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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1997
REGISTRATION NO. 333-30249
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COLORADO PRIME CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5963 11-2826129
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
KAL-MAR PROPERTIES CORP.
(REGISTRANT WITH RESPECT TO THE SUBSIDIARY GUARANTEE)
NEW YORK 6519
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
CONCORD FINANCIAL SERVICES, INC.
(REGISTRANT WITH RESPECT TO THE SUBSIDIARY GUARANTEE)
NEW YORK 6141
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
PRIME FOODS DEVELOPMENT CORPORATION
(REGISTRANT WITH RESPECT TO THE SUBSIDIARY GUARANTEE)
DELAWARE 5963
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
THOMAS S. TAYLOR,
CHIEF FINANCIAL OFFICER
ONE MICHAEL AVENUE ONE MICHAEL AVENUE
FARMINGDALE, NEW YORK 11735 FARMINGDALE, NEW YORK 11735
(516) 694-1111 (516) 694-1111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCLUDING AREA CODE, OF EACH REGISTRANT'S PRINCIPAL NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE FOR
EXECUTIVE OFFICES) EACH REGISTRANT)
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COPIES TO:
CARL SELDIN KOERNER, ESQ. NEIL M. GOODMAN, ESQ.
KOERNER SILBERBERG & WEINER, LLP ARNOLD & PORTER
112 MADISON AVENUE, 3RD FLOOR 555 TWELFTH STREET, N.W.
NEW YORK, NEW YORK 10016-7424 WASHINGTON, D.C. 20004-1202
(212) 689-4400 (202) 942-5191
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as possible after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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============================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE(2)
- ------------------------------------------------------------------------------------------------------------
12 1/2% Senior Notes due 2004........... $100,000,000 $101.25 $101,250,000 $30,682
- ------------------------------------------------------------------------------------------------------------
Subsidiary Guarantee of the Senior Notes
due 2004.............................. -- -- -- (3)
- ------------------------------------------------------------------------------------------------------------
Total................................... $100,000,000 $ $101,250,000 $30,682
============================================================================================================
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(1) Pursuant to Rule 457(f) under the Securities Act of 1933, the registration
fee has been calculated based on the average of the bid and asked prices in
the PORTAL market on June 25, 1997 of the 12 1/2% Senior Notes due 2004 of
Colorado Prime Corporation, for which the securities registered hereby will
be exchanged.
(2) The filing fee was paid on June 26, 1997.
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is
payable for the Subsidiary Guarantee (as defined herein).
------------------------
THE REGISTRANTS HEREBY AMEND THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
================================================================================
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1997
[COLORADO PRIME FOODS LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING 12 1/2% SENIOR NOTES DUE 2004
FOR
12 1/2% SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OF
COLORADO PRIME CORPORATION
GUARANTEED BY
KAL-MAR PROPERTIES CORP.
CONCORD FINANCIAL SERVICES, INC.
PRIME FOODS DEVELOPMENT CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997 UNLESS EXTENDED; PROVIDED IT MAY NOT BE EXTENDED BEYOND
OCTOBER 21, 1997
Colorado Prime Corporation, a Delaware corporation ("CPC"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange its outstanding 12 1/2% Senior Notes due 2004 (the
"Old Notes"), of which an aggregate of $100,000,000 in principal amount is
outstanding as of the date hereof, for an equal principal amount of newly issued
12 1/2% Senior Notes due 2004 (the "New Notes" or the "Exchange Notes"). The
form and terms of the New Notes will be the same as the form and terms of the
Old Notes except that (i) the New Notes will be registered under the Securities
Act of 1933, as amended (the "Securities Act"), and hence will not bear legends
restricting the transfer thereof and (ii) the holders of the New Notes will not
be entitled to certain rights of holders of the Old Notes under the Registration
Rights Agreement (as defined herein), which rights will terminate upon the
consummation of the Exchange Offer. The New Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of an indenture between CPC,
the Subsidiary Guarantors (as defined) and The Bank of New York, as trustee,
(the "Trustee") dated as of May 9, 1997 (the "Indenture") governing the Old
Notes and the New Notes. The Indenture provides for the issuance of both the New
Notes and the Old Notes. The New Notes and the Old Notes are sometimes referred
herein collectively as the "Notes" or the "Senior Notes." Upon a Change of
Control, each holder of the Notes may require CPC to repurchase such holder's
Notes, in whole or in part, at a price equal to 101% of the principal amount
plus accrued and unpaid interest as of the purchase date. There can be no
assurance that CPC will have sufficient funds to repurchase the Notes upon a
Change of Control. See "Risk Factors -- Consequences of Change of Control."
(Continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS
EVALUATING THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
The Notes bear interest at the rate of 12 1/2% per annum. 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 CPC, in
whole or in part at anytime 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, CPC may redeem up to 35% of the aggregate
principal amount of the Notes with the net cash proceeds received by CPC or its
parent corporation from one or more offerings of Capital Stock (other than
Disqualified Stock) at a redemption price of 112.50% of the principal amount
thereof plus accrued and unpaid interest to the redemption date; provided,
however, that at least $65.0 million in aggregate principal amount remains after
such redemption. See "Description of Notes."
The Notes have the benefit of a guarantee (the "Subsidiary Guarantee") issued on
a senior unsecured basis by all existing subsidiaries and any future U.S.
subsidiaries of CPC (the "Subsidiary Guarantors"). The Notes and the Subsidiary
Guarantee will be unsecured senior obligations of CPC and the Subsidiary
Guarantors, respectively, and will rank pari passu in right of payment with all
existing and future unsecured unsubordinated obligations and will be senior in
right of payment to all subordinated indebtedness of CPC and the Subsidiary
Guarantors, respectively. As of June 27, 1997, CPC and its subsidiaries
(collectively, CPC and its subsidiaries are referred to herein as the "Company"
or "Colorado Prime"), had $123.0 million principal amount of indebtedness
outstanding, approximately $22.7 million of which was secured indebtedness under
a senior secured revolving bank facility with a syndicate of banks led by
Dresdner AG, New York and Grand Cayman Branches (the "Credit Agreement") and
$0.3 million of which was capital leases.
The Old Notes were originally issued and sold on May 9, 1997 in transactions not
registered under the Securities Act, in reliance on Rule 144A and Regulation S
under the Securities Act. The Old Notes are designated for trading in the
Private Offerings, Resales and Trading through Automated Linkages ("PORTAL")
market. The New Notes constitute a new issue of securities for which there is no
established trading market. CPC does not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the New
Notes will develop. To the extent that a market for the New Notes does develop,
the market value of the New Notes will depend on market conditions (such as
yields on alternative investments), general economic conditions, the Company's
financial condition and other conditions. Such conditions might cause the New
Notes, to the extent that they are actively traded, to trade at a significant
discount from face value. See "Risk Factors -- Lack of Public Market."
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered, and tendered but unaccepted, Old
Notes could be adversely affected. Following the consummation of the Exchange
Offer, the holders of Old Notes will continue to be subject to the existing
restrictions on transfer thereof and CPC will have no further obligations to
such holders to provide for the registration under the Securities Act of the Old
Notes. The Old Notes may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. No assurance can be given as to the liquidity of the trading
market, for either the Old Notes or the New Notes.
The New Notes will be available only in book-entry form. CPC expects that the
New Notes issued pursuant to the Exchange Offer will be issued in the form of
one or more fully registered global notes that will be deposited with, or on
behalf of, The Depository Trust Company ("DTC") and registered in its name or in
the name of Cede & Co., as its nominee. Beneficial interests in the global notes
representing the New Notes will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and its participants. After the
initial issuance of such global notes, New Notes in certificated form will be
issued in exchange for the global notes only in accordance with the terms and
conditions set forth in the Indenture. See "The Exchange Offer."
CPC will accept for exchange any and all Old Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New York City time, on
, 1997 (if and as extended, the "Expiration Date"). Tenders of
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. Old Notes may be
tendered only in integral multiples of $1,000. In the event CPC terminates the
Exchange Offer and does not accept for exchange any Old Notes, CPC will promptly
return all previously tendered Old Notes to the holders thereof.
Based on a previous interpretation by the staff of the Securities and Exchange
Commission (the "Commission" or the "SEC") set forth in no-action letters to
third parties, CPC believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold, and otherwise
transferred by a holder thereof (other than (i) a broker-
2
<PAGE> 4
dealer who purchases such New Notes directly from CPC to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an affiliate of the Company (within the meaning of Rule 405 under the
Securities Act)) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the holder is acquiring
the New Notes in its ordinary course of business and is not participating, and
has no arrangement or understanding with any person to participate, in the
distribution of the New Notes. Holders of Old Notes wishing to accept the
Exchange Offer must represent to CPC that such conditions have been met.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter," within the meaning of the Securities Act, in connection with
resale of New Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. CPC has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
CPC believes that none of the registered holders of the Old Notes is an
affiliate (as such term is defined in Rule 405 under the Securities Act) of the
Company. CPC has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer, and to
the best of CPC's information and belief, each person participating in the
Exchange Offer is acquiring the New Notes in the ordinary course of business and
has no arrangement or understanding with any person to participate in the
distribution of the New Notes to be received in the Exchange Offer.
CPC will not receive any proceeds from the Exchange Offer. CPC has agreed to
bear the expenses of the Exchange Offer. No underwriter is being used in
connection with the Exchange Offer.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT, A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY STATE.
AVAILABLE INFORMATION
CPC has filed with the Commission a registration statement on Form S-4 (the
"Registration Statement") under the Securities Act with respect to the Exchange
Notes being offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. Statements made in this Prospectus as
to any contract, agreement or other document are summaries of the material terms
of such contracts, agreements or other documents and are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by such reference.
CPC is not currently subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Upon completion of the
Exchange Offer, CPC will be subject to the informational requirements of the
Exchange Act, and, in accordance therewith, will file periodic reports and other
information with the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. So long as any of the Notes remain outstanding, whether or not CPC is
subject to Section 13(a) or 15(d) of the Exchange Act or any successor provision
thereto, following the effectiveness of the Exchange Offer, CPC shall file with
the Commission the annual reports, quarterly reports and other documents which
CPC would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if CPC were so
required, such documents to be filed with the Commission on or prior to the
respective dates by which CPC would have been required to file. Regardless of
whether CPC files such reports or other documents with the Commission, CPC shall
(a) within 15 days of each required filing date (i) transmit by mail to all
holders of Notes, as their names and addresses appear in the Note Register,
without cost to such holders, and (ii) file with the Trustee, copies of such
annual reports, quarterly reports and other documents, and (b) if filing such
documents with the Commission is not permitted under the Exchange Act, promptly
upon written request supply copies of such documents to any prospective holder
of Notes.
Reports and other information filed by CPC with the Commission and the
Registration Statement (with exhibits and schedules thereto), may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
will also be available for inspection and copying at the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of such reports and other information may also be accessible electronically by
means of the Commission's home page on the worldwide web on the Internet at
http://www.sec.gov.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements of the Company, including the notes
thereto, appearing elsewhere in this Prospectus. Unless the context otherwise
requires, references in this Prospectus to "CPC" refer to Colorado Prime
Corporation and references to the "Company" or "Colorado Prime" refer
collectively to CPC and its subsidiaries. All references in this Prospectus to
"fiscal year" refer to the Company's fiscal year which ends on the last Friday
of September in that calendar year. All fiscal years presented herein are 52
weeks with the exception of fiscal 1994, which consists of 53 weeks.
Certain of the information contained in this summary and elsewhere in this
Prospectus, including that set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and information
with respect to the Company's plans and strategy for its business, contains
forward-looking statements which are based on a number of assumptions and are
subject to significant business, economic and competitive uncertainties which
are beyond the control of the Company. For a discussion of important factors
that could cause actual results to differ materially from the forward-looking
statements, investors should carefully consider the information set forth under
the caption "Risk Factors."
THE COMPANY
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 76 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, which management believes is a key driver
of the Company's high customer retention rate. In each of the last five fiscal
years, the Company experienced a customer retention rate of at least 81% as
measured by the percent of customers who reordered when solicited during the
period. The Company attributes its high customer retention to the quality of its
products, the convenience of its services and its discount marketing program.
The Company uses a network of approximately 1,500 telemarketers to schedule
in-home sales presentations. During a sales presentation, one of the Company's
approximately 650 sales representatives presents the Company's product offerings
and designs a customized food program for the customer. In fiscal 1996, 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 73% of initial orders
in fiscal 1996 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. In fiscal 1996, food and non-food
items accounted for approximately 62% and 38% of product sales, respectively.
The Company targets its marketing efforts toward dual income families who are
typically homeowners with children at home. Faced with increasing time
constraints and the pressures of planning and preparing meals, the customers
find the Company a convenient alternative to the supermarket and a higher
quality alternative to other convenience-oriented offerings such as delivery
services or restaurant takeout. Management expects to benefit from the continued
growth in consumer direct marketing sales, which are projected to grow by 7.4%
per year from 1996 to 2001. In 1996 consumer direct marketing sales are
estimated to have been $634.6 billion.
COMPETITIVE STRENGTHS
The Company has developed a strong market position through a carefully tailored
mix of products aimed at upper and middle income customers who value high
quality, superior service and the convenience of home purchasing and delivery.
The Company has earned strong brand name recognition among its customers and
suppliers. In addition, the Company believes that it has distinguished itself as
the nation's premier in-home food shopping company. With no significant direct
competition and no middleman between the Company and the consumer, the Company
plans to increase its market penetration while continuing
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to differentiate its products based on quality and service rather than on price.
The Company attributes its success and its continued opportunities for growth
and profitability to the following competitive strengths:
- High customer retention. The Company has enjoyed a high customer
retention rate of at least 81% in each of the past five fiscal years,
which the Company believes is primarily attributable to a wide selection
of high quality food, the convenience of its integrated services and its
discount marketing program.
- High quality products. The Company's value-added food items are either
custom-prepared at the Company's own facility or are supplied by
restaurant providers and premium food wholesalers, and as such are of a
quality generally unavailable in supermarkets. The Company purchases top
quality meats and specially tenderizes, trims, flash-freezes and vacuum
packages each portion to ensure tenderness, taste and freshness. Non-food
products are purchased by special arrangements from manufacturers and, as
a result, have unique features which are not generally available in
traditional retail channels.
- Value-added service. The Company provides a fully integrated customer
service package from the initial contact through the life of the customer
relationship, which includes: (i) an initial convenient in-home sales
presentation with customized meal planning; (ii) delivery of its food and
non-food products directly into the customer's home; (iii) the option to
finance purchases through its wholly-owned finance subsidiary; and (iv)
the 100% customer satisfaction guarantee on all of the Company's food
products.
- Effective discount marketing program. The Company's marketing efforts
are facilitated by its discount marketing program which enables customers
to earn a lifetime discount on food products when they purchase non-food
products. The discount on the food products generally offsets the
customer's incremental monthly payments on their non-food purchases.
- Strong management team. The Company's management team has considerable
experience in both the direct marketing and food industries and has
implemented a number of growth initiatives to enhance profitability and
operating leverage. Since 1993, the Company has recruited four senior
officers who have extensive experience in food marketing, direct sales
and customer acquisition. The senior management team is complemented by
experienced individuals in sales, operations and service management
positions who have been with the Company for many years. Collectively,
members of the management team average 20 years of experience in the food
industry, 32 years in marketing and direct sales and 20 years in senior
operating positions. See "Management."
BUSINESS STRATEGY
The Company believes that it has significant opportunities for revenue and
earnings growth, including the following principal strategies:
- - Continued geographic expansion. Management is pursuing a measured pace of
geographic expansion based upon a new office opening program developed in
fiscal 1995. With a concentration of offices on the East Coast, geographic
expansion into the western region of the country is of particular interest.
Management believes there is potential for 10 to 12 additional offices in the
western region.
- - Increased market penetration. The Company believes that there is significant
growth potential in its existing markets through the following:
- Customer acquisition. The Company plans to offer different incentives to
customers who provide referral names, which represent the Company's most
efficient form of customer acquisition. In addition, the Company has
implemented initiatives aimed at improving the quality and performance of
the sales representatives and managers through the use of part-time
personnel, new recruiting methods, new employee retention programs,
enhanced training and development.
- Customer retention. Sales to existing customers are more profitable than
sales to new customers as a result of lower selling and telemarketing
costs; thus, the Company strives to continually improve the current level
of customer retention.
- - Margin improvement opportunities. In fiscal 1997, management has already
implemented additional margin enhancement programs including greater
efficiency in food processing, the introduction of more high value appliances,
extending the food service period and certain cost reductions in delivery and
insurance expenses.
- - Continued product development. The Company has and will continue to refine
its products and menus to increase variety and adapt to consumers' changing
eating patterns, lifestyle demands and tastes. The Company introduced 208 new
food and
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non-food products in the last three fiscal years and currently intends to
introduce at least 12 food products and test three non-food products in fiscal
1997.
- - Development of new customer segments and new distribution
channels. Management believes that customer segments currently not within the
Company's target market, such as urban dwellers, customers over age 60, higher
income households and one-member households, may hold additional growth and
profit opportunities. The Company also believes further growth may also be
obtained from new distribution channel alternatives, such as institutional
food services, corporate gift offerings and strategic alliances with
food-related catalog marketers.
The Company's principal executive offices are located at One Michael Avenue,
Farmingdale, New York 11735. Its telephone number is (516) 694-1111.
THE TRANSACTIONS
Pursuant to a Merger Agreement dated as of March 25, 1997 (the "Merger
Agreement"), between CPC's parent corporation, KPC Holdings Corporation
("Holdings") and Thayer Equity Investors III, L.P., a private equity investment
limited partnership and its affiliates ("Thayer"), Colorado Prime Acquisition
Corp. ("CPAC"), a transitory acquisition subsidiary 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 Colorado
Prime Holdings Inc. ("CPH"). In connection with the establishment of CPAC,
immediately prior to the consummation of the Merger, $25.0 million was
contributed to the capital of CPAC as follows: (i) 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 share, of CPAC which is
mandatorily redeemable on May 9, 2007 and warrants to purchase 26,471 shares of
CPH Common Stock at an exercise price of $0.01 per share and (ii) certain
existing senior managers of CPC, including Mr. Dordelman, Mr. Willett, Mr.
Taylor, Mr. DeSantis and certain other executive officers (the "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) or contributed cash in the
aggregate amount of $2.1 million in exchange for an aggregate of 21,200 shares
of common stock of CPAC. The contribution of cash by Thayer, common stock of
Holdings by the Management Investors and cash by the Management Investors is
collectively referred to herein as the "Equity Contribution." Upon the
consummation of the Merger, (i) the shareholders of Holdings, other than CPAC,
received in the aggregate approximately $33.1 million in cash upon the surrender
of their shares of Holdings and (ii) each share of outstanding common stock and
preferred stock of CPAC was converted into a share of common or preferred stock,
as the case may be, of CPH.
Simultaneously with the Merger, CPC consummated the offering of the Old Notes
pursuant to transactions under Rule 144A and Regulation S of the Securities Act
(the "Offering") and entered into a senior secured working capital bank facility
with a syndicate of commercial banks led by Dresdner Bank AG, New York and
Cayman Island Branches (the "Credit Agreement"). The Equity Contribution,
initial borrowings under the Credit Agreement and the net proceeds of the
Offering, comprising an aggregate of approximately $147.0 million, was used (i)
to repay the Company's existing senior notes payable ("Existing Senior Notes")
and the Company's note payable under its existing receivables financing facility
("Existing Finance Facility") along with accrued interest, expenses and premiums
required in connection with such repayments (collectively, the "Existing Debt"),
(ii) to pay the amounts payable in cash to the shareholders of Holdings pursuant
to the Merger and (iii) to pay certain expenses and fees in connection with the
Merger. The series of transactions described as the Equity Contribution, the
Merger, the Offering and the initial borrowings under the Credit Agreement are
collectively referred to herein as the "Transactions."
All of CPC's issued and outstanding capital stock is owned by CPH. CPH is
controlled by Thayer, which owns 100% of CPH's preferred stock and approximately
86% of CPH's Common Stock, while the Management Investors own approximately 14%
of CPH's Common Stock, without taking into account any warrants issued to the
holders of Old Notes (the "Warrants"), warrants issued to Thayer in connection
with the Transactions, or shares issuable in connection with CPH's 1997 Stock
Option Plan. Holders of the Warrants issued in connection with the Old Notes,
are entitled to purchase an aggregate of approximately 10% of CPH's Common Stock
on a fully diluted basis. See "Principal Stockholders." All of the issued and
outstanding capital stock of the Subsidiary Guarantors is owned by CPC.
7
<PAGE> 9
THE EXCHANGE OFFER
THE EXCHANGE OFFER..................CPC is offering to exchange up to
$100,000,000 in aggregate principal amount
of its new 12 1/2% Senior Notes due 2004
which will be registered under the
Securities Act (the "Exchange Notes" or the
"New Notes") for a like principal amount of
its outstanding 12 1/2% Senior Notes due
2004 (the "Old Notes") which were issued and
sold on May 9, 1997 in a transaction exempt
from registration under the Securities Act.
Old Notes may be exchanged only in integral
multiples of $1,000. The terms of the New
Notes are identical in all material respects
(including principal amount, interest rate,
maturity and ranking) to the terms of the
Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that
the New Notes will have been registered
under the Securities Act and therefor will
be generally freely transferable by holders
thereof (except as provided herein -- see
"The Exchange Offer"), and are not subject
to any covenant of CPC regarding
registration. CPC has agreed to make the
Exchange Offer in order to satisfy its
obligations under a registration rights
agreement (the "Registration Rights
Agreement"), dated as of May 9, 1997 among
CPC and J.P. Morgan & Co., NatWest Capital
Markets Limited and Dresdner Kleinwort
Benson North America LLC (together, the
"Initial Purchasers") relating to the Old
Notes. CPC will issue the New Notes on or
promptly after the Expiration Date. See "The
Exchange Offer."
Based on an interpretation of the staff of
the Commission set forth in no-action
letters issued to third parties, CPC
believes that New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and
otherwise transferred by any holder thereof
(other than (i) a broker-dealer who
purchases such New Notes directly from CPC
to resell pursuant to Rule 144A or any other
available exemption under the Securities Act
or (ii) any such holder which is an
"affiliate" of CPC within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and that such holder has
no arrangement or understanding with any
person to participate in the distribution of
such New Notes. In the event that CPC's
belief is inaccurate, holders of New Notes
who transfer New Notes in violation of the
prospectus delivery provisions of the
Securities Act and without an exemption from
registration thereunder may incur liability
thereunder. CPC does not assume or indemnify
holders against such liability. The Exchange
Offers are not being made to, nor will CPC
accept surrenders for exchange from, holders
of Old Notes (i) in any jurisdiction in
which the Exchange Offer or the acceptance
thereof would not be in compliance with the
securities or blue sky laws of such
jurisdiction or (ii) if any holder is
engaged or intends to engage in a
distribution of New Notes. Each
broker-dealer that receives New Notes for
its own account in exchange for Old Notes,
where such Old Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale
of such New Notes. See "Plan of
Distribution."
EXPIRATION DATE.....................The Exchange Offer will expire at 5:00 p.m.,
New York City time, on ,
1997, unless the Exchange Offer is extended
by CPC, in which case the term "Expiration
Date" shall mean the latest date and time to
which the Exchange Offer is extended,
provided it is not
8
<PAGE> 10
extended beyond October 21, 1997. CPC will
accept for exchange any and all Old Notes
which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will
be delivered on or promptly after the
Expiration Date.
EXCHANGE OFFER LIMITATION...........The Old Notes were issued and sold with the
Warrants to purchase 19,608 shares of common
stock of CPH. The Old Notes and Warrants
were sold as units (the "Units"). The
Exchange Offer is limited to an exchange of
Old Notes for New Notes with no effect on
the Warrants. Neither CPC nor CPH has an
obligation under the Registration Rights
Agreement or any other agreement to exchange
the Warrants or register the Warrants under
the Securities Act.
CERTAIN CONDITIONS TO THE EXCHANGE
OFFER...............................CPC may terminate the Exchange Offer,
subject to the Registration Rights
Agreement, if it determines that its ability
to proceed with the Exchange Offer could be
materially impaired due to any legal or
governmental action, any new law, statute,
rule or regulation, any interpretation by
the staff of the Commission of any existing
law, statute, rule or regulation or the
failure to obtain any necessary approvals of
governmental agencies or holders of the Old
Notes. CPC does not expect any of the
foregoing conditions to occur, although
there can be no assurances any such
conditions will not occur.
The Exchange Offer is not conditioned on any
minimum principal amount of the Old Notes
being tendered for exchange. The Exchange
Offer is subject to certain other customary
conditions, each of which may be waived by
CPC. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING OLD
NOTES...............................Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together
with such Old Notes and any other required
documentation to The Bank of New York, as
Exchange Agent, at the address set forth
herein. By executing the Letter of
Transmittal or by transmitting an Agent's
Message (as defined below) in lieu thereof,
each holder will represent to CPC that,
among other things, the New Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business
of the person receiving such New Notes, such
person does not have an arrangement or
understanding with any person to participate
in the distribution of such New Notes, such
person, if not a broker-dealer, is not
engaged in and does not intend to engage in
a distribution of the New Notes and that
neither the holder nor any such other person
is an "affiliate," as defined in Rule 405
under the Securities Act, of CPC. Certain
brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer, including an
Agent's Message in lieu of a Letter of
Transmittal.
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS..............................Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered holder promptly and instruct
such registered holder to tender on such
beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior
to completing and executing the Letter of
Transmittal and
9
<PAGE> 11
delivering his Old Notes, either make
appropriate arrangements to register
ownership of the Old Notes in such owner's
name or obtain a properly completed bond
power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date.
GUARANTEED DELIVERY PROCEDURES......Holders of Old Notes who wish to tender
their Old Notes and who cannot deliver their
Old Notes or the Letter of Transmittal to
The Bank of New York, as Exchange Agent,
prior to the Expiration Date, or for which
the procedures for book-entry transfer
cannot be completed on a timely basis, must
tender their Old Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS...................Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................For a discussion of certain federal income
tax consequences relating to the exchange of
Old Notes for New Notes, see "Certain United
States Federal Income Tax Considerations."
EXCHANGE AGENT......................The Bank of New York is the Exchange Agent.
Its telephone number is (212) 815-6286. The
address of the Exchange Agent is set forth
in "The Exchange Offer -- Exchange Agent."
The Bank of New York also serves as trustee
under the Indenture.
SHELF REGISTRATION STATEMENT........Under certain circumstances described in the
Registration Rights Agreement, certain
holders of Notes (including holders who are
not permitted to participate in the Exchange
Offer or who may not freely resell New Notes
received in the Exchange Offer) may require
CPC to file, and use best efforts to cause
to become effective, a shelf registration
statement under the Securities Act, which
would cover resales of Notes by such
holders. See "Description of Notes --
Registration Rights Agreement."
10
<PAGE> 12
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and certain registration
rights relating to the Old Notes. Whenever defined terms of the Indenture or the
Registration Rights Agreement not otherwise defined herein are referred to, such
defined terms are incorporated herein by reference. In the event that (i) the
Exchange Registration Statement (or, if the Exchange Offer is not permitted
under applicable law or the Commission policy, the Initial Shelf Registration)
has not been filed on or prior to July 8, 1997; (ii) neither the Exchange
Registration Statement is declared effective by the Commission nor the Shelf
Registration is filed with the Commission on or prior to September 21, 1997 or
(iii) CPC has not exchanged the Exchange Notes for all Old Notes validly
tendered in accordance with the terms of the Exchange Offer on or prior to
October 21, 1997, or if applicable, the Shelf Registration has not been declared
effective on or prior to October 21, 1997 or such Shelf Registration ceases to
be effective at any time during the Effectiveness Period (each such event
referred to in clauses (i) through (iii) a "Registration Default"), the annual
interest rate borne by the Old Notes will be increased 0.25% for the first 90
days following the occurrence of such Registration Default and such interest
will be increased an additional 0.25% at the beginning of each subsequent 90-day
period until such Registration Default is cured, up to a maximum additional
amount of 1.00% per annum. The Exchange Registration Statement referred to in
clause (i) above was filed with the Commission on June 27, 1997. Upon the curing
of a Registration Default, the interest rate on the Notes will revert to the
rate set forth on the cover page of this Prospectus.
The Notes will bear interest from the most recent date to which interest has
been paid on the Old Notes or, if no interest has been paid on the Old Notes,
from May 9, 1997. Accordingly, registered holders of New Notes on the relevant
record date for the first interest payment date following the consummation of
the Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Notes or, if no interest has been paid,
from May 9, 1997. Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders whose Old
Notes are accepted for exchange will not receive any payment in respect of
interest on such Old Notes otherwise payable on any interest payment date the
record date for which occurs on or after consummation of the Exchange Offer.
