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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 26, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER 1-09559
COLORADO PRIME CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2826129
(State or other jurisdiction of incorporation or (I.R.S Employer
organization) Identification No.)
1 Michael Avenue, Farmingdale, New York, 11735
Registrant's telephone number, including area code: (516) 694-1111
--------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The number of shares of Common Stock of the registrant outstanding as of
December 18, 1997 was 1,000.
Documents Incorporated by Reference
None
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PART I
Item 1. Business
Certain information set forth herein contains forward-looking statements, as
such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Such statements are subject to
certain risks and uncertainties discussed herein, which could cause actual
results to differ materially from those in the forward-looking statements.
Colorado Prime Corporation (the "Company" or "CPC") is a Delaware corporation
and was incorporated in 1986. The Company is a wholly owned subsidiary of
Colorado Prime Holdings Inc. ("CPH"), formerly KPC Holdings Corporation
("Holdings"). On May 9, 1997, pursuant to a merger agreement between Holdings
and Thayer Equity Investors III, L.P., a private equity investment limited
partnership ("Thayer"), Colorado Prime Acquisition Corp. ("CPAC"), a transitory
acquisition company established by Thayer prior to the consummation of the
merger, merged with and into Holdings (the "Merger") following which Holdings
was the surviving corporation and was renamed CPH.
General
The Company is a leading direct marketer of high quality, value-added food
programs and products related to in-home dining and entertainment. Using a
combination of telemarketing and in-home selling, Colorado Prime believes that
it is the only company to offer this type of in-home shopping service on a broad
scale, serving 31 states through 78 sales offices. The Company sells
individually packaged, top quality meats and poultry, seafood, assorted pasta
dishes and a wide selection of prepared entrees for direct delivery to consumer
households. The Company's food products are of a quality generally found only in
specialty gourmet shops and high-end restaurants and require simple preparation
using a microwave, conventional oven or grill. As a complement to its food
products, the Company also sells food-related and home entertainment appliances
and accessories with unique features not generally available in traditional
retail channels. The purchase of non-food items enables customers to earn a
lifetime discount on food purchases.
The Company has employed approximately 1,000 telemarketers and approximately 500
sales representatives over the past two fiscal years. The Company's
telemarketers schedule in-home sales presentations. During a sales presentation,
the Company's sales representative presents the Company's product offerings and
designs a customized food program for the customer. In fiscal 1997, a customer's
average initial food order was approximately $1,500. The average food order is
designed to meet approximately two-thirds of a family's evening meal needs for a
six-month period. In addition, approximately 70% of initial orders in fiscal
1997 included the purchase of non-food items at an average cost of approximately
$1,600. After a customer places an order, a Company representative delivers and
stores the food directly into the customer's freezer. To facilitate the purchase
of its products, the Company offers convenient financing options through a
wholly-owned finance subsidiary.
Products and Services
The Company offers a selected mix of food and non-food products.
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Food Products
The Company's food product line consists of approximately 300 items, with
entrees of a grade and quality comparable to those available only through
specialty butchers, fine gourmet shops or specialty catalogs. These products
range from select cuts of top quality beef, pork, veal, lamb and poultry, to
prepared gourmet dishes such as stuffed chicken breast, marinated pork chops and
Mexican and Italian entrees. The Company's frozen entrees may be prepared using
a microwave, conventional oven or grill, with 70% of such products requiring
only 20 minutes or less for preparation. As a service to its customers, the
Company also sells a selected line of brand name grocery items and other
household products generally available in local retail food outlets. The Company
refines its menu to accommodate changing customer demands.
With the exception of brand name grocery items, the Company's food items are
produced either by the Company or by premium food wholesalers according to the
Company's stringent specifications. Approximately 50% of the Company's food
revenue consists of items that are processed in the Company's processing
facility. Most food products carry the Company's trademark and all food products
are sold with a 100% customer satisfaction guarantee that the Company will
replace any product that does not completely satisfy the customer's
expectations. Food revenues for each of the three years in the period ended
September 26, 1997 were approximately 62% of product sales.
Non-Food Products
As a complement to the customer's food purchases, the Company sells a diverse
line of non-food items related to in-home dining and entertainment. The purchase
of non-food items enables customers to receive a lifetime discount on their food
purchases through the discount marketing program. The Company currently offers
approximately 20 food-related appliances or accessories, such as freezers,
microwave ovens, barbecue grills, cookware, china and crystal, imported
stainless flatware and cutlery. The Company recently expanded its appliance line
to include home entertainment products such as large screen televisions,
camcorders, and personal computers. The Company's non-food items are purchased
by special arrangements with manufacturers and have unique features that are not
generally available in typical retail channels. Non-food revenues for each of
the three years in the period ended September 26, 1997 were approximately 38% of
product sales.
Customer Financing
As an additional source of revenue and as a service to its customers, the
Company offers the option to finance purchases through the Company's
wholly-owned finance subsidiary. Most customer purchases are financed on a
revolving credit account. Generally, food products may be paid in six monthly
installments without additional cost to the consumer except for a nominal
monthly service charge. Non-food products are financed using open-end credit
accounts with balances, which are typically paid over a period of 24 to 36
months at market interest rates. Customers are billed separately for food and
non-food purchases.
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Marketing
Customer Acquisition
The Company purchases telemarketing target lists from a variety of sources.
Donnelley Marketing, Inc. is the primary source of outside lists, accounting for
23% of the Company's new customers in fiscal 1997. Additional sources include
JAMI Marketing Services, Inc., recent home buyer lists and neighborhood and zip
code canvassing. The screened lists of potential customers are distributed to
the Company's telemarketing forces who contact the prospective customers to
introduce the Company's product offerings and schedule an in-home presentation.
The Company also identifies potential customers through recommendations from
existing customers. During fiscal 1997, the Company's referral customers were
the source of approximately 31% of all new customers. Referrals are particularly
valuable to the Company due to the reduced marketing and sales costs associated
with the sale.
Discount Marketing Program
The Company's marketing efforts are facilitated by its discount marketing
program which provides customers with a lifetime discount on food products when
they purchase the Company's non-food products. The discount on the food products
generally offsets a customer's incremental monthly payments on non-food
purchases. The discount increases with each subsequent non-food purchase up to a
maximum possible discount of 50%. During fiscal 1997, 87% of the Company's
customers participated in the discount marketing program.
Sales
The Company believes that the key to strong sales force performance is a
talented, motivated sales management team coupled with ongoing recruiting,
training and retention programs. The Company has an ongoing sales training
process conducted at the local and corporate level. New representatives are
trained in the hiring office by experienced sales personnel using standardized
Company training procedures and materials. Additionally, the Company runs
regular food and non-food training seminars to educate all sales personnel on
the Company's full complement of products. The Company also maintains a
corporate management training program for management candidates demonstrating
high potential. Sales personnel are compensated by commission, earning a
percentage of each new sale and a lower percentage on subsequent reorder sales.
Sales representatives call on prospective customers in their home at pre-set
appointment times scheduled by the telemarketers, often on weekends and at
night. The in-home sales presentation is generally delivered with both adult
family members present. It consists of a food-related presentation, the
development of a monthly budget and a custom-designed menu as well as a
presentation of non-food merchandise. Sales representatives also cover reorder
appointments. The reorder presentation focuses on additional food products and
the Company's full complement of non-food merchandise.
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Distribution and Delivery
One of the Company's key competitive advantages is the efficient distribution of
perishable foods to its customers' homes. All food items are shipped from the
Company's Farmingdale, New York plant. Products are transported either by
Company-operated 48-foot freezer tractor trailers or independent carriers who
pick up shipments from Farmingdale and off-load them to the Company's delivery
trucks at one of 17 leased regional depots for delivery to customers. An
appointment is made with each customer for delivery of an order at the
customer's convenience, including evening hours and Saturdays. Orders are
delivered into the home and packed into the customer's freezer by Company
employees. With the exception of a customer service follow-up call, this serves
as the final step in the Company's quality control process. Generally, non-food
items are stored regionally by the Company's suppliers and are delivered by UPS
or other delivery service. This significantly reduces the Company's direct
storage, shrinkage, handling and inventory carrying costs.
Suppliers
The Company purchases its food and non-food products from a variety of vendors.
The Company strives to maintain relationships with several suppliers for each of
its major food and non-food items to ensure product availability and to maintain
flexibility with regard to cost control. In fiscal 1997, the Company's two
largest suppliers, Broich Enterprises (a freezer supplier) and Beef America,
accounted for 12% and 11%, respectively, of total non-food and food purchases.
The Company believes it has a good relationship with each of its suppliers and
that alternate suppliers are readily available.
The Company generally does not enter into purchasing agreements with any of its
vendors and does not hedge commodity prices in the futures market. However,
since management expected beef prices to increase in 1997, the Company entered
into one year fixed-price supply contracts with its two largest beef suppliers.
As these contracts proved to be beneficial in 1997 and as management believes
there will continue to be upward pressure on beef prices in 1998, the Company
has entered into one year fixed-price supply contracts with four beef suppliers
in fiscal 1998.
Competition
The Company's primary competition is local supermarkets and specialty food
retailers. Although the Company competes in each of those markets, the Company
operates in a niche market, providing benefits and services in addition to those
of each of the above businesses. The Company believes that it competes
effectively with these other businesses on the basis of service, product variety
and quality, marketing, convenience and the availability of credit.
Employees
The Company has employed approximately 2,300 individuals over the past two
fiscal years. Approximately 130 manufacturing and delivery personnel located at
its Farmingdale, New York facility are represented in collective bargaining
agreements by Local 210 of the Warehouse and Production Employees Union. The
Company believes it has a satisfactory relationship with unionized labor. The
current contract expires on September 30, 1998 and provides for a 3% per year
increase in wages.
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Intellectual Property
The Company seeks trademark protection from the United States Patent and
Trademark Office for many trade names, which the Company uses to market its
products and services. The Company presently holds nine registered trademarks
covering trade names and designs including Colorado Prime(R) and Colorado Prime
Foods(R). The Company also has trademarks currently pending registration
including Home Restaurant, Chef's Finest and Maria Nesta. Although the Company
considers its trademarks to be important to its business and continues to seek
trademark protection when deemed appropriate, the Company does not consider its
trademarks to be material to its business operations.
Governmental Regulation
The Company is subject to extensive regulation by a number of federal and state
regulatory agencies with respect to the preparation and sale of its food and
durable goods and the provision of financing to its customers. The Company's
Farmingdale, New York facility has USDA approval, which permits the Company to
ship its meat products nationwide without being subject to numerous state and
local inspection procedures. In the absence of USDA approval, the Company's sale
and delivery of meat products would become subject to state and local
inspection. The Company's telemarketing activities and practices are subject to
Federal and various state authorities and its direct marketing activities are
subject to federal and state regulation including the home sales solicitation
laws. Additionally, the Company's extension of credit to its customers is
subject to federal and state truth-in-lending laws, licensing and regulation
under retail installment sales acts, usury laws and similar statutes enacted by
the states in which it does business.
From time to time the Company is the subject of inquiries from regulatory
agencies in various states in which it conducts business. The Company is often
required to provide information concerning its business practices. Such
inquiries have generally not resulted in any material change in the Company's
business practices. The Company has agreed in the form of a settlement
agreement, consent decree, voluntary compliance or other similar agreement to
adjust individual customer accounts, replace merchandise, modify sales and
credit practices and/or pay costs, fines and penalties. None of these matters
have had a material adverse effect on the Company.
Item 2. Properties
The Company believes that its corporate headquarters, processing facility,
storage facilities, regional sales offices and equipment are adequate for its
current needs. The Company believes all facilities are adequately insured.
The following table summarizes the Company's primary facilities by location.
Company Facilities
Lease
Location Owned/Leased Description of Facility Expiration
- -------- ------------ ----------------------- ----------
Farmingdale, NY Leased Headquarters August 1998
Farmingdale, NY Owned Preparation, storage and --
shipping plant
Pompano Beach, FL Leased Office, warehouse and vehicle November 2006
repair depot
Farmingdale, NY Owned Vehicle repair depot --
Farmingdale, NY Owned Grocery warehouse --
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In addition to those facilities indicated in the table above, the Company leases
space for its 78 regional sales offices and 17 regional delivery depots under
short-term commercial leases, which typically have terms of three to five years.
The Company has entered into a lease agreement for its new corporate
headquarters in Farmingdale, N.Y. and expects to occupy the new facility
concurrent with the expiration of the existing headquarters lease.
Item 3. Legal Proceedings
The Company is a party to various litigation matters incidental to the conduct
of its business. Management believes that such proceedings would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the financial position or results of operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
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Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Not applicable.
As of December 18, 1997, there was one holder of record of the Company's Common
Stock.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of this report and the consolidated financial
statements of the Company and the related notes included in Item 8 of this
report, which consolidated financial statements have been audited and reported
on by Arthur Andersen LLP, independent public accountants.
New Basis of Accounting
As a result of the merger described in Item 1 a new basis of accounting under
the "push down" method was adopted effective May 9, 1997. Under this method, the
assets and liabilities of the Company were revalued to reflect CPH's new cost
basis in the Company, which is based on the fair values of such assets and
liabilities on May 9, 1997. Financial data for the period subsequent to May 9,
1997, reflect the adoption of this new basis of accounting and, accordingly,
data for all annual fiscal periods presented herein may not be comparable with
the data presented which includes the period subsequent to May 9, 1997.
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<TABLE>
<CAPTION>
Fiscal Year Ended September
Twenty Thirty-two
Weeks Ended Weeks Ended
September 26, 1997 May 9, 1997 1996 1995 1994 1993
------------------ ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dollars in thousands
Operating Data
Product Sales $54,407 $85,510 $142,651 $144,966 $134,025 $126,171
Finance income earned 5,600 8,637 12,792 11,524 11,201 10,725
------- ------- -------- -------- -------- --------
Total revenue 60,007 94,147 155,443 156,490 145,226 136,896
Cost of goods sold 21,195 32,949 56,387 59,906 58,640 59,371
------- ------- -------- -------- -------- --------
Gross Profit 38,812 61,198 99,056 96,584 86,586 77,525
Selling, general and
administrative 31,923 48,749 80,901 80,988 75,326 69,450
Amortization of goodwill 540 713 1,164 1,164 1,187 1,164
Interest expense 6,222 5,713 9,130 8,017 6,783 9,745
Other expense 245 426 7,089(a) 767(a) 559 6,357(a)
------- ------- -------- -------- -------- --------
Income (loss) before
provision (benefit) for
income taxes (118) 5,597 772 5,648 2,731 (9,191)
Provision (benefit) for
income taxes 130 2,414 1,262 2,738 1,781 (2,929)
------- ------- -------- -------- -------- --------
Net income (loss) $ (248) $ 3,183 $ (490) $ 2,910 $ 950 $ (6,262)
======= ======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of Fiscal Year Ended September
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital $ 51,235 $52,902 $48,065 $44,826 $45,674
Total assets 169,773 150,784 143,841 136,525 141,303
Long-term debt (including
current portion) (b) 118,675 93,541 82,102 76,897 78,097
Stockholder's equity $ 25,625 $40,669 $44,278 $43,606 $45,115
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended September
Twenty Thirty-two
Weeks Ended Weeks Ended
September 26, 1997 May 9, 1997 1996 1995 1994 1993
------------------ ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Other Financial Data
EBITDA (c) $7,396 $13,397 $20,062 $17,424 $13,031 $9,932
EBITDA margin (c) 12.3% 14.2% 12.9% 11.1% 9.0% 7.3%
</TABLE>
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(a) Fiscal 1996 includes debt financing expenses of $624 and payments to
management of $4,177 under a management incentive plan related to the
issuance of senior notes in December of 1995 and also includes a charge
for unused office and warehouse space of $1,698. Fiscal 1995 includes a
write-off of capitalized software costs of $162. Fiscal 1993 also includes
a charge for unused office and warehouse space and severance of $5,973.
(b) Long-term debt (including current portion) includes obligations under
capital leases.
(c) EBITDA is defined as net income before interest, income taxes,
depreciation and amortization and certain nonrecurring expenses (as
discussed in Note (a) above). EBITDA is presented because Management
believes it is a widely accepted financial indicator of the Company's
ability to incur and service debt. However, EBITDA should not be
considered in isolation as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as
measure of a company's profitability or liquidity. In addition, this
measure of EBITDA may not be comparable to similar measures reported by
other companies.
EBITDA margin is calculated as the ratio of EBITDA to total revenues for
the period.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion should be read in conjunction with the "Selected
Financial and Operating Data," the audited Consolidated Financial Statements and
accompanying notes thereto included
elsewhere in this report.
New Basis of Accounting
As a result of the merger, a new basis of accounting under the "push down"
method was adopted effective May 9, 1997. Under this method, the assets and
liabilities of the Company were revalued to reflect Holdings' new cost basis in
the Company, which is based on the fair values of such assets and liabilities on
May 9, 1997. Financial data for the period subsequent to May 9, 1997, reflects
the adoption of this new basis of accounting as if the merger occurred at the
beginning of the period and, accordingly, data for all annual fiscal periods
presented herein may not be comparable with the data presented which includes
the period subsequent to May 9, 1997.
Presentation of Data for Combined Periods
The pro forma results of operations for the fiscal year ended September 26, 1997
are presented for comparative purposes only, and not as combined or consolidated
results of operations in accordance with Generally Accepted Accounting
Principles ("GAAP") nor as a replacement for the separate period results of
operations presented in the Company's audited consolidated financial statements
presented elsewhere in this report.
These changes affect the comparability of operating data principally with
respect to amortization of intangible assets associated with the "push-down"
accounting basis revaluation and interest expense on the new debt. Management
believes that the presentation and assessment of results of operations for the
fifty-two weeks ended September 26, 1997 on a pro forma basis provides the most
meaningful analysis of the Company's operating results on a comparable basis.
Results of Operations
The following table summarizes the Company's historical results of operations as
a percentage of total revenue. All fiscal years presented herein are 52 weeks.
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Pro
forma 52
weeks
ended
September Fiscal Year Ended
1997 1996 1995
---- ---- ----
Statement of Operations
and Other Financial Data:
Total revenue 100.0% 100.0% 100.0%
Gross Profit 64.9 63.7 61.7
Selling, general and
administrative expenses 52.4 52.0 51.7
Interest expense 7.7 5.9 5.1
Amortization of goodwill 0.8 0.7 0.7
Other expense 0.4 4.6 0.5
Provision for income taxes 1.6 0.8 1.7
Net income (loss) 1.9 (0.3) 2.0
Depreciation and amortization 2.2 2.3 2.3
EBITDA 13.4 12.9 11.1
Fifty-two Weeks Ended September 26, 1997 (Pro Forma) Compared to Fiscal Year
ended September 27, 1996.
Total revenue for the fifty-two weeks ended September 26, 1997 decreased by $1.2
million, or 0.8%, to $154.2 million from $155.4 million for the fifty-two weeks
ended September 27, 1996. Food revenue for the fifty-two weeks ended September
26, 1997 decreased by $2.6 million, or 3.0%, to $86.1 million from $88.7 million
for the fifty-two weeks ended September 27, 1996. The decrease was primarily due
to difficulties experienced by the Company locating and hiring qualified sales
representatives in a low unemployment environment. The Company continues to
refine test programs designed to improve the recruitment and retention of sales
representatives. Food revenue was positively affected by price increases
commensurate with inflation. Non-food revenue for the fifty-two weeks ended
September 26, 1997 decreased by $0.1 million, or 0.2%, to $53.9 million from
$54.0 million for the fifty-two weeks ended September 27, 1996. Non-food revenue
was positively affected by price increases commensurate with inflation and the
sale of higher value appliances such as large screen televisions and camcorders,
offset by the impact of reduction in food orders as non-food sales are only
consummated if a food sale is made. Finance income for the fifty-two weeks ended
September 26, 1997 increased by $1.4 million, or 11.3%, to $14.2 million from
$12.8 million for the fifty-two weeks ended September 27, 1996. The increase in
finance income earned resulted from larger customer account receivable balances
due primarily to the sale of higher value appliances and selective use of
extended financing terms.
Gross profit for the fifty-two weeks ended September 26, 1997 increased by $1.0
million, or 1.0%, to $100.0 million from $99.0 million for the fifty-two weeks
ended September 27, 1996. Gross profit margin increased to 64.9% for the
fifty-two weeks ended September 26, 1997 from 63.7% for the fifty-two weeks
ended September 27, 1996. The increase in gross profit margin was the result of
shifting processing for the Company's poultry items to its in-house facility,
lower overhead costs and an increase in finance income. Additionally, gross
profit margin benefited from a favorable mix of non-food product sales toward
items which generally have a higher profit margin.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For the fifty-two weeks ended September 26,
1997, these expenses decreased by $0.2 million, or 0.2%, to $80.7 million from
$80.9 million. As a percentage of total
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revenues, SG&A expenses increased to 52.3% for the fifty-two weeks ended
September 26, 1997, from 52% for the fifty-two weeks ended September 27, 1996.
Interest expense for the fifty-two weeks ended September 26, 1997 increased to
$11.9 million from $9.1 million for the fifty-two weeks ended September 27,
1996. The increase was primarily attributable to a greater level of borrowing
(as a result of the debt issued in connection with the merger) at a higher rate
of interest during 1997, as compared to the financing in effect during the
previous period.
Other expense for the fifty-two weeks ended September 26, 1997 decreased by $6.4
million to $0.7 million from $7.1 million for fiscal 1996. The decrease is
primarily attributable to the payment in fiscal 1996 of refinancing-related
bonuses of $3.0 million, redemption of management stock of $1.2 million,
unrecovered costs of $0.6 million related to the issuance of debt and a charge
of $1.7 million for lease obligations of unused office and warehouse space.
Provision for income tax for the fifty-two weeks ended September 26, 1997
increased by $1.2 million to $2.5 million from $1.3 million for fiscal 1996. The
increase is primarily attributable to higher pretax earnings for the fifty-two
weeks ended September 26, 1997 partially offset by certain non-deductible
expenses in fiscal 1996.
Net income increased to $2.9 million or 1.9% of total revenue for the fifty two
weeks ended September 26, 1997 from a loss of $0.5 million, or 0.3% of total
revenues for fiscal 1996 for the reasons stated above.
Depreciation and amortization decreased to $3.3 million, or 2.2% of total
revenue, for the fifty-two weeks ended September 26, 1997 from $3.6 million, or
2.3% of total revenue, for the fifty-two weeks ended September 27, 1996. The
decrease is primarily attributable to a reduction in capital spending offset by
additional goodwill.
EBITDA for the fifty-two weeks ended September 26, 1997 increased by $0.6
million, or 3.0%, to $20.7 million from $20.1 million for fiscal 1996. EBITDA
margin as a percentage of total revenue increased to 13.4% for the fifty-two
weeks ended September 26, 1997 from 12.9% for fiscal 1996 for the reasons stated
above. See footnote (c) to "Selected Financial Data".
Fiscal Year Ended September 27, 1996 Compared to Fiscal Year Ended September 29,
1995
Total revenue for fiscal 1996 decreased by $1.1 million, or 0.7%, to $155.4
million from $156.5 million for fiscal 1995. Food revenue for fiscal 1996
decreased by $0.6 million, or 0.7%, to $88.7 million from $89.3 million for
fiscal 1995. The decrease was primarily due to difficulties in hiring qualified
sales representatives in a low unemployment environment, which resulted in fewer
orders from new customers than in the prior period. Additionally, the number of
in-home appointments which were cancelled as a result of inadequate staffing
increased by 28% in fiscal 1996. New programs designed to improve the
recruitment and retention of sales representatives were initiated to respond to
this staffing issue at the close of the year. In addition, the decrease was due
to an increase in rejected orders for credit reasons resulting from rising
consumer debt levels. Food revenue was positively affected by price increases
commensurate with inflation and larger order sizes. The Company experienced a
larger average order size principally due to a change in the Company's sales
presentation from one based upon five months of anticipated food requirements to
one based upon six months. The change had been introduced in some markets during
fiscal 1995 and continued to be implemented throughout the Company during fiscal
1996. Non-food revenue for fiscal 1996 decreased by $1.6 million, or 2.9%, to
$54.0 million from $55.6 million for fiscal 1995. The decrease was primarily due
to the reduction in food orders. Non-food revenue was positively affected by
price increases commensurate with inflation and the sale of higher value
appliances such as large screen televisions and camcorders. Finance income for
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fiscal 1996 increased by $1.3 million, or 11.0%, to $12.8 million from $11.5
million for fiscal 1995. The increase in finance income earned resulted from
larger customer accounts receivable balances due to the sale of higher value
appliances.
Gross profit for fiscal 1996 increased by $2.5 million, or 2.6%, to $99.1
million from $96.6 million for fiscal 1995. Gross profit margin increased to
63.7% for fiscal 1996 from 61.7% for fiscal 1995. The increase in gross profit
margin was primarily due to an increase in finance income, lower beef costs and
the impact of the Company's cost reduction activities.
For fiscal 1996, SG&A expenses remained relatively flat at $80.9 million
compared to $81.0 million for fiscal 1995. As a percentage of total revenues,
SG&A expenses were 52.0% for fiscal 1996 compared to 51.7% for fiscal 1995. The
increase was primarily due to an increase in bad debt expense due to the higher
level of customer payment delinquencies, offset by lower selling costs as a
result of lower revenues.
Interest expense for fiscal 1996 increased by $1.1 million, or 13.9%, to $9.1
million from $8.0 million for fiscal 1995. The increase was primarily
attributable to higher average debt balance and higher interest expense as a
result of the recapitalization in December of 1995.
Other expense for fiscal 1996 increased by $6.3 million, to $7.1 million, from
$0.8 million for fiscal 1995. The increase was primarily due to payment of
refinancing-related bonuses of $3.0 million, redemption of management stock of
$1.2 million, and unrecovered costs of $0.6 million related to the
recapitalization in December of 1995. In addition, the increase was due to a
charge of $1.7 million for lease obligations on unused office and warehouse
space for fiscal 1996.
Provision for income taxes for fiscal 1996 decreased by $1.4 million, to $1.3
million, from $2.7 million for fiscal 1995. The decrease is primarily
attributable to lower earnings as a result of certain non-deductible expenses
associated with the recapitalization in December of 1995.
Net income decreased to a loss of $0.5 million, or 0.3% of total revenue, for
fiscal 1996 from net income of $2.9 million, or 2.0% of total revenue for fiscal
1995 for the reasons discussed above.
Depreciation and amortization for fiscal 1996 increased by $0.1 million to $3.7
million from $3.6 million for fiscal 1995.
EBITDA for fiscal 1996 increased by $2.7 million, or 15.5%, to $20.1 million
from $17.4 million for fiscal 1995. EBITDA margin as a percentage of total
revenue increased to 12.9% for fiscal 1996 from 11.1% for fiscal 1995 for the
reasons stated above. See footnote (c) to "Selected Financial Data."
13
<PAGE> 15
Liquidity and Capital Resources
Net cash provided by operating activities for the fifty two weeks ended
September 26, 1997 was $1.6 million, primarily comprised of net income of $2.9
million, non-cash charges of $4.5 and an increase in income taxes payable of
$1.6 million, partially offset by an increase in accounts receivable of $3.2
million, an increase in other assets of $0.6 million, an increase in inventory
of $0.9 million, a decrease in accounts payable of $0.5 million and a decrease
in accruals of $1.9 million.
Cash used in financing activities for the fifty two weeks ended September 26,
1997 was $2.7 primarily comprised of payments of the working capital revolver of
$4.7 million partially offset by net cash proceeds from the merger.
The Company's primary use of cash in investing activities is the purchase of
property and equipment. Capital expenditures in fiscal 1997 and 1996, were $1.0
million and $2.0 million, respectively. The Company expects that capital
expenditure requirements will be approximately $1.8 million for fiscal 1998.
The Company's average working capital borrowings for the fiscal 1997 and 1996
years was $43.1 million and $58.4 million, respectively. The decline is due
primarily to a change in the debt structure resulting from the merger. The
Company's maximum working capital borrowings outstanding during such periods
were $58.4 million and $64.9 million, respectively.
The Company has a $50.0 million working capital revolver, with $29.7 million of
available borrowings as of September 26, 1997. The working capital revolver
contains certain covenants requiring the Company to meet certain financial test
including a minimum fixed charge coverage ratio, a minimum interest coverage
ratio, a maximum leverage ratio, the maintenance of a minimum net worth and a
limitation on capital expenditures. The working capital revolver and the notes
impose certain other restrictions on the Company, including restrictions on its
ability to incur indebtedness, pay dividends, make investments, grant liens,
sell its assets and engage in certain other activities. In addition, the
indebtedness of the Company under its working capital revolver is secured by all
of the assets of the Company, including the Company's real and personal
property, inventory, accounts receivable, intellectual property and other
intangibles.
Management believes that cash flow from operations, together with other
available sources of funds including the availability of borrowings under its
working capital revolver will be adequate for at least the next twelve months to
make required payments of principal and interest on the Company's indebtedness
and to fund anticipated capital expenditures and working capital requirements.
The ability of the Company to meet its debt service obligations and reduce its
total debt will be dependent, however, upon the future performance of the
Company which, in turn, will be subject to general economic conditions and to
financial, business and other factors, including factors beyond the Company's
control. Debt outstanding under the working capital revolver will bear interest
at floating rates; therefore, the Company's financial condition is and will
continue to be affected by changes in prevailing interest rates.
Inflation
The Company believes that inflation has not had a material impact on its results
of operations for the three fiscal years ended September 26, 1997.
Other - Year 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems
14
<PAGE> 16
will recognize the year 2000 as 1099, or not at all. This inability to recognize
or properly treat the Year 2000 may cause systems to process critical financial
and operation information incorrectly. The Company has assessed and continues to
assess the impact of the Year 2000 on its operations, including the development
of cost estimates for, and the extent of programming changes required to address
this issue. The Company believes, based upon its internal reviews and other
factors, the future external and internal costs to be incurred relating to the
modification of internal use software for the Year 2000 will not have a material
effect on the Company, results of operations or financial position.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are listed under Item 14 in this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
15
<PAGE> 17
Part III
Item 10. Directors, Executive Officers and Key Employees of the Registrant.
The following table sets forth the names, ages as of September 26, 1997 and
positions of each person who is a director, executive officer or key employee of
the Company.
- --------------------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------------------
William Dordelman 57 Chairman of the Board and Chief Executive
Officer
William Willett (1) 60 President, Chief Operating Officer and
Director
Thomas Taylor 39 Chief Financial Officer, Vice President
and Director
Ricardo DeSantis 54 Vice President of Marketing
Steven Lachenmeyer 31 Vice President, Controller and Secretary
Charles Montanino 69 Vice President of Plant Operations
Kenneth Payne 49 Vice President of Operations
Joseph Ugenti 52 Vice President Customer Acquisition
Brian Mulvehill 40 Vice President-East Coast Division
Ronald Mel 31 Vice President-Midwest Division
John DeMaio 42 Vice President-Southwest Division
Joseph Billi 33 Vice President-Northeast Division
Lawrence Scuderi 56 Vice President-Management, Development and
Training
Donald Keller 65 Director
Frederic Malek 60 Director
Dr. Paul Stern 58 Director
V. Frank Pottow (1) 34 Director
Daniel J. Altobello 56 Director
William Nicholson 54 Director
(1) On October 29, 1997, V. Frank Pottow resigned as Director. On November 28,
1997, William Willett resigned as Director, President and Chief Operating
Officer.
William Dordelman has been Chairman of the Board and Chief Executive Officer of
CPC since March 1993. Prior to joining CPC, Mr. Dordelman served as Co-Chief
Executive Officer of The B. Manischewitz Company from May 1992 to March 1993.
Previously, Mr. Dordelman was employed 22 years with General Foods Corporation
("General Foods"), where he was President of the Foods Products Division and
Group Vice President, overseeing General Foods' six U.S. packaged food
divisions.
William Willett had been President, Chief Operating Officer and Director of CPC
since June 1994 until his resignation on November 28, 1997. From 1992 until
1994, Mr. Willett was principal owner and President of Brights Creek, a direct
response children's clothing business. From 1987 through 1992, Mr. Willett
served as Chairman and Chief Executive Officer of New Hampton, a leveraged
buyout of Avon's former women's fashion catalog business. Previously, Mr.
Willett was corporate Executive Vice President at Avon where he led its effort
to build a mail-order fashion business. Before joining Avon, Mr. Willett was
Vice President of Downe Communications and National Sales Manager for Time
Telemarketing.
Thomas Taylor was appointed Vice President, Chief Financial Officer and Director
in April 1996. Previously, Mr. Taylor served as Vice President of Finance and
Sales Strategy at Kraft Foods for five years. Prior to joining Kraft, Mr. Taylor
was Vice President and Controller of Central Soya
16
<PAGE> 18
Company, Inc., a $2.3 billion agribusiness company, and audit manager at Price
Waterhouse in Chicago.
Ricardo DeSantis was appointed Vice President of Marketing in June 1993.
Previously, Mr. DeSantis was Senior Vice President of Marketing for Cigna
Healthcare. From 1989 to 1991, Mr. DeSantis was President of the Consumer
Division of Pendaflex Corporation. Prior to that, Mr. DeSantis was a business
unit manager at General Foods.
Steven Lachenmeyer was appointed Vice President and Controller in June 1997 and
Secretary in December 1997. Prior to that, Mr. Lachenmeyer was an audit manager
with Arthur Andersen LLP.
Charles Montanino has been Vice President of Plant Operations since March 1987.
Mr. Montanino joined CPC in April 1973 and served as plant manager from 1980
through March 1987.
Kenneth Payne joined CPC as Credit Collections Manager in August 1976. From 1981
until 1987, Mr. Payne served as Operations Manager of CPC. In 1987 Mr. Payne was
elected Vice President of Operations.
Joseph Ugenti began in CPC's sales department in 1975 and was elected Vice
President of Customer Acquisition in August 1991. From June 1983 to July 1991,
Mr. Ugenti was Director of Telemarketing of CPC.
Brian Mulvehill has held the position of Vice President of the East Coast
Division since 1991. Mr. Mulvehill began his career with CPC in 1985. From 1988
until 1991, Mr. Mulvehill served as Divisional Sales Manager. Previously, Mr.
Mulvehill held the position of Sales Manager of Don Rich Industries from 1978 to
1985.
Ronald Mel was appointed Vice President of the Midwest Division in May 1997. Mr.
Mel joined CPC in 1992 as branch manager. In 1994, Mr. Mel served as East Coast
Divisional Trainer. From 1995 through 1997, Mr. Mel served as Divisional Manager
for the Florida region.
John DeMaio has been Vice President of the Southwest Division since 1984. Mr.
