for consequential damages. If the
indemnifying party shall so request, the indemnified
<PAGE>
party agrees to cooperate with the indemnifying party and its counsel
in contesting any claim which the indemnifying party elects to contest or, if
appropriate, in making any counterclaim against the person asserting the claim,
or any cross-complaint against any person. The indemnifying party shall
reimburse the indemnified party for any expenses incurred by the indemnified
party in so cooperating.
21. Termination. Without prejudice to any other rights either party may
have under this Agreement, applicable law or rule of equity, either party shall
have the option to terminate this Agreement in the event:
a. The other party commits a material breach of any term,
covenant or condition of this Agreement and such breach
is not remedied within thirty (30) days after the
aggrieved party has sent written notice of such breach
to the other party;
b. The other party become insolvent within the meaning of
any bankruptcy or insolvency law, or makes an
assignment for the benefit of its creditors.
c. An attachment, execution or lien is levied against Raw
Products under this Agreement and such attachment,
execution or lien is not remedied within thirty (30)
days after the aggrieved party has sent written notice
of such event to the other party.
d. A controlling interest in the other party is sold or
transferred, other than by gift or inheritance, unless
there is a mutual agreement to the change.
Notwithstanding the election of either party to terminate this Agreement as
provided above, such termination shall not be effective until the conclusion of
the growing season for the year following the year in which such election to
terminate is made.
22. Non-Assignment. This Agreement may not be assigned by either party hereto
without the prior written consent of the other party, which consent shall
not be unreasonably withheld. Any attempted assignment without such consent
shall be void.
<PAGE>
23. Independent Contractors. It is understood that neither Seneca nor CMF is
the agent or partner of the other, and that this Agreement shall not be
construed as a joint venture between them. It is further understood that
neither party shall be responsible for the debts or obligations of the
other, and neither party has the authority to bind or act on behalf of the
other.
24. Notices. All notices, requests, demands or other communications required or
permitted under this Agreement shall be given in writing and shall be
deemed to have been given if delivered personally, sent by facsimile or
Federal Express, or mailed postage prepaid, to the following addresses: As
to CMF: Comstock Michigan Fruit A Division of Curtice Burns Foods, Inc. 90
Linden Place Rochester, New York 14625 Attn: President Facsimile:
716-383-1606
With a copy to:
Thomas M. Hampson
Harris Beach & Wilcox, LLP
130 East Main Street
Rochester, New York 14604-1687
Facsimile: 716-232-6925
As to Seneca:
Seneca Foods Corporation
1162 Pittsford-Victor Road
Pittsford, New York 14534
Attn: President
Facsimile: 716-385-4249
With a copy to:
William I. Schapiro
Jaeckle Fleischmann & Mugel
Fleet Bank Building
Twelve Fountain Plaza
Buffalo, New York 14202-2292
Facsimile: 716-856-0432
IN WITNESS WHEREOF, the parties hereto duly execute this
Agreement as of May 5, 1997.
CURTICE BURNS FOODS, INC. SENECA FOODS CORPORATION
By: /s/ Earl L. Powers By /s/ Phillip Parras
Title: Chief Financial Officer Title: Vice President - Finance
9
EXHIBIT 10.23
RECIPROCAL CO-PACK AGREEMENT
This Agreement is effective as of May 5, 1997 by and between
Curtice Burns Foods, Inc., acting through its Comstock Michigan Fruit Division
("CMF") and Seneca Foods Corporation, a New York corporation having its
headquarters in Pittsford, New York ("Seneca").
CMF has sold and Seneca has purchased most of the canned
vegetable business formerly conducted by CMF in the State of New York, except
for beets packed in glass jars, sauerkraut and some other canned vegetables. The
canned vegetable business sold by CMF to Seneca is hereinafter referred to as
the "Business."
Prior to the sale of the Business to Seneca, CMF processed
canned vegetables at its plants in Leicester and Oakfield, New York, each of
which contain facilities for canning and freezing vegetables. The Leicester
plant has now been purchased by Seneca. Because it is not economically feasible
to transfer the freezing facilities located at Leicester and the canning
facilities at Oakfield to another location, Seneca has agreed to pack frozen
vegetables at Leicester for the account of CMF, and CMF has agreed to pack
canned vegetables at Oakfield for the account of Seneca, all as herein provided.
