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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ FOR ANNUAL REPORT AND TRANSITION REPORTS PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 29, 2000
or
/ / TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number: 0-21379
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COMMUNITY DISTRIBUTORS, INC.
CDI GROUP, INC.
(Exact Names of Registrants as Specified in Their Charter)
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DELAWARE 22-1833660
(State or other jurisdiction of 22-3349976
incorporation or organization) (I.R.S. Employer Identification No.)
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800 COTTONTAIL LANE, FRANKLIN TOWNSHIP, SOMERSET, NEW JERSEY 08873-1227
(Address of Principal Executive Offices)
Registrant's telephone number, including area code
(732) 748-8900
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Securities registered pursuant to Section 12(b) of the Act: NONE
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None None
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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-X 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. / /
The number of shares of the Common Stock, par value $.01 per share, of
Community Distributors, Inc., outstanding as of October 27, 2000 was 1,000, and
the number of shares of the Common Stock, par value $.00001 per share of CDI
Group, Inc., outstanding as of October 27, 2000 was 442,517.
The Registrant is filing a Form 12b-25 pursuant to Rule 12b-25 under the
Securities Exchange Act of 1934, as amended and will file Items 6, 7 and 8 of
the Form 10-K by amendment.
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CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Securityholders.......... 11
PART II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters....................................... 12
Item 6. Selected Historical Financial Data.......................... 12
Item 7. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations.................................
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 13
Item 8. Financial Statements and Supplementary Data................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 13
PART III
Item 10. Directors and Executive Officers of the Registrants......... 14
Item 11. Executive Compensation...................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 18
Item 13. Certain Relationships and Related Transactions.............. 21
PART IV
Item 14. Exhibits and Financial Statement Schedules.................. 23
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Community Distributors, Inc. (the "Company") is among the largest regional
drugstore chains in the United States and the only regional chain focused
primarily on the densely populated northern and central New Jersey markets,
although several national and other regional drugstore chains have operations in
these areas. CDI Group, Inc. (the "Holding Company") is the owner of all of the
outstanding capital stock of the Company. The Company operates a chain of 51
drug and general merchandise stores under two separate formats, Drug Fair and
Cost Cutters. Of the Company's 51 stores, 30 have been opened since 1989 and all
of the remaining 21 have been refurbished since 1991. The Company was acquired
by the Holding Company on January 30, 1995 (the "Acquisition"). As used in this
Annual Report on Form 10-K (the "Report"), the terms "fiscal 1996," "fiscal
1997," "fiscal 1998," "fiscal 1999," and "fiscal 2000" refer to the fiscal years
ended or ending July 28, 1996, July 26, 1997, July 25, 1998, July 31, 1999, and
July 29, 2000, respectively, of the Company or the Holding Company, as
applicable.
DRUG FAIR. Drug Fair is a chain of 36 large-format drugstores with an
average store size of approximately 17,000 square feet. All of the stores
contain a pharmacy in the rear of the store, which is the focal point of the
store layout. In fiscal 2000, the Company's pharmacies (including four at Cost
Cutters locations) filled over 2.0 million prescriptions, an average weekly
volume of approximately 1,000 scripts per pharmacy, and pharmacy sales increased
18.7% over fiscal 1999. Currently, approximately 84.4% of the Company's
prescription sales are made to participants in managed health care plans and
other third-party payer plans ("Third-Party Plans"). Drug Fair's strategy is to
utilize large-format stores to capitalize on the increased customer traffic
associated with its growing pharmacy business to increase sales of higher margin
non-pharmacy merchandise, including health and beauty care items, housewares,
greeting cards, stationery, candy and seasonal items. General merchandise
accounted for approximately 53.2% of Drug Fair revenues in fiscal 2000. Drug
Fair stores are primarily located in neighborhood shopping centers that are
easily accessible and generate significant customer traffic.
COST CUTTERS. Cost Cutters is a 15-store general merchandise chain with an
average store size of approximately 30,000 square feet. Cost Cutters stimulates
customer traffic by offering a non-pharmacy merchandise mix similar to Drug
Fair, a high-impact merchandise presentation and an everyday low price strategy,
with prices generally 10%-15% lower than Drug Fair. Cost Cutters offers a
broader selection of products than Drug Fair while still focusing on health and
beauty care items, housewares, greeting cards, stationery, candy and seasonal
items. Currently, five locations have pharmacies, one within the store and four
as separate Drug Fair storefronts adjacent to the store. The Company believes
there is an opportunity to open Drug Fair pharmacies at certain additional Cost
Cutters locations. Cost Cutters stores are primarily located near major
highways, drawing customers from a wider area than a typical drugstore and
emphasizing their destination-store orientation.
BUSINESS INFORMATION
The Company's products may be divided generally into two categories:
pharmacy and general merchandise, which includes over-the-counter
pharmaceuticals, health and beauty care items, housewares, stationery and
greeting cards, candy, food and beverage (primarily convenience foods),
cosmetics and seasonal and promotional items. The principal products offered by
the Company in these two industry categories and the approximate percentage of
revenues attributable to such categories are described below.
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STORE OPERATIONS
The Company's stores are operated under two separate formats, Drug Fair and
Cost Cutters. The Company employs different pricing strategies for Drug Fair and
Cost Cutters, each targeted towards the customers it seeks to attract. Drug Fair
uses a more traditional promotional pricing strategy, with a limited number of
discounted items. In contrast, Cost Cutters relies on an everyday low price
strategy by offering lower prices on most items on a regular basis, which
management believes is consistent with its destination-store orientation.
The following table sets forth the approximate percentage of revenues
attributable to each major product category at Drug Fair and Cost Cutters stores
during fiscal 2000:
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PERCENTAGE OF FISCAL 2000
SALES BY CATEGORY
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CATEGORY: DRUG FAIR COST CUTTERS
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Pharmacy.................................................... 43.6% 9.9%
Health and Beauty Care and OTC Pharmaceuticals.............. 15.0 21.8
Other Merchandise........................................... 9.9 11.0
Housewares.................................................. 7.2 15.9
Stationery and Greeting Cards............................... 7.0 12.4
Candy, Food and Beverage.................................... 6.4 9.7
Seasonal and Promotional.................................... 7.4 13.7
Cosmetics................................................... 3.5 5.6
100.0% 100.0%
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Excluding revenue generated by stores that were open less than twelve months
before the beginning of the applicable fiscal year, the Company's stores
generated net sales of $250.3 million in fiscal 1999 (from 41 stores), and
$261.3 million in fiscal 2000 (from 43 stores), an increase of 4.4%. The Company
attributes this growth to increased pharmacy sales as well as increased sales of
non-pharmacy merchandise generated by increased customer traffic, as well as the
successful implementation of the Company's merchandising strategies.
DRUG FAIR
Drug Fair is a 36-store chain of larger sized traditional drugstores
primarily located in easily accessible neighborhood shopping centers. Drug Fair
has built a base of loyal customers by offering a broader range of non-pharmacy
general merchandise within this larger format, including an expanded selection
of health and beauty care items, housewares, greeting cards, stationery and
seasonal items, in a convenient setting with attractive prices. Drug Fair's
strategy is to emphasize its broad selection of merchandise and offer
competitive prices relative to its competition. In particular, the Company
believes that its broader selection of non-pharmacy general merchandise is a
significant competitive strength. The Company's long-standing philosophy of
customer service has made Drug Fair a leader in local pharmacy services in its
markets.
The first Drug Fair store was opened in 1954 in Scotch Plains, New Jersey
and the Company's current Drug Fair locations average approximately 17,000
square feet, ranging between 11,200 and 23,400 square feet. The Company believes
that its store size and locations are important factors to store profitability.
Most Drug Fair stores are contained in neighborhood shopping centers that are
easily accessible and generate significant customer traffic. All stores are open
seven days a week, from 9:00 a.m. to 9:30 p.m., Monday through Friday, with
slightly reduced hours on weekends, totaling approximately 83 hours per week.
PHARMACY. In fiscal 2000, the Company's pharmacies filled over 2.0 million
prescriptions, representing an average weekly volume of approximately 1,000
scripts per pharmacy, and pharmacy
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sales increased 18.7% over fiscal 1999. Currently, approximately 84.4% of
prescription volume results from sales to Third-Party Plan participants. The
Company offers discounts on prescriptions to senior citizens, who accounted for
approximately 7.4% of prescription sales volume in fiscal 2000.
All Drug Fair stores contain a pharmacy in the rear of the store, each
staffed by two full-time registered pharmacists. The pharmacy is the focal point
of the store layout, which is also designed to promote optimal customer flow and
shopping convenience. New and remodeled stores typically have enhancements such
as pharmacy waiting and consultation areas. In addition, for the past six years
Drug Fair stores have featured free home delivery of prescriptions. The Company
believes that this delivery service represents an attractive alternative to the
drive-through pharmacy service offered by some of its competitors while avoiding
the significant capital expenditures required to remodel stores to accommodate
drive-through services.