DeMaio joined CPC in 1982 and served as Divisional Manager of the Mid-Atlantic
Area from 1982 to 1984. Previously, Mr. DeMaio served as General Sales Manager
of American Frozen Foods from 1974 to 1981.
Joseph Billi was appointed Vice President of the New York/New Jersey Division in
May 1997. Mr. Billi joined CPC in 1990. He held the positions of Corporate
Trainer, Field Manger, Branch Sales Manager and sales representative.
Lawrence Scuderi was appointed Vice President of Management Development and
Training in May 1997. Prior to that, Mr. Scuderi served as Vice President of the
Midwest Division since 1993. Mr. Scuderi joined CPC in 1980 and held the
position of Divisional Sales Manager from 1992 to 1993. From 1980 to 1992, Mr.
Scuderi served as Branch Sales Manager and Corporate Training Director.
Donald Keller has been Vice Chairman of CPC since April 1993. Mr. Keller also
serves as Chairman of Vlasic Foods. Since 1993, Mr. Keller has also served as
Chairman of Mano Holdings, a holding company for The B. Manischewitz Company,
and Non Executive Chairman of Prestone Products. From May 1992 to April 1993,
Mr. Keller served as Co-Chief Executive Officer of The B. Manischewitz Company.
From April 1989 until May 1992, Mr. Keller was a
17
<PAGE> 19
consultant and private investor. Prior to that time, Mr. Keller was President
and Chief Operating Officer of Westpoint Pepperell and earlier served as
Executive Vice President of General Foods.
Frederic Malek became a Director of CPC and CPH following the consummation of
the Merger. Mr. Malek founded Thayer Capital Partners in 1991 and co-founded
Thayer Equity Investors III, L.P. in 1995. From 1989 to 1991, Mr. Malek was
President and then Vice Chairman of Northwest Airlines. Prior to that time, Mr.
Malek served as President of Marriott Hotels and Resorts from 1980 through 1988.
Mr. Malek currently serves as director of several publicly-traded companies,
including Automatic Data Processing Corp., American Management Systems, Manor
Care Inc., FPL Group and Northwest Airlines.
Dr. Paul Stern became a Director of CPC following the consummation of the
Merger. Dr. Stern co-founded Thayer Equity Investors III, L.P. in 1995. Prior to
that, Dr. Stern was a Special Limited Partner at Forstmann Little & Co. From
1989 until 1993, Dr. Stern served as the Chairman and Chief Executive Officer of
Northern Telecom Ltd. Prior to that, Dr. Stern served as President and Chief
Operating Officer of Burroughs (later Unisys) Corporation, Corporate Vice
President and later President of Commercial Electronics Operations at Rockwell
International Corporation and Chairman and Chief Executive Officer of Braun AG
in Germany. Dr. Stern serves on the Board of Dow Chemical Company, LTV
Corporation and Whirlpool Corporation.
V. Frank Pottow served as Director of CPC and CPH following the consummation of
the Merger until his resignation on October 29, 1997. Mr. Pottow joined Thayer
Capital Partners as a Managing Director in 1996. From 1992 through 1996, Mr.
Pottow was a Principal at Odyssey Partners, L.P, a private investment
partnership. Prior to joining Odyssey Partners, L.P., Mr. Pottow was an
Associate with Wasserstein Perella & Co.
Daniel J. Altobello became a Director of CPC in June, 1997. He has been Chairman
of the Board of Directors of Onex Food Services, Inc., the world's largest
airline catering group since September 1995. From 1989 to 1995, Mr. Altobello
was the Chairman and CEO of Caterair Holdings Corporation, the leveraged buyout
of the In-Flite Services Division of Marriott Corporation. He is a former
Executive Vice President of Marriott Corporation and President of Marriott's
Airport Operations Group. Mr. Altobello currently serves as a director of
American Management Systems, Inc. and Blue Cross Blue Shield of Maryland, Inc.
Willliam Nicholson became a Director of CPC in June, 1997. Mr. Nicholson has
been a private investor since September 1992. Prior to that, he served for eight
years as the Chief Operating Officer of Amway Corporation, the world's largest
multilevel marketing company, based in Ada, Michigan. He remains an advisor to
Amway Corporation's Policy Board.
Board Committees
The Board of Directors of the Company has established a compensation committee
(the "Compensation Committee") and an audit committee (the "Audit Committee").
The Compensation Committee, which consists of Dr. Stern and Messrs. Malek and
Nicholson determines the compensation of the Company's executive officers. The
Compensation Committee will also administer the Company's Stock Option Plan (the
"Option Plan"). The Audit Committee recommends the appointment of auditors and
oversees the accounting and audit functions of the Company. Messrs. Keller and
Altobello currently serve as members of the Audit Committee.
18
<PAGE> 20
Item 11. Executive Compensation
The following table sets forth certain information concerning the compensation
paid or earned during fiscal 1997 by the Company's Chief Executive Officer and
the four other most highly paid executive officers whose total salary and bonus
exceeded $100,000 for services rendered to the Company during fiscal 1997. The
Company did not maintain any long-term incentive plans nor did it grant stock
appreciation rights or restricted stock awards.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation for Year Ended
September 26, 1997
Other Annual Other
Name and Principal Position Salary Bonus Compensation(1) Compensation(2)(3)
- --------------------------- ------ ----- --------------- ------------------
<S> <C> <C> <C> <C>
William Dordelman ........................... $420,000 $315,000 -- $325,000
Chairman of the Board and Chief
Executive Officer
William Willett ............................. $300,000 $225,000 -- $250,000
President, Chief Operating Officer
and Director
Ricardo DeSantis ............................ $185,000 $115,000 -- $100,000
Vice President of Marketing
Thomas Taylor ............................... $187,000 $ 51,000 -- $100,000
Chief Financial Officer
Vice-President and Director
Kenneth Payne ............................... $129,000 $ 45,000 -- $ 30,000
Vice President of Operations
</TABLE>
(1) Represents perquisites and other personal benefits, if such benefit
exceeds the lesser of $50,000 or 10% of the total annual salary and bonus
for the executive officer.
(2) Represents amounts awarded based upon performance incentives which
provided certain senior managers with a nonrecurring cash bonus earned and
paid in fiscal 1997 in connection with the Merger.
(3) Amount excludes proceeds from the sale of stock as follows; $207,000 to
William Dordelman, $639,000 to William Willett, $214,000 to Ricardo
DeSantis, $291,000 to Thomas Taylor, and $84,000 to Kenneth Payne.
Director Compensation
Directors are reimbursed for certain expenses incurred by them in connection
with attendance at meetings of the Board. Other than with respect to
reimbursements for expenses, directors who are also officers of the Company do
not receive compensation to serve as directors. The Company compensated
non-employee directors for services provided in such capacity in the aggregate
of $24,000 in fiscal 1997.
Employment Agreements
In connection with the Merger, the Company entered into employment agreements
with Messrs. William Dordelman, William Willett, Thomas Taylor and Ricardo
DeSantis. The employment agreements are for a one year rolling term. The
employment agreements provide for (i) payment of a base annual salary of
$420,000 to William Dordelman, $300,000 to William Willett, $195,000 to Thomas
Taylor and $195,000 to Ricardo DeSantis; (ii) a minimum annual base
19
<PAGE> 21
salary increase to reflect the consumer price index; (iii) payment of bonuses
based upon achievement of certain profitability targets of the Company; and (iv)
certain fringe benefits. Each employment agreement provides that the executive
may be terminated by the Company only with cause or upon payment of a full
year's salary and benefits (excluding bonus) following notice of termination.
Each employment agreement provides that the executive will not compete with the
Company during the period of employment and for a period of two years following
termination of employment for good cause and one year following termination of
employment other than for good cause.
Management Equity Investment
In connection with the Merger, certain management ("Management Investors")
exchanged certain of their existing shares of common stock of Holdings (valued
for such purpose at the amount that would otherwise be payable for such shares
in connection with the merger) and contributed cash in the aggregate amount of
$2.1 million in exchange for an aggregate of 21,200 shares of common stock of
CPAC. Upon consummation of the Merger, each share of common stock of CPAC was
converted into one share of common stock of CPH. Pursuant to a shareholders'
agreement, the Management Investors have incidental registration rights,
tag-along rights, antidilution protection and in certain circumstances a
mandatory redemption right, and are subject to certain restrictions on the
transfer of their shares, a bring-along right and certain call provisions
exercisable by CPH or Thayer.
Stock Option Plan
In connection with the Merger, the Board of Directors will adopt and the
stockholders of CPH will approve the 1997 Stock Option Plan. Options of up to
approximately 15% of CPH's common equity may be granted to the Company under
such plan. The options will become vested based upon service or the achievement
of certain performance objectives of the Company. Two-thirds of the options will
become fully vested upon a change of control or other similar transaction
involving CPH.
Employees' Pension Plan
Since 1976, the Company has maintained a defined contribution pension plan (the
"Plan"). Employees who have completed six months of service and have reached the
age of 20 1/2 are eligible to participate in the Plan. The Company contributes
annually to a participant's account based upon a variable percentage of a
participant's annual compensation. The Plan also permits eligible employees to
make voluntary contributions within specified limits. The contributions for
employees who became participants prior to January 1, 1989 are 30% vested after
three years of service and the contributions for employees who become
participants after January 1, 1989 are 20% vested after three years of service.
Contributions become vested thereafter at a rate of 20% for each additional full
year of service, until fully vested. Benefits are distributed at the time of the
employee's death, disability, termination or retirement after age 55 and may be
distributed in the form of an annuity or, in some circumstances, other methods
of payment, such as lump sum or in installments over a fixed period.
Contributions are forfeited when a participant's employment is terminated prior
to full vesting under the Plan. Such forfeited amounts are used to reduce the
Company's contributions to the Plan.
401(k) Plan
The Company sponsors a 401(k) Plan available for all non-union employees who
have attained the age of 21 and have completed one year of service with the
Company. The plan was adopted effective February 1, 1986 and was amended
effective February 1, 1988 and January 1, 1989, as hereinafter described. Under
the plan's qualified cash or deferred arrangement, a participant may,
20
<PAGE> 22
under an arrangement with the Company, elect to have up to 20% of their annual
compensation paid to the plan on behalf of the participant, in lieu of the
participant's current receipt of such compensation. In addition to the
employee's contribution, the Company may, but need not, make discretionary
contributions to the plan in such amounts as it determines. A participant's
contributions made under the qualified cash or deferred arrangement are 100%
vested at all times. For employees who became participants of the plan prior to
January 1, 1989, discretionary contributions made under the plan are 20% vested
after three years of service. Discretionary contributions become vested
thereafter at the rate of 20% for each additional full year of service, until
100% vested. Benefits are payable upon a participant's termination of employment
for any reason, in the form of one lump sum payment or in installments extending
over a fixed period of years, depending upon the employee's election.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
All of the Company's issued and outstanding capital stock is owned by CPH. The
issued and outstanding capital stock of each of the Company's subsidiaries is
owned by the Company. The table sets forth, as of September 26, 1997, the Common
Stock of CPH owned beneficially or of record (i) by any person in an amount in
excess of five percent of such Common Stock; (ii) by each director of the
Company who is a shareholder; (iii) by each executive officer of the Company;
and (iv) by all directors and executive officers of the Company as a group. In
addition, Thayer owns 100% of CPH's 10,000 outstanding shares of 15%
payable-in-kind redeemable preferred stock, par value $0.01 per share.
Number of Percentage of
Shares of Outstanding
Common Stock of Common Stock of
Name and Address of Beneficial Owner CPH(1)(3) CPH (1)(3)
- ------------------------------------ --------- ----------
Thayer Equity Investors III, L.P. (2) 128,800(3)(4) 85.9%
1455 Pennsylvania Avenue N.W.
Washington, D.C. 20004
William Dordelman 10,000 6.7%
Colorado Prime Corporation
One Michael Avenue
Farmingdale, NY 11735
William Willett 5,000 3.3%
Colorado Prime Corporation
One Michael Avenue
Farmingdale, NY 11735
Thomas Taylor 2,300 1.5%
Colorado Prime Corporation
One Michael Avenue
Farmingdale, NY 11735
Ricardo DeSantis 1,650 1.1%
Colorado Prime Corporation
One Michael Avenue
Farmingdale, NY 11735
Other Executive Officers 2,250 1.5%
All directors and executive officers as a 21,200(2) 14.1%
group (2)
21
<PAGE> 23
(1) Excludes 19,608 shares of CPH Common Stock that may be acquired upon the
exercise of warrants which represent 10% of CPH Common Stock on a
fully-diluted basis (without taking into account shares of CPH Common
Stock which will be subject to CPH's 1997 Stock Option Plan).
(2) Thayer Equity Investors III, L.P. is a Delaware limited partnership whose
general partner is TC Equity Partners, L.L.C. ("TC Equity Partners"). The
members of TC Equity Partners are Fredric Malek, Dr. Paul Stern and Rick
Rickertsen. Mr. Malek and Dr. Stern are directors of CPC and may be deemed
to be the beneficial owners of the shares of CPH Common Stock owned and
controlled by Thayer. Mr. Malek and Dr. Stern disclaim beneficial
ownership of such shares.
(3) Excludes 26,471 shares of CPH Common Stock that may be acquired upon the
exercise of warrants held by Thayer, which represent 13.5% of CPH Common
Stock on a fully-diluted basis (without taking into account shares of CPH
Common Stock which will be subject to CPH's 1997 Stock Option Plan).
(4) Includes shares of CPH Common Stock owned by TC Co-Investors, LLC
("Co-Investors"). Co-Investors is a Delaware limited liability which is
controlled by TC Equity Partners.
Item 13. Certain Relationships and Related Transactions
Management advisory and Transaction Fees
In connection with the Merger, the Company paid a transaction fee of $1.4
million to TC Management L.L.C. ("TC Management"), an affiliate of Thayer, in
consideration for services in arranging the financing for the Merger.
In May, 1997 following the consummation of the Merger, the Company and TC
Management entered into a management and consulting agreement pursuant to which
TC Management will provide management advisory and consulting services to the
Company for which it will receive a payment of $0.5 million plus expenses
annually.
The Company believes that the management advisory and transaction fees paid or
to be paid to TC Management are comparable to fees that would be paid to
unaffiliated third parties for similar services.
Management Equity Incentive Plan
In January 1995, the Company implemented an equity incentive plan to provide a
performance incentive to the Company's management. An aggregate of approximately
747,000 shares of Class A, Class B and Class C management Common Stock of
Holdings ("Management Stock") were purchased by certain members of management,
including Messrs. Dordelman, Willett, DeSantis and Taylor. All outstanding
shares of Management Stock were redeemed in connection with the closing of the
Merger for an aggregate consideration of approximately $7.3 million of which
approximately $2.1 million was reinvested in CPAC as discussed below.
Equity Contribution of CPAC
In connection with and immediately prior to the Merger, Thayer contributed cash
in the amount of $22.9 million in exchange for 128,800 shares of common stock,
$0.01 par value per share, of CPAC, 10,000 shares of 15% payable-in-kind
redeemable preferred stock, $0.01 par value per
22
<PAGE> 24
share, of CPAC and warrants to purchase 26,471 common shares of CPAC at an
exercise price of $0.01 per share. Certain senior managers of CPC including
Messrs. Dordelman, Willett, Taylor and DeSantis exchanged certain of their
existing common shares of Holdings (valued for such purpose at the amount that
would otherwise be payable for such shares in connection with the merger) and
contributed cash in the aggregate amount of $2.1 million in exchange for an
aggregate of 21,200 shares of common stock of CPAC.
Shareholders' Agreement
In connection with the Merger, Thayer, CPH and the Management Investors entered
into a shareholders agreement which provides the Management Investors with
incidental registration rights, tag-along rights, antidilution protection and in
certain circumstances mandatory redemption rights. The Management Investors are
subject to a bring-along right and certain call provisions exercisable by CPH or
Thayer.
23
<PAGE> 25
Part IV
Item 14. Exhibits, Financial Statements and Reports on Form 10-K
a. (1)-(2) Financial Statements:
The Financial Statements and Schedules listed in the accompanying index to
Consolidated Financial Statements and Supplemental Data on page F-1 are
filed as part of this report.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
See Index to Exhibits on page E-1.
24
<PAGE> 26
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly insured this report to be signed on its
behalf by the undersigned, thereto duly authorized.
Colorado Prime Corporation
Date: December 18, 1997
By:________________________________
Thomas S. Taylor
Chief Financial Officer
Vice President and Director
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
Signatures Title Date
---------- ----- ----
____________________ *Chief Executive Officer and December 18, 1997
William F. Dordelman Chairman of the Board
(Principal Executive Officer)
____________________ Chief Financial Officer, Vice December 18, 1997
Thomas S. Taylor President and Director
(Principal Accounting Officer)
____________________ *Director December 18, 1997
Donald Keller
____________________ *Director December 18, 1997
Frederic Malek
____________________ *Director December 18, 1997
Dr. Paul Stern
____________________ *Director December 18, 1997
Daniel J. Altobello
____________________ *Director December 18, 1997
William Nicholson
*By:_________________ _____ Attorney-in-Fact
Thomas S. Taylor
25
<PAGE> 27
Colorado Prime Corporation and Subsidiaries
Index to Consolidated Financial Statements
and Supplemental Data
The following financial statements of the registrant and its subsidiaries
required to be included in Item 14. (a) (1) and (2) of Form 10-K are listed
below:
Report of Independent Public Accountants.
Consolidated Balance Sheet as of September 26, 1997.
Statement of Consolidated Operations for the twenty week period ended September
26, 1997.
Statement of Consolidated Stockholder's Equity for the twenty week period ended
September 26, 1997.
Statement of Consolidated Cash Flows for the twenty week period ended September
26, 1997.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
Consolidated Balance Sheet as of September 27, 1996.
Statements of Consolidated Operations for the thirty-two week period ended May
9, 1997 and the years ended September 27, 1996 and September 29, 1995.
Statements of Consolidated Stockholder's Equity for the thirty-two week period
ended May 9, 1997 and the years ended September 27, 1996 and September 29, 1995.
Statements of Consolidated Cash Flows for the thirty-two week period ended May
9, 1997 and the years ended September 27, 1996 and September 29, 1995.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants on Schedules.
Schedule II for the twenty weeks ended September 26, 1997.
Report of Independent Public Accountants on Schedules.
Schedule II for the thirty-two weeks ended May 9, 1997 and the years September
27, 1996 and September 29, 1995.
All other schedules not listed above have been omitted as not applicable or
because the required information is included in the Consolidated Financial
Statements or in the notes thereto. Columns omitted from schedules filed have
been omitted because the information is not applicable.
F-1
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Colorado Prime Corporation:
We have audited the accompanying consolidated balance sheet of Colorado Prime
Corporation (a Delaware corporation) and subsidiaries as of September 26, 1997,
and the related statements of consolidated operations, stockholder's equity and
cash flows for the twenty week period ended September 26, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Colorado Prime Corporation and
Subsidiaries as of September 26, 1997, and the results of their operations and
their cash flows for the twenty week period then ended in conformity with
generally accepted accounting principles.
Melville, New York
November 26, 1997
F-2
<PAGE> 29
Colorado Prime Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in Thousands)
September 26,
1997
----
Assets
Current assets:
Cash $ 972
Accounts receivable - net 57,482
Inventories - net 4,538
Prepaid expenses and other current assets 1,399
Refundable income taxes 2,483
Deferred income tax benefit 6,992
---------
Total current assets 73,866
---------
Property, plant and equipment - net 5,905
---------
Noncurrent accounts receivable - net 36,503
---------
Goodwill-net 44,744
---------
Other assets - net 8,755
---------
Total assets $ 169,773
=========
Liabilities and Stockholder's Equity Current liabilities:
Accounts payable $ 5,998
Accrued expenses 15,191
Income and other taxes payable 1,184
Current portion of capital lease obligations 258
---------
Total current liabilities 22,631
---------
Revolver 20,339
---------
Senior unsecured notes, net of discount 98,059
---------
Long-term portion of capital lease obligations 19
---------
Other liabilities 3,100
---------
Commitments and contingent liabilities (Note 13)
Stockholder's equity:
Common stock--par value, $.01, per share;
1,000 shares authorized, issued
and outstanding --
Paid-in capital 25,873
Accumulated deficit (248)
---------
Total stockholder's equity 25,625
Total liabilities and stockholder's equity $ 169,773
=========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 30
Colorado Prime Corporation and Subsidiaries
Statement of Consolidated Operations
(Dollars in Thousands)
20 Weeks
Ended
September 26,
1997
----
Product sales $ 54,407
Finance income earned 5,600
--------
Total revenue 60,007
Cost of goods sold 21,195
--------
Gross profit 38,812
--------
Other costs and expenses:
Selling, general and 31,923
administrative
Amortization of goodwill 540
Interest expense 6,222
Other expense 245
--------
Total costs and expenses 38,930
--------
Loss before provision
for income taxes (118)
Provision for income taxes 130
--------
Net loss $ (248)
========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 31
Colorado Prime Corporation and Subsidiaries
Statement of Consolidated Stockholder's Equity
For the twenty weeks ended
September 26, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock
------------
Number of Total
Outstanding Dollar Paid-in Accumulated Stockholder's
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at May 9, 1997 1,000 $ -- $ 25,873 $ -- $ 25,873
Net loss for the twenty
weeks ended September
26, 1997 (248) (248)
------ --------- ----------- ---------- ----------
Balance at September 26,
1997 1,000 $ -- $ 25,873 $ (248) $ 25,625
====== ========= =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 32
Colorado Prime Corporation and Subsidiaries
Statement of Consolidated Cash Flows
(Dollars in Thousands)
Twenty weeks ended
September 26, 1997
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (248)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,043
Deferred income taxes (706)
Provision for doubtful accounts 3,017
Change in operating assets and liabilities:
Accounts receivable (3,057)
Inventories (153)
Prepaid expenses and other current assets (102)
Other assets (518)
Accounts payable 1,082
Accrued expenses (1,705)
Income and other taxes payable 183
Other liabilities (235)
--------
Total adjustments (151)
--------
Net cash used in operating activities (399)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in property, plant and equipment (409)
Net assets acquired (2,352)
--------
Net cash used in investing activities (2,761)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of revolver (3,661)
Decrease in capital lease obligation (103)
Net proceeds from senior unsecured notes 87,566
Proceeds from issuance of revolver 24,000
Capital contribution from parent 25,873
Repayment of note payable (58,707)
Repayment of senior notes (43,260)
Distribution to former shareholders (33,120)
--------
Cash used in financing activities (1,412)
NET DECREASE IN CASH (4,572)
CASH, BEGINNING OF PERIOD 5,544
--------
CASH, END OF PERIOD $ 972
========
Supplemental Cash Flow Data
Income tax payments totaled approximately $13 for the twenty weeks ended
September 26, 1997.
Interest payments totaled approximately $630 for the twenty weeks ended
September 26, 1997.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 33
Colorado Prime Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. Company Background
Colorado Prime (the "Company") is a wholly owned subsidiary of Colorado Prime
Holdings, Inc., formally KPC Holdings Corporation. Pursuant to the merger
agreement dated March 25, 1997, between the Company's then parent corporation,
KPC Holdings Corporation ("Holdings") and Thayer Equity Investors III, L.P., a
private equity investment limited partnership ("Thayer"), Colorado Prime
Acquisition Corp., a transitory acquisition subsidiary established by Thayer
prior to the consummation of the merger, merged with and into Holdings,
following which Holdings was the surviving corporation and was renamed Colorado
Prime Holdings Inc. ("CPH"). The Company is a leading direct marketer of high
quality, value-added food programs and products related to in home dining and
entertainment.
As a result of the transaction above, a new basis of accounting under the "push
down" method was adopted effective May 9, 1997. Under this method, the assets
and liabilities of the Company were revalued to reflect CPH's new cost basis in
the Company, which is based on the fair values of such assets and liabilities on
May 9, 1997. Financial data for the period subsequent to May 9, 1997 reflect the
adoption of this new basis of accounting and, accordingly, may not be comparable
with the data presented, which includes the period prior to May 9, 1997.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue on the sale of food, appliances and accessories
at the time of delivery and on finance charges earned under the effective
interest method.
Company's Year End
The Company's fiscal year ends on the last Friday of September. The financial
statements through September 26, 1997 include only the twenty week period
subsequent to the merger on May 9, 1997.
Principles of Consolidation
The consolidated financial statements include the accounts of the "Company" and
its wholly-owned subsidiaries; Kal-Mar Properties Corp. ("Kal-Mar"), Concord
Financial Services, Inc. ("Concord") and Prime Foods Development Corporation
("Prime"). Intercompany accounts and transactions have been eliminated in
consolidation.
Fair Value of Financial Instruments
At September 26, 1997 the recorded and estimated fair values of the Company's
financial instruments are as follows:
Estimated
Recorded Fair Value
-------- ----------
Accounts receivable-net 57,482 57,482(a)
Noncurrent accounts receivable-net 36,503 36,503(a)
Revolver 20,339 20,339(b)
Senior unsecured notes, net of discount 98,059 98,059(b)
Interest rate cap -- 71(c)
F-7
<PAGE> 34
(a) Based on the Company's credit policies and the terms of its receivables,
management believes that the fair value of the Company's receivables
approximates the recorded amounts. Since these receivables arise solely in
connection with the sale of the Company's products and are an integral
part of the Company's marketing program, it is not practical to obtain an
appraisal.
(b) Based on terms of the Company's debt instruments as compared to credit
market conditions at September 26, 1997, management believes that the
carrying value of its debt instruments approximates its fair value.
(c) Based on dealer's quotation of the approximate cost to exit the interest
rate cap arrangement.
Accounts Receivable
The term of accounts receivable related to food sales is less than one year. The
term of accounts receivable related to appliance sales is generally greater than
one year. As a result, the financial statements reflect a current and noncurrent
portion of these accounts receivable. The Company's customers are families and
individuals located throughout the United States, resulting in no significant
concentration of credit risk. Management closely monitors the aging of the
accounts receivable balances and reserves for account balances and discontinues
the accrual of finance charges on accounts based upon pre-established criteria.
Inventories
Inventories are stated at the lower of cost or market, with the cost determined
on the first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization (Note 6). Depreciation and amortization are
computed using primarily the straight-line method over the estimated useful
lives of the related assets or the life of the related leases, if less, as
follows:
Buildings 17-25 years
Assets under capital leases 5-14 years
Machinery and equipment 5-8 years
Software 7 years
Furniture and fixtures 5-8 years
Delivery equipment 4-8 years
Automobiles 4 years
Leasehold improvements 5-19 years
Goodwill
Goodwill is amortized using the straight-line method over a period of thirty
years. At September 26, 1997, goodwill is shown net of accumulated amortization
of $540. Goodwill is reviewed for impairment based upon estimated undiscounted
future cash flows from operations.
Long-lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. The adoption of SFAS No. 121, in fiscal 1997
did not have a material effect on the Company's results of operations, cash
flows or financial position.
F-8
<PAGE> 35
Income Taxes
The Company files its Federal income tax return on a consolidated basis, while
separate state and local income tax returns are filed for each company that is
part of the consolidated group (except for New York State, for which a combined
tax return is filed).
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, income taxes are recognized using a liability approach
whereby deferred tax assets and liabilities are computed for temporary
differences between taxable income for financial reporting and income tax
purposes, measured by the enacted rates that will be in effect when those
differences reverse (Note 11).
Stock-Based Compensation
The Company currently does not have any stock options plans in place, however
CPH will adopt a stock option plan. When the options are granted, the Company
will comply with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), by continuing to apply the provisions of
Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to
Employees", while providing the required pro forma disclosures as if the fair
value method had been applied.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
3. Merger
On May 9, 1997, Holdings was acquired by Thayer for approximately $149,000. The
purchase price was financed through the issuance of approximately $124,000 of
long-term debt and approximately $25,000 of contributed capital. The proceeds
were used to repay the existing debt, repay the shareholders of Holdings and pay
merger related fees and expenses. The purchase price exceeded the fair value of
the net assets acquired by approximately $45,000, which is recorded as goodwill
and is being amortized over 30 years. The following unaudited pro forma
information has been prepared assuming the merger had occurred at the beginning
of fiscal 1996. The pro forma information is presented for informational
purposes only and is not necessarily indicative of what would have occurred if
the acquisition had been made as of those dates. In addition, the pro forma
information is not intended to be a projection of future results.
Fiscal Year
-----------
1997 1996
---- ----
Interest expense $15,392 $15,392
Amortization of goodwill 1,405 1,411
Net income (loss) 644 (4,494)
F-9
<PAGE> 36
4. Accounts receivable
Accounts receivable at September 26, 1997 consisted of the following:
Short-term food receivables $ 28,353
Appliance and accessories receivables 73,168
--------
Total accounts receivable 101,521
Less: Allowance for doubtful accounts 7,536
--------
Accounts receivable-net 93,985
Noncurrent accounts receivable 36,503
--------
Current accounts receivable $ 57,482
========
5. Inventories
Inventories, net of allowance for slow moving, excess and obsolete inventory of
$319 at September 26, 1997, consisted of the following:
Food $2,635
Appliances, tableware, entertainment products and cookware 1,903
------
Total $4,538
======
6. Property, Plant and Equipment
Property, plant and equipment at September 26, 1997 consisted of the following:
Land $ 603
Buildings 608
Assets under capital leases 488
Machinery and equipment 713
Software 337
Furniture and fixtures 3,059
Delivery equipment 782
Automobiles 70
Leasehold improvements 313
------
Total 6,973
------
Less: accumulated depreciation and amortization 1,068
------
Property, plant and equipment-net $5,905
======
7. Accrued Expenses
Accrued expenses at September 26, 1997 consisted of the following:
Payroll $ 2,113
Interest 4,934
Other 8,144
-------
Total $15,191
=======
8. Revolver
In connection with the merger discussed in Note 1, the Company entered into a
credit agreement (the "Credit Agreement") with Dresdner Bank AG, as agent, and
certain other financial institutions. The Credit Agreement provides for a
working capital revolver (the "Working Capital Revolver") of $50,000 and has a
final maturity date of April 30, 2002.
F-10
<PAGE> 37
The obligations of the Company under the Credit Agreement are guaranteed by CPH.
Each of the Company's subsidiaries were also required to issue a guarantee under
the Credit Agreement, which is secured by first priority perfected security
interests in all the assets of such subsidiary, and CPC pledged the issued and
outstanding capital stock of each such subsidiary owned by CPC to secure
indebtedness under the Credit Agreement.
Under the Working Capital Revolver, CPC is entitled to draw amounts subject to
availability pursuant to a borrowing base requirement in order to meet the
Company's working capital requirements. The borrowing base consists of the sum
of certain percentages of (i) eligible food-related and non-food-related
accounts receivable (as defined in the Credit Agreement) and (ii) eligible
inventory (as defined in the Credit Agreement).
The Working Capital Revolver accrues interest at the Base Rate (as defined in
the Credit Agreement) or LIBOR (as defined in the Credit Agreement) plus, in
each case, the applicable margin. The applicable margin will vary over the term
of the Credit Agreement based on the Company's achievement of specified
financial ratios. As of September 26, 1997 the weighted average rate of interest
was approximately 7.6%.
The Credit Agreement provides that the Working Capital Revolver will impose
certain covenants and other requirements on the Company. The Credit Agreement
requires the Company to meet certain financial tests including a minimum fixed
charge coverage ratio, a minimum interest coverage ratio, a maximum leverage
ratio, the maintenance of a minimum net worth and a limitation on capital
expenditures.
As of September 26, 1997, the Company had drawn $20,300 against the Working
Capital Revolver and had $29,700 in available borrowings. The Credit Agreement
provides that the Company will pay various fees including fees on the unused
portion of the Working Capital Revolver at an annual rate determined pursuant to
the Credit Agreement. For the twenty weeks ended September 26, 1997, the Company
paid $620 in interest and fees.
In connection with the Credit Agreement, the Company incurred approximately
$1,500 of debt issuance costs, which will be amortized over the life of the
Credit Agreement (5 years).
The Company has entered into an interest rate cap agreement with a bank covering
$55,627 of notional principal. The interest rate cap agreement extends for a
term of 30 months from the date of execution and provided coverage when the 30
day rate for commercial paper (as published by the Federal Reserve Schedule
H.15) exceeds 6.5%. The Company utilizes a contingent premium instrument to
execute the cap which provides for fixed monthly payments if the rate exceeds
6.5% during the term of the agreement. The cap had not been utilized as of
September 26, 1997.
9. Senior Unsecured Notes
In connection with the merger discussed in Note 1, the Company issued $100,000
of Senior Unsecured Notes (the "Notes"), which bear interest at 12.5% and mature
in 2004. Interest on the Notes is payable semi-annually in arrears on May 1 and
November 1 of each year, commencing November 1, 1997. The Notes are redeemable
at the option of the Company, in whole or in part at any time on or after May 1,
2002. The redemption price will be equal to 106.250% of the principal amount of
the Notes together with accrued and unpaid interest at any time on or after May
1, 2002 and prior to May 1, 2003 and the redemption price will be equal to
103.125% of the principal amount of the Notes together with accrued and unpaid
interest on or after May 1, 2003. In addition, prior to May 1, 2000, the Company
may redeem up to 35 % of the aggregate principal amount of the Notes with the
net cash proceeds received by the Company or its parent corporation from one or
more offerings of capital stock (other than Disqualified Stock, as defined) at a
redemption price of 112.50% of the principal amount thereof plus accrued and
unpaid interest provided, however, that at least $65,000 in aggregate principal
amount remains after such redemption.
F-11
<PAGE> 38
In connection with the issuance of the Notes, the Company incurred approximately
$4,800 of debt issuance costs, which will be amortized over the life of the
Notes (7 years).
The Notes were issued at a discount of approximately $2,000, which is being
accreted using the effective interest method over the life of the Notes. The
Notes were issued in units of $1 which consisted of a principal amount senior
notes and one warrant to purchase .19608 shares of common stock of Holdings.
Based on an estimate of the fair market value of a warrant, $979.87 of the issue
price of a unit was allocated to the note and $8.73 was allocated to the
warrant, the aggregate value of which is part of the discount which is being
accreted. For the 20 weeks ended September 26, 1997, $72 of discount had been
accreted.
The Notes impose certain restrictions on the Company, including restrictions on
its ability to incur indebtedness, pay dividends, make investments, grant liens,
sell its assets and engage in certain other activities.
