<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 25, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER 1-09559
COLORADO PRIME CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2826129
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
500 Bi-County Boulevard, Farmingdale, New York 11735
Registrant's telephone number, including area code: (516) 694-1111
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The number of shares of Common Stock of the registrant outstanding as of
December 24, 1998 was 1,000.
Documents Incorporated by Reference
None
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PART I
Item 1. Business
Certain information set forth herein contains forward-looking statements, as
such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. All statements other than statements
of historical fact are "forward-looking statements" for the purpose of these
provisions, including any projections of earnings, revenues or other financial
items, any statements of the plans and objectives of management for future
operations, any statements concerning proposed new products or services, any
statements regarding any future economical conditions or performance and any
statements of assumptions underlying any of the foregoing. Such statements are
subject to certain risks and uncertainties discussed herein, which could cause
actual results to differ materially from those in the forward-looking
statements.
Colorado Prime Corporation and subsidiaries (the "Company" or "CPC") is a
Delaware corporation and was incorporated in 1986. The Company is a wholly owned
subsidiary of Colorado Prime Holdings, Inc. ("CPH"), formerly KPC Holdings
Corporation ("Holdings"). On May 9, 1997, pursuant to a merger agreement between
Holdings and Thayer Equity Investors III, L.P., a private equity investment
limited partnership ("Thayer"), Colorado Prime Acquisition Corp. ("CPAC"), a
transitory acquisition company established by Thayer prior to the consummation
of the merger, merged with and into Holdings (the "Merger") following which
Holdings was the surviving corporation and was renamed CPH.
General
The Company is a leading direct marketer of high quality, value-added food
programs and products related to in-home dining and entertainment. Using a
combination of telemarketing and in-home selling, CPC believes that it is the
only company to offer this type of in-home shopping service on a broad scale,
serving 32 states through 80 sales offices. The Company sells individually
packaged, top quality meats and poultry, seafood, assorted pasta dishes and a
wide selection of prepared entrees for direct delivery to consumer households.
The Company's food products are of a quality generally found only in specialty
gourmet shops and high-end restaurants and require simple preparation using a
microwave, conventional oven or grill. As a complement to its food products, the
Company also sells food-related and home entertainment appliances and
accessories with unique features not generally available in traditional retail
channels. The purchase of non-food items enables customers to earn a lifetime
discount on food purchases.
The Company employs approximately 1,025 telemarketers and approximately 500
sales representatives. The Company's telemarketers schedule in-home sales
presentations. During a sales presentation, the Company's sales representatives
present the Company's product offerings and design a customized food program
for the customer. The average food order is designed to meet approximately
two-thirds of a family's evening meal needs for a six-month period. In addition,
approximately 70% of initial orders in fiscal 1998 included the purchase of
non-food items. After a customer places an order, a Company representative
delivers and stores the food directly into the customer's freezer. To facilitate
the purchase of its products, the Company offers convenient financing options
through a wholly-owned finance subsidiary.
Products and Services
The Company offers a selected mix of food and non-food products.
Food Products
The Company markets its food products as "Restaurant quality at home." The
Company's food product line consists of approximately 300 items, with entrees of
a grade and quality comparable to those available only through specialty
butchers, fine gourmet shops or specialty catalogs. These products range from
select cuts of top quality beef, pork, veal, lamb and poultry, to prepared
gourmet dishes such as stuffed chicken breast, marinated pork chops and Mexican
and Italian entrees. The Company's frozen entrees may be prepared using a
microwave, conventional oven or grill, with 70% of such products requiring only
20 minutes or less for preparation. As a service to its customers, the Company
also sells a selected line of brand name grocery items and other household
products generally available in local retail food outlets. The Company refines
its menu to accommodate changing customer demands.
With the exception of brand name grocery items, the Company's food items are
produced either by the Company or by premium food wholesalers according to the
Company's stringent specifications. Approximately 50% of the Company's food
revenue consists of items that are processed in the Company's processing
facility. Most food products carry the Company's trademark and all food products
are sold with a 100% customer satisfaction guarantee that the Company will
replace any product that does not completely satisfy the customer's
expectations. New food revenues for each of the three years in the period ended
September 25, 1998 were approximately 21% of product sales. Reorder food
revenues for each of the three years in the period ended September 25, 1998 were
40%, 41% and 41%, respectively, of product sales.