GENERAL MERCHANDISE. As a customer-oriented, lower-cost retail drugstore,
Drug Fair strives to compete on the bases of cost and maintaining a high-quality
image with the consumer. General merchandise is an important component of Drug
Fair's revenues, comprising approximately 53.2% of Drug Fair revenues in fiscal
2000. General merchandise products are well stocked and displayed on shelves
within easy reach of consumers. With its convenient merchandise layout and large
selection, Drug Fair retains its small-store atmosphere while offering a variety
of merchandise selections typically seen in larger retail stores. Drug Fair
offers a selection of general merchandise similar to that of its drugstore
competitors but, due to its above average size, is able to expand its selection
of items and offer a wider assortment of higher margin non-pharmacy merchandise.
For example, seasonal items have been a key contributor to Drug Fair's success,
comprising 7.4% of Drug Fair's revenues in fiscal 2000. Seasonal items are
prominently displayed along the entrance, providing a varied product mix and
generating impulse buying. With nearly 58,000 non-pharmacy stock keeping units
("SKUs") including seasonal items, Drug Fair also offers expanded greeting card
and household item selections to the consumer.
In addition to its general merchandise offerings, the Company seeks to
attract customers by offering ancillary conveniences and services, such as
lottery tickets, convenience food sections and film processing in many of its
stores, including its own on-site one-hour photo finishing labs in 25 Drug Fair
locations. Management believes that it offers the lowest prices for one-hour
film developing in its markets. The Company intends to continue to experiment
with new products and services designed to increase customer traffic and enhance
convenience.
COST CUTTERS
Cost Cutters is a 15-store general merchandise chain focused on the product
areas of health and beauty care, housewares, greeting cards, stationery, candy
and seasonal items. The stores are self-service oriented, and feature a
non-pharmacy merchandise mix similar to that of Drug Fair, with more than a 90%
overlap in general merchandise, at prices generally 10%-15% lower than at Drug
Fair. Currently, one Cost Cutters location houses its own pharmacy, and the
Company has added Drug Fair pharmacies adjacent to four of its Cost Cutters
locations. The Company believes there is an opportunity to open Drug Fair
pharmacies in certain additional Cost Cutters locations. Cost Cutters is unique
in its merchandising strategy in its markets and provides a much broader product
variety and deeper discounts than other local stores, while successfully
competing with mass merchandise stores.
The Company opened its first Cost Cutters store in 1983 in Norwood, New
Jersey and the Company's Cost Cutters stores average approximately 30,000 square
feet in size, ranging from 21,000 to 37,000 square feet. In expanding to new
sites, the Company has opportunistically negotiated favorable lease terms,
typically from grocery stores that are relocating, rather than paying higher
prices for new real estate. Most of the stores are located in shopping centers,
near highways in easily accessible locations for surrounding communities. By
comparison, larger discount department chains, such as
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WalMart, Target and K-Mart, typically build new stores in excess of 100,000
square feet and focus more on higher-priced products such as apparel, sporting
goods, electronics and appliances. The Company believes that the accessibility
and manageable size of a Cost Cutters store is attractive to consumers at a time
when larger discount merchandisers continue to open larger and more complex
stores that many customers may find less convenient. All stores are open seven
days a week, from 9:00 a.m. to 9:30 p.m., Monday through Friday, with slightly
reduced hours on weekends, totaling approximately 83 hours per week.
PHARMACY. While pharmacy is not the main focus of the Cost Cutters chain,
one Cost Cutters location houses its own pharmacy and the Company has Drug Fair
pharmacies as separate storefronts adjacent to four of its Cost Cutters
locations with a pass-through between the store and the pharmacy. The Company
believes there is an opportunity to add Drug Fair pharmacies to certain
additional Cost Cutters stores depending on factors such as lease restrictions,
location, store size, layout and competition. The Company estimates that it
costs $75,000 to $100,000 to install a Drug Fair pharmacy next to an existing
Cost Cutters location (assuming construction of a new storefront is required),
excluding costs of staffing and inventory.
GENERAL MERCHANDISE. With over 59,000 non-pharmacy SKUs, including seasonal
items, and substantial overlap in merchandise with Drug Fair, Cost Cutters
distinguishes itself through its merchandise presentation, pricing strategy,
assortment of items targeted to impulse purchases and a strong merchandising
position in greeting cards, stationery, seasonal items and household products.
In addition to traditional retail drugstore general merchandise such as health
and beauty care items, over-the-counter ("OTC") pharmaceuticals, candy and
seasonal items, Cost Cutters also sells luggage, kitchenware and an extended
selection of houseware products and automotive-related goods. One of the
Company's merchandising strategies is a high-impact merchandise presentation
based on well-stocked shelves that are highly visible to the customer, promoting
a value superstore image. Seven Cost Cutters locations contain on-site one-hour
photofinishing labs.
Cost Cutters is less promotional than most other discount stores because it
utilizes an everyday low price strategy. Competitors such as K-Mart and Bradlees
generally employ what is known as a "high-low" pricing strategy, in which
everyday prices are generally higher than at Cost Cutters but are reduced below
Cost Cutters' prices during periodic store-wide sales. The Company believes that
Cost Cutters' pricing strategy is more attractive to consumers than alternative
pricing strategies for the majority of its product offerings, including health
and beauty care products that are typically purchased when needed as opposed to
when offered on sale.
ADVERTISING AND PROMOTION
The Company aggressively advertises its Drug Fair and Cost Cutters chains
through extensive use of colorful, high-quality direct mail circulars
distributed to its neighborhood markets. Approximately 26 Drug Fair circular
programs are distributed annually, with each circular typically containing a
selection of approximately 200 specially priced items chosen to build customer
traffic. Cost Cutters distributes approximately 17 circular programs annually,
each containing approximately 200 items, of which 10% to 15% have been reduced
in price. The circulars often contain coupons good for item discounts and
advertise "Special" and "Bonus" buys. "Special" buys are items that are carried
at reduced prices while supplies last. "Bonus" buys are items carried every day
that include an additional amount of the same product or another product for no
extra cost. The Company estimates the average circular program costs $155,000 to
produce and distribute to approximately 800,000 recipients, although in some
cases the cost is partially offset by co-op advertising rebates received from
featured suppliers.
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PURCHASING AND DISTRIBUTION
By operating both Drug Fair and Cost Cutters chains, the Company believes
that it is able to take advantage of economies of scale available to larger
chains in purchasing merchandise and maintaining up-to-date systems and
technology. Although the Company utilizes two separate retail formats, the 51
stores are operated as one company through centralized purchasing and
distribution and use complementary marketing strategies. The Company believes
that its focus on consistent execution of its purchasing, pricing and
merchandising strategies has been instrumental in its success to date.
The Company maintains centralized budgeting, pricing, purchasing,
warehousing and inventory control functions at its corporate offices. Products
are purchased for both store chains by merchandise managers, each of whom is
responsible for a distinct product category (for example, cosmetics or
housewares) and reports to the Company's Vice President of Merchandising.
Approximately 56.0% of all non-prescription purchases are received at the
Company's current central warehouse and distribution center in Somerset, New
Jersey. These products are delivered to the stores by the Company's eleven owned
trucks. The balance of general merchandise is shipped directly to the stores by
manufacturers and distributors. All prescription drugs are shipped directly to
the individual stores by wholesale drug distributors on a daily basis. The
Company has an agreement with Cardinal Health, Inc. ("Cardinal") to supply
pharmaceuticals, health and beauty care, home health care and related products.
The term of the Company's supply agreement with Cardinal (the "Cardinal
Agreement") expires in February 2003. Pursuant to the terms of the Cardinal
Agreement, the Company purchases pharmacy and health and beauty care products at
a specified discount to Cardinal's Costs. The Company believes that Cardinal's
Cost (as defined in the Cardinal Agreement) is higher than Cardinal's actual
cost for the pharmaceutical products it supplies because it does not reflect all
discounts that may be available to Cardinal from its suppliers. Bellco Drug
Corporation ("Bellco") serves as a secondary supplier for products that are not
routinely carried by or are out of stock at Cardinal, and the Company believes
that its pharmacy products are readily available from numerous other wholesale
suppliers of pharmacy products that would be able to supply the Company's
requirements on substantially similar terms in the event that Cardinal and/or
Bellco were unable to do so. Management believes that by operating both chains
it is able to purchase most of its products at competitive prices by purchasing
products in truck-load or container quantities.
The Company buys products from more than 1,600 suppliers and manufacturers
and seeks to purchase its merchandise directly from manufacturers in order to
take advantage of promotional programs offered only to retailers, including
co-op advertising allowances, promotional displays and materials and price
promotions. The Company believes that its relationships with its vendors are
good. The Company often utilizes prompt cash payments to obtain additional
merchandise discounts. None of the Company's suppliers or manufacturers
represented more than 10% of the Company's total non-pharmacy purchases during
fiscal 2000.
MANAGEMENT INFORMATION SYSTEMS
The Company operates an in-house data processing system in connection with
the operation and management control functions of its business. This system
incorporates both proprietary and commercially available software, including the
JDA Software, Inc. ("JDA") Merchandise Management System, the Company's E-3
warehouse replenishment system and Lawson Associates payroll and general ledger
systems, and is designed to integrate the key retailing functions of merchandise
planning, purchase order management, sales capture, merchandise distribution,
receiving, order entry, inventory control and replenishment. Management believes
its systems enable the Company to maintain a virtually constant "in-stock"
position in all key lines of merchandise. In anticipation of continued growth,
the Company purchased a new comprehensive processing system developed by JDA.