The Notes are guaranteed on a senior unsecured basis by all existing
subsidiaries (there are no non-guarantor subsidiaries) and any future U.S.
subsidiaries of the Company. The guarantees of the subsidiaries are full,
unconditional, joint and several. Summary financial data for Kal-Mar, Concord
and Prime are as follows:
September 26, 1997
Kal-Mar Concord Prime
------- ------- -----
Current assets $ 14 $62,654 $ 12
Non-current assets 811 36,624 0
Current liabilities 86 2,757 1
Non-current liabilities -- 93,062 710
---- ------- -----
Net assets (liabilities) $739 $ 3,459 $(699)
==== ======= =====
For the twenty weeks ended
September 26, 1997
Kal-Mar Concord Prime
------- ------- -----
Net revenues $67 $20,196 $ 0
Gross profit 67 20,196 0
Net income 23 6,002 0
Separate financial statements of the Company's subsidiaries are not presented,
as the Company's management has determined that (i) the data presented above
provides meaningful information (ii) the data in separate financial statements
other than that presented above would not be material to the investors of the
Notes.
10. Pension Plan
The Company maintains a defined contribution pension plan (the "Plan").
Employees who have completed six months of service and have reached the entry
age (twenty and one-half years) are eligible to participate in the Plan. The
Plan provides for 100 percent vesting after seven years of service. The Plan
requires the Company to make annual contributions based upon a variable
percentage of the participant's annual compensation. Forfeitures are created
when participants terminate employment before becoming entitled to their full
benefits under the Plan. Such forfeited amounts are used to reduce the Company's
contributions to the Plan. In addition, the Plan allows for eligible employees
to make voluntary contributions within specified limits. Pension expense under
the Plan was approximately $394 for the twenty weeks ended September 26, 1997.
F-12
<PAGE> 39
11. Income Taxes
The provision for income taxes for the twenty weeks ended September 26, 1997 is
comprised of the following:
Current: $ 692
Federal 144
-----
State 836
-----
Deferred:
Federal (578)
State (128)
-----
(706)
-----
Total $ 130
=====
Significant components of deferred income tax assets and liabilities as of
September 26, 1997 are as follows:
Deferred tax assets:
Allowance for doubtful accounts $ 2,910
Inventory 126
Accrued interest 642
Accrued expenses and other, net 3,755
-------
7,433
Deferred tax liabilities:
Depreciation (441)
-------
Net deferred tax asset $ 6,992
=======
A reconciliation between the federal statutory tax rate and the effective rate
for the twenty weeks ended September 26, 1997 is as follows:
Federal income tax provision at U.S. (34.0%)
statutory rate
State income taxes, net of federal benefit 9.1
Nondeductible goodwill amortization 138.9
Meals and entertainment 15.2
All other, net 29.1
------
Provision for income taxes 100.10%
======
The refundable income taxes reflected in the accompanying balance sheet as of
September 26, 1997 are attributable to interest related to the accelerated
repayment of debt.
12. Capital Lease Obligations
The Company has entered into agreements to lease a building and certain
equipment from non-related parties. These leases are accounted for as capital
leases. The future minimum lease payments, under these capital leases, and the
present value of the future minimum lease payments as of September 26, 1997, are
as follows:
F-13
<PAGE> 40
Fiscal Years Ending September,
1998 $291
1999 16
2000 7
----
Total future minimum lease payments 314
Less: amount representing interest 37
----
Present value of future minimum lease payments
(including $258 payable currently) $277
====
There were no assets acquired under capital leases during the twenty weeks ended
September 26, 1997. Accumulated amortization related to the assets classified as
capital leases was $371 at September 26, 1997.
13. Commitments and Contingent Liabilities
Future minimum operating lease payments at September 26, 1997 are as follows:
Fiscal Years Ending September,
1998 $3,019
1999 2,479
2000 1,823
2001 1,278
2002 786
Thereafter 1,332
Rent expense for the twenty weeks ended September 26, 1997 was $1,217.
The Company entered into employment agreements with certain senior executives,
which provide for aggregate base annual salary of $1,110 plus performance based
incentives. The agreements are for one year rolling terms and are renewable.
The Company has entered into a lease agreement for its new corporate
headquarters in Farmingdale, N.Y. and expects to occupy the new facility in
fiscal 1998, concurrent with the expiration of the existing headquarters lease.
The Company is involved in various legal matters involving claims and
counterclaims arising from the ordinary course of business. In management's
opinion, any unfavorable outcome associated with these matters would not have a
material adverse effect on the Company's financial statements.
F-14
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Colorado Prime Corporation:
We have audited the accompanying consolidated balance sheet of Colorado Prime
Corporation (a Delaware corporation) and subsidiaries as of September 27, 1996,
and the related statements of consolidated operations, stockholder's equity and
cash flows for the thirty-two week period ended May 9, 1997 and the fiscal years
ended September 27, 1996 and September 29, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Colorado Prime Corporation and
Subsidiaries as of September 27, 1996, and the results of their operations and
their cash flows for the thirty-two week period ended May 9, 1997 and the fiscal
years ended September 27, 1996 and September 29, 1995 in conformity with
generally accepted accounting principles.
Melville, New York
November 26, 1997
F-15
<PAGE> 42
Colorado Prime Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in Thousands)
September 27, 1996
------------------
Assets
Current assets:
Cash $ 1,716
Accounts receivable - net 56,773
Inventories-net 3,638
Prepaid expenses and other current assets 1,665
Deferred income tax benefit 4,429
---------
Total current assets 68,221
---------
Property, plant and equipment - net 7,240
---------
Noncurrent accounts receivable-net 33,416
---------
Goodwill-net 38,414
---------
Other assets-net 3,493
---------
Total assets $ 150,784
=========
Liabilities and Stockholder's Equity Current liabilities:
Accounts payable $ 6,651
Accrued expenses 7,135
Income and other taxes payable 1,172
Current portion of capital lease obligations 361
Total current liabilities 15,319
---------
Note Payable 58,343
---------
Senior notes payable 34,560
---------
Long-term portion of capital lease obligations 277
---------
Other liabilities 1,616
---------
Commitments and contingent liabilities (Note 13)
Stockholder's equity:
Common stock-par value, $.01, per share;
1,000 shares authorized, issued
and outstanding
Paid-in capital 51,291
Accumulated deficit (10,622)
---------
Total stockholder's equity 40,669
---------
Total Liabilities and Stockholder's equity $ 150,784
=========
The accompanying notes are an integral part of the consolidated financial
statements.
F-16
<PAGE> 43
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Operations
(Dollars in Thousands)
Fiscal Year Ended
32 weeks ended September 27, September 29,
May 9, 1997 1996 1995
----------- ---- ----
Product sales $85,510 $ 142,651 $144,966
Finance income earned 8,637 12,792 11,524
------- --------- --------
Total revenue 94,147 155,443 156,490
Cost of goods sold 32,949 56,387 59,906
------- --------- --------
Gross profit 61,198 99,056 96,584
------- --------- --------
Other costs and expenses:
Selling, general and
administrative 48,749 80,901 80,988
Amortization of goodwill 713 1,164 1,164
Interest expense 5,713 9,130 8,017
Other expense 426 7,089 767
------- --------- --------
Total costs and expenses 55,601 98,284 90,936
------- --------- --------
Income before provision
for income taxes 5,597 772 5,648
Provision for income taxes 2,414 1,262 2,738
------- --------- --------
Net income (loss) $ 3,183 $ (490) $ 2,910
======= ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-17
<PAGE> 44
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Stockholder's Equity
For the fiscal years ended
September 29, 1995 and September 27, 1996 and the thirty-two weeks ended
May 9, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock
-----------------------
Number of Total
Outstanding Dollar Paid-in Accumulated Stockholder's
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 1,000 $ -- $54,964 $(11,358) $ 43,606
Reversal of prior year accrued
dividend 906 906
Payment of dividend to Holdings (2,400) (2,400)
Accrued dividend (900) (900)
Capital contribution from Holdings 156 156
Net income 2,910 2,910
------ ------- ------- -------- --------
Balance at September 29, 1995 1,000 -- 55,120 (10,842) 44,278
Reversal of prior year accrued
dividend 900 900
Payment of dividend to Holdings (190) (190)
Net return of capital to Holdings (3,829) (3,829)
Net loss (490) (490)
------ ------- ------- -------- --------
Balance at September 27, 1996 1,000 -- 51,291 (10,622) 40,669
Net income 3,183 3,183
------ ------- ------- -------- --------
Balance at May 9, 1997 1,000 $ -- $51,291 $ (7,439) $ 43,852
====== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-18
<PAGE> 45
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Dollars in Thousands)
Fiscal Year Ended
32 Weeks
ended September September
May 9, 1997 27, 1996 29, 1995
----------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,183 $ (490) $ 2,910
------- -------- --------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,992 3,661 3,598
Amortization of deferred loan costs 300 611 476
Deferred income taxes 845 (337) (237)
Provision for doubtful accounts 3,073 5,280 4,596
Change in operating assets and liabilities:
Accounts receivable (6,225) (11,554) (12,951)
Inventories-net (747) 587 (1,054)
Prepaid expenses and other current assets (77) (274) 838
Other assets (33) 232 247
Accounts payable (1,560) 909 961
Accrued expenses (232) (859) 682
Other liabilities 37 869 (1,017)
Income and other taxes payable 1,407 (906) 819
------- -------- --------
Total adjustments (1,220) (1,781) (3,042)
------- -------- --------
Net cash provided by (used in) operating
activities 1,963 (2,271) (132)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investments in property,
plant and equipment (580) (1,958) (2,534)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in notes payable (1,051) 2,426 5,784
Decrease in capital lease obligations (258) (547) (579)
Decrease in loan payable to affiliate -- (25,000) --
Issuance of senior notes payable -- 34,508 --
Payment of dividend -- (190) (2,400)
Payment of fees related to debt refinancing -- (3,253) --
Net return of capital to Holdings -- (3,829) 156
------- -------- --------
Net cash (used in) provided by financing (1,309) 4,115 2,961
activities
NET INCREASE (DECREASE) IN CASH 74 (114) 295
CASH, BEGINNING OF PERIOD 1,716 1,830 1,535
------- -------- --------
CASH, END OF PERIOD $ 1,790 $ 1,716 $ 1,830
======= ======== ========
Supplemental Disclosure of Cash Flow Information
Income tax payments totaled approximately $496, $2,490 and $2,045 for the
thirty-two weeks ended May 9, 1997 and fiscal years 1996 and 1995, respectively.
Interest payments totaled approximately $5,534, $9,138 and $6,056 for the
thirty-two weeks ended May 9, 1997 and fiscal years 1996 and 1995, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
F-19
<PAGE> 46
Colorado Prime Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands)
1. Company Background
Colorado Prime Corporation (the "Company") is a wholly owned subsidiary of KPC
Holdings Corporation ("Holdings"). Holdings is owned by KPC Acquisition Co.
L.P., a partnership which includes Kohlberg Associates L.P. ("Kohlberg") as the
general and controlling partner. The Company is a leading direct marketer of
high quality, value-added food programs and products related to in-home dining
and entertainment.
The accompanying consolidated financial statements give effect to the
acquisition of Holdings by Kohlberg in 1989. The excess of the aggregate
purchase price over the fair value of the net assets acquired, after recording
purchase adjustments to adjust the carrying value of the Company's assets and
liabilities to fair value (substantially related to fixed assets and deferred
income taxes), was recorded as goodwill.
Effective May 9,1997, the Company was acquired by Thayer Equity Investors III,
L.P., in a transaction that resulted in a new basis of accounting.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue on the sale of food, appliances and accessories
at the time of delivery and on finance charges earned under the effective
interest method.
Company's Year End
The Company's fiscal year ends on the last Friday of September. The financial
statements for 1996 and 1995 contain fifty-two weeks. The financial statements
for the period through the acquisition on May 9, 1997 contain 32 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of the "Company" and
its wholly-owned subsidiaries; Kal-Mar Properties Corp. ("Kal-Mar"), Concord
Financial Services, Inc. ("Concord") and Prime Foods Development Corporation
("Prime"). Intercompany accounts and transactions have been eliminated in
consolidation.
Fair Value of Financial Instruments
At September 27, 1996, the recorded and estimated fair values of the Company's
financial instruments are as follows:
Estimated
Recorded Fair Value
-------- ----------
Accounts receivable-net 56,773 56,773(a)
Noncurrent accounts receivable-net 33,416 33,416(a)
Note payable 58,343 58,343(b)
Senior notes payable 34,560 34,560(b)
Interest rate cap -- 450(c)
F-20
<PAGE> 47
(a) Based on the Company's credit policies and the terms of its receivables,
management believes that the fair value of the Company's receivables
approximates the recorded amounts. Since these receivables arise solely in
connection with the sale of the Company's products and are an integral
part of the Company's marketing program, it is not practical to obtain an
appraisal.
(b) Based on the terms of the Company's debt instruments as compared to credit
market conditions at September 27, 1996, management believes that the
carrying value of its debt instruments approximates its fair value.
(c) Based on dealer's quotations of the approximate cost to exit the interest
rate cap arrangement (Note 7).
Accounts Receivable
The term of accounts receivable related to food sales is less than one year. The
term of accounts receivable related to appliance sales is generally greater than
one year. As a result, the financial statements reflect a current and noncurrent
portion of these accounts receivable. The Company's customers are families and
individuals located throughout the United States, resulting in no significant
concentration of credit risk. Management closely monitors the aging of the
accounts receivable balances and reserves for account balances and discontinues
the accrual of finance charges on accounts based upon pre-established criteria.
Inventories
Inventories are stated at the lower of cost or market, with the cost determined
on the first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization (Note 5). Depreciation and amortization are
computed using primarily the straight-line method over the estimated useful
lives of the related assets or the life of the related leases, if less, as
follows:
Buildings 17-25 years
Assets under capital leases 5-14 years
Machinery and equipment 5-8 years
Software 7 years
Furniture and fixtures 5-8 years
Delivery equipment 4-8 years
Automobiles 4 years
Leasehold improvements 5-19 years
Goodwill
Goodwill is amortized using the straight-line method over forty years. At
September 27, 1996, goodwill is shown net of accumulated amortization of $8,163.
Goodwill is reviewed for impairment based upon estimated undiscounted future
cash flows from operations.
F-21
<PAGE> 48
Income Taxes
The Company files its Federal income tax return on a consolidated basis, while
separate state and local income tax returns are filed for each company that is
part of the consolidated group (except for New York State, for which a combined
tax return is filed).
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, income taxes are recognized using a liability approach
whereby deferred tax assets and liabilities are computed for temporary
differences between taxable income for financial reporting and income tax
purposes, measured by the enacted rates that will be in effect when those
differences reverse (Note 11).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
presentation.
3. Accounts Receivable
Accounts receivable at September 27, 1996 consisted of the following:
Short-term food receivables $27,766
Appliance and accessories receivables 69,867
-------
Total accounts receivable 97,633
Less: Allowance for doubtful accounts 7,444
-------
Accounts receivable--net 90,189
Noncurrent accounts receivable 33,416
-------
Current accounts receivable $56,773
=======
4. Inventories
Inventories, net of allowance for slow moving, excess and obsolete inventory of
$309 at September 27, 1996, consisted of the following:
Food $2,412
Appliances, tableware, entertainment products and cookware 1,226
------
Total $3,638
======
F-22
<PAGE> 49
5. Property, Plant and Equipment
Property, plant and equipment at September 27, 1996 consisted of the following:
Land $ 603
Buildings 1,650
Assets under capital leases 3,846
Machinery and equipment 6,659
Software 506
Furniture and fixtures 1,296
Delivery equipment 3,085
Automobiles 114
Leasehold improvements 801
-------
Total 18,560
Less: accumulated depreciation and amortization 11,320
-------
Property, plant and equipment--net $ 7,240
=======
6. Accrued Expenses
Accrued expenses at September 27, 1996 consisted of the following:
Payroll $2,251
Other 4,884
------
Total $7,135
======
7. Note Payable
During March 1993, the Company refinanced its bank indebtedness with Triple-A
Funding Corporation ("Triple-A") as lender and Capital Markets Assurance
Corporation ("CapMAC") as the surety provider, through a receivables financing
facility reflecting various agreements hereinafter referred to as the "CapMAC
Agreements". During March 1994, the CapMAC Agreements were amended to transfer
and assign all rights and obligations of Triple-A to Triple-A One Funding
Corporation ("Triple-A One"). During December 1995, the Company amended the
CapMAC Agreements to extend the term to December 2000 and modify certain of the
financial covenants. Pursuant to the terms of the CapMAC Agreements, the
Company's accounts receivable are pledged to Triple-A One. From the proceeds of
issuing commercial paper, Triple-A One makes loans to the Company based upon
eligible accounts receivable and other factors as defined in the CapMAC
Agreements, up to a maximum of $70,000. Such loans bear interest at the
commercial paper rate available to Triple-A One. The commercial paper rate at
September 27, 1996 was approximately 5.38%.
The Company is also required to pay various fees to CapMAC and Triple-A One for
administration and maintenance of the credit facility. The Company incurred fees
payable to CapMAC and Triple-A One of approximately $406, $696 and $780 for the
thirty-two weeks ended May 9, 1997 and the fiscal years ended September 27, 1996
and September 29, 1995, respectively. Such amounts are included in interest
expense in the accompanying statements of consolidated operations. Interest
expense for the thirty-two weeks ended May 9, 1997 and the fiscal years ended
September 27, 1996 and September 29, 1995 amounted to $ 1,973, $3,199 and
$3,246, respectively. The Company's available unused credit facility with CapMAC
was approximately $8,600 at September 27, 1996.
F-23
<PAGE> 50
The Company has entered into an interest rate cap agreement with a bank covering
$55,627 of notional principal. The interest rate cap agreement extends for a
term of 30 months from the date of execution and provides coverage when the 30
day rate for commercial paper (as published by the Federal Reserve Schedule
H.15) exceeds 6.5%. The Company utilizes a contingent premium instrument to
execute the cap which provides for fixed monthly payments if the rate exceeds
6.5% during the term of the agreement. The cap had not been utilized as of
September 27, 1996.
The CapMAC Agreements contain certain financial covenants which: (i) require the
maintenance of a specified minimum level of net worth, as defined, (ii) require
the maintenance of a specified minimum ratio of indebtedness to net worth, as
defined, and (iii) require the maintenance of a specified minimum ratio of
earnings before interest, taxes, depreciation, amortization and other expenses,
as defined, to cash interest paid. As of September 27, 1996, the Company was in
compliance with all such financial covenants.
In connection with the December 1995 amendment discussed above, the Company
incurred $617 of debt issuance costs, which will be amortized over the life of
the agreement (5 years).
In connection with the acquisition discussed in Note 1, the note payable was
satisfied in full.
8. Senior Notes Payable
In December 1995, the Company entered into the Senior Note Agreement (the
"Senior Agreement") in which the Company issued to unrelated investors $35,000
of 13% Senior Secured Notes which mature in December 2002 along with a warrant
to purchase 1,234,839 shares of common stock of Holdings for $.001 per share.
The warrant was valued at approximately $494 and recorded as a discount and will
be amortized over the life of the Senior Secured Notes. With the proceeds of the
issuance, the Company repaid a $25,000 note due to an affiliated company plus
accrued interest of approximately $1,700, retired 800,000 shares of cumulative
preferred stock of Holdings for $4,000 and paid other related fees and expenses,
including amounts paid to an affiliated company, of approximately $8,400.
Included in the $8,400 is approximately $2,600 of debt issuance costs which the
Company capitalized and will amortize over the life of the Senior Secured Notes
and a $3,000 payment to certain members of Management under an incentive
compensation arrangement which the Company expensed in fiscal 1996.
The Senior Agreement contains certain financial covenants which: (i) require the
maintenance of a specified minimum level of net worth, as defined, and (ii)
require the maintenance of a specified minimum ratio of earnings before
interest, taxes, depreciation, amortization and other expenses, as defined, to
interest paid. As of September 27, 1996, the Company was in compliance with all
such financial covenants.
In connection with the acquisition, the senior notes payable were satisfied in
full.
9. Related Party Transactions
During fiscal 1996 and 1995 the Company paid interest of $600 and $2,900,
respectively, on $25,000 aggregate principal amount of its 11.5% Senior
Subordinated Notes due May 17, 1998 to KPC Acquisition Company L.P. ("KPC").
KPC, the controlling shareholder of Holdings, purchased the Notes as part of a
series of transactions resulting from the purchase of Holdings. These Notes were
repaid on December 20, 1995.
10. Pension Plan
The Company maintains a defined contribution pension plan (the "Plan").
Employees who have completed six months of service and have reached the entry
age (twenty and one-half years) are eligible to participate in the Plan. The
Plan provides for 100 percent vesting after seven years of service. The Plan
requires the Company to make annual contributions based upon a variable
percentage of the participant's annual compensation. Forfeitures are created
when participants terminate employment before becoming entitled to
F-24
<PAGE> 51
their full benefits under the Plan. Such forfeited amounts are used to reduce
the Company's contributions to the Plan. In addition, the Plan allows for
eligible employees to make voluntary contributions within specified limits.
Pension expense under the Plan was approximately $615, $908 and $885 for the
thirty-two weeks ended May 9, 1997 and the fiscal years ended September 27, 1996
and September 29, 1995, respectively.
11. Income Taxes
The provision for income taxes is comprised of the following:
Fiscal Year Ended
32 weeks -----------------
ended September 27, September 29,
May 9, 1997 1996 1995
----------- ---- ----
Current:
Federal $ 1,419 $ 1,301 $ 2,560
State 150 299 416
------- ------- -------
1,569 1,600 2,976
------- ------- -------
Deferred:
Federal 692 (277) (384)
State 153 (61) 146
------- ------- -------
845 (338) (238)
------- ------- -------
Total $ 2,414 $ 1,262 $ 2,738
======= ======= =======
Significant components of deferred income tax assets and liabilities are as
follows:
As of
September 27,
1996
----
Deferred tax assets
Leases $ 20
Allowance for doubtful accounts 2,873
Inventory 108
Accrued interest --
Accrued expenses and other, net 1,857
-------
4,858
Deferred tax liabilities:
Depreciation (429)
-------
Net deferred tax asset $ 4,429
=======
F-25
<PAGE> 52
A reconciliation between the federal statutory tax rate and the effective rate
is as follows:
<TABLE>
<CAPTION>
32 weeks Fiscal Year Ended
ended -----------------
May 9, September 27, September 29,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax provision at U.S. 34.0% 34.0% 34.0%
statutory rate
State income taxes, net of federal benefit 3.6 25.6 4.9
Nondeductible goodwill amortization 4.7 51.3 7.0
Nondeductible compensation -- 51.8 --
Meals and entertainment 0.5 5.4 0.8
All other, net 0.3 (4.7) 1.8
----- ----- -----
Provision for income taxes 43.1% 163.4% 48.5%
===== ===== =====
</TABLE>
12. Capital Lease Obligations
The Company has entered into agreements to lease a building and certain
equipment from non-related parties. These leases are accounted for as capital
leases. The future minimum lease payments under these capital leases and the
present value of the future minimum lease payments as of September 1996 are as
follows:
Fiscal Years Ending September,
- ------------------------------
1997 $453
1998 291
1999 16
2000 6
----
Total future minimum lease payments 766
Less: amount representing interest 128
----
Present value of future minimum lease payments (including $361
payable currently) $638
====
No assets were acquired under capital leases in fiscal 1996 or the 32 weeks
ended May 9, 1997. Accumulated amortization related to the assets classified as
capital leases was $3,235 at September 27, 1996.
13. Commitments and Contingent Liabilities
Future minimum operating lease payments at September 27, 1996 are as follows:
Fiscal Years Ending September,
- ------------------------------
1997 $2,787
1998 2,336
1999 1,752
2000 1,227
2001 794
Thereafter 2,198
F-26
<PAGE> 53
Rent expense for the thirty-two weeks ended May 9, 1997 and fiscal 1996 and 1995
was approximately $1,864, $3,040 and $2,717, respectively. The Company expensed
$1,698 in fiscal 1996 to record estimated losses on unused office and warehouse
space.
The Company is involved in various legal matters involving claims and
counterclaims arising from the ordinary course of business. In management's
opinion, any unfavorable outcome associated with these matters would not have a
material adverse effect on the Company's financial statements.
F-27
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Colorado Prime Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheet of Colorado Prime Corporation and Subsidiaries as of
September 26, 1997, and the related statements of consolidated operations,
stockholder's equity and cash flows for the twenty week period ended September
26, 1997 included in this Annual Report on Form 10-K and have issued our report
thereon dated November 26, 1997. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The accompanying
schedule is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Melville, New York
November 26, 1997
S-1
<PAGE> 55
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
COLORADO PRIME CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to
Beginning Cost and Balance at
Description of Period Expenses Deductions (1) end of Period
--------- -------- -------------- -------------
<S> <C> <C> <C> <C>
For the twenty weeks ended September 26, 1997
Allowance for Doubtful Accounts $7,275 $3,017 $(2,756) $7,536
</TABLE>
(1) Write-offs, net of recovery of amounts previously written off.
S-2
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Colorado Prime Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheet of Colorado Prime Corporation and Subsidiaries as of
September 27, 1996, and the related statements of consolidated operations,
stockholder's equity and cash flows for the thirty-two week period ended May 9,
1997 and the fiscal years ended September 27, 1996 and September 29, 1995 and
included in this Annual Report on Form 10-K and have issued our report thereon
dated November 26, 1997. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The accompanying
schedule is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Melville, New York
November 26, 1997
S-3
<PAGE> 57
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
COLORADO PRIME CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to
Beginning Cost and Balance at
Description of Period Expenses Deductions (1) end of Period
--------- -------- -------------- -------------
<S> <C> <C> <C> <C>
For the thirty-two weeks ended May 9, 1997
Allowance for Doubtful Accounts $7,444 $3,073 $(3,242) $7,275
Year ended September 27, 1996
Allowance for Doubtful Accounts $7,336 $5,280 $(5,172) $7,444
Year ended September 29, 1995
Allowance for Doubtful Accounts $6,501 $4,596 $(3,761) $7,336
</TABLE>
(1) Write-offs, net of recovery of amounts previously written off.
S-4
<PAGE> 58
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1. Certificate of Incorporation of CPC, with Amendments. (1)
3.2. Bylaws of CPC, as amended. (1)
3.3. Certificate of Incorporation of Kal-Mar Properties Corp., with
Amendments. (1)
3.4. Bylaws of Kal-Mar Properties Corp., as amended. (1)
3.5. Certificate of Incorporation of Concord Financial Services, Inc.,
with Amendments. (1)
3.6. Bylaws of Concord Financial Services, Inc., as amended. (1)
3.7. Certificate of Incorporation of Prime Foods Development Corporation,
with Amendments. (1)
3.8. Bylaws of Prime Foods Development Corporation, as amended. (1)
4.1. Indenture for the Notes dated as of May 9, 1997 among CPC, the Subsidiary
Guarantors and The Bank of New York, as Trustee (including form of Note).
(1)
10.1. Exchange Agent Agreement between CPC and The Bank of New York, as
Exchange Agent.
10.2. Stock Option Plan of CPH.
10.3. Stock Purchase Agreement between CPH and certain executive officers. (1)
E-1
<PAGE> 59
10.4. Shareholders' Agreement between CPH and certain executive officers. (1)
10.5. Employment Agreement between CPC, CPH and William F. Dordelman. (1)
10.6. Employment Agreement between CPC, CPH and Ricardo DeSantis. (1)
10.7. Employment Agreement between CPC, CPH and Thomas S. Taylor. (1)
10.9. Lease dated September 1, 1983 between Thrift-Pak Food Service, Inc., and
Masciandaro, Kalpakjian & Masciandaro Co., and Sublease dated October 15,
1984 between Colorado Prime, Inc., formerly known as Thrift-Pak Food
Service, Inc., and Masciandaro, Kalpakjian & Masciandaro Co., regarding
the space at One Michael Avenue, Farmingdale, New York. (1)
10.10. Lease dated November 1, 1985 between Colorado Prime (Florida), Inc., and
Kalpakjian, Masciandaro and Masciandaro Partnership and Amendment to
Lease dated December 26, 1986, regarding the office, warehouse and
vehicle repair depot in Pompano Beach, Florida. (1)
10.11. Credit Agreement among CPC, the institutions party thereto as Lenders and
Dresdener AG, New York and Cayman Branches, as the Agents, dated May 9,
1997, with Amendment No. 1 dated as of May 9, 1997. (1)
10.12 Lease dated September 18, 1997 between CPC and Blumenfeld Development
Group, Ltd. regarding the headquarters property located at 500 Bi-County
Boulevard, Farmingdale NY.
10.13 Amendment No.2 dated as of October 9, 1997 to Credit Agreement among CPC,
the institutions party thereto as Lenders and Dresdner AG, New York and
Cayman Branches, as the Agents, dated May 9, 1997.
10.14 Amendment No. 3 dated as of December 11, 1997 to Credit Agreement among
CPC, the institutions party thereto as Lenders and Dresdner AG, New York
and Cayman Branches, as the Agents, dated May 9, 1997.
10.15 Form of Stock Option Agreement of CPH.
21. List of subsidiaries of the Company. (1)
24. Power of Attorney. (1)
27. Financial Data Schedule.
- --------
(1) Incorporated by reference to Registration Statement No. 333-30249 on
Form S-4, dated June 27, 1997.
E-2
<PAGE> 1
EXHIBIT 10.1
COLORADO PRIME CORPORATION
September 15, 1997
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street - 21st Floor
New York, New York 10286
Re: Exchange Agent Agreement
Ladies and Gentlemen:
Colorado Prime Corporation ("CPC") proposes to make an offer (the
"Exchange Offer") to exchange its 12 1/2% Senior Notes Due 2004 (the "Old
Notes") for its 12 1/2% Senior Notes Due 2004 which are registered under the
Securities Act of 1933, as amended (the "Securities Act") (the "New Notes"). The
terms and conditions of the Exchange Offer as currently contemplated are set
forth in a prospectus, dated September 12, 1997 (the "Prospectus"), proposed to
be distributed to all record holders of the Old Notes. The Old Notes and the New
Notes are collectively referred to herein as the "Notes".
CPC hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by CPC on or about
September 15, 1997. The Letter of Transmittal accompanying the Prospectus (or in
the case of book entry securities, the ATOP system) is to be used by the holders
of the Old Notes to accept the Exchange Offer and contains instructions with
respect to the delivery of certificates for Old Notes tendered in connection
therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
October 10, 1997 or on such later date or time to which CPC may extend the
Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set
forth in the Prospectus, CPC expressly reserves the right to extend the Exchange
Offer from time to time and may extend the Exchange Offer by giving oral
(confirmed in writing) or written notice to you before 9:00 A.M., New York City
time, on the business day following the previously scheduled Expiration Date.
<PAGE> 2
CPC expressly reserves -the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified in the Prospectus under the caption "The Exchange Offer -- Conditions
to the Exchange Offer." CPC will give oral (confirmed in writing) or written
notice of any amendment, termination or nonacceptance to you as promptly as
practicable.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the Prospectus or as specifically set forth herein;
provided, however, that in no way will your general duty to act in good faith be
discharged by the foregoing.
2. You will establish an account with respect to the Old Notes at
The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes
of the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into your account in
accordance with the Book-Entry Transfer Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and
certificates for Old Notes (or confirmation of book-entry transfer into your
account at the Book-Entry Transfer Facility) and any other documents delivered
or mailed to you by or for holders of the Old Notes to ascertain whether: (i)
the Letters of Transmittal and any such other documents are duly executed and
properly completed in accordance with instructions set forth therein and (ii)
the Old Notes have otherwise been properly tendered. In each case where the
Letter of Transmittal or any other document has been improperly completed or
executed or any of the certificates for Old Notes are not in proper form for
transfer or some other irregularity in connection with the acceptance of the
Exchange Offer exists, you will endeavor to inform the presenters of the need
for fulfillment of all requirements and to take any other action as may be
necessary or advisable to cause such irregularity to be corrected.
4 With the approval of William Dordelman or Thomas S. Taylor of CPC
(such approval, if given orally, to be confirmed in writing) or any other party
designated by such an officer in writing, you are authorized to waive any
irregularities in connection with any tender of Old Notes pursuant to the
Exchange Offer.
5. Tenders of Old Notes may be made only as set forth in the Letter
of Transmittal and in the section of the Prospectus captioned "The Exchange
Offer -- Procedures for Tendering Old Notes", and Old Notes shall be considered
properly tendered to you only when tendered in accordance with the procedures
set forth therein.
<PAGE> 3
Notwithstanding the provisions of this. paragraph 5, Old Notes which
William Dordelman or Thomas S. Taylor of CPC shall approve as having been
properly tendered shall be considered to be properly tendered (such approval, if
given orally, shall be confirmed in writing).
6. You shall advise CPC with respect to any Old Notes received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Notes.
7. You shall accept tenders:
(a) in cases where the Old Notes are registered in two or more
names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a representative capacity
only when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Notes
provided that customary transfer requirements, including any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of Old Notes where so indicated and
as permitted in the Letter of Transmittal and deliver certificates for Old Notes
to the transfer agent for split-up and return any untendered Old Notes to the
holder (or such other person as may be designated in the Letter of Transmittal)
as promptly as practicable after expiration or termination of the Exchange
Offer.
8. Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, CPC will notify you (such notice if given orally, to be
confirmed in writing) of its acceptance, promptly after the Expiration Date, of
all Old Notes properly tendered and you, on behalf of CPC, will exchange such
Old Notes for New Notes and cause such Old Notes to be canceled. Delivery of New
Notes will be made on behalf of CPC by you at the rate of $1,000 principal
amount of New Notes for each $1,000 principal amount of the Old Notes tendered
promptly after notice (such notice if given orally, to be confirmed in writing)
of acceptance of said Old Notes by CPC; provided, however, that in all cases,
Old Notes tendered pursuant to the Exchange Offer will be exchanged only after
timely receipt by you of certificates for such Old Notes (or confirmation of
book-entry transfer into your account at the Book-Entry Transfer Facility), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and any other required
documents. You shall issue New Notes only in denominations of $1,000 or any
integral multiple thereof.
9. Tenders Pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date.
<PAGE> 4
10. CPC shall not be required to exchange any Old Notes tendered if
any of the conditions set forth in the Exchange Offer are not met. Notice of any
decision by CPC not to exchange any Old Notes tendered shall be given (and
confirmed in writing) by CPC to you.
11. If, pursuant to the Exchange Offer, CPC does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus under the caption
"The Exchange Offer -- Conditions to the Exchange Offer" or otherwise, you shall
as soon as practicable after the expiration or termination of the Exchange Offer
return those certificates for unaccepted Old Notes (or effect appropriate
book-entry transfer), together with any related required documents and the
Letters of Transmittal relating thereto that are in your possession, to the
persons who deposited them.