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Non-Food Products
As a complement to the customer's food purchases, the Company sells a diverse
line of non-food items related to in-home dining and entertainment. The purchase
of non-food items enables customers to receive a lifetime discount on their food
purchases through the discount marketing program. The Company currently offers
approximately 20 food-related appliances or accessories, such as freezers,
microwave ovens, barbecue grills, cookware, china and crystal, imported
stainless flatware and cutlery. The Company recently expanded its appliance line
to include home entertainment products such as large screen televisions,
camcorders and personal computers. The Company's non-food items are purchased by
special arrangements with manufacturers and have unique features that are not
generally available in typical retail channels. New non-food revenues for each
of the three years in the period ended September 25, 1998 were approximately
25%, 24%, and 23%, respectively, of product sales. Reorder non-food revenues for
each of the three years in the period ended September 25, 1998 were 14%, 15%,
and 15%, respectively, of product sales.
Customer Financing
As an additional source of revenue and as a service to its customers, the
Company offers the option to finance purchases through the Company's
wholly-owned finance subsidiary. Most customer purchases are financed on a
revolving credit account. Generally, food products may be paid in six monthly
installments without additional cost to the consumer except for a nominal
monthly service charge. Non-food products are financed using open-end credit
accounts with balances, which are typically paid over a period of 36 to 60
months at market interest rates. Customers are billed separately for food and
non-food purchases.
Marketing
Customer Acquisition
The Company purchases telemarketing target lists from a variety of sources.
Donnelley Marketing, Inc. is the primary source of outside lists, accounting for
15% of the Company's new customers in fiscal 1998. 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 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 1998, the Company's referral customers were
the source of approximately 33% of all new customers. Referrals are particularly
valuable to the Company due to the reduced marketing and sales costs associated
with the sale.
Discount Marketing Program
The Company's marketing efforts are facilitated by its discount marketing
program which provides customers with a lifetime discount on food products when
they purchase the Company's non-food products. The discount on the food products
generally offsets a customer's incremental monthly payments on non-food
purchases. The discount increases with each subsequent non-food purchase up to a
maximum possible discount of 50%. During fiscal 1998, 90% of the Company's
customers participated in the discount marketing program.
Sales
The Company believes that the key to strong sales force performance is a
talented, motivated sales management team coupled with ongoing recruiting,
training and retention programs. The Company has an ongoing sales training
process conducted at the local and corporate level. New representatives are
trained in the hiring office by experienced sales personnel using standardized
Company training procedures and materials. Additionally, the Company runs
regular food and non-food training seminars to educate all sales personnel on
the Company's full complement of products. The Company also maintains a
corporate management training program for management candidates demonstrating
high potential. Sales personnel are compensated by commission, earning a
percentage of each new sale and a lower percentage on subsequent reorder sales.
Sales representatives call on prospective customers in their home at pre-set
appointment times scheduled by the telemarketers, often on weekends and at
night. The in-home sales presentation is generally delivered with both adult
family members present. It consists of a food-related presentation, the
development of a monthly budget and a custom-designed menu as well as a
presentation of non-food merchandise. Sales representatives also cover reorder
appointments. The reorder presentation focuses on additional food products and
the Company's full complement of non-food merchandise.
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Distribution and Delivery
One of the Company's key competitive advantages is the efficient distribution of
perishable foods to its customers' homes. All food items are shipped from the
Company's Farmingdale, New York plant. Products are transported either by
Company-operated 48-foot freezer tractor trailers or independent carriers who
pick up shipments from Farmingdale and off-load them to the Company's delivery
trucks at one of 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 other delivery service. This significantly reduces the Company's direct
storage, handling and inventory carrying costs.
Suppliers
The Company purchases its food and non-food products from a variety of vendors.