Effective June 1, 1998, the Company implemented the Accounts Payable, Sales
Audit, and Point-of-Sale Interface
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modules of the JDA processing system. In late September 1998, the Company
implemented the Sales Analysis, Inventory Management, Electronic Data
Interchange and Purchasing modules of the JDA processing system.
The Company monitors sales at its 51 stores through a point-of-sale network,
utilizing IBM Chain Sales software and hardware, which links store terminals to
a central computer located at the Company's headquarters. The Company uses this
system to replenish store inventories from its central warehouse and to provide
management with detailed information on individual store operations on a daily
basis.
All sales data is recorded by cashiers, utilizing scanners, in each store at
the time of sale. Sales data is transmitted to the central computer where it is
compiled to produce daily, weekly and monthly management reports. Reports are
organized by line of merchandise, class, item and store, and enable management
to monitor sales and profitability by location. Based upon this information,
management makes merchandising decisions as required, including reorders,
special promotions and changes in buying programs. As a means of further
inventory verification, physical inventories are generally taken twice a year at
all stores and the warehouse. The Company also employs Telxon and Symbol
Technologies radio frequency equipment in order to constantly monitor and update
inventory, shelf labels and prices.
All of the Company's stores contain Sensormatic Electronic Article
Surveillance Systems designed to minimize theft. Since its installation five
years ago, this system has contributed to reducing overall shrinkage to
approximately 1.5% of sales, which management believes is below the industry
average.
COMPETITION
The Company competes in its markets with several national, regional and
local drugstore chains, large grocery stores and supermarkets, membership clubs,
deep discount drugstores, combination food and drugstores, discount general
merchandise stores, mass merchandisers, independent drugstores and local
merchants. Historically, consumers were faced with few alternatives for filling
their prescriptions. Today's customer has a number of options including
independent or chain drugstores, food retailers, mass merchants (including
discounters and deep discounters) and "mail-order" pharmacies, as well as
supermarkets, combination food and drugstores, hospitals and HMOs. The Company's
on-site one-hour photofinishing labs also compete with a variety of mini-lab
photo-processors and photo-specialty shops.
The Company believes that the primary elements of competition in its
industries include pricing, store location and design, product selection,
customer service and convenience. The Company believes that it competes
successfully because of its pricing policies, reputation for reliability,
convenient store locations, superior pharmacy services, broad selection of
merchandise and effective sales techniques. However, the competitive environment
is often affected by factors beyond a particular retailer's control, such as
shifts in consumer preferences, economic conditions and population and traffic
patterns. The Company believes that in the future the ability to compete
effectively will be increasingly dependent on quality merchandising and customer
service, the effectiveness of cost containment measures, especially with respect
to pharmacy services, and advanced information systems.
GOVERNMENT REGULATION
Pharmacies are subject to extensive federal, state and local regulation.
These regulations cover required qualifications, day-to-day operations,
reimbursement and documentation of activities.
LICENSES AND REGULATION. The Company's pharmacists are required to be
licensed by the New Jersey Board of Pharmacy. All stores with pharmacies and the
Company's distribution center are also registered with the Federal Drug
Enforcement Administration, although no pharmaceuticals are stored in the
distribution center. Various other federal and state licenses (including state
licenses required to
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sell cigarettes) are required for the conduct of the Company's business as
presently conducted. The Company seeks to comply with all such licensing and
registration requirements and continues to actively monitor its compliance with
such requirements. By virtue of these licenses and registration requirements,
the Company is obligated to observe certain rules and regulations, and a
violation of these rules and regulations could result in a suspension or
revocation of one or more licenses or registrations and/or monetary penalties or
fines. The sale of pharmaceutical products at new stores requires the issuance
of additional licenses, with respect to which the licensing authorities may
conduct investigations.
In 1990, the United States Congress enacted the Omnibus Budget
Reconciliation Act of 1990 (OBRA), which required states to implement
pharmaceutical drug use review programs for Medicaid beneficiaries by
January 1, 1993. Under OBRA, pharmacists are required to offer counseling,
without additional charge, to customers covered by Medicaid about medication,
dosage, delivery systems, common side effects and other information deemed
significant by the pharmacists. The State of New Jersey enacted broader
regulations that require pharmacists to provide such counseling to all
customers, regardless of whether they are covered by Medicaid. As a result, the
Company's pharmacists must provide counseling to customers and have a duty to
warn customers regarding any potential adverse effects of a prescription drug if
the warning could reduce or negate such effects. In addition, the Company's
pharmacists are required to conduct a prospective drug review before any new
prescriptions are dispensed, and may conduct a similar review prior to refilling
any prescriptions if considered appropriate. Such reviews include screening for
potential drug therapy problems due to (i) potential or actual reactions to
drugs, (ii) therapeutic appropriateness, (iii) over utilization, or
underutilization, (iv) appropriate use of generic drugs, (v) therapeutic
duplication, (vi) drug-disease contraindications, (vii) drug-drug interactions,
(viii) incorrect drug dosage or duration of drug treatment, (ix) drug-allergy
interactions, and (x) clinical abuse or misuse. Further, New Jersey closely
regulates the dispensing by pharmacists of over-the-counter controlled dangerous
substances, imposing requirements as to: (i) filling and refilling of
prescriptions, (ii) labeling of prescriptions, and (iii) monitoring the use of
Schedule V over-the-counter controlled dangerous substances to determine, in a
pharmacist's professional judgment, whether the substance has or will be used
for unauthorized or illicit consumption or distribution. The Company believes
its series of training programs for pharmacy personnel and its pharmacy computer
network are designed to ensure that these requirements are satisfied, but
violations of these regulations could have an adverse impact on the Company.
STATE LAWS AFFECTING ACCESS TO SERVICES. In July 1994, the State of New
Jersey adopted "Freedom of Choice" and "Any Willing Provider" legislation, which
the Company believes results in a "level playing field" in New Jersey for
regional drugstore chains such as the Company. The "Freedom of Choice"
legislation permits Third-Party Plan participants to purchase prescription drugs
from the provider of their choice if the provider meets uniformly established
requirements. In states which have not adopted similar legislation, many
Third-Party Plans align themselves by agreement with particular drugstore chains
under arrangements whereby members of a Third-Party Plan are required to
purchase their drugs at a particular drugstore chain in order for most or all of
the cost to be paid by the Third-Party Plan. As a result, other drugstore chains
and independent drugstores are in effect precluded from selling prescription
drugs to the applicable members. The "Any Willing Provider" legislation requires
that any Third-Party Plan that has entered into an agreement with a prescription
provider must permit any other licensed provider to participate in such
Third-Party Plan as a preferred or contracting provider if it is willing to
accept the terms of such agreement. Such legislation may increase competition
for the Company's pharmacies.
MEDICARE AND MEDICAID. The pharmacy business has long operated under
regulatory and cost containment pressures from state and federal legislation
primarily affecting Medicaid and, to a lesser extent, Medicare.
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The Medicaid program is a cooperative federal-state program designed to
enable states to provide medical assistance to aged, blind, or disabled
individuals, or members of families with dependent children whose income and
resources are insufficient to meet the costs of necessary medical services.
Federal laws and regulations contain a variety of requirements relating to
the furnishing of prescription drugs under Medicaid. First, states are given
authority, subject to certain standards, to limit or specify conditions to the
coverage of particular drugs. Second, federal Medicaid law establishes standards
affecting pharmacy practice, such as the OBRA counseling and drug utilization
review requirements described above. Third, federal regulations impose certain
requirements relating to the reimbursement for prescription drugs furnished to
Medicaid recipients. Among other things, federal regulations establish "upper
limits" on payment levels. In addition to requirements imposed by federal law,
states have substantial discretion to determine administrative, coverage,
eligibility and payment policies under their state Medicaid programs which may
affect the Company's operations.
The Medicare program is a federally funded and administered health insurance
program for individuals age 65 and older or who are disabled. Medicare covers a
limited number of specifically designated prescription drugs. As a result of the
Balanced Budget Act of 1997, reimbursement for these products is generally
limited to 95% of the published average wholesale price for such products. Over
the last several years, an increasing number of Medicare beneficiaries have been
served through health maintenance organizations. In addition to the limited
Medicare coverage for specified products described above, some of these health
maintenance organizations providing health care benefits to Medicare
beneficiaries may offer expanded drug coverage.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings
and freezes and funding restrictions, all of which may adversely affect the
Company's business. There can be no assurance that payments for pharmaceutical
supplies and services under governmental reimbursement programs will continue to
be based on the current methodology or remain comparable to present levels. In
this regard, the Company may be subject to rate reductions as a result of
federal budgetary legislation related to the Medicare and Medicaid programs. In
addition, various Medicaid programs periodically experience budgetary shortfalls
which may result in Medicaid payment delays.
FRAUD AND ABUSE. The Company is subject to federal and state laws
prohibiting the submission of false or fraudulent claims and governing its
billing relationships and financial and other arrangements among health care
providers and vendors. These laws include the federal anti-kickback statute,
which prohibits, among other things, (i) knowingly and willfully soliciting,
receiving, offering or paying any remuneration directly or indirectly to induce
or in return for the referral of an individual to a person for the furnishing of
any item or service for which payment may be made in whole or in part under
federal health care programs, or (ii) purchasing, ordering or recommending, or
arranging for purchasing or ordering such covered items or services. Many states
have enacted similar statutes which are not necessarily limited to items and
services for which payment is made by federal health care programs. New Jersey,
for example, enacted the "Healthcare Cost Reduction Act" in 1991. Federal and
state courts have interpreted these laws broadly. Violations of these laws may
result in fines, imprisonment, civil money penalties and exclusion from the
federal and state funded health care programs.