12. All certificates for reissued Old Notes, unaccepted Old Notes or
for New Notes shall be forwarded by first-class mail.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those
specifically set forth herein or as may be subsequently agreed to in writing by
you and CPC;
(b) will be regarded as making no representations and having
no responsibilities as to the validity, sufficiency, value or genuineness of any
of the certificates or the Old Notes represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder
which might in your reasonable judgment involve any expense or liability, unless
you shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which you shall in good
faith believe to be genuine or to have been signed or represented by a proper
person or persons;
<PAGE> 5
(f) may rely on and shall be protected in acting upon written
or oral instructions from any officer of CPC;
(g) may consult with your counsel with respect to any
questions relating to your duties and responsibilities and the advice or opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted to be taken by you hereunder in
good faith and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Old Notes pursuant
to the Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market value of any Old Notes.
15. You shall take such action as may from time to time be requested
by CPC or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other forms
as may be approved from time to time by CPC, to all persons requesting such
documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. CPC
will furnish you with copies of such documents at your request. All other
requests for information relating to the Exchange Offer shall be directed to
CPC, Attention: Thomas S. Taylor.
16. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to Thomas S. Taylor of CPC and such other
person or persons as
it may request, daily (and more frequently during the week immediately
preceding the Expiration Date and if otherwise requested) up to and including
the Expiration Date, as to the number of Old Notes which have been tendered
pursuant to the Exchange Offer and the items
received by you pursuant to this Agreement, separately reporting and giving
cumulative totals as to items properly received and items improperly received.
In addition, you will also inform, and cooperate in making available to, CPC or
any such other person or persons authorized by CPC, upon oral request made from
time to time prior to the Expiration Date of such other information as it or he
or she reasonably requests. Such cooperation shall include, without limitation,
the granting by you to CPC and such person as CPC may request of access to those
persons on your staff who are responsible for receiving tenders, in order to
ensure that immediately prior to the Expiration Date CPC shall have received
information in sufficient detail to enable it to decide whether to extend the
Exchange Offer. You shall prepare a final list of all persons whose tenders were
accepted, the aggregate principal amount of Old Notes tendered, the aggregate
principal amount of Old Notes accepted and deliver said list to CPC.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall
be stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to CPC.
<PAGE> 6
18. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by
CPC, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter
of Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. CPC covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including attorneys' fees and expenses, arising out of or in connection
with any act, omission, delay or refusal made by you in reliance upon any
signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document reasonably believed by you to be
valid, genuine and sufficient and in accepting any tender or effecting any
transfer of Old Notes reasonably believed by you in good faith to be authorized,
and in delaying or refusing in good faith to accept any tenders or effect any
transfer of Old Notes; provided, however, that CPC shall not be liable for
indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of your gross negligence or willful misconduct. In no case
shall CPC be liable under this indemnity with respect to any claim against you
unless CPC shall be notified by you, by letter or by facsimile confirmed by
letter, of the written assertion of a claim against you or of any other action
commenced against you, promptly after you shall have received any such written
assertion or notice of commencement of action. CPC shall be entitled to
participate at its own expense in the defense of any such claim or other action,
and, if CPC so elects, CPC shall assume the defense of any suit brought to
enforce any such claim. In the event that CPC shall assume the defense of any
such suit, CPC shall not be liable for the fees and expenses of any additional
counsel thereafter retained by you so long as CPC shall retain counsel
satisfactory to you to defend such suit.
22. You shall arrange to comply with all requirements under the tax
laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the Internal
Revenue Service. CPC understands that you are required to deduct 31% on payments
to holders who have not supplied their correct Taxpayer Identification Number or
required certification. Such funds will be turned over to the Internal Revenue
Service in accordance with applicable regulations.
23. You shall deliver or cause to be delivered, in a timely manner
to each governmental authority to which any transfer taxes are payable in
respect of the exchange of Old
<PAGE> 7
Notes, your check in the amount of all transfer taxes so payable, and CPC shall
reimburse you for the amount of any and all transfer taxes payable in respect of
the exchange of Old Notes; provided, however, that you shall reimburse CPC for
amounts refunded to you in respect of your payment of any such transfer taxes,
at such time as such refund is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and
other communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party, addressed to it,
at its address or telecopy number set forth below:
If to CPC:
Colorado Prime Corporation
One Michael Avenue
Farmingdale, Now York 11735
Facsimile: (516) 694-8493
Attention: Thomas S. Taylor
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-6339
Attention: Corporate Trust Trustee
Administration
<PAGE> 8
29. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver to
CPC any certificates for funds or property then hold by you as Exchange Agent
under this Agreement.
30. This Agreement shall be binding and effective as of de date
hereof.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
COLORADO PRIME CORPORATION
By: /s/ Thomas S. Taylor
---------------------------------------------
Name: Thomas S. Taylor
Title: Vice President/Chief Financial Officer
Accepted as of the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By: /s/ Van K. Brown
-----------------------------------
Name: Van K. Brown
Title: Assistant Vice President
<PAGE> 9
SCHEDULE I
Services Rendered As Exchange Agent .................................. $2500.00
<PAGE> 1
EXHIBIT 10.2
COLORADO PRIME HOLDINGS, INC.
1997 STOCK OPTION PLAN
1. Definitions
In this Plan, except where the context otherwise indicates, the
following definitions apply:
1.1. "Affiliate" means parent or subsidiary corporations of the
Company, as defined in Sections 424(e) and (f) of the Code (but substituting
"the Company" for "employer corporation"), including parents or subsidiaries of
the Company which become such after adoption of the Plan.
1.2. "Agreement" means a written agreement granting an Option that is
executed by the Company and the Optionee.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Committee" means the committee appointed by the Board to
administer the Plan.
1.6. "Common Stock" means the common stock, par value $0.01 per share,
of the Company.
1.7. "Company" means Colorado Prime Holdings, Inc., a Delaware
corporation.
1.8. "Date of Exercise" means the date on which the Company receives
notice of the exercise of an Option in accordance with the terms of Article 7.
1.9. "Date of Grant" means the date on which an
Option is granted under the Plan.
1.10. "Director" means a member of the Board of Directors of the
Company or any Affiliate.
1.11. "Eligible Individual" means (i) any Employee or Director or (ii)
any consultant or advisor to the Company or an Affiliate who renders bona fide
services to the Company or an Affiliate other than services in connection with
the offer or sale of securities in a capital raising transaction.
<PAGE> 2
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1.12. "Employee" means any employee of the Company or an Affiliate or
any person who has been hired to be an employee of the Company or an Affiliate.
1.13. "Fair Market Value" means the fair market value of a Share as
determined by the Committee pursuant to a reasonable method adopted in good
faith for such purpose.
1.14. "Incentive Stock Option" means an Option granted under the Plan
that qualifies as an incentive stock option under Section 422 of the Code and
that the Company designates as such in the Agreement granting the Option.
1.15. "Nonstatutory Stock Option" means an Option granted under the
Plan that is not an Incentive Stock Option.
1.16. "Option" means an option to purchase Shares granted under the
Plan.
1.17. "Option Period" means the period during which an Option may be
exercised.
1.18. "Option Price" means the price per Share at which an Option may
be exercised. The Option Price shall be determined by the Committee, provided,
however, that, in the case of Incentive Stock Options the Option Price shall not
be less than the Fair Market Value as of the Date of Grant. Notwithstanding the
foregoing, in the case of an Incentive Stock Option granted to an Optionee who
(applying the rules of Section 424(d) of the Code) owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company or an Affiliate (a "Ten-Percent Stockholder"), the Option Price
shall not be less than one hundred and ten percent (110%) of the Fair Market
Value on the Date of Grant. The Option Price of any Option shall be subject to
adjustment to the extent provided in Article 9 hereof.
1.19. "Optionee" means an Eligible Individual to whom an Option has
been granted.
1.20. "Plan" means the Colorado Prime Holdings, Inc. 1997 Stock Option
Plan.
1.21. "Share" means a share of Common Stock.
<PAGE> 3
-3-
2. Purpose
The Plan is intended to assist the Company and its Affiliates in
attracting and retaining Eligible Individuals of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Company.
3. Administration
The Committee shall administer the Plan and shall have plenary
authority, in its discretion, to award Options to Eligible Individuals, subject
to the provisions of the Plan. The Committee shall have plenary authority and
discretion, subject to the provisions of the Plan, to determine the terms (which
terms need not be identical) of all Options including, but not limited to, which
Eligible Individuals shall be granted Options, the time or times at which
Options are granted, the Option Price, the number of Shares subject to an
Option, whether an Option shall be an Incentive Stock Option or a Nonstatutory
Stock Option, any provisions relating to vesting, any circumstances in which
Options terminate or Shares may be repurchased by the Company, the period during
which Options may be exercised and any other restrictions on Options. In making
these determinations, the Committee may take into account the nature of the
services rendered by the Optionees, their present and potential contributions to
the success of the Company and its Affiliates, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the provisions of
the Plan, the Committee shall have plenary authority to construe and interpret
the Plan and the Agreements, to prescribe, amend and rescind rules and
regulations relating to the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan, including, but not
limited to, any determination to accelerate the vesting of outstanding Options.
The determinations of the Committee on the matters referred to in this Article 3
shall be binding and final.
4. Eligibility
Options may be granted only to Eligible Individuals, provided, however,
that only Employees shall be eligible to receive Incentive Stock Options.
<PAGE> 4
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5. Stock Subject to the Plan
5.1. Subject to adjustment as provided in Article 9, the maximum number
of Shares that may be issued under the Plan is 35,405 Shares.
5.2. If an Option expires or terminates for any reason without having
been fully exercised, the unissued Shares which had been subject to such Option
shall become available for the grant of additional Options.
6. Options
6.1. Options granted under the Plan shall be either Incentive Stock
Options or Nonstatutory Stock Options, as designated by the Committee. Each
Option granted under the Plan shall be clearly identified either as an Incentive
Stock Option or a Nonstatutory Stock Option and shall be evidenced by an
Agreement that specifies the terms and conditions of the grant. Options granted
to Eligible Individuals shall be subject to the terms and conditions set forth
in this Article 6 and such other terms and conditions not inconsistent with this
Plan as the Committee may specify. All Incentive Stock Options shall comply with
the provisions of the Code governing incentive stock options and with all other
applicable rules and regulations.
6.2. The Option Period for Options granted to Eligible Individuals
shall be determined by the Committee and specifically set forth in the
Agreement, provided, however, that an Option shall not be exercisable after ten
years (five years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder) from its Date of Grant.
7. Exercise of Options
7.1. An Option may, subject to the terms of the applicable Agreement
under which it is granted, be exercised in whole or in part by the delivery to
the Company of written notice of the exercise, in such form as the Committee may
prescribe, accompanied by full payment of the Option Price for the Shares with
respect to which the Option is exercised as provided in Section 7.2 hereof.
<PAGE> 5
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7.2. Payment of the aggregate Option Price for the Shares with respect
to which an Option is being exercised shall be made in cash; provided, however,
that the Committee, in its sole discretion, may provide in an Agreement that
part or all of such payment may be made by the Optionee in one or more of the
following manners:
(a) by delivery (including constructive delivery) to the Company of Shares
valued at Fair Market Value on Date of Exercise; (b) by delivery on a form
prescribed by the Committee of a properly executed exercise notice and
irrevocable instructions to a registered securities broker approved by the
Committee to sell Shares and promptly deliver cash to the Company; (c) by
delivery of a promissory note as provided in Section 7.3 hereof; or (d) by
surrender to the Company of an Option (or a portion thereof) that has become
exercisable and the receipt from the Company upon such surrender, without any
payment to the Company (other than required tax withholding amounts), of (x)
that number of Shares (equal to the highest whole number of Shares) having an
aggregate Fair Market Value as of the date of surrender equal to that number of
Shares subject to the Option (or portion thereof) being surrendered multiplied
by an amount equal to the excess of (i) the Fair Market Value on the date of
surrender over (ii) the Option Price, plus (y) an amount of cash equal to the
Fair Market Value of any fractional Share to which the Optionee would be
entitled but for the parenthetical in clause (x) above relating to whole number
of Shares.
7.3. To the extent provided in an Option Agreement and permitted by
applicable law, the Committee may accept as payment of the Option Price a
promissory note executed by the Optionee evidencing his or her obligation to
make future cash payment thereof; provided, however, that in no event may the
Committee accept a promissory note for an amount in excess of the difference
between the aggregate Option Price and the par value of the Shares. Promissory
notes made pursuant to this Section 7.3 shall be payable upon such terms as may
be determined by the Committee, shall be secured by a pledge of the Shares
received upon exercise of the Option and shall bear interest at a rate fixed by
the Committee.
8. Restrictions on Transfer
Options shall not be transferable other than by will or the laws of
descent and distribution. An Option may be exercised during the Optionee's
lifetime only by
<PAGE> 6
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the Optionee or, in the event of his or her legal disability, by his or her
legal representative. The Shares acquired pursuant to the Plan shall be subject
to such restrictions and agreements regarding sale, assignment, encumbrances, or
other transfers or dispositions thereof (i) as are in effect among the
stockholders of the Company at the time such Shares are acquired, (ii) as the
Committee shall deem appropriate and (iii) as are required by applicable law.
9. Capital Adjustments
In the event of any change in the outstanding Common Stock by reason of
any stock dividend, split-up (or reverse stock split), recapitalization,
reclassification, reorganization, reincorporation, combination or exchange of
shares, merger, consolidation, liquidation or similar change in corporate
structure, the Committee may, in its discretion, provide for a substitution for
or adjustment in (i) the number and class of Shares subject to outstanding
Options, (ii) the Option Price of outstanding Options, and (iii) the aggregate
number and class of Shares that may be issued under the Plan.
10. Termination or Amendment
The Board may amend, alter, suspend or terminate the Plan in any
respect at any time; provided, however, that after the Plan has been approved by
the stockholders of the Company, no amendment, alteration, suspension or
termination of the Plan shall be made by the Board without approval of (i) the
Company's stockholders to the extent stockholder approval is required by
applicable law or regulations and (ii) each affected Optionee if such amendment,
alteration, suspension or termination would adversely affect his or her rights
or obligations under any Option granted prior to the date of such amendment,
alteration, suspension or termination. No Option may be granted nor any Shares
issued under the Plan during any suspension or after termination of the Plan.
11. Modification, Extension and Renewal of Options; Substituted Options
11.1. Subject to the terms and conditions of the Plan, the Committee
may modify, extend or renew the
<PAGE> 7
-7-
terms of any outstanding Options, or accept the surrender of outstanding Options
granted under the Plan or options and stock appreciation rights granted under
any other plan of the Company or an Affiliate (to the extent not theretofore
exercised) and authorize the granting of new Options in substitution therefor
(to the extent not theretofore exercised). Any such substituted Options may
specify a lower exercise price than the surrendered options and stock
appreciation rights, a longer term than the surrendered options and stock
appreciation rights, or have any other provisions that are authorized by the
Plan. Notwithstanding the foregoing, however, no modification of an Option
shall, without the consent of the Optionee, alter or impair any of the
Optionee's rights or obligations under such Option.
11.2. Anything contained herein to the contrary notwithstanding,
Options may, at the discretion of the Committee, be granted under the Plan in
substitution for stock appreciation rights and options to purchase shares of
capital stock of another corporation which is merged into, consolidated with, or
all or a substantial portion of the property or stock of which is acquired by,
the Company or one of its Affiliates. The terms and conditions of the substitute
Options so granted may vary from the terms and conditions set forth in this Plan
to such extent as the Committee may deem appropriate in order to conform, in
whole or part, to the provisions of the options and stock appreciation rights in
substitution for which they are granted.
12. Effectiveness of the Plan
The Plan and any amendment thereto shall be effective on the date on
which it is adopted by the Board, provided that any such adoption requiring
stockholder approval is subject to approval by vote of the stockholders of the
Company within 12 months after such adoption by the Board. Options may be
granted prior to stockholder approval of the Plan, and the date on which any
such Option is granted shall be the Date of Grant for all purposes provided that
(a) each such Option shall be subject to stockholder approval of the Plan, (b)
no Option may be exercised prior to such stockholder approval, and (c) any such
Option shall be void ab initio if such stockholder approval is not obtained.
<PAGE> 8
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13. Withholding
The Company's obligation to deliver Shares or pay any amount pursuant
to the terms of any Option shall be subject to the satisfaction of applicable
federal, state and local tax withholding requirements. To the extent provided in
the applicable Agreement and in accordance with rules prescribed by the
Committee, an Optionee may satisfy any such withholding tax obligation by any of
the following means or by a combination of such means: (i) tendering a cash
payment, (ii) authorizing the Company to withhold Shares otherwise issuable to
the Optionee, or (iii) delivering to the Company already owned and unencumbered
Shares.
14. Term of the Plan
Unless sooner terminated by the Board pursuant to Section 10, the Plan
shall terminate on May 9, 2007, and no Options may be granted after such date.
The termination of the Plan shall not affect the validity of any Option
outstanding on the date of termination.
15. Indemnification of Committee
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and reasonably incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted hereunder, and
against all amounts reasonably paid by them in settlement thereof or paid by
them in satisfaction of a judgment in any such action, suit or proceeding, if
such members acted in good faith and in a manner which they believed to be in,
and not opposed to, the best interests of the Company.
16. General Provisions
16.1. The establishment of the Plan shall not confer upon any Eligible
Individual any legal or equitable right against the Company, any Affiliate or
the Committee, except as expressly provided in the Plan.
<PAGE> 9
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16.2. The Plan does not constitute inducement or consideration for the
employment or service of any Eligible Individual, nor is it a contract between
the Company or any Affiliate and any Eligible Individual. Participation in the
Plan shall not give an Eligible Individual any right to be retained in the
service of the Company or any Affiliate.
16.3. Neither the adoption of this Plan nor its submission to the
stockholders, shall be taken to impose any limitations on the powers of the
Company or its Affiliates to issue, grant, or assume options, warrants, rights,
or restricted stock, otherwise than under this Plan, or to adopt other stock
option or restricted stock plans or to impose any requirement of stockholder
approval upon the same.
16.4. The interests of any Eligible Individual under the Plan are not
subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as provided in an Agreement.
16.5. The Plan shall be governed, construed and administered in
accordance with the laws of the State of Delaware and it is the intention of the
Company that Incentive Stock Options granted under the Plan qualify as such
under Section 422 of the Code.
16.6. The Committee may require each person acquiring Shares pursuant
to Options hereunder to represent to and agree with the Company in writing that
such person is acquiring the Shares without a view to distribution thereof. The
certificates for such Shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer. All certificates for Shares
issued pursuant to the Plan shall be subject to such stock transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange or interdealer quotation system upon which the Common Stock
is then listed or quoted, and any applicable federal or state securities laws.
The Committee may place a legend or legends on any such certificates to make
appropriate reference to such restrictions. The certificates for Shares acquired
pursuant to an Option may also include any legend which the Committee deems
<PAGE> 10
-10-
appropriate to reflect restrictions contained in this Plan or in the applicable
Agreement or to comply with the Delaware General Corporation Law.
16.7. The Company shall not be required to issue any certificate or
certificates for Shares upon the exercise of Options, or record any person as a
holder of record of such Shares, without obtaining, to the complete satisfaction
of the Committee, the approval of all regulatory bodies deemed necessary by the
Committee, and without complying to the Committee's complete satisfaction, with
all rules and regulations, under federal, state or local law deemed applicable
by the Committee.
<PAGE> 1
EXHIBIT 10.12
AGREEMENT OF LEASE
BETWEEN
500 BI-COUNTY ASSOCIATES, L.P.
AND
COLORADO PRIME CORPORATION
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
PREMISES ................................................................... 1
TERM ....................................................................... 1
RENT ....................................................................... 2
USE ........................................................................ 3
LANDLORD'S CONSTRUCTION .................................................... 4
UTILITIES/OPERATING COSTS INCREASES ........................................ 6
LANDLORD'S REPAIRS ......................................................... 9
WATER SUPPLY ............................................................... 9
PARKING FIELD .............................................................. 9
DIRECTORY .................................................................. 9
TAXES AND OTHER CHARGES .................................................... 9
TENANT'S REPAIRS ........................................................... 11
FIXTURES AND INSTALLATIONS ................................................. 12
ALTERATIONS ................................................................ 12
REQUIREMENTS OF LAW ........................................................ 15
END OF TERM ................................................................ 17
QUIET ENJOYMENT ............................................................ 19
SIGNS ...................................................................... 19
RULES AND REGULATIONS ...................................................... 19
RIGHT TO SUBLET OR ASSIGN .................................................. 20
LANDLORD'S ACCESS TO PREMISES .............................................. 23
SUBORDINATION .............................................................. 24
PROPERTY LOSS, DAMAGE REIMBURSEMENT ........................................ 25
TENANT'S INDEMNITY ......................................................... 26
i
<PAGE> 3
DESTRUCTION - FIRE OR OTHER CASUALTY ....................................... 27
INSURANCE .................................................................. 28
EMINENT DOMAIN ............................................................. 31
NONLIABILITY OF LANDLORD ................................................... 32
DEFAULT .................................................................... 32
TERMINATION ON DEFAULT ..................................................... 34
DAMAGES .................................................................... 35
SUMS DUE LANDLORD .......................................................... 36
NO WAIVER .................................................................. 37
WAIVER OF TRIAL BY JURY .................................................... 38
NOTICES .................................................................... 39
INABILITY TO PERFORM ....................................................... 39
INTERRUPTION OF SERVICE .................................................... 40
CONDITIONS OF LANDLORD'S LIABILITY ......................................... 40
TENANT'S TAKING POSSESSION ................................................. 41
ENTIRE AGREEMENT ........................................................... 42
DEFINITIONS ................................................................ 43
PARTNERSHIP TENANT ......................................................... 43
SUCCESSORS, ASSIGNS, ETC ................................................... 44
BROKER ..................................................................... 44
CAPTIONS ................................................................... 44
FINANCING OF LANDLORD'S WORK ............................................... 45
NOTICE OF ACCIDENTS ........................................................ 45
TENANT'S AUTHORITY TO ENTER LEASE .......................................... 45
RIGHT OF FIRST REFUSAL ..................................................... 46
SCHEDULE "A" ............................................................... 48
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<PAGE> 4
SCHEDULE "B" ............................................................... 49
SCHEDULE "C" ............................................................... 51
EXHIBIT 1 .................................................................. 54
EXHIBIT 2 .................................................................. 55
EXHIBIT 3 .................................................................. 56
EXHIBIT 4 .................................................................. 57
iii
<PAGE> 5
AGREEMENT OF LEASE, made as of this 18th day of September, 1997, between
500 BI-COUNTY ASSOCIATES, L.P., a limited partnership having its principal
office at 6800 Jericho Turnpike, Syosset, New York 11791 (hereinafter referred
to as "Landlord"), and COLORADO PRIME CORPORATION, a Delaware corporation,
having its principal place of business at______________________________________
hereinafter referred to as "Tenant").
WITNESSETH: Landlord and Tenant hereby covenant and agree as follows:
PREMISES
1. In consideration of the rents to be paid and the covenants and
agreements to be performed and observed by Tenant, Landlord hereby leases unto
Tenant, and Tenant does hereby hire and take from Landlord, the space to be
constructed by Landlord substantially in accordance with the provisions of this
agreement (the "Demised Premises" or "Premises") as shown on Schedule "A" and to
be constructed substantially in accordance with the site plan, Preliminary Plans
(hereinafter defined) both attached hereto as Exhibit "1", and in accordance
with the Plans (hereinafter defined) in the building located at 500 Bi-County
Boulevard, Farmingdale, New York (the "Building"), and the parties hereby agree
that such space contains approximately 23,000 square feet in a Building
containing 138,000 square feet which constitutes 16.67 percent of the area of
the Building ("Tenant's Proportionate Share").
TERM
2. Landlord hereby leases the Premises to Tenant and Tenant hereby hires
the Premises from Landlord for a term which shall commence on the Delivery Date
(as hereinafter defined) (the "Commencement Date") an shall expire on the day
preceding the day which is fifteen (15) years after (i) the Rent Commencement
Date (as hereinafter defined in Article 3), or (ii) the first day of the first
full calendar month following the Rent Commencement Date, if such date is not
the first day of a calendar month (the "Expiration Date") unless such term shall
sooner cease or expire as hereinafter provided. "Substantially completed" as
used herein is defined to mean when the only items to be completed are those
which do not interfere with the Tenant's occupancy and substantially full
enjoyment of the Demised Premises; but if Landlord shall be delayed in such
"substantial completion" as a result of (i) Tenant's failure to furnish plans
and specifications if required; (ii) Tenant's request for materials, finishes or
installations other than those outlined in Tenant's Specifications attached
<PAGE> 6
hereto and made a part hereof as Exhibit "2" which are not available for
delivery within a reasonable period of time; (iii) Tenant's changes in the
Preliminary Plans (as hereinafter defined) that fail to comply with the
provisions of Article 5 herein; (iv) the performance or completion of any work,
labor or services by a party employed by Tenant; (v) Tenant's failure to approve
final plans, working drawings or reflective ceiling plans; then the commencement
of the Term of this lease and the payment of rent hereunder shall be accelerated
by the number of days of such delay. Tenant waives any right to rescind this
lease under Section 223-a of the New York Real Property Law or any successor
statute of similar import then in force and further waives the right to recover
any damages which may result from Landlord's failure to deliver possession of
the Premises on the Commencement Date.
A "Lease Year" shall comprise a period of twelve (12) consecutive
months. Notwithstanding the foregoing, the first Lease Year shall commence upon
the Commencement Date and if the Commencement Date is not the first day of a
month shall include the additional period from the Commencement Date to the end
of the then current month. Each succeeding Lease Year shall end on the
anniversary date of the last day of the preceding Lease Year. For example, if
the Commencement Date is January 1, 1998, the first Lease Year would end on
December 31, 1998 and each succeeding Lease Year would end on December 31st. If,
however, the Commencement Date is January 2, 1998 the first Lease Year would end
on January 31, 1999, the second Lease Year would commence on February 1, 1999
and each succeeding Lease Year would end on January 31st.
Within ten (10) business days after Landlord's delivery to Tenant of
Landlord's standard Commencement Date Certificate, Tenant will sign and return
said Certificate to Landlord.
RENT
3. The annual minimum rental ("Rent" or "rent") is as follows:
During the first through fifth Lease Years, the Rent shall be $350,750.04 per
Lease Year, payable in equal monthly installments of $29,229.17.
During the sixth through tenth Lease Years, the Rent shall be $385,940.04 per
Lease Year, payable in equal monthly installments of $32,161.67.
During the eleventh, through fifteenth Lease Years, the Rent shall be
$424,350.00 per Lease Year, payable in equal monthly installments of $35,362.50.
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<PAGE> 7
Tenant agrees to pay the Rent to Landlord, without notice or demand, in
lawful money of the United States which shall be legal tender in payment of the
debts and dues, public and private, at the time of payment in advance on the
first day of each calendar month during the Demised Term at the office of the
Landlord, or at such other place as Landlord shall designate, except that Tenant
shall pay the first monthly installment on the execution hereof. Tenant shall
pay the Rent as above and as hereinafter provided, without any set off or
deduction whatsoever. Should the Commencement Date be a date other than the
first day of a calendar month, the Tenant shall pay a pro rata portion of the
Rent on a per diem basis, based upon the second full calendar month of the first
Lease Year, from such date to and including the last day of that current
calendar month, and the first Lease Year shall include said partial month. The
Rent payable for such partial month shall be in addition to the Rent payable
pursuant to the Rent schedule set forth above.
Notwithstanding the foregoing, provided Tenant is not then in default under any
provision of this lease, Tenant shall be relieved of its obligations to pay Rent
(A) until September 1, 1998; or (B) for the first (1st) five (5) full calendar
months following the Commencement Date, whichever period shall be longer (the
"Rent Commencement Date").
USE
4. (A) Tenant shall use and occupy the Demised Premises only for
executive and administrative offices in connection with telemarketing and
associated accounting and marketing functions and for no other purpose, and
shall have access to the Demised Premises 24 hrs. per day, 7 days per week
through out the term.
(B) Tenant shall not use or occupy, suffer or permit the Premises,
or any part thereof, to be used in any manner which would in any way, in the
reasonable judgment of Landlord, (i) violate any laws or regulations of public
authorities; (ii) make void or voidable any insurance policy then in force with
respect to the Building; (iii) impair the appearance, character or reputation of
the Building; (iv) discharge objectionable fumes, vapors or odors in such a
manner as to offend other occupants. The provisions of this Section shall not be
deemed to be limited in any way to or by the provisions of any other Section or
any Rule or Regulation.
(C) The emplacement of any equipment which will impose an evenly
distributed floor load in excess of 100 pounds per square foot shall be done
only after written permission is received from the Landlord. Such permission
will be granted only after adequate proof is furnished by a professional
engineer that such floor loading will not endanger the structure. Business
machines and mechanical equipment in the Premises shall be placed and maintained
by Tenant, at Tenant's expense, in such manner as shall be
3
<PAGE> 8
sufficient in Landlord's judgment to absorb vibration and noise and prevent
annoyance or inconvenience to Landlord or any other tenants or occupants of the
Building.
(D) Tenant will not at any time use or occupy the Demised Premises
in violation of the certificate of occupancy (temporary or permanent) issued for
the Building or portion thereof of which the Demised Premises form a part.
LANDLORD'S CONSTRUCTION
5. Landlord, at Landlord's sole cost and expense, shall perform and
complete in a first-class and in a good and workmanlike manner the following
construction work ("Landlord's Construction"):
(A) Landlord shall perform such work and the construction of the
Building as set forth in (i) Tenant's Specifications attached hereto and made a
part hereof as Exhibit "2" and (ii) all drawings, specifications, construction
memoranda and other information related thereto, as prepared by Landlord at
Landlord's sole cost and expense collectively referred to as the "Plans"), and
approved by Tenant in accordance with the preliminary plans annexed hereto as
part of Exhibit "1" ("Preliminary Plans"). Within thirty (30) days of the date
that a fully executed copy of this lease is delivered to Tenant, Tenant may make
reasonable modifications to the Preliminary Plans provided that such
modifications shall not, in Landlord's reasonable judgment, increase Landlord's
costs and expenses in performing Landlord's Construction. Upon approval of the
Preliminary Plans within the foregoing thirty (30) day period, Landlord shall
prepare the Plans and submit such Plans for Tenant's approval within ten (10)
days of Tenant's receipt of same. If Tenant disapproves the Plans within such
ten (10) day period, Tenant shall respond with reasonable specificity in
describing those aspects of the Plans which Tenant disapproves. In the event
that Tenant fails to approve or disapprove such Plans within such ten (10) day
period, Tenant shall be deemed to have approved the Plans. In the event that
Tenant timely and reasonably disapproves the Plans, Landlord shall modify the
Plans to address Tenant's specified concerns and shall resubmit revised Plans
within ten (10) business days of the receipt of notice of Tenant's disapproval
of the originally submitted Plans. The process described herein shall continue
until such time as the Plans have been reasonably approved or deemed to be
approved by Tenant. Landlord, at its sole cost and expense, shall install all
work necessary to complete the Building in accordance with the Plans, including
any additional work required in order to obtain a certificate of occupancy for
Landlord's Construction and as otherwise reasonably contemplated within the
scope of the specific work set forth in the Plans.
4
<PAGE> 9
(B) Landlord shall construct (i) all automobile parking areas,
pedestrian and vehicular accessways, sidewalks, ingress and egress areas,
lighting, fixtures, landscaping, and other improvements which are either shown
or provided for on Exhibit "1" attached hereto and made a part hereof; and (ii)
all sewer facilities, water, electric and gas service to and throughout the
Premises. The landscaping at the exterior of the Premises shall conform with the
landscaping at the exterior of the Building.
(C) (i) Landlord shall diligently pursue Landlord's Construction to
completion in a first-class and in a good and workmanlike manner, using material
in accordance with the Plans (with respect to the Building) and Tenant's
Specifications, and in compliance with all applicable laws and regulations of
the federal, state and municipal governments, or any department or division
thereof, including building codes. Landlord, at Landlord's expense, shall
procure all building and other permits and approvals necessary for performing
Landlord's Construction.
(ii) The "Delivery Date" shall be the day upon which
Landlord's Construction has been substantially completed. Landlord shall use
reasonable efforts to substantially complete Landlord's Construction by April 1,
1998 (the "Projected Delivery Date"). Landlord shall provide Tenant with a
temporary certificate of occupancy for the Premises prior to the Delivery Date,
and shall provide Tenant with ten (10) days' notice of the Delivery Date.
(iii) On the Delivery Date, Tenant shall be deemed to have
accepted the Premises, except for all punchlist items in connection with
Landlord's Construction specified by Tenant to Landlord in writing within
forty-five (45) days after the Delivery Date. Landlord shall correct all
punchlist items specified by Tenant within forty-five (45) days after receipt of
written notice thereof from Tenant. Except for punchlist items as set forth
herein, by entering into occupancy of the Premises Tenant shall be conclusively
deemed to have agreed that Landlord, up to the time of such occupancy, has
performed all of its obligations hereunder and that the Premises were in
satisfactory condition as of the date of such occupancy, unless within ten (10)
days after such date Tenant shall have given written notice to Landlord
specifying the respects in which the same were not in such condition.
(D) Provided Tenant is not then in default of the terms, covenants
and conditions of this lease, at the beginning of the eighth Lease Year,
Landlord shall repaint and recarpet the Premises using the same materials set
forth in Exhibit "2". Landlord shall perform the foregoing work after 8:00 p.m.,
Monday through Friday, or on weekends.
5
<PAGE> 10
UTILITIES/OPERATING COSTS INCREASES
6. (A) Tenant shall provide, at its own expense, fuel, heat, electricity
and all other utilities required in connection with its use of the Premises.
Landlord shall be obligated only to deliver the utility lines and facilities
servicing the Premises in working order on the Commencement Date and repair and
maintain same throughout the term of this lease. All utilities shall, at
Landlord's option, either be directly metered to Tenant or submetered and
charged at the rate billed to Landlord for such service to the Building, and
shall be available to tenant 24 hours per day, 7 days per week through out the
term.
(B) Landlord shall have no liability to Tenant for any loss, damage
or expense sustained or incurred by reason of any change, failure, inadequacy,
unsuitability or defect in the supply or character of the electric energy
furnished to the Premises or if the quantity or character of the electric energy
is no longer available or suitable for Tenant's requirements, except for any
actual damage suffered by Tenant by reason of any such failure, inadequacy or
defect caused by the negligence or willful misconduct of Landlord and then only
thirty (30) days after Landlord's receipt of notice from Tenant of such failure,
inadequacy or defect.