The Company strives to maintain relationships with several suppliers for each of
its major food and non-food items to ensure product availability and to maintain
flexibility with regard to cost control. In fiscal 1998, the Company's two
largest suppliers, Broich Enterprises (a freezer supplier) and Beef America,
accounted for 12% and 9%, respectively, of total non-food and food purchases. In
late fiscal 1998 Beef America ceased operations. The Company does not believe,
however, this had a significant impact on the Company's operations as several
alternative sources of product are available on competitive terms. The next
largest food supplier was Nebraska Beef, which accounted for 4% of total
non-food and food purchases in fiscal 1998. The Company believes it has a good
relationship with each of its suppliers and that alternate suppliers are readily
available. In October 1998, the Company entered into one year fixed-price supply
contracts with four beef suppliers.
Competition
The Company's primary competition is local supermarkets and specialty food
retailers. Although the Company competes in each of those markets, the Company
operates in a niche market, providing benefits and services in addition to those
of each of the above businesses. The Company believes that it competes
effectively with these other businesses on the basis of service, product variety
and quality, marketing, convenience and the availability of credit.
Employees
The Company has approximately 2,300 employees. Approximately 120 manufacturing
and delivery personnel are represented in collective bargaining agreements by
Local 210 of the Warehouse and Production Employees Union. The current contract
expires on October 2, 1999. The Company believes it has a satisfactory
relationship with its unionized labor force.
Intellectual Property
The Company seeks trademark protection from the United States Patent and
Trademark Office for many trade names, which the Company uses to market its
products and services. The Company presently holds nine registered trademarks
covering trade names and designs including Colorado Prime(R) and Colorado Prime
Foods(R). The Company also has trademarks currently pending registration
including Home Restaurant, Chef's Finest and Maria Nesta. Although the Company
considers its trademarks to be important to its business and continues to seek
trademark protection when deemed appropriate, the Company does not consider its
trademarks to be material to its business operations.
Governmental Regulation
The Company is subject to extensive regulation by a number of federal and state
regulatory agencies with respect to the preparation and sale of its food and
durable goods and the provision of financing to its customers. The Company's
Farmingdale, New York facility has USDA approval, which permits the Company to
ship its meat products nationwide without being subject to numerous state and
local inspection procedures. In the absence of USDA approval, the Company's sale
and delivery of meat products would become subject to state and local
inspection. The Company's telemarketing activities and practices are subject to
Federal and various state authorities and its direct marketing activities are
subject to federal and state regulation including the home sales solicitation
laws. Additionally, the Company's extension of credit to its customers is
subject to federal and state truth-in-lending laws, licensing and regulation
under retail installment sales acts, usury laws and similar statutes enacted by
the states in which it does business.
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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.
Item 2. Properties
The Company believes that its corporate headquarters, processing facility,
storage facilities, regional sales offices and equipment are adequate for its
current needs. The Company believes all facilities are adequately insured.
The following table summarizes the Company's primary facilities by location.
Company Facilities
<TABLE>
<CAPTION>
LEASE
LOCATION OWNED/LEASED DESCRIPTION OF FACILITY EXPIRATION
<S> <C> <C> <C>
Farmingdale, NY Leased Headquarters August 2013
Farmingdale, NY Owned Preparation, storage and --
shipping plant
Pompano Beach, FL Leased Office, warehouse and November 2006
vehicle repair 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 83 regional sales offices and 18 regional delivery depots under
short-term commercial leases, which typically have terms of three to five years.
Item 3. Legal Proceedings
The Company is a party to various litigation matters incidental to the conduct
of its business. Management believes that such proceedings would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the financial position or results of operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
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Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Not applicable.
As of December 24, 1998, there was one holder of record of the Company's Common
Stock.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of this report and the consolidated financial
statements of the Company and the related notes included in Item 8 of this
report, which consolidated financial statements have been audited and reported
on by Arthur Andersen LLP, independent public accountants.