IT IS THEREFORE AGREED AS FOLLOWS:
1. Term of Agreement. This Agreement shall commence on May 5,
1997 and shall have an initial term of ten years, until April 28, 2007 unless
terminated earlier pursuant to Sections 11, 12 or 21. On April 28 of each year
commencing in 1998, the term of this Agreement shall be extended for one
additional year, without action by either party, unless prior to April 28 either
party gives notice that it will not agree to any additional extensions of the
term. In the event of such notice, the term of the Agreement shall be fixed and
not be subject to any additional automatic extensions.
2. Frozen Pack at Leicester. Seneca agrees to pack frozen
vegetables during the 1997 pack season at Leicester for
delivery to CMF in such types and in such quantities and
according to such specifications as are described in
exhibit 1 attached hereto (the "Frozen Pack Plan"). A
similar Frozen Pack Plan shall be negotiated and agreed to
by the parties for each subsequent year during the term of
this Agreement. Such vegetables as processed by Seneca are
hereinafter referred to as the "Frozen Pack." The
obligation of Seneca to process the Frozen Pack is limited
to the capacity of the facilities at Leicester as to the
volume and type of frozen vegetables previously packed at
Leicester by CMF.
3. Canned Pack at Oakfield. CMF agrees to can vegetables
during the 1997 pack season at Oakfield for delivery to Seneca in such types and
in such quantities and according to such specifications as are described in
exhibit 2 attached hereto (the "Canned Pack Plan"). A similar Canned Pack Plan
shall be negotiated and agreed to by the parties for each subsequent
<PAGE>
year during the term of this Agreement Such vegetables as
processed by CMF are hereinafter referred to as the "Canned Pack." The
obligation of CMF to process the Canned Pack is limited to the capacity of the
facilities at Oakfield as to the volume and type of canned vegetables previously
packed at Oakfield by Curtice Burns.
4. Raw Product Supply. Pursuant to the Raw Product Supply
Agreement between CMF and Seneca dated as of May 5, 1997 (the "Supply
Agreement"), CMF agrees to supply all Raw Products for the Frozen Pack at
Leicester as provided in the Frozen Pack Plan and for the Canned Pack at
Oakfield as provided in the Canned Pack Plan. The Raw Products so supplied to
Leicester for the Frozen Pack are hereinafter referred to as "CMF Raw Products"
and those supplied to Oakfield for the Canned Pack are hereinafter referred to
as "Seneca Raw Products."
5. Purchase Price. Each party shall pay the other for packing
vegetables for such party the cost to the party producing such vegetables,
including the cost of Raw Products. Such costs shall be determined in accordance
with the accounting practices and procedures specified in exhibit 3 attached
hereto. Such cost shall be determined on an estimated basis during the pack. As
for applicable direct cost, such estimate shall be revised and adjusted
accordingly as soon as possible following the conclusion of the pack, and all
cost estimates shall be adjusted to conform to actual cost no later than May of
each year. The cost of the Seneca Raw Products shall be the cost to CMF to
procure such Raw Products, as adjusted, if at all, pursuant to Section 8 of the
Supply Agreement. The cost of the CMF Raw Products shall be the cost incurred
for such Raw Products pursuant to the Supply Agreement.
6. Audit. For a period of a year following the reporting by
either party to the other of costs incurred under this Agreement, each party
shall have the right on reasonable notice to the other to examine the pertinent
records of the other to verify the accuracy of such costs and the
appropriateness of the allocation of such costs. However, neither party shall
disclose to the other any cost data other than that necessary to permit such
verification. Should any disagreement arise as to such costs, the matter shall
be referred for resolution to a Big-Six public accounting firm mutually
acceptable to and independent from Seneca and CMF (the "Accountant"). Upon the
engagement of the Accountant, Seneca and CMF shall each submit a statement to
the Accountant setting forth its respective position regarding the disagreement.
The determination of the Accountant shall be conclusive and binding upon the
parties. All fees and expenses of the Accountant in performing its duties
hereunder shall be shared equally be Seneca and CMF, each of which hereby agrees
to pay its shares of fees and expenses.