(C) For purposes of this lease, the terms "Operating Costs" and
"Base Operating Costs" shall be defined as follows:
(i) The term "Operating Costs" shall mean and include the
aggregate of all those expenses, adjusted for full occupancy, to the extent
incurred in respect to the operation and maintenance (whether structural or
non-structural, and whether capital or non-capital in nature) of the Real
Property (as such term is defined in Article 11(A)(iv)) in accordance with
accepted principles of sound management and accounting practices as applied to
the operation and maintenance of non-institutional first class office
properties, including any and all of the following: salaries, wages,
hospitalization, medical, surgical and general welfare benefits (including group
life insurance), pension payments, payroll taxes and workmen's compensation of
and respecting employees of Landlord engaged in the operation and maintenance of
the Real Property (including, among others, that of the Real Property or
Building manager and such manager's administrative staff); all insurance carried
by Landlord applicable to the Real Property (including, without limitation,
primary and excess liability, vehicle insurance, fire and extended coverage,
vandalism and all broad form coverage, riot, strike and war risk insurance,
flood insurance, boiler insurance, plate glass insurance, rent insurance and
sign insurance); maintenance fees; and Landlord's management fee of four
percent; maintenance and repairs of grounds (including, without limitation, all
landscaping, statuary, exhibits, displays, walks, parking and other vehicle ways
and areas and common areas), underground conduits, pipes, line
6
<PAGE> 11
equipment and systems; repaving, resurfacing and painting (including line
painting); removal of snow, ice, trash, garbage and other refuse; public light
and power, utility taxes and water and sewer rental; cleaning, cleaning
supplies, uniforms and dry cleaning and window cleaning; legal expenses (other
than those for preparation of this and other leases) and accounting fees; taxes
(including, without limitation, sales and use taxes); service contracts with
independent contractors, energy providers and/or consultants, security systems
and security personnel, and traffic systems and traffic personnel; telephone,
telegraph and stationary; advertising and; and all other expenses paid in
connection with the operation of the Real Property. Landlord shall charge an
overhead and administrative cost of fifteen (15%) percent for such expenses.
Operating Costs shall not include: (1) expenses
for repairs or other work occasioned by fire or other insured casualty; (2)
expenses incurred in connection with leasing and procuring new tenants; (3)
interest or amortization payments on any mortgage or mortgages, and rental under
any ground or underlying leases and/or; (4) wages, salaries or other
compensation paid to any executive employee of Landlord above the grade of Real
Property or Building manager.
(ii) The term "Base Operating Costs" shall mean the Operating Costs
in effect for the calendar year ending December 31, 1999 (whether or not
retroactively determined).
(D) Tenant shall pay to Landlord increases in Operating Costs as follows:
If the Operating Costs actually incurred by Landlord in any Escalation Year (as
such term is defined in Article 11(A)(iii)) shall exceed the Base Operating
Costs, then Tenant shall pay to Landlord, as additional rent for said Escalation
Year, a sum equal to Tenant's Proportionate Share (as such term is defined in
Article 11(A)(v)) of the difference between said Operating Costs and the Base
Operating Costs ("Tenant's Cost Payment" or "Cost Payment").
(E) Landlord shall render to Tenant a statement containing a computation
of Tenant's Cost Payment ("Landlord's Cost Statement") with respect to each
Escalation Year occurring in whole or part during the Term of this lease. Within
thirty (30) days after rendition of Landlord's Cost Statement relating to the
first Escalation Year, Tenant shall pay to Landlord, as additional rent, the
full amount of Tenant's Cost Payment shown thereon. In addition, on the first
day of each month following the rendition of each Landlord's Cost Statement,
Tenant shall pay to Landlord, on account of Tenant's next Cost Payment, a sum
equal to one-twelfth (1/12th) of Tenant's last Cost Payment due hereunder, which
sum shall be subject to adjustment for subsequent increases in Operating Costs.
7
<PAGE> 12
(F) All Landlord's Costs Statements after the first Landlord's Cost
Statement shall include the following amounts with respect to the Escalation
Year to which they apply: (i) the total Operating Costs incurred by Landlord
during the Escalation Year in question; (ii) Tenant's Cost Payment for such
Escalation Year; (iii) all amounts paid by Tenant during such Escalation Year on
account of the subject Cost Payment; (iv) the amount of the difference, if any,
between Cost Payment for such Escalation Year and the amounts paid by Tenant
during such Escalation Year on account of the subject Cost Payment; and (v) the
Base Operating Costs. Within thirty (30) days after the rendition of such
Landlord's Cost Statement, Tenant shall pay to Landlord, as additional rent, the
amount of the difference referred to in (iv) above, if any. In addition,
together with such payment, Tenant shall pay to Landlord, for each month that
has transpired since the commencement of the current Escalation Year and the
rendition of the subject Landlord's Cost Statement, the difference between
one-twelfth (1/12th) of the Cost Payment shown on such statements and the
monthly payments toward Tenant's Cost Payment made by Tenant for the prior
months of such current Escalation Year. In addition, on the first day of each
month following the rendition of the subject Landlord's Cost Statement, Tenant
shall pay to Landlord, on account of the next Tenant's Cost Payment, one-twelfth
(1/12th) of the Cost Payment shown on the subject Landlord's Cost Statement.
(G) If Landlord shall incur or bill for a retroactive increase in
Operating Costs, Tenant shall pay Landlord Tenant's Proportionate Share of the
total amount of the additional rent resulting from such retroactive increase on
the first day of the month following demand therefor by Landlord.
(H) Every notice given by Landlord pursuant to this Article, including,
without limitation, Landlord's Cost Statement, shall be conclusive and binding
upon Tenant unless within one (1) year after the receipt of such notice, Tenant
shall notify Landlord that it disputes the correctness of the notice, specifying
the particular respects in which the notice is claimed to be incorrect. Pending
the determination of such dispute by agreement or otherwise, Tenant shall pay
additional rent or accept credit in accordance with Landlord's notice and such
payment or acceptance shall be without prejudice to Tenant's position. If the
dispute shall be determined in Tenant's favor, Landlord shall forthwith pay
Tenant the amount of Tenant's overpayment of rents resulting from compliance
with Landlord's Cost Statement.
(I) Landlord's failure to render a Landlord's Cost Statement with respect
to any Escalation Year shall not prejudice Landlord's right to render a
Landlord's Cost Statement with respect to any Escalation Year. The obligations
of Tenant under the provisions of this Article with respect to any additional
rent for any Escalation Year shall survive for a period of one (1) year
following the expiration or any sooner termination of the Demised Term.
8
<PAGE> 13
LANDLORD'S REPAIRS
7. Landlord, at its expense, will make all the repairs to and provide
maintenance for the Demised Premises (excluding painting and decorating) and for
all public areas and facilities as set forth in Schedule B, except such repairs
and maintenance as may be necessitated by the negligence, improper care or use
of such premises and facilities by Tenant, its agents, employees, licensees or
invitees, which will be made by Landlord at Tenant's expense.
WATER SUPPLY
8. Landlord, at its expense, shall furnish hot and cold or tempered water
for lavatory and kitchen purposes only.
PARKING FIELD
9. Tenant shall have the right to use one hundred fifty (150) parking
spaces for the parking of automobiles of the Tenant, its employees and invitees,
in the parking area designated for tenants of the building (hereinafter
sometimes referred to as "Building Parking Area") subject to the Rules and
Regulations now or hereafter adopted by Landlord. Tenant shall not use nor
permit any of its officers, agents or employees to use any parking spaces in
excess of Tenant's allotted number of spaces therein. Landlord shall not be
required to police the Building Parking Area.
DIRECTORY
10. Landlord will furnish on the building directory listings as requested
by Tenant, not to exceed two (2) listings. The initial listings will be made at
Landlord's expense and any other reasonable changes by Tenant shall be made at
Tenant's expense. Landlord's acceptance of any name for listing on the directory
will not be deemed, nor will it substitute for, Landlord's consent, as required
by this lease, to any sublease, assignment or other occupancy of the Premises.
TAXES AND OTHER CHARGES
11. (A) As used in and for the purposes of this Article 11, the following
definitions shall apply:
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<PAGE> 14
(i) "Taxes" shall be the real estate taxes, assessments, special or
otherwise, sewer rents, rates and charges, and any other governmental charges,
general, specific, ordinary or extraordinary, foreseen or unforeseen, levied on
a calendar year or fiscal year basis against the Real Property. If at any time
during the Term the method of taxation prevailing at the date hereof shall be
altered so that there shall be levied, assessed or imposed in lieu of, or as in
addition to, or as a substitute for, the whole or any part of the taxes, levies,
impositions or charges now levied, assessed or imposed on all or any part of the
Real Property (a) a tax, assessment, levy, imposition or charge based upon the
rents received by Landlord, whether or not wholly or partially as a capital levy
or otherwise, or (b) a tax, assessment, levy, imposition or charge measured by
or based in whole or in part upon all or any part of the Real Property and
imposed on Landlord, or (c) a license fee measured by the rent payable by Tenant
to Landlord, or (d) any other tax, levy, imposition, charge or license fee
however described or imposed, then all such taxes, levies, impositions, charges
or license fees or any part thereof, measured or based, shall be deemed to be
Taxes.
(ii) "Base Year Taxes" shall be the taxes actually due and payable
in the 1999 tax (fiscal) year, based on a fully assesed building.
(iii) "Escalation Year" shall mean each calendar year which shall
include any part of the Demised Term.
(iv) "Real Property" shall be the land upon which the Building
stands and any part or parts thereof utilized for parking, landscaped areas or
otherwise used in connection with the Building, and the Building and other
improvements appurtenant thereto.
(v) "Tenant's Proportionate Share" shall mean 16.67%.
(B) The Tenant shall pay the Landlord increases in Taxes levied against
the Real Property as follows: If the Taxes actually due and payable with respect
to the Real Property in any Escalation Year shall be increased above the Base
Year Taxes, then the Tenant shall pay to the Landlord, as additional rent for
such Escalation Year, a sum equal to Tenant's Proportionate Share of said
increase ("Tenant's Tax Payment" or "Tax Payment").
(C) Landlord shall render to Tenant a statement containing a computation
of Tenant's Tax Payment ("Landlord's Statement"). Within thirty (30) days after
the rendition of the Landlord's Statement, Tenant shall pay to Landlord the
amount of Tenant's Tax Payment. On the first day of each month following the
rendition of each Landlord's Statement, Tenant shall pay to Landlord, on account
of Tenant's next Tax Payment, a sum equal to one-twelfth (1/12th) of Tenant's
last Tax Payment due hereunder, which sum shall be subject to adjustment for
subsequent increases in Taxes.
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<PAGE> 15
(D) The benefit of any discount for the early payment or prepayment of
Taxes shall belong solely to Landlord and shall not be subtracted in determining
Taxes.
(E) Tenant shall not, without Landlord's prior written consent, institute
or maintain any action, proceeding or application in any court or body or with
any governmental authority for the purpose of changing the Taxes.
(F) If, by reason of the failure of Tenant to pay Tenant's Tax Payment
when due, a governmental authority or a mortgagee imposes a penalty or requires
a penalty to be paid in respect of Taxes, then Tenant shall be responsible in
full, and without regard to the application of Tenant's Proportionate Share, for
the payment of such penalty or interest, or both, to Landlord, on demand, as
additional rent.
(G) Landlord's failure to render a Landlord's Statement with respect to
any Escalation Year shall not prejudice Landlord's right to render thereafter a
Landlord's Statement with respect to such Escalation Year. The obligation of
Landlord and Tenant under the provisions of this Article with respect to any
additional rent for any Escalation Year shall survive for a period of one (1)
year following the expiration or any sooner termination of the Demised Term.
TENANT'S REPAIRS
12. Tenant shall take good care of the Demised Premises and, subject to
the provisions of Article 7 hereof, Landlord, at the expense of Tenant, shall
make, as and when needed as a result of misuse or neglect by Tenant or Tenant's
servants, employees, agents or licensees, all repairs in and about the Demised
Premises necessary to preserve them in good order and condition. Except as
provided in Article 24 hereof, there shall be no allowance to Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making any repairs, alterations, additions or improvements in or to any
portion of the Building or of Demised Premises, or in or to the fixtures,
appurtenances or equipment thereof, and no liability upon Landlord for failure
of Landlord or others to make any repairs, alterations, additions or
improvements in or to any portion of the Building or of the Demised Premises, or
in or to the fixtures, appurtenances or equipment thereof.
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FIXTURES AND INSTALLATIONS
13. All appurtenances, fixtures, improvements, additions and other
property attached to or built into the Demised Premises, whether by Landlord or
Tenant or others, and whether at Landlord's expense, or Tenant's expense, or the
joint expense of Landlord and Tenant, shall be and remain the property of
Landlord (except for purposes of sales tax which shall remain Tenant's
obligation). All trade fixtures, furniture, furnishings and other articles of
movable personal property owned by Tenant and located within the Premises
(collectively, "Tenant's Property") may be removed from the Premises by Tenant
at any time during the Term. Tenant, before so removing Tenant's Property, shall
establish to Landlord's satisfaction that no structural damage or change will
result from such removal and that Tenant can and promptly will repair and
restore any damage caused by such removal without cost or charge to Landlord.
Any such repair and removal shall itself be deemed an Alteration (as defined in
Article 14 below) within the purview of this lease. Any Tenant's Property for
which Landlord shall have granted any allowance, contribution or credit to
Tenant shall, at Landlord's option, not be so removed. All the outside walls of
the Demised Premises including corridor walls and the outside entrance doors to
the Demised Premises, any balconies, terraces or roofs adjacent to the Demised
Premises, and any space in the Demised Premises used for shafts, stacks, pipes,
conduits, ducts or other building facilities, and the use thereof, as well as
access thereto in and through the Demised Premises for the purpose of operation,
maintenance, decoration and repair, are expressly reserved to Landlord, and
Landlord does not convey any rights to Tenant therein. Notwithstanding the
foregoing, Tenant shall enjoy full right of access to the Demised Premises
through the public entrances, public corridors and public areas within the
Building.
ALTERATIONS
14. (A) After completion of the Demised Premises as set forth in Schedule
A, Tenant shall make no alterations, decorations, installations, additions or
improvements (hereinafter collectively referred to as "Alterations") in or to
the Demised Premises without Landlord's prior written consent, and then only by
contractors or mechanics reasonably approved by Landlord and at such times and
in such manner as Landlord may from time to time designate. Notwithstanding the
foregoing, Tenant shall be permitted to make nonstructural alterations the cost
of which do not exceed $15,000.00 in the aggregate during any five (5) year
period of the term of this lease without Landlord's prior consent provided said
alterations are not visible from the exterior of the Building and do not affect
the Building service systems including, without limitation, heating,
ventilating, air conditioning, electrical,
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plumbing and other mechanical systems, health safety and life safety systems and
partitioning ("Minor Alterations"). However, Tenant shall notify Landlord prior
to performing such Minor Alterations.
(B) All Alterations done by Tenant shall at all times comply with
(i) laws, rules, orders and regulations of governmental authorities having
jurisdiction thereof, and (ii) rules and regulations of the Landlord attached as
Schedule C.
(C) With respect to all Alterations, plans and specifications
prepared by and at the expense of Tenant shall be submitted to Landlord for its
prior written approval in accordance with the following requirements:
(i) With respect to any Alterations to be performed by Tenant
pursuant to this lease, Tenant shall, at its expense, furnish Landlord with all
drawings, plans, layouts and specifications for work to be performed by Tenant,
including, without limitation, architectural, plumbing, electrical, mechanical
and heating, ventilating and air conditioning plans (the "Tenant's Plans"). All
of the Tenant's Plans shall: (a) be compatible with the Landlord's building
plans, (b) comply with all applicable laws and the rules, regulations,
requirements and orders of any and all governmental agencies, departments or
bureaus having jurisdiction, and (c) be fully detailed, including locations and
complete dimensions;
(ii) Tenant's Plans shall be subject to approval by Landlord,
which approval shall not be unreasonably withheld or delayed;
(iii) Tenant shall, at Tenant's expense, (a) cause Tenant's
Plans to be filed with the governmental agencies having jurisdiction thereover,
(b) obtain when necessary all governmental permits, licenses and authorizations
required for the work to be done in connection therewith, and (c) obtain all
necessary certificates of occupancy, both temporary and permanent. Landlord
shall execute such documents as may be reasonably required in connection with
the foregoing and Landlord shall otherwise cooperate with Tenant in connection
with obtaining the foregoing, but without any expense to Landlord. Tenant shall
make no amendments or additions to Tenant's Plans without the prior written
consent of Landlord in each instance;
(iv) No work shall commence in the Premises until (a) Tenant
has procured all necessary permits therefor and has delivered copies of same to
Landlord, (b) Tenant has procured a paid builder's risk insurance policy naming
Landlord as an additional insured and has delivered to Landlord a certificate of
insurance evidencing such policy, and (c) Tenant or its contractor has procured
a workmen's compensation insurance policy covering the
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activities of all persons working at the Premises naming Landlord as an
additional insured and has delivered to Landlord a certificate of insurance
evidencing such policy;
(v) Tenant may use any licensed architect or engineer to
prepare its plans and to file for permits. However, all such plans and permit
applications shall be subject to review, revision and approval by Landlord or
its architect, which approval shall not be unreasonably withheld or delayed;
(vi) Tenant, at its expense, shall perform all work, in
accordance with Tenant's Plans and all Alterations, unless Landlord performs
same, shall be subject to Landlord's supervisory fee charge of 10% of the cost
thereof. In receiving such fee, Landlord assumes no responsibility for the
quality or manner in which such work has been performed; and
(vii) Tenant agrees that it will not, either directly or
indirectly, use any contractors and/or labor and/or materials if the use of such
contractors and/or labor and/or materials would or will create any difficulty
with other contractors and/or labor engaged by Tenant or Landlord or others in
the construction, maintenance or operation of the Building or any part thereof.
(D) Tenant's right to make Alterations shall be subject to the
following additional conditions: (i) the Alterations will not result in a
violation of, or require a change in, any Certificate of Occupancy applicable to
the Premises or the Building; (ii) the outside appearance, character or use of
the Building shall not be affected; (iii) no part of the Building outside of
the Premises shall be physically affected; (iv) the proper functioning of any
air-conditioning, elevator, plumbing, electrical, sanitary, mechanical and other
service or utility system of the Building shall not be affected.
(E) Tenant shall defend, indemnify and save harmless Landlord
against any and all mechanics' and other liens filed in connection with its
Alterations, repairs or installations, including the liens of any conditional
sales of, or chattel mortgages upon, any materials, fixtures or articles so
installed in and constituting part of the Premises and against any loss, cost,
liability, claim, damage and expense, including reasonable counsel fees,
penalties and fines incurred in connection with any such lien, conditional sale
or chattel mortgage or any action or proceeding brought thereon. As a condition
precedent to Landlord's consent to the making by Tenant of Alterations, Tenant
agrees to obtain and deliver to Landlord, written and unconditional waivers of
mechanics' liens for all work, labor and services to be performed and materials
to be furnished, signed by all contractors, subcontractors, materialmen and
laborers to become involved in such work.
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(F) Tenant, at its expense, shall procure the satisfaction or
discharge of all such liens within thirty (30) days of the filing of such lien
against the Premises or the Building. If Tenant shall fail to cause such lien to
be discharged within the aforesaid period, then, in addition to any other right
or remedy, Landlord may, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge of
such lien by deposit or by bonding proceedings, and in any such event Landlord
shall be entitled, if Landlord so elects, to compel the prosecution of an action
for the foreclosure of such lien by the lienor and to pay the amount of the
judgment in favor of the lienor with interest, costs and allowances. Any amount
so paid by Landlord, and all costs and expenses incurred by Landlord in
connection therewith, together with interest thereon at the maximum rate
permitted by law from the respective dates of Landlord's making of the payments
or incurring of the cost and expense, shall constitute additional rent and shall
be paid on demand.
(G) Nothing in this lease contained shall be construed in any way as
constituting the consent or request of Landlord, expressed or implied, to any
contractor, subcontractor, laborer or materialman for the performance of any
labor or the furnishing of any material for any improvement, alteration or
repair of the Premises, nor as giving any right or authority to contract for the
rendering of any services or the furnishing of any materials that would give
rise to the filing of any mechanics' liens against the Premises.
REQUIREMENTS OF LAW
15. (A) Tenant, at Tenant's sole cost and expense, shall comply with all
statutes, laws, ordinances, orders, regulations and notices of Federal, State,
County and Municipal authorities, and with all directions, pursuant to law, of
all public officers, which shall impose any duty upon Landlord or Tenant with
respect to the Demised Premises or the use or occupation thereof, except that
Tenant shall not be required to make any structural alterations in order so to
comply unless such alterations shall be necessitated or occasioned, in whole or
in part, by the acts, omissions, or negligence of Tenant or any person claiming
through or under Tenant or any of their servants, employees, contractors,
agents, visitors or licensees, or by the use or occupancy or manner of use or
occupancy of the Demised Premises by Tenant, or any such person. In the event
such alterations are required, Landlord shall make such structural alterations
at Tenant's sole cost and expense.
(B) The parties acknowledge that there are certain Federal, State
and local laws, regulations and guidelines now in effect and that additional
laws, regulations and guidelines may
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hereafter be enacted, relating to or affecting the Premises, the Building, and
the land of which the Premises and the Building may be a part, concerning the
impact on the environment of construction, land use, the maintenance and
operation of structures, or the conduct of business. Tenant will not cause, or
permit to be caused, any act or practice, by negligence, omission, or otherwise,
that would adversely affect the environment or do anything or permit anything to
be done that would violate any of said laws, regulations, or guidelines. Any
violation of this covenant shall be an event of default under this lease.
(C) Tenant shall keep or cause the Premises to be kept free of
Hazardous Materials (hereinafter defined). Without limiting the foregoing,
Tenant shall not cause or permit the Premises to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer, produce
or process Hazardous Materials, except in compliance with all applicable
Federal, State and Local laws or regulations, nor shall Tenant cause or permit,
as a result of any intentional or unintentional act or omission on the part of
Tenant or any person or entity claiming through or under Tenant or any of their
employees, contractors, agents, visitors or licensees (collectively, "Related
Parties"), a release of Hazardous Materials onto the Premises or onto any other
property. Tenant shall comply with and ensure compliance by all Related Parties
with all applicable Federal, State and Local laws, ordinances, rules and
regulations, whenever and by whomever triggered, and shall obtain and comply
with, and ensure that all Related Parties obtain and comply with, any and all
approvals, registrations or permits required thereunder. With respect to
Hazardous Substances for which Tenant is responsible hereunder, Tenant shall (i)
conduct and complete all investigations, studies, samplings, and testing, and
all remedial removal and other actions necessary to clean up and remove such
Hazardous Materials, on, from, or affecting the Premises (a) in accordance with
all applicable Federal, State and Local laws, ordinances, rules, regulations,
policies, orders and directives, and (b) to the satisfaction of Landlord, and
(ii) defend, indemnify, and hold harmless Landlord, its employees, agents,
officers, and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs, or expenses of whatever kind or
nature, known or unknown, contingent or otherwise, arising out of, or in any way
related to, (a) the presence, disposal, release, or threatened release of such
Hazardous Materials which are on, from, or affecting the soil, water,
vegetation, buildings, personal property, persons, animals, or otherwise; (b)
any personal injury (including wrongful death) or property damage (real or
personal) arising out of or related to such Hazardous Materials; (c) any lawsuit
brought or threatened, settlement reached, or government order relating to such
Hazardous Materials; and/or (d) any violation of laws, orders, regulations,
requirements, or demands of government authorities, or any policies or
requirements of Landlord which are based upon or in any way
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related to such Hazardous Materials, including, without limitation, attorney and
consultant fees, investigation and laboratory fees, court costs, and litigation
expenses. In the event this lease is terminated, or Tenant is dispossessed,
Tenant shall deliver the Premises to Landlord free of any and all Hazardous
Materials so that the conditions of the Premises shall conform with all
applicable Federal, State and Local laws, ordinances, rules or regulations
affecting the Premises. For purposes of this paragraph, "Hazardous Materials"
includes, without limitation, any flammable explosives, radioactive materials,
hazardous materials, hazardous wastes, hazardous or toxic substances, or related
materials defined in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Sections 9601, et seq.), and in the regulations adopted and publications
promulgated pursuant thereto, or any other Federal, State or Local environmental
law, ordinance, rule, or regulation.
END OF TERM
16. (A) Upon the expiration or other termination of the Term of this
lease, Tenant shall, at its own expense, quit and surrender to Landlord the
Demised Premises, broom clean and in good order and condition, ordinary wear,
tear and damage by fire or other insured casualty excepted, and Tenant shall
remove all of its property and shall pay the cost to repair all damage to the
Demised Premises or the Building occasioned by such removal. Any property not
removed from the Premises shall be deemed abandoned by Tenant and may be
retained by Landlord as its property, or disposed of in any manner deemed
appropriate by the Landlord. Any expense incurred by Landlord in removing or
disposing of such property shall be reimbursed to Landlord by Tenant on demand.
Tenant expressly waives, for itself and for any person claiming through or under
Tenant, any rights which Tenant or any such person may have under the provisions
of Section 2201 of the New York Civil Practice Law and Rules and of any
successor law of like import then in force, in connection with any holdover or
summary proceeding which Landlord may institute to enforce the foregoing
provisions of this Article. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of the Term of this
lease. If the last day of the Term of this lease or any renewal hereof falls on
Sunday or a legal holiday, this lease shall expire on the business day
immediately preceding. Tenant's obligations under this Article 16 shall survive
the Expiration Date or sooner termination of this lease.
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(B) In the event of any holding over by Tenant after the expiration
or termination of this Lease without the consent of Landlord, Tenant shall:
(i) pay as holdover rental for each month of the holdover
tenancy an amount equal to, for each of the first four (4) months of such
holdover tenancy, one hundred and twenty-five (125%) percent of the Rent payable
by Tenant for the sixth month prior to the Expiration Date of the term of this
lease and two hundred (200%) percent of such Rent for each month commencing with
the fifth month of such holdover tenancy, and otherwise observe, fulfill and
perform all of its obligations under this lease, including but not limited to,
those pertaining to additional rent, in accordance with its terms;
(ii) be liable to Landlord for any payment or rent concession
which Landlord may be required to make to any tenant in order to induce such
tenant not to terminate an executed lease covering all or any portion of the
Premises by reason of the holdover over by Tenant; and
(iii) for each month commencing with the fifth month of such
holdover tenancy, be liable to Landlord for any damages suffered by Landlord as
the result of Tenant's failure to surrender the Premises.
No holding over by Tenant after the Term shall operate to extend the
Term.
The holdover, with respect to all or any part of the Premises, of a
person deriving an interest in the Premises from or through Tenant, including,
but not limited to, an assignee or subtenant, shall be deemed a holdover by
Tenant.
Notwithstanding anything in this Article contained to the contrary,
the acceptance of any Rent paid by Tenant pursuant to this Paragraph 16(B),
shall not preclude Landlord from commencing and prosecuting a holdover or
eviction action or proceeding or any action or proceeding in the nature thereof.
The preceding sentence shall be deemed to be an "agreement expressly providing
otherwise" within the meaning of Section 232-c of the Real Property Law of the
State of New York and any successor law of like import.
(C) If at any time during the last month of the term of this lease
Tenant shall have removed all of Tenant's property from the Premises, Landlord
may, and Tenant hereby irrevocably grants to Landlord a license to, immediately
enter and alter, renovate and redecorate the Premises, without elimination,
diminution or abatement of Rent, or incurring liability to Tenant for any
compensation, and such acts shall have no effect upon this lease.
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QUIET ENJOYMENT
17. Landlord covenants and agrees with Tenant that upon Tenant paying the
Rent and additional rent and observing and performing all the terms, covenants
and conditions on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the Demised Premises during the term of this lease
without hindrance or molestation by anyone claiming by or through Landlord,
subject, nevertheless, to the terms, covenants and conditions of this lease
including, but not limited to, Article 22.
SIGNS
18. (A) No signs or lettering of any nature may be put on or in any window
or on the exterior of the Building or elsewhere within the Demised Premises such
as will be visible from the street. No sign or lettering in the public corridors
or on the doors is permitted except Landlord's standard name plaque.
(B) Upon the request of Tenant, Landlord shall, at Tenant's sole
cost and expense, install one (1) building sign on the east facade of the
exterior of the Building; the design, size, color and location of such sign
shall be as set forth on the plan annexed hereto and made a part hereof as
Exhibit "3", and shall be subject to all laws, rules and regulations.
RULES AND REGULATIONS
19. Tenant and Tenant's agents, employees, visitors, and licensees shall
faithfully observe and comply with, and shall not permit violation of, the Rules
and Regulations set forth on Schedule C annexed hereto and made part hereof, and
with such further reasonable Rules and Regulations as Landlord at any time may
make and communicate in writing to Tenant which, in Landlord's judgment, shall
be necessary for the reputation, safety, care and appearance of the Building
and the land allocated to it or the preservation of good order therein, or the
operation or maintenance of the Building, and such land, its equipment, or the
more useful occupancy or the comfort of the tenants or others in the Building.
Landlord shall not be liable to Tenant for the violation of any of said Rules
and Regulations, or the breach of any covenant or condition, in any lease by any
other tenant in the Building.
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RIGHT TO SUBLET OR ASSIGN
20. (A) The Tenant covenants that it shall not assign this lease nor
sublet the Demised Premises or any part thereof by operation of law or
otherwise, except, an assignment or subletting as defined in (C) and (D) below,
without the prior written consent of Landlord in each instance, which consent
shall not be unreasonably withheld or delayed, except on the conditions
hereinafter stated. The Tenant may assign this lease or sublet all or a portion
of the Demised Premises with Landlord's written consent, which consent shall not
be unreasonably withheld or delayed, provided:
(i) That such assignment or sublease is for a use which is in
compliance with this lease and the then existing zoning regulations and the
Certificate of Occupancy;
(ii) That, at the time of such assignment or subletting, there is no
default under the terms of this lease on the Tenant's part;
(iii) That, in the event of an assignment, the assignee shall assume
in writing the performance of all of the terms and obligations of the within
lease;
(iv) That a duplicate original of said assignment or sublease shall
be delivered by certified mail to the Landlord at the address herein set forth
within ten (10) days from the said assignment or sublease and within one hundred
and twenty (120) days of the date that Tenant first advises Landlord of the name
and address of the proposed subtenant or assignee, as required pursuant to
subparagraph (B) hereof;
(v) Such assignment or subletting shall not, however, release the
within Tenant or any successor tenant or any guarantor from their liability for
the full and faithful performance of all of the terms and conditions of this
lease;
(vi) If this lease be assigned, or if the Demised Premises or any
part thereof be underlet or occupied by anybody other than Tenant, Landlord may
after default by Tenant collect rent from the assignee, undertenant or occupant,
and apply the amount collected to the rent: herein reserved.
(B) No assignment or total underletting shall be made by Tenant
except as provided for in 20(C) and 20(D) below, until Tenant has
offered to terminate this lease as of the last day of any calendar month
during the Term hereof and to vacate and surrender the Demised Premises to
Landlord on the date fixed in the notice served by Tenant upon Landlord
(which date shall be prior to the date of such proposed assignment
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or the commencement date of such proposed sublease). Simultaneously with said
offer to terminate this lease, Tenant shall advise the Landlord, in writing, of
the name and address of the proposed assignee or subtenant, a reasonably
detailed statement of the proposed subtenant/assignee's business, reasonably
detailed financial references, and all the terms, covenants, and conditions of
the proposed sublease or assignment.
(C) Tenant may, without the consent of Landlord, assign this lease
to an affiliated (i.e., a corporation 20% or more of whose capital stock is
owned by the same stockholders owning 20% or more of Tenant's capital stock),
parent or subsidiary corporation of Tenant or to a corporation to which it sells
or assigns all or substantially all of its assets or with which it may be
consolidated or merged, provided such purchasing, consolidated, merged,
affiliated or subsidiary corporation shall, in writing, assume and agree to
perform all of the obligations of Tenant under this lease and shall deliver such
assumption with a copy of such assignment to Landlord within ten (10) days
thereafter, and provided further that Tenant shall not be released or discharged
from any liability under this lease by reason of such assignment.
(D) For purposes of this Article 20, (i) the transfer of a majority
of the issued and outstanding capital stock of any corporate tenant, or of a
corporate subtenant, or the transfer of a majority of the total interest in any
partnership tenant or subtenant, however accomplished, whether in a single
transaction or in a series of related or unrelated transactions, shall be deemed
an assignment of this lease, or of such sublease, as the case may be; (ii) any
person or legal representative of Tenant, to whom Tenant's interest under this
lease passes by operation of law or otherwise, shall be bound by the provisions
of this Article 20; and (iii) a modification or amendment of a sublease shall
be deemed a sublease.
(E) Whenever Tenant shall claim under this Article or any other part
of this lease that Landlord has unreasonably withheld or delayed its consent to
some request of Tenant, Tenant shall have no claim for damages by reason of such
alleged withholding or delay, and Tenant's sole remedy thereof shall be a right
to obtain specific performance or injunction but in no event with recovery of
damages.
(F) Landlord agrees that it shall not unreasonably withhold its
consent to a subletting or assignment in accordance with the terms of this
Article 20. In determining reasonableness, there shall be taken into account the
character and reputation of the proposed subtenant or assignee, the specific
nature of the proposed subtenant's or assignee's business and whether same is in
keeping with other tenancies in the building; the financial standing of the
proposed subtenant or assignee; and the impact of all of the foregoing upon the
Building and the other tenants of
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Landlord therein. Landlord shall not be deemed to have unreasonably withheld its
consent if it refuses to consent to a subletting or assignment to an existing
tenant in the Building and vacant space is available in the Building, or if at
the time of Tenant's request, Tenant is in default, of any of the terms,
covenants and conditions of this lease to be performed by Tenant. At least five
5) business days prior to any proposed subletting or assignment, Tenant shall
submit to Landlord a written notice of the proposed subletting or assignment,
which notice shall contain or be accompanied by the following information:
(i) the name and address of the proposed subtenant or assignee;
(ii) the nature and character of the business of the proposed
subtenant or assignee and its proposed use of the premises to be demised;
(iii) if available, the most recent three (3) years of balance
sheets and profit and loss statements of the proposed subtenant or assignee, or
other financial information satisfactory to Landlord; and
(iv) such shall be accompanied by a copy of the proposed sublease or
assignment of lease.
Notwithstanding the foregoing, Tenant agrees that it and anyone holding through
Tenant shall not sublet or assign all or any portion of the Demised Premises to
any subtenant or assignee who will use the Demised Premises or a portion thereof
for any of the following designated uses nor for any other use which is
substantially similar to any one of the following designated uses:
(i) federal, state or local governmental division, department or
agency which generates heavy public traffic, including, without limitation,
court, social security offices, labor department office, drug enforcement
agency, motor vehicle agency, postal service, military recruitment office;
(ii) union or labor organization;
(iii) office for the practice of medicine, dentistry or the
rendering of other health related services;
(iv) chemical or pharmaceutical company provided; however, that the
subletting or assignment to such a company which will use the premises only for
executive, general and sales offices and waive the right to conduct any research
and development shall not be prohibited;
(v) unemployment insurance claims office, worker's compensation
insurance claims office, or securities brokerage
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company, excluding those companies listed in Exhibit "4" attached hereto and
made a part hereof.