New Basis of Accounting
As a result of the merger described in Item 1, a new basis of accounting under
the "push down" method was adopted effective May 9, 1997. Under this method, the
assets and liabilities of the Company were revalued to reflect CPH's new cost
basis in the Company, which is based on the fair values of such assets and
liabilities on May 9, 1997. Financial data for the period subsequent to May 9,
1997, reflect the adoption of this new basis of accounting and, accordingly,
data for all annual fiscal periods presented herein may not be comparable with
the data presented which includes the period subsequent to May 9, 1997.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR TWENTY THIRTY-TWO
ENDED WEEK PERIOD WEEK PERIOD
SEPTEMBER ENDED ENDED FISCAL YEAR ENDED SEPTEMBER,
1998 SEPTEMBER 26, 1997 MAY 9, 1997 1996 1995 1994
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Product Sales $ 137,726 $ 54,407 $ 85,510 $ 142,651 $ 144,966 $ 134,025
Finance income earned 14,005 5,600 8,637 12,792 11,524 11,201
--------- --------- --------- --------- --------- ---------
Total revenue 151,731 60,007 94,147 155,443 156,490 145,226
Cost of goods sold 51,649 21,195 32,949 56,387 59,906 58,640
--------- --------- --------- --------- --------- ---------
Gross Profit 100,082 38,812 61,198 99,056 96,584 86,586
Selling, general and
administrative 86,006 31,923 48,749 80,901 80,988 75,326
Severance-related costs 791(d) -- -- -- -- --
Amortization of goodwill 1,575 540 713 1,164 1,164 1,187
Interest expense 16,164 6,222 5,713 9,130 8,017 6,783
Other expense 551 245 426 7,089(a) 767(a) 559
--------- --------- --------- --------- --------- ---------
Income (loss) before
provision (benefit) for
income taxes (5,005) (118) 5,597 772 5,648 2,731
Provision (benefit) for
income taxes (1,462) 130 2,414 1,262 2,738 1,781
--------- --------- --------- --------- --------- ---------
Net income (loss) $ (3,543) $ (248) $ 3,183 $ (490) $ 2,910 $ 950
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR ENDED SEPTEMBER,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital $ 49,431 $ 51,235 $ 52,902 $ 48,065 $ 44,826
Total assets 172,027 169,773 150,784 143,841 136,525
Long-term debt (including
current portion) (b) 125,600 118,675 93,541 82,102 76,897
Stockholder's equity 21,665 25,625 40,669 44,278 43,606
</TABLE>
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<TABLE>
<CAPTION>
FISCAL YEAR TWENTY THIRTY-TWO
ENDED WEEKS ENDED WEEKS ENDED FISCAL YEAR ENDED SEPTEMBER,
SEPTEMBER 1998 SEPTEMBER 26, 1997 MAY 9, 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Other Financial Data
EBITDA (c) $ 14,309 $ 7,396 $ 13,397 $ 20,062 $ 17,424 $ 13,031
EBITDA margin (c) 9.4% 12.3% 14.2% 12.9% 11.1% 9.0%
</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 senior notes in December of 1995 and also includes a charge
for unused office and warehouse space of $1,698. Fiscal 1995 includes a
write-off of capitalized software costs of $162.
(b) Long-term debt (including current portion) includes obligations under
capital leases.
(c) EBITDA is defined as net income before interest, income taxes,
depreciation and amortization and certain nonrecurring expenses (as
discussed in Note (a) above). EBITDA is presented because Management
believes it is a widely accepted financial indicator of the Company's
ability to incur and service debt. However, EBITDA should not be
considered in isolation as a substitute for net income or cash flow
data prepared in accordance with generally accepted accounting
principles or as measure of a company's profitability or liquidity. In
addition, this measure of EBITDA may not be comparable to similar
measures reported by other companies.
EBITDA margin is calculated as the ratio of EBITDA to total revenues
for the period.
d) Fiscal 1998 includes a charge for severance related cost incurred in
connection with the former Chief Executive Officer. See Item 10.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion should be read in conjunction with the "Selected
Financial and Operating Data," the audited Consolidated Financial Statements and
accompanying notes thereto included elsewhere in this report.
New Basis of Accounting
As a result of the merger, a new basis of accounting under the "push down"
method was adopted effective May 9, 1997. Under this method, the assets and
liabilities of the Company were revalued to reflect Holdings' new cost basis in
the Company, which is based on the fair values of such assets and liabilities on
May 9, 1997. Financial data for the period subsequent to May 9, 1997, reflects
the adoption of this new basis of accounting as if the merger occurred at the
beginning of the period and, accordingly, data for all annual fiscal periods
presented herein may not be comparable with the data presented which includes
the period subsequent to May 9, 1997.