7. Terms of Payment. Each party shall invoice the other for
the cost of packing vegetables on a daily basis at the time of production, and
the parties agree to pay such invoices no later than 30 days from the time of
receipt. As provided in Section 5, to the extent that such invoices are based on
estimated costs the parties agree to review and adjust the invoices based upon
such estimates at the end of the pack to which such invoices relate, after which
a rebate or additional payment will be paid as appropriate based upon such
review.
<PAGE>
8. Packaging and Labels. The Frozen Pack shall be packed in
bulk in totes and liners supplied to Seneca by CMF at no cost to Seneca. Such
totes and liners shall be and shall remain the property of CMF. CMF shall not
label the Canned Pack, which shall be delivered to Seneca as bright pack. CMF
shall purchase the cans needed for the Canned Pack. During the first year of
this Agreement Seneca shall pay for such cans the cost to CMF to acquire such
cans. Thereafter for the remaining term of this Agreement Seneca shall pay CMF
for cans the lower of the cost of such cans to CMF and the cost to Seneca to
manufacture such cans.
9. Warehousing and Delivery. Unless the parties make separate
arrangements for warehousing, CMF shall take delivery of each day of production
of the Frozen Pack FOB Leicester no later than the day following such
production, and Seneca shall take delivery of each day of production of the
Canned Pack FOB Oakfield no later than the day following such production.
10. Maintenance of Equipment. The equipment necessary to pack
the Frozen Pack at Leicester is as specified on exhibit 4 attached hereto (the
"Frozen Equipment") and the equipment necessary to pack the Canned Pack at
Oakfield is as specified on exhibit 5 attached hereto (the "Can Equipment").
Seneca agrees to record on its books the value assigned to the Frozen Equipment
at the time of purchase from CMF and to charge depreciation thereon in the same
manner as was charged by CMF prior to the sale of such equipment to Seneca. CMF
agrees to continue to record on its books the value of the Can Equipment as
specified as of the date of this Agreement and to continue to depreciate such
equipment at the same rate charged previously. Seneca agrees to maintain and
repair and insure for replacement value the Frozen Equipment so as to be able to
process the Frozen Pack expeditiously and economically for CMF and not to use
the Frozen Equipment to pack frozen foods for anyone other than CMF. CMF agrees
to maintain and repair and insure for replacement value the Can Equipment so as
to be able to process the Canned Pack expeditiously and economically for Seneca
and not to use the Can Equipment to pack canned foods for anyone other than
Seneca. The parties agree to consult with each other concerning the status of
the Frozen Equipment and the Can Equipment. To the extent that capital
improvements are required for the efficient operation of the Frozen Equipment,
CMF agrees to pay for such improvements and to permit Seneca to install and
operate such improvements at Leicester in conjunction with the Frozen Equipment
("CMF Capital Improvements"). To the extent that capital improvements are
required for the efficient operation of the Can Equipment, Seneca agrees to pay
for such improvements and to permit CMF to install and operate such improvements
at Oakfield in conjunction with the Can Equipment ("Seneca Capital
Improvements").
<PAGE>
11. Purchase of Frozen Equipment. At any time between the end
of the annual Frozen Pack and the next March 31 thereafter CMF may notify Seneca
in writing of its election to purchase and remove the Frozen Equipment from
Leicester to a location specified by CMF. Following such notice, the Frozen
Equipment shall remain in place and be used by the parties for the pack of the
Frozen Pack pursuant to this Agreement for the ensuing season; upon the
conclusion of that pack, the Frozen Equipment and the CMF Capital Improvements
shall be moved as directed by CMF. As the purchase price for the Frozen
Equipment, CMF will at the time of removal thereof pay Seneca the book value of
such equipment. CMF shall also pay for the relocation of the Frozen Equipment
and the CMF Capital Improvements. Seneca shall deliver to CMF a bill of sale
transferring title to the Frozen Equipment free and clear of all encumbrances.
Once the purchase and removal of the Frozen Equipment as herein provided has
been completed, this Agreement shall terminate as to the Frozen Pack and be of
no further force and effect except as it pertains to the Frozen Pack produced
prior to such termination. The parties shall cooperate in filing such documents
as are reasonably required to establish the option of CMF under this Section 11.