LANDLORD'S ACCESS TO PREMISES
21. (A) Landlord or Landlord's agents shall have the right to enter and/or
pass through the Demised Premises at all reasonable times on reasonable notice,
except in an emergency, to examine the same, and to show them to ground lessors,
prospective purchasers or lessees or mortgagees of the Building, and to make
such repairs, improvements or additions as Landlord may deem necessary or
desirable, and Landlord shall be allowed to take all material into and upon
and/or through said Demised Premises that may be required therefor. During the
nine (9) months prior to the expiration of the Term of this lease, or any
renewal term, Landlord may exhibit the Demised Premises to prospective tenants
or purchasers at all reasonable hours on reasonable notice and without
unreasonably interfering with Tenant's business. If Tenant shall not be
personally present to open and permit an entry into said premises at any time,
when for any reason an entry therein shall be necessary or permissible, Landlord
or Landlord's agents may enter the same by a master key, without rendering
Landlord or such agent liable therefor (if during such entry Landlord or
Landlord's agents shall accord reasonable care to Tenant's property).
(B) Landlord shall also have the right, at any time, to change the
arrangement and/or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets, or other public parts of the Building,
provided, however, that Landlord shall make no change in the arrangement and/or
location of entrances or passageways or other public parts of the Building which
will adversely affect in any material manner Tenant's use and enjoyment of the
Demised Premises. Landlord shall also have the right, at any time, to name the
Building, including, but not limited to, the use of appropriate signs and/or
lettering on any or all entrances to the Building, and to change the name,
number or designation by which the Building is commonly known.
(C) Neither this lease nor any use by Tenant shall give Tenant any
right or easement to the use of any door or passage or concourse connecting with
any other building or to any public conveniences, and the use of such doors and
passages and concourse and of such conveniences may be regulated and/or
discontinued at any time and from time to time by Landlord without notice to
Tenant.
(D) The exercise by Landlord or its agents of any right reserved to
Landlord in this Article shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to
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any abatement or diminution of rent, or relieve Tenant from any of its
obligations under this lease, or impose any liability upon Landlord, or its
agents, or upon any lessor under any ground or underlying lease, by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
SUBORDINATION
22. (A) This lease and all rights of Tenant hereunder are, and shall be,
subject and subordinate in all respects to all ground leases and/or underlying
leases and to all first mortgages and building loan agreements which may now or
hereafter be placed on or affect such leases and/or the Real Property of which
the Demised Premises form a part, or any part or parts of such Real Property,
and/or Landlord's interest or estate therein, and to each advance made and/or
hereafter to be made under any such mortgages, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitutions therefor. This Section A shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall execute and deliver promptly any certificate that
Landlord and/or any mortgagee and/or the lessor under any ground or underlying
lease and/or their respective successors in interest may request. Landlord shall
obtain a subordination, nondisturbance and attornment agreement from any current
lender on such lender's standard form and shall use reasonable efforts to obtain
such an agreement from any future lender on such lender's standard form.
(B) Without limitation of any of the provisions of this lease, in
the event that any mortgagee or it assigns shall succeed to the interest of
Landlord or of any successor-Landlord and/or shall have become lessee under a
new ground or underlying lease, then, at the option of such mortgagee, this
lease shall nevertheless continue in full force and effect and Tenant shall and
does hereby agree to attorn to such mortgagee or its assigns and to recognize
such mortgagee or its respective assigns as its Landlord.
(C) Tenant shall, at any time and from time to time, upon not less
than ten (10) days prior notice by Landlord, execute, acknowledge and deliver to
Landlord a statement in writing certifying that this lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modification) and the dates to
which the Rent, additional rent and other charges have been paid in advance, if
any, and stating whether or not to the best knowledge of the signer of such
certificate Landlord is in default in performance of any covenant, agreement,
term, provision or condition contained in this lease, and if so, specifying each
such default of which the signer may have knowledge, it being intended that any
such statement delivered pursuant hereto may be
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relied upon by any prospective purchaser or lessee of said real property or any
interest or estate therein, any mortgagee or prospective mortgagee thereof, or
any prospective assignee of any mortgage thereof. If, in connection with
obtaining financing for the Building and the land allocated to it, a banking,
insurance or other recognized institutional lender shall request reasonable
modifications in this lease as a condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereof, provided that such
modifications do not increase the obligations of Tenant hereunder or materially
adversely affect the leasehold interest hereby created. If, in connection with
such financing, such institutional lender shall require financial audited
information on the Tenant, Tenant shall promptly comply with such request.
(D) The Tenant covenants and agrees that if by reason of a default under
any underlying lease (including an underlying lease through which the Landlord
derives its leasehold estate in the premises), such underlying lease and the
leasehold estate of the Landlord in the premises demised hereby is terminated,
providing notice has been given to the Tenant and leasehold mortgagee, the
Tenant will attorn to the then holder of the reversionary interest in the
premises demised by this lease or to anyone who shall succeed to the interest of
the Landlord or to the lessee of a new underlying lease entered into pursuant to
the provisions of such underlying lease, and will recognize such holder and/or
such lessee as the Tenant's landlord of this lease. The Tenant agrees to execute
and deliver, at any time and from time to time, upon the request of the Landlord
or of the lessor under any such underlying lease, any instrument which may be
necessary or appropriate to evidence such attornment. The Tenant further waives
the provision of any statute or rule of law now or hereafter in effect which may
give or purport to give the Tenant any right of election to terminate this lease
or to surrender possession of the premises hereby in the event any proceeding is
brought by the lessor under any underlying lease to terminate the same, and
agrees that unless and until any such lessor, in connection with any such
proceeding, shall elect to terminate this lease and the rights of the Tenant
hereunder, this lease shall not be affected in any way whatsoever by any such
proceeding.
PROPERTY LOSS, DAMAGE REIMBURSEMENT
23. (A) Landlord or its agents shall not be liable for any damages to
property of Tenant or of others entrusted to employees of the Building, nor for
the loss of or damage to any property of Tenant by theft or otherwise. Landlord
or its agents shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain or snow or leaks from any part
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of the Building or from the pipes, appliances or plumbing works or from the
roof, street or subsurface or from any other place or by dampness or by any
other cause of whatsoever nature, unless caused by or due to the negligence of
Landlord, its agents, servants or employees; nor shall Landlord or its agents be
liable for any such damage caused by other tenants or persons in the Building or
caused by operations in construction of any private, public or quasi-public
work. If at any time any windows of the Demised Premises are temporarily closed
or darkened incident to or for the purpose of repairs, replacements, maintenance
and/or cleaning in, on, to or about the Building or any part or parts thereof,
Landlord shall not be liable, for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor nor abatement of rent
nor shall the same release Tenant from its obligations hereunder nor constitute
an eviction. Tenant shall reimburse and compensate Landlord as additional rent
for all expenditures (including, without limitation, reasonable attorneys' fees)
made by, or damages or fines sustained or incurred by, Landlord due to
non-performance or non-compliance with or breach or failure to observe any term,
covenants or condition of this lease upon Tenant's part to be kept, observed,
performed or complied with. Tenant shall give immediate notice to Landlord in
case of fire or accidents in the Demised Premises or in the Building or of
defects therein or in any fixtures or equipment.
TENANT'S INDEMNITY
(E) Tenant shall indemnify and save harmless Landlord against and
from any and all claims by or on behalf of any person or persons, firm or
firms, corporation or corporations arising from the conduct or management of or
from any work or other thing whatsoever done (other than by Landlord or its
contractors or the agents or employees of either) in and on the Demised Premises
during the Term of this lease and during any other period of occupancy by Tenant
including the period of time, if any, prior to the specified commencement date
that Tenant may have been given access to the Demised Premises for the purpose
of making installations, and will further indemnify and save harmless Landlord
against and from any and all claims arising from any condition of the Demised
Premises or Tenant's occupancy thereof due to or arising from any act or
omissions or negligence of Tenant or any of its agents, contractors, servants,
employees, licensees or invitees and against and from all costs, expenses, and
liabilities incurred in connection with any such claim or claims or action or
proceeding brought thereon; and in case any action or proceeding be brought
against Landlord by reason of any such claim, Tenant, upon notice from Landlord,
agrees that Tenant, at Tenant's expense, will resist or defend such action or
proceeding and will employ counsel therefor reasonably satisfactory to Landlord.
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DESTRUCTION - FIRE OR OTHER CASUALTY
24. (A) If the Premises or any part thereof shall be damaged by fire or
other casualty and Tenant gives prompt notice thereof to Landlord, Landlord
shall proceed with reasonable diligence to repair or cause to be repaired such
damage. The Rent shall be abated to the extent that the Premises shall have been
rendered untenantable, such abatement to be from the date of such damage or
destruction to the date the Premises shall be substantially repaired or rebuilt,
in proportion which the area of the part of the Premises so rendered
untenantable bears to the total area of the Premises.
(B) If the Premises shall be totally damaged or rendered wholly
untenantable by fire or other casualty, and Landlord has not terminated this
lease pursuant to Subsection (C) and Landlord has not completed the making of
the required repairs and restored and rebuilt the Premises and/or access thereto
within nine (9) months from the date of such damage or destruction, and such
additional time after such date (but in no event to exceed three (3) months) as
shall equal the aggregate period Landlord may have been delayed in doing so by
unavoidable delays or adjustment of insurance, Tenant may serve notice on
Landlord of its intention to terminate this lease, and, if within thirty (30)
days thereafter Landlord shall not have completed the making of the required
repairs and restored and rebuilt the Premises, this lease shall terminate on the
expiration of such thirty (30) day period as if such termination date were the
Expiration Date, and the Rent and additional rent shall be apportioned as of
such date and any prepaid portion of Rent and additional rent for any period
after such date shall be refunded by Landlord to Tenant.
(C) If the Premises shall be totally damaged or rendered wholly
untenantable by fire or other casualty or if the Building shall be so damaged by
fire or other casualty that substantial alteration or reconstruction of the
Building shall, in Landlord's opinion, be required (whether or not the Premises
shall have been damaged by such fire or other casualty), then in any of such
events Landlord may, at its option, terminate this lease and the Term and estate
hereby granted, by giving Tenant thirty (30) days notice of such termination
within sixty (60) days after the date of such damage. In the event that such
notice of termination shall be given, this lease and the Term and estate hereby
granted, shall terminate as of the date provided in such notice of termination
(whether or not the Term shall have commenced) with the same effect as if that
were the Expiration Date, and the Rent and additional rent shall be apportioned
as of such date or sooner termination and any prepaid portion of Rent and
additional rent for any period after such date shall be refunded by Landlord to
Tenant.
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(D) Landlord shall not be liable for any inconvenience or annoyance
to Tenant or injury to the business of Tenant resulting in any way from such
damage by fire or other casualty or the repair thereof. Landlord will not carry
insurance of any kind on Tenant's property, and Landlord shall not be obligated
to repair any damage thereto or replace the same.
(E) This lease shall be considered an express agreement governing
any case of damage to or destruction of the Building or any part thereof by fire
or other casualty, and Section 227 of the Real Property Law of the State of New
York providing for such a contingency in the absence of such express agreement,
and any other law of like import now or hereafter enacted, shall have no
application in such case.
INSURANCE
25. (A) Tenant shall not do anything, or suffer or permit anything to be
done, in or about the Premises which shall (i) invalidate or be in conflict with
the provisions of any fire or other insurance policies covering the Building or
any property located therein, or (ii) result in a refusal by fire insurance
companies of good standing to insure the Building or any such property in
amounts reasonably satisfactory to Landlord, or (iii) subject Landlord to any
liability or responsibility for injury to any person or property by reason of
any activity being conducted in the Premises or (iv) cause any increase in the
fire insurance rates applicable to the Building or equipment or other property
located therein at the beginning of the Term or at any time thereafter. Tenant,
at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the New York Board of Fire Underwriters and the New York Fire
Insurance Rating Organization or any similar body.
(B) If, by reason of any act or omission on the part of Tenant, the
rate of fire insurance with extended coverage on the Building or equipment or
other property of Landlord or any other tenant or occupant of the Building shall
be higher than it otherwise would be, Tenant shall reimburse Landlord and all
such other tenants or occupants, on demand, for the part of the premiums for
fire insurance and extended coverage paid by Landlord and such other tenants or
occupants because of such act or omission on the part of Tenant.
(C) In the event that any dispute should arise between Landlord and
Tenant concerning insurance rates, a schedule or make up of insurance rates for
the Building or the Premises, as the case may be, issued by the New York Fire
Insurance Rating Organization or other similar body making rates for fire
insurance and extended
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coverage for the Premises concerned, shall be conclusive evidence of the facts
therein stated and of the several items and charges in the fire insurance rates
with extended coverage then applicable to such Premises.
(D) Tenant shall obtain and keep in full force and effect during the
Term, at its own cost and expense, (a) Public Liability Insurance, such
insurance to afford protection in an amount of not less than Three Million
($3,000,000) Dollars for injury or death arising out of any one occurrence, and
Five Hundred Thousand ($500,000) Dollars for damage to property, protecting
Landlord and Tenant as insureds against any and all claims for personal injury,
death or property damage and (b) Fire and Extended Coverage Insurance on
Tenant's property, insuring against damage by fire, and such other risks and
hazards as are insurable under present and future standard forms of fire and
extended coverage insurance policies, to Tenant's property for the full
insurable value thereof, protecting Landlord and Tenant as insureds.
(E) Said insurance is to be written in form and substance
satisfactory to Landlord by a good and solvent insurance company of recognized
standing, admitted to do business in the State of New York, which shall be
reasonably satisfactory to Landlord. Tenant shall procure, maintain and place
such insurance and pay all premiums and charges therefor and upon failure to do
so Landlord may, but shall not be obligated to, procure, maintain and place such
insurance or make such payments, and in such event the Tenant agrees to pay the
amount thereof, plus interest at a rate of interest equal to the prime rate
published in the Wall Street Journal plus three (3%) percent to Landlord on
demand and said sum shall be in each instance collectible as additional rent on
the first day of the month following the date of payment by Landlord. Tenant
shall cause to be included in all such insurance policies a provision to the
effect that the same will be non-cancellable except upon twenty (20) days
written notice to Landlord. On the Commencement Date the original insurance
policies or appropriate certificates shall be deposited with Landlord. Any
renewals, replacements or endorsements thereto shall also be deposited with
Landlord to the end that said insurance shall be in full force and effect during
the Term.
(F) Each party agrees to use its best efforts to include in each of
its insurance policies (insuring the Building and Landlord's property therein,
in the case of Landlord, and insuring Tenant's property, in the case of Tenant,
against loss, damage or destruction by fire or other casualty) a waiver of the
insurer's right of subrogation against the other party, or if such waiver should
be unobtainable or unenforceable (a) an express agreement that such policy shall
not be invalidated if the insured waives or has waived before the casualty, the
right of recovery against any party responsible for a casualty covered by the
policy, or (b) any other form of permission for the release of the other party,
or (c)
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the inclusion of the other party as an additional insured, but not a party to
whom any loss shall be payable. If such waiver, agreement or permission shall
not be, or shall cease to be, obtainable without additional charge or at all,
the insured party shall so notify the other party promptly after learning
thereof. In such case, if the other party shall agree in writing to pay the
insurer's additional charge therefor, such waiver, agreement or permission shall
be included in the policy, or the other party shall be named as an additional
insured in the policy, but not a party to whom any loss shall be payable. Each
such policy which shall so name a party hereto as an additional insured shall
contain, if obtainable, agreements by the insurer that the policy will not be
cancelled without at least twenty (20) days prior notice to both insureds and
that the act or omission of one insured will not invalidate the policy as to the
other insured.
(G) As long as Landlord's fire insurance policies then in force include
the waiver of subrogation or agreement or permission to release liability
referred to in Subsection (F) or name the Tenant as an additional insured,
Landlord hereby waives (a) any obligation on the part of Tenant to make repairs
to the Premises necessitated or occasioned by fire or other casualty that is an
insured risk under such policies, and (b) any right of recovery against Tenant,
any other permitted occupant of the Premises, and any of their servants,
employees, agents or contractors, for any loss occasioned by fire or other
casualty that is an insured risk under such policies. In the event that at any
time Landlord's fire insurance carriers shall not include such or similar
provisions in Landlord's fire insurance policies, the waivers set forth in the
foregoing sentence shall be deemed of no further force or effect.
(H) As long as Tenant's fire insurance policies then in force include the
waiver of subrogation or agreement or permission to release liability referred
to in Subsection (F), or name the Landlord as an additional insured, Tenant
hereby waives (and agrees to cause any other permitted occupants of the Premises
to execute and deliver to Landlord written instruments waiving) any right of
recovery against Landlord, any other tenants or occupants of the Building, and
any servants, employees, agents or contractors of Landlord or of any such other
tenants or occupants, for any loss occasioned by fire or other casualty which is
an insured risk under such policies. In the event that at any time Tenant's fire
insurance carriers shall not include such or similar provisions in Tenant's fire
insurance policies, the waiver set forth in the foregoing sentence shall, upon
notice given by Tenant to Landlord, be deemed of no further force or effect with
respect to any insured risks under such policy from and after the giving of such
notice. During any period while the foregoing waiver of right of recovery is in
effect, Tenant, or any other permitted occupant of the Premises, as the case may
be, shall look solely to the proceeds of such policies to compensate Tenant or
such other permitted occupant
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for any loss occasioned by fire or other casualty which is an insured risk under
such policies.
EMINENT DOMAIN
26. (A) In the event that the whole of the Demised Premises shall be
lawfully condemned or taken in any manner for any public or quasi-public use,
this lease and the Term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title. In the event that only a part of
the Demised Premises shall be so condemned or taken, then effective as of the
date of vesting of title, the Rent hereunder shall be abated in an amount
thereof apportioned according to the area of the Demised Premises so condemned
or taken. In the event that only a part of the Building shall be so condemned or
taken, then (a) Landlord (whether or not the Demised Premises be affected) may,
at its option, terminate this lease and the Term and estate hereby granted as of
the date of such vesting of title by notifying Tenant in writing of such
termination within sixty (60) days following the date on which Landlord shall
have received notice of vesting of title, and (b) if such condemnation or taking
shall be of a substantial part of the Demised Premises or a substantial part of
the means of access thereof, Tenant shall have the right, by delivery of notice
in writing to Landlord within sixty (60) days following the date on which Tenant
shall have received notice of vesting of title, to terminate this lease and the
Term and estate hereby granted as of the date of vesting of title, or (c) if
neither Landlord nor Tenant elects to terminate this lease, as aforesaid, this
lease shall be and remain unaffected by such condemnation or taking, except that
the Rent shall be abated to the extent, if any, hereinabove provided in this
Article 26. In the event that only a part of the Demised Premises shall be so
condemned or taken and this lease and the Term and estate hereby granted are not
terminated as hereinbefore provided, Landlord will, at its expense, restore the
remaining portion of the Demised Premises as nearly as practicable to the same
condition as it was in prior to such condemnation or taking.
(B) In the event of a termination in any of the cases hereinabove
provided, this lease and the Term and estate granted shall expire as of the date
of such termination with the same effect as if that were the date hereinbefore
set for the expiration of the Term of this lease, and the Rent hereunder shall
be apportioned as of such date.
(C) In the event of any condemnation or taking hereinabove mentioned
of all or part of the Building, Landlord shall be entitled to receive the
entire award in the condemnation proceeding, including any award made for the
value of the estate vested by this lease in Tenant, and Tenant hereby expressly
assigns
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to Landlord any and all right, title and interest of Tenant now or hereafter
arising in or to any such award or any part thereof, and Tenant shall be
entitled to receive no part of such award, except that the Tenant may file a
claim for any taking of nonmovable fixtures owned by Tenant and for moving
expenses incurred by Tenant. It is expressly understood and agreed that the
provisions of this Article 26 shall not be applicable to any condemnation or
taking for governmental occupancy for a limited period.
NONLIABILITY OF LANDLORD
27. (A) If Landlord or a successor in interest is an individual (which
term as used herein includes aggregates of individuals, such as joint ventures,
general or limited partnerships or associations), such individual shall be under
no personal liability with respect to any of the provisions of this lease, and
if such individual hereto is in breach or default with respect to its
obligations under this lease, Tenant shall look solely to the equity of such
individual in the land and Building of which the Demised Premises form a part
for the satisfaction of Tenant's remedies and in no event shall Tenant attempt
to secure any personal judgment against any such individual or any partner,
employee or agent of Landlord by reason of such default by Landlord.
(B) The word "Landlord" as used herein means only the owner of the
landlord's interest for the time being in the land and Building (or the owners
of a lease of the Building or of the land and Building) of which the Premises
form a part, and in the event of any sale of the Building and land of which the
Demised Premises form a part, Landlord shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder and, it shall be
deemed and construed without further agreement between the parties or between
the parties and the purchaser of the Premises, that such purchaser has assumed
and agreed to carry out any and all covenants and obligations of Landlord
hereunder.
DEFAULT
28. (A) Upon the occurrence, at any time prior to or during the Demised
Term, of any one or more of the following events (referred to as "Events of
Default"):
(i) If Tenant shall default in the payment when due of any
installment of Rent or in the payment when due of any additional rent, and such
default shall continue for a period of ten (10) days after notice by Landlord to
Tenant of such default; or
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(ii) If Tenant shall default in the observance or performance of any
term, covenant or condition of this lease on Tenant's part to be observed or
performed (other than the covenants for the payment of Rent and additional rent)
and Tenant shall fail to remedy such default within twenty (20) days after
notice by Landlord to Tenant of such default, or if such default is of such a
nature that it cannot be completely remedied within said period of twenty (20)
days and Tenant shall not commence within said period of twenty (20) days, or
shall not thereafter diligently prosecute to completion, all steps necessary to
remedy such default; or
(iv) If Tenant's interest in this lease shall devolve upon or pass
to any person, whether by operation of law or otherwise, except as expressly
permitted under Article 20; or
then, upon the occurrence, at anytime prior to or during the
Demised Term, of any one or more of such Events of Default, Landlord, at any
time thereafter, at Landlord's option, may give to Tenant a ten (10) days'
notice of termination of this lease and, in the event such notice is given, this
lease and the Term shall come to an end and expire (whether or not said term
shall have commenced) upon the expiration of said ten (10) days with the same
effect as if the date of expiration of said ten (10) days were the Expiration
Date, but Tenant shall remain liable for damages as provided in Article 30.
(B) If, at any time (i) Tenant shall be comprised of two (2) or more
persons, or (ii) Tenant's obligations under this lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
lease shall have been assigned, the word "Tenant", as used in subsection (iii)
and (iv) of Section 28(A), shall be deemed to mean any one or more of the
persons primarily or secondarily liable for Tenant's obligations under this
lease. Any monies received by Landlord from or on behalf of Tenant during the
pendency of any proceeding of the types referred to in said subsections (iii)
and (iv) shall be deemed paid as compensation for the use and occupation of the
Demised Premises and the acceptance of such compensation by Landlord shall not
be deemed an acceptance of Rent or a waiver on the part of Landlord of any
rights under Section 28(A).
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TERMINATION ON DEFAULT
29. (A) If Tenant shall default in the payment when due of any installment
of rent or in the payment when due of any additional rent and such default
shall continue for a period of ten(10) days after notice by Landlord to Tenant
of such default, or if this lease and the Demised Term shall expire and come to
an end as provided in Article 28:
(i) Landlord and its agents and servants may immediately, or at any
time after such default or after the date upon which this lease and the Demised
Term shall expire and come to an end, re-enter the Demised Premises or any part
thereof, without notice, either by summary proceedings or by any other
applicable action or proceeding, or by force or other means provided such force
or other means are lawful (without being liable to indictment, prosecution or
damages therefor), and may repossess the Demised Premises and dispossess Tenant
and any other persons from the Demised Premises and remove any and all of their
property and effects from the Demised Premises; and
(ii) Landlord, at Landlord's option, may relet the whole or any part
or parts of the Demised Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine. Landlord shall have no
obligation to relet the Demised Premises or any part thereof and shall in no
event be liable for refusal or failure to relet the Demised Premises or any part
thereof, or, in the event of any such reletting, for refusal or failure to
collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this lease or otherwise
to affect any such liability; Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Demised Premises as Landlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Tenant of any liability under
this lease or otherwise affecting any such liability.
(B) Tenant, on its own behalf and on behalf of all persons claiming
through or under Tenant, including all creditors, does hereby waive any and all
rights which Tenant and all such persons might otherwise have under any present
or future law to redeem the Demised Premises, or to re-enter or repossess the
Demised Premises, or to restore the operation of this lease, after (i) Tenant
shall have been dispossessed by a judgment or by warrant of any court or judge,
or (ii) any re-entry by Landlord, or (iii)
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any expiration or termination of this lease and the Demised Term, whether such
dispossess, re-entry, expiration or termination shall be by operation of law or
pursuant to the provisions of this lease. In the event of a breach or threatened
breach by Tenant or any persons claiming through or under Tenant, of any term,
covenant or condition of this lease on Tenant's part to be observed or
performed, Landlord shall have the right to enjoin such breach and the right to
invoke any other remedy allowed by law or in equity as if re-entry, summary
proceeding and other special remedies were not provided in this lease for such
breach. The rights to invoke the remedies hereinbefore set forth are cumulative
and shall not preclude Landlord from invoking any other remedy allowed at law or
in equity.
DAMAGES
30. (A) If this lease and the Demised Term shall expire and come to an end
as provided in Article 28 or by or under any summary proceeding or any other
action or proceeding, or if Landlord shall re-enter the Demised Premises as
provided in Article 29 or by or under any summary proceedings or any other
action or proceeding, then, in any of said events:
(i) Tenant shall pay to Landlord all Rent, additional rent and other
charges payable under this lease by Tenant to Landlord to the date upon which
this lease and the Demised Term shall have expired and come to an end or to the
date of re-entry upon the Demised Premises by Landlord, as the case may be; and
(ii) Tenant shall also be liable for and shall pay to Landlord, as
damages, any deficiency (referred to as "Deficiency") between the Rent and
additional rent reserved in this lease for the period which otherwise would have
constituted the unexpired portion of the Demised Term and the net amount, if
any, of rents collected under any reletting effected pursuant to the provisions
of Section 29(A) for any part of such period (first deducting from the rents
collected under any such reletting all of Landlord's expenses in connection with
the termination of this lease or Landlord's reentry upon the Demised Premises
and with such reletting including, but not limited to, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, alteration costs and
other expenses of preparing the Demised Premises for such reletting). Any such
Deficiency shall be paid in monthly installments by Tenant on the days specified
in this lease for payment of installments of Rent. Landlord shall be entitled to
recover from Tenant each monthly Deficiency as the same shall arise, and no suit
to collect the amount of the Deficiency for any month shall prejudice Landlord's
rights to collect the Deficiency for any subsequent month by a similar
proceeding; and
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(iii) At any time after the Demised Term shall have expired and come
to an end or Landlord shall have re-entered upon the Demised Premises, as the
case may be, whether or not Landlord shall have collected any monthly
Deficiencies as aforesaid, Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord, on demand, as and for liquidated and agreed
final damages, a sum equal to the amount by which the Rent and additional rent
reserved in this lease for the period which otherwise would have constituted the
unexpired portion of the Demised Term exceeds the then fair and reasonable
rental value of the Demised Premises for the same period, both discounted to
present worth at the rate of eight (8%) percent per annum. If, before
presentation of proof of such liquidated damages to any court, commission, or
tribunal, the Demised Premises, or any part thereof, shall have been relet by
Landlord for the period which otherwise would have constituted the unexpired
portion of the Demised Term, or any part thereof, the amount of Rent reserved
upon such reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Demised Premises so relet during
the term of the reletting.
(B) If the Demised Premises, or any part thereof, shall be relet
together with other space in the Building, the rents collected or reserved under
any such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this Article 30. Tenant shall in no event be
entitled to any rents collected or payable under any reletting, whether or not
such rents shall exceed the rent reserved in this lease. Solely for the purposes
of this Article, the term "Rent" as used in Section 30(A) shall mean the rent in
effect immediately prior to the date upon which this lease and the Demised Term
shall have expired and come to an end, or the date of re-entry upon the Demised
Premises by Landlord, as the case may be, plus any additional rent payable
pursuant to the provisions of Article 11 for the Escalation Year (as defined in
Article 11) immediately preceding such event. Nothing contained in Articles 28
and 29 of this lease shall be deemed to limit or preclude the recovery by
Landlord from Tenant of the maximum amount allowed to be obtained as damages by
any statute or rule of law, or of any sums or damages to which Landlord may be
entitled in addition to the damages set forth in Section 30(A).
SUMS DUE LANDLORD
31. If Tenant shall default in the performance of any covenants on
Tenant's part to be performed under this lease, Landlord may, on five (5) days'
notice to Tenant (except in case of emergency, in which event no notice shall be
required), without thereby waiving such default, perform the same for the
account of Tenant and at the expense of Tenant. If Landlord at any time is
compelled to pay or elects to pay any sum of money, or do any act
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which will require the payment of any sum of money by reason of the failure of
Tenant to comply with any provision hereof, or, if Landlord is compelled to or
elects to incur any expense, including reasonable attorneys' fees, instituting,
prosecuting and/or defending any action or proceeding instituted by reason of
any default of Tenant hereunder, the sum or sums so paid by Landlord, with all
interest, costs and damages, shall be deemed to be additional rent hereunder and
shall be due from Tenant to Landlord on the first day of the month following the
incurring of such respective expenses or, at Landlord's option, on the first day
of any subsequent month. Any sum of money (other than rent) accruing from Tenant
to Landlord pursuant to any provisions of this lease, whether prior to or after
the Commencement Date, may, at Landlord's option, be deemed additional rent, and
Landlord shall have the same remedies for Tenant's failure to pay any item of
additional rent when due as for Tenant's failure to pay any installment of Rent
when due. Tenant's obligations under this Article shall survive the expiration
or sooner termination of the Demised Term. In any case in which the Rent or
additional rent is not paid within ten (10) days of the day when same is due,
Tenant shall pay a late charge equal to 4 cents for each dollar so due, and in
addition thereto, the sum of $100.00 for the purpose of defraying expenses
incident to the handling of such delinquent account. Notwithstanding the
foregoing, Tenant shall only be obligated to pay the foregoing late charge
commencing with the second late payment in any twelve (12) month consecutive
period. This late payment charge is intended to compensate Landlord for its
additional administrative costs resulting from Tenant's failure to pay in a
timely manner and has been agreed upon by Landlord and Tenant as a reasonable
estimate of the additional administrative costs that will be incurred by
Landlord as a result of Tenant's failure as the actual cost in each instance is
extremely difficult, if not impossible, to determine. This late payment charge
will constitute liquidated damages and will be paid to Landlord together with
such unpaid amounts. The payment of this late payment charge will not constitute
a waiver by Landlord of any default by Tenant under this lease. In addition,
interest shall accrue from the first day following the expiration of the ten
(10) day notice and cure period pursuant to Article 28(A)(i) herein until
payment is received by Landlord at a rate of interest equal to the prime rate
published in the Wall Street Journal plus three (3%) percent.
NO WAIVER
32. No act or thing done by Landlord or Landlord's agents during the term
hereby demised shall be deemed an acceptance of a surrender of said Demised
Premises, and no agreement to accept such surrender shall be valid unless in
writing signed by Landlord. No employee of Landlord or of Landlord's agents
shall have any power to accept the keys of the Demised Premises prior to the
termination
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of this lease. The delivery of keys to any employee of Landlord or of Landlord's
agents shall not operate as a termination of this lease or a surrender of the
Demised Premises. In the event Tenant shall at any time desire to have Landlord
underlet the Demised Premises for Tenant's account, Landlord or Landlord's
agents are authorized to receive said keys for such purposes without releasing
Tenant from any of the obligations under this lease, and Tenant hereby relieves
Landlord of any liability for loss of or damage to any of Tenant's effects in
connection with such underletting. The failure of Landlord to seek redress for
violation of, or to insist upon the strict performance of, any covenants or
conditions of this lease, or any of the Rules and Regulations annexed hereto and
made a part hereof or hereafter adopted by Landlord, shall not prevent a
subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation. The receipt by Landlord of
rent with knowledge of the breach of any covenant of this lease shall not be
deemed a wavier of such breach. The failure of Landlord to enforce any of the
Rules and Regulations annexed hereto and made a part hereof, or hereafter
adopted, against Tenant and/or any other tenant in the Building shall not be
deemed a waiver, of any such Rules and Regulations. No provision of this lease
shall be deemed to have been waived by Landlord, unless such waiver be in
writing signed by Landlord. No payment by Tenant or receipt by Landlord of a
lesser amount then the monthly Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated Rent nor shall any endorsement
or statement on any check or any letter accompanying any check or payment of
Rent be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
Rent or pursue any other remedy in this lease provided.
WAIVER OF TRIAL BY JURY
33. To the extent such waiver is permitted by law, Landlord and Tenant
hereby waive trial by jury in any action, proceeding or counterclaim brought by
Landlord or Tenant against the other on any matter whatsoever arising out of or
in any way connected with this lease, the relationship of landlord and tenant,
the use or occupancy of the Demised Premises by Tenant or any person claiming
through or under Tenant, any claim of injury or damage, and any emergency or
other statutory remedy. The provisions of the foregoing sentence shall survive
the expiration or any sooner termination of the Demised Term. If Landlord
commences any summary proceeding for nonpayment, Tenant agrees not to interpose
any counterclaim of whatever nature or description in any such proceeding or to
consolidate such proceeding with any other proceeding.
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Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed for any cause, or in the event of Landlord's obtaining
possession of the Demised Premises, by reason of the violation by Tenant of any
of the covenants and conditions of this lease or otherwise.
NOTICES
34. Except as otherwise expressly provided in this lease, any bills,
statements, notices, demands, requests or other communications (other than
bills, statements or notices given in the regular course of business) given or
required to be given under this lease shall be effective only if rendered or
given in writing, sent by regular, registered or certified mail (return receipt
requested), addressed (A) to Tenant (i) at Tenant's address set forth in this
lease if mailed prior to Tenant's taking possession of the Demised Premises, or
(ii) at the Building if mailed subsequent to Tenant's taking possession of the
Demised Premises, or (iii) at any place where Tenant or any agent or employee of
Tenant may be found if mailed subsequent to Tenant's vacating, deserting,
abandoning or surrendering the Demised Premises, or (B) to Landlord at
Landlord's address set forth in this lease, or (C) addressed to such other
address as either Landlord or Tenant may designate as its new address for such
purpose by notice given to the other in accordance with the provisions of this
Article. Any such bills, statements, notices, demands, requests or other
communications shall be deemed to have been rendered or given on the date when
it shall have been mailed as provided in this Article.