Presentation of Data for Combined Periods
The pro forma results of operations for the fiscal year ended September 26, 1997
are presented for comparative purposes only, and not as combined or consolidated
results of operations in accordance with Generally Accepted Accounting
Principles ("GAAP") nor as a replacement for the separate period results of
operations presented in the Company's audited consolidated financial statements
presented elsewhere in this report.
These changes affect the comparability of operating data principally with
respect to amortization of intangible assets associated with the "push-down"
accounting basis revaluation and interest expense on the new debt. Management
believes that the presentation and assessment of results of operations for the
fifty-two weeks ended September 26, 1997 on a pro forma basis provides the most
meaningful analysis of the Company's operating results on a comparable basis.
Results of Operations
The following table summarizes the Company's historical results of operations as
a percentage of total revenue. All fiscal years presented herein are 52 weeks.
<TABLE>
<CAPTION>
PRO
FORMA 52
WEEKS
ENDED
FISCAL SEPTEMBER FISCAL
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statement of Operations
and Other Financial
Data:
Total revenue 100.0% 100.0% 100.0%
Gross profit 66.0 64.9 63.7
Selling, general and
administrative expenses 56.7 52.4 52.0
Severance-related costs 0.5 -- --
Interest expense 10.7 7.7 5.9
Amortization of goodwill 1.0 0.8 0.7
Other expense 0.4 0.4 4.6
Provision (benefit)for (1.0) 1.6 0.8
income taxes
Net income (loss) (2.3) 1.9 (0.3)
EBITDA 9.4 13.4 12.9
</TABLE>
Fiscal Year ended September 25, 1998 compared to Fiscal Year ended September 26,
1997 (Pro Forma)
Total revenue for the fifty-two weeks ended September 25, 1998 decreased by $2.5
million, or 1.6%, to $151.7 million from $154.2 million for the fifty-two weeks
ended September 26, 1997. Food revenue for the fifty-two weeks ended September
25, 1998 decreased by $1.8 million, or 2.1%, to $84.3 million from $86.1 million
for the fifty-two weeks ended September 26, 1997. The decrease was primarily due
to lower sales to existing customers. Food revenue was positively affected by
price increases consistent with prior years' inflation-related price increases.
Non-food revenue for the fifty-two weeks ended September 25, 1998 decreased by
$0.4 million, or 0.7%, to $53.5 million from $53.9 million for the fifty-two
weeks ended September 26, 1997. The decrease was due
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to lower sales to existing customers offset by higher sales to new customers.
Non-food revenue was positively affected by price increases consistent with
prior years inflation related price increases. Finance income for the fifty-two
weeks ended September 25, 1998 decreased by $0.2 million, or 1.4%, to $14.0
million from $14.2 million for the fifty-two weeks ended September 26, 1997. The
decrease in finance income resulted primarily from a reduction in eligible
non-food interest earning accounts offset by higher handling fees from food
transactions.
Gross profit for the fifty-two weeks ended September 25, 1998 increased by $0.1
million, or 0.1% to $100.1 million from $100.0 million for the fifty-two weeks
ended September 26, 1997. Gross profit margin increased to 66.0% for the
fifty-two weeks ended September 25, 1998 from 64.9% for the fifty-two weeks
ended September 26, 1997. The increase in gross profit margin was the result of
a favorable mix of total revenues towards non-food products which have a higher
margin and the impact of a price increase.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For the fifty-two weeks ended September 25,
1998, these expenses increased by $5.3 million, or 6.6% to $86.0 million from
$80.7 million. As a percentage of total revenues, SG&A expenses increased to
56.7% for the fifty-two weeks ended September 25, 1998, from 52.3% for the
fifty-two weeks ended September 26, 1997. The increase was primarily due to $1.3
million higher sales incentive costs, $1.0 million higher telemarketing cost,
$2.1 million higher bad debt expense due to the recognition of an increase in
the age and rate of delinquent accounts and $0.5 million higher self-funded
medical insurance cost.