12. Purchase of the Can Equipment. At any time between the end
of the annual Canned Pack and the next March 31 thereafter Seneca may notify CMF
in writing of its election to purchase and remove the Can Equipment from
Oakfield to a location specified by Seneca. Following such notice, the Can
Equipment shall remain in place and be used by the parties for the pack of the
Canned Pack pursuant to this Agreement for the ensuing season; upon the
conclusion of that pack, the Can Equipment and the Seneca Capital Improvements
shall be moved as directed by Seneca. As the purchase price for the Can
Equipment, Seneca will at the time of removal thereof pay CMF the book value of
such equipment. Seneca shall also pay for the relocation of the Can Equipment
and the Seneca Capital Improvements. CMF shall deliver to Seneca a bill of sale
transferring title to the Can Equipment free and clear of all encumbrances. Once
the purchase and removal of the Can Equipment as herein provided has been
completed, this Agreement shall terminate as to the Canned Pack and be of no
further force and effect except as it pertains to the Canned Pack produced prior
to such termination. The parties shall cooperate in filing such documents as are
reasonably required to establish the option of Seneca under this Section 12.
13. Quality and Compliance. All vegetables produced under this
Agreement shall be wholesome, merchantable and fit for human consumption, and
unless otherwise agreed shall meet normal grade quality for available Raw
Products consistent with historical experience regarding grade differentials.
Each party shall promptly notify the other of any significant matter relating to
any of the vegetables produced under this Agreement including, without
limitation, any citation or regulatory action by any federal, state or local
authority or regulatory agency that relates to the quality or merchantability of
the vegetables; any bacterial, chemical, pesticide or other communication of any
of the vegetables or other condition of any of the vegetables that violates any
federal, state or local food and drug law or regulation; or any mislabeling,
misbranding or adulteration of any of the vegetables.
<PAGE>
14. FDA Compliance. Each party warrants and guarantees that
the vegetables which it produces under this Agreement shall comply with all
federal and state pure food laws and regulations, as amended, and that the
vegetables will not be adulterated within the meaning of the Federal Food, Drug
and Cosmetic Act (hereinafter the "Federal Act") or any similar state statute,
and will not be an article which may not, under the provisions of Section 404 of
the Federal Act, be introduced into interstate commerce. Neither party shall use
any food additive in the vegetables, as defined in the Federal Act, unless the
other party has approved its use and the United State Food & Drug
Administration, or the United States Department of Agriculture, as appropriate,
either has exempted it from the food additive requirements of the Federal Act or
has prescribed the conditions under which it may be safely used, in which case
the prescribed conditions shall be complied with.
15. Access. Representatives of each party shall have
reasonable access during the term of this Agreement to all locations, and to all
production and quality records located thereon, where vegetables to be packed
under this Agreement are being processed, stored or loaded, to the extent the
same may be relevant, necessary and appropriate to either party's efforts in
monitoring the quality control and assuring compliance under this Agreement.
Either party, at its option, may send qualified representatives to the other's
processing facility during any time vegetables are being processed under this
Agreement, for the purpose of monitoring quality control and assuring
compliance. In the event this option is exercised, the party at whose facility
the visiting representatives are working shall furnish space in such facility,
together with utilities furnished to such space, in order that grading and
testing of ingredients, materials and vegetables may be carried on as said
representatives deem appropriate. Such qualified representatives' actions,
inaction, acceptance or rejection of vegetables hereunder shall not relieve
either party of its responsibilities under this Agreement.
16. Consumer Complaints. In the event of consumer complaints,
claims or legal actions alleging damage, death, illness or injuries resulting
from consumption or use of any vegetables produced under this Agreement, the
party marketing those vegetables shall forthwith notify the party that produced
them, and both shall make an investigation. The parties agree the investigation
by the claims services of the National Food Processors Association (NFPA) shall
satisfy both parties' investigative requirements. The findings of any such
investigation shall serve as the basis for negotiations between the parties to
determine their respective shares, if any, of the responsibility and cost for
the defense thereof, in whole or in part. The parties agree to pursue any such
negotiations in good faith for a period not less than ninety (90) days following
actual notice to each of them of the results of the investigation, following
which period either party may pursue such remedies as it may have at law or
equity. If, on the basis of the NFPA investigation or otherwise, the parties
have reason to believe that an entity not affiliated with either party caused or
contributed to the alleged defect or harm which is the basis for the complaint,
claim or action, the parties will cooperate in asserting and enforcing their
rights against that entity.