THE NEW NOTES
<TABLE>
<S> <C>
SECURITIES OFFERED........................... $100,000,000 12 1/2 Senior Notes due 2004. See
"Description of Notes."
MATURITY DATE................................ May 1, 2004.
INTEREST PAYMENT DATES....................... May 1 and November 1, commencing November 1, 1997.
OPTIONAL REDEMPTION.......................... The Notes are redeemable at the option of CPC, in whole or
in part, at any time on or after May 1, 2002, at the
redemption prices set forth herein, plus accrued and
unpaid interest to the redemption date. See "Description
of Notes -- Optional Redemption." In addition, prior to
May 1, 2000, CPC may redeem up to an aggregate of 35% of
the principal amount of the Notes with the cash proceeds
received by CPC or CPH from one or more public or private
offerings of its Capital Stock (other than Disqualified
Stock) at a redemption price of 112.50% of the principal
amount thereof, plus accrued and unpaid interest to the
redemption date; provided, however, that at least $65.0
million in aggregate principal amount of the Notes remains
outstanding immediately after any such redemption.
GUARANTEE.................................... The Notes are unconditionally and jointly and severally
guaranteed on a senior unsecured basis by all existing
subsidiaries and any future U.S. subsidiaries of CPC.
</TABLE>
11
<PAGE> 13
<TABLE>
<S> <C>
RANKING...................................... The Notes constitute senior unsecured debt obligations of
CPC. On an as adjusted basis giving effect to the
Transactions, as of June 27, 1997, the Company had $123.0
million of indebtedness outstanding, $22.7 million of
which was secured indebtedness under the Credit Agreement
and $0.3 million of which was capital leases. CPC also had
an additional $27.3 million of availability under the
Credit Agreement. The Notes are not secured and therefore,
effectively rank behind any secured indebtedness of CPC
permitted under the Indenture (including indebtedness
under the Credit Agreement) to the extent of the value of
the assets securing such indebtedness.
CHANGE OF CONTROL............................ Upon a Change of Control, each holder of the Notes may
require CPC to repurchase such holder's Notes, in whole or
part, at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the
purchase date. See "Description of Notes." The Credit
Agreement significantly restricts CPC's ability to
repurchase the Notes upon a Change of Control. See "Risk
Factors -- Consequences of Change of Control" and
"Description of Notes -- Covenants." There can be no
assurance that upon a Change of Control CPC will have
sufficient funds to repurchase any of the Notes.
CERTAIN COVENANTS............................ The Indenture contains certain covenants that, among other
things, limit the ability of the Company to incur
additional Indebtedness, make certain Restricted Payments
and Investments, create Liens, enter into certain
transactions with Affiliates or Related Persons or
consummate certain mergers, consolidations or similar
transactions (each as defined herein). In addition, in
certain circumstances, CPC will be required to offer to
purchase Notes at 100% of the principal amount thereof
with the net proceeds of certain asset sales. These
covenants are subject to a number of significant
exceptions and qualifications. See "Description of Notes."
</TABLE>
RISK FACTORS
See "Risk Factors" immediately following this summary for a discussion of
certain risks that should be considered when evaluating an investment in the
Notes. The Company believes that the principal risk factors include the
following: "Possible Inability to Service Debt;" "Risk Associated with
Subordination of Unsecured Notes to Secured Indebtedness;" "Consequences of
Change of Control;" and "Credit Risk Associated with Financed Sales."
12
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA FOR THE COMPANY
HISTORICAL DATA
Set forth below are (i) summary historical consolidated financial data of the
Company for the three fiscal years ended September 27, 1996 and the thirty-nine
weeks ended June 28, 1996 and (ii) pro forma financial data for the Company as
of and for fiscal 1996 and the thirty-nine weeks ended June 27, 1997. The
summary historical financial data as of June 27, 1997 and for each of the
periods ended June 28, 1996 (thirty-nine weeks) and June 27, 1997 (thirty-two
and seven weeks, respectively) were derived from the Unaudited Consolidated
Interim Financial Statements of the Company for such period contained herein,
which, in the opinion of management for the Company reflect all adjustments
necessary to present fairly the financial position and results of operations for
the periods presented. All fiscal years presented herein are 52 weeks with the
exception of fiscal 1994, which consists of 53 weeks.
NEW BASIS OF ACCOUNTING
As a result of the Transactions, 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, including
the unaudited consolidated interim balance sheet data as of June 27, 1997, and
the results of operations for the seven weeks ended June 27, 1997 reflect the
adoption of this new basis of accounting and, accordingly, data for the 1996
interim period and for all annual fiscal periods presented herein may not be
comparable with the data presented which includes the period subsequent to May
9, 1997. See "Pro Forma Unaudited Condensed Consolidated Statements of
Operations".
The information contained in this table should be read in conjunction with
"Selected Financial and Operating Data," "Pro Forma Unaudited Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Audited Consolidated
Financial Statements, Unaudited Consolidated Interim Financial Statements and
accompanying notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
PRO FORMA (a)
----------------------
THIRTY-NINE THIRTY-TWO SEVEN WEEKS THIRTY-NINE
WEEKS ENDED WEEKS ENDED ENDED WEEKS ENDED
FISCAL YEAR ENDED SEPTEMBER JUNE 28 MAY 9 JUNE 27 FISCAL JUNE 27
1994 1995 1996 1996 1997 1997 1996 1997
-------- -------- -------- ----------- ----------- ----------- -------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands
STATEMENT OF OPERATING DATA
Product sales $134,025 $144,966 $142,651 $107,926 $85,510 $19,704 $142,651 $105,214
Finance income earned 11,201 11,524 12,792 9,384 8,637 2,009 12,792 10,646
-------- -------- -------- -------- ------- ------- -------- --------
Total revenue 145,226 156,490 155,443 117,310 94,147 21,713 155,443 115,860
Cost of goods sold 58,640 59,906 56,387 42,229 32,949 7,672 56,387 40,621
-------- -------- -------- -------- ------- ------- -------- --------
Gross profit 86,586 96,584 99,056 75,081 61,198 14,041 99,056 75,239
Selling, general and
administrative 75,326 80,988 80,901 59,409 48,749 10,867 80,901 59,616
Amortization of goodwill 1,187 1,164 1,164 873 713 188 1,294 998
Interest expense 6,783 8,017 9,130 6,842 5,713 2,153 15,547 11,735
Other expense 559 767(b) 7,089(b) 5,177 426 101 7,089(b) 527
-------- -------- -------- -------- ------- ------- -------- --------
Income before provision
(benefit) for income taxes 2,731 5,648 772 2,780 5,597 732 (5,775) 2,363
Provision (benefit) for income
taxes 1,781 2,738 1,262 1,968 2,727 0 (1,305) 1,173
-------- -------- -------- -------- ------- ------- -------- --------
Net income (loss) $950 $2,910 $(490) $812 $2,870 $732 $(4,470) $1,190
======== ======== ======== ======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF FISCAL YEAR ENDED SEPTEMBER JUNE 27
1994 1995 1996 1997
------- ------- ------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $44,826 $48,065 $52,902 $57,408
Total assets 136,525 143,841 150,784 167,803
Long-term debt (including
current portion)(c) 76,897 82,102 93,541 121,051
Stockholders' equity $43,606 $44,278 $40,669 $26,605
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
PRO FORMA (a)
----------------------
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
FISCAL YEAR ENDED SEPTEMBER JUNE 28 FISCAL JUNE 27
1994 1995 1996 1996 1996 1997
------- ------- ------- ----------- ------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
EBITDA(d) $13,031 $17,424 $20,062 $17,125 $20,062 $16,716
EBITDA margin(d) 9.0% 11.1% 12.9% 14.6% 12.9% 14.4%
Net cash provided by (used in) operating
activities(e) $ 5,144 $ (132) $(2,271) $(4,790)
Net cash (used in) investing activities(e) (1,792) (2,534) (1,958) (1,093)
Net cash provided by (used in) financing
activities(e) (3,600) 2,961 4,115 4,441
Depreciation and amortization 3,517 3,598 3,661 2,702 3,791 2,618
Capital expenditures 1,792 2,534 1,958 1,093 1,958 649
Ratio of EBITDA to interest expense 1.3x 1.4x
Ratio of Earnings to Fixed Charges 1.4x 1.6x 1.1x 1.4x 0(f) 1.2x
</TABLE>
- ------------
(a) Amounts represent the pro forma unaudited statement of condensed
consolidated operations data, and unaudited other financial data of the
Company after giving effect to the Transactions in the manner described
under "Pro Forma Unaudited Condensed Consolidated Financial Statements."
(b) 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 the Existing Senior Notes and a charge for unused office and
warehouse space of $1,698. The thirty-nine week period ended June 28, 1996
includes debt refinancing expenses of $624 and payments to management of
$4,177 under a management incentive plan related to the issuance of the
Existing Senior Notes. Fiscal 1995 includes a write-off of capitalized
software costs of $162. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(c) Long-term debt (including current portion) includes obligations under
capital leases.
(d) EBITDA is defined as net income before interest, income taxes, depreciation
and amortization and certain nonrecurring expenses discussed in Note (b)
above. EBITDA is presented because Management believes it is a widely
accepted financial indicator of the Company's ability to incur and service
debt, as several financial covenants within the Credit Agreement are based
upon EBITDA. 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.
(e) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" for a discussion of the
components of net cash provided by/used in operating, investing and
financing activities.
(f) As a result of debt financing expense of $624, payments to management of
$4,177 under a management incentive plan related to the issuance of the
Existing Senior Notes and a charge for unused office and warehouse space of
$1,698, earnings would have been insufficient to cover fixed charges by $5.5
million on a pro forma basis for fiscal 1996.
---------------------------
14
<PAGE> 16
RISK FACTORS
Holders of the Old Notes should consider carefully the following factors as well
as the other information and data included in this Prospectus prior to tendering
their Old Notes in the Exchange Offer, although the risk factors set forth below
(other than "-- Consequences of Failure to Exchange Old Notes" and "--Exchange
Offer Procedures") are generally applicable to the Old Notes as well as the New
Notes.
POSSIBLE INABILITY TO SERVICE DEBT
The Company incurred significant debt in connection with the Transactions. As of
June 27, 1997, the Company had outstanding $123.0 million principal amount of
indebtedness. In addition, the Company had an additional $27.3 million of
availability under the Credit Agreement. On a pro forma basis for fiscal 1996
earnings would have been insufficient to cover fixed charges by $5.5 million. On
a pro forma basis for the thirty-nine week period ended June 27, 1997 the ratio
of earnings to fixed charges would have been 1.2x. The Company's leveraged
financial position poses certain risks to holders of the Notes, including: (i) a
substantial portion of the Company's cash flow from operations will be dedicated
to the payment of interest on the Notes and the payment of principal and
interest on indebtedness under the Credit Agreement and other indebtedness; (ii)
the Company's leveraged position may impair its ability to obtain financing in
the future for working capital, capital expenditures, acquisitions and general
corporate purposes; and (iii) the Company's leveraged financial position may
make it more vulnerable to economic downturns and may limit its ability to
withstand competitive pressures. There can be no assurance that the future cash
flow of the Company will be sufficient to meet the Company's obligations and
commitments. In addition, the Credit Agreement contemplates that all borrowings
thereunder will become due by 2002, prior to maturity of the Notes. If the
Company is unable to generate sufficient cash flow from operations in the future
to service its indebtedness and to meet its other commitments, the Company will
be required to adopt one or more alternatives, such as refinancing or
restructuring its indebtedness, selling material assets or operations or seeking
to raise additional debt or equity capital. There can be no assurance that any
of these actions could be effected on a timely basis or on satisfactory terms or
that these actions would enable the Company to continue to satisfy its capital
requirements. In addition, the terms of existing or future debt agreements,
including the Indenture and the Credit Agreement, may prohibit the Company from
adopting any of these alternatives. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Description of Certain Indebtedness" and "Description of Notes."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or any state
securities laws and therefore may not be offered, sold or otherwise transferred
except in compliance with the registration requirements of the Securities Act
and any other applicable securities laws, or pursuant to an exemption therefrom
or in a transaction not subject thereto, and in each case in compliance with
certain other conditions and restrictions. Old Notes which remain outstanding
after consummation of the Exchange Offer will continue to bear a legend
reflecting such restrictions on transfer. In addition, upon consummation of the
Exchange Offer, holders of Old Notes which remain outstanding will not be
entitled to any rights to have such Old Notes registered under the Securities
Act or to any similar rights under the Registration Rights Agreement (subject to
certain limited exceptions as described herein). See "Description of
Notes -- Registration Rights Agreement." The Company does not intend to register
under the Securities Act any Old Notes which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable). To the extent that Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. See "The Exchange Offer -- Consequences of Failure to
Exchange Old Notes."
CPH has no intention or (except upon the occurrence of certain events relating
to the initial public offering of its common stock) obligation to register the
Warrants or the shares of Common Stock issuable upon their exercise under the
Securities Act.
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Unless tenders are made by book-entry transfer, issuance of the New Notes in
exchange for Old Notes pursuant to the Exchange Offer will be made only after a
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal and all other required documents. Therefore,
holders of the Old Notes desiring to tender such Old Notes in exchange for New
Notes should allow sufficient time to ensure timely delivery. Neither the
Exchange Agent nor the Company is under any duty to give notification of defects
or irregularities with respect to the tenders of Old Notes for exchange.
15
<PAGE> 17
LACK OF PUBLIC MARKET
The New Notes are being offered to the holders of the Old Notes. The Old Notes
were sold by CPC on May 9, 1997 and are eligible for trading in the Private
Offerings, Resale and Trading through Automated Linkages (PORTAL) Market. There
is no existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of holders of the New Notes to sell their New Notes or the price at which such
holders may be able to sell their New Notes. If such a market were to develop,
the New Notes could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Therefore, there can be no assurance as to the liquidity of
any trading market for the New Notes or that an active public market for the New
Notes will develop. The Company does not intend to apply for listing or
quotation of the New Notes on any securities exchange or stock market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the New Notes.
DEPENDENCE ON SALES PERSONNEL
As of June 27, 1997, the Company employed approximately 650 employees in its
direct sales force. Management believes that the Company's continued success
will depend to a large degree on its ability to identify, attract and retain
qualified sales personnel. The direct sales industry is characterized by high
levels of employee attrition. In recent periods the Company has found it
increasingly difficult to attract and retain qualified sales representatives in
a low unemployment environment. Continued difficulties with identifying,
attracting and retaining sales personnel could have a material adverse effect on
the Company's results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
CREDIT RISK ASSOCIATED WITH FINANCED SALES
Virtually all of the Company's food and non-food sales in fiscal 1996 were
financed by the Company. The Company's provision for doubtful accounts as a
percent of total revenues was 3.5%, 2.9%, 3.4% and 3.3% for fiscal 1994, 1995
and 1996, and the thirty-nine week period ended June 27, 1997. A significant
increase in the rate of bad debt experience among its customers would have a
material adverse effect on the Company's results of operations and financial
condition. In addition, rising consumer debt levels have resulted in an increase
in customer orders rejected by the Company, particularly with respect to new
customers. A prolonged continuation of such trend could have a materially
adverse effect on the Company's results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
STATE AND FEDERAL REGULATION
The Company is subject to extensive regulation by various federal and state
regulatory agencies with respect to the preparation and sale of its food
products and durable goods and the provision of financing to its customers. The
Company's Farmingdale, New York facility is subject to the approval of the
United States Department of Agriculture ("USDA"), which permits the Company to
ship its meat products nationwide without further inspection. Without such
approval, the Company's sale and delivery of meat products would be subject to
state and local inspection, thereby substantially reducing operating flexibility
and increasing costs. The Company's extension of credit to its customers is
subject to the Federal Truth-in-Lending Act and similar state laws, usury laws
and licensing and regulations under retail installment sales acts and similar
statutes enacted by states in which the Company does business. In addition,
there are federal and several state restrictions on telemarketing activities,
and the Company's direct marketing practices are subject to various federal and
state regulations including the home sales solicitation laws. If any federal or
state regulatory agency were to limit or prohibit the Company from engaging in
such activities, this could have a material adverse effect on the Company's
results of operations. See "Business -- Governmental Regulation, Claims or
Assessments." No assurance can be given that additional restrictions will not be
adopted that may adversely affect the Company's business.
RISK ASSOCIATED WITH SUBORDINATION OF UNSECURED NOTES TO SECURED INDEBTEDNESS
The borrowings under the Credit Agreement are secured by first priority
perfected security interests in all the assets of CPC. CPH also issued a
guarantee under the Credit Agreement, which guarantee is secured by a pledge by
CPH of all issued and outstanding capital stock of the Company. Each of CPC's
subsidiaries also issued a guarantee under the Credit Agreement which is secured
by first priority perfected security interests in all the assets of such
subsidiary, and the Company is required to pledge the issued and outstanding
capital stock of each such subsidiary owned by the Company to secure
indebtedness
16
<PAGE> 18
under the Credit Agreement. As of June 27, 1997, the Company had $123.0 million
principal amount of indebtedness outstanding, $22.7 million of which was secured
indebtedness under the Credit Agreement and $0.3 million of which was capital
leases. CPC also had an additional $27.3 million of availability under the
Credit Agreement. The Notes are not secured and will, therefore, effectively
rank behind any secured indebtedness of the Company permitted under the
Indenture (including indebtedness under the Credit Agreement) to the extent of
the value of the assets securing such indebtedness. Subject to certain
limitations, the Indenture permits the Company to incur additional indebtedness.
See "Description of Certain Indebtedness" and "Description of Notes."
RESTRICTIONS IMPOSED BY THE CREDIT AGREEMENT AND THE INDENTURE; PLEDGE OF CPC
STOCK
The Credit Agreement, among other obligations, requires the Company to maintain
specified financial ratios and meet certain tests, including a minimum interest
coverage ratio, a minimum fixed charge coverage ratio, a maximum leverage ratio,
a minimum net worth requirement and a limitation on capital expenditures. In
addition, the Credit Agreement restricts, among other things, the Company's
ability to incur additional indebtedness. A failure to comply with the
restrictions contained in the Credit Agreement could lead to an event of default
thereunder which could result in an acceleration of the maturity of such
indebtedness and the foreclosure of the collateral provided as security for such
indebtedness. Such an acceleration would constitute an event of default under
the Indenture relating to the Notes. In addition, the Indenture restricts, among
other things, the Company's ability to incur additional indebtedness. A failure
to comply with the restrictions in the Indenture could result in an event of
default under the Indenture. In addition, CPH will issue a guarantee under the
Credit Agreement which guarantee is secured by a pledge by CPH of all issued and
outstanding capital stock of the Company. In the event the lenders under the
Credit Agreement were to realize upon such pledge, as stockholders of the
Company such lenders may take actions which further their own interests to the
detriment of holders of the Notes. See "Description of Certain Indebtedness" and
"Description of Notes."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management. The
loss of such key personnel could have a material adverse effect on the Company.
The Company does not maintain key-person insurance for any of its officers or
directors. See "Management."
RELIANCE ON A SINGLE FOOD PROCESSING FACILITY
The Company processes 50% of its food products at a single facility, located in
Farmingdale, New York. In addition, many of the other food items sold by the
Company are shipped from or through such facility. A disruption at this facility
could result in increased processing and shipping costs and less stringent
quality controls. Any major disruption in the Company's Farmingdale facility
could have a material adverse effect on the Company's results of operations and
financial condition.
ABSENCE OF LONG-TERM CONTRACTS WITH SUPPLIERS
The Company's arrangements with both food and non-food suppliers are primarily
by purchase order and terminable at will at the option of either party. As a
result, the Company may be unable to purchase sufficient quantities of food and
non-food goods to meet its requirements during times of limited supply. In
addition, the Company does not generally hedge commodity prices and as a result
is subject to price fluctuations. There can be no assurance that the Company
will continue to be successful in maintaining its supplier relationships, that
any of the supplier relationships will not be terminated in the future or that
future increases in prices will not have a material adverse effect on the
Company's results of operations. See "Business -- Products and Services" and
"Business -- Suppliers."
RISK ASSOCIATED WITH CONFLICT OF INTEREST OF CONTROLLING SHAREHOLDER
Thayer owns approximately 86% (79.2% if all of the Warrants, including the
warrants owned by Thayer, are exercised) of the outstanding Common Stock and
100% of the preferred stock of CPH. As CPH owns 100% of the capital stock of
CPC, Thayer effectively controls the Company. Circumstances may occur in which
the interests of Thayer could be in conflict with the interests of the holders
of the Notes. In addition, Thayer may have an interest in pursuing acquisitions,
divestitures or other transactions that, in its judgment, could enhance its
equity investment, even though such transactions might involve risks to the
holders of the Notes. See "Principal Stockholders."
17
<PAGE> 19
CONSEQUENCES OF CHANGE OF CONTROL
In the event of a Change of Control, CPC will be required to make an offer to
repurchase the Notes at 101% of the principal amount thereof, in cash, plus
accrued and unpaid interest, if any, thereon to the repurchase date. A Change of
Control will result in an event of default under the Credit Agreement and may
result in a default under other indebtedness of the Company that may be incurred
in the future. The Credit Agreement will prohibit the purchase of outstanding
Notes prior to repayment of the borrowings under the Credit Agreement and any
exercise by the holders of the Notes of their right to require CPC to repurchase
the Notes will cause an event of default under the Credit Agreement. There can
be no assurance that CPC will have the financial resources necessary to
repurchase the Notes upon a Change of Control. See "Description of Notes."
RISK ASSOCIATED WITH APPLICABLE FRAUDULENT CONVEYANCE OR BANKRUPTCY LAW
A portion of the net proceeds of the Offering was paid as a dividend to Holdings
in connection with the Transactions. CPC's obligations under the Notes are
guaranteed, jointly and severally by each of the Subsidiary Guarantors. Various
fraudulent conveyance laws have been enacted for the protection of creditors and
may be applied by a court on behalf of any unpaid creditor or a representative
of CPC's or a Subsidiary Guarantor's creditors in a lawsuit to subordinate or
avoid the Notes or the Subsidiary Guarantee in favor of other existing or future
creditors of CPC or a Subsidiary Guarantor. Under applicable provisions of the
U.S. Bankruptcy Code or comparable provisions of state fraudulent transfer or
conveyance laws, if CPC or a Subsidiary Guarantor, as the case may be, at the
time of issuance of the Notes or the Subsidiary Guarantee, (i) incurred such
indebtedness with intent to hinder, delay or defraud any present or future
creditor of CPC or the Subsidiary Guarantor, as the case may be, or contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (ii) received less than reasonably equivalent
value or fair consideration for issuing the Notes or the Subsidiary Guarantee,
as the case may be, and CPC or the Subsidiary Guarantor (a) was insolvent, (b)
was rendered insolvent by reason of the issuance of the Notes or a Subsidiary
Guarantee, (c) was engaged or about to engage in business or a transaction for
which the remaining assets of CPC or such Subsidiary Guarantor constitute
unreasonably small capital to carry on its business or (d) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
mature, then, in each case, a court of competent jurisdiction could void, in
whole or in part, the Notes or the Subsidiary Guarantee, as the case may be.
Among other things, a legal challenge of the Notes or the Subsidiary Guarantee
on fraudulent conveyance grounds may focus on the benefits, if any, realized by
CPC or the Subsidiary Guarantor as a result of the issuance by CPC of the Notes.
To the extent that any Subsidiary Guarantee were voided as a fraudulent
conveyance or held unenforceable for any other reason, holders of the Notes
would cease to have any claim in respect of such Subsidiary Guarantor and would
be creditors solely of CPC and any Subsidiary Guarantor whose Subsidiary
Guarantee was not voided or held unenforceable. In such event, the claims of the
holders of the Notes against the issuer of any invalid Subsidiary Guarantee
would be subject to the prior payment of all liabilities of such Subsidiary
Guarantor. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, CPC or a
Subsidiary Guarantor would be considered insolvent if the sum of its debts,
including contingent liabilities, were greater than all of its assets at fair
valuation or if the present fair market value of its assets were less than the
amount that would be required to pay the probable liability on its existing
debts, including contingent liabilities, as they become absolute and mature.
There can be no assurance that, after providing for all prior claims, there will
be sufficient assets to satisfy the claims of the holders of the Notes relating
to any voided Subsidiary Guarantee.
RISK ASSOCIATED WITH COMPLIANCE WITH ENVIRONMENTAL AND OCCUPATIONAL HEALTH AND
SAFETY REGULATIONS
The Company is subject to federal, state and local environmental and
occupational health and safety laws and regulations. Such laws and regulations,
among other things, impose limitations on the discharge of pollutants and
establish standards for management of waste. As is the case with manufacturers
in general, if a release or threat of release of hazardous materials occurs on
or from the Company's properties or any associated offsite disposal location, or
if contamination from prior activities is discovered at any properties owned or
operated by the Company, the Company may be held liable for remediation costs
and damages to natural resources. There can be no assurance that the amount of
any such liability would not be material.
18
<PAGE> 20
THE TRANSACTIONS
THE MERGER
Pursuant to the Merger Agreement dated as of March 25, 1997, between Thayer and
Holdings, CPAC, 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. The date of the Merger was May 9,
1997. In connection with the establishment of CPAC, immediately prior to the
consummation of the Merger, an Equity Contribution in the amount of $25.0
million was made to the capital of CPAC as follows: (i) 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 share, of CPAC which will be
mandatorily redeemable on May 9, 2007 and warrants to purchase 26,471 shares of
CPH Common Stock at an exercise price of $0.01 per share and (ii) the 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 the consummation of the Merger, (i) the shareholders of
Holdings, other than CPAC, received in the aggregate approximately $33.1 million
in cash upon the surrender of their shares of Holdings, (ii) each share of
outstanding common stock and preferred stock of CPAC was converted into a share
of common or preferred stock, as the case may be, of Holdings, and (iii)
Holdings was renamed CPH.
Simultaneously with the Merger, CPC consummated the Offering and entered into
the Credit Agreement. The Equity Contribution, the borrowings under the Credit
Agreement and the net cash proceeds of the Offering, approximately $147.0
million in the aggregate, were used to repay the Existing Debt, to pay the
amounts payable, in cash, in connection with the Merger to the shareholders of
Holdings and to pay certain expenses and fees in connection with the Merger.
THE CREDIT AGREEMENT
The Credit Agreement provides for a senior secured revolver of $50.0 million
(the "Working Capital Revolver"), a portion of which will be available for
letters of credit. In connection with the Transactions, CPC borrowed
approximately $24.0 million under the Working Capital Revolver. The $26.0
million of undrawn availability under the Working Capital Revolver following
consummation of the Transactions will be available (subject to borrowing base
limitations) for working capital, permitted acquisitions and general corporate
purposes. CPH and each subsidiary of CPC guaranteed the obligations of CPC under
the Credit Agreement. The obligations under the Credit Agreement are secured by
first priority perfected security interests on all of the assets of CPC and its
subsidiaries and a stock pledge of 100% of the issued and outstanding capital
stock of CPC and its subsidiaries.
19
<PAGE> 21
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. On May 9,
1997, CPC issued $100,000,000 in principal amount of the Old Notes (the
"Offering"). The Old Notes were sold by CPC to the Initial Purchasers and were
in turn sold by the Initial Purchasers pursuant to Rule 144A and Regulation S
under the Securities Act and exemptions from applicable state securities laws.
The Offering was not subject to the registration requirements of the Securities
Act and applicable state securities laws. The net proceeds from the transactions
involving the sale of the Old Notes, the Equity Contribution and the borrowings
under the Credit Agreement, were collectively used to finance the Merger, to
refinance Existing Debt and to pay related transaction fees and expenses.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth as of June 27, 1997 the capitalization of the
Company which gives effect to the Transactions which took place on May 9, 1997.
As a result of the Transactions, 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. This new basis of accounting is reflected in the Company's
unaudited consolidated interim balance sheet as of June 27, 1997, from which the
data herein are derived. The information in this table should be read in
conjunction with "Pro Forma Unaudited Condensed Consolidated Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Unaudited Consolidated Interim Financial
Statements and accompanying notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Dollars in thousands ----------
AS OF JUNE
27 1997
-----------
(UNAUDITED)
<S> <C>
SHORT-TERM DEBT:
Current portion of capital leases $ 231
--------
Total short-term debt obligations 231
--------
LONG-TERM DEBT OBLIGATIONS, EXCLUDING CURRENT PORTION:
Working Capital Revolver 22,700
12.50% Senior Notes due 2004 98,012(1)
Capital leases 108
--------
Total long-term debt obligations 120,820
--------
Total debt obligations 121,051
--------
STOCKHOLDER'S EQUITY:
Contributed capital 25,873
Retained earnings 732
--------
Total stockholder's equity 26,605
--------
Total capitalization $ 147,656
========
</TABLE>
- ---------------
(1) Represents $100 million principal amount of Notes, less original issue
discount and the value of the Warrants.