The Company incurred approximately $0.8 million of severance-related costs to
the former Chief Executive Officer in accordance with the terms of his
employment agreement.
Interest expense for the fifty-two weeks ended September 25, 1998 increased to
$16.2 million from $11.9 million for the fifty-two weeks ended September 26,
1997. The increase was primarily attributable to a greater level of borrowing
(as a result of the debt issued in connection with the merger) at a lower rate
of interest during 1998, as compared to the financing in effect during the
previous period.
Other expense for the fifty-two weeks ended September 25, 1998 decreased by $0.1
million to $0.6 million from $0.7 million for fiscal 1997.
Provision (Benefit) for income tax for the fifty-two weeks ended September 25,
1998 decreased by $4.0 million to a benefit of $1.5 million from a provision of
$2.5 million for fiscal 1997. The decrease is primarily attributable to lower
pretax earnings for the fifty-two weeks ended September 25, 1998, partially
offset by certain non-deductible expenses.
The Company recorded a net loss of $3.5 million or (2.3%) of total revenues for
the fifty-two weeks ended September 25, 1998 as compared to net income of $2.9
million or 1.9% of total revenues for fiscal 1997 for the reasons stated above.
EBITDA for the fifty-two weeks ended September 25, 1998 decreased by $6.5
million or 31%, to $14.3 million from $20.8 million for fiscal 1997. EBITDA
margin as a percentage of total revenue decreased by 9.4% for the fifty-two
weeks ended September 25, 1998 from 13.5% for fiscal 1997 for the reasons stated
above. See footnote (c) to "Selected Financial Data".
Fifty-two weeks ended September 26, 1997 (Pro Forma) Compared to Fiscal Year
ended September 27, 1996.
Total revenue for the fifty-two weeks ended September 26, 1997 decreased by $1.2
million, or 0.8%, to $154.2 million from $155.4 million for the fifty-two weeks
ended September 27, 1996. Food revenue for the fifty-two weeks ended September
26, 1997 decreased by $2.6 million, or 3.0%, to $86.1 million from $88.7 million
for the fifty-two weeks ended September 27, 1996. The decrease was primarily due
to difficulties experienced by the Company locating and hiring qualified sales
representatives in a low unemployment environment. In 1997, the Company
continued to refine test programs designed to improve the recruitment and
retention of sales representatives. Food revenue was positively affected by
price increases commensurate with inflation. Non-food revenue for the fifty-two
weeks ended September 26, 1997 decreased by $0.1 million, or 0.2%, to $53.9
million from $54.0 million for the fifty-two weeks ended September 27, 1996.
Non-food revenue was positively affected by price increases commensurate with
inflation and the sale of higher value appliances such as large screen
televisions and camcorders, offset by the impact of reduction in food orders as
non-food sales are only consummated if a food sale is made. Finance income for
the fifty-two weeks ended September 26, 1997 increased by $1.4 million, or
11.3%, to $14.2 million from $12.8 million for the fifty-two weeks ended
September 27, 1996. The increase in finance income earned resulted from larger
customer account receivable balances due primarily to the sale of higher value
appliances and selective use of extended financing terms.
Gross profit for the fifty-two weeks ended September 26, 1997 increased by $1.0
million, or 1.0%, to $100.0 million from $99.0
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million for the fifty-two weeks ended September 27, 1996. Gross profit
margin increased to 64.9% for the fifty-two weeks ended September 26, 1997 from
63.7% for the fifty-two weeks ended September 27, 1996. The increase in gross
profit margin was the result of shifting processing for the Company's poultry
items to its in-house facility, lower overhead costs, an increase in finance
income and a price increases. Additionally, gross profit margin benefited from a
favorable mix of non-food product sales toward items which generally have a
higher profit margin.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For the fifty-two weeks ended September 26,
1997, these expenses decreased by $0.2 million, or 0.2%, to $80.7 million from
$80.9 million. As a percentage of total revenues, SG&A expenses increased to
52.3% for the fifty-two weeks ended September 26, 1997, from 52% for the
fifty-two weeks ended September 27, 1996.