The Department of Health and Human Services Office of Inspector General has
issued a "Special Fraud Alert" concerning prescription drug marketing practices
that could potentially violate the federal anti-kickback statute. According to
the Special Fraud Alert, examples of practices that may violate the statute
include certain arrangements under which remuneration is made to pharmacists to
recommend the use of a particular pharmaceutical product.
In addition, a number of states have undertaken enforcement actions against
pharmaceutical manufacturers involving pharmaceutical marketing programs,
including programs containing incentives
8
<PAGE>
to pharmacists to dispense one particular product rather than another. These
enforcement actions arose under state consumer protection laws which generally
prohibit false advertising, deceptive trade practices, and the like. Other
proposed action by state pharmacy boards or federal regulators could reduce or
eliminate the reimbursement pharmacies receive to conduct therapeutic
interchange or compliance programs on behalf of health plans or other pharmacy
benefit managers.
The Company seeks to maintain its contract arrangements with other health
care providers, its pharmaceutical suppliers and its pharmacy practices in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.
HEALTH CARE LEGISLATION. Prescription drug sales have represented a
significant portion of the Company's revenues. These revenues may be affected by
changes within the health care industry, including changes in programs providing
for reimbursement of the cost of prescription drugs by Third-Party Plans,
regulatory changes relating to the approval process for prescription drugs and
proposals to reduce significantly projected increases in federal spending on
Medicare, Medicaid and other governmental programs.
In recent years, a number of legislative proposals have been introduced in
Congress to reform the health care system, including proposals in the context of
federal budget legislation. In addition, a number of states have enacted and are
considering various health care reforms. For example, several state Medicaid
programs have established mandatory statewide managed care programs for Medicaid
beneficiaries to control costs through negotiated or capitated rates, as opposed
to traditional cost based reimbursement for Medicaid services, and proposed to
use savings achieved through these programs to expand coverage to those not
previously eligible for Medicaid. Also, a provision of the FDA Modernization
Act, which became effective November 21, 1998, expressly permits pharmacy drug
compounding under certain conditions for individual patients. This maintains and
could increase the range of services provided by the Company. The Company cannot
predict whether or in what form health care legislation may be adopted in the
future, at the federal or state level, or the impact of any such legislation on
the Company's financial position or results of operations. However, to the
extent health care legislation expands the number of persons receiving health
care benefits covering the purchase of prescription drugs (such as through
government-sponsored managed care initiatives), it could result in increased
purchases of such drugs and could thereby have a favorable impact on both the
Company and the retail drug industry in general. Nevertheless, there can be no
assurance that any such legislation will be enacted or, if enacted, that such
legislation will not have an adverse effect on the Company.
LABOR LAWS. The Company is subject to laws governing its relationship with
employees, including minimum wage requirements, overtime and working conditions.
An increase in the minimum wage rate, employee benefit costs or other costs
associated with employees could adversely affect the Company.
TRADE NAMES, SERVICE MARKS AND TRADEMARKS
The Company uses various trade names, service marks and trademarks,
including "Drug Fair" and "Cost Cutters," in the conduct of its business.
Historically, the Company has relied on common law protection of its trade
names, service marks and trademarks. Common law provides the Company with
limited protection for its trade names, service marks and trademarks within its
product lines and in its geographic market areas. Although the Company has filed
a federal service mark registration application for the service mark "Drug
Fair," a third party which does not currently operate in the Company's
geographic markets owns an issued federal service mark registration for the name
"Cost Cutters."
9
<PAGE>
EMPLOYEES
As of October 15, 2000, the Company had approximately 1,800 employees of
which approximately 45% were full-time and 55% were part-time. None of such
employees are covered by collective bargaining agreements or represented by
unions. The Company has not experienced any material business interruption as a
result of labor disputes and the Company considers its employee relations to be
good.
ITEM 2. PROPERTIES
The Company's stores by location, fiscal year opened, fiscal year
refurbished and size were as follows on October 27, 2000:
<TABLE>
<CAPTION>
FISCAL YEAR SQUARE
LOCATION OPENED/REFURBISHED FOOTAGE
-------- ------------------ --------
<S> <C> <C>
DRUG FAIR
South Plainfield............................................ 1959/1994 21,250
Manville.................................................... 1965/1991 20,000
Old Bridge.................................................. 1969/1992 16,527
Edison...................................................... 1970/1992 15,000
Freehold 1970/1974 16,000
Westfield................................................... 1972/1991 23,424
Aberdeen.................................................... 1974/1993 11,620
Fairfield................................................... 1976/1991 19,600
Hazlet...................................................... 1976/1991 12,000
Berkeley Heights............................................ 1977/1993 16,800
Milburn..................................................... 1977/1992 21,112
Warren...................................................... 1978/1991 15,000
Wyckoff..................................................... 1981/1995 15,960
Rahway...................................................... 1983/1993 13,900
Isellin..................................................... 1985/1993 16,265
Englewood................................................... 1988/1992 13,440
Cranford.................................................... 1989/- 13,661
Oakland..................................................... 1989/- 20,205
Middlesex................................................... 1991/- 23,000
Stirling.................................................... 1993/- 15,777
Verona...................................................... 1995/- 17,200
Chatham..................................................... 1995/- 20,800
Clifton..................................................... 1996/- 11,200
Ramsey...................................................... 1996/- 17,000
Somerset.................................................... 1996/- 18,050
Plainfield.................................................. 1997/- 18,000
Hillside.................................................... 1998/- 17,600
Florham Park................................................ 1998/- 12,750
North Arlington............................................. 1999/- 15,500
Fairview.................................................... 1999/- 14,225
Port Monmouth............................................... 1999/- 16,450
Belleville.................................................. 1999/- 19,000
Clifton..................................................... 1999/- 16,000
Wayne....................................................... 2000/- 17,993
Sayreville.................................................. 2000/- 17,500
Morris Plains............................................... 2000/- 17,300
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR SQUARE
LOCATION OPENED/REFURBISHED FOOTAGE
-------- ------------------ --------
<S> <C> <C>
Little Falls................................................ 2001/- 12,500
COST CUTTERS
Norwood..................................................... 1983/1992 24,630
Bricktown................................................... 1984/1993 26,878
Middletown.................................................. 1984/1993 27,988
Hamilton.................................................... 1985/1993 33,300
Union....................................................... 1985/1994 35,217
West Long Branch............................................ 1986/1996 27,113
Wall........................................................ 1987/1993 30,000
Hillsborough................................................ 1990/1994 20,600
Parsippany.................................................. 1991/- 29,575
Lacey....................................................... 1992/- 34,000
Wayne....................................................... 1992/- 29,000
Ocean....................................................... 1993/- 36,890
Toms River.................................................. 1994/- 34,000
Elizabeth................................................... 1995/- 25,000
Lincoln Park................................................ 1995/- 30,100
</TABLE>
All of the Company's stores are leased pursuant to long-term leases
containing generally favorable terms. The current leases expire between
March 31, 2002 and April 30, 2039 (assuming renewal options are exercised), with
an average of 18 years remaining on lease terms. Twenty-one leases will expire
between 2001-2015 and 30 leases will expire after 2015. One lease is currently
on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes that no current pending
litigation to which it is a party will, individually or in the aggregate, have a
material adverse effect on its financial position or results of operations or
cash flows. The Company has not been required to expend in the past, and does
not expect to be required to expend in the future, any significant amounts for
investigation of environmental conditions, remediation of environmental
conditions or other similar matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Registrants is not publicly traded.
On October 16, 1997, the Holding Company issued an aggregate of 24,237
shares of its Common Stock to twelve of its shareholders, all of whom were
officers, directors or other members of the Company's management, pursuant to
the exercise of stock options previously granted to such persons. These sales of
Common Stock were made by the Holding Company in reliance of the exemption from
registration provided by Rule 701 under the Securities Act of 1933, as amended
(the "Securities Act").
On October 16, 1997, the Company issued $80,000,000 aggregate principal
amount of its 10 1/4% Senior Notes due 2004 (the "Original Notes") to Donaldson,
Lufkin & Jenrette Securities Corporation and Bear, Stearns & Co., Inc. (the
"Initial Purchasers") in a transaction exempt under Regulation D under the
Securities Act. The Initial Purchasers resold the Original Notes to certain
qualified institutional buyers in reliance upon, and subject to the restrictions
imposed pursuant to, Rule 144A under the Securities Act.
On October 16, 1997, the Holding Company issued amended and restated
subordinated notes due 2005 (the "Subordinated Notes") in the same principal
amounts to the original holders thereof in connection with the issuance of the
Original Notes and the Holding Company's Guarantee of such Notes. These amended
and restated Subordinated Notes were issued in reference on the exemption from
registration under the Securities Act provided by Section 4(a) thereof.