INABILITY TO PERFORM
35. (A) If, by reason of strikes or other labor disputes, fire or other
casualty (or reasonable delays in adjustment of insurance), accidents, orders or
regulations of any Federal, State, County or Municipal authority, or any other
cause beyond Landlord's reasonable control, whether or not such other cause
shall be similar in nature to those hereinbefore enumerated, Landlord is unable
to furnish or is delayed in furnishing any utility or service required to be
furnished by Landlord under the provisions of this lease or any collateral
instrument or is unable to perform or make or is delayed in performing or making
any installations, decorations, repairs, alterations, additions or improvements,
whether or not required to be performed or made under this lease, or under any
collateral instrument, or is unable to fulfill or is delayed in fulfilling any
of Landlord's other obligations under this lease, or any collateral instrument,
no such inability or
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delay shall constitute an actual or constructive eviction, in whole or in part,
or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this lease, or impose any liability upon Landlord
or its agents, by reason of inconvenience or annoyance to Tenant, or injury to
or interruption of Tenant's business, or otherwise.
INTERRUPTION OF SERVICE
(B) Landlord reserves the right to stop the services of the air
conditioning, elevator, escalator, plumbing, electrical or other mechanical
systems or facilities in the Building when necessary by reason of accident or
emergency, or for repairs, alterations or replacements, which, in the judgment
of Landlord are desirable or necessary, until such repairs, alterations or
replacements shall have been completed. The exercise of such rights by Landlord
shall not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this lease, or impose any liability upon Landlord
or its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise.
CONDITIONS OF LANDLORD'S LIABILITY
(C) (i) In addition to the requirements for constructive eviction
imposed by law, Tenant shall not be entitled to claim a constructive eviction
from the Demised Premises unless Tenant shall have first notified Landlord of
the condition or conditions giving rise thereto, and if the complaints be
justified, unless Landlord shall have failed to remedy such conditions within
ten (10) days after Landlord's receipt of such notice, or, if such remediation
cannot be completed within such ten (10) day period, if Landlord shall have
failed to commence such remediation within such ten (10) day period and
diligently continue to remedy such conditions.
(ii) If Landlord shall be unable to give possession of the
Demised Premises on any date specified for the commencement of the term by
reason of the fact that the Premises have not been sufficiently completed to
make the Premises ready for occupancy, or for any other reason, Landlord shall
not be subject to any liability for the failure to give possession on said date,
nor shall such failure in any way affect the validity of this lease or the
obligations of Tenant hereunder. Notwithstanding the foregoing, subject to
Tenant delays and Article 35(A) of this lease, in the event that Landlord has
not obtained a building permit to construct the Premises ("Building Permit")
within one
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hundred and eighty (180) days from the date of this lease, Tenant, as its sole
remedy, may provide Landlord with written notice of Tenant's intention to
terminate this lease ("Tenant's Termination Notice"). If Landlord fails to
obtain the Building Permit within thirty (30) days of Landlord's receipt of
Tenant's Termination Notice, this lease shall terminate as of such date and all
sums paid to Landlord on account herein shall be returned to Tenant and, upon
the return of such sums, the parties shall have no further liability to each
other.
Upon receipt of the Building Permit, Landlord shall deliver to Tenant an
irrevocable, unconditional, documentary letter of credit in the amount of two
hundred and fifty thousand ($250,000.00) dollars ("$250,000.00 Letter of
Credit") as security for Landlord's substantial completion of the Premises in a
timely manner. In the event that: (i) Landlord substantially completes the
Premises in a timely manner, or (ii) Tenant does not exercise its right to
terminate this lease as provided below, the security shall be returned to
Landlord.
Notwithstanding anything to the contrary contained in this Article 35(C)
(ii) and/or Article 2, subject to Tenant delays and Article 35(A) of this lease,
in the event that Landlord has not substantially completed the Premises on or
before the date that is two hundred and seventy (270) days from the date that
Landlord receives the Building Permit, Tenant may provide Landlord with Tenant's
Termination Notice. If Landlord does not substantially complete the Premises
within thirty (30) days of Landlord's receipt of Tenant's Termination Notice,
this lease shall terminate as if such date and Tenant shall be entitled to draw
on the $250,000.00 Letter of Credit. Landlord and Tenant stipulate and agree,
that, in such event, Tenant's sole remedy shall be to terminate the lease and
draw on the $250,000.00 Letter of Credit as liquidated damages for any loss,
cost and expense suffered by Tenant, which sum is a reasonable estimate of
Tenant's damages and does not constitute a penalty. In the event that Tenant
does not exercise its option to terminate this lease, subject to Tenant delays
and Article 35(A) of this lease, the Rent computed on a per diem basis shall be
abated one day for each day that the Premises are not substantially completed
beyond the date that is two hundred and seventy (270) days from the date that
Landlord receives the Building Permit.
TENANT'S TAKING POSSESSION
(D) (i) Tenant, by entering into occupancy of the Premises, shall be
conclusively deemed to have agreed that Landlord, up to the time of such
occupancy has performed all of its obligations hereunder and that the Premises
were in satisfactory condition as of the date of such occupancy, except for
punchlist items set forth in Article 5(c)(iii) herein, unless within thirty
(30) days after the such date Tenant shall have given written
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notice to Landlord specifying the respects in which the same were not in such
condition.
(ii) If Tenant shall use or occupy all or any part of the
Demised Premises for the conduct of business prior to the Commencement Date,
such use or occupancy shall be deemed to be under all of the terms, covenants
and conditions of this lease, including the covenant to pay rent for the period
from the commencement of said use or occupancy to the Commencement Date.
Notwithstanding the foregoing, subject to all of the terms, covenants and
conditions of this lease, except Tenant's obligations to pay Rent or additional
rent, Landlord shall permit Tenant to enter the Premises prior to the
Commencement Date in order for Tenant to install furniture, fixtures and/or
equipment to prepare the Premises for Tenant's occupancy. Tenant shall indemnify
and hold Landlord harmless from any claim, damage, liability or expense arising
out of the foregoing Tenant's work. The scheduling and coordination of Tenant's
entry into the Premises for the foregoing purposes will be subject to reasonable
regulation by Landlord and Landlord's contractor to avoid unreasonable
interferences with labor employed by Landlord or Landlord's contractors.
ENTIRE AGREEMENT
36. This lease (including the Schedules and Exhibits annexed hereto)
contains the entire agreement between the parties and all prior negotiations and
agreements are merged herein. Tenant hereby acknowledges that neither Landlord
nor Landlord's agent or representative has made any representations or
statements, or promises, upon which Tenant has relied, regarding any matter or
thing relating to the Building, the land allocated to it (including the parking
area) or the Demised Premises, or any other matter whatsoever, except as is
expressly set forth in this lease, including, but without limiting the
generality of the foregoing, any statement, representation or promise as to the
fitness of the Demised Premises for any particular use, the services to be
rendered to the Demised Premises, or the prospective amount of any item of
additional rent. No oral or written statement, representation or promise
whatsoever with respect to the foregoing or any other matter made by Landlord,
its agents or any broker, whether contained in an affidavit, information
circular, or otherwise, shall be binding upon the Landlord unless expressly set
forth in this lease. No rights, easements or licenses are or shall be acquired
by Tenant by implication or otherwise unless expressly set forth in this lease.
This lease may not be changed, modified or discharged, in whole or in part,
orally, and no executory agreement shall be effective to change, modify or
discharge, in
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whole or in part, this lease or any obligations under this lease, unless such
agreement is set forth in a written instrument executed by the party against
whom enforcement of the change, modification or discharge is sought. All
references in this lease to the consent or approval of Landlord shall be deemed
to mean the written consent of Landlord, or the written approval of Landlord, as
the case may be, and no consent or approval of Landlord shall be effective for
any purpose unless such consent or approval is set forth in a written instrument
executed by Landlord.
DEFINITIONS
37. The words "re-enter", "re-entry", and "re-entered" as used in this
lease are not restricted to their technical legal meanings. The term "business
days" as used in this lease shall exclude Saturdays (except such portion thereof
as is covered by specific hours in Article 6 hereof), Sundays and all days
observed by the State or Federal Government as legal holidays. The terms
"person" and "persons" as used in this lease shall be deemed to include natural
persons, firms, corporations, partnerships, associations and any other private
or public entities, whether any of the foregoing are acting on their behalf or
in a representative capacity. The various terms which are defined in other
Articles of this lease or are defined in Schedules or Exhibits annexed hereto,
shall have the meanings specified in such other Articles, Exhibits and Schedules
for all purposes of this lease and all agreements supplemental thereto, unless
the context clearly indicates the contrary.
PARTNERSHIP TENANT
38. If Tenant is a partnership (or is comprised of two (2)or more persons,
individually or as co-partners of a partnership) or if Tenant's interest in this
lease shall be assigned to a partnership (or to two (2) or more persons,
individually or as co-partners of a partnership) pursuant to Article 20 (any
such partnership and such persons are referred to in this Section as
"Partnership Tenant"), the following provisions of this Section shall apply to
such Partnership Tenant: (a) the liability of each of the parties comprising
Partnership Tenant shall be joint and several, and (b) each of the parties
comprising Partnership Tenant hereby consents in advance to, and agrees to be
bound by, any modifications of this lease which may hereafter be made, and by
any notices, demands, requests or other communications which may hereafter be
given, by Partnership Tenant or by any of the parties comprising partnership
Tenant, and (c) any bills, statements, notices, demands, requests and other
communications given or rendered to partnership Tenant or to any of the parties
comprising
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Partnership Tenant shall be deemed given or rendered to Partnership Tenant and
to all such parties and shall be binding upon Partnership Tenant and all such
parties, and (d) if Partnership Tenant shall admit new partners, all of such new
partners shall, by their admission to Partnership Tenant, be deemed to have
assumed performance of all of the terms, covenants and conditions of this lease
on Tenant's part to be observed and performed, and (e) Partnership Tenant shall
give prompt notice to Landlord of the admission of any such new partners, and
upon demand of Landlord, shall cause each such new partner to execute and
deliver to Landlord an agreement in form satisfactory to Landlord, wherein each
such new partner shall assume performance of all of the terms, covenants and
conditions of this lease on Tenant's part to be observed and performed (but
neither Landlord's failure to request any such agreement nor the failure of any
such new partner to execute or deliver any such agreement to Landlord shall
vitiate the provisions of subdivision (d) of this Section).
SUCCESSORS, ASSIGNS, ETC.
39. The terms, covenants, conditions and agreements contained in this
lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and,
except as otherwise provided in this lease, their respective assigns.
BROKER
40. Landlord and Tenant represent that this lease was brought about by CB
Commercial as broker and all negotiations with respect to this lease were
conducted exclusively with said broker. Landlord and Tenant agree that if any
claim is made for commissions by any other broker through or on account of any
acts of Landlord or Tenant, such party will hold the other party free and
harmless from any and all liabilities and expenses in connection therewith,
including such party's reasonable attorney's fees.
CAPTIONS
41. The captions in this lease are included only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this lease nor the intent of any provisions thereof.
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FINANCING OF LANDLORD'S WORK
42. In the event Landlord elects to finance with a third-party lender (the
"Lender") the work, if any, which Landlord is now or shall hereafter be required
to perform under this lease on Tenant's behalf ("Landlord's Work"), Tenant
agrees to cooperate with Landlord in the securing of such financing provided
that the payments which Tenant is required to pay under this lease are not
increased by reason of such financing. Such cooperation shall include, without
limitation, the furnishing of current financial statements of Tenant to the
lender or Landlord, the granting of permission (which shall hereby be deemed
granted) to the Lender or Landlord to perform a credit check on Tenant or its
guarantors, and the execution and delivery of supplements to such lease,
including a sale of such improvements to the Lender and the Lender's leaseback
of such improvements to Tenant. Any payments made by Tenant under such leaseback
shall be credited against the Rent payable by Tenant under this lease.
NOTICE OF ACCIDENTS
43. Tenant shall give notice to Landlord, promptly after Tenant learns
thereof, of (i) any accident in or about the Premises, (ii) all fires and other
casualties within the Premises, (iii) all damages to or defects in the Premises,
including the fixtures, equipment and appurtenances thereof for the repair of
which Landlord might be responsible, and (iv) all damage to or defects in any
parts or appurtenances of the Building's sanitary, electrical, heating,
ventilating, air-conditioning, elevator and other systems located in or passing
through the Premises or any part thereof.
TENANT'S AUTHORITY TO ENTER LEASE
44. In the event that the Tenant hereunder is a corporation, Tenant
represents that the officer or officers executing this lease have the requisite
authority to do so. Tenant agrees to give Landlord written notice of any
proposed change in the ownership of the majority of the outstanding capital
stock of Tenant or any change in the ownership of the majority of the assets of
Tenant. Failure of Tenant to give the notice provided for in the preceding
sentence shall be deemed a non-curable default by Tenant pursuant to this lease
(that is, a default which has already extended beyond the applicable grace
period, if any, following notice from
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Landlord), giving Landlord the right, at its option, to cancel and terminate
this lease or to exercise any and all other remedies available to Landlord
hereunder or as shall exist at law or in equity.
RIGHT OF FIRST REFUSAL
45. (a) Provided Tenant is not then in default under this Lease, Tenant
shall have the right ("Refusal Right") to lease any space contiguous to the
Demised Premises ("Additional Space") during the first ten (10) years of the
term of this lease in accordance with the provisions of this Article 45. In the
event that Landlord desires to lease Additional Space, Landlord shall notify
Tenant of the space to be rented, the date of anticipated delivery, the agreed
upon rental terms (the "Rental Terms") and any other relevant terms given the
nature and configuration of the space (a "Rental Notice"), and shall provide
Tenant with a copy of a letter of intent between Landlord and the proposed
tenant of the Additional Space. Within five (5) business days after receipt of
the Rental Notice by Tenant, Tenant may elect by notice to Landlord, to lease
the Additional Space to Tenant in its then "as is" condition. The Additional
Space will be added to the Premises (collectively, "Combined Premises") under
this lease on the same terms and conditions as the Premises pursuant to a lease
modification agreement, except that: (i) Tenant's "Proportionate Share" shall be
equal to a fraction, the numerator of which shall be the total number of
rentable square feet contained in the Combined Premises, as then constituted,
and the denominator of which shall be the total rentable square footage in the
Building; and (ii) based on the Rental Terms, the fixed rent and additional rent
for the Additional Space shall be added to the fixed rent and additional rent
for the Premises under this lease to account for the addition of the Additional
Space to the Premises. Should Tenant fail to exercise this right within the time
and in the manner required above, or waive such right in writing, Landlord may
lease the Additional Space to a third party on terms and conditions as set forth
in the Rental Notice.
(b) Tenant may exercise this right of first refusal in accordance
with this Article 45 each time that any space contiguous to the Demised Premises
becomes available during the first ten (10) years of the term of this lease.
(c) This Right of First Refusal is personal to Colorado Prime
Corporation and is non-transferable by operation of law or otherwise, except to
a permitted assignee pursuant to Article 20 herein.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and
sealed this lease as of the day and year first above written.
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Witness for Landlord: 500 BI-COUNTY ASSOCIATES, L.P.
By: 500 BI-COUNTY, LTD.
/s/ [Illegible] By: /s/ [Illegible]
- ---------------------------- ---------------------------
, President
Witness for Tenant: COLORADO PRIME CORPORATION
/s/ [Illegible] By: /s/ [Illegible] 8/27/97
- ---------------------------- ---------------------------
CFO
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SCHEDULE "A"
LANDLORD'S CONSTRUCTION
Landlord agrees to construct the premises and building in accordance with
Exhibits 1,2 and 3 and Article 5.
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SCHEDULE "B"
LANDLORD'S CLEANING SERVICES AND MAINTENANCE OF PREMISES
(to be performed on all business days except those which are union holidays for
the employees performing cleaning services and maintenance in the Building and
grounds or those days in which the Building is closed)
I. CLEANING SERVICES - PUBLIC SPACES:
A. Floor of entrance lobby and public corridors will be vacuumed or swept and
washed nightly and waxed as necessary.
B. Entranceway glass and metal work will be washed and rubbed down daily.
C. Wall surfaces and elevator cabs will be kept in polished condition.
D. Lighting fixtures will be cleaned and polished annually. Bulbs will be
replaced as needed.
E. Elevators and restrooms will be washed and disinfected once a day. The floors
will be mopped as many times as required. All brightwork and mirrors will be
kept in polished condition. Dispensers will be continuously checked and
receptacles continuously emptied.
F. Exterior surfaces and all windows of the building will be cleaned quarterly.
II. CLEANING SERVICES - TENANT SPACES:
A. Floors will be swept and spot cleaned nightly. Carpets will be vacuumed
nightly.
B. Office equipment, telephones, etc. will be dusted nightly.
C. Normal office waste in receptacles and ashtrays will be emptied nightly.
D. Interior surface of windows and sills will be washed and blinds dusted
quarterly.
E. There shall be regularly scheduled visits by a qualified exterminator.
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III. EXTERIOR SERVICES:
A. Parking fields will be regularly swept, cleared of snow in excess of two
inches, and generally maintained so as to be well drained, properly surfaced and
striped.
B. All landscaping, gardening, exterior lighting and irrigation systems will
have regular care and servicing.
IV. EQUIPMENT SERVICE:
A. All air-conditioning and heating equipment and elevators will be regularly
serviced and maintained.
B. Plumbing and electrical facilities, doors, hinges and locks will be repaired
as necessary.
C. All appurtenances, such as rails, stairs, etc. will be maintained in a safe
condition.
V. EXTRA CLEANING SERVICES
Tenant shall pay to Landlord, on demand, Landlord's charges for (a) cleaning
work in the Premises required because of (i) misuse or neglect on the part of
Tenant or its employees or visitors, (ii) use of portions of the Premises for
preparation, serving or consumption of food or beverages, or other special
purposes requiring greater or more difficult cleaning work than office areas;
(iii) unusual quantity of interior glass surfaces; (iv) non-building standard
materials or finishes installed by Tenant or at its request; (v) increases in
frequency or scope in any item set forth in Schedule B as shall have been
requested by Tenant; and (b) removal from the Premises and Building of (i) so
much of any refuse and rubbish of Tenant as shall exceed that normally
accumulated in the routine of ordinary business office activity and (ii) all of
the refuse and rubbish of any eating facility requiring special handling (wet
garbage).
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<PAGE> 55
SCHEDULE "C"
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress to and egress from
the Demised Premises and for delivery of merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Landlord. There shall not be used in any space, or in the public
hall of the building, either by any Tenant or by jobbers or others in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No Tenant shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substances into any of the corridors or halls,
elevators, or out of the doors or windows or stairways of the building, and the
Tenant shall not use, keep or permit to be used or kept any coffee machine,
vending machine, burner, microwave oven, refrigerator or oven, food or noxious
gas or substance in the Demised Premises, or permit or suffer the Demised
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be kept in or about the Building.
Smoking or carrying lighted cigars or cigarettes in the elevators of the
Building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of the Landlord.
5. No sign, advertisement, notice or other lettering and/or window
treatment shall be exhibited, inscribed, painted or affixed by any Tenant on any
part of the outside of the Demised Premises or the Building or on the inside of
the Demised Premises if the same is visible from the outside of the Demised
Premises without the prior written consent of the Landlord. In the event of the
violation of the foregoing by any Tenant, Landlord may remove same without any
liability, and may charge the expense incurred by such removal to Tenant or
Tenants violating this rule. Interior signs on doors and directory tables shall
be inscribed, painted or
51
<PAGE> 56
affixed for each Tenant by Landlord at the expense of such Tenant, and shall be
of a size, color and style acceptable to Landlord.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the Demised Premises or the Building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. No tenant shall lay linoleum or
other similar floor covering so that the same shall come in direct contact with
the floor of the Demised Premises and, if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other water soluble material, the
use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or in the mechanisms thereof. Each Tenant must, upon the termination of
his tenancy, restore to Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by, such Tenant, and in the event of
the loss of any keys, so furnished, such Tenant shall pay to Landlord the cost
thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the Premises only through
the service entrances and corridors, and only during hours and in a manner
approved by Landlord. Landlord reserves the right to inspect all freight to be
brought into the Building and to exclude from the Building all freight which
violates any of these Rules and Regulations or the lease of which these Rules
and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and
each Tenant shall cooperate to prevent the same.
11. Landlord shall have the right to prohibit any advertising by any
Tenant which, in Landlord's opinion, tends to impair the reputation of the
Building or its desirability as an office building, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
52
<PAGE> 57
12. Tenant shall not bring or permit to be brought or kept in or on the
Premises, any inflammable, combustible, hazardous or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors, to permeate in or
emanate from the Premises.
13. Tenant agrees to keep all entry doors closed at all times and to abide
by all rules and regulations issued by the Landlord with respect to such
services.
14. Landlord shall have full and unrestricted access to all
air-conditioning and heating equipment, and to all other utility installations
servicing the Building and the Demised Premises. Landlord reserves the right
temporarily to interrupt, curtail, stop or suspend air-conditioning and heating
service, and all other utilities, or other services, because of Landlord's
inability to obtain, or difficulty or delay in obtaining, labor or materials
necessary therefor, or in order to comply with governmental restrictions in
connection therewith, or for any other cause beyond Landlord's reasonable
control. No diminution or abatement of Rent, additional rent, or other
compensation shall be granted to Tenant, nor shall this Lease or any of the
obligations of Tenant hereunder be affected or reduced by reason of such
interruptions, stoppages or curtailments, the causes of which are hereinabove
enumerated, nor shall the same give rise to a claim in Tenant's favor that such
failure constitutes actual or constructive, total or partial, eviction from the
Demised Premises, unless such interruptions, stoppages or curtailments have been
due to the arbitrary, willful or negligent act, or failure to act, of Landlord
or its agents.
15. Telephone and service shall be the responsibility of Tenant. Tenant
shall make all arrangements for telephone service with the company supplying
said service, including the deposit requirement for the furnishing of service.
Landlord shall not be responsible for any delays occasioned by failure of the
telephone company to furnish service.
16. At Landlord's option, it shall furnish and install all lighting tubes,
bulbs and ballasts used in the Premises and Tenant shall pay Landlord's
reasonable charges therefor, on demand, as additional rent.
53
<PAGE> 58
PAGE 1 OF 2
EXHIBIT 1
SITE PLAN
[GRAPHIC OMITTED]
<PAGE> 59
PAGE 2 OF 2
EXHIBIT 1
PRELIMINARY PLAN
[GRAPHIC OMITTED]
<PAGE> 60
EXHIBIT 2
TENANT SPECIFICATIONS
Colorado Prime Corporation
500 Bi-County Boulevard
Farmingdale, NY
Flooring: Reception Area, Lavatories
Ceramic tile floor. The wall of the lavatories shall have
ceramic tile to a height of 48".
Corridors, Open Office Areas
28 ounce, long life loop carpeting
Private Offices
28 ounce, long life cut pile carpet. Six (6) executive
offices shall have a carpet base.
CEO, Presidents Offices, Main Conference Room
32 ounce, long life cut pile carpet
File Room(s), Storage Room(s), Kitchens, Mail Room
Vinyl Tile
Wall Treatment: Vinyl Wall Covering
All private offices, conference rooms, and reception area
Paint
All other office space
Chair Rails
All private offices shall have chair rails
Sound Attenuation
CEO, Presidents, CFO, Controllers office, and Main
Conference Room shall have sound bat insulation
Lighting: Parabolic Lens Florescent Fixtures
All lighting throughout the premises shall be furnished
18 cell, 4" deep parabolic fixtures except file, mail and
storage rooms.
High Hat Fixtures
Ten (10) high hat fixtures will be required in areas
designated by the tenant.
<PAGE> 61
Ceiling Tiles: Armstrong Second Look II(2' X 4') lay-in tile
All office areas except as noted below
2' x 2' revealed edge lay-in tile
Main Conference Room, CEO and President's office
Window Treatment: All exterior windows will be finished with building standard
vertical blinds.
Doors: Solid Core Doors
All interior doors to be oak veneer solid core with oak trim.
Hardware shall be chrome finish, Schlage or similar. All door
handles will be levered.
Special Finishes: Kitchen/Coffee Area
A sink with hot and cold water with mica laminate
counterspace, backsplash and cabinets above and below. A
separate cold water line for coffee machines is required.
There shall be two (2) water fountains.
Exhaust Fans
Ceiling mounted exhaust fans will be provided in kitchen
areas and conference rooms, and CEO's office.
Movable Room Divider
Wood folding door will be provided in the main conference
room to allow the room to be divided.
Computer Room/Telephone Room
These areas shall have a separate 2 ton HVAC unit as well as
4" raised flooring.
Electric
A walker-duct raceway system will be installed in the
concrete floor slab. Each work station/desk shall have a
duplex outlet. The computer room will require +/-20 dedicated
lines. Each copier shall have a dedicated line.
Concrete Block Wall
The area designated as "vault" shall be constructed with
concrete block to the roof deck. The vault door will be
provided by Tenant.
Warehouse
The warehouse shall have fluorescent lighting 8', two bulb
fixtures as necessary, gas space heaters, an overhead door,
and single metal warehouse door.
ADA
The entire space shall conform to the Americans with
Disabilities Act.
HVAC -- Landlord shall supply all mechanical systems
including roof top package units, perimeter heating units,
and an energy management system.
<PAGE> 62
PAGE 1 OF 2
EXHIBIT 3
SIGN PLAN
[GRAPHIC OMITTED]
<PAGE> 63
PAGE 2 OF 2
EXHIBIT 3
SIGN PLAN
[GRAPHIC OMITTED]
<PAGE> 64
EXHIBIT 4
List of Securite Brokerage Companies
Merrill Lynch
Smith Barney
AG Edwards
Advest
Paine Weber
Prudential Securities
Dean Witter
<PAGE> 1
EXHIBIT 10.13
AMENDMENT NO. 2 AND WAIVER
This Amendment No. 2 and Waiver dated as of October 9, 1997 (this "Amendment")
to that certain Credit Agreement dated as of May 9, 1997 (as amended by that
certain Amendment No. 1 dated as of June 17, 1997 and from time to time,
including pursuant to this Amendment, the "Credit Agreement") among Colorado
Prime Corporation, a Delaware corporation, each institution identified as a
Lender on the signature pages hereto, IBJ Schroder Bank & Trust Company, as the
Monitoring Agent and the Disbursing Agent, and Dresdner Bank AG, New York and
Grand Cayman Branches, as the Administrative Agent and the Collateral Agent for
itself and the other Lenders. All capitalized terms used herein but not defined
herein shall have the meanings given such terms in the Credit Agreement, and the
provisions of Section 1.2 of the Credit Agreement shall apply hereto as if fully
set forth herein.
RECITALS
WHEREAS, the parties to the Credit Agreement wish to make certain amendments to,
and waive certain breaches of, the Credit Agreement;
AMENDMENT AND WAIVER
1. The Lenders and the Agents hereby waive the breach of the representation and
warranty contained in Section 6.16(b)(3)(ii) of the Credit Agreement caused by
the existence of the one underground storage tank at the Farmingdale, New York
facility. Provided that, on and after October 10, 1997, such underground storage
tank shall be and shall continue to be in compliance with (i) all Environmental
Laws and (ii) all of the terms and provisions of the Credit Agreement with the
exception of Section 6.16(b)(3)(ii), the existence of such underground storage
tank shall not be deemed to be a continuing breach of such provision.
2. The Lenders and the Agents hereby waive the breaches of the negative covenant
contained in Section 8.10 of the Credit Agreement which have occurred on or
prior to the date hereof and disclosed to the Lenders and the Agents
(specifically, that Borrower retained up to $813,633 of excess cash in violation
of Section 8.10). The Lenders and the Agents expressly reserve all of their
rights under the Credit Agreement with respect to any future breaches of Section
8.10 of the Credit Agreement.
3. The Disclosure Schedule is hereby amended by deleting Section 4.7 of the
Disclosure Schedule in its entirety and inserting in its place Exhibit "A"
attached hereto as Section 4.7 of the Disclosure Schedule.
4. The Lenders and the Agents hereby waive the Event of Default caused by
Borrower's failure to comply with Section 9.1(e) of the Credit Agreement.
Provided that all of the terms
<PAGE> 2
and provisions of Section 9.1(e) are complied with no later than October 31,
1997 (the "Dissolution Default Date"), no Event of Default shall be deemed to
have occurred with respect to Section 9.1(e) from the date hereof until the
Dissolution Default Date. The Lenders and the Agents expressly reserve all of
their rights to declare an Event of Default under the Credit Agreement in the
event that Borrower fails to comply with the terms and provisions of Section
9.1(e) on or prior to the Dissolution Default Date.
5. Except as expressly modified by this Amendment, all of the terms and
provisions of the Credit Agreement remain unmodified and in full force and
effect.
[SIGNATURES FOLLOW ON NEXT PAGE]
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 and
Waiver to be executed and delivered by their proper and duly authorized officers
as of the date set forth above.
BORROWER:
COLORADO PRIME CORPORATION,
a Delaware corporation
By:____________________
Title:_________________
THE AGENTS:
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
as the Administrative Agent and the Collateral Agent
By:___________________
By:___________________
IBJ SCHRODER BANK & TRUST COMPANY,
as the Monitoring Agent and the Disbursing Agent
By:____________________
By:____________________
<PAGE> 4
LENDERS:
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
as a Lender
By:___________________
By:___________________
BANKBOSTON, N.A.,
as a Lender
By:___________________
By:___________________
BANK LEUMI TRUST COMPANY OF NEW YORK,
as a Lender
By:____________________
By:_____________________
<PAGE> 5
EXHIBIT "A"
Section 4.7 of the Disclosure Schedule
Borrower may establish an account (the "Consultant Fee Account") in the
name of Parent with any institution that is a Lender as of September 15, 1997,
provided that: (i) the Consultant Fee Account is used solely to pay the sum of
$35,000 per year to the extent legally owed (the "Consultant Fee") to Bill
Dordelman ("Mr. Dordelman") in his capacity as an independent consultant to
Parent pursuant to the written agreement which has been furnished to the
Administrative Agent or another written agreement with terms substantially
similar thereto; (ii) the Consultant Fee Account shall at no time have a balance
of more than $35,000; (iii) there shall be no funds disbursed to the Consultant
Fee Account by Borrower, Parent or any other Credit Party until such time as the
Consultant Fee is due and payable to Mr. Dordelman; and (iv) such funds shall be
paid promptly to Mr. Dordelman as payment of the Consultant Fee only. The funds
for the Consultant Fee Account shall be made available by either (a) a dividend
from Borrower to Parent, (b) a loan from Borrower to Parent, or (c) any other
mechanism permitted by applicable law and reasonably satisfactory to the
Administrative Agent. Borrower shall furnish to the Administrative Agent
documentation reasonably satisfactory to the Administrative Agent evidencing
each such dividend, loan, or other mechanism, as applicable, promptly after the
execution thereof. If Borrower elects to make a loan to Parent to fund the
Consultant Fee Account, such loan shall be evidenced by a promissory note
reasonably satisfactory to the Collateral Agent, which shall be pledged to the
Collateral Agent pursuant to the terms of the Borrower Pledge Agreement.
<PAGE> 1
EXHIBIT 10.14
AMENDMENT NO. 3 AND CONSENT
This Amendment No. 3 and Consent (this "Amendment") amends that
certain Credit Agreement dated as of May 9, 1997 (as amended, modified and
supplemented from time to time, including pursuant to this Amendment, the
"Credit Agreement"), among COLORADO PRIME CORPORATION, a Delaware corporation
("Borrower"), each institution identified as a lender on Annex I thereto (each,
together with its successors and assigns, a "Lender"), and DRESDNER BANK AG, NEW
YORK AND GRAND CAYMAN BRANCHES, acting as the Agents for itself and the other
Lenders, and is entered into as of December 11, 1997 among Borrower, the
Administrative Agent and the Lenders executing the signature pages hereof.
RECITALS
WHEREAS, Colorado Prime Holdings, Inc. ("Parent") recently
considered acquiring American Frozen Foods, Inc. (the "Proposed Acquisition")
for the benefit of, among others, Borrower, and Parent incurred approximately
$425,000 in AFF Due Diligence Costs (as defined below) in connection with its
due diligence for the Proposed Acquisition;
WHEREAS, Parent has determined not to go forward with the Proposed
Acquisition; and
WHEREAS, Borrower has requested that the Lenders consent to the
making of a cash dividend by Borrower to Parent to enable Parent to pay the AFF
Due Diligence Costs and otherwise amend the Credit Agreement as set forth below;
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Capitalized terms used herein without definition shall have
the meanings assigned to such terms in the Credit Agreement, and the
provisions of Section 1.2 of the Credit Agreement shall apply hereto as if
fully set forth herein.
2. Additional Definition. The following definition is hereby added to Section
1.1 of the Credit Agreement and inserted therein in alphabetical order
with the definitions therein:
"AFF Due Diligence Costs" means the amount, not in excess of
$425,000, incurred and paid by Parent to Persons which are not Affiliates
of Parent for professional fees and related out-of-pocket costs and
expenses in connection with its due diligence for its proposed acquisition
of American Frozen Foods, Inc.
3. Definitional Changes. The following changes shall be made to the
applicable definitions of Section 1.1 of the Credit Agreement:
<PAGE> 2
(a) The definition of "Consolidated EBITDA" is hereby amended to read in
its entirety as follows:
"Consolidated EBITDA" for a period means (without duplication)
(a) Consolidated Net Income plus (b) all Consolidated Interest
Expense, cash dividends on preferred stock paid during such period
to the extent permitted hereunder, income tax expense, depreciation
and amortization (including amortization of any goodwill or other
intangibles), in each case to the extent subtracted in calculating
Consolidated Net Income, minus (c) any non-cash items which have
been added in calculating Consolidated Net Income, plus (d) any
other non-cash charges, including charges for accrued dividends on
Preferred Stock, which have been subtracted in calculating
Consolidated Net Income, and plus (e) through the Fiscal Quarter
ending on September 30, 1998, the amount, if any, of AFF Due
Diligence Costs incurred and paid by Parent which has been
subtracted in calculating Consolidated Net Income, in each case of
Parent and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
(b) The definition of "Consolidated Net Worth" is hereby amended to read
in its entirety as follows:
"Consolidated Net Worth" means, as of any date, the aggregate
amount of equity contributions to Borrower made on or after the
Closing Date plus retained earnings of Borrower since the Closing
Date (plus, without duplication, the amount of any cash dividends
made and permitted hereunder to be made by Borrower to Parent to pay
AFF Due Diligence Costs incurred and paid by Parent, which has been
subtracted in calculating retained earnings of Borrower) and minus
net losses of Borrower since the Closing Date, in each case on a
consolidated basis and as determined in accordance with GAAP.