Interest expense for the fifty-two weeks ended September 26, 1997 increased to
$11.9 million from $9.1 million for the fifty-two weeks ended September 27,
1996. The increase was primarily attributable to a greater level of borrowing
(as a result of the debt issued in connection with the merger in May 1997) at a
higher rate of interest during 1997, as compared to the financing in effect
during the previous period.
Other expense for the fifty-two weeks ended September 26, 1997 decreased by $6.4
million to $0.7 million from $7.1 million for fiscal 1996. The decrease is
primarily attributable to the payment in fiscal 1996 of refinancing-related
bonuses of $3.0 million, redemption of management stock of $1.2 million,
unrecovered costs of $0.6 million related to the issuance of debt and a charge
of $1.7 million for lease obligations of unused office and warehouse space.
Provision for income tax for the fifty-two weeks ended September 26, 1997
increased by $1.2 million to $2.5 million from $1.3 million for fiscal 1996. The
increase is primarily attributable to higher pretax earnings for the fifty-two
weeks ended September 26, 1997 partially offset by certain non-deductible
expenses in fiscal 1996.
Net income increased to $2.9 million or 1.9% of total revenue for the fifty two
weeks ended September 26, 1997 from a loss of $0.5 million, or 0.3% of total
revenues for fiscal 1996 for the reasons stated above.
Depreciation and amortization decreased to $3.3 million, or 2.2% of total
revenue, for the fifty-two weeks ended September 26, 1997 from $3.6 million, or
2.3% of total revenue, for the fifty-two weeks ended September 27, 1996. The
decrease is primarily attributable to a reduction in capital spending offset by
additional goodwill.
EBITDA for the fifty-two weeks ended September 26, 1997 increased by $0.6
million, or 3.0%, to $20.7 million from $20.1 million for fiscal 1996. EBITDA
margin as a percentage of total revenue increased to 13.4% for the fifty-two
weeks ended September 26, 1997 from 12.9% for fiscal 1996 for the reasons stated
above. See footnote (c) to "Selected Financial Data".
Liquidity and Capital Resources
Net cash used in operating activities for the fifty-two weeks ended
September 25, 1998 was $1.5 million, primarily comprised of a net loss of $3.5
million, an increase in accounts receivable of $7.6 million, an increase in
prepaid assets of $0.5 million, a decrease in account payable, accrued expenses
and other liabilities of $2.6 million and an increase in other assets of $0.7
million, partially offset by non cash charges of $11.8 million and an decrease
in refundable income taxes of $1.6 million.
Cash provided by financing activities for the fifty two weeks ended September
25, 1998 was $2.4 million, primarily comprised of borrowings under the working
capital revolver of $3.0 million partially offset by $0.3 million in capital
lease payments and a $0.4 million dividend to CPH to fund certain acquisition
related costs.
The Company's primary use of cash in investing activities is the purchase of
property and equipment. Capital expenditures in fiscal 1998 totalled $1.1
million. The Company expects that capital expenditure requirements will be
approximately $1.5 million for fiscal 1999.
The Company's average working capital borrowings for fiscal 1998 was $23.7
million. The increase is due primarily to borrowings to fund the semi-annual
interest payments on the Senior Notes. The Company's maximum working capital
borrowings outstanding during the period was $27.3 million.
The Company has a $50.0 million working capital revolver, with $26.6 million of
available borrowings as of September 25, 1998. The working capital revolver
contains certain covenants requiring 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
10
<PAGE> 11
limitation on capital expenditures. The working capital revolver and the notes
impose certain other restrictions on the Company, including restrictions on its
ability to incur indebtedness, pay dividends, make investments, grant liens,
sell its assets and engage in certain other activities. In addition, the
indebtedness of the Company under its working capital revolver is secured by all
of the assets of the Company, including the Company's real and personal
property, inventory, accounts receivable, intellectual property and other
intangibles. Effective September 25, 1998 the Company was in compliance or had
received waivers for covenants it had violated.