On February 13, 1998, the Company commenced an offer to exchange $80,000,000
in aggregate principal amount of its 10 1/4% Senior Notes due 2004, Series B
(the "Exchange Notes") that had been registered under the Securities Act for a
like principal amount of the Original Notes. This exchange was commenced
pursuant to the terms of the Registration Rights Agreement, dated as of
October 16, 1997, between the Company and the Initial Purchasers. Each of the
Exchange Notes and the Original Notes has been guaranteed by the Holding
Company. An aggregate principal amount of $80,000,000 of Exchange Notes were
issued in exchange for the Original Notes on March 20, 1998, and the Original
Notes were retired. The Exchange Notes are referred to hereinafter
interchangeably with the Original Notes as the "Senior Notes."
On September 16, 1998, the Board of Directors of the Company authorized the
repurchase by the Company of up to $6.0 million principal amount of Senior Notes
on the open market. On October 6, 1998, the Company repurchased an aggregate of
$5.0 million principal amount of Senior Notes at a purchase price of $930 per
$1,000 principal amount of Senior Notes, plus accrued and unpaid interest. On
October 13, 1998, the Company repurchased an additional $1.0 million principal
amount of Senior Notes at a purchase price of $925 per $1,000 principal amount
of Senior Notes, plus accrued and unpaid interest. As of October 15, 1998 and
October 27, 2000, $74.0 million aggregate principal amount of Senior Notes
remained outstanding.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
To be filed by amendment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
To be filed by amendment.
12
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Neither the Company nor the Holding Company engages in trading market risk
sensitive instruments or purchases hedging instruments or "other than trading"
instruments that are likely to expose the Company or the Holding Company to
market risk, whether interest rate, foreign currency exchange, commodity price
or equity price risk. Neither the Company nor the Holding Company has purchased
options or entered into swaps or forward or futures contracts. The ability of
the Company and the Holding Company (as guarantor) to make periodic interest
payments on the Senior Notes, at a fixed rate of 10 1/4%, is not directly
affected by fluctuations in the market. The Company's primary market risk
exposure is that of interest rate risk on borrowings under the Company's
revolving credit facility, which are subject to interest rates based either on
the lender's prime rate or London Interbank Offered Rate ("LIBOR"), and a change
in the applicable interest rate would affect the rate at which the Company could
borrow funds.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
To be filed by amendment.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
The following table sets forth certain information with respect to the
directors, executive officers and key employees of the Holding Company and the
Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- -------- ------------------------------------------
<S> <C> <C>
Frank Marfino............................. 57 President, Chief Executive Officer and
Director of the Holding Company
Lynn L. Shallcross........................ 59 President-Cost Cutters Division of the
Company
Todd H. Pluymers.......................... 36 Chief Financial Officer of the Holding
Company and the Company
Barrie Levine............................. 55 Vice President-Pharmacy Operations of the
Company
William F. Gilligan....................... 58 Vice President-Distribution of the Company
Michael P. Quinn.......................... 47 Vice President-Merchandising of the
Company
Kevin Marron.............................. 43 Director-MIS of the Company
Alan J. Kirschner......................... 46 Director-Loss Prevention of the Company
Mark H. DeBlois........................... 44 Director of the Holding Company and the
Company
Harvey P. Mallement....................... 60 Director of the Holding Company and the
Company
</TABLE>
MR. MARFINO has been a Director and the President and Chief Executive
Officer of the Holding Company and the Company since February 1995. Prior to
February 1995, Mr. Marfino had served as the Chief Operating Officer of the
Company beginning in 1990 after having served as Vice President in charge of
Operations and Merchandising. Prior to joining the Company in 1982, Mr. Marfino
held senior positions, including Regional Manager and Director of Administrative
Operations with Two Guys Discount Stores/Vorando, Inc. over a 19 year period.
MR. SHALLCROSS has been President of the Cost Cutters division since 1984.
Mr. Shallcross joined the Company in 1971 and has held numerous positions in
management including pharmacist, pharmacist-manager, and district manager.
Mr. Shallcross is a graduate of Rutgers College of Pharmacy and has been a
licensed pharmacist since 1964.
MR. PLUYMERS joined the Company in April 1991 as Chief Financial Officer and
was appointed Chief Financial Officer of the Holding Company in January 1995.
Prior to joining the Company, Mr. Pluymers was employed by Arthur Andersen & Co.
from 1986 through 1991, most recently as an Audit Manager. Mr. Pluymers is a
graduate of Westminster College with a degree in Business
Administration/Accounting and is a Certified Public Accountant.
MR. LEVINE joined the Company as Vice President-Pharmacy Operations in 1993.
Prior to joining the Company, Mr. Levine was employed by Supermarkets General
(Pathmark) since 1971. At Pathmark, Mr. Levine held various positions, including
Regional Pharmacy and Regional Front-End Supervisor, Regional Non-Food Product
Manager, and Manager of Pharmacy Services. Mr. Levine is a graduate of Brooklyn
College of Pharmacy and a licensed pharmacist in several states.
MR. GILLIGAN has been Vice President-Distribution since 1985 after serving
as General Manager for 11 years with Atlantic Distribution Center in Jersey
City, New Jersey and 11 years with Wakefern Food Corporation, parent company of
Shop-Rite supermarkets. Trained in distribution management at Ohio State
University and Rutgers University, Mr. Gilligan is responsible for the daily
management of the
14
<PAGE>
distribution center, transportation logistics, property management and the
administrative staff. Mr. Gilligan has over 35 years of experience in
Distribution-Warehouse Management.
MR. QUINN joined the Company as Vice President-Merchandising on March 16,
1998. Prior to joining the Company, Mr. Quinn held the position of Vice
President-General Manager of Alpine Distributors, Inc., the non-food division of
Twin County Grocers, from 1994 to 1998. From 1992 to 1994, Mr. Quinn was
employed as a Divisional Merchandise Manager at the Rx Place, a Division of
Woolworth Corp. Mr. Quinn is a graduate of Manhattan College.
MR. MARRON has been Director-Management Information Systems for the Company
since 1986. Mr. Marron's work experience includes six years with Arthur's
Catalog Showroom and six years with MIS Software Corporation prior to joining
the Company. Mr. Marron has been instrumental in the creation of or installation
of a majority of the software applications for the Company, including inventory
management, sales, marketing, distribution, warehouse management, shelf labeling
and point-of-sale in store applications.
MR. KIRSCHNER joined the Company as Director-Loss Prevention in 1991. As
Director-Loss Prevention, Mr. Kirschner is also responsible for point-of-sale
and human resources for the Company. Prior to 1991, Mr. Kirschner held a similar
position with NBO Menswear and Rickel Home Centers, Inc. and has over twenty
years of experience in retail and loss prevention management. Mr. Kirschner is a
graduate of Jersey City State College.
MR. DEBLOIS has been a Director of the Holding Company and the Company since
1995. Since 1990, Mr. DeBlois has been employed as an officer, most recently as
a Managing Director, of BancBoston Ventures Inc., a private equity investment
firm with committed capital in excess of $750 million that provides private
equity and mezzanine financing to middle market companies for management-led
buyouts, acquisitions and growth capital. Mr. DeBlois is a graduate of Boston
College.
MR. MALLEMENT has been a Director of the Holding Company and the Company
since 1995. Since 1981, Mr. Mallement has been Managing General Partner of
Harvest Partners, Inc., a private equity investment and growth financing firm
with committed capital in excess of $600 million that provides equity investment
financing that focuses on the acquisition of medium sized companies and
financing of growth businesses. Mr. Mallement is also a director of Symbol
Technologies, Inc. and is a graduate of the City College of New York with a
masters degree in Business Administration.
Pursuant to a Stockholder Agreement entered into as of January 30, 1995, as
amended, the holders of a substantial majority of the outstanding common stock
of the Holding Company (the "Common Stock"), including BancBoston and Harvest,
and their affiliates, as well as the Holding Company, Banque Paribas, Paribas
Principal, Inc., TA Holding, Inc., Jon Tietbohl and Frank Marfino, have agreed
that each of the Holding Company and the Company will have a Board of Directors
comprised of up to five members. The stockholders party to the Stockholder
Agreement have agreed to vote for the following persons as directors: (i) up to
two individuals designated by the holders of a majority of the outstanding
shares of Common Stock purchased by BancBoston in 1995 (the "BBV Stock");
(ii) up to two individuals designated by the holders of a majority of the
outstanding shares of Common Stock purchased by Harvest and its affiliates in
1995 (the "Harvest Stock"); and (iii) Frank Marfino, so long as he continues to
be employed by the Holding Company as President and Chief Executive Officer, and
thereafter, his successor as President and Chief Executive Officer. Mr. DeBlois
has been designated for election to the Board of Directors of the Holding
Company and the Company by the holders of a majority of the BBV Stock, and
Mr. Mallement has been designated for election to the Board of Directors of the
Holding Company and the Company by the holders of a majority of the Harvest
Stock.
Executive officers of the Holding Company and the Company are appointed by
their respective Boards of Directors on an annual basis and serve until their
successors have been duly elected and
15
<PAGE>
qualified. There are no family relationships among any of the executive officers
and directors of the Holding Company and the Company.