<PAGE>
17. Recalls and Seizures. In the event of a recall (as that
term is defined under appropriate regulations of the United States Food & Drug
Administration) or any seizure (as that term is defined under the Federal Act
and applicable Federal regulations) of any vegetables produced hereunder, and in
the event such recall or seizure has resulted from any act or omission of one
party hereto which would require its indemnification under this Agreement of the
other party hereto, the indemnifying party immediately shall reimburse the other
party for all out-of-pocket direct expenses incurred by the other party in
connection with the recall or seizure, and shall replace the vegetables subject
to the recall or seizure.
18. Title and Risk of Loss. CMF shall transfer title to the
Canned Pack to Seneca and Seneca shall transfer title to the Frozen Pack to CMF
as of the time, date, and place of delivery, free and clear of liens and other
claims by third parties. Risk of loss shall pass from one party to the other
upon such transfer of title.
19. Confidential Information. During the term of this
Agreement, and for a period of four (4) years thereafter, neither party shall
disclose to any third parties, nor use, except in the performance of this
Agreement, any trade secrets or information received from the other party;
provided, however, this obligation of confidentiality and non-use shall not
apply or shall cease to apply to information which (1) was known to the party
charged with confidentiality before disclosure; (2) was in the public domain as
of the date of disclosure, or subsequently comes into the public domain; or (3)
is subsequently legally acquired by the party charged with confidentiality. The
parties agree that exhibits 1 and 2 shall constitute confidential information.
20. Force Majeure. If the performance of any part of this
Agreement by either party is prevented, hindered or delayed by reason of any
cause or causes beyond the control of such party due to acts of God, war, riot,
fire, explosion, accident, flood, sabotage, inability to obtain raw materials or
fuel or power, governmental laws, regulations or orders, breakage of machinery
or any other cause beyond the reasonable control of such party, or labor unrest,
strike, lockout or injunction, as the case may be and which cannot be overcome
by due diligence, the party affected shall be excused from such performance to
the extent that it is necessarily prevented, hindered or delayed thereby. During
the continuance of any such happening or event, this contract shall be deemed
suspended so long as and to the extent that any such cause prevents or delays
its performance. Any reduction of deliveries of raw products by CMF excused by
this section 20 shall be handled as a pack shortfall pursuant to the Supply
Agreement.
21. Termination. Without prejudice to any other rights either
party may have under this Agreement, applicable law or rule of equity,
either party shall have the option to terminate this Agreement in the
event: (1) The other party commits a material breach of any term,
covenant or condition of this Agreement and such breach is not
remedied within thirty (30) days after the aggrieved party has sent
written notice of such breach to the other party;
<PAGE>
(2) The other party becomes insolvent within the
meaning of any bankruptcy or insolvency law,
or makes an assignment for the benefit of
its creditors.
(3) An attachment, execution or lien is levied
against vegetables under this Agreement and
such attachment, execution or lien is not
remedied within thirty (30) days after the
aggrieved party has sent written notice of
such event to the other party;
(4) A controlling interest in the other party is
sold or transferred, other than by gift or
inheritance, unless there is a mutual
agreement to the change; or
(5) The other party's ability to produce and
deliver vegetables pursuant to this
Agreement is impaired by substantial damage
or destruction of its processing facility,
and such damage or destruction is not
repaired within thirty days. If this
Agreement is terminated pursuant to this
Section 21(5) because of fire or other
damage to the Frozen Equipment or the Can
Equipment, then following such damage either
party may exercise its option to purchase
equipment as provided in Sections 11 and 12,
in which event the party entitled to receive
the damaged equipment shall instead be paid
the insurance proceeds payable as a result
of the damage to such equipment.
22. Indemnification. Each party hereto agrees to fully
indemnify, defend and hold the other party harmless from any and all claims,
complaints, losses, costs, expenses, damages or fees (including all attorneys'
fees) arising from or associated with any failure by such party to comply with
the terms, undertakings or commitments set forth in this Agreement. Each party
waives any claim, or right to seek indemnification, for consequential damages.