21
<PAGE> 23
SELECTED FINANCIAL AND OPERATING DATA
HISTORICAL DATA
The following selected financial information is qualified by reference to, and
should be read in conjunction with, the Company's audited Consolidated Financial
Statements and Unaudited Consolidated Interim Financial Statements and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained elsewhere in this Prospectus. The selected
Statement of Operating Data for fiscal 1994, 1995 and 1996 and the selected
Balance Sheet Data as of September 29, 1995 and September 27, 1996 are derived
from and should be read in conjunction with the Company's audited financial
statements which are included elsewhere herein. The Selected Statement of
Operating Data and Balance Sheet Data for the periods ended June 28, 1996
(thirty-nine weeks) and June 27, 1997 (thirty-two and seven weeks, respectively)
have been derived from, and should be read in conjunction with the Company's
unaudited consolidated interim financial statements included elsewhere herein
and include all adjustments, consisting only of normal recurring adjustments,
which management considers necessary for a fair presentation of the results of
the Company for such periods. Results for interim periods are not necessarily
indicative of results that may be achieved for the full fiscal year. The
Selected Balance Sheet Data as of September 25, 1992, September 24, 1993 and
September 30, 1994 and the selected Statement of Operating Data for the fiscal
years ended September 25, 1992 and September 24, 1993 are derived from audited
financial statements of the Company not included herein.
NEW BASIS OF ACCOUNTING
As a result of the Transactions, 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, including
the unaudited consolidated interim balance sheet data as of June 27, 1997, and
the results of operations for the seven weeks ended June 27, 1997 reflect the
adoption of this new basis of accounting and, accordingly, data for the 1996
interim period and for all annual fiscal periods presented herein may not be
comparable with the data presented which includes the period subsequent to May
9, 1997. See "Pro Forma Unaudited Condensed Consolidated Statements of
Operations."
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
SEVEN PRO-FORMA
THIRTY-NINE THIRTY-TWO MONTHS THIRTY-NINE
WEEKS ENDED WEEKS ENDED ENDED WEEKS ENDED(F)
Dollars in FISCAL YEAR ENDED SEPTEMBER JUNE 28 MAY 9 JUNE 27 JUNE 27
thousands 1992 1993 1994 1995 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- ----------- ------------ ----------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATING DATA
Product sales $122,330 $126,171 $134,025 $144,966 $142,651 $107,926 $85,510 $19,704 $105,214
Finance income
earned 9,912 10,725 11,201 11,524 12,792 9,384 8,637 2,009 10,646
------- ------- ------- ------- ------- ------- ------ ------ -------
Total revenue 132,242 136,896 145,226 156,490 155,443 117,310 94,147 21,713 115,860
Cost of goods
sold 56,726 59,371 58,640 59,906 56,387 42,229 32,949 7,672 40,621
------- ------- ------- ------- ------- ------- ------ ------ -------
Gross profit 75,516 77,525 86,586 96,584 99,056 75,081 61,198 14,041 75,239
Selling, general
and
administrative 62,260 69,450 75,326 80,988 80,901 59,409 48,749 10,867 59,616
Amortization of
goodwill 1,164 1,164 1,187 1,164 1,164 873 713 188 998
Interest expense 11,706 9,745 6,783 8,017 9,130 6,842 5,713 2,153 11,735
Other expense 400 6,357(a) 559 767(a) 7,089(a) 5,177 426 101 527
------- ------- ------- ------- ------- ------- ------ ------ -------
Income (loss)
before
provision
(benefit) for
income taxes (14) (9,191) 2,731 5,648 772 2,780 5,597 732 2,363
Provision
(benefit) for
income taxes 300 (2,929) 1,781 2,738 1,262 1,968 2,727 0 1,173
------- ------- ------- ------- ------- ------- ------ ------ -------
Net income
(loss) $ (314) $ (6,262) $ 950 $ 2,910 $ (490) $ 812 $ 2,870 $ 732 $ 1,190
======= ======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
AS OF FISCAL YEAR ENDED SEPTEMBER JUNE 28 JUNE 27
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA
Working capital $ 41,470 $ 45,674 $ 44,826 $ 48,065 $ 52,902 $ 54,291 $ 57,408
Total assets 137,685 141,303 136,525 143,841 150,784 149,194 167,803
Long-term debt
(including
current
portion)(b) 101,088 78,097 76,897 82,102 93,541 93,757 121,051
Stockholder's
equity $ 22,224 $ 45,115 $ 43,606 $ 44,278 $ 40,669 $ 41,959 $ 26,605
</TABLE>
22
<PAGE> 24
SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
THIRTY-NINE
THIRTY-NINE WEEKS
WEEKS ENDED ENDED
JUNE JUNE
------------ ------------
Dollars in thousands 1992 1993 1994 1995 1996 1996 1997
-------- ------- -------- -------- -------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
EBITDA (c) $ 14,757 $ 9,932 $ 13,031 $ 17,424 $ 20,062 $ 17,125 $ 16,716
EBITDA margin (c) 11.2% 7.3% 9.0% 11.1% 12.9% 14.6% 14.4%
Net cash provided by (used
in) operating activities
(g) $ (4,559) $ (891) $ 5,144 $ (132) $ (2,271) $ (4,790)
Net cash used in investing
activities (g) (3,164) (1,003) (1,792) (2,534) (1,958) (1,093)
Net cash provided by (used
in) financing activities
(g) 7,812 3,509 (3,600) 2,961 4,115 4,441
Depreciation and
amortization 3,062 3,405 3,517 3,598 3,661 2,702 2,618
Capital expenditures 3,164 1,003 1,792 2,534 1,958 1,093 649
Ratio of earnings to fixed
charges (d) 1.0x 0(e) 1.4x 1.6x 1.1x 1.4x 1.2x
</TABLE>
- ---------------
(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 the Existing Senior Notes and also includes a charge for unused
office and warehouse space of $1,698. The thirty-nine week period ended
June 28, 1996 includes debt refinancing expenses of $624 and payments to
management of $4,177 under a management incentive plan related to the
issuance of the Existing Senior Notes. 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, as several financial covenants within the Credit Agreement are based
upon EBITDA. 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.
(d) For purposes of the ratio of earnings to fixed charges, (i) earnings are
calculated as the Company's earnings, before income taxes and fixed charges
and (ii) fixed charges include interest on all indebtedness, amortization
of deferred financing costs and one-third of operating lease expense.
(e) As a result of the charge for unused office and warehouse space and
severance of $5,973 discussed in Note (a) above and losses generated from
the opening of new offices, earnings were insufficient to cover fixed
charges by approximately $9.2 million for fiscal 1993.
(f) Amounts represent the pro forma unaudited statement of condensed
consolidated operations data and unaudited other financial data of the
Company after giving effect to the Transactions in the manner described
under "Pro Forma Unaudited Condensed Consolidated Financial Statements."
(g) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for a discussion
of the components of net cash provided by/used in operating, investing and
financing activities.
23
<PAGE> 25
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PRO FORMA ADJUSTMENTS AND RESULTS OF OPERATIONS
NEW BASIS OF ACCOUNTING
As a result of the Transactions, 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 the 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 reflect
the adoption of this new basis of accounting.
PRESENTATION OF DATA FOR COMBINED PERIODS
The combined results of operations for the thirty-nine weeks ended June 27, 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 unaudited consolidated interim financial
statements presented elsewhere in this registration statement. Reference is made
to Note 1 to the Unaudited Consolidated Interim Financial Statements.
The accompanying pro forma unaudited condensed consolidated statements of
operations of the Company assume that the Transactions occurred at the beginning
of each period presented (see "Presentation of Data for Combined Periods" above
with respect to the Thirty-Nine Weeks Ended June 27, 1997). The Merger has been
reflected using the purchase method of accounting for business combinations.
This unaudited pro forma information is not intended to reflect, and should not
be used as a measure of, what results of operations and financial position might
have been had the Transactions taken place at an earlier date nor is the
unaudited pro forma information intended to reflect results of operations or
financial position that may be attained in the future. Among other factors, the
pro forma information does not include adjustments for new compensation
arrangements following the Transactions, as the Company does not expect the
amount of salary resulting from the new compensation arrangements to be
materially different than historical amounts.
24
<PAGE> 26
COLORADO PRIME CORPORATION AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1996
<TABLE>
<CAPTION>
----------------------------------------------
PRO FORMA PRO FORMA
SEPTEMBER 27 ADJUSTING SEPTEMBER 27
Dollars in thousands 1996 ENTRIES 1996
------------ ---------- ------------
<S> <C> <C> <C>
Product sales $142,651 $142,651
Finance income earned 12,792 12,792
-------- -------- --------
Total revenue 155,443 155,443
Cost of goods sold 56,387 56,387
-------- -------- --------
Gross profit 99,056 99,056
-------- -------- --------
Other cost and expenses:
Selling, general and administrative 80,901 80,901
Amortization of goodwill 1,164 130(a) 1,294
Interest expense 9,130 6,417(b) 15,547
Other expense 7,089 7,089
-------- -------- --------
Total cost and expenses 98,284 6,547 104,831
-------- -------- --------
Income (loss) before provision (benefit) for income taxes 772 (6,547) (5,775)
Provision (benefit) for income taxes 1,262 (2,567)(c) (1,305)
-------- -------- --------
Net loss $ (490) $ (3,980) $ (4,470)
======== ======== ========
Ratio of EBITDA to interest expense 2.2x 1.3x
Ratio of earnings to fixed charges 1.1x 0(d)
</TABLE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THIRTY-NINE WEEKS ENDED JUNE 27, 1997
<TABLE>
<CAPTION>
--------------------------------------------
COMBINED
PERIODS PRO FORMA
THIRTY-NINE THIRTY-NINE
WEEKS WEEKS
ENDED PRO FORMA ENDED
JUNE 27 ADJUSTING JUNE 27
Dollars in thousands 1997(G) ENTRIES 1997
----------- ---------- -----------
<S> <C> <C> <C>
Product sales................................................. $ 105,214 $ 105,214
Finance income earned......................................... 10,646 10,646
---------- --------- -----------
Total revenue................................................. 115,860 0 115,860
Cost of goods sold............................................ 40,621 40,621
---------- --------- -----------
Gross profit.................................................. 75,239 0 75,239
---------- --------- -----------
Other cost and expenses:
Selling, general and administrative........................... 59,616 59,616
Amortization of goodwill...................................... 901 97(e) 998
Interest expense.............................................. 7,866 3,869(f) 11,735
Other expense................................................. 527 527
---------- --------- -----------
Total cost and expenses..................................... 68,910 3,966 72,876
---------- --------- -----------
Income before provision for income taxes...................... 6,329 (3,966) 2,363
Provision for income taxes.................................... 2,727 (1,554) (c) 1,173
---------- --------- -----------
Net income.................................................... $ 3,602 $ (2,412) $ 1,190
========== ========= ===========
Ratio of EBITDA to interest expense........................... 2.1x 1.4x
Ratio of earnings to fixed charges............................ 1.7x 1.2x
</TABLE>
- ---------------
(g) Presented for comparative analysis purposes only, not in accordance with
GAAP, nor as a replacement for the separate period results of operations
presented in the Company's unaudited consolidated interim financial
statements presented elsewhere in this Registration Statement. Reference is
made to Note 1 to the unaudited consolidated interim financial statements.
SEE NOTES TO THE PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS.
25
<PAGE> 27
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Dollars in thousands
(a) The pro forma adjustments to goodwill amortization reflect the following:
<TABLE>
<S> <C>
Elimination of historical goodwill amortization $ (1,164)
Amortization of goodwill related to the Transactions over 30 years 1,294
--------
$ 130
========
</TABLE>
(b) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<S> <C>
Elimination of historical interest expense for the Existing Debt repaid in connection
with the Transactions $ (9,130)
Interest expense on Working Capital Revolver at an interest rate of 7.75% 1,860
Interest expense on the Notes ($97,987 principal balance) at an interest rate of 12.95% 12,689
Amortization of the estimated debt issuance costs related to the Transactions 998
--------
$ 6,417
========
</TABLE>
(c) To reflect the estimated income tax provision on pro forma adjustments at an
assumed rate of 40%.
(d) As a result of debt financing expenses of $624, payments to management of
$4,177 under a management incentive plan related to the issuance of the
Existing Senior Notes and a charge for unused office and warehouse space of
$1,698, earnings would have been insufficient to cover fixed charges by $5.5
million on a pro forma basis for fiscal 1996.
(e) The pro forma adjustments to goodwill amortization reflect the following:
<TABLE>
<S> <C>
Elimination of historical goodwill amortization $ (873)
Amortization of goodwill related to the Transactions over 30 years 970
-------
$ 97
=======
</TABLE>
(f) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<S> <C>
Elimination of historical interest expense for the Existing Debt repaid in connection
with the Transactions $ (7,792)
Interest expense on Working Capital Revolver at an interest rate of 7.75% 1,395
Interest expense on the Notes ($97,987 principal balance) at an interest rate of 12.95% 9,517
Amortization of the estimated debt issuance costs related to the Transactions 749
--------
$ 3,869
========
</TABLE>
26
<PAGE> 28
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
the Unaudited Consolidated Interim Financial Statements and accompanying notes
thereto included elsewhere in this Prospectus.
HISTORICAL OVERVIEW
During the early 1990's, the Company's previous management elected to implement
an accelerated plan of new office openings. Ultimately, the Company failed to
realize increases in revenues commensurate with the number of new offices opened
due in large part to the inability of the Company to adequately recruit, train
and manage a rapidly expanding sales force. As a result, the Company installed a
new management team starting in late 1993. Under the direction of the new
management team, which will continue following the consummation of the
Transactions, the Company embarked on a measured revenue growth strategy with a
focus on profit improvement. The Company implemented a number of initiatives to
enhance its profitability which included: (i) closing unprofitable offices; (ii)
adopting a measured strategy for opening new offices; (iii) increasing sales
effectiveness by placing telemarketers close to the sales force; (iv) increasing
average order sizes through the introduction of more higher value appliances and
extending the food service period; (v) improving and expanding the quality and
breadth of the product line and (vi) implementing an aggressive cost reduction
program. The combination of these initiatives increased the Company's revenues
and EBITDA from fiscal 1993 through fiscal 1996 at a compound annual growth rate
of 4.3% and 26.4%, respectively.
NEW BASIS OF ACCOUNTING
As a result of the Transactions, 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, including
the unaudited consolidated interim balance sheet data as of June 27, 1997, and
the pro forma results of operations for the thirty-nine weeks ended June 27,
1997 reflect the adoption of this new basis of accounting as if the Transactions
occurred at the beginning of the period and, accordingly, data for the 1996
interim period and 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 thirty-nine weeks ended June 27,
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 unaudited consolidated interim
financial statements presented elsewhere in this Registration Statement.
Reference is made to Note 1 to the unaudited consolidated interim financial
statements.
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 Notes. Management
believes that the presentation and assessment of results of operations for the
thirty-nine weeks ended June 27, 1997 on a pro forma basis provides the most
meaningful analysis of the Company's operating results on a comparable basis.
See "Pro Forma Unaudited Condensed Consolidated Statements of Operations."
27
<PAGE> 29
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,
with the exception of fiscal 1994, which consists of 53 weeks.
<TABLE>
<CAPTION>
----------------------------------------------------------------
THIRTY-NINE WEEKS ENDED
FISCAL YEAR ENDED SEPTEMBER JUNE
-------------------------------- -------------------------
1994 1995 1996 1996 1997
----------------------------------------------------------------
PRO
FORMA
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND OTHER
FINANCIAL DATA:
Total revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 59.6 61.7 63.7 64.0 64.9
Selling, general and administrative
expenses 51.9 51.7 52.0 50.6 51.5
Interest expense 4.7 5.1 5.9 5.8 10.1
Amortization of goodwill 0.8 0.7 0.7 0.7 0.9
Other expense 0.4 0.5 4.6 4.4 0.5
Provision for income taxes 1.2 1.7 0.8 1.7 1.0
Net income (loss) 0.6 2.0 (0.3) 0.7 1.0
Depreciation and amortization 2.4 2.3 2.3 2.3 2.3
EBITDA 9.0 11.1 12.9 14.6 14.4
</TABLE>
THIRTY-NINE WEEKS ENDED JUNE 27, 1997 (PRO FORMA) COMPARED TO THIRTY-NINE WEEKS
ENDED JUNE 28, 1996.
Total revenue for the thirty-nine weeks ended June 27, 1997 decreased by $1.4
million, or 1.2%, to $115.9 million from $117.3 million for the thirty-nine
weeks ended June 28, 1996. Food revenue for the thirty-nine weeks ended June 27,
1997 decreased by $2.7 million or 4.1%, to $64.4 million from $67.1 million for
the thirty-nine weeks ended June 28, 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. The decrease also resulted from fewer sales to reorder
customers due to less reorder sales opportunities. Food revenue was positively
affected by price increases commensurate with inflation. Non-food revenue for
the thirty-nine weeks ended June 27, 1997 increased by $0.1 million, or 0.2%, to
$40.9 million from $40.8 million for the thirty-nine weeks ended June 28, 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 reduction in food orders as non-food
sales are only consummated if a food sale is made. Finance income for the
thirty-nine weeks ended June 27, 1997 increased by $1.2 million, or 13.4%, to
$10.6 million from $9.4 million for the thirty-nine weeks ended June 28, 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 thirty-nine weeks ended June 27, 1997 increased by $0.1
million, or 0.2%, to $75.2 million from $75.1 million for the thirty-nine weeks
ended June 28, 1996. Gross profit margin increased to 64.9% for the thirty-nine
weeks ended June 27, 1997, from 64.0% for the thirty-nine weeks ended June 28,
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 greater 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 thirty-nine weeks ended June 27,
1997, these expenses increased by $0.2 million, or 0.3%, to $59.6 million from
$59.4 million for the thirty-nine weeks ended June 28, 1996. As a percentage of
total revenues, SG&A expenses increased to 51.5% for the thirty-nine weeks ended
June 27, 1997 from 50.6% for the thirty-nine weeks ended June 28, 1996. The
increase was primarily due to higher telemarketing costs as a result of an
increase in employee hours and higher bad debt related collection costs due to a
higher level of customer payment delinquencies, offset by lower selling costs
associated with reduced marketing spending.
Interest expense for the thirty-nine weeks ended June 27, 1997 increased to
$11.7 million (pro forma) from $6.8 million for the thirty-nine weeks ended June
28, 1996. The increase was primarily attributable to a greater level of
borrowing at a higher rate of interest under the Notes and the Credit Agreement,
assumed outstanding during the entire 1997 period on a pro forma basis, as
compared to the financing in effect during the previous period.
28
<PAGE> 30
Other expense for the thirty-nine weeks ended June 27, 1997 decreased by $4.7
million, or 89.8%, to $0.5 million from $5.2 million for the thirty-nine weeks
ended June 28, 1996. The decrease was primarily due to nonrecurring expense of
refinancing-related bonuses and redemption of stock in connection with a
management incentive plan of $4.2 million and debt financing expenses of $0.6
million related to the issuance of the previous senior notes recorded in 1996.
Provision for income tax for the thirty-nine weeks ended June 27, 1997 decreased
by $0.8 million to $1.2 million (pro forma) from $2.0 million for the
thirty-nine weeks ended June 28, 1996. The increase was due to lower pretax
income for the thirty-nine weeks ended June 27, 1997 on a pro forma basis.
Net income increased to $1.2 million (pro forma) or 1.0% of total revenues for
the thirty-nine weeks ended June 27, 1997 from $0.8 million or 0.7% of total
revenues for the thirty-nine weeks ended June 28, 1996 for the reasons discussed
above.
Depreciation and amortization decreased to $2.6 million (pro forma) or 2.3% of
total revenue for the thirty-nine weeks ended June 27, 1997 from $2.7 million or
2.3% of total revenue for the thirty-nine weeks ended June 28, 1996. The
decrease is primarily attributable to a reduction in capital spending offset by
additional goodwill.
EBITDA decreased to $16.7 million (pro forma) for the thirty-nine weeks ended
June 27, 1997 from $17.1 million for the thirty-nine weeks ended June 28, 1996.
EBITDA margin decreased from 14.6% for the thirty-nine weeks ended June 28, 1996
to 14.4% for the thirty-nine weeks ended June 27, 1997 for the reasons stated
above.
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. As discussed above, 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 period. 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 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.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For fiscal 1996, these 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 issuance of the Existing Senior Notes.
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 issuance of
the Existing Senior Notes. 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 nonrecurring expenses associated
with the Existing Senior Notes.
29
<PAGE> 31
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 (b) to "Selected Financial and Operating Data."
FISCAL YEAR ENDED SEPTEMBER 29, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
Total revenue for the 52 week fiscal 1995 increased by $11.3 million, or 7.8%,
to $156.5 million from $145.2 million for the 53 week fiscal 1994. Food revenue
for fiscal 1995 increased by $5.5 million, or 6.5%, to $89.3 million from $83.8
million for fiscal 1994. The increase in food revenue was attributable to a
greater number of orders from new customers and a change in the Company's sales
presentation to one based upon anticipated food requirements during a six month
period from one based upon five months. The change was introduced in some
markets during fiscal 1995. Non-food revenue for fiscal 1995 increased by $5.4
million, or 10.8%, to $55.6 million from $50.2 million for fiscal 1994. The
increase in non-food sales was primarily due to the greater number of food
orders and increased sales of higher value appliances. Finance income for fiscal
1995 increased by $0.3 million, or 2.7%, to $11.5 million from $11.2 million for
fiscal 1994. The increase in finance income resulted from larger customer
accounts receivable balances due to increased non-food orders and the sale of
higher value appliances.
Gross profit for fiscal 1995 increased by $10.0 million, or 11.6%, to $96.6
million from $86.6 million for fiscal 1994. Gross profit margin increased to
61.7% for fiscal 1995 from 59.6% for fiscal 1994. The increase in gross profit
margin was primarily related to increased sales of non-food products which
generally have a higher profit margin, enhanced purchasing procedures and the
impact of the Company's cost reduction programs.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For fiscal 1995, these expenses increased
by $5.7 million, or 7.5%, to $81.0 million from $75.3 million for fiscal 1994.
As a percentage of total revenues, SG&A expenses decreased to 51.7% for fiscal
1995 from 51.9% for fiscal 1994 as a result of greater sales volume. The
increase in expenses is a result of an increase in volume related costs.
Interest expense for fiscal 1995 increased by $1.2 million, or 17.6%, to $8.0
million from $6.8 million for fiscal 1994. The increase was primarily
attributable to greater borrowings under the Company's credit facility to fund
the sales growth.
Other expense for fiscal 1995 was relatively flat at $0.8 million compared to
$0.6 million for fiscal 1994.
Provision for income taxes for fiscal 1995 increased by $1.0 million to $2.7
million from $1.7 million for fiscal 1994. The increase was primarily
attributable to a significant increase in pretax profits due to increases in
revenues.
Net income increased to $2.9 million or 2.0% of total revenue for fiscal 1995
from $0.9 million or 0.6% of total revenue for fiscal 1994 for the reasons
discussed above.
Depreciation and amortization for fiscal 1995 increased by $0.1 million to $3.6
million from $3.5 million for fiscal 1994.
EBITDA for fiscal 1995 increased by $4.4 million or 33.8% to $17.4 million from
$13.0 million for fiscal 1994. EBITDA margin as a percentage of total revenue
increased to 11.1% for fiscal 1995 from 9.0% for fiscal 1994, for the reasons
stated above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the thirty-nine weeks ended June 27,
1997 was $0.2 million, primarily comprised of net income of $1.2 million (pro
forma), non cash charges of $6.9 million (pro forma), increases in accrued
expenses of $0.4 million (pro forma) and increases in income taxes payable of
$0.9 million (pro forma), offset by increases in accounts receivable of $7.5
million, increases in inventory of $0.7 million, increases in other assets of
$0.4 million, and decreases in other liabilities of $0.5 million.
Net cash used in operating activities for the thirty-nine weeks ended June 28,
1996 was $4.8 million, primarily comprised of net income of $0.8 million, non
cash charges of $6.7 million, offset by increases in accounts receivable of $8.8
million, decreases in accrued expenses of $2.6 million and decrease in other
liabilities of $0.5 million.
Net cash used in investing activities for the thirty nine weeks ended June 27,
1997 was $3.0 million, comprised of net assets acquired of $2.4 million and
investments in property plant and equipment of $0.7 million.
30
<PAGE> 32
Net cash used in investing activities for the thirty-nine weeks ended June 28,
1996 was $1.1 million, comprised of investment in property, plant and equipment.
Net cash used in financing activities for the thirty-nine weeks ended June 27,
1997 was $0.3 million, primarily comprised of net proceeds from the sale of the
Company of $137.4 million, partially offset by repayment of debt and
distributions to former shareholders of $137.7 million.
Net cash provided by financing activities for the thirty-nine weeks ended June
28, 1996 was $5.0 million, primarily comprised of net proceeds from borrowings
of $30.0 million partially offset by repayment of debt of $25.0 million.
Net cash used in operating activities for fiscal 1996 was $2.3 million,
primarily comprised of a net loss of $0.5 million and an increase in accounts
receivable of $11.5 million, partially offset by non-cash charges of $9.2
million and a decrease in inventories of $0.6 million.
Net cash used in operating activities for fiscal 1995 was $0.1 million,
primarily comprised of net income of $2.9 million, non-cash charges of $8.4
million, a decrease in prepaid expenses and other assets of $1.0 million, a
decrease in accounts payable and accrued liabilities of $1.6 million and a
decrease in taxes payable of $0.8 million, partially offset by increases in
accounts receivable and inventory of $14.0 million and decrease in other
liabilities of $1.0 million.
Cash provided by financing activities for fiscal 1996 was $4.1 million,
primarily comprised of the issuance of the Existing Senior Notes of $34.5
million and borrowings under the Existing Finance Facility of $2.4 million,
partially offset by repayment of note to affiliate of $25.0 million, payment of
fees of $3.2 million, return of capital to Holdings of $3.8 million and
repayment of capital lease obligations of $0.5 million.
Cash provided by financing activities for fiscal 1995 was $2.9 million,
primarily comprised of borrowings under the Existing Finance Facility of $5.8
million partially offset by payment of dividends of $2.4 million and repayment
of capital lease obligations of $0.6 million.
The Company's primary use of cash in investing activities is the purchase of
property and equipment. Capital expenditures in thirty-nine weeks ended June 27,
1997 and June 28, 1996 and fiscal 1996, 1995 and 1994 were $0.6 million, $1.1
million, $2.0 million, $2.5 million and $1.8 million, respectively. The Company
expects that capital expenditure requirements will be approximately $1.7 million
for fiscal 1997.
The Company's average working capital borrowings under the Existing Finance
Facility for the thirty-nine weeks ended June 27, 1997 and June 28, 1996 and the
1996, 1995 and 1994 fiscal years was $50.5 million, $58.5 million, $58.4
million, $54.4 million and $49.1 million, respectively. The Company's maximum
working capital borrowings outstanding during such periods were $60.5 million,
$64.9 million, $64.9 million, $57.6 million and $52.1 million, respectively.
In connection with the Transactions, the Company entered into the Credit
Agreement to replace its Existing Finance Facility and Existing Senior Notes.
Availability under the Credit Agreement is $27.3 million. Additional interest
expense associated with the Working Capital Revolver and the Notes will
significantly increase the Company's liquidity requirements. The Working Capital
Revolver and 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. In addition, the indebtedness of the Company under the Credit
Agreement 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. See "Description of Certain
Indebtedness."
Management believes that cash flow from operations, together with other
available sources of funds including the availability of borrowings under the
Credit Agreement 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 Credit Agreement 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 27, 1996.
31
<PAGE> 33
BUSINESS
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 76 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, which management believes is a key driver
of the Company's high customer retention rate. In each of the last five fiscal
years, the Company experienced a customer retention rate of at least 81% as
measured by the percent of customers who reordered when solicited during the
period. The Company attributes its high customer retention to the quality of its
products, the convenience of its services and its discount marketing program.
The Company uses a network of approximately 1,500 telemarketers to schedule
in-home sales presentations. During a sales presentation, one of the Company's
approximately 650 sales representatives presents the Company's product offerings
and designs a customized food program for the customer. In fiscal 1996, 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 73% of initial orders
in fiscal 1996 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. In fiscal 1996, food and non-food
items accounted for approximately 62% and 38% of product sales, respectively.
The Company targets its marketing efforts toward dual income families who are
typically homeowners with children at home. Faced with increasing time
constraints and the pressures of planning and preparing meals, the customers
find the Company a convenient alternative to the supermarket and a higher
quality alternative to other convenience-oriented offerings such as delivery
services or restaurant takeout. Management expects to benefit from the continued
growth in consumer direct marketing sales, which is projected to grow by 7.4%
per year from 1996 to 2001. In 1996, consumer direct marketing sales are
estimated to have been $634.6 billion.