COMPENSATION OF DIRECTORS
Directors of the Holding Company and the Company do not receive compensation
from the Holding Company or the Company for their service in such capacities.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid by the
Company for services rendered during fiscal 1998, fiscal 1999 and fiscal 2000 to
the Company's Chief Executive Officer and five other most highly-compensated
executive officers for fiscal 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL --------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION
--------------------------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Frank Marfino........................................... 1998 $460,384 $1,447,702 $3,534(2)
President and Chief Executive Officer 1999 $493,399 $ 256,230 $5,320(2)
2000 $496,125 $ 124,031 $3,621(2)
Lynn L. Shallcross...................................... 1998 $171,231 $ 50,000 $3,126(3)
President--Cost Cutters Division 1999 $181,923 $ 60,000 $3,232(3)
2000 $172,615 $ 33,440 $2,038(3)
Todd H. Pluymers........................................ 1998 $140,674 $ 227,500 $ 747(4)
Chief Financial Officer 1999 $150,761 $ 28,875 $ 797(4)
2000 $153,780 $ 27,287 $ 793(4)
Barrie Levine........................................... 1998 $129,038 $ 22,500 $1,697(5)
Vice President--Pharmacy Operations 1999 $136,538 $ 22,000 $2,278(5)
2000 $138,846 $ 27,192 $1,141(5)
Michael Quinn........................................... 1998 $ 43,269 -- --
Vice President--Merchandising 1999 $129,908 $ 7,500 $1,645(6)
2000 $125,288 $ 12,634 $1,890(6)
William F. Gilligan..................................... 1998 $111,231 $ 20,520 $2,046(7)
Vice President--Distribution 1999 $118,192 $ 22,400 $2,111(7)
2000 $119,691 $ 17,684 $1,487(7)
</TABLE>
------------------------
(1) Reflects bonuses paid during the fiscal year with respect to achievement of
certain performance goals relating to the prior fiscal year. The amounts of
annual bonuses that may be paid to the named executive officers for fiscal
2000 have not yet been determined. See "Certain Relationships and Related
Transactions."
(2) Amounts include the values of the personal use of a company car equal to
$1,275, $1,325 and $1,300 for fiscal 1998, 1999 and 2000, respectively, as
well as the incremental cost of additional life insurance premiums in the
amounts of $2,259, $3,995 and $2,321 for fiscal 1998, 1999 and 2000,
respectively.
16
<PAGE>
(3) Amounts include the values of the personal use of a company car equal to
$520, $540 and $510 for fiscal 1998, 1999 and 2000, respectively, as well as
the incremental cost of additional life insurance premiums in the amounts of
$2,606, $2,692 and $1,528 for fiscal 1998, 1999, and 2000, respectively.
(4) Amounts include the values of the personal use of a company car equal to
$520, $520 and $520 for fiscal 1998, 1999 and 2000, respectively, as well as
the incremental cost of additional life insurance premiums in the amounts of
$227, $267 and $273 for fiscal 1998, 1999, and 2000, respectively.
(5) Amounts include the values of the personal use of a company car equal to
$520, $530 and $520 for fiscal 1998, 1999 and 2000, respectively, as well as
the incremental cost of additional life insurance premiums in the amounts of
$1,177, $1,748 and $621 for fiscal 1998, 1999, and 2000, respectively.
(6) Amount includes the value of the personal use of a company car equal to
$1,350 and $1,530 for fiscal 1999 and 2000, respectively, as well as the
incremental cost of additional life insurance premiums in the amount of $295
and $360 for fiscal 1999 and 2000, respectively.
(7) Amounts include the values of the personal use of a company car equal to
$520, $530 and $520 for fiscal 1998, 1999 and 2000, respectively, as well as
the incremental cost of additional life insurance premiums in the amounts of
$1,526, $1,581 and $967 for fiscal 1998, 1999, and 2000, respectively.
STOCK OPTIONS TABLE
The following table sets forth the number of options to purchase Common
Stock held by the Company's Chief Executive Officer and one other executive
officer as of the end of fiscal 2000. None of the Company's four other most
highly-compensated executive officers held any options to purchase Common Stock
as of the end of fiscal 2000, and there were no options to purchase Common Stock
granted during fiscal 2000.
<TABLE>
<CAPTION>
FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END (#) AT FISCAL YEAR-END ($)
EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(1)
------------------------------- ----------------------------
<S> <C> <C>
Frank Marfino................................ 14,825/7,530 $0
Michael Quinn................................ 0/1,500 $0
</TABLE>
------------------------
(1) The value of unexercised in-the-money options is calculated by determining
the difference between the book value of the Common Stock underlying the
options at the end of fiscal 2000, which was negative, and the option
exercise price. The Common Stock was not publicly traded at the end of
fiscal 2000.
EMPLOYMENT AGREEMENTS
In connection with the acquisition of the Company by the Holding Company in
1995, the Company entered into Employment Agreements with each of
Messrs. Marfino, Shallcross, Pluymers, Levine and Gilligan. Each of these
Employment Agreements contains customary confidential information and inventions
assignment provisions and provides for a one-year non-competition period upon
termination.
Mr. Marfino's Employment Agreement, which expires in January 2001, provides
for Mr. Marfino to receive an annual base salary of $450,000 (subject to annual
increases based on a consumer price index), and an incentive bonus based on the
financial performance of the Company. Mr. Marfino is not entitled to receive a
bonus for any fiscal year in which the Company's Actual EBITDA (as defined in
the Employment Agreement) is less than 90% of a forecasted EBITDA. In the event
that Actual EBITDA is more than 90% of forecasted EBITDA, Mr. Marfino will
receive a bonus calculated with respect to the amount by which Actual EBITDA
exceeds forecasted EBITDA, of which $50,000 is guaranteed. In the event that
Mr. Marfino's employment is terminated by the Company prior to the
17
<PAGE>
end of the term of the Employment Agreement or any extension thereof, or he
resigns under circumstances in which he is deemed to have terminated his
employment for Good Reason (as defined therein), Mr. Marfino is entitled to
receive his base salary through the end of the initial term of his Employment
Agreement or any extension term and a pro rated minimum bonus and incentive
bonus. In the event that Mr. Marfino's employment is terminated as a result of
death or disability, Mr. Marfino or his estate is entitled to severance pay of
one year of base salary and a pro rated minimum bonus and incentive bonus. In
the event that Mr. Marfino's employment is terminated upon the expiration of the
term of the Employment Agreement or any extension term, Mr. Marfino shall be
entitled only to receive a pro rated minimum bonus and incentive bonus.
The Employment Agreements for Messrs. Shallcross, Pluymers, Levine and
Gilligan, each of which expires in January 2001, currently provide for base
salaries of $176,000, $156,142, $140,000 and $120,500, respectively. The
Employment Agreement for Mr. Quinn, which expires in March 2001, currently
provides for a base salary of $128,500. In the event that the employment of any
of these officers is terminated during the respective terms of their Employment
Agreements for death, disability, resignation or termination by the Company
other than for "cause," the relevant officer will receive severance pay of his
base salary for one year after termination. No severance pay is payable under
any of the Employment Agreements in the event of termination for "cause."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither the Board of Directors of the Company, nor the Board of Directors of
the Holding Company, has ever maintained a compensation committee. Executive
compensation decisions are considered and decided by all of the directors of the
Company. All executive compensation decisions relating to fiscal 2000, including
decisions relating to the compensation of Frank Marfino, the President and Chief
Executive Officer of the Company, were decided by Mark DeBlois, Harvey Mallement
and Frank Marfino, each of whom was a director of the Company during all of
fiscal 2000. No officers or employees of the Company or the Holding Company
other than Mr. Marfino participated in any discussions of the Board of Directors
of either company regarding executive compensation.
INDEBTEDNESS OF MANAGEMENT
Mr. Frank Marfino, the President and Chief Executive Officer of the Holding
Company and the Company, and a director of the Holding Company and the Company,
had an outstanding loan from the Company which was incurred by Mr. Marfino in
connection with his purchase of shares of capital stock of the Company
concurrently with the acquisition of the Company by the Holding Company in
January 1995. In connection with this loan, Mr. Marfino executed a full-recourse
promissory note to the Company which required Mr. Marfino to pay cash interest
at a rate of 8% per annum. This loan was repaid in October 1998. See "Certain
Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP
The Holding Company is the beneficial owner, with sole voting power and
investment power, of 100% of the outstanding capital stock of the Company.
The following table sets forth certain information regarding beneficial
ownership of the Common Stock(1) and Preferred Stock(2) of the Holding Company
(i) by each person known to the Company to own beneficially more than 5% of each
class of outstanding voting capital stock of the Holding Company, (ii) by each
director of the Company and the Holding Company, (iii) by each of the executive
officers of the Company and the Holding Company named in the "Summary
Compensation Table," and (iv) by all directors and executive officers of the
Company and the Holding Company as a group, as of October 25, 2000.
18
<PAGE>
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK PREFERRED STOCK
-------------------------- --------------------------
AMOUNT AND AMOUNT AND
NATURE NATURE
OF BENEFICIAL PERCENT OF OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP(3) CLASS OWNERSHIP(3) CLASS
---------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
BancBoston Ventures Inc............................... 159,389(4) 43.2% -- --
175 Federal St.
Boston, MA 02110
Mark H. DeBlois....................................... 159,389(5) 43.2% -- --
c/o BancBoston Ventures Inc.
175 Federal St.
Boston, MA 02110
Harvest Partners International, L.P................... 51,851(6) 20.4% -- --
c/o Harvest Partners, Inc.
767 Third Avenue
New York, NY 10017
Harvey P. Mallement................................... 83,816(7) 32.9% -- --
c/o Harvest Partners, L.P.