4. Consent to Dividend. Notwithstanding the terms of Section 8.7(a) of the
Credit Agreement to the contrary, the Required Lenders hereby consent to
the making, within thirty (30) days of the effective date of this
Amendment, of a one-time cash dividend by Borrower to Parent in the amount
of the AFF Due Diligence Costs, provided, that Parent uses such cash to
pay all of such AFF Due Diligence Costs within such thirty (30) day
period.
5. Representations. To induce the Administrative Agent and the Lenders to
enter into this Amendment, Borrower hereby represents and warrants as
follows:
(a) Representations and Warranties. All representations and warranties
contained in the Credit Agreement and the other Credit Documents are
true and correct in all material respects on and as of the date
hereof as if made on the date hereof, other than representations and
warranties that expressly relate solely to an earlier date; and
2
<PAGE> 3
(b) No Defaults. No Default or Event of Default has occurred which has
not been waived.
6. Effectiveness of this Amendment. This Amendment shall become effective on
the date when the Administrative Agent, Borrower and the Required Lenders
shall have signed a counterpart hereof and shall have delivered (including
by way of facsimile transmission) the same to the Administrative Agent at
its office for notices as set forth in Annex I to the Credit Agreement.
This Amendment may be executed in any number of counterparts, each of
which counterparts when executed and delivered shall be an original, but
all of which shall together constitute one and the same agreement.
[SIGNATURE PAGES FOLLOW]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 3 and Consent to be executed and delivered by their proper and duly
authorized officers as of the date set forth above.
BORROWER:
COLORADO PRIME CORPORATION,
a Delaware corporation
By: _______________________________
Title: ______________________________
ADMINISTRATIVE AGENT:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as the
Administrative Agent
By: _______________________________
By: _______________________________
LENDERS:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as a Lender
By: _______________________________
By: _______________________________
BANK LEUMI TRUST COMPANY OF NEW
YORK, as a Lender
By: _______________________________
By: _______________________________
<PAGE> 5
BANKBOSTON, N.A., as a Lender
By: _______________________________
By: _______________________________
IBJ SCHRODER BANK & TRUST COMPANY,
as a Lender
By: _______________________________
By: _______________________________
<PAGE> 1
EXHIBIT 10.15
OPTION NO.
OPTIONEE:
DATE OF GRANT: October __, 1997
OPTION PRICE: $100.00
COVERED SHARES:
COLORADO PRIME HOLDINGS, INC.
1997 INCENTIVE STOCK OPTION PLAN
* * *
[INCENTIVE] [NONSTATUTORY] STOCK OPTION AGREEMENT
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1. "Affiliate" means parent or subsidiary corporations of the
Company, as defined in Sections 424(e) and (f) of the Code (but substituting
"the Company" for "employer corporation").
1.2. "Agreement" means this Incentive Stock Option Agreement.
1.3. "Board" means the Board of Directors of the Company.
1.4. A "Change of Control" means the occurrence of any of the
following events after the Date of Grant: (i) any person or group of persons (as
defined in Section 13(d) and 14(d) of the Exchange Act) together with its
affiliates, excluding employee benefit plans of the Company, other than Thayer,
becomes, directly or indirectly, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing 51% or
more of the combined voting power of the Company's then outstanding securities;
(ii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation or entity regardless of which entity is the
survivor, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining
<PAGE> 2
-2-
outstanding or being converted into voting securities of the surviving entity)
at least 50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation; (iii) an IPO Event; or (iv) the stockholders of the Company
approve a plan of complete liquidation or winding-up of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
1.5. "Closing Date" means May 9, 1997.
1.6. "Code" means the Internal Revenue Code of 1986, as amended.
1.7. "Committee" means the committee charged, pursuant to the
provisions of the Plan, with the administration of the Plan.
1.8. "Common Stock" means the common stock, par value $0.01 per
share, of the Company.
1.9. "Company" means Colorado Prime Holdings, Inc.
1.10. "Covered Shares" means the number of Shares subject to the
Option set forth as the "Covered Shares" on page 1 of this Agreement.
1.11. "Date of Exercise" means the date on which the Company
receives notice pursuant to Section 4.1 of the exercise, in whole or in part, of
the Option.
1.12. "Date of Expiration" means the date on which the Option
shall expire, which shall be the earliest of the following times:
(a) the date the Optionee's Employment is terminated by the
Company or any Affiliate for Good Cause;
(b) ninety (90) days after the termination of the Optionee's
Employment by reason of resignation, retirement, death or Disability;
(c) ninety (90) days after the date the Optionee's Employment
is terminated by the Company or any Affiliate other than for Good Cause; or
<PAGE> 3
-3-
(d) ten (10) years after the Date of Grant.
1.13. "Date of Grant" means the date set forth as the "Date of
Grant" on page 1 of this Agreement.
1.14. "Disability" means (i) incapacity due to physical or mental
illness or injury where the Optionee shall have been absent from his full time
duties at the Company for four (4) consecutive months; or (ii) the Optionee's
health should become impaired to an extent that makes the continued performance
of his duties at the Company hazardous to his physical or mental health or his
life, provided that the Optionee shall have furnished the Company with a written
statement from a qualified doctor to such effect and provided further, that, at
the Company's request made within thirty (30) days of the date of such written
statement, the Optionee shall submit to an examination by a doctor selected by
the Company who is reasonably acceptable to the Optionee or the Optionee's
doctor and such doctor shall have concurred in the conclusion of the Optionee's
doctor.
1.15. "Employment" means the Optionee's employment with the
Company and its Affiliates, including service as a director.
1.16. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.17. "Fair Market Value" means the fair market value of a Share
as determined by the Committee pursuant to a reasonable method adopted in good
faith for such purpose.
1.18. "Good Cause" means a termination based on an Optionee's (i)
willful misconduct or gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of written notice of
need to cure) of any of the Optionee's material duties and responsibilities for
the Company; (2) willful dishonesty, fraud, alcohol or illegal drug abuse, or
misconduct with respect to the business or affairs of the Company, which
materially and adversely affects the operations, prospects or reputation of the
Company; or (3) conviction of a felony or other crime involving moral turpitude.
<PAGE> 4
-4-
1.19. "Internal Rate of Return" means the interest rate
(compounded annually) which, when used to calculate the net present value of all
Cash Inflows and all Cash Outflows (each as defined below), causes such net
amount to equal zero. "Cash Inflows" as used herein shall include all cash
payments received by Thayer in relation to its investment in the Company on or
prior to the date of determination. "Cash Outflows" as used herein shall include
the sum of all cash payments and investments made by Thayer to and in the
Company and its affiliates. For purposes of the net present value calculation,
the dates of each payment and each investment specified above will be deemed to
have occurred as of the end of the fiscal month of such payment. If the Optionee
and Thayer (collectively, the "Valuating Parties") are unable to reach agreement
on the Internal Rate of Return, each of the Valuating Parties shall, within five
(5) days after either invokes this procedure, (i) select one person with
experience and expertise in making internal rate of return or similar
calculations to determine the Internal Rate of Return and (ii) provide written
notice of the selection to the other Valuating Party. Within fifteen (15) days
after their selection, the two persons selected by the Valuating Parties shall
select a third person with such experience and expertise. Upon selection of the
third person, the three selected persons shall have five (5) days in which to
deliver a joint written determination of the Internal Rate of Return to each of
the Valuating Parties. If the three selected persons are unable to agree as to
the calculation of the Internal Rate of Return, then the determination of the
third person jointly selected shall govern. The determination made in accordance
with the foregoing shall be conclusive, final and binding on the Valuating
Parties and shall be enforceable in any court having jurisdiction over a
proceeding brought to seek such enforcement. The cost of the Internal Rate of
Return determination shall be borne by the Company.
1.20. "IPO Event" means the consummation of an underwritten public
offering, pursuant to an effective registration statement under the Securities
Act, that is underwritten by one or more nationally-recognized investment
banking firms and results in the Company receiving not less than $25,000,000 in
aggregate cash proceeds from such offering.
<PAGE> 5
-5-
1.21. "Option" means the [incentive] [nonstatutory] stock option
granted to the Optionee in Section 2 of this Agreement.
1.22. "Option Price" means the dollar amount per Share set forth
as the "Option Price" on page 1 of this Agreement.
1.23. "Optionee" means the person identified as the "Optionee" on
page 1 of this Agreement.
1.24. "Plan" means the Colorado Prime Holdings, Inc. 1997
Incentive Stock Option Plan.
1.25. "Projections" means the following fiscal year operating
income projections: Fiscal Year 1997 = $19,301,000; Fiscal Year 1998 =
$21,815,000; Fiscal Year 1999 = $25,495,000; Fiscal Year 2000 = $29,542,000;
Fiscal Year 2001 = $34,280,000; Fiscal Year 2002 = $40,223,000. Operating income
shall be calculated pursuant to the Company's audited financial results and in
conformity with the methodology utilized in the Goldman, Sachs & Co.
Confidential Memorandum dated December 1996.
1.26. "Securities Act" means the Securities Act of 1933, as
amended.
1.27. "Share" means a share of Common Stock.
1.28. "Thayer" means Thayer Equity Investors III, L.P.
2. Grant of Option. Pursuant to the Plan and subject to the terms of
this Agreement, the Company hereby grants to the Optionee the Option to purchase
from the Company that number of Shares equal to the Covered Shares, exercisable
at the Option Price.
3. Terms of the Option.
3.1. Type of Option. The Option is intended to be [an incentive]
[a nonstatutory] stock option [, and is not an incentive stock option] within
the meaning of Section 422 of the Code.
3.2. Exercise Period. During the period commencing on the Date of
Grant and terminating on the Date of Expiration, the Option may be exercised
with respect to all or a portion of the Covered Shares (in
<PAGE> 6
-6-
full shares), to the extent that the Option has vested and has not been
previously exercised with respect to such Covered Shares.
3.3. Vesting Schedule.
(a) On each of the first, second, third, fourth and fifth
anniversaries of the Closing Date, the Option shall vest as to one-fifteenth of
the Covered Shares, rounded up to the nearest whole number of Shares (or, if
less, the remainder of the Covered Shares with respect to which the Option has
not yet vested).
(b) With respect to each of the Company's five fiscal years
commencing with the fiscal year of the Company ending September 26, 1997, the
Option shall vest as to one-fifteenth of the Covered Shares, rounded up to the
nearest whole number of Shares (or, if less, the remainder of the Covered Shares
with respect to which the Option has not yet vested) in the event that the
Company has achieved or exceeded the Projections for that fiscal year. The
achievement of the Projections shall be based on the Company's audited financial
results and the Option as to a particular fiscal year shall vest as of the
declaration by the Committee of the achievement of such Projections.
In the event that as of any such fiscal year, the Company shall
not have achieved the Projections for such year, the following provisions shall
be applicable. In the event that for any such fiscal year the Company shall have
failed to achieve the Projections by less than $500,000, the Option shall vest
as to one-thirtieth of the Covered Shares, rounded up to the nearest whole
number of Shares. In the event that for any such fiscal year the Company shall
have failed to achieve the Projections by $500,000 or more, the Option set forth
in this Section 3.3(b) for such year shall not vest; provided, however, that in
either case in the event that as of any subsequent fiscal year within such five
(5) fiscal year period, the Company shall have achieved or exceeded the
Projections for such year and for the prior year(s) on a cumulative basis, the
Option shall vest for such year and for the theretofore unvested portion thereof
for such prior year(s).
(c) In addition to Sections 3.3(a) and (b), the Option shall
vest as to 33.333% of the Covered Shares in the event that Thayer shall have
achieved an Internal Rate of Return on its investment in the Company in an
amount exceeding 40%.
<PAGE> 7
-7-
(d) Notwithstanding the provisions of Sections 3.3(a) and (b),
(i) the portions of the Option set forth in said Sections 3.3(a) & (b) shall
vest in full upon a Change of Control and (ii) no part of the Option shall vest
after the date of termination for any reason of the Optionee's Employment.
4. Exercise.
4.1. Notice. The Option shall be exercised, in whole or in part,
by the delivery to the Company of written notice of such exercise, in such form
as the Committee may from time to time prescribe, accompanied by (i) full
payment of the Option Price with respect to that portion of the Option being
exercised and (ii) any amounts required to be withheld pursuant to applicable
tax laws in connection with such exercise. Options may be exercised only with
respect to whole numbers of Shares. Until the Committee notifies the Optionee to
the contrary, the form attached to this Agreement as Exhibit A shall be used to
exercise the Option.
4.2. Payment of the Option Price. Upon exercise of the Option, the
Optionee shall pay the Option Price and any applicable withholding tax amounts
in cash. With the prior written approval of the Committee, which approval shall
be in the Committee's sole discretion, the Optionee may also pay the Option
Price, in whole or in part, by delivering duly endorsed certificates
representing, or duly executed stock transfer instruments in respect of, a whole
number of Shares having an aggregate value on the Date of Exercise (determined
based on the Fair Market Value) not more than the portion of the Option Price
being paid by delivery of such Shares, or in a combination of cash and Shares.
Notwithstanding the preceding sentence, no Shares may be used to pay any portion
of the Option Price unless those Shares were issued to the Optionee at least six
months prior to the Date of Exercise.
5. Restrictions on Transfer.
5.1. Options. Except by will or the laws of descent and
distribution, the Option may not be sold, transferred, assigned, pledged or
otherwise disposed of or encumbered by the Optionee, and any attempt to do so
shall be null and void. The Option may be exercised during the Optionee's
lifetime only by the Optionee or, in the event of the Optionee's legal
disability, by the
<PAGE> 8
-8-
Optionee's legal representative. The terms of the Option shall be binding upon
any successor or permitted assignee of the Optionee.
5.2. Shareholders Agreement. The Optionee understands and agrees
that, upon his or her exercise of the Option and receipt of Shares, he or she
will become a party to the Shareholders Agreement dated as of May 9, 1997, by
and among the Company, Thayer Equity Investors III, L.P. and certain
shareholders of the Company (the "Shareholders Agreement"). The Optionee hereby
agrees to be bound as a "Shareholder" to all the terms and conditions and to be
subject to the benefits of the Shareholders Agreement as a "Manager," including
the transfer restrictions of the Shareholders Agreement and the rights and
obligations of the Managers with respect to certain events relating to the
disposition of the Shares upon the Optionee's termination or resignation of
employment with the Company or its Affiliates. The Optionee acknowledges that a
copy of the Shareholders Agreement has been made available to the Optionee for
inspection.
6. Capital Adjustments. In the event of any change in the outstanding
Common Stock by reason of any stock dividend, split-up (or reverse stock split),
reclassification, reincorporation, liquidation or similar change in corporate
structure, the Committee shall, in its discretion, provide for a substitution
for or adjustment in (i) the number and class of Covered Shares and (ii) the
Option Price.
7. Investment Intent; Legends.
7.1. Representations. The Optionee agrees that, upon the issuance
of any Shares upon the exercise of the Option, the Optionee will, upon the
request of the Company, represent and warrant in writing that the Optionee (i)
has received and reviewed a copy of the Plan; (ii) is capable of evaluating the
merits and risks of exercising the Option and acquiring the Shares and able to
bear the economic risks of such investment; (iii) has made such investigations
as he or she deems necessary and appropriate of the business and financial
prospects of the Company; and (iv) is acquiring the Shares for investment only
and not with a view to resale or other distribution thereof. The Optionee
acknowledges that the Company has made available to the Optionee the opportunity
to obtain information to evaluate the merits and risks associated with this
Agreement and the transactions contemplated hereby. The
<PAGE> 9
-9-
Optionee further acknowledges that the investment contemplated by the Option
involves a high degree of risk, including risks associated with the Company's
business operations and prospects, the lack of a public market for the Shares,
and the limitations on the transferability of the Option and the Shares.
7.2. Legends. The Optionee agrees that the certificates evidencing
the Shares issued upon exercise of the Option may include any legend which the
Committee deems appropriate to reflect any transfer or other restrictions
contained in the Plan, this Agreement or the Shareholders Agreement or to comply
with applicable laws.
8. Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Covered Shares until and unless a certificate or
certificates representing such shares are issued to the Optionee pursuant to
this Agreement. Except as provided in Section 6, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
9. Employment. Neither the granting of the Option evidenced by this
Agreement nor any term or provision of this Agreement shall constitute or be
evidence of any understanding, express or implied, on the part of the Company or
any of its Affiliates to employ the Optionee (or have the Optionee serve as a
director) for any period.
10. Subject to the Plan. The Option evidenced by this Agreement and the
exercise thereof are subject to the terms and conditions of the Plan, which are
incorporated herein by reference and made a part hereof, but the terms of the
Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, the Option is subject to any rules and regulations
promulgated by the Committee pursuant to the Plan.
11. Notice. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally,
by facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
<PAGE> 10
-10-
If to the Company to:
Colorado Prime Holdings, Inc.
1 Michael Avenue
Farmingdale, New York 11735
Attention: Mr. Thomas S. Taylor, Vice President
Facsimile: 516-694-8493
If to the Optionee, to the address set forth beneath the Optionee's signature on
the signature page hereof.
All deliveries of notice shall be deemed effective when received by the
person entitled to such receipt or when delivery has been attempted but refused
by such person. Any party may change the person or address to which such
deliveries shall be made with respect to such party by delivering notice thereof
to the other party hereto in accordance with this Section 11.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
on its behalf effective as of the Date of Grant.
ATTEST: COLORADO PRIME HOLDINGS, INC.
_________________ By: _______________________________
Accepted and agreed to as of the Date of Grant.
____________________________
Optionee:
Address:
<PAGE> 11
EXHIBIT A
EXERCISE OF OPTION
Board of Directors
Colorado Prime Holdings, Inc.
1 Michael Avenue
Farmingdale, New York 11735
Ladies and Gentlemen:
The undersigned, the Optionee under the [Incentive] [Nonstatutory]
Stock Option Agreement identified as Option No. ______ (the "Agreement"),
granted pursuant to the Colorado Prime Holdings, Inc. 1997 Incentive Stock
Option Plan (the "Plan"), hereby irrevocably elects to exercise the option
granted in such Agreement (the "Option") to purchase _______ [whole numbers
only] shares of Common Stock, par value $0.01 per share, (the "Shares") of
Colorado Prime Holdings, Inc. (the "Company"), and herewith makes payment of
$_______ in cash.
The Optionee hereby represents and warrants as follows:
1. The Optionee has received and reviewed a copy of the Plan;
2. The Optionee is capable of evaluating the merits and risks of
exercising the Option and acquiring the Shares and able to bear the economic
risks of such investment;
3. The Optionee has made such investigations as he or she deems
necessary and appropriate of the business and financial prospects of the
Company; and
4. The Optionee is acquiring the Shares for investment only and not
with a view to resale or other distribution thereof.
The Optionee acknowledges that the Company has made available to the
Optionee the opportunity to obtain information to evaluate the merits and risks
associated with the Agreement and the transactions contemplated thereby. The
Optionee further acknowledges that the investment contemplated by the Option
involves a high degree of risk, including risks associated with the
<PAGE> 12
Company's business operations and prospects, the lack of a public market for the
Shares, and the limitations on the transferability of the Option and the Shares.
The Optionee understands and agrees that, upon his or her exercise of
the Option and receipt of Shares, he or she becomes a party to the Shareholders
Agreement dated as of May 9, 1997, by and among the Company, Thayer Equity
Investors III, L.P. and certain shareholders of the Company (the "Shareholders
Agreement"). The Optionee hereby agrees to be bound as a "Shareholder" to all
the terms and conditions, including the transfer restrictions, of the
Shareholders Agreement, a copy of which has been made available to the Optionee
for inspection.
Dated: _______________ ______________________________________
(Signature of Optionee)
Date Received by
Colorado Prime Holdings, Inc.: __________________
Received by: ___________________________________________
<PAGE> 13
OPTION NO.
OPTIONEE:
DATE OF GRANT: October __, 1997
OPTION PRICE: $100.00
COVERED SHARES:
COLORADO PRIME HOLDINGS, INC.
1997 INCENTIVE STOCK OPTION PLAN
* * *
NONSTATUTORY STOCK OPTION AGREEMENT
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1. "Affiliate" means parent or subsidiary corporations of the
Company, as defined in Sections 424(e) and (f) of the Code (but substituting
"the Company" for "employer corporation").
1.2. "Agreement" means this Nonstatutory Stock Option Agreement.
1.3. "Board" means the Board of Directors of the Company.
1.4. A "Change of Control" means the occurrence of any of the
following events after the Date of Grant: (i) any person or group of persons (as
defined in Section 13(d) and 14(d) of the Exchange Act) together with its
affiliates, excluding employee benefit plans of the Company, other than Thayer,
becomes, directly or indirectly, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing 51% or
more of the combined voting power of the Company's then outstanding securities;
(ii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation or entity regardless of which entity is the
survivor, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining
<PAGE> 14
-2-
outstanding or being converted into voting securities of the surviving entity)
at least 50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation; (iii) an IPO Event; or (iv) the stockholders of the Company
approve a plan of complete liquidation or winding-up of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
1.5. "Closing Date" means May 9, 1997.
1.6. "Code" means the Internal Revenue Code of 1986, as amended.
1.7. "Committee" means the committee charged, pursuant to the
provisions of the Plan, with the administration of the Plan.
1.8. "Common Stock" means the common stock, par value $0.01 per
share, of the Company.
1.9. "Company" means Colorado Prime Holdings, Inc.
1.10. "Covered Shares" means the number of Shares subject to the
Option set forth as the "Covered Shares" on page 1 of this Agreement.
1.11. "Date of Exercise" means the date on which the Company
receives notice pursuant to Section 4.1 of the exercise, in whole or in part, of
the Option.
1.12. "Date of Expiration" means the date on which the Option
shall expire, which shall be the earliest of the following times:
(a) the date the Optionee's Employment is terminated;
(b) ninety (90) days after the termination of the Optionee's
Employment by reason of resignation, retirement, death or Disability; or
(c) ten (10) years after the Date of Grant.
1.13. "Date of Grant" means the date set forth as the "Date of
Grant" on page 1 of this Agreement.
<PAGE> 15
-3-
1.14. "Disability" means (i) incapacity due to physical or mental
illness or injury where the Optionee shall have been absent from his full time
duties at the Company for four (4) consecutive months; or (ii) the Optionee's
health should become impaired to an extent that makes the continued performance
of his duties at the Company hazardous to his physical or mental health or his
life, provided that the Optionee shall have furnished the Company with a written
statement from a qualified doctor to such effect and provided further, that, at
the Company's request made within thirty (30) days of the date of such written
statement, the Optionee shall submit to an examination by a doctor selected by
the Company who is reasonably acceptable to the Optionee or the Optionee's
doctor and such doctor shall have concurred in the conclusion of the Optionee's
doctor.
1.15. "Employment" means the Optionee's employment with the
Company and its Affiliates, including service as a director.
1.16. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.17. "Fair Market Value" means the fair market value of a Share
as determined by the Committee pursuant to a reasonable method adopted in good
faith for such purpose.
1.18. "IPO Event" means the consummation of an underwritten public
offering, pursuant to an effective registration statement under the Securities
Act, that is underwritten by one or more nationally-recognized investment
banking firms and results in the Company receiving not less than $25,000,000 in
aggregate cash proceeds from such offering.
1.19. "Option" means the nonstatutory stock option granted to the
Optionee in Section 2 of this Agreement.
1.20. "Option Price" means the dollar amount per Share set forth
as the "Option Price" on page 1 of this Agreement.
1.21. "Optionee" means the person identified as the "Optionee" on
page 1 of this Agreement.
<PAGE> 16
-4-
1.22. "Plan" means the Colorado Prime Holdings, Inc. 1997
Incentive Stock Option Plan.
1.23. "Securities Act" means the Securities Act of 1933, as
amended.
1.24. "Share" means a share of Common Stock.
1.25. "Thayer" means Thayer Equity Investors III, L.P.
2. Grant of Option. Pursuant to the Plan and subject to the terms of
this Agreement, the Company hereby grants to the Optionee the Option to purchase
from the Company that number of Shares equal to the Covered Shares, exercisable
at the Option Price.
3. Terms of the Option.
3.1. Type of Option. The Option is intended to be a nonstatutory
stock option, and is not an incentive stock option within the meaning of Section
422 of the Code.
3.2. Exercise Period. During the period commencing on the Date of
Grant and terminating on the Date of Expiration, the Option may be exercised
with respect to all or a portion of the Covered Shares (in full shares), to the
extent that the Option has vested and has not been previously exercised with
respect to such Covered Shares.
3.3. Vesting Schedule.
(a) On each of the first, second, third, fourth and fifth
anniversaries of the Closing Date, the Option shall vest as to twenty percent
(20%) of the Covered Shares, rounded up to the nearest whole number of Shares
(or, if less, the remainder of the Covered Shares with respect to which the
Option has not yet vested).
(b) Notwithstanding the provisions of Section 3.3(a), (i) the
portions of the Option set forth in said Section 3.3(a) shall vest in full upon
a Change of Control and (ii) no part of the Option shall vest after the date of
termination for any reason of the Optionee's Employment.
<PAGE> 17
-5-
4. Exercise.
4.1. Notice. The Option shall be exercised, in whole or in part,
by the delivery to the Company of written notice of such exercise, in such form
as the Committee may from time to time prescribe, accompanied by (i) full
payment of the Option Price with respect to that portion of the Option being
exercised and (ii) any amounts required to be withheld pursuant to applicable
tax laws in connection with such exercise. Options may be exercised only with
respect to whole numbers of Shares. Until the Committee notifies the Optionee to
the contrary, the form attached to this Agreement as Exhibit A shall be used to
exercise the Option.
4.2. Payment of the Option Price. Upon exercise of the Option, the
Optionee shall pay the Option Price and any applicable withholding tax amounts
in cash. With the prior written approval of the Committee, which approval shall
be in the Committee's sole discretion, the Optionee may also pay the Option
Price, in whole or in part, by delivering duly endorsed certificates
representing, or duly executed stock transfer instruments in respect of, a whole
number of Shares having an aggregate value on the Date of Exercise (determined
based on the Fair Market Value) not more than the portion of the Option Price
being paid by delivery of such Shares, or in a combination of cash and Shares.
Notwithstanding the preceding sentence, no Shares may be used to pay any portion
of the Option Price unless those Shares were issued to the Optionee at least six
months prior to the Date of Exercise.
5. Restrictions on Transfer.
5.1. Options. Except by will or the laws of descent and
distribution, the Option may not be sold, transferred, assigned, pledged or
otherwise disposed of or encumbered by the Optionee, and any attempt to do so
shall be null and void. The Option may be exercised during the Optionee's
lifetime only by the Optionee or, in the event of the Optionee's legal
disability, by the Optionee's legal representative. The terms of the Option
shall be binding upon any successor or permitted assignee of the Optionee.
5.2. Shareholders Agreement. The Optionee understands and agrees
that, upon his or her exercise of the Option and receipt of Shares, he or she
will become a party to the Shareholders Agreement dated as of May 9, 1997, by
and among the Company, Thayer Equity Investors
<PAGE> 18
-6-
III, L.P. and certain shareholders of the Company (the "Shareholders
Agreement"). The Optionee hereby agrees to be bound as a "Shareholder" to all
the terms and conditions, and to be subject to the benefits, of the Shareholders
Agreement. The Optionee acknowledges that a copy of the Shareholders Agreement
has been made available to the Optionee for inspection.
6. Capital Adjustments. In the event of any change in the outstanding
Common Stock by reason of any stock dividend, split-up (or reverse stock split),
reclassification, reincorporation, liquidation or similar change in corporate
structure, the Committee shall, in its discretion, provide for a substitution
for or adjustment in (i) the number and class of Covered Shares and (ii) the
Option Price.
7. Investment Intent; Legends.
7.1. Representations. The Optionee agrees that, upon the issuance
of any Shares upon the exercise of the Option, the Optionee will, upon the
request of the Company, represent and warrant in writing that the Optionee (i)
has received and reviewed a copy of the Plan; (ii) is capable of evaluating the
merits and risks of exercising the Option and acquiring the Shares and able to
bear the economic risks of such investment; (iii) has made such investigations
as he or she deems necessary and appropriate of the business and financial
prospects of the Company; and (iv) is acquiring the Shares for investment only
and not with a view to resale or other distribution thereof. The Optionee
acknowledges that the Company has made available to the Optionee the opportunity
to obtain information to evaluate the merits and risks associated with this
Agreement and the transactions contemplated hereby. The Optionee further
acknowledges that the investment contemplated by the Option involves a high
degree of risk, including risks associated with the Company's business
operations and prospects, the lack of a public market for the Shares, and the
limitations on the transferability of the Option and the Shares.
7.2. Legends. The Optionee agrees that the certificates evidencing
the Shares issued upon exercise of the Option may include any legend which the
Committee deems appropriate to reflect any transfer or other restrictions
contained in the Plan, this Agreement or the Shareholders Agreement or to comply
with applicable laws.
<PAGE> 19
-7-
8. Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Covered Shares until and unless a certificate or
certificates representing such shares are issued to the Optionee pursuant to
this Agreement. Except as provided in Section 6, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
9. Employment. Neither the granting of the Option evidenced by this
Agreement nor any term or provision of this Agreement shall constitute or be
evidence of any understanding, express or implied, on the part of the Company or
any of its Affiliates to employ the Optionee (or have the Optionee serve as a
director) for any period.
10. Subject to the Plan. The Option evidenced by this Agreement and the
exercise thereof are subject to the terms and conditions of the Plan, which are
incorporated herein by reference and made a part hereof, but the terms of the
Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, the Option is subject to any rules and regulations
promulgated by the Committee pursuant to the Plan.
11. Notice. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally,
by facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to the Company to:
Colorado Prime Holdings, Inc.
1 Michael Avenue
Farmingdale, New York 11735
Attention: Mr. Thomas S. Taylor, Vice President
Facsimile: 516-694-8493
If to the Optionee, to the address set forth beneath the Optionee's signature on
the signature page hereof.
All deliveries of notice shall be deemed effective when received by the
person entitled to such receipt or when delivery has been attempted but refused
by such person. Any party may change the person or address to which such
deliveries shall be made with
<PAGE> 20
-8-
respect to such party by delivering notice thereof to the other party hereto in
accordance with this Section 11.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
on its behalf effective as of the Date of Grant.
ATTEST: COLORADO PRIME HOLDINGS, INC.
By: _______________ By: ______________________________
Accepted and agreed to as of the Date of Grant.
_____________________
Optionee:
Address:
<PAGE> 21
EXHIBIT A
EXERCISE OF OPTION
Board of Directors
Colorado Prime Holdings, Inc.
1 Michael Avenue
Farmingdale, New York 11735
Ladies and Gentlemen:
The undersigned, the Optionee under the Nonstatutory Stock Option
Agreement identified as Option No. ______ (the "Agreement"), granted pursuant to
the Colorado Prime Holdings, Inc. 1997 Incentive Stock Option Plan (the "Plan"),
hereby irrevocably elects to exercise the option granted in such Agreement (the
"Option") to purchase _______ [whole numbers only] shares of Common Stock, par
value $0.01 per share, (the "Shares") of Colorado Prime Holdings, Inc. (the
"Company"), and herewith makes payment of $_______ in cash.
The Optionee hereby represents and warrants as follows:
1. The Optionee has received and reviewed a copy of the Plan;
2. The Optionee is capable of evaluating the merits and risks of
exercising the Option and acquiring the Shares and able to bear the economic
risks of such investment;
3. The Optionee has made such investigations as he or she deems
necessary and appropriate of the business and financial prospects of the
Company; and
4. The Optionee is acquiring the Shares for investment only and not
with a view to resale or other distribution thereof.
The Optionee acknowledges that the Company has made available to the
Optionee the opportunity to obtain information to evaluate the merits and risks
associated with the Agreement and the transactions contemplated thereby. The
Optionee further acknowledges that the investment contemplated by the Option
involves a high degree of risk, including risks associated with the
<PAGE> 22
Company's business operations and prospects, the lack of a public market for the
Shares, and the limitations on the transferability of the Option and the Shares.
The Optionee understands and agrees that, upon his or her exercise of
the Option and receipt of Shares, he or she becomes a party to the Shareholders
Agreement dated as of May 9, 1997, by and among the Company, Thayer Equity
Investors III, L.P. and certain shareholders of the Company (the "Shareholders
Agreement"). The Optionee hereby agrees to be bound as a "Shareholder" to all
the terms and conditions, including the transfer restrictions, of the
Shareholders Agreement, a copy of which has been made available to the Optionee
for inspection.
Dated: ___________ ___________________________________
(Signature of Optionee)
Date Received by
Colorado Prime Holdings, Inc.: ______________
Received by: ________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-26-1996
<PERIOD-END> SEP-26-1997
<CASH> 972,000<F1>
<SECURITIES> 0
<RECEIVABLES> 101,521,000
<ALLOWANCES> 7,536,000
<INVENTORY> 4,538,000
<CURRENT-ASSETS> 73,866,000
<PP&E> 6,973,000
<DEPRECIATION> 1,068,000
<TOTAL-ASSETS> 169,773,000
<CURRENT-LIABILITIES> 22,631,000
<BONDS> 118,398,000
0
0
<COMMON> 1,000
<OTHER-SE> 25,873,000
<TOTAL-LIABILITY-AND-EQUITY> 169,773,000
<SALES> 139,917,000
<TOTAL-REVENUES> 154,154,000
<CGS> 54,144,000
<TOTAL-COSTS> 80,672,000
<OTHER-EXPENSES> 671,000
<LOSS-PROVISION> 6,090,000
<INTEREST-EXPENSE> 11,935,000
<INCOME-PRETAX> 5,479,000
<INCOME-TAX> 2,541,000
<INCOME-CONTINUING> 2,938,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,938,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The results of operations for the fiscal year ended September 26, 1997 are
presented for comparative purposes only, and not as combined or consolidated
results of operations in accordance with Generally Accepted Accounting
Principles ("GAAP") nor as a replacement for the separate period results of
operations presented in the Company's audited consolidated financial statements
presented elsewhere in this report. These changes affect the comparability of
operating data principally with respect to amortization of intangible assets
associated with the "push-down" accounting basis revaluation and interest
expense on the new debt. Management believes that the presentation and
assessment of results of operations for the fifty-two weeks ended September 26,
1997 on a pro forma basis provides the most meaningful analysis of the
Company's operating results on a comparable basis.
</FN>
</TABLE>