COMPETITIVE STRENGTHS
The Company has developed a strong market position through a carefully tailored
mix of products aimed at upper and middle income customers who value high
quality, superior service and the convenience of home purchasing and delivery.
This strategy has capitalized on the growing number of dual income families and
the scarcity of time for shopping and meal preparation. The Company has earned
strong brand name recognition among its customers and suppliers. In addition,
the Company believes that it has distinguished itself as the nation's premier
in-home food shopping company. With no significant direct competition and no
middleman between the Company and the consumer, the Company plans to increase
its market penetration while continuing to differentiate its products based on
quality and service rather than on price. The Company attributes its success and
its continued opportunities for growth and profitability to the following
competitive strengths:
- High customer retention. The Company has enjoyed a high customer
retention rate of at least 81% in each of the past five fiscal years. The
Company believes its retention rate is primarily attributable to its wide
selection of high quality food, the convenience of its integrated
services and its discount marketing program. During fiscal 1996,
approximately 66% of the Company's food revenue came from customer
reorders. Reorder customers are particularly valuable to the Company due
to the reduced sales and marketing costs associated with the sale.
- High quality products. The Company's value-added food items are either
custom-prepared at the Company's own facility or are supplied by
restaurant providers and premium food wholesalers, and as such are of a
quality generally unavailable in supermarkets. The Company purchases top
quality meats and specially tenderizes, trims, flash-freezes and vacuum
packages each portion to ensure tenderness, taste and freshness. Food
items purchased from suppliers are prepared and packaged to the Company's
stringent specifications and generally carry the Colorado Prime(R) label.
Food products are delivered to the customer's home typically within ten
days after leaving the Company's plant, and have a
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<PAGE> 34
100% customer satisfaction guarantee. Non-food products are purchased by
special arrangements from manufacturers and, as a result, have unique
features which are not generally available in traditional retail
channels.
- Value-added service. The Company provides a fully integrated customer
service package from the initial contact through the life of the customer
relationship. The Company differentiates its service offering by four key
features: (i) an initial convenient in-home sales presentation with
customized meal planning; (ii) delivery of its food and non-food products
directly into the customer's home; (iii) the option to finance purchases
through its wholly-owned finance subsidiary; and (iv) the 100% customer
satisfaction guarantee on all of the Company's food products.
- Effective discount marketing program. The Company's marketing efforts
are facilitated by its discount marketing program which enables customers
to earn a lifetime discount on food products when they purchase non-food
products. The discount on the food products generally offsets the
customer's incremental monthly payments on their non-food purchases. In
fiscal 1996, the food discount earned on the average initial food order
was 17% and increased with each subsequent non-food purchase to a maximum
possible discount of 50%. In fiscal 1996, 87% of the Company's customers
participated in the discount marketing program. Over the past five fiscal
years, the retention rate among customers who achieved the maximum food
discount averaged 89%.
- Strong management team. The Company's management team has considerable
experience in both the direct marketing and food industries and has
implemented a number of growth initiatives to enhance profitability and
operating leverage. Since 1993, the Company has recruited four senior
officers who have extensive experience in food marketing, direct sales
and customer acquisition. The senior management team is complemented by
experienced individuals in sales, operations and service management
positions who have been with the Company for many years. Collectively,
members of the management team average 20 years of experience in the food
industry, 32 years in marketing and direct sales and 20 years in senior
operating positions. See "Management."
BUSINESS STRATEGY
The Company believes that it has significant opportunities for revenue and
earnings growth. Management's strategy includes the following principal
elements:
- - Continued geographic expansion. Since its inception, new office openings have
provided a significant portion of the Company's growth. Management is pursuing
a measured pace of geographic expansion based upon a new office opening
program developed in fiscal 1995. Over the last two fiscal years, 79% of the
Company's product sales growth has come from new office openings. As a result,
with a concentration of offices on the East Coast, geographic expansion
remains a priority for the Company. The western region of the country is of
particular interest, as revenues of the Company's two established offices in
this region have grown at a compound annual growth rate of 29% over the past
three fiscal years and outperformed the Company's average office sales by 50%
in fiscal 1996. Management believes there is potential for 10 to 12 additional
offices in this region. The composition of the Company's customer base by
geographic region as determined by the Company is as follows: East Coast 37%,
Northeast 24%, Midwest 21% and Southwest 18%. Current excess capacity at the
New York plant will allow the Company to profitably service new business from
its existing facility. The Company is currently able to profitably service its
western region business from its New York plant. The timing and volume of new
business in the western region of the country will dictate whether the Company
continues to service the business from its existing plant or acquires
additional plant capacity.
- - Increased market penetration. The Company believes that there is significant
growth potential in its existing markets through the following:
- Customer acquisition. Referrals represent the Company's most efficient
form of customer acquisition as they avoid the cost of purchased
telemarketing lists. Referral customers are also more likely to accept an
in-home sales presentation. The Company offers different incentives to
customers who provide referral names. This plan increased the average
number of referral names from a new customer by 27% in the Company's test
markets. In addition, the Company has implemented initiatives aimed at
improving the quality and performance of the sales representatives and
managers through the use of part-time personnel, new recruiting methods,
new employee retention programs, enhanced training and development.
- Customer retention. Sales to existing customers are more profitable than
sales to new customers as a result of lower selling and telemarketing
costs; thus, the Company strives to continually improve the current level
of customer retention. Marketing programs and new product introductions
are being implemented to accelerate customer participation in the
Company's discount program, as customer retention is highly correlated to
the level of discount the customer receives.
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<PAGE> 35
- - Margin improvement opportunities. In fiscal 1997, management has already
implemented additional margin enhancement programs including greater
efficiency in food processing, the introduction of more high value appliances,
extending the food service period and certain cost reductions in delivery and
insurance expenses. In addition, the Company believes opportunities exist to
further enhance profitability through additional measures such as reduced
telecommunications costs, more productive telemarketing lists and increased
finance income.
- - Continued product development. The Company has and will continue to refine
its products and menus to increase variety and adapt to consumers' changing
eating patterns, lifestyle demands and tastes. The Company introduced 208 new
food and non-food products in the last three fiscal years, including the
"Healthy Gourmet" and "Easy Gourmet" prepared entree product lines. Food items
introduced in the last three fiscal years are generating sales at an
annualized rate of $20.0 million. Large screen televisions and camcorders were
introduced in fiscal 1995 and generated sales of approximately $8.5 million in
fiscal 1996. The Company currently intends to introduce at least 12 food
products and test three non-food products in fiscal 1997.
- - Development of new customer segments and new distribution
channels. Management believes that customer segments currently not within the
Company's target market, such as urban dwellers, customers over age 60, higher
income households and one-member households, may hold additional growth and
profit opportunities. These customers face the same lifestyle issues which
have attracted targeted consumers to the Company's product and service
offerings. The Company believes it can address the needs of these markets due
to its ability to assemble and deliver many different food offerings at
various price ranges. The Company also believes further growth may also be
obtained from new distribution channel alternatives, such as institutional
food services, corporate gift offerings and strategic alliances with
food-related catalog marketers.
PRODUCTS AND SERVICES
The Company offers a selected mix of food and non-food products targeted toward
middle and upper-middle income families who value high quality products and
services with the convenience of in-home purchasing and delivery. In fiscal
1996, food and non-food items accounted for approximately 62% and 38% of product
sales, respectively.
Food Products
The Company's food product line consists of approximately 320 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
continually refines its menu to accommodate changing customer demands. For
instance, in fiscal 1995, the Company added "Healthy Gourmet" (meals for the
health conscious consumer) and in fiscal 1996 added "Easy Gourmet"
(convenience-focused meals) to its menu. In the last three fiscal years, the
Company introduced 197 new food products.
The Company takes a high degree of care in the preparation and packaging of its
food products. The Company employs 20 full-time butchers at its centralized
meat-cutting and processing facility in Farmingdale, New York who specially
tenderize and gourmet trim the meats to ensure freshness and high quality. Each
item is then individually vacuum-packed in clear plastic packaging and
flash-frozen. Unlike frozen-food products typically available in supermarkets
which may undergo several freezing and thawing cycles, the Company's entrees are
maintained in a frozen state from preparation through delivery to the customer's
freezer. Additionally, most of the Company's frozen entrees are delivered to the
customer within four weeks from the time they were prepared, which the Company
believes is significantly less than comparable products sold in supermarkets and
other retail channels.
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.
Non-Food Products
As an additional convenience to its customers and 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 non-food products serve as an
effective
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<PAGE> 36
marketing tool since the purchase of non-food items enables customers to receive
a lifetime discount on their food purchases through the discount marketing
program. The Company has always offered freezers as a logical complement to its
food products. In response to customer interest, the Company has continued to
add food-related appliances and accessories to its product lines. The Company
currently offers approximately 20 food-related appliances or accessories, such
as 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 and
camcorders. 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. During fiscal 1996, non-food items were purchased by
73% of all customers on their initial orders, including approximately 65% who
purchased a freezer.
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 charge. During fiscal 1996, approximately 98% of non-food products were
financed using open-end credit accounts with balances which are typically paid
over a period of 24 to 36 months at the market interest rate for credit card
balances. Customers are billed separately for food and non-food purchases.
All credit applications are submitted to the Company's credit and collections
department for evaluation. In processing each application, the Company obtains
personal credit reports from various credit reporting agencies and, in many
instances, checks bank and employment references. The Company does not provide
its customers with a line of credit to purchase products; instead credit is
approved on a purchase by purchase basis. Customer credit files are typically
updated when customers reorder. In addition, customers whose accounts are in
delinquent status are not solicited for reorders. Customers are allowed to
cancel an order up to 72 hours from the time the order is placed. The Company
will not accept returned food products and will only accept returned non-food
products if the non-food product is not operating properly.
Despite recent increases in consumer debt levels, the Company's strict credit
guidelines, collection procedures and the financial profile of its customer base
have enabled the Company to limit its provision for doubtful accounts to
approximately 3.4% of total revenues in fiscal 1996 and 3.3% of total revenues
in the thirty-nine weeks ended June 27, 1997. The Company has established
procedures for its trained collections department to maximize customer
satisfaction while promptly collecting accounts past due.
MARKETING
The Company targets its marketing efforts toward dual-income homeowners with
annual household incomes in excess of $50,000. The Company's target customers
are professionals and white collar workers between the ages of 25 and 49. The
typical target customer owns a home and has children living at home. This
marketing strategy has capitalized on the growing number of dual-income families
and the scarcity of time for shopping and meal preparation.
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
25% of the Company's new customers in fiscal 1996. 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 1996, sales representatives collected on
average approximately 14 referral names during a customer's initial presentation
and approximately four referral names during subsequent sales calls. During
fiscal 1996, the Company's referral customers were the source of approximately
33% of all new customers. The Company has implemented programs to increase
referral rates, such as giving additional free products to customers who provide
the Company with referral names. Referrals are particularly valuable to the
Company due to the reduced marketing and sales costs associated with the sale.
Management frequently evaluates its customer acquisition efforts and has taken a
number of new initiatives to enhance its customer acquisition program and hence
increase market penetration. Future initiatives may include: (i) developing
customer segments not within the Company's current target market, such as urban
dwellers, customers over the age of 60, higher income households and one member
households; (ii) exploring new distribution channels such as institutional food
services, corporate gift offerings and strategic alliances with food-related
catalog marketers; (iii) continuing the Company's geographic expansion;
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<PAGE> 37
(iv) increasing customers' average order sizes through the introduction of more
high value appliances and extending the food service period; (v) encouraging
more in-house presentations by offering incentives such as free products to
potential customers who agree to a presentation; and (vi) utilizing potential
applications in affinity marketing.
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. In fiscal 1996, the food discount earned on the average initial food
order was 17%. The discount increases with each subsequent non-food purchase up
to a maximum possible discount of 50%. During fiscal 1996, 87% of the Company's
customers participated in the discount marketing program. Over each of the past
five fiscal years, the retention rate among customers who achieved the maximum
food discount averaged 89%.
SALES
The Company employs a direct sales force of approximately 650 sales
representatives. 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's sales management team
has been promoted entirely from within. On average, its senior sales management
has 16 years of experience. 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. The Company has recently
developed an enhanced sales representative retention program which has yielded
encouraging results on a test basis. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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. The sales presentation emphasizes the
quality, service and convenience of shopping with the Company compared to the
supermarket, and affords the representative the opportunity to identify
customers' needs. Sales representatives also cover reorder appointments. The
reorder presentation focuses on additional food products and the Company's full
complement of non-food merchandise.
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 which
pick up shipments from Farmingdale and off-load them to the Company's delivery
trucks at one of 18 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 some other delivery service. This significantly reduces the Company's direct
storage, shrinkage, handling and inventory carrying costs.
The Company believes its distribution system delivers food to the consumer's
home which is generally fresher than food that can be purchased in the typical
supermarket. All food products are custom-prepared in anticipation of the
freezing process. Generally, the customer receives delivery of an order within
ten days of its leaving the Company's plant.
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 1996, the Company's two
largest suppliers, Broich Enterprises (a freezer supplier) and Beef America,
accounted for 12.6% and 9.4%, 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.
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<PAGE> 38
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.
COMPETITION
The Company is a leading direct marketer of high quality, value-added food
programs and products related to in-home dining and entertainment. The Company's
primary competition is local supermarkets, convenience stores 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.
Other companies which provide services similar to the Company's are
regionally-focused with limited sales areas, including Southern Foods in
Greensboro, North Carolina, American Frozen Foods in Stratford, Connecticut and
Prime Time Foods in Bristol, Pennsylvania. However, the Company does not
consider these companies to be major competitors, due to the limited geographic
scope, product offerings and service of their business. Management estimates the
Company to be two times larger than its largest in-home food service competitor.
PROPERTY AND FACILITIES
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
Company is currently in the process of evaluating its physical requirements and
opportunities in anticipation of the headquarters' lease expiration in August
1998.
The following table summarizes the Company's primary facilities by location.
- --------------------------------------------------------------------------------
COMPANY FACILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OWNED/ LEASE
LOCATION LEASED DESCRIPTION OF FACILITY EXPIRATION
- ------------------------------------- ------- ------------------------------------- --------------
<S> <C> <C> <C>
Farmingdale, NY Leased Headquarters August 1998
Farmingdale, NY Owned Preparation, storage and shipping --
plant
Pompano Beach, FL Leased Office, warehouse and vehicle repair November 2006
depot
Farmingdale, NY Owned Vehicle repair depot --
Farmingdale, NY Owned Grocery warehouse --
</TABLE>
In addition to those facilities indicated in the table above, the Company leases
space for its 76 regional sales offices and 18 regional delivery depots under
short-term commercial leases, which typically have terms of three years.
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.
GOVERNMENTAL REGULATION, CLAIMS OR ASSESSMENTS
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
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.
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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.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to federal, state and local environmental and
occupational health and safety laws and regulations. Such laws and regulations,
among other things, impose limitations on the discharge of pollutants and
establish standards for management of waste. While there can be no assurance
that the Company is at all times in complete compliance with all such
requirements, the Company believes that any such noncompliance is unlikely to
have a material adverse effect on the Company. If a release or threat of release
of hazardous materials occurs on or from the Company's properties or any
associated offsite disposal location, or if contamination from prior activities
is discovered at any properties owned or operated by the Company, the Company
may be held liable for remediation costs and damages to natural resources. There
can be no assurance that the amount of any such liability would not be material.
INTELLECTUAL PROPERTY
The Company seeks trademark protection from the United States Patent and
Trademark Office for many of its products' and services' trade names. 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.
EMPLOYEES
As of June 27, 1997, the Company had approximately 2,916 employees.
Approximately 120 manufacturing and delivery personnel located at its
Farmingdale, New York facility are represented in collective bargaining
agreements by Local 210 Warehouse and Production Employees Union. The Company
believes it has a satisfactory relationship with unionized labor. In the last 10
years, the Company has lost only four days as a result of a work stoppage. The
current contract expires on September 30, 1998 and provides for a 3% per year
increase in wages.
<TABLE>
<CAPTION>
------------------------------------
EMPLOYEES CATEGORIZED BY FUNCTION
FUNCTION FULL-TIME PART-TIME TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales, sales management and sales support 787 130 917
Customer acquisition 479 1,051 1,530
Office 130 20 150
Delivery 118 52 170
Manufacturing 108 7 115
Customer service 24 10 34
----- ----- -----
Total 1,646 1,270 2,916
===== ===== =====
</TABLE>
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<PAGE> 40
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the names, ages as of June 27, 1997 and positions
of each person who is a director, executive officer or key employee of CPC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NAME AGE POSITION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
William Dordelman 56 Chairman of the Board and Chief Executive Officer
William Willett 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
Charles Montanino 69 Vice President of Plant Operations
Kenneth Payne 49 Vice President of Operations
Joseph Ugenti 52 Vice President of Customer Acquisition
Brian Mulvehill 40 Vice President-East Coast Division
Ronald Mel 30 Vice President-Midwest Division
John DeMaio 42 Vice President-Southwest Division
Joseph Billi 32 Vice President-New York, New Jersey 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 33 Director
Daniel J. Altobello 56 Director
William Nicholson 54 Director
</TABLE>
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 has been President, Chief Operating Officer and Director of CPC
since June 1994. 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 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 joined CPC in 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.
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<PAGE> 41
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 a 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 Manager, 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. 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
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 Transactions. 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
Transactions. 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 became a Director of CPC and CPH following the consummation of
the Transactions. 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 and Blue Shield of Maryland,
Inc.
William 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
the Parent Corporation's Policies 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 salaries and bonuses 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, Altobello and Pottow currently serve as members of the Audit
Committee.
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<PAGE> 42
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the compensation
paid or earned during fiscal 1996 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 1996. 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 27, 1996
-----------------------------------------
OTHER ANNUAL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION(2)(3)
- ------------------------------------------------ -------- -------- --------------- ------------------
<S> <C> <C> <C> <C>
William Dordelman............................... $455,000 $315,000 0 $1,607,500
Chairman of the Board and Chief Executive
Officer
William Willett................................. $300,000 $225,000 0 $ 475,000
President, Chief Operating Officer and
Director
Ricardo DeSantis................................ $174,576 $115,000 0 $ 175,000
Vice President of Marketing
Joseph Ugenti................................... $111,000 $ 50,000 0 $ 100,000
Vice President of Customer Acquisition
Kenneth Payne................................... $128,000 $ 45,000 0 $ 50,000
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 on the Company's performance incentive
adopted in January 1995, which provided certain senior managers with a
nonrecurring cash bonus earned and paid in fiscal 1996 in connection with
the refinancing of the Company's debt.
(3) Amount excludes the redemption of management stock as follows; $293,000 to
William Dordelman, $193,000 to William Willet, $64,000 to Ricardo DeSantis,
$32,000 to Joseph Ugenti and $19,000 to Kenneth Payne. See "Certain
Relationships and Related Transactions -- Management Equity Incentive Plan."
DIRECTOR COMPENSATION
Directors are reimbursed for certain expenses incurred by them in connection
with attendance to meetings of the Board. Other than with respect to
reimbursements for expenses, directors who are also employees or 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 amount of $10,500 in fiscal 1996.
EMPLOYMENT AGREEMENTS
In connection with the consummation of the Transactions, 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 $455,000 to William Dordelman, $300,000 to William Willett, $195,000
to Thomas Taylor and $195,000 to Ricardo DeSantis; (ii) a minimum annual base
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 consummation of the Transactions, the 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
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<PAGE> 43
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 shareholders' agreement entered into in connection with the
Equity Contribution, 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 consummation of the Transactions, the Board of Directors
will adopt and the stockholders of CPH will approve the 1997 Stock Option Plan.
Options for an aggregate of 15% of CPH's common equity will be granted to
management of 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 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. Pension expenses under the Plan were
approximately $908,000, $885,000 and $633,000 for the fiscal years ended
September 27, 1996, September 29, 1995, and September 30, 1994, respectively.
401(K) PLAN
The Company sponsors a 401(k) Plan available for all non-union employees who
have attained the age 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, 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 are 30% vested after three years of
service and for employees who become participants after 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.
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<PAGE> 44
PRINCIPAL STOCKHOLDERS
All of CPC's issued and outstanding capital stock is owned by CPH. The issued
and outstanding capital stock of each of the Subsidiary Guarantors is owned by
CPC. The table sets forth, as of June 27, 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. See "The Transactions."
<TABLE>
<CAPTION>
---------------------------------
PERCENTAGE
NUMBER OF OF
SHARES OF OUTSTANDING
COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OF CPH(1)(3) OF CPH(1)(3)
- ---------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
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, New York 11735
William Willett 5,000 3.3%
Colorado Prime Corporation
One Michael Avenue
Farmingdale, New York 11735
Thomas Taylor 2,300 1.5%
Colorado Prime Corporation
One Michael Avenue
Farmingdale, New York 11735
Ricardo DeSantis 1,650 1.1%
Colorado Prime Corporation
One Michael Avenue
Farmingdale, New York 11735
Other Executive Officers 2,250 1.5%
All directors and executive officers as a group (2) 21,200(2) 14.1%
</TABLE>
- ---------------
(1) Excludes 19,608 shares of CPH Common Stock that may be acquired upon the
exercise of the 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). See
"Management -- 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 Frederic 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). See
"Management -- 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 company which
is controlled by TC Equity Partners.
43
<PAGE> 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
11.5% Senior Subordinated Notes
During fiscal 1994, 1995 and 1996, the Company paid interest of $2.9 million,
$2.9 million and $0.6 million, respectively, on $25.0 million 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.
Management Advisory and Transaction Fees
During each of the three fiscal years ended September 27, 1996, the Company paid
Kohlberg & Co. management advisory and consulting services fees in the amount of
$0.5 million.
In connection with the Transactions, the Company paid a transaction fee of $1.4
million to TC Management L.L.C. ("TC Management"), an affiliate of Thayer Equity
Investors III, L.P., in consideration for services in arranging the financing
for the Transactions.
In May, 1997 following the consummation of the transactions 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 annually.
The Company believes that the management advisory and transaction fees paid to
Kohlberg & Co. and 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 issued to certain members of management,
including Messrs. Dordelman, Willett, DeSantis and Taylor. In May 1996,
approximately 44,730 shares of Management Stock were redeemed from certain
members of management in exchange for $1.2 million in connection with a
refinancing of the Company's debt. All outstanding shares of Management Stock
were redeemed in connection with the closing of the Transactions 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 the Transactions 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 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 Transactions, Thayer, CPH and the Management Investors
entered into a shareholders agreement 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.
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<PAGE> 46
DESCRIPTION OF CERTAIN INDEBTEDNESS
GENERAL
In connection with the Transactions, CPC entered into the Credit Agreement with
Dresdner Bank AG, New York and Grand Cayman Branches ("Dresdner"), as agent, and
certain other financial institutions (collectively with Dresdner, the
"Lenders"). The information relating to the Credit Agreement is qualified in its
entirety by reference to the complete text of the documents entered into in
connection therewith. The following is a description of the terms of the Credit
Agreement.
The Credit Agreement provides for a Working Capital Revolver of $50.0 million, a
portion of which is available for letters of credit. In connection with the
Transactions, CPC borrowed approximately $24.0 million under the Working Capital
Revolver. The $26.0 million of undrawn availability under the Working Capital
Revolver is available for working capital, permitted acquisitions and general
corporate purposes.
The obligations of the Company under the Credit Agreement to the Lenders and any
banks issuing letters of credit is guaranteed by CPH. The borrowings under the
Credit Agreement are secured by first priority perfected security interests in
all the assets of CPC. CPH's guarantee under the Credit Agreement is secured by
a pledged by CPH of all issued and outstanding capital stock of the Company.
Each of CPC'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 for permitted acquisitions and for
general corporate purposes including having letters of credit issued. The
borrowing base consists of the sum of certain percentages of (i) eligible
food-related and non-food-related accounts receivable (excluding certain overdue
accounts receivable, discounted and credited items, certain governmental items
and other exclusions as may be determined by Dresdner) and (ii) Eligible
Inventory (as defined in the Credit Agreement). The Company believes that the
available borrowing base is at least $50.0 million. The Working Capital Revolver
has a final maturity date of April 30, 2002.
INTEREST RATES
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 is expected to be 0.0%
per annum over the Base Rate, and 1.75% per annum over LIBOR with respect to
initial borrowings under the Working Capital Revolver. The applicable margin
will vary over the term of the Credit Agreement based on the Company's
achievement of specified financial ratios.
MANDATORY PREPAYMENTS
The Credit Agreement requires that upon an initial public offering by CPH, CPC
or any subsidiary of CPC of its common or other voting stock, 100% of the net
proceeds from such offering will be applied to reduce permanently borrowings
outstanding under the Notes, the Working Capital Revolver or both, as the
Company elects.
COVENANTS
The Credit Agreement provides that the Working Capital Revolver will impose
certain covenants and other requirements on CPC and CPC's subsidiaries. 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.
The Credit Agreement also contains, among other things, certain negative
covenants and restrictions on actions by the Company that will, among other
things, restrict: (i) the incurrence and existence of indebtedness; (ii)
consolidations, mergers and sales of assets; (iii) the incurrence and existence
of liens or other encumbrances; (iv) the incurrence and existence of contingent
obligations; (v) the payment of dividends and repurchases of capital stock; (vi)
prepayments and amendments of certain subordinated debt instruments; (vii)
investments, loans and advances; (viii) changes in fiscal year; (ix) certain
transactions with affiliates; and (x) changes in lines of business.
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<PAGE> 47
EVENTS OF DEFAULT
The Credit Agreement specifies certain customary events of default, including
non-payment of principal, interest or fees; violation of covenants; inaccuracy
of representations and warranties in any material respect; cross-default to
certain other indebtedness and agreements; bankruptcy and insolvency events;
material judgments and liabilities; change of control of CPC and
unenforceability of certain documents under the Credit Agreement.
FEES AND EXPENSES
The Credit Agreement provides that CPC will pay a fee on the unused portion of
the Working Capital Revolver at an annual rate determined pursuant to the Credit
Agreement. In addition, annual fees at a rate equal to the applicable margin in
effect on the date of payment on LIBOR loans under the Working Capital Revolver
will be payable with respect to credit enhancement letters of credit and a fee
at an annual rate of 1.25% will be payable with respect to documentary letters
of credit. A bank issuing a letter of credit will be entitled to an annual fee
at a rate of at least 0.25%. Letters of credit issued under the Working Capital
Revolver shall count as utilization for all purposes, including the commitment
fee calculation.
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<PAGE> 48
THE EXCHANGE OFFER
The Old Notes were sold by CPC on May 9, 1997 to the Initial Purchasers who in
turn sold the Old Notes in transactions exempt from the registration
requirements of the Securities Act. In connection with the sale of the Old
Notes, CPC and the Initial Purchasers entered into the Registration Rights
Agreement, which requires CPC to file with the Commission a registration
statement under the Securities Act with respect to the New Notes, identical in
all material respects to the Old Notes, and to use its best efforts to cause
such registration statement to become effective under the Securities Act. CPC is
further obligated, upon the effectiveness of that registration statement, to
offer the holders of the Old Notes the opportunity to exchange their Old Notes
for a like principal amount of New Notes, which will be issued without a
restrictive legend and may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act. In the event certain
circumstances occur which would result in either the New Notes not becoming
freely tradeable or certain holders of the Old Notes not being eligible to
participate in the Exchange Offer, then CPC is required to file and use its best
efforts to cause the Old Notes to be registered under the Securities Act. A copy
of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Exchange Offer is
being made pursuant to the Registration Rights Agreement to satisfy CPC's
obligations thereunder. The term "Holder" with respect to the Exchange Offer
means any person in whose name the Old Notes are registered on the Registrar's
books or any other person who has obtained a properly completed assignment from
the registered holder or any participant in The Depository Trust Company ("DTC")
system whose name appears on a security position listing as the holder of such
Old Notes and who desires to deliver such Old Notes by book-entry transfer at
DTC. See "Description of Notes -- Registration Rights Agreement."
Upon the terms and subject to the conditions set forth in this Prospectus and in
the accompanying Letter of Transmittal (which together constitute the Exchange
Offer), CPC will accept for exchange Old Notes which are properly tendered on or
prior to the Expiration Date and not withdrawn as permitted below. As used
herein, the term "Expiration Date" means 5:00 p.m., New York City time, on
, 1997; provided, however, that if CPC, in its sole discretion, has
extended the period of time during which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the applicable
Exchange Offer is extended.
As of the date of this Prospectus, $100,000,000 aggregate principal amount of
the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997 to all Holders
of Old Notes known to CPC. CPC's obligation to accept Old Notes for exchange
pursuant to the Exchange Offer is subject to certain customary conditions as set
forth under "-- Certain Conditions to the Exchange Offer" below.