767 Third Avenue
New York, NY 10017
Paribas Principal, Inc................................ 40,000(8) 15.7% -- --
787 Seventh Avenue
New York, NY 10017
DBG Auslands-Holding GmbH............................. 73,525(9) 22.4% -- --
Emil-von-Behring-Strasse 2
D-60439 Frankfurt-am-Main GERMANY
Harvest Technology Partners, L.P...................... 17,901(6) 7.0% -- --
c/o Harvest Partners, Inc.
767 Third Avenue
New York, NY 10017
Banque Paribas........................................ 16,667(8) 6.1% -- --
787 Seventh Avenue
New York, NY 10019
European Development Capital.......................... 14,064(6) 5.5% -- --
Corporation N.V. c/o Harvest Partners, Inc.
767 Third Avenue
New York, NY 10017
Frank Marfino......................................... 50,824(10) 18.9% 4,000 50.9%
Lynn L. Shallcross.................................... 8,211(11) 3.2% 1,073 13.6%
Todd H. Pluymers...................................... 6,781(11) 2.7% 715 9.1%
William F. Gilligan................................... 6,781(11) 2.7% 715 9.1%
Barrie Levine......................................... 2,927(11) 1.1% 143 1.8%
All Directors and Executive Officers as a Group
(7 persons)......................................... 318,729(12) 83% 6,646 84.5%
</TABLE>
--------------------------
(1) The Common Stock is comprised of Class A Voting Common Stock, $.00001 par
value per share ("Class A Common Stock"), and Class B Non-Voting Common
Stock, $.00001 par value per share ("Class B Common Stock"), each having the
same rights and privileges, other than with respect to voting rights and
powers. Holders of shares of Class A Common Stock have full voting rights
and powers as to all matters submitted to the stockholders of the Holding
Company for vote, consent or approval. Shares of Class A Common Stock are
convertible into shares of Class B Common Stock. Shares of Class B Common
Stock are convertible into shares of Class A Common Stock, except in the
event that the holder is a bank holding company or subsidiary thereof and
such holder is restricted by applicable banking laws from holding any (or
any additional) shares with voting rights.
19
<PAGE>
(2) The Preferred Stock of the Holding Company, $1.00 par value per share (the
"Preferred Stock"), has a liquidation value of $100 per share and is
mandatorily redeemable by the Holding Company on January 31, 2005, or
optionally redeemable by the Holding Company at any time, in either case at
the liquidation value thereof. Holders of Preferred Stock have no voting
rights with respect to such shares.
(3) As used in this table, "beneficial ownership" means the sole or shared power
to vote or direct the voting of a security, or the sole or shared investment
power with respect to a security. A person is deemed as of any date to have
"beneficial ownership" of any security that such person has the right to
acquire within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person named above, any
security that such person has the right to acquire within 60 days of the
date of calculation is deemed to be outstanding, but is not deemed to be
outstanding for purposes of computing the percentage ownership of any other
person.
(4) Includes 114,397 shares of Class B Common Stock.
(5) The shares shown as beneficially owned by Mr. DeBlois represent 159,389
shares owned of record by BancBoston. Mr. DeBlois is a Managing Director of
BancBoston and may be deemed to control BancBoston, and accordingly may be
deemed to control the voting and disposition of the shares of Class A Common
Stock owned by BancBoston. As such, Mr. DeBlois may be deemed to have shared
voting and investment power with respect to all shares held by BancBoston.
However, Mr. DeBlois disclaims beneficial ownership of the securities held
by BancBoston.
(6) Harvest Partners International, L.P. ("Harvest Partners") is affiliated with
Harvest Technology Partners, L.P. ("Harvest") and European Development
Capital Corporation N.V. ("European Development"). In the aggregate, Harvest
Partners, Harvest and European Development hold 83,816 shares of Class A
Common Stock, representing 32.9% of the shares outstanding. Harvest
Partners, Harvest and European each disclaim beneficial ownership of all
shares held by the others.
(7) The shares shown as beneficially owned by Mr. Mallement represent 51,851
shares owned of record by Harvest Partners, 17,901 shares owned of record by
Harvest and 14,064 shares owned of record by European Development.
Mr. Mallement either directly (whether through ownership interest or
position) or through one or more intermediaries, may be deemed to control
the voting and disposition of the Class A Common Stock owned by each of
Harvest Partners, Harvest and European Development, and accordingly may be
deemed to have shared voting and investment power with respect to all shares
held by each of Harvest Partners, Harvest and European Development. However,
Mr. Mallement disclaims beneficial ownership of the securities held by each
of Harvest Partners, Harvest and European Development except to the extent
of his pecuniary interests therein.
(8) Paribas Principal, Inc. is affiliated with Banque Paribas, which holds a
presently exercisable warrant to purchase 16,667 shares of Class A Common
Stock, representing 6.1% of the shares of Class A Common Stock outstanding
on a fully diluted basis. In the aggregate, on a fully diluted basis,
Paribas Principal and Banque Paribas would hold, upon exercise of all such
warrants, 56,667 shares of Class A Common Stock, representing 20.9% of the
shares outstanding. Paribas Principal and Banque Paribas each disclaim
beneficial ownership of all shares held by the other.
(9) Includes 73,525 shares of Class B Common Stock.
(10) Includes 14,825 shares subject to exercisable options. In addition, all of
such shares are subject to repurchase by the Holding Company upon
termination of employment under certain circumstances.
(11) All of such shares are subject to repurchase by the Holding Company upon
termination of employment under certain circumstances.
(12) Includes 14,825 shares subject to exercisable options. In addition, 60,699
shares are subject to repurchase by the Holding Company upon termination of
employment under certain circumstances. Except as noted above, the Company
believes that the beneficial holders listed in the table above have sole
voting power and investment power over the shares described as being
beneficially owned by them.
20
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition of the Company by the Holding Company,
the Company entered into Employment Agreements with each of Mr. Frank Marfino,
the President and Chief Executive Officer of the Company, Mr. Todd Pluymers, the
Chief Financial Officer of the Company, Mr. Lynn Shallcross, the President of
the Cost Cutters division of the Company, Mr. William Gilligan, the Vice
President/Distribution of the Company and Mr. Barrie Levine, the Vice
President/Pharmacy Operations of the Company. In March 1998, the Company entered
into an Employment Agreement with Mr. Michael Quinn, Vice
President/Merchandising of the Company. See "Executive Compensation/Employment
Agreements."
The holders of a substantial majority of the outstanding Common Stock have
also entered into a Stockholder Agreement pursuant to which such stockholders
agreed (i) to vote their shares of Common Stock in favor of a specified size and
composition of the respective Boards of Directors of the Holding Company and the
Company, (ii) not to transfer shares of Common Stock in violation of such
Stockholder Agreement, (iii) to consent to and participate in certain sales of
the Holding Company approved by the Board of Directors of the Holding Company
and holders of a majority of the Common Stock held by each of BancBoston and
Harvest and certain transferees and (iv) not to vote in favor of, or permit the
Board of Directors of the Holding Company to vote in favor of, certain actions
relating to corporate governance, including the borrowing of money, the payment
of dividends and the making of any guarantees of obligations of other persons,
not approved by BancBoston and Harvest. See "Directors and Executive Officers."
The Company is also bound by Management Fee Agreements each dated as of
January 30, 1995 (as amended, the "Management Fee Agreements"), pursuant to
which the Company is required to pay an annual fee of $125,000 to each of
BancBoston and Harvest Partners, Inc., an affiliate of Harvest, in consideration
for certain management services provided by such entities in connection with the
administration of the Company's business. These services include providing
advice and administrative oversight with respect to the Company's business
direction and policy in the promotion, development and operation of the
Company's business. The Company's obligations under the respective Management
Fee Agreements shall continue so long as BancBoston or Harvest, as the case may
be, owns any shares of capital stock of the Holding Company. Payments under the
Management Agreements will constitute "Permitted Payments" under the Indenture.
Banque Paribas, the agent for the Company's previous credit facility, holds
a presently exercisable warrant (the "Paribas Warrant") to purchase 16,667
shares of Common Stock and Paribas Principal, Inc. ("Paribas Principal"), an
affiliate of Banque Paribas, holds 40,000 shares of Common Stock. The Company
repaid all amounts outstanding under its previous credit facility with a portion
of the proceeds of the Offering and terminated this credit facility
simultaneously with the closing of the sale of the Senior Notes. After the
consummation of the sale of the Senior Notes, Paribas Principal continued to
hold 40,000 shares of Common Stock, and the Paribas Warrant remains outstanding.
In connection with the payment of the Dividend, Banque Paribas and Paribas
Principal received approximately $1.66 million and $4.0 million, respectively.
The Holding Company, BancBoston, Harvest, Banque Paribas, Paribas Principal,
Harvest Technology Partners, L.P., European Development Capital Corporation
N.V., Deutsche Beteiligungsgesellschaft mbH, Frank Marfino and certain other
stockholders of the Holding Company are party to a Registration Rights
Agreement, dated as of January 30, 1995, pursuant to which the Holding Company
granted the other parties thereto piggy-back registration rights with respect to
their shares of Common Stock subject to certain limitations in the event of an
underwritten offering, and certain demand registration rights which are
exercisable during certain periods after the initial public offering of the
Common Stock. In addition, if the Holding Company has not completed an initial
public offering of its Common Stock prior to January 30, 2003, the holders of a
majority of the securities
21
<PAGE>
initially issued to Banque Paribas and Paribas Principal are permitted to cause
the Holding Company to effect such an initial public offering pursuant to the
terms of the Registration Rights Agreement.