If the indemnifying party shall so request, the indemnified party agrees to
cooperate with the indemnifying party and its counsel in contesting any claim
which the indemnifying party elects to contest or, if appropriate, in making any
counterclaim against the person asserting the claim, or any cross-complaint
against any person. The indemnifying party shall reimburse the indemnified party
for any expenses incurred by it in so cooperating.
23. Severability. If any provision herein is held to be
illegal, invalid, or unenforceable in any jurisdiction, such provision shall be
fully severable and this Agreement shall be construed and enforced as if such
provision had never comprised a part hereof; the remaining provisions hereof
shall remain in full force and effect and shall not be affected by such
provision or by its severance herefrom. Furthermore, in lieu of such provision
there shall be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid, and enforceable, and which will give effect to the
intention of the parties.
<PAGE>
24. Non-Assignment. This Agreement may not be assigned by either party
hereto without the prior written consent of the other party, which consent shall
not be unreasonably withheld. Any attempted assignment without such consent
shall be void.
25. Independent Contractors. It is understood that neither Seneca nor CMF
is the agent or partner of the other, and that this Agreement shall not be
construed as a joint venture between them. It is further understood that neither
party shall be responsible for the debts or obligations of the other, and
neither party has the authority to bind or act on behalf of the other.
26. Notices. All notices, requests, demands or other communications
required or permitted under this Agreement shall be given in writing and shall
be deemed to have been given if delivered personally, sent by fax or Federal
Express, or mailed postage prepaid, to the following addresses: As to Curtice
Burns: Comstock Michigan Fruit A Division of Curtice Burns Foods, Inc. 90 Linden
Place Rochester, New York 14625 Attn: President
With a copy to:
Thomas M. Hampson
Harris Beach & Wilcox, LLP
130 East Main Street
Rochester, New York 14604-1687
As to Seneca:
Seneca Foods Corporation
1162 Pittsford-Victor Road
Pittsford, New York 14534
Attn: President
With a copy to:
William I. Schapiro
Jaeckle Fleischmann & Mugel
Fleet Bank Building
Twelve Fountain Plaza
Buffalo, New York 14202-2292
27. Modification. This Agreement cannot be modified except in
writing, signed by both parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto duly execute this Agreement as of
May 5, 1997. CURTICE BURNS FOODS, INC. SENECA FOODS CORPORATION
By: /s/ Earl L. Powers By: /s/Phillip Parras
Title: Chief Financial Officer Title: Vice President - Finance
EXHIBIT 21.1
CURTICE-BURNS FOODS, INC.
SUBSIDIARIES OF THE REGISTRANT
Curtice Burns Export Corporation
Curtice Burns Express, Inc.
Finger Lakes Packaging Co., Inc.*
Kennedy Endeavors, Inc.
La Restaurante, Inc.*
Quality Snax, Inc.*
Snyder's Potato Chips, Inc.*
Seasonal Employers, Inc.
Husman Potato Chips, Inc.
CMF Company of Canada Limited
*Inactive Corporations
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
Consolidated Statement of Operations and Accumulated Earnings/(Deficit),
Consolidated Balance Sheet, and Consolidated Statement of Cash Flows and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000026285
<NAME> Curtice-Burns Foods
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-28-1997
<PERIOD-START> Jun-30-1996
<PERIOD-END> Jun-28-1997
<CASH> 2,836
<SECURITIES> 0
<RECEIVABLES> 5,244
<ALLOWANCES> 970
<INVENTORY> 114,905
<CURRENT-ASSETS> 192,947
<PP&E> 271,861
<DEPRECIATION> 53,938
<TOTAL-ASSETS> 542,561
<CURRENT-LIABILITIES> 108,887
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 146,439
<TOTAL-LIABILITY-AND-EQUITY> 542,561
<SALES> 730,823
<TOTAL-REVENUES> 730,823
<CGS> 539,081
<TOTAL-COSTS> 539,081
<OTHER-EXPENSES> 155,693
<LOSS-PROVISION> 445
<INTEREST-EXPENSE> 35,030
<INCOME-PRETAX> 14,885
<INCOME-TAX> 3,668
<INCOME-CONTINUING> 3,775
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 4,606
<NET-INCOME> 5,522
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