CPC expressly reserves the right, at any time or from time to time, to extend
the period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any Old Notes, by giving oral or written notice of
such extension to the Holders thereof as described below. During any such
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by CPC. Any Old Notes not accepted for
exchange for any reason will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of principal
amount of $1,000 or any integral multiple thereof.
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
below under "-- Certain Conditions to the Exchange Offer." CPC will give oral or
written notice of any extension, amendment, non-acceptance or termination to the
Holders of the Old Notes as promptly as practicable, such notice in the case of
any extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer. The
tender to CPC of Old Notes by a Holder thereof as set forth below and the
acceptance thereof by CPC will constitute a binding agreement between the
tendering Holder and CPC upon the terms and subject to the conditions set forth
in this Prospectus and in the accompanying Letter of Transmittal. A Holder who
wishes to tender Old Notes for exchange pursuant the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal, including
all other documents required by such Letter of Transmittal, to The Bank of New
York as the Exchange Agent at the address set forth below under "-- Exchange
Agent" or (in the case of a book-entry transfer) an Agent's Message in lieu of
the Letter of Transmittal on or prior to the Expiration Date. In addition,
47
<PAGE> 49
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the Holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR CERTIFICATES FOR OLD NOTES SHOULD BE SENT TO CPC.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to and received by the Exchange Agent and forming a part of a
Book-Entry Confirmation, which states that DTC has received an express
acknowledgment from the tendering Participant, which acknowledgment states that
such Participant has received and agrees to be bound by the Letter of
Transmittal and that the Company may enforce the Letter of Transmittal against
such Participant.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and who wishes to
tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's behalf, such owner must, prior
to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or obtain a properly completed
bond power from the registered Holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described below
(see "-- Withdrawal Rights"), as the case may be, must be guaranteed (see
"-- Guaranteed Delivery Procedures") unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered Holder of the Old
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by CPC in its sole discretion, duly executed by
the registered Holder exactly as the name or names of the registered Holder or
Holders appear on the Old Notes with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of receipt)
and acceptance of Old Notes tendered for exchange will be determined by CPC in
its sole discretion, which determination shall be final and binding. CPC
reserves the absolute right to reject any and all tenders of any particular Old
Notes not properly tendered or not to accept any particular Old Notes which
acceptance might, in the judgment of CPC or its counsel, be unlawful. CPC also
reserves the absolute right to waive any defects or irregularities or conditions
of the Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by CPC shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as CPC shall
determine. None of CPC, the Exchange Agent or any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing and, unless waived by CPC, proper
evidence satisfactory to CPC of their authority to so act must be submitted with
the Letter of Transmittal.
By tendering, each Holder will represent to CPC that, among other things, (i)
the New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the Holder, (ii) neither the Holder nor such other person has
any arrangement or understanding with any person to participate in the
distribution of the New Notes, (iii) neither the Holder nor such other person
are "affiliates" of CPC and
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<PAGE> 50
(iv) if the Holder or such other person is not a broker-dealer, such person is
not engaged in, and does not intend to engage in, a distribution of the New
Notes. If any Holder or any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of CPC or is engaged in or intends to
engage in, or has an arrangement or understanding with any person to participate
in, a distribution of such New Notes to be acquired pursuant to the Exchange
Offers, such Holder or any such other person (i) may not rely on the applicable
interpretation of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. See "Plan of Distribution." The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer, CPC
will accept, promptly after the Expiration Date, all Old Notes properly tendered
and will issue the New Notes promptly after acceptance of the Old Notes. See
"-- Certain Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, CPC will be deemed to have accepted properly tendered Old Notes
for exchange when, as and if the Company has given oral (promptly confirmed in
writing) or written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Notes will
receive as set forth below under "Description of Notes" a New Note having a
principal amount equal to that of the surrendered Old Notes. Accordingly,
registered Holders of New Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the most recent date to which interest has been
paid on the Old Notes or, if no interest has been paid, from May 9, 1997. Old
Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer. Holders whose Old Notes are accepted
for exchange will not receive any payment in respect of accrued interest on such
Old Notes otherwise payable on any interest payment date the record date for
which occurs on or after consummation of the Exchange Offer. In the event that
(i) the Registration Statement (or, if the Exchange Offer is not permitted under
applicable law or the Commission policy, the Initial Shelf Registration) has not
been filed on or prior to July 8, 1997, (ii) neither the Exchange Registration
Statement is declared effective by the Commission nor, if applicable, the Shelf
Registration is filed with the Commission on or prior to September 21, 1997, or
(iii) CPC has not exchanged the Exchange Notes for all Old Notes validly
tendered in accordance with the terms of the Exchange Offer on or prior to
October 21, 1997, the Shelf Registration has not been declared effective on or
prior to October 21, 1997 or such Shelf Registration ceases to be effective
during the Effectiveness Period (each such event referred to in clauses (i)
through (iii), a ("Registration Default"), the annual interest rate borne by the
Notes will be increased 0.25% for the first 90 days following the occurrence of
such Registration Default and such interest will be increased an additional
0.25% at the beginning of each subsequent 90-day period until such Registration
Default is cured, up to a maximum of an additional amount of 1.00% per annum. If
the annual interest rate borne by the Old Notes shall have been increased by
reason of the circumstances described in one or more of the preceding sentences,
upon the cure of the Registration Default, the annual interest rates on the Old
Notes will revert to the annual interest rates set forth on the cover page of
this Prospectus. See "Description of Notes -- Registration Rights Agreement."
Old Notes not tendered or not accepted for exchange will continue to accrue
interest from and after the date of consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal or an Agent's Message in lieu there of and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the Holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering Holder thereof (or, in the cases of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry procedures described below, such non-exchanged Old
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration or termination of the
Exchange Offer.
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<PAGE> 51
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect to
the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange
Offer within two business days after the date of this Prospectus unless the
Exchange Agent already has established an account with the Book-Entry Transfer
Facility suitable for the Exchange Offer, and any financial institution that is
a participant in the Book-Entry Transfer Facility's systems may make book-entry
delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or a facsimile thereof, with any required signature guarantees or on
Agent's Message in lieu thereof and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the addresses set
forth below under "-- Exchange Agent" on or prior to the Expiration Date or the
guaranteed procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
time will not permit such Holder's Old Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) on or
prior to 5:00 p.m., New York City time, on the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
CPC (by telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the Holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within three New York Stock Exchange ("NYSE") trading days after the date
of execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof or Agent's Message in lieu
thereof) with any required signature guarantees and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof or Agent's Message in lieu thereof) with any
required signature guarantees, and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. For a withdrawal to be effective, a written
notice or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at the address set forth below under "-- Exchange Agent." Any
such notice of withdrawal must specify the name of the person having tendered
the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including
the principal amount of such Old Notes), and (where certificates for Old Notes
have been transmitted) specify the name in which such Old Notes are registered,
if different from that of the withdrawing Holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such certificates the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution in which case such guarantee will
not be required. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by CPC, whose
determination will be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
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<PAGE> 52
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to its
obligations pursuant to the Registration Rights Agreement, CPC shall not be
required to accept for exchange, or to issue New Notes in exchange for, any Old
Notes and may terminate or amend the Exchange Offer, if at any time before the
acceptance of such New Notes for exchange, any of the following events shall
occur:
(i) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of CPC to proceed with the Exchange Offer; or
(ii) the Exchange Offer will violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of CPC and may be asserted by
CPC in whole or in part at any time and from time to time upon advice of outside
counsel. The failure by CPC at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
In addition, CPC will not accept for exchange any Old Notes tendered and no New
Notes will be issued in exchange for any such Old Notes, if at such time any
stop order is threatened by the Commission or in effect with respect to the
Registration Statement of which this Prospectus is a part or the qualification
of the Indenture under the Trust Indenture Act of 1939, as amended.
The Exchange Offer is not conditioned on any minimum principal amount of Old
Notes being tendered for exchange.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the Exchange
Offer. All executed Letters of Transmittal should be directed to the Exchange
Agent at the address set forth below. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests or Notices of Guaranteed Delivery should be directed to
the Exchange Agent addressed as follows:
The Bank of New York, Exchange Agent
By Mail:
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
By Hand or Overnight Courier:
101 Barclay Street
New York, New York 10286
Attn: Corporate Trust Services Window
Ground Level Reorganization, 7E
By Facsimile:
212-815-5915
Confirm by Telephone:
212-815-2742
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
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<PAGE> 53
FEES AND EXPENSES
CPC will not make any payment to brokers, dealers, or others soliciting
acceptances of the Exchange Offer.
The cash expenses to be incurred in connection with the Exchange Offer will be
paid by CPC. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
TRANSFER TAXES
Holders who tender their Old Notes for exchanges will not be obligated to pay
any transfer taxes in connection therewith, except that Holders who instruct CPC
to register New Notes in the name of, or request that Old Notes not tendered or
not accepted in the Exchange Offer be returned to, a person other than the
registered tendering Holder will be responsible for the payment of the
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the provisions in the Old
Notes regarding transfer and exchange of the Old Notes and the restrictions on
transfer of such Old Notes as set forth in the legend thereon as a consequence
of the issuance of the Old Notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the Securities Act. See "Description of Notes -- Registration
Rights Agreement."
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, CPC believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
holder which is an "affiliate" of CPC within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course or such Holders' business and such Holders, other than
broker-dealers, have no arrangement or understanding with any person to
participate in the distribution of such New Notes. However, the Commission has
not considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Each Holder, other than a broker-dealer, must acknowledge that (i) it is not
engaged in, and does not intend to engage in, a distribution of such New Notes,
(ii) it has no arrangement or understanding to participate in a distribution of
New Notes, (iii) it is not an "affiliate" of CPC and (iv) the New Notes are
being acquired in the ordinary course of business. If any Holder is an affiliate
of CPC or is engaged in or intends to engage in or has any arrangements or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such Holder (i) may not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes pursuant to the Exchange
Offer must acknowledge that such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities and that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. CPC has agreed that for a period of 180 days after the Expiration
Date, it will make this Prospectus available to any broker-dealer for use in
connection with any such laws of certain jurisdictions, if applicable, where the
New Notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or any exemption from registration or
qualification is available and is complied with. CPC has agreed, pursuant to the
Registration Rights Agreement, subject to certain limitations specified therein,
to register or qualify the New Notes for offer or sale under the securities laws
of such jurisdictions as any Holder reasonably requests in writing. Unless a
Holder so requests, CPC does not currently intend to register or qualify the
sale of the New Notes in any such jurisdictions.
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<PAGE> 54
DESCRIPTION OF NOTES
The Old Notes were issued under the Indenture and the New Notes also will be
issued under the Indenture. The Old Notes and the New Notes will be treated as a
single class of securities under the Indenture. The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. A copy of
the Indenture is available from CPC upon request. Whenever defined terms of the
Indenture not otherwise defined herein are referred to, such defined terms are
incorporated herein by reference. The term Notes means the New Notes and the Old
Notes treated as a single class.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on May 1, 2004 and will bear interest at the rate per
annum shown on the cover page hereof, except as noted under "-- Registration
Rights," from the Issue Date or from the most recent interest payment date to
which interest has been paid or provided for. Interest will be payable
semiannually on May 1 and November 1 of each year, commencing November 1, 1997,
to the Person in whose name a Note is registered at the close of business on the
preceding April 15 or October 15 (each, a "Record Date"), as the case may be.
Interest on the Notes will be computed on the basis of a 360-day year of twelve
30-day months. Holders must surrender the Notes to the paying agent for the
Notes to collect principal payments. CPC will pay principal and interest by
check and may mail interest checks to a holder's registered address, except that
CPC may pay principal and interest on the Global Notes in immediately available
funds.
OPTIONAL REDEMPTION
The Notes will be subject to redemption, at the option of CPC, in whole or in
part, at any time on or after May 1, 2002 and prior to maturity, upon not less
than 30 nor more than 60 days' notice mailed to each holder of Notes to be
redeemed at his address appearing in the register for the Notes, in amounts of
$1,000 or an integral multiple of $1,000, at the following redemption prices
(expressed as percentages of principal amount) plus accrued interest to but
excluding the date fixed for redemption (subject to the right of holders of
record on the relevant Record Date to receive interest due on an interest
payment date that is on or prior to the date fixed for redemption), if redeemed
during the 12-month period beginning May 1 of the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------------------------------------------- ----------
<S> <C>
2002.................................................................. 106.250%
2003.................................................................. 103.125
</TABLE>
In addition, prior to May 1, 2000, CPC may redeem up to 35% of the aggregate
principal amount of the Notes with the net cash proceeds received by CPC or CPH
from one or more public or private offerings of Capital Stock (other than
Disqualified Stock) of CPC or CPH, at a redemption price (expressed as a
percentage of the principal amount) of 112.50% of the principal amount thereof,
plus accrued and unpaid interest to the date fixed for redemption; provided,
however, that at least $65.0 million in aggregate principal amount of the Notes
remains outstanding immediately after any such redemption (excluding any Notes
owned by CPC or any of its Affiliates). Notice of redemption pursuant to this
paragraph must be mailed to holders of Notes not later than 60 days following
the consummation of such offering.
Selection of Notes for any partial redemption shall be made by the Trustee, in
accordance with the rules of any national securities exchange on which the Notes
may be listed or, if the Notes are not so listed, pro rata or by lot or in such
other manner as the Trustee shall deem appropriate and fair. Notes in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000. Notice of redemption will be mailed before the date fixed
for redemption to each holder of Notes to be redeemed at his or her registered
address. On and after the date fixed for redemption, interest will cease to
accrue on Notes or portions thereof called for redemption.
The Notes will not have the benefit of any sinking fund.
RANKING
The Notes will rank pari passu in right of payment with all other unsubordinated
indebtedness of the Company. As of June 27, 1997, the Company had $123.0 million
principal amount of indebtedness outstanding, $22.7 million of which was secured
indebtedness under the Credit Agreement and $0.3 million of which was capital
leases. CPC also had an additional $27.3 million of availability under the
Credit Agreement. The Notes are not secured and will, therefore, effectively
rank behind any
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<PAGE> 55
secured indebtedness of the Company permitted under the Indenture (including all
indebtedness under the Credit Agreement) to the extent of the value of the
assets securing such indebtedness.
THE SUBSIDIARY GUARANTEE
The Indenture provides that the Subsidiary Guarantors will unconditionally
guarantee, on an unsecured basis, all of the obligations of CPC under the Notes,
including its obligations to pay principal, premium, if any, and interest with
respect to the Notes. The obligations of each Subsidiary Guarantor are limited
to the maximum amount which, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor, will result in the obligations
of the Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Except
as provided in "-- Covenants" below, CPC is not restricted from selling or
otherwise disposing of any of the Subsidiary Guarantors.
The Indenture provides that if the Notes are defeased in accordance with the
terms of the Indenture, or if all or substantially all of the assets of a
Subsidiary Guarantor or all of the Capital Stock of a Subsidiary Guarantor are
sold (including by issuance or otherwise) by CPC or any of its Subsidiaries in a
transaction constituting an Asset Disposition, and if (x) the Net Available
Proceeds from such Asset Disposition are used in accordance with the covenant
described under "-- Covenants -- Limitation on Certain Asset Dispositions" or
(y) CPC delivers to the Trustee an Officers' Certificate to the effect that the
Net Available Proceeds from such Asset Disposition shall be used in accordance
with the covenant described under "-- Covenants -- Limitation on Certain Asset
Dispositions" and within the time limits specified by such covenant, then the
Subsidiary Guarantor (in the event of a sale or other disposition of all of the
Capital Stock of the Subsidiary Guarantor) or the corporation acquiring such
assets (in the event of a sale or other disposition of all or substantially all
of the assets of the Subsidiary Guarantor) shall be released and discharged of
its Subsidiary Guarantee obligations.
The Subsidiary Guarantee will be pari passu in right of payment with any other
senior unsecured indebtedness of the Subsidiary Guarantor.
REGISTRATION RIGHTS AGREEMENT
CPC and the Subsidiary Guarantors have agreed with the Initial Purchasers
pursuant to the terms of the Registration Rights Agreement, for the benefit of
the holders of the Old Notes, that CPC and the Subsidiary Guarantors will use
their best efforts, and at their cost, to file and cause to become effective a
registration statement with respect to a registered offer to exchange the Old
Notes for an issue of Exchange Notes of CPC with terms identical to the Old
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions or the additional interest provisions described below)
which Exchange Notes will be guaranteed by the Subsidiary Guarantors with terms
identical to the Subsidiary Guarantee. Upon such registration statement being
declared effective, CPC shall offer the Exchange Notes in return for surrender
of the Old Notes. Such offer shall remain open for not less than 20 business
days after the date that notice of the exchange offer is mailed to holders of
the Old Notes. For each Old Note surrendered to CPC under the Exchange Offer,
the holder will receive an Exchange Note of equal principal amount.
In the event that applicable interpretations of the staff of the Commission do
not permit CPC to effect such an Exchange Offer, CPC and the Subsidiary
Guarantors shall, at their cost, use their best efforts to cause to become
effective a shelf registration statement with respect to resales of the Old
Notes (a "Shelf Registration Statement") and to keep such Shelf Registration
Statement effective until the earliest of (i) two years after the Issue Date,
(ii) the time when the Notes registered thereunder can be sold by non-affiliates
of CPC pursuant to Rule 144(k), or (iii) such time as all the Old Notes have
been sold thereunder. CPC shall, in the event of such a shelf registration,
provide to each holder copies of the prospectus, notify each holder when a
registration statement for the Old Notes has become effective and take certain
other actions as are required to permit resales of the Old Notes.
In the event that (i) the registration statement relating to the exchange offer
(or, if the exchange offer is not permitted under applicable law or Commission
policy, a Shelf Registration Statement) is not filed with the Commission on or
prior to July 8, 1997, (ii) such registration statement is not declared
effective by the Commission or a Shelf Registration Statement is not filed with
the Commission on or prior to September 21, 1997 or (iii) the exchange offer is
not consummated or a Shelf Registration Statement is not declared effective on
or prior to October 21, 1997 (each such event referred to in clauses (i) through
(iii), a "Registration Default"), then CPC will pay additional interest (in
addition to the interest otherwise due on the Notes) to each holder of Notes
during the first 90-day period immediately following the occurrence of each such
Registration Default in an amount of equal to 0.25% per annum. The amount of
interest will increase by an additional 0.25% per annum for each subsequent
90-day period until such Registration Default is cured, up to a maximum amount
of additional interest of 1.00%
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<PAGE> 56
per annum. The Exchange Registration Statement referred to in clause (i) above
was filed with the Commission on June 27, 1997. Such additional interest will
cease accruing on such Notes when the Registration Default has been cured.
COVENANTS
The Indenture contains, among others, the following covenants:
Limitation of Indebtedness
The Indenture will provide that CPC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except: (i) Indebtedness of CPC or any of its
Restricted Subsidiaries, if immediately after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the net proceeds thereof,
the Consolidated Fixed Charge Coverage Ratio of CPC for the four full fiscal
quarters for which quarterly or annual financial statements are available next
preceding the Incurrence of such Indebtedness, calculated on a pro forma basis
as if such Indebtedness had been Incurred, and such net proceeds received and
applied, on the first day of such four full fiscal quarters, would be greater
than 2.0 to 1.00; (ii) Indebtedness of CPC and its Restricted Subsidiaries
Incurred under the Credit Agreement in an amount not to exceed $50.0 million;
(iii) Indebtedness owed by CPC to any direct or indirect Wholly Owned Subsidiary
of CPC; provided, however, upon either (I) the transfer or other disposition by
such direct or indirect Wholly Owned Subsidiary or CPC of any Indebtedness so
permitted under this clause (iii) to a Person other than CPC or another direct
or indirect Wholly Owned Subsidiary of CPC or (II) the issuance (other than
directors' qualifying shares), sale, transfer or other disposition of shares of
Capital Stock or other ownership interests (including by consolidation or
merger) of such direct or indirect Wholly Owned Subsidiary to a Person other
than CPC or another such Wholly Owned Subsidiary of CPC, the provisions of this
clause (iii) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been Incurred at the time of any such
issuance, sale, transfer or other disposition, as the case may be; (iv)
Indebtedness of CPC or any Restricted Subsidiary under any interest rate
agreement to the extent entered into to hedge any other Indebtedness permitted
under the Indenture (including the Notes); (v) Indebtedness Incurred to renew,
extend, refinance or refund (collectively for purposes of this clause (v) to
"refund") any Indebtedness outstanding on the Issue Date, any Indebtedness
Incurred under the prior clause (i) above or the Notes and the Subsidiary
Guarantee; provided, however, that (I) such Indebtedness does not exceed the
principal amount (or accrual amount, if less) of Indebtedness so refunded (plus
unused commitments under revolving credit facilities) plus the amount of any
premium required to be paid in connection with such refunding pursuant to the
terms of the Indebtedness refunded or the amount of any premium reasonably
determined by the issuer of such Indebtedness as necessary to accomplish such
refunding by means of a tender offer, exchange offer, or privately negotiated
repurchase, plus the expenses of such issuer reasonably incurred in connection
therewith and (II)(A) in the case of any refunding of Indebtedness that is pari
passu with the Notes, such refunding Indebtedness is made pari passu with or
subordinate in right of payment to the Notes, and, in the case of any refunding
of Indebtedness that is subordinate in right of payment to the Notes, such
refunding Indebtedness is subordinate in right of payment to the Notes on terms
no less favorable to the holders of the Notes than those contained in the
Indebtedness being refunded, (B) in either case, the refunding Indebtedness by
its terms, or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, does not have an Average Life that is less than the
remaining Average Life of the Indebtedness being refunded and does not permit
redemption or other retirement (including pursuant to any required offer to
purchase to be made by CPC or a Restricted Subsidiary of CPC) of such
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being refunded, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to a required offer to purchase made by CPC or a Restricted Subsidiary of CPC)
which is conditioned upon a change of control of CPC pursuant to provisions
substantially similar to those contained in the Indenture described under
"-- Change of Control" below and (C) any Indebtedness Incurred to refund any
Indebtedness is Incurred by the obligor on the Indebtedness being refunded or by
CPC; (vi) Indebtedness of CPC or its Subsidiaries not otherwise permitted to be
Incurred pursuant to clauses (i) through (v) above which, together with any
other outstanding Indebtedness Incurred pursuant to this clause (vi), has an
aggregate principal amount not in excess of $5.0 million at any time
outstanding, which Indebtedness may be incurred under the Credit Agreement or
otherwise; (vii) Indebtedness of CPC under the Notes incurred in accordance with
the Indenture; (viii) Indebtedness outstanding on the Issue Date; (ix)
Indebtedness incurred by CPC or any of its Restricted Subsidiaries constituting
reimbursement obligations with respect to letters of credit issued in the
ordinary course of business, including, without limitation, letters of credit in
respect of workers' compensation claims or self-insurance, or other Indebtedness
with respect to reimbursement type obligations regarding workers' compensation
claims or self-insurance, and obligations in respect of performance and surety
bonds and completion guarantees provided by CPC or any Restricted Subsidiary of
CPC in the ordinary course of business; (x) guarantees by CPC or its Restricted
Subsidiaries of Indebtedness otherwise permitted to be Incurred hereunder; (xi)
Indebtedness pursuant to a Permitted Receivables Financing; provided, however,
that Indebtedness Incurred under such Permitted Receivables Financing and
Indebtedness Incurred pursuant to
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clause (ii) above shall not exceed $50.0 million in the aggregate at any time
outstanding; and (xii) Indebtedness (including Capitalized Lease Obligations)
Incurred by CPC or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person owning
such assets) in an aggregate principal amount outstanding not to exceed 5.0% of
Tangible Assets at any time (which amount may, but need not, be Incurred in
whole or in part under the Credit Agreement) provided that the principal amount
of such Indebtedness does not exceed the fair market value of such property or
equipment at the time of Incurrence thereof.
Limitation on Restricted Payments
The Indenture will provide that CPC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend, or make any distribution of any kind or character (whether in cash,
property or securities), in respect of any class of the Capital Stock of CPC or
any of its Restricted Subsidiaries or to the holders thereof, excluding any (x)
dividend or distribution payable solely in shares of Capital Stock of CPC (other
than Disqualified Stock) or in options, warrants or other rights to acquire
Capital Stock of CPC (other than Disqualified Stock), or (y) in the case of any
Restricted Subsidiary of CPC, dividends or distributions payable to CPC or a
Restricted Subsidiary of CPC, (ii) purchase, redeem, or otherwise acquire or
retire for value shares of Capital Stock of CPC or any of its Restricted
Subsidiaries, any options, warrants or rights to purchase or acquire shares of
Capital Stock of CPC or any of its Restricted Subsidiaries or any securities
convertible or exchangeable into shares of Capital Stock of CPC or any of its
Restricted Subsidiaries, excluding any such shares of Capital Stock, options,
warrants, rights or securities which are owned by CPC or a Restricted Subsidiary
of CPC, (iii) make any Investment in (other than a Permitted Investment), or
payment on a guarantee of any obligation of, any Person, other than CPC or a
direct or indirect Wholly Owned Subsidiary of CPC, or (iv) redeem, defease,
repurchase, retire or otherwise acquire or retire for value, prior to any
scheduled maturity, repayment or sinking fund payment, Subordinated Indebtedness
(each of the transactions described in clauses (i) through (iv) (other than any
exception to any such clause) being a "Restricted Payment") if at the time
thereof, (1) a Default or an Event of Default shall have occurred and be
continuing, or (2) upon giving effect to such Restricted Payment, CPC could not
Incur at least $1.00 of additional Indebtedness pursuant to the terms of the
Indenture described in clause (i) of "-- Limitation on Indebtedness" above, or
(3) upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments made on or after the Issue Date exceeds the sum of: (a) 50%
of cumulative Consolidated Net Income of CPC (or, in the case cumulative
Consolidated Net Income of CPC shall be negative, less 100% of such deficit)
since the end of the fiscal quarter in which the Issue Date occurs through the
last day of the fiscal quarter for which financial statements are available;
plus (b) 100% of the aggregate net proceeds received after the Issue Date,
including the fair market value of the property other than cash (determined in
good faith by the Board of Directors of CPC as evidenced by a resolution of such
Board of Directors filed with the Trustee), from the issuance of, or equity
contribution with respect to, Capital Stock (other than Disqualified Stock) of
CPC and warrants, rights or options on Capital Stock (other than Disqualified
Stock) of CPC (other than in respect of any such issuance to a Restricted
Subsidiary of CPC) and the principal amount of Indebtedness of CPC or any of its
Restricted Subsidiaries that has been converted into or exchanged for Capital
Stock of CPC which Indebtedness was Incurred after the Issue Date; plus (c) 100%
of the aggregate after-tax net proceeds, including the fair market value of
property other than cash (determined in good faith by the Board of Directors of
CPC as evidenced by a resolution of such Board of Directors filed with the
Trustee) of the sale or other disposition of any Investment constituting a
Restricted Payment made after the Issue Date; provided that any gain on the sale
or disposition included in such after tax net proceeds shall not be included in
determining Consolidated Net Income for purposes of clause (a) above.
The foregoing provisions will not be violated by (i) any dividend on any class
of Capital Stock of CPC or any of its Restricted Subsidiaries paid within 60
days after the declaration thereof if, on the date when the dividend was
declared, CPC or such Restricted Subsidiary, as the case may be, could have paid
such dividend in accordance with the provisions of the Indenture, (ii) the
renewal, extension, refunding or refinancing of any Indebtedness otherwise
permitted pursuant to the terms of the Indenture described in clause (v) of
"-- Limitation on Indebtedness" above, (iii) the exchange or conversion of any
Indebtedness of CPC or any of its Restricted Subsidiaries for or into Capital
Stock of CPC (other than Disqualified Stock), (iv) the redemption, repurchase,
retirement or other acquisition of any Capital Stock of CPC in exchange for or
out of the net cash proceeds of the substantially concurrent sale (other than to
a Restricted Subsidiary of CPC) of Capital Stock of CPC (other than Disqualified
Stock); provided, however, that the proceeds of such sale of Capital Stock shall
not be (and have not been) included in subclause (b) of clause (3) of the
preceding paragraph, (v) the payment of dividends to CPH in an amount equal to
the amount required for CPH to pay Federal, state and local income taxes to the
extent such income taxes are attributable to the income of CPC and its
Restricted Subsidiaries, (vi) payments of up to $500,000 annually to TC
Management L.L.C., for management and financial advisory services pursuant to
the terms of a management and consulting agreement entered into between the
Company and TC Management L.L.C., (vii) other Restricted Payments of up to $5.0
million in the aggregate, (viii) payments in lieu of fractional shares in an
amount not in excess of $100,000 in the aggregate; (ix) distributions
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to CPH to permit CPH to repurchase its common stock at no more than fair market
value (determined in good faith by the Board of Directors of CPC as evidenced by
a resolution of such Board of Directors filed with the Trustee) from present or
former Management Investors in an amount not in excess of $2.0 million in the
aggregate; and (x) a payment of merger fees to TC Management L.L.C. in
connection with the consummation of the Transactions which payment is made on
the Issue Date. Each Restricted Payment described in clauses (i) (to the extent
not already taken into account for purposes of computing the aggregate amount of
all Restricted Payments pursuant to clause (3) of the preceding paragraph), (v),
(vi), (vii), (viii) and (ix) of the previous sentence shall be taken into
account for purposes of computing the aggregate amount of all Restricted
Payments pursuant to clause (3) of the preceding paragraph.