The Company paid a dividend of approximately $45.0 million to the Holding
Company out of the proceeds of the sale of the Senior Notes. The Holding Company
paid the Dividend to its shareholders, including management and certain
employees of the Company, BancBoston and Harvest. Messrs. Marfino, Shallcross,
Pluymers, Gilligan and Levine received approximately $3.6 million, $578,000,
$442,000, $436,000 and $142,000, respectively, and BancBoston, Harvest, Harvest
Technology Partners, L.P. and European Development Capital Corporation N.V.
received approximately $15.9 million, $5.2 million, $1.8 million and
$1.4 million, respectively, from the Dividend.
The Company paid one-time performance-related bonuses of approximately
$1.2 million and $200,000 to Mr. Marfino and Mr. Pluymers, respectively, in
fiscal 1998. These bonuses were paid pursuant to a commitment made by the Board
of Directors of the Company in October 1997 to grant bonuses to these officers
in such amounts in consideration of the contributions made by such officers to
the growth and success of the Company over the period since its acquisition in
January 1995.
On October 16, 1997, the Holding Company issued amended and restated
Subordinated Notes in the same principal amounts to the original holders thereof
in connection with the issuance of the Original Notes and the Holding Company's
Guarantee of such Notes. These Subordinated Notes were reissued in order to
expressly provide for the subordination of the Holding Company's obligations
thereunder to the obligations of the Holding Company under the Indenture,
including its guarantee of the Senior Notes. No officers or directors of the
Company or the Holding Company hold any Subordinated Notes, although the
following 5% or greater shareholders of the Holding Company hold Subordinated
Notes in the following original principal amounts:
<TABLE>
<CAPTION>
NOTEHOLDER PRINCIPAL AMOUNT
---------- ----------------
<S> <C>
BancBoston.................................................. $5,753,890
Harvest..................................................... 1,889,970
Harvest Technology Partners, L.P............................ 643,210
European Development Capital Corporation, N.V............... 505,286
DBG Auslands Holding GmbH................................... 2,641,821
</TABLE>
22
<PAGE>
On January 4, 1999 the Company paid the Holding Company a dividend in the
amount of approximately $1.1 million, and the Holding Company paid a dividend of
approximately $1.1 million to its stockholders, which includes management,
certain employees of the Company, BancBoston and Harvest.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation, as amended, of CDI
Group, Inc. (the "Holding Company").*
3.2 By-laws of the Holding Company.*
3.3 Certificate of Incorporation, as amended, of Community
Distributors, Inc. (the "Company").*
3.4 Amended and Restated By-laws of the Company.*
4.1 Indenture, dated as of October 16, 1997, by and among the
Company, the Holding Company and the Bank of New York, as
Trustee.*
4.2 Form of the Company's 10 1/4% Senior Notes due 2004.*
10.1 Investor Securities Purchase Agreement, dated as of
January 30, 1995, by and among the Holding Company,
BancBoston Ventures Inc. ("BBV"), Harvest Partners
International, LP ("HPI"), Harvest Technology Partners, LP
("HPT"), European Development Capital Corporation N.V.
("EDCC") and Deutsche Beteiligungsgesellschaft mbH ("DBMBH",
and together with BBV, HPI, HTP, EDCC and DBMBH, the
"Investors"), as amended by that certain First Amendment to
Securities Purchase Agreement, dated as of October 16, 1997,
by and among the Holding Company and the Investors.*
10.2 Purchase Agreement, dated as of October 10, 1997, by and
among the Company, the Holding Company, DLJ and BSC.*
10.3 Form of Holding Company's Amended and Restated Senior
Subordinated Note due 2005.*
10.4 Exchange Agency Agreement, dated as of February 13, 1998,
among the Exchange Agent, the Holding Company and the
Company.*
10.5 Stockholder Agreement, dated as of January 30, 1995, by and
among the Holding Company, the Investors, PPI, TAH,
Tietbohl, Frank Marfino and certain other persons
(collectively, the "Stockholders"), as amended by that
certain First Amendment to Stockholder Agreement, dated as
of October 16, 1997, by and among the Holding Company and
the Stockholders.*
10.7 Company Stock Purchase Warrant, dated as of January 30,
1995, issued by the Holding Company to Banque Paribas, as
amended by that certain Amendment of Common Stock Purchase
Warrant, Acknowledgment and Waiver, dated as of
September 30, 1997, by and between the Company and the
Bank.*
10.8 Loan and Security Agreement, dated as of October 16, 1997,
by and between PNC Bank, National Association and the
Company.*
10.9 The Company's $20,000,000 Revolving Loan Note, dated as of
October 16, 1997.*
10.10 Lease Agreement, dated as of May 15, 1995, by and between
105 Sylvania Place, L.L.C. and the Company (South
Plainfield, New Jersey).*
10.11 Lease Agreement, dated as of May 5, 1998, by and between JAM
Realty Company and the Company (Branchburg Township
(Somerville), New Jersey).*
10.12 Sublease Agreement, dated as of May 20, 1998, between
Mitsubishi Electronics America, Inc. and Community
Distributors, Inc. (Somerset, New Jersey).**
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.13 Letter Agreement, dated as of October 16, 1997, by and
between the Company and Frank Marfino regarding bonus
payment.*
10.14 Employment and Non-Competition Agreement, dated as of
January 30, 1995 by and between the Company and Todd H.
Pluymers.*+
10.15 Letter Agreement, dated as of October 16, 1997, by and
between the Company and Todd H. Pluymers regarding bonus
payment.*
10.16 Employment and Non-Competition Agreement, dated as of
January 30, 1995 by and between the Company and Lynn L.
Shallcross.*+
10.17 Employment and Non-Competition Agreement, dated as of
January 30, 1995 by and between the Company and William F.
Gilligan.*+
10.18 Employment and Non-Competition Agreement, dated as of
February 17, 1995 by and between the Company and Barrie
Levine.*+
10.19 Employment and Non-Competition Agreement, dated as of
March 16, 1998 by and between the Company and Michael
Quinn.+
10.20 Employment and Non-Competition Agreement, dated as of
January 30, 1995 by and between the Company and Frank
Marfino.*+
10.21 CDI Group, Inc. 1995 Stock Option Plan.+
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges for the Company.***
12.2 Statement re: Computation of Ratio of Earnings to Fixed
Charges for CDI Group, Inc.***
21.1 List of Subsidiaries of CDI Group, Inc.*
24.1 Power of Attorney (included in signature page to
Form 10-K).
27.1 Financial Data Schedule of Community Distributors, Inc.***
27.2 Financial Data Schedule of CDI Group, Inc.***
99.1 Community Distributors, Inc. Summary of Valuation and
Qualifying Accounts.***
99.2 CDI Group, Inc. Summary of Valuation and Qualifying
Accounts.***
99.3 Reports of Independent Accountants on Financial Statement
Schedule.***
</TABLE>
------------------------
* Incorporated by reference to the exhibits to the Registrants' Registration
Statement No. 333-41281, on Form S-4, filed by the Registrants with respect
to $80,000,000 aggregate principal amount of the Company's 10 1/4% Senior
Notes due 2004, Series B.
** Incorporated by reference to the same numbered exhibit to the Registrants'
Annual Report on Form 10-K, filed by the Registrants on October 23, 1998,
with respect to the Registrants' fiscal year ended July 25, 1998.
+ This item is a management contract or compensatory plan.
All schedules other than those set forth in Exhibits 27.1, 27.2, 99.1 and
99.2 have been omitted because either they are not required, are not
applicable, or the information is otherwise set forth in the Consolidated
Financial Statements and notes thereto that will be filed by amendment.
*** To be filed by amendment.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized as of
October 27, 2000.
<TABLE>
<S> <C> <C>
COMMUNITY DISTRIBUTORS, INC.
By: /s/ FRANK MARFINO
-----------------------------------------
Frank Marfino,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ TODD H. PLUYMERS
-----------------------------------------
Todd H. Pluymers,
CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)
</TABLE>
<TABLE>
<S> <C> <C>
CDI GROUP, INC.
By: /s/ FRANK MARFINO
-----------------------------------------
Frank Marfino,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ TODD H. PLUYMERS
-----------------------------------------
Todd H. Pluymers,
CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)
</TABLE>
25
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Frank Marfino and
Todd H. Pluymers, and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in the
name of each such person, including exhibits thereto and other documents
therewith, any and all amendments to this Annual Report on Form 10-K necessary
or advisable to enable the Report to comply with the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof which
amendments may make such other changes in the Report as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Exchange Act, this Report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ FRANK MARFINO President, Chief Executive Officer October 27, 2000
------------------------------------ and Director of Community
Frank Marfino Distributors, Inc. and CDI
Group, Inc.
/s/ MARK H. DEBLOIS Director of Community October 27, 2000
------------------------------------ Distributors, Inc. and CDI
Mark H. DeBlois Group, Inc.
/s/ HARVEY P. MALLEMENT Director of Community October 27, 2000
------------------------------------ Distributors, Inc. and CDI
Harvey P. Mallement Group, Inc.
</TABLE>
26