The Indenture will provide that for purposes of this covenant, (i) an
"Investment" shall be deemed to have been made at the time any Restricted
Subsidiary is designated as an Unrestricted Subsidiary in an amount
(proportionate to CPC's equity interest in such Subsidiary) equal to the net
worth of such Restricted Subsidiary at the time that such Restricted Subsidiary
is designated as an Unrestricted Subsidiary; (ii) at any date the aggregate of
all Restricted Payments made as Investments since the Issue Date shall exclude
and be reduced by an amount (proportionate to CPC's equity interest in such
Subsidiary) equal to the net worth of an Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary, not to
exceed, in the case of any such redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the amount of Investments previously made by CPC and the
Restricted Subsidiaries in such Unrestricted Subsidiary (in each case (i) and
(ii) "net worth" to be calculated based upon the fair market value of the assets
of such Subsidiary as of any such date of designation which shall, in no event,
be less than zero), and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market at the time of such
transfer.
Limitation Concerning Distributions and Transfers by Restricted
Subsidiaries
The Indenture will provide that CPC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of CPC to (i) pay, directly or indirectly, dividends or
make any other distributions in respect of its Capital Stock or pay any
Indebtedness or other obligations owed to CPC or any Restricted Subsidiary of
CPC, (ii) make loans or advances to CPC or any Restricted Subsidiary of CPC or
(iii) transfer any of its property or assets to CPC or any Restricted Subsidiary
of CPC, except for such encumbrances or restrictions existing under or by reason
of (a) any agreement in effect on the Issue Date as any such agreement is in
effect on such date, (b) the Credit Agreement, (c) any agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary prior to the date on which
such Restricted Subsidiary was acquired by CPC and outstanding on such date and
not Incurred in anticipation or contemplation of becoming a Restricted
Subsidiary and provided such encumbrance or restriction shall not apply to any
assets of CPC or its Restricted Subsidiaries other than such Restricted
Subsidiary, (d) customary provisions contained in an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of a Restricted Subsidiary; provided, however, that such
encumbrance or restriction is applicable only to such Restricted Subsidiary or
assets, (e) an agreement effecting a renewal, exchange, refunding, amendment or
extension of Indebtedness Incurred pursuant to an agreement referred to in
clause (a) above, provided, however, that the provisions contained in such
renewal, exchange, refunding, amendment or extension agreement relating to such
encumbrance or restriction are no more restrictive in any material respect than
the provisions contained in the agreement that is the subject thereof in the
reasonable judgment of the Board of Directors of CPC as evidenced by a
resolution of such Board of Directors filed with the Trustee, (f) the Indenture,
(g) applicable law, (h) customary provisions restricting subletting or
assignment of any lease governing any leasehold interest of any Restricted
Subsidiary of CPC, (i) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the type referred to in
clause (iii) of this covenant, (j) restrictions of the type referred to in
clause (iii) of this covenant contained in security agreements securing
Indebtedness of a Restricted Subsidiary of CPC to the extent that such Liens
were otherwise incurred in accordance with "-- Limitation on Liens" below and
restrict the transfer of property subject to such agreements or (k) any
agreement relating to a Permitted Receivables Financing.
Limitation on Liens
The Indenture will provide that CPC will not, and will not permit any of its
Restricted Subsidiaries to, incur any Lien on or with respect to any property or
assets of CPC or such Restricted Subsidiary owned on the Issue Date or
thereafter acquired or on the income or profits thereof, which Lien secures
Indebtedness, without making, or causing any such Restricted Subsidiary to make,
effective provisions for securing the Notes and all other amounts due under the
Indenture (and, if CPC shall so determine, any other Indebtedness of CPC or such
Restricted Subsidiary, including Subordinated Indebtedness; provided, however,
that Liens securing the Notes and any Indebtedness pari passu with the Notes are
senior to such Liens securing such Subordinated Indebtedness) equally and
ratably with such Indebtedness or, in the event such Indebtedness is subordinate
in
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right of payment to the Notes or the Subsidiary Guarantee prior to such
Indebtedness, as to such property or assets for so long as such Indebtedness
shall be so secured.
The foregoing restrictions shall not apply to (i) Liens existing on the Issue
Date securing Indebtedness existing on the Issue Date; (ii) Liens securing
Indebtedness outstanding under the Credit Agreement and any guarantees thereof
to the extent that the Indebtedness secured thereby is permitted to be incurred
under the covenant described under "-- Limitation on Indebtedness" above; (iii)
Liens securing only the Notes and the Subsidiary Guarantees; (iv) Liens in favor
of CPC or a Subsidiary Guarantor; (v) Liens to secure Indebtedness Incurred for
the purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the property (or any other capital expenditure
financing) subject to such Liens; provided, however, that (a) the aggregate
principal amount of any Indebtedness secured by such a Lien does not exceed 100%
of such purchase price or cost, (b) such Lien does not extend to or cover any
other property other than such item of property and any improvements on such
item, (c) the Indebtedness secured by such Lien is Incurred by CPC within 180
days of the acquisition, construction or improvement of such property and (d)
the Incurrence of such Indebtedness is permitted by the provisions of the
Indenture described under "-- Limitation on Indebtedness" above; (vi) Liens on
property existing immediately prior to the time of acquisition thereof (and not
created in anticipation or contemplation of the financing of such acquisition);
(vii) Liens on property of a Person existing at the time such Person is acquired
or merged with or into or consolidated with CPC or any such Restricted
Subsidiary (and not created in anticipation or contemplation thereof); (viii)
Liens to secure Indebtedness Incurred to extend, renew, refinance or refund (or
successive extensions, renewals, refinancings or refundings), in whole or in
part, any Indebtedness secured by the Liens referred to in the foregoing clauses
(i)-(vii) so long as such Liens do not extend to any other property and the
principal amount of Indebtedness so secured is not increased except for the
amount of any premium required to be paid in connection with such extension,
renewal, refinancing or refunding pursuant to the terms of the Indebtedness
extended, renewed, refinanced, or refunded by means of a tender offer, exchange
offer or private negotiation plus the expenses of the issuer of such
Indebtedness reasonably incurred in connection with such extension, renewal,
refinancing or refunding; (ix) liens in favor of the Trustee as provided for in
the Indenture; (x) Liens incurred in the ordinary course of business securing
assets not having a fair market value in excess of $250,000 and (xi) Liens
incurred in connection with a Permitted Receivables Financing.
Limitation on Certain Asset Dispositions
The Indenture will provide that CPC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make one or more Asset
Dispositions unless: (i) CPC or such Restricted Subsidiary, as the case may be,
receives consideration for such Asset Disposition at least equal to the fair
market value of the assets sold or disposed of as determined by the Board of
Directors of CPC in good faith and evidenced by a resolution of such Board of
Directors filed with the Trustee; (ii) except in the case of a Permitted Asset
Swap, not less than 75% of the consideration for the disposition consists of
cash or readily marketable cash equivalents or the assumption of Indebtedness
(other than non-recourse Indebtedness or any Subordinated Indebtedness) of CPC
or such Restricted Subsidiary or other obligations relating to such assets (and
release of CPC or such Restricted Subsidiary from all liability on the
Indebtedness or other obligations assumed); and (iii) all Net Available
Proceeds, less any amounts invested within 360 days of such Asset Disposition in
assets related to the business of CPC (including the Capital Stock of another
Person (other than any Person that is a Restricted Subsidiary of CPC immediately
prior to such investment); provided, however, that immediately after giving
effect to any such investment (and not prior thereto) such Person shall be a
Restricted Subsidiary of CPC), are applied, on or prior to the 360th day after
such Asset Disposition, unless and to the extent that CPC shall determine to
make an Offer to Purchase, to the permanent reduction and prepayment of any
unsubordinated Indebtedness of CPC then outstanding (including a permanent
reduction of commitments in respect thereof). Any Net Available Proceeds from
any Asset Disposition which is subject to the immediately preceding sentence
that are not applied as provided in the immediately preceding sentence shall be
used promptly after the expiration of the 360th day after such Asset
Disposition, or promptly after CPC shall have earlier determined to not apply
any Net Available Proceeds therefrom as provided in clause (iii) of the
immediately preceding sentence, to make an Offer to Purchase outstanding Notes
at a purchase price in cash equal to 100% of their principal amount plus accrued
interest to the Purchase Date. Notwithstanding the foregoing, CPC may defer
making any Offer to Purchase outstanding Notes until there are aggregate
unutilized Net Available Proceeds from Asset Dispositions otherwise subject to
the two immediately preceding sentences equal to or in excess of $5.0 million
(at which time, the entire unutilized Net Available Proceeds from Asset
Dispositions otherwise subject to the two immediately preceding sentences, and
not just the amount in excess of $5.0 million, shall be applied as required
pursuant to this paragraph). Any remaining Net Available Proceeds following the
completion of the required Offer to Purchase may be used by CPC for any other
purposes (subject to other provisions of the Indenture) and the amount of Net
Available Proceeds then required to be otherwise applied in accordance with this
covenant shall be reset to zero, subject to any subsequent Asset Disposition.
These provisions will not apply to a transaction consummated in compliance with
the provisions of the Indenture described under "-- Merger, Consolidations and
Certain Sales of Assets" below.
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In the event that CPC makes an Offer to Purchase the Notes, CPC shall comply
with any applicable securities laws and regulations, including any applicable
requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act.
Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Indenture will provide that CPC will not, and will not permit any of its
Restricted Subsidiaries to, (a) transfer, convey, sell or otherwise dispose of
any shares of Capital Stock of any Restricted Subsidiary of CPC (other than to
CPC or a Wholly Owned Subsidiary of CPC), except that CPC and any such
Restricted Subsidiary may, in any single transaction, sell all, but not less
than all, of the issued and outstanding Capital Stock of any such Restricted
Subsidiary to any Person, subject to complying with the provisions of the
Indenture described under "-- Limitation on Certain Asset Dispositions" above or
(b) issue shares of Capital Stock of a Restricted Subsidiary of CPC (other than
directors' qualifying shares), or securities convertible into, or warrants,
rights or options to subscribe for or purchase shares of, Capital Stock of a
Restricted Subsidiary of CPC to any Person other than to CPC or a Wholly Owned
Subsidiary of CPC.
Limitation on Transactions with Affiliates and Related Persons
The Indenture will provide that CPC will not, and will not permit any of its
Restricted Subsidiaries to, enter into directly or indirectly any transaction
with any of their respective Affiliates or Related Persons (other than CPC or a
Restricted Subsidiary of CPC), including, without limitation, the purchase,
sale, lease or exchange of property, the rendering of any service, or the making
of any guarantee, loan, advance or Investment, either directly or indirectly,
involving aggregate consideration in excess of $1,000,000 unless a majority of
the disinterested directors of the Board of Directors of CPC determines, in its
good faith judgment evidenced by a resolution of such Board of Directors filed
with the Trustee, that the terms of such transaction are at least as favorable
as the terms that could be obtained by CPC or such Restricted Subsidiary, as the
case may be, in a comparable transaction made on an arms-length basis between
unaffiliated parties; provided, however, that if the aggregate consideration is
in excess of $5,000,000 CPC shall also obtain, prior to the consummation of the
transaction, the favorable opinion as to the fairness of the transaction to CPC
or such Restricted Subsidiary, from a financial point of view from an
independent financial advisor. The provisions of this covenant shall not apply
to (i) transactions permitted by the provisions of the Indenture described above
under the caption "-- Limitation on Restricted Payments" above, (ii) reasonable
fees and compensation paid to, and indemnity provided on behalf of, officers,
directors and employees of CPC and its Restricted Subsidiaries as determined in
good faith by the Board of Directors of CPC, (iii) loans to employees in the
ordinary course of business which are approved in good faith by the Board of
Directors of CPC and (iv) transactions in connection with a Permitted
Receivables Financing.
Change of Control
Within 30 days following the date of the consummation of a transaction resulting
in a Change of Control, CPC will commence an Offer to Purchase all outstanding
Notes at a purchase price in cash equal to 101% of their principal amount plus
accrued interest to the Purchase Date. Such Offer to Purchase will be
consummated not earlier than 30 days and not later than 60 days after the
commencement thereof. Each holder shall be entitled to tender all or any portion
of the Notes owned by such holder pursuant to the Offer to Purchase, subject to
the requirement that any portion of a Note tendered must be an integral multiple
of $1,000 principal amount. A "Change of Control" will be deemed to have
occurred in the event that (whether or not otherwise permitted by the
Indenture), after the Issue Date (a) any Person or any Persons acting together
that would constitute a group (for purposes of Section 13(d) of the Exchange
Act, or any successor provision thereto) (a "Group"), together with any
Affiliates or Related Persons thereof, other than Permitted Holders, shall
"beneficially own" (as defined in Rule 13d-3 under the Exchange Act, or any
successor provision thereto) at least 40% of the voting power of the outstanding
Voting Stock of CPC; (b) any sale, lease or other transfer (in one transaction
or a series of related transactions) is made by CPC or any of its Restricted
Subsidiaries of all or substantially all of the consolidated assets of CPC and
its Restricted Subsidiaries to any Person; (c) CPC consolidates with or merges
with or into another Person or any Person consolidates with, or merges with or
into, CPC, in any such event pursuant to a transaction in which immediately
after the consummation thereof Persons owning a majority of the Voting Stock of
CPC immediately prior to such consummation shall cease to own a majority of the
Voting Stock of CPC or the surviving entity if other than CPC, (d) Continuing
Directors cease to constitute at least a majority of the Board of Directors of
CPC; or (e) the stockholders of CPC approve any plan or proposal for the
liquidation or dissolution of CPC.
In the event that CPC makes an Offer to Purchase the Notes, CPC shall comply
with any applicable securities laws and regulations, including any applicable
requirements of Section 14(e), and Rule 14e-1 under, the Exchange Act.
Subject to the limitations described herein, including the limitation on the
Company's ability to incur indebtedness, the Company is not prohibited by the
terms of the Indenture from entering into certain transactions, including
acquisitions,
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refinancings, recapitalizations or other highly-leveraged transactions, that do
not constitute a Change of Control under the Indenture. Such transactions could
adversely affect Holders by increasing the indebtedness of the Company, some or
all of which may be senior to the Notes, or otherwise adversely affecting the
Company's capital structure and credit ratings. The occurrence of a Change of
Control would constitute an Event of Default under the Credit Agreement.
With respect to the sale of assets referred to in the definition of "Change of
Control," the phrase "all or substantially all" of the assets of CPC will likely
be interpreted under applicable law and will be dependent upon particular facts
and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of CPC has occurred. In addition, no assurances can be given that CPC
will be able to acquire Notes tendered upon the occurrence of a Change of
Control. Other than the Credit Agreement, CPC has no outstanding securities or
liabilities that are pari passu with the Notes or that have Change of Control
provisions. However, the ability of CPC to pay cash to the holders of Notes upon
a Change of Control may be limited by its then existing financial resources. CPC
has $22.7 million outstanding indebtedness and an additional $27.3 million
available under the Credit Agreement. The indebtedness must be repaid prior to
the repurchase of Notes upon a Change of Control. The Credit Agreement will
prohibit the purchase of outstanding Notes prior to repayment of the borrowings
under the Credit Agreement and any exercise by the holders of the Notes of their
right to require CPC to repurchase the Notes will cause an event of default
under the Credit Agreement. If CPC does not obtain such waiver or consent to
repay such Indebtedness, CPC will remain prohibited from repurchasing the Notes.
In such event, CPC's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture which would in turn constitute a default
under the Credit Agreement and possibly other Indebtedness. None of the
provisions relating to a repurchase upon a Change of Control are waivable by the
Board of Directors of CPC or the Trustee.
Mergers, Consolidations and Certain Sales of Assets
CPC will not consolidate or merge with or into any Person, or sell, assign,
lease, convey or otherwise dispose of (or cause or permit any Restricted
Subsidiary of CPC to consolidate or merge with or into any Person or sell,
assign, lease, convey or otherwise dispose of) all or substantially all of CPC's
assets (determined on a consolidated basis for CPC and its Restricted
Subsidiaries), whether as an entirety or substantially as an entirety in one
transaction or a series of related transactions, including by way of liquidation
or dissolution, to any Person unless, in each such case: (i) the entity formed
by or surviving any such consolidation or merger (if other than CPC or such
Restricted Subsidiary, as the case may be), or to which such sale, assignment,
lease, conveyance or other disposition shall have been made (the "Surviving
Entity"), is a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the Surviving Entity
assumes by supplemental indenture all of the obligations of CPC on the Notes and
under the Indenture; (iii) immediately after giving effect to such transaction
and the use of any net proceeds therefrom on a pro forma basis, CPC or the
Surviving Entity, as the case may be, could Incur at least $1.00 of Indebtedness
pursuant to clause (i) of the provisions of the Indenture described under
"-- Limitation on Indebtedness" above; (iv) immediately before and after giving
effect to such transaction and treating any Indebtedness which becomes an
obligation of CPC or any of its such Restricted Subsidiaries as a result of such
transaction as having been incurred by CPC or such Restricted Subsidiary, as the
case may be, at the time of the transaction, no Default or Event of Default
shall have occurred and be continuing; and (v) if, as a result of any such
transaction, property or assets of CPC or a Restricted Subsidiary would become
subject to a Lien not excepted from the provisions of the Indenture described
under "-- Limitation on Liens" above, CPC, Restricted Subsidiary or the
Surviving Entity, as the case may be, shall have secured the Notes as required
by said covenant. The provisions of this paragraph shall not apply to any merger
of a Restricted Subsidiary of CPC with or into CPC or a Wholly Owned Subsidiary
of CPC or any transaction pursuant to which a Subsidiary Guarantor is to be
released in accordance with the terms of the Subsidiary Guarantee and the
Indenture in connection with any transaction complying with the provisions of
the Indenture described under "-- Limitation on Certain Asset Dispositions"
above.
Future Subsidiary Guarantors
The Indenture will provide that CPC will not create or acquire, nor permit any
of its Restricted Subsidiaries to create or acquire, any Restricted Subsidiary
after the Issue Date (other than a Securitization Subsidiary) unless, at the
time such Restricted Subsidiary has either assets or stockholder's equity in
excess of $25,000, such Restricted Subsidiary executes and delivers to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee all
of CPC's obligations under the Notes and the Indenture on the terms set forth in
the Indenture.
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PROVISION OF FINANCIAL INFORMATION
Whether or not CPC is subject to Section 13(a) or 15(d) of the Exchange Act, or
any successor provision thereto, following the effectiveness of the Exchange
Offer CPC shall file with the Commission the annual reports, quarterly reports
and other documents which CPC would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if CPC were so required, such documents to be filed with the Commission
on or prior to the respective dates (the "Required Filing Dates") by which CPC
would have been required so to file such documents if CPC were so required.
Regardless of whether CPC files such reports or other documents with the
Commission, CPC shall (a) within 15 days of each Required Filing Date (i)
transmit by mail to all holders of Notes, as the names and addresses appear in
the Note Register, without cost to such holders, and (ii) file with the Trustee,
copies of such annual reports, quarterly reports and other documents, and (b) if
filing such documents by CPC with the Commission is not permitted under the
Exchange Act, promptly upon written request supply copies of such documents to
any prospective holder of Notes.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to pay
principal of (or premium, if any, on) any Note when due; (b) failure to pay any
interest on any Note when due and payable, and the default continues for 30
days; (c) default in the payment of principal of and interest on Notes required
to be purchased pursuant to an Offer to Purchase as described under
"-- Covenants -- Change of Control" and "-- Covenants -- Limitation on Certain
Asset Dispositions" above when due and payable; (d) failure to perform or comply
with any of the provisions described under "-- Covenants -- Mergers,
Consolidations and Certain Sales of Assets" above; (e) failure to perform any
other covenant or agreement of CPC under the Indenture or the Notes and the
default continues for 30 days after written notice to CPC by the Trustee or
holders of at least 25% in aggregate principal amount of outstanding Notes; (f)
default under the terms of one or more instruments evidencing or securing
Indebtedness of CPC or any of its Subsidiaries having an outstanding principal
amount of $5.0 million or more individually or in the aggregate that has
resulted in the acceleration of the maturity of such Indebtedness or failure to
pay principal when due at the stated maturity of any such Indebtedness; (g) the
rendering of a final judgment or judgments (not covered by insurance and not
subject to appeal) against CPC or any of its Subsidiaries in an amount of $5.0
million or more which remains undischarged or unstayed for a period of 60 days
after the date on which the right to appeal has expired; (h) certain events of
bankruptcy, insolvency or reorganization affecting CPC or any of its
Subsidiaries; and (i) the Subsidiary Guarantee ceases to be in full force and
effect or is declared null and void and unenforceable or is found to be invalid
or a Subsidiary Guarantor denies its liability under the Subsidiary Guarantee
(other than by reason of a release of such Subsidiary Guarantor from the
Subsidiary Guarantee in accordance with the terms of the Indenture and the
Subsidiary Guarantee).
If an Event of Default (other than an Event of Default with respect to CPC
described in clause (h) of the preceding paragraph) shall occur and be
continuing, either the Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Notes may accelerate the maturity of all
Notes, provided, however, that after such acceleration, but before a judgment or
decree based on acceleration, the holders of a majority in aggregate principal
amount of outstanding Notes may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the nonpayment of
accelerated principal, have been cured or waived as provided in the Indenture.
If an Event of Default specified in clause (h) of the preceding paragraph with
respect to CPC occurs, the outstanding Notes will ipso facto become immediately
due and payable without any declaration or other act on the part of the Trustee
or any holder. For information as to waiver of defaults, see "-- Modification
and Waiver."
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes, give
the holders thereof notice of all uncured Defaults or Events of Default known to
it; provided, however, that, except in the case of an Event of Default or a
Default in payment with respect to the Notes or a Default or Event of Default in
complying with "-- Covenants -- Mergers, Consolidations and Certain Sales of
Assets," the Trustee shall be protected in withholding such notice if and so
long as the Trustee in good faith determines that the withholding of such notice
is in the interest of the holders of the Notes.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, and the
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of a
Note for enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Notes.
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CPC will be required to furnish to the Trustee annually a statement as to its
performance of certain of its obligations under the Indenture and as to any
default in such performance.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
CPC may terminate its substantive obligations and the substantive obligations of
the Subsidiary Guarantors in respect of the Notes by delivering all outstanding
Notes to the Trustee for cancellation and paying all sums payable by CPC on
account of principal of, premium, if any, and interest on all Notes or
otherwise. In addition to the foregoing, CPC may, provided that no Default or
Event of Default has occurred and is continuing on the date of the deposit
referred to below or during the period ending on the 95th calendar day after the
date of such deposit, or would arise therefrom, terminate, on the 95th calendar
day following the deposit referred to below, its substantive obligations and the
substantive obligations of the Subsidiary Guarantors in respect of the Notes
(except for CPC's obligation to pay the principal of (and premium, if any, on)
and the interest on the Notes and such Subsidiary Guarantors' guarantee thereof)
by (i) depositing with the Trustee, under the terms of an irrevocable trust
agreement, money or United Sates Government Obligations sufficient (without
reinvestment) to pay all remaining indebtedness on the Notes, (ii) delivering to
the Trustee either an Opinion of Counsel or a ruling directed to the Trustee
from the Internal Revenue Service to the effect that the holders of the Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and termination of obligations, (iii) delivering to the
Trustee an Opinion of Counsel to the effect that CPC's exercise of its option
under this paragraph will not result in CPC, the Trustee or the trust created by
CPC's deposit of funds pursuant to this provision becoming or being deemed to be
an "investment company" under the Investment Company Act of 1940, as amended,
and (iv) complying with certain other requirements set forth in the Indenture.
In addition, CPC may, provided that no Default or Event of Default has occurred,
and is continuing on the date of the deposit referred to below or during the
period ending on the 95th calendar day after the date of such deposit, or would
arise therefrom, terminate, on the 95th calendar day following the deposit
referred to below, all of its substantive obligations and all of the substantive
obligations of the Subsidiary Guarantors in respect of the Notes (including
CPC's obligation to pay the principal of (and premium, if any, on) and interest
on the Notes and such Subsidiary Guarantors' guarantee thereof) by (i)
depositing with the Trustee, under the terms of an irrevocable trust agreement,
money or United States Government Obligations sufficient (without reinvestment)
to pay all remaining indebtedness on the Notes, (ii) delivering to the Trustee
either a ruling directed to the Trustee from the Internal Revenue Service to the
effect that the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and termination of
obligations or an Opinion of Counsel based upon such a ruling addressed to the
Trustee or a change in the applicable Federal tax law since the date of the
Indenture, to such effect, (iii) delivering to the Trustee an Opinion of Counsel
to the effect that CPC's exercise of its option under this paragraph will not
result in CPC, the Trustee or the trust created by CPC's deposit of funds
pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Company Act of 1940, as amended, and (iv)
complying with certain other requirements set forth in the Indenture.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantee will be governed by the
laws of the State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by CPC, the Subsidiary
Guarantors and the Trustee with the consent of the holders of a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of the holder of each
Note affected thereby, (a) change the Stated Maturity of the principal of or any
installment of interest on any Note or alter the optional redemption or
repurchase provisions of any Note or the Indenture in a manner adverse to the
holders of the Notes, (b) reduce the principal amount of (or the premium) of any
Note, (c) reduce the rate of or extend the time for payment of interest on any
Note, (d) change the place or currency of payment of principal of (or premium)
or interest on any Note, (e) modify any provisions of the Indenture relating to
the waiver of past defaults or the right of the holders to institute suit for
the enforcement of any payment on or with respect to any Note or the Subsidiary
Guarantee or the modification and amendment of the Indenture and the Notes
(other than to add sections of the Indenture or the Notes which may not be
amended, supplemented or waived without the consent of each holder affected),
(f) reduce the percentage of the principal amount of outstanding Notes necessary
for amendment to or waiver of compliance with any provision of the Indenture or
the Notes or for waiver of any Default, (g) waive a default in the payment of
principal of, interest on, or redemption payment with respect to, any Note
(except a recision of acceleration of the Notes by the holders as provided in
the Indenture and a waiver of the payment default that resulted from such
acceleration), (h) modify the ranking or priority of the Notes or the Subsidiary
Guarantee, (i) release the Subsidiary Guarantors from any of their respective
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obligations under the Subsidiary Guarantee or the Indenture otherwise than in
accordance with the Indenture, or (j) modify the provisions relating to any
Offer to Purchase required under the covenants described under
"-- Covenants -- Limitation on Certain Asset Dispositions" or
"-- Covenants -- Change of Control" in a manner materially adverse to the
holders of Notes with respect to any Asset Disposition that has been consummated
or Change of Control that has occurred.
The holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all holders of Notes, may waive compliance by CPC with
certain restrictive provisions of the Indenture. Subject to certain rights of
the Trustee, as provided in the Indenture, the holders of a majority in
aggregate principal amount of the outstanding Notes, on behalf of all holders of
Notes, may waive any past default under the Indenture, except a default in the
payment of principal, premium or interest or a default arising from failure to
purchase any Note tendered pursuant to an Offer to Purchase, or a default in
respect of a provision that under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Note affected.
THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will perform only such duties as are specifically set forth in the
Indenture. During the existence of a Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. The Indenture and
provisions of the Trust Indenture Act incorporated by reference therein contain
limitations on the rights of the Trustee, should it become a creditor of CPC or
any other obligor upon the Notes, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with CPC or an Affiliate of CPC; provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture or the Registration Rights Agreement. Reference is made to the
Indenture or the Registration Rights Agreement for the full definitions of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of such
Person (i) existing at the time such Person becomes a Restricted Subsidiary or
(ii) assumed in connection with the acquisition of assets from another Person,
including Indebtedness Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or such acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, transfer or other disposition (including,
without limitation, by merger, consolidation or sale-and-leaseback transaction)
of (i) shares of Capital Stock of a Subsidiary of CPC (other than directors'
qualifying shares) or (ii) property or assets of CPC or any Subsidiary of CPC;
provided, however, that an Asset Disposition shall not include (a) any sale,
transfer or other disposition of shares of Capital Stock, property or assets by
a Restricted Subsidiary of CPC to CPC or to any Wholly Owned Subsidiary of CPC,
(b) any sale, transfer or other disposition of defaulted receivables for
collection or any sale, transfer or other disposition of property or assets in
the ordinary course of business, (c) any individual isolated sale, transfer or
other disposition that does not involve aggregate consideration in excess of
$250,000, (d) the grant in the ordinary course of business of any nonexclusive
license of patents, trademarks, registrations therefor and other similar
intellectual property, (e) any Lien (or foreclosure thereon) securing
Indebtedness to the extent that such Lien is granted in compliance with
"-- Covenants -- Limitation on Liens" above, (f) any Restricted Payment
permitted by "-- Covenants -- Limitation on Restricted Payments" above, (g) the
sale, lease, conveyance or disposition or other transfer of all or substantially
all of the assets of CPC as permitted under "-- Covenants -- Mergers,
Consolidations and Certain Sales of Assets" above; provided, that the assets not
so sold, leased, conveyed, disposed of or otherwise transferred shall be deemed
an Asset Disposition, (h) any disposition that constitutes a Change of Control
or (i) any Permitted Receivables Financing.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates
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of each successive scheduled principal or liquidation value payments of such
Indebtedness or Preferred Stock, respectively, and the amount of such principal
or liquidation value payments, by (ii) the sum of all such principal or
liquidation value payments.
"Capital Lease Obligations" of any Person means the obligations to pay rent or
other amounts under a lease of (or other arrangements conveying the right to
use) real or personal property of such Person which are required to be
classified and accounted for as capital leases or liabilities on the face of a
balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount thereof in accordance with GAAP and
the stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person (including any Preferred Stock outstanding on the Issue Date).
"Common Stock" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Consolidated EBITDA" of any Person means for any period the Consolidated Net
Income of such Person for such period increased (to the extent Consolidated Net
Income for such period has been reduced thereby) by the sum of (without
duplication) (i) Consolidated Interest Expense of such Person for such period,
plus (ii) Consolidated Income Tax Expense of such Person for such period, plus
(iii) the consolidated depreciation and amortization expense included in the
income statement of such Person prepared in accordance with GAAP for such
period, plus (iv) any other non-cash charges to the extent deducted from or
reflected in Consolidated Net Income except for any non-cash charges that
represent accruals of, or reserves for, cash disbursements to be made in any
future accounting period.
"Consolidated Fixed Charge Coverage Ratio" of any Person means for any period
the ratio of (i) Consolidated EBITDA of such Person for such period to (ii) the
sum of (A) Consolidated Interest Expense of such Person for such period, plus
(B) the annual interest expense with respect to any Indebtedness proposed to be
Incurred by such Person or its Restricted Subsidiaries, minus (C) Consolidated
Interest Expense of such Person to the extent included in clause (ii)(A) with
respect to any Indebtedness that will no longer be outstanding as a result of
the Incurrence of the Indebtedness proposed to be Incurred, plus (D) the annual
interest expense with respect to any other Indebtedness Incurred by such Person
or its Restricted Subsidiaries since the end of such period to the extent not
included in clause (ii)(A), minus (E) Consolidated Interest Expense of such
Person to the extent included in clause (ii)(A) with respect to any Indebtedness
that no longer is outstanding as a result of the Incurrence of the Indebtedness
referred to in clause (ii)(D); provided, however, that in making such
computation, the Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness bearing a floating interest rate shall be computed
on a pro forma basis as if the rate in effect on the date of computation (after
giving effect to any hedge in respect of such Indebtedness that will, by its
terms, remain in effect until the earlier of the maturity of such Indebtedness
or the date one year after the date of such determination) had been the
applicable rate for the entire period; provided, further, however, that, in the
event such Person or any of its Restricted Subsidiaries has made any Asset
Dispositions or acquisitions of assets not in the ordinary course of business
(including acquisitions of other Persons by merger, consolidation or purchase of
Capital Stock) during or after such period and on or prior to the date of
computation, such computation shall be made on a pro forma basis as if the Asset
Dispositions or acquisitions had taken place on the first day of such period.
Calculations of pro forma amounts in accordance with this definition shall be
done in accordance with Article 11 of Regulation S-X under the Securities Act of
1933 or any successor provision and may include reasonably ascertainable cost
savings.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" for any Person means for any period, without
duplication, (a) the consolidated interest expense included in a consolidated
income statement (without deduction of interest or finance charge income) of
such Person and its Restricted Subsidiaries for such period calculated on a
consolidated basis in accordance with GAAP and (b) dividend requirements of such
Person and its Restricted Subsidiaries with respect to Disqualified Stock and
with respect to all other Preferred Stock of Restricted Subsidiaries of such
Person (in each case whether in cash or otherwise (except dividends payable
solely in shares of Capital Stock of such Person or such Restricted Subsidiary))
paid, declared, accrued or accumulated during such period times a fraction the
numerator of which is one and the denominator of which is one minus the then
effective consolidated Federal, state and local tax rate of such Person,
expressed as a decimal.
"Consolidated Net Income" of any Person means for any period the consolidated
net income (or loss) of such Person and its Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP; provided,
however, that
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there shall be excluded therefrom (a) the net income (or loss) of any Person
acquired by such Person or a Restricted Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (but not net loss) of any Restricted Subsidiary
of such Person which is subject to restrictions which prevent or limit the
payment of dividends or the making of distributions to such Person to the extent
of such restrictions (regardless of any waiver thereof), (c) non-cash gains and
losses due solely to fluctuations in currency values, (d) the net income of any
Person that is not a Restricted Subsidiary of such Person, except to the extent
of the amount of dividends or other distributions representing such Person's
proportionate share of such other Person's net income for such period actually
paid in cash to such Person by such other Person during such period, (e) gains
but not losses on Asset Dispositions by such Person or its Restricted
Subsidiaries, (f) all gains and losses classified as extraordinary, unusual or
nonrecurring in accordance with GAAP and (g) in the case of a successor to the
referent Person by consolidation or merger or as a transferee of the referent
Person's assets, any earnings (or losses) of the successor corporation prior to
such consolidation, merger or transfer of assets.
"Continuing Director" means a director who either was a member of the Board of
Directors of CPC on the Issue Date or who became a director of CPC subsequent to
the Issue Date and (i) whose election, or nomination for election by CPC's
stockholders, was duly approved by a majority of the Continuing Directors then
on the Board of Directors of CPC either by a specific vote or by approval of the
proxy statement issued by CPC on behalf of the entire Board of Directors of CPC
in which such individual is named as nominee for director or (ii) whose election
was duly approved by the Principals at a meeting of stockholders of CPC called
for such purpose.
"Credit Agreement" means, collectively, (i) that certain Credit Agreement, to be
dated as of May 9, 1997 between CPC and Dresdner Bank AG, New York and Grand
Cayman Branches, as agent and certain other financial institutions and (ii) any
deferrals, renewals, extensions, replacements, refinancings or refundings of any
of the foregoing, or amendments, modifications or supplements to (including,
without limitation, any amendment increasing the amount borrowed or
reimbursement obligation thereunder) whether by or with the same or any other
lender, creditor, or group of creditors and including related notes, guarantee
agreements and other instruments and agreements executed in connection
therewith.
"Default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended and the
rules and regulations promulgated by the Commission thereunder.
"GAAP" means generally accepted accounting principles, consistently applied, as
in effect on the Issue Date in the United States of America, as set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as is approved by a significant segment of the accounting
profession in the United States. All ratios and computations based on GAAP
contained in the Indenture shall be computed in conformity with GAAP applied on
a consistent basis.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Person or any of its
Restricted Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of CPC (or is merged into or consolidates with CPC or any of its
Restricted Subsidiaries), whether or not such Indebtedness was incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary of CPC (or being merged into or consolidated with CPC or any of its
Restricted Subsidiaries), shall be deemed Incurred at the time any such Person
becomes a Restricted Subsidiary of CPC or merges into or consolidates with CPC
or any of its Restricted Subsidiaries.
"Indebtedness" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued
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liabilities arising in the ordinary course of business which are not overdue or
which are being contested in good faith), (v) every Capital Lease Obligation of
such Person, (vi) every net obligation under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements of such
Person and (vii) every obligation of the type referred to in clauses (i) through
(vi) of another Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise. Indebtedness shall
include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Stock of CPC, and any Preferred Stock
of a Subsidiary of CPC. Indebtedness shall never be calculated taking into
account any cash and cash equivalents held by such Person. Indebtedness shall
not include obligations arising from agreements of CPC or a Restricted
Subsidiary of CPC to provide for indemnification, adjustment of purchase price,
earn-out, or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business or assets of a Restricted
Subsidiary of CPC.
"Investment" by any Person means any direct or indirect loan, advance, guarantee
or other extension of credit or capital contribution to (by means of transfers
of cash or other property to others or payments for property or services for the
account or use of others, or otherwise), or purchase or acquisition of Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by any other Person.
"Issue Date" means the original issue date of the Notes.
"Lien" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Management Investors" means full-time members of management of CPC who acquire
stock of CPH on or after the Issue Date and any of their Permitted Transferees.
"Net Available Proceeds" from any Asset Disposition by any Person means cash or
readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiror of
Indebtedness or other obligations relating to such properties or assets or
received in any other non-cash form) therefrom by such Person, including any
cash received by way of deferred payment or upon the monetization or other
disposition of any non-cash consideration (including notes or other securities)
received in connection with such Asset Disposition, net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred and
all federal, state, foreign and local taxes required to be accrued as a
liability as a consequence of such Asset Disposition, (ii) all payments made by
such Person or its Restricted Subsidiaries on any Indebtedness which is secured
by such assets in accordance with the terms of any Lien upon or with respect to
such assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iii) all payments made with
respect to liabilities associated with the assets which are the subject of the
Asset Disposition, including, without limitation, trade payables and other
accrued liabilities, (iv) appropriate amounts to be provided by such Person or
any Restricted Subsidiary thereof, as the case may be, as a reserve in
accordance with GAAP against any liabilities associated with such assets and
retained by such Person or any Restricted Subsidiary thereof, as the case may
be, after such Asset Disposition, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, until such time as
such amounts are no longer reserved or such reserve is no longer necessary (at
which time any remaining amounts will become Net Available Proceeds to be
allocated in accordance with the provisions of clause (iii) of the covenant of
the Indenture described under "-- Covenants -- Limitation on Certain Asset
Dispositions") and (v) all distributions and other payments made to minority
interest holders in Restricted Subsidiaries of such Person or joint ventures as
a result of such Asset Disposition.
"Offer To Purchase" means a written offer (the "Offer") sent by CPC by first
class mail, postage prepaid, in the case of the Global Notes to DTC and in the
case of certificated Notes to each holder at his address appearing in the
register for the Notes, in each case, on the date of the Offer offering to
purchase up to the principal amount of Notes specified in such Offer at the
purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase which shall
be not less than 30 days nor more than 60 days after the date of such Offer and
a settlement date (the "Purchase Date") for purchase of Notes within five
Business Days after the Expiration Date. CPC shall notify the Trustee at least
15 Business Days (or such shorter period as is acceptable to the Trustee) prior
to the mailing of the Offer of CPC's obligation to make an Offer to Purchase,
and the Offer shall be mailed by CPC or, at CPC's request, by the Trustee in the
name and at the expense of CPC. The Offer shall contain
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<PAGE> 68
all the information required by applicable law to be included therein. The Offer
shall contain all instructions and materials necessary to enable such holders to
tender Notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to
be purchased by CPC pursuant to the Offer to Purchase (including, if less
than 100%, the manner by which such amount has been determined pursuant to
the Section of the Indenture requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by CPC for each $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant to
the Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the Notes
registered in the name of such holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by CPC pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if CPC or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to CPC and the Trustee duly executed by, the
holder thereof or his attorney duly authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of
Notes tendered if CPC (or its paying agent) receives, not later than the
close of business on the fifth Business Day next preceding the Expiration
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the Note the holder tendered,
the certificate number of the Note the holder tendered and a statement that
such holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, CPC shall purchase all such Notes and (b) if
Notes in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, CPC shall
purchase Notes having an aggregate principal amount equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Notes in denominations of $1,000 or integral
multiples thereof shall be purchased); and
(12) that in the case of any holder whose Note is purchased only in
part, CPC shall execute and the Trustee shall authenticate and deliver to
the holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"Permitted Asset Swap" means any one or more transactions in which CPC or any of
its Restricted Subsidiaries exchanges assets for consideration consisting of (i)
cash, (ii) assets used or useful in the business of CPC as conducted on the
Issue Date or reasonable extensions, developments or expansions thereof or
ancillary thereto and/or (iii) other assets in an amount less than 15% of the
fair market value of such transaction or transactions.
"Permitted Holder" means any of (i) the Principals and their Related Persons and
Affiliates and (ii) the Management Investors.
"Permitted Investments" means (i) Investments in marketable, direct obligations
issued or guaranteed by the United States of America, or any governmental entity
or agency or political subdivision thereof (provided, that the full faith and
credit of the United States of America is pledged in support thereof), maturing
within one year of the date of purchase; (ii) Investments in commercial paper
issued by corporations or financial institutions maturing within 180 days from
the date of the original issue thereof, and rated "P-1" or better by Moody's
Investors Service or "A-1" or better by Standard & Poor's Corporation or an
equivalent rating or better by any other nationally recognized securities rating
agency; (iii) Investments in time deposits and
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<PAGE> 69
certificates of deposit issued or acceptances accepted by or guaranteed by any
bank or trust company organized under the laws of the United States of America
or any state thereof or the District of Columbia or incorporated in a foreign
jurisdiction and having a branch office in the United States (each, an "Approved
Bank"), in each case having capital, surplus and undivided profits totaling more
than $500,000,000, maturing within one year of the date of purchase; (iv)
Investments representing Capital Stock or obligations issued to CPC or any of
its Restricted Subsidiaries in the course of the good faith settlement of claims
against any other Person or by reason of a composition or readjustment of debt
or a reorganization of any debtor of CPC or any of its Restricted Subsidiaries;
(v) deposits, including interest-bearing deposits, maintained in the ordinary
course of business in banks; (vi) repurchase obligations of an Approved Bank for
government obligations with a term of not more than seven days; (vii)
investments in money market mutual funds having assets in excess of $2.5 billion
all of whose assets are comprised of government obligations; (viii) any
acquisition of the Capital Stock of any Person; provided, however, that after
giving effect to any such acquisition such Person shall become a Restricted
Subsidiary of CPC; (ix) trade receivables and prepaid expenses, in each case
arising in the ordinary course of business; provided, however, that such
receivables and prepaid expenses would be recorded as assets of such Person in
accordance with GAAP; (x) endorsements for collection or deposit in the ordinary
course of business by such Person of bank drafts and similar negotiable
instruments of such other Person received as payment for ordinary course of
business trade receivables; (xi) any interest swap or hedging obligation with an
unaffiliated Person otherwise permitted by the Indenture; (xii) Investments
received as consideration for an Asset Disposition in compliance with the
provisions of the Indenture described under "-- Covenants -- Limitation on
Certain Asset Dispositions" above; (xiii) Investments in Restricted Subsidiaries
or by virtue of which a person becomes a Restricted Subsidiary; (xiv) loans and
advances to employees made in the ordinary course of business; (xv) Investments
the sole consideration for which consists of Capital Stock of CPC; and (xvi)
Investments required in connection with any Permitted Receivables Financing to
the extent such Investments are customary in respect of transactions of such
nature.
"Permitted Receivables Financing" means a transaction or series of transactions
(including amendments, supplements, extensions, renewals, replacements,
refinancings or modifications thereof) pursuant to which (a) a Securitization
Subsidiary purchases Receivables and Related Assets from CPC or any Restricted
Subsidiary and finances such Receivables and Related Assets through the issuance
of indebtedness or equity interests or through the sale of the Receivables and
Related Assets or a fractional undivided interest in the Receivables and Related
Assets or (b) the Company or a Restricted Subsidiary finances Receivables and
Related Assets through the sale of the Receivables and Related Assets or
fractional undivided interests therein; provided that (i) the Board of Directors
shall have determined in good faith that such Permitted Receivables Financing is
economically fair and reasonable to CPC and the Securitization Subsidiary, (ii)
all sales of Receivables and Related Assets to the Securitization Subsidiary are
made at fair market value (as determined in good faith by the Board of
Directors), (iii) the financing terms, covenants, termination events and other
provisions thereof shall be market terms (as determined in good faith by the
Board of Directors), (iv) no portion of the Indebtedness of a Securitization
Subsidiary is guaranteed by or is recourse to CPC or any Restricted Subsidiary
(other than recourse for customary representations, warranties, covenants and
indemnities, none of which shall relate to the collectibility of the Receivables
and Related Assets) and (v) neither CPC nor any Subsidiary has any obligation to
maintain or preserve the Securitization Subsidiary's financial condition.
"Permitted Transferee" means, with respect to any Management Investor (i) any
spouse or lineal descendant (including by adoption and stepchildren) of such
Management Investor and (ii) any trust, corporation or partnership, the
beneficiaries, stockholders or partners of which consist entirely of one or more
Management Investors or individuals described in clause (i) above.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock", as applied to the Capital Stock of any Person, means Capital
Stock of such Person of any class or classes (however designated) that ranks
prior, as to the payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Principals" means TC Equity Partners, L.L.C. and any Person controlled by TC
Equity Partners, L.L.C., any Related Person of TC Equity Partners, L.L.C. and
certain other Persons related to TC Equity Partners, L.L.C.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Receivables and Related Assets" means accounts receivable and instruments,
chattel paper, obligations, general intangibles and other similar assets, in
each case, relating to such receivables, including interests in merchandise or
goods, the sale or lease of which gave rise to such receivable, related
contractual rights, guarantees, insurance proceeds, collections, other related
assets and proceeds of all of the foregoing.
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<PAGE> 70
"Related Person" of any Person means any other Person directly or indirectly
owning (a) 5% or more of the outstanding Common Stock of such Person (or, in the
case of a Person that is not a corporation, 5% or more of the equity interest in
such Person) or (b) 5% or more of the combined voting power of the Voting Stock
of such Person.
"Restricted Subsidiary" means (i) any Subsidiary of CPC other than an
Unrestricted Subsidiary and (ii) any successor to a substantial portion of the
assets of any Subsidiary other than an Unrestricted Subsidiary.
"Securitization Subsidiary" means a Wholly Owned Subsidiary of CPC, which is
established for the limited purpose of acquiring and financing Receivables and
Related Assets and engaging in activities ancillary thereto.
"Subordinated Indebtedness" means any Indebtedness (whether outstanding on the
date hereof or hereafter incurred) which is by its terms expressly subordinate
or junior in right of payment to the Notes.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more other Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and voting power relating to the
policies, management and affairs thereof.
"Subsidiary Guarantee" means the guarantee of the Notes by each Subsidiary
Guarantor under the Indenture.
"Subsidiary Guarantor" means each Restricted Subsidiary of CPC existing as of
the Issue Date, or formed or acquired after the Issue Date, which pursuant to
the terms of the Indenture executes a supplement to the Indenture as guarantor.
"Tangible Assets" means the total amount of assets of CPC and the Restricted
Subsidiaries after deducting therefrom all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like intangible assets,
all as set forth on the most recent balance sheet of CPC and its Subsidiaries
and computed in accordance with GAAP.
"Unrestricted Subsidiary" means (i) any Subsidiary of CPC formed or acquired
after the Issue Date that at the time of determination is designated an
Unrestricted Subsidiary by the Board of Directors in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. Any such designation by
the Board of Directors will be evidenced to the Trustee by promptly filing with
the Trustee a copy of the board resolution giving effect to such designation and
an officers' certificate certifying that such designation complied with the
following provisions. The Indenture will provide that, the Board of Directors of
CPC may not designate any Subsidiary of CPC to be an Unrestricted Subsidiary if,
after such designation, (a) CPC or any other Restricted Subsidiary (i) provides
credit support for, or a guarantee of, any Indebtedness of such Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of
such Subsidiary, (b) a default with respect to any Indebtedness of such
Subsidiary (including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of CPC or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity or
(c) such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any Restricted Subsidiary which is not a Subsidiary of the
Subsidiary to be so designated.
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Restricted Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the principal material United States federal income
tax consequences which may result to holders of Notes from the purchase,
ownership and disposition of the Notes is based on existing provisions of the
U.S. Internal Revenue Code (the "Code"), applicable permanent, temporary and
proposed Treasury Regulations ("Treasury Regulations"), judicial authority, and
administrative rulings and pronouncements of the Internal Revenue Service (the
"Service") and is based on facts concerning the Company and its subsidiaries as
of the date hereof. There can be no assurances that the Service will
69
<PAGE> 71
not take a contrary view, and no ruling from the Service has been or will be
sought, on the issues discussed herein. Legislative, judicial, or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences to holders
of Notes. This discussion applies only to a person who is (i) a citizen or
resident of the United States for U.S. federal income tax purposes, (ii) a
corporation, partnership or other entity created or organized under the laws of
the United States or any political subdivision thereof, or (iii) an estate or
trust the income of which is subject to U.S. federal income taxation regardless
of its source (a "U.S. Holder").
This summary does not purport to deal with all aspects of U.S. federal income
taxation that may be relevant to particular U.S. Holders of Notes in light of
their personal investment or tax circumstances, or to certain types of investors
(including insurance companies, certain financial institutions, broker-dealers,
tax-exempt organizations, foreign corporations and persons who are not citizens
or resident of the United States, and U.S. Holders of Notes who directly or
indirectly own 10% or more of the voting power of the Company) who are subject
to special treatment under the United States federal income tax laws, or persons
that hold Notes that are a hedge against, or that are hedged against, currency
risk or that are part of a straddle or conversion transaction, or persons whose
functional currency is not the U.S. dollar. Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF PURCHASING, HOLDING, AND DISPOSING OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS.
Exchange of Old Notes for New Notes. An exchange of the Old Notes for the New
Notes pursuant to the Exchange Offer will not constitute a taxable event for
federal income tax purposes because the New Notes will not be considered to
differ materially in kind or extent from the Old Notes. Rather, the New Notes
received by U.S. Holders will be treated as a continuation of the Old Notes in
the hands of such holders. As a result, U.S. Holders who exchange their Old
Notes for New Notes should not recognize any income, gain or loss for federal
income tax purposes with respect to such exchange.
Interest on New Notes. A holder of a New Note will be required to report as
ordinary interest income for U.S. federal income tax purposes interest earned on
the New Note in accordance with the holder's method of tax accounting.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. CPC has agreed that, for a
period of 180 days after the Expiration Date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
CPC will not receive any proceeds from any sale of New Notes by broker-dealers.
New Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commission or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus meeting the requirements of the
Securities Act, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
CPC has agreed, pursuant to the Registration Rights Agreement, to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for all the holders of the Notes as a single class) other than commissions or
concessions of any brokers or dealers and will indemnify the Holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the Company
by Koerner Silberberg & Weiner, LLP, New York, New York.
EXPERTS
The consolidated balance sheets of Colorado Prime Corporation and Subsidiaries
as of September 29, 1995 and September 27, 1996 and the related statements of
consolidated operations, shareholder's equity and cash flows for each of the
three fiscal years in the period ended September 27, 1996, included in this
filing have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
COLORADO PRIME CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants......................................................... F-2
Financial statements:
Consolidated balance sheets as of September 29, 1995 and September 27, 1996.................... F-3
Statements of consolidated operations for the fiscal years ended September 30, 1994, September
29, 1995 and September 27, 1996............................................................. F-4
Statements of consolidated stockholder's equity for the fiscal years ended September 30, 1994,
September 29, 1995 and September 27, 1996................................................... F-5
Statements of consolidated cash flows for the fiscal years ended September 30, 1994, September
29, 1995 and September 27, 1996............................................................. F-6
Notes to consolidated financial statements..................................................... F-7
Unaudited consolidated balance sheets as of June 28, 1996 and June 27, 1997.................... F-15
Unaudited consolidated statements of operations for the seven weeks ended June 27, 1997,
thirty-two weeks ended May 9, 1997 and thirty-nine weeks ended June 28, 1996................ F-16
Unaudited consolidated statements of cash flows for the seven weeks ended June 27, 1997,
thirty-two weeks ended May 9, 1997 and thirty-nine weeks ended June 28, 1996................ F-17
Notes to unaudited consolidated interim financial statements................................... F-18
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Colorado Prime Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Colorado Prime
Corporation (a Delaware corporation) and Subsidiaries as of September 29, 1995
and September 27, 1996 and the related statements of consolidated operations,
stockholder's equity and cash flows for each of the three fiscal years in the
period ended September 27, 1996. 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 29, 1995 and September 27, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 27, 1996 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
New York, New York
December 10, 1996
F-2
<PAGE> 75
COLORADO PRIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1995 AND SEPTEMBER 27, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------
SEPTEMBER 29, SEPTEMBER 27,
NOTES 1995 1996
----- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 1,830 $ 1,716
Accounts receivable-net 3 53,788 56,773
Inventories-net 4 4,225 3,638
Prepaid expenses and other current assets 1,391 1,665
Deferred income tax benefit 11 4,092 4,429
-------- --------
Total current assets 65,326 68,221
-------- --------
Property, Plant and Equipment-Net 5,12 7,727 7,240
-------- --------
Noncurrent accounts receivable-net 3 30,127 33,416
-------- --------
Goodwill-net 2 39,578 38,414
-------- --------
Other assets-net 7,8 1,083 3,493
-------- --------
Total assets $ 143,841 $ 150,784
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 5,742 $ 6,651
Accrued expenses 6 7,994 7,135
Income and other taxes payable 11 2,078 1,172
Current portion of capital lease obligations 12 547 361
Accrued dividend payable 9 900 --
-------- --------
Total current liabilities 17,261 15,319
-------- --------
Note payable 7 55,917 58,343
-------- --------
Loan payable to affiliate 9 25,000 --
-------- --------
Senior notes payable 8 -- 34,560
-------- --------
Long-term portion of capital lease obligations 12 638 277
-------- --------
Other liabilities 747 1,616
-------- --------
Commitments and contingent liabilities 13
Stockholder's equity:
Common stock--par value, $.01, per share; 1,000 shares authorized, issued
and outstanding. 9
Paid-in capital 9 55,120 51,291
Accumulated deficit (10,842) (10,622)
-------- --------
Total stockholder's equity 44,278 40,669
-------- --------
Total liabilities and stockholder's equity $ 143,841 $ 150,784
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE> 76
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30, 1994, SEPTEMBER 29, 1995 AND SEPTEMBER 27, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------------------------------
SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 27,
NOTES 1994 1995 1996
------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Product sales $ 134,025 $ 144,966 $ 142,651
Finance income earned 11,201 11,524 12,792
-------- -------- --------
Total revenue 145,226 156,490 155,443
Cost of goods sold 58,640 59,906 56,387
-------- -------- --------
Gross profit 86,586 96,584 99,056
-------- -------- --------
Other cost and expenses:
Selling, general and administrative 75,326 80,988 80,901
Amortization of goodwill 2 1,187 1,164 1,164
Interest expense 6,783 8,017 9,130
Other expense 6,7,8,9 559 767 7,089
-------- -------- --------
Total cost and expenses 83,855 90,936 98,284
-------- -------- --------
Income before provision for income taxes 2,731 5,648 772
Provision for income taxes 11 1,781 2,738 1,262
-------- -------- --------
Net income (loss) $ 950 2,910 $ (490)
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE> 77
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDER'S EQUITY
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30, 1994, SEPTEMBER 29, 1995, AND SEPTEMBER 27, 1996
(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 24, 1993 1,000 $ -- $54,964 $ (9,002) $45,962
Payment of dividend to Holdings (2,400) (2,400)
Accrued dividend (906) (906)
Net income 950 950
----- ----- ------- --------- -------
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 years 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
===== ===== ======= ========= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 78
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, SEPTEMBER 29, 1995 AND SEPTEMBER
27, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------------------------------
SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 27,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 950 $ 2,910 ($ 490)
------- -------- --------
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 3,517 3,598 3,661
Amortization of deferred loan costs 468 476 611
Deferred income taxes 920 (237) (337)
Provision for doubtful accounts 5,145 4,596 5,280
Change in operating assets and liabilities:
Accounts receivable (3,073) (12,951) (11,554)
Inventories-net (15) (1,054) 587
Prepaid expenses and other current assets (66) 838 (274)
Other assets-net (574) 247 232
Accounts payable (1,231) 961 909
Accrued expenses (509) 682 (859)
Other liabilities (588) (1,017) 869
Income and other taxes payable 200 819 (906)
------- -------- --------
Total adjustments 4,194 (3,042) (1,781)
------- -------- --------
Net cash (used in) provided by operating activities 5,144 (132) (2,271)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investments in property, plant and equipment (1,792) (2,534) (1,958)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable (655) 5,784 2,426
Decrease in capital lease obligations (545) (579) (547)
Decrease in loan payable to affiliate (25,000)
Issuance of senior notes payable 34,508
Payment of dividend (2,400) (2,400) (190)
Payment of fees related to debt refinancing (3,253)
Net return of capital to Holdings 156 (3,829)
------- -------- --------
Net cash provided by (used in) financing activities (3,600) 2,961 4,115
------- -------- --------
NET INCREASE (DECREASE) IN CASH (248) 295 (114)
CASH, BEGINNING OF PERIOD 1,783 1,535 1,830
------- -------- --------
CASH, END OF PERIOD $ 1,535 $ 1,830 $ 1,716
======= ======== ========
</TABLE>
Income tax payments totaled approximately $856, $2,045 and $2,490 for fiscal
1994, 1995 and 1996, respectively.
Interest payments totaled approximately $7,329, $6,056 and $9,138 for fiscal
1994, 1995 and 1996, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE> 79
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.
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, 1995 and 1994 contain fifty-two, fifty-two and fifty-three
weeks, respectively.
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:
<TABLE>
<CAPTION>
RECORDED ESTIMATED FAIR VALUE
-------- --------------------
<S> <C> <C>
Cash $ 1,716 $ 1,716
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)
</TABLE>
- ---------------
(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.
F-7
<PAGE> 80
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Accounts Receivable
The term of accounts receivable relating to food sales is less than one year.
The term of accounts receivable relating 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:
<TABLE>
<S> <C>
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
</TABLE>
Goodwill
Goodwill is amortized on the straight-line basis over forty years. At September
29, 1995 and September 27, 1996, goodwill is shown net of accumulated
amortization of $6,999 and $8,163, respectively. Goodwill is reviewed for
impairment based upon estimated undiscounted future cash flow from operations.
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, using current income tax rates (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.
F-8
<PAGE> 81
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Accounting for the Impairment of Long Lived Assets
During March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
of." This statement establishes financial accounting and reporting standards for
the impairment of long lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for the long lived
assets and certain identifiable intangibles to be disposed of. This statement is
effective for financial statements for fiscal years beginning after December 15,
1995, although earlier application is encouraged. The Company does not expect
that the adoption of SFAS 121 will have a material effect on its financial
statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable at September 29, 1995 and September 27, 1996 consisted of
the following:
<TABLE>
<CAPTION>
---------------------------------
SEPTEMBER 29, SEPTEMBER 27,
1995 1996
-------------- --------------
<S> <C> <C>
Short-term food receivables $ 25,292 $ 27,766
Appliance and accessories
receivables 65,959 69,867
-------- --------
Total accounts receivable 91,251 97,633
Less: allowance for doubtful accounts 7,336 7,444
-------- --------
Accounts receivable -- net 83,915 90,189
Noncurrent accounts receivable 30,127 33,416
-------- --------
Current accounts receivable $ 53,788 $ 56,773
======== ========
</TABLE>
4. INVENTORIES
Inventories, net of allowance for slow moving, excess and obsolete inventory of
$153, $237 and $309 at September 30, 1994, September 29, 1995 and September 27,
1996, respectively, consisted of the following:
<TABLE>
<CAPTION>
----------------------------------------------------
SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 27,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Food $2,633 $2,575 $2,412
Appliances, tableware, entertainment products
and cookware 538 1,650 1,226
------ ------ ------
Total $3,171 $4,225 $3,638
====== ====== ======
</TABLE>
F-9
<PAGE> 82
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 29, 1995 and September 27, 1996
consisted of the following:
<TABLE>
<CAPTION>
-----------------------------
SEPTEMBER 29, SEPTEMBER 27,
1995 1996
------------- -------------
<S> <C> <C>
Land $ 603 $ 603
Buildings 1,643 1,650
Assets under capital leases 3,903 3,846
Machinery and equipment 5,443 6,659
Software 419 506
Furniture and fixtures 1,200 1,296
Delivery equipment 3,248 3,085
Automobiles 92 114
Leasehold improvements 771 801
----------- --------- --
Total 17,322 18,560
Less: accumulated depreciation and amortization 9,595 11,320
----------- --------- --
Property, plant and equipment -- net $ 7,727 $ 7,240
=========== ===========
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses at September 29, 1995 and September 27, 1996 consisted of the
following:
<TABLE>
<CAPTION>
-----------------------------
SEPTEMBER 29, SEPTEMBER 27,
1995 1996
------------- -------------
<S> <C> <C>
Payroll $ 2,586 $ 2,251
Professional 495 672
Pension 579 577
Health benefits 499 599
Insurance 398 498
Severance 447 462
Interest 1,118 --
Other 1,872 2,076
---------- -------- --
Total $ 7,994 $ 7,135
========== ==========
</TABLE>
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, via 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
F-10
<PAGE> 83
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
loans bear interest at the commercial paper rate available to TripleA One. The
commercial paper rate at September 29, 1995 and September 27, 1996 was
approximately 5.96% and 5.38%, respectively.
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 $796, $780 and $696 for the
fiscal years ended September 30, 1994, September 29, 1995 and September 27,
1996, respectively. Such amounts are included in interest expense in the
accompanying statements of consolidated operations. Interest expense for the
fiscal years ended September 30, 1994, September 29, 1995 and September 27, 1996
amounted to $1,864, $3,246 and $3,199, respectively. The Company's available
unused credit facility with CapMAC was approximately $8,700 and $8,600 at
September 29, 1995 and September 27, 1996, respectively.
In connection with the CapMAC Agreements, 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 has 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).
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 million 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.
9. RELATED PARTY TRANSACTIONS
During fiscal 1994, 1995 and 1996 the Company paid interest of $2,900, $2,900,
and $600, respectively, on $25.0 million 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 Holding. 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
F-11
<PAGE> 84
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
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 $633, $885 and $908 for the fiscal years ended September 30, 1994,
September 29, 1995 and September 27, 1996, respectively.
11. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
-------------------------------
9/30/94 9/29/95 9/27/96
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 707 $2,560 $1,301
State 154 416 299
------ ------ ------
861 2,976 1,600
------ ------ ------
Deferred:
Federal 708 (384) (277)
State 212 146 (61)
------ ------ ------
920 (238) (338)
------ ------ ------
Total $1,781 $2,738 $1,262
====== ====== ======
</TABLE>
Significant components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
-------------------
9/29/95 9/27/96
------- -------
<S> <C> <C>
Deferred tax assets:
Leases $ 59 $ 20
Allowance for bad debts 2,832 2,873
UNICAP 116 108
Accrued interest--Sec. 267 431 --
Accrued expenses and other, net 1,212 1,857
------ ------
4,650 4,858
Deferred tax liabilities:
Depreciation (558) (429)
------ ------
Net deferred tax asset $4,092 $4,429
====== ======
</TABLE>
F-12
<PAGE> 85
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
A reconciliation between the federal statutory tax rate and the effective rate
is as follows:
<TABLE>
<CAPTION>
-------------------------------
9/30/94 9/29/95 9/27/96
------- ------- -------
<S> <C> <C> <C>
Federal income tax provision at U.S. statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 8.9 4.9 25.6
Nondeductible goodwill amortization 14.8 7.0 51.3
Nondeductible compensation -- -- 51.8
Meals and entertainment 1.0 0.8 5.4
All other, net 6.5 1.8 (4.7)
---- ---- -----
Provision for income taxes 65.2% 48.5% 163.4%
==== ==== =====
</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 27, 1996 are
as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER,
----------------------------------------------------------------------------------
<S> <C>
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
====
</TABLE>
Assets acquired under capital leases during the year ended September 29, 1995
amounted to approximately $46. No assets were acquired under capital leases in
1996. Accumulated amortization relating to the assets classified as capital
leases was $2,874 and $3,235 at September 29, 1995 and September 27, 1996,
respectively.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Future minimum lease payments at September 27, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER,
-------------------------------------------------------------------------------
<S> <C>
1997 $ 2,787
1998 2,336
1999 1,752
2000 1,227
2001 794
Thereafter 2,198
-------
Total $11,094
=======
</TABLE>
Rent expense for fiscal 1994, 1995 and 1996 amounted to approximately $2,491,
$2,717 and $3,040, respectively. The Company expensed $2,129 in fiscal 1993 and
$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-13
<PAGE> 86
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
14. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
In May 1997, the Company consummated the offering of notes payable in the
principal amount of $100.0 million (the "Notes"), which was used to (i) repay
certain indebtedness, (ii) pay certain amounts to shareholders pursuant to a
merger agreement entered into by Holdings and (iii) to pay certain costs and
expenses associated with that merger transaction. The Notes are guaranteed by
each of the Company's subsidiaries, Kal-Mar, Concord and Prime (there are no
non-guarantor subsidiaries), and the guarantees of the subsidiaries are full,
unconditional, joint and several. Summary financial data for Kal-Mar, Concord
and Prime are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 29, 1995 SEPTEMBER 27, 1996
KAL-MAR CONCORD PRIME KAL-MAR CONCORD PRIME
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets..................... $ 13 $57,937 $57,937 $ 14 $61,072 $ 23
Non-current assets................. 729 30,687 0 756 34,384 0
Current liabilities................ 102 1,004 0 102 1,567 1
Non-current liabilities............ 0 62,220 184 0 63,466 725
------- ------- ----- ------- ------- -----
Net assets (liabilities)........... $ 640 $25,400 $(184) $ 668 $30,423 $(703)
====== ======= ===== ====== ======= =====
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 SEPTEMBER 29, 1995 SEPTEMBER 27, 1996
KAL-MAR CONCORD PRIME KAL-MAR CONCORD PRIME KAL-MAR CONCORD PRIME
------- ------- ----- ------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................ $ 160 $5,837 $ 0 $ 160 $6,198 $ 0 $ 160 $3,191 $ 0
Gross profit........................ $ 154 $5,837 $ 0 $ 160 $6,198 $ 0 $ 160 $3,191 $ 0
Net income (loss)................... $ 57 $3,005 $ 0 $ 29 $2,721 $(184) $ 17 $ 799 $(518)
</TABLE>
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 and (ii) the data in separate financial
statements other than that presented above would not be material to investors in
the Notes.
F-14
<PAGE> 87
COLORADO PRIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
JUNE 28, 1996 AND JUNE 27, 1997(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------
JUNE 28, JUNE 27,
1996 1997(1)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 388 $ 1,995
Accounts receivable-net 57,085 59,220
Inventories-net 4,097 4,304
Prepaid expenses and other current assets 2,333 1,402
Refundable income tax 1,123
Deferred income tax benefit 4,184 5,724
-------- --------
Total current assets 68,087 73,768
-------- --------
Property, Plant and Equipment-Net 7,007 6,299
-------- --------
Noncurrent accounts receivable-Net 32,110 34,634
-------- --------
Goodwill-net 38,705 44,266
-------- --------
Other assets 3,285 8,836
-------- --------
Total Assets $149,194 $167,803
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 2,650 $ 3,066
Accrued expenses 8,311 12,194
Income and other taxes payable 2,288 869
Current portion of capital lease obligations 547 231
-------- --------
Total current liabilities 13,796 16,360
-------- --------
Revolver 22,700
-------- --------
Note payable 58,447
-------- --------
Senior notes payable 34,543
-------- --------
144A Senior notes, net of discount 98,012
-------- --------
Long-Term portion of capital lease obligations 220 108
-------- --------
Other liabilities 229 4,018
-------- --------
Stockholder's Equity
Common stock -- --
Paid-in capital 52,914 25,873
-------- --------
Retained earnings (10,955) 732
-------- --------
Total stockholder's equity 41,959 26,605
-------- --------
Total Liabilities and Stockholder's Equity $149,194 $167,803
======== ========
</TABLE>
- ---------------
(1) The June 27, 1997 unaudited consolidated balance sheet is presented on a new
basis of accounting, and is not directly comparable to the June 28, 1996
unaudited consolidated balance sheet.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-15
<PAGE> 88
COLORADO PRIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SEVEN WEEKS ENDED JUNE 27, 1997, THIRTY-TWO WEEKS ENDED MAY 9, 1997 AND
THIRTY-NINE WEEKS ENDED JUNE 28, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------
SEVEN WEEKS THIRTY-TWO WEEKS THIRTY-NINE WEEKS
ENDED ENDED ENDED
JUNE 27, MAY 9, JUNE 28,
1997 1997 1996
----------- ---------------- -----------------
<S> <C> <C> <C>
Product Sales $19,704 $ 85,510 $ 107,926
Finance Income Earned 2,009 8,637 9,384
-------- -------- --------
Total Revenue 21,713 94,147 117,310
Cost of Goods Sold 7,672 32,949 42,229
-------- -------- --------
Gross profit 14,041 61,198 75,081
-------- -------- --------
Other Cost and Expenses:
Selling, general and administrative 10,867 48,749 59,409
Amortization of goodwill 188 713 873
Interest expense 2,153 5,713 6,842
Other expense 101 426 5,177
-------- -------- --------
Total cost and expenses 13,309 55,601 72,301
-------- -------- --------
Income before provision
for income taxes 732 5,597 2,780
Provision for income taxes 2,727 1,968
-------- -------- --------
Net income $ 732 $ 2,870 $ 812
======== ======== ========
</TABLE>
- ---------------
(1) The unaudited consolidated statement of operations for the seven weeks ended
June 27, 1997 is presented on a new basis of accounting, and is not directly
comparable to other periods presented.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-16
<PAGE> 89
COLORADO PRIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SEVEN WEEKS ENDED JUNE 27, 1997, THIRTY-TWO WEEKS ENDED MAY 9, 1997 AND
THIRTY-NINE WEEKS ENDED JUNE 28, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------------------------------------
SEVEN WEEKS THIRTY-TWO WEEKS THIRTY-NINE WEEKS
ENDED ENDED ENDED
JUNE 27, MAY 9, JUNE 28,
1997(1) 1997 1996
------------ ------------------ -------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 732 $ 2,870 $ 812
-------- -------- ---------
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 674 2,292 3,207
Deferred income taxes
Provision for doubtful accounts 724 3,073 3,475
Change in operating assets and liabilities:
Accounts receivable (1,237) (6,225) (8,755)
Inventories -- net 81 (747) 128
Prepaid expenses and other current assets (105) (77) (459)
Other assets -- net (322) (33) (24)
Accounts payable 1,167 (1,560) (140)
Accrued expenses (3,222) (232) (2,634)
Other liabilities (561) 37 (518)
Income and other taxes payable (70) 2,565 118
-------- -------- ---------
Total adjustments (2,871) (907) (5,602)
-------- -------- ---------
Net cash (used in) provided by operating activities (2,139) 1,963 (4,790)
-------- -------- ---------
Cash Flows from Investing Activities:
Investments in property, plant and equipment (69) (580) (1,093)
Net assets acquired (2,352)
-------- -------- ---------
Net cash used in investing activities (2,421) (580) (1,093)
-------- -------- ---------
Cash Flows from Financing Activities:
Repayment of revolver (1,300)
Increase (Decrease) in notes payable (1,051) 2,530
Net proceeds from 144a notes 87,566
Proceeds from issuance of revolver 24,000
Capital contribution from parent 25,873
Repayment of notes payable (58,707)
Repayment of senior notes (43,260)
Distribution to former shareholders (33,120)
Decrease in capital lease obligations (41) (258) (418)
Decrease in due to affiliate (25,000)
Issuance of senior notes payable and warrants 35,000
Payment of dividend (190)
Payment of fees related to equity refinancing (3,474)
Redemption of stock (4,007)
-------- -------- ---------
Cash provided by (used in) financing activities 1,011 (1,309) 4,441
-------- -------- ---------
Net Increase (Decrease) in Cash (3,549) 74 (1,442)
Cash, Beginning of Period 5,544 1,716 1,830
-------- -------- ---------
Cash, End of Period $ 1,995 $ 1,790 $ 388
======== ======== =========
</TABLE>
- ---------------
(1) The unaudited consolidated statement of cash flows for the seven weeks ended
June 27, 1997 is presented on a new basis of accounting, and is not directly
comparable to other periods presented.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-17
<PAGE> 90
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 27, 1997
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Colorado Prime
Corporation, a Delaware corporation, have been prepared in accordance with
generally accepted accounting principles applicable for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Operating results for the thirty-nine weeks ended June 27, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 26, 1997. These financial statements should be read
in conjunction with the Company's audited consolidated financial statements.
As a result of the Transactions, 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, including
the unaudited consolidated interim balance sheet data as of June 27, 1997 and
the unaudited consolidated statements of operations and cash flows for the seven
weeks ended June 27, 1997, reflect the adoption of this new basis of accounting
and, accordingly, data for the 1996 interim period may not be comparable with
the data presented which includes the period subsequent to May 9, 1997.
The allocation of the purchase price to the assets and liabilities of the
Company is preliminary and can be expected to change as studies are completed
following the Transactions.
2. SUMMARY FINANCIAL INFORMATION OF KAL-MAR, CONCORD AND PRIME
In May 1997, the Company consummated the offering of notes payable in the
principal amount of $100.0 million (the "Notes"), which was used to (i) repay
certain indebtedness, (ii) pay certain amounts to shareholders pursuant to a
merger agreement entered into by Holdings and (iii) to pay certain costs and
expenses associated with that merger transaction. The Notes are guaranteed by
each of the Company's subsidiaries, Kal-Mar, Concord and Prime (there are no
non-guarantor subsidiaries), and the guarantees of the subsidiaries are full,
unconditional, joint and several. Summary financial data for Kal-Mar, Concord
and Prime are as follows:
<TABLE>
<CAPTION>
JUNE 28, 1996 JUNE 27, 1997
----------------------------- -----------------------------
KAL-MAR CONCORD PRIME KAL-MAR CONCORD PRIME
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Current assets................................. $ 35 $60,798 $ 0 $ 33 $62,740 $ 13
Non-current assets............................. 722 32,838 0 776 35,975 0
Current liabilities............................ 95 1,807 224 89 2,800 1
Non-current liabilities........................ 0 65,221 742 0 711
---- ------- ----- ---- ------- -----
Net assets (liabilities)....................... $ 662 $26,608 $(966) $ 720 $95,915 $(699)
==== ======= ===== ==== ======= =====
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1996 JUNE 27, 1997
------------------------------ -----------------------------
KAL-MAR CONCORD PRIME KAL-MAR CONCORD PRIME
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................... $ 120 $4,694 $ 0 $ 120 $4,466 $ 0
Gross profit................................... $ 120 $4,694 $ 0 $ 120 $4,466 $ 0
Net income (loss).............................. $ 9 $1,742 $(335) $ 26 $1,060 $ 3
</TABLE>
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 and (ii) the data in separate financial
statements other than that presented above would not be material to investors in
the Notes.
F-18
<PAGE> 91
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Prospectus Summary.................... 5
Risk Factors.......................... 15
Transactions.......................... 19
Use of Proceeds....................... 20
Capitalization........................ 21
Selected Financial and Operating
Data................................ 22
Pro Forma Unaudited Condensed
Consolidated Financial Statements of
Operations.......................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 32
Management............................ 39
Principal Stockholders................ 43
Certain Relationships and Related
Transactions........................ 44
Description of Certain Indebtedness... 45
The Exchange Offer.................... 47
Description of Notes.................. 53
Certain United States Federal Income
Tax Considerations.................. 69
Plan of Distribution.................. 70
Legal Matters......................... 71
Experts............................... 71
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS EXCHANGE
OFFER), ALL DEALERS OFFERING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
======================================================
======================================================
$100,000,000
COLORADO PRIME CORPORATION
12 1/2% SENIOR NOTES DUE 2004
PAYMENT OF PRINCIPAL AND INTEREST
GUARANTEED BY
KAL-MAR PROPERTIES CORP.
CONCORD FINANCIAL SERVICES, INC.
PRIME FOODS DEVELOPMENT CORPORATION
--------------------
PROSPECTUS
--------------------
, 1997
======================================================
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CPC is a Delaware corporation, subject to the applicable provisions of the
General Corporation Law of the State of Delaware. Section 145 of the General
Corporation Law provides that a corporation may indemnify any persons, including
directors and officers, who are (or are threatened to be made) parties to any
threatened, pending or completed legal action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of their being
directors or officers of the corporation. The indemnity may include expenses,
attorneys' fees, judgments, fines and amounts paid in settlement, provided such
sums were actually and reasonably incurred in connection with such action, suit
or proceeding and provided the director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, in the case of criminal proceedings, provided he had no
reasonable cause to believe that his conduct was unlawful. The corporation may
indemnify directors and officers in a derivative action (in which suit is
brought by a stockholder on behalf of the corporation) under the same
conditions, except that no indemnification is permitted without judicial
approval if the director or officer is adjudged liable to the corporation. If
the director or officer is successful on the merits or otherwise in defense of
any actions referred to above, the corporation must indemnify him against the
expenses and attorneys' fees he actually and reasonably incurred.
Article Eighth of CPC's Certificate of Incorporation and Article VI, section
6.01 of CPC's By-laws provides that CPC shall indemnify its officers and
directors to the fullest extent permitted by Section 145.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
(a) Exhibits
*3.1. Certificate of Incorporation of CPC, with Amendments.
*3.2. Bylaws of CPC, as amended.
*3.3 Certificate of Incorporation of Kal-Mar Properties Corp., with Amendments.
*3.4 Bylaws of Kal-Mar Properties Corp., as amended.
*3.5 Certificate of Incorporation of Concord Financial Services, Inc., with Amendments.
*3.6 Bylaws of Concord Financial Services, Inc., as amended.
*3.7 Certificate of Incorporation of Prime Foods Development Corporation, with Amendments.
*3.8 Bylaws of Prime Foods Development Corporation, as amended.
*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).
*4.2. Purchase Agreement dated as of May 6, 1997 among CPC, CPH, the Subsidiary Guarantors and the
Initial Purchasers.
*4.3. Registration Rights Agreement dated May 9, 1997 among CPC, the Subsidiary Guarantors and the
Initial Purchasers.
*4.4. Form of Note (included in Exhibit 4.1).
*4.5. Form of Letter of Transmittal.
*5. Form of Opinion of Koerner Silberberg & Weiner, LLP as to the legality of the New Notes being
registered (including consent).
*10.1. Form of Exchange Agent Agreement between CPC and The Bank of New York, as Exchange Agent.
*10.2. Form of Stock Option Plan of CPH.
*10.3. Stock Purchase Agreement between CPH and certain executive officers.
*10.4. Shareholders' Agreement between CPH and certain executive officers.
*10.5. Employment Agreement between CPC, CPH and William F. Dordelman.
*10.6. Employment Agreement between CPC, CPH and William Willett.
*10.7. Employment Agreement between CPC, CPH and Ricardo DeSantis.
*10.8. Employment Agreement between CPC, CPH and Thomas S. Taylor.
*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.
*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.
*10.11. 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, with Amendment No. 1 dated as of May 9,
1997.
</TABLE>
II-1
<PAGE> 93
<TABLE>
<S> <C>
*12. Statement regarding computation of ratio of earnings to fixed charges.
*21. List of subsidiaries of the Company.
23.1. Consent of Arthur Andersen LLP.
*23.2. Consent of Koerner Silberberg & Weiner, LLP (contained in its opinion to be filed as Exhibit 5
hereto).
*24. Power of Attorney (included on the signature page hereto).
*25. Statement of eligibility under the Trust Indenture Act of 1939, as amended, on Form T-1 of The
Bank of New York, as Trustee under the Indenture.
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules.
The following schedule is included in Part II of this Registration Statement:
Schedule II -- Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of New York, State of New
York, on September 11, 1997.
COLORADO PRIME CORPORATION
By: /s/ THOMAS S. TAYLOR
---------------------------------------
Thomas S. Taylor
Chief Financial Officer
Vice President and Director
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------------------- -------------------
<C> <S> <C>
* Chief Executive Officer and Chairman of September 11, 1997
- --------------------------------------------- the Board (Principal Executive Officer)
William F. Dordelman
/s/ THOMAS S. TAYLOR Chief Financial Officer, Vice President September 11, 1997
- --------------------------------------------- and Director (Principal Accounting
Thomas S. Taylor Officer)
* President, Chief Operating Officer and September 11, 1997
- --------------------------------------------- Director
William Willett
* Director September 11, 1997
- ---------------------------------------------
Donald Keller
* Director September 11, 1997
- ---------------------------------------------
Frederic Malek
* Director September 11, 1997
- ---------------------------------------------
Dr. Paul Stern
* Director September 11, 1997
- ---------------------------------------------
V. Frank Pottow
* Director September 11, 1997
- ---------------------------------------------
Daniel J. Altobello
* Director September 11, 1997
- ---------------------------------------------
William Nicholson
*By: /s/ THOMAS S. TAYLOR Attorney-in-Fact
- ---------------------------------------------
Thomas S. Taylor
</TABLE>
II-3
<PAGE> 95
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors of Colorado Prime Corporation and Subsidiaries:
We have audited the consolidated financial statements of Colorado Prime
Corporation and Subsidiaries as of September 29, 1995, and September 27, 1996,
and for each of the three fiscal years in the period ended September 27, 1996,
included in this filing and have issued our report thereon dated December 10,
1996. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule which follows 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 our 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.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
New York, New York
December 10, 1996
S-1
<PAGE> 96
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLORADO PRIME CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN C
--------------------------
COLUMN B
------------ ADDITIONS COLUMN E
COLUMN A BALANCE AT -------------------------- COLUMN D -------------
- ---------------------------------------------- BEGINNING OF CHARGED TO COST CHARGED ------------- BALANCE AT
DESCRIPTION PERIOD AND EXPENSES TO OTHER DEDUCTIONS(1) END OF PERIOD
- ---------------------------------------------- ------------ --------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended September 27, 1996
Allowance for Doubtful Accounts............. $7,336 $ 5,280 $(5,172) $ 7,444
Accumulated Amortization of Goodwill........ 6,999 1,164 8,163
Year ended September 29, 1995
Allowance for Doubtful Accounts............. $6,501 $ 4,596 $(3,761) $ 7,336
Accumulated Amortization of Goodwill........ 5,835 1,164 6,999
Year ended September 30, 1994
Allowance for Doubtful Accounts............. $5,803 $ 5,145 $(4,447) $ 6,501
Accumulated Amortization of Goodwill........ 4,648 1,187 5,835
</TABLE>
- ---------------
(1) Write-offs, net of recovery of amounts previously written off.
S-2
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- -------- ------------------------------------------------------------------------------------------ ----
<C> <S> <C>
*3.1. Certificate of Incorporation of CPC, with Amendments.
*3.2. Bylaws of CPC, as amended.
*3.3 Certificate of Incorporation of Kal-Mar Properties Corp., with Amendments.
*3.4 Bylaws of Kal-Mar Properties Corp., as amended.
*3.5 Certificate of Incorporation of Concord Financial Services, Inc., with Amendments.
*3.6 Bylaws of Concord Financial Services, Inc., as amended.
*3.7 Certificate of Incorporation of Prime Foods Development Corporation, with Amendments.
*3.8 Bylaws of Prime Foods Development Corporation, as amended.
*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).
*4.2. Purchase Agreement dated as of May 6, 1997 among CPC, CPH, the Subsidiary Guarantors and
the Initial Purchasers.
*4.3. Registration Rights Agreement dated May 9, 1997 among CPC, the Subsidiary Guarantors and
the Initial Purchasers.
*4.4. Form of Note (included in Exhibit 4.1).
*4.5. Form of Letter of Transmittal.
*5. Form of Opinion of Koerner Silberberg & Weiner, LLP as to the legality of the New Notes
being registered (including consent).
*10.1. Form of Exchange Agent Agreement between CPC and The Bank of New York, as Exchange Agent.
*10.2. Form of Stock Option Plan of CPH.
*10.3. Stock Purchase Agreement between CPH and certain executive officers.
*10.4. Shareholders' Agreement between CPH and certain executive officers.
*10.5. Employment Agreement between CPC, CPH and William F. Dordelman.
*10.6. Employment Agreement between CPC, CPH and William Willett.
*10.7. Employment Agreement between CPC, CPH and Ricardo DeSantis.
*10.8. Employment Agreement between CPC, CPH and Thomas S. Taylor.
*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.
*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.
*10.11. 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, with Amendment No. 1 dated as
of May 9, 1997.
*12. Statement regarding computation of ratio of earnings to fixed charges.
*21. List of subsidiaries of the Company.
23.1. Consent of Arthur Andersen LLP.
*23.2. Consent of Koerner Silberberg & Weiner, LLP (contained in its opinion to be filed as
Exhibit 5 hereto).
*24. Power of Attorney (included on the signature page hereto).
*25. Statement of eligibility under the Trust Indenture Act of 1939, as amended, on Form T-1 of
The Bank of New York, as Trustee under the Indenture.
</TABLE>
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* Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion
in this Registration Statement of our report dated December 10, 1996 and to
all references to our Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
New York, New York
September 11, 1997