Management believes that cash flow from operations, together with other
available sources of funds including the availability of borrowings under its
working capital revolver, will be adequate for at least the next twelve months
to make required payments of principal and interest on the Company's
indebtedness and to fund anticipated capital expenditures and working capital
requirements. The ability of the Company to meet its debt service obligations
and reduce its total debt will be dependent, however, upon the future
performance of the Company which, in turn, will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond the Company's control. Debt outstanding under the working capital
revolver will bear interest at floating rates; therefore, the Company's
financial condition is and will continue to be affected by changes in prevailing
interest rates.
Subject to market conditions and contractual requirements, the Company may
consider and effect the refinancing of a part of its indebtedness in fiscal
1999 in order to improve its debt service position and to reduce its net
interest expense.
Inflation
The Company believes that inflation has not had a material impact on its results
of operations for the three fiscal years ended September 25, 1998. Subsequent to
the reported period, management is examining the current operating structure for
opportunities to reduce operating cost without impacting the products and
services the Company provides.
Recent Developments
The Company has approved a change in its fiscal year from the last Friday in
September to a January through December period. The new 1999 fiscal year will
begin on December 26, 1998 and end on December 24, 1999. Fiscal 2000 will be a
53 week year and end December 29, 2000.
Subsequent to the reported period and in view of the results of such period,
the Company's new senior management team undertook an examination of the
Company's operating structure in order to identify opportunities to reduce
operating costs without impacting the products and services the Company
provides its customers. Among the items considered by the Company were a review
of the option to outsource its plant operations and an examination of
administrative processes for possible efficiencies. The Company also examined
its financial reporting obligations for the October to December 1998 quarter in
relation to the change in its fiscal calendar.
As a result, the Company plans to take a restructuring charge in the period
ending December 25, 1998 which may include but not be limited to: (i)
transition plan and plant closing costs associated with entering an
outsourcing contract for its current plant activities, (ii)employee separation
costs, largely related to union negotiations that are not complete, (iii)real
estate expenses associated with changes in operations, and (iv)costs
associated with renegotiating new lending covenants with current lending
institutions. The Company is not yet able to quantify the anticipated amount
of the restructuring charge, the final amount of which will be dependent upon
the precise actions taken in respect of the above-referenced actions. The
Company anticipates that such amounts may total from $3.0 to $6.0 million.
Other - Year 2000
The Company has developed a comprehensive plan to address Year 2000 issues. The
plan addresses three main areas: (a) information systems; (b) embedded chips;
and (c) supply chain readiness. To oversee the process, the Company has
established an oversight committee which reports to the Board of Directors and
the Audit Committee.
The Company has identified potential deficiencies related to Year 2000 in
its information systems, both hardware and software, and is in the process of
addressing them through upgrades and other remediation. The Company expects to
complete remediation and testing of its internal systems in the summer of 1999.
With respect to other equipment with date-sensitive operating controls such as
manufacturing equipment, HVAC, security and other similar systems, the Company
is near completion in the process of identifying those items which may require
remediation or replacement. The Company expects to complete remediation or
replacement and testing of these systems in the summer of 1999. As for the third
parties, the Company is in the process of identifying and contacting, both
inventory and non-inventory suppliers. This process includes the solicitation of
written responses to questionnaires. The Company has the right to terminate its
agreement with its major beef suppliers if documentation as to the supplier's
Year 2000 readiness is not provided. The Company expects to have a better
understanding of the Year 2000 readiness of these third parties over the next
several months.
Based upon the Company's current estimates, incremental out-of-pocket costs of
its Year 2000 program are not expected to be material.
At this stage of the process, the Company believes that it is difficult to
specifically identify the cause of the most reasonable worst case Year 2000
scenario. As with all manufacturers and distributors of products such as those
sold by the Company, a reasonable worst case scenario would be the result of
failures of third parties (including, without limitation, governmental entities
and entities with which the Company has no direct involvement) that continue for
more than several days in various geographic areas where the Company's products
are produced or sold or in areas from which the Company's raw materials and
products are sourced. In connection with the production of products and
suppliers of raw materials the Company is considering various contingency plans.
Continuing failures that limit consumers' ability to purchase would most likely
have a material adverse effect on the Company's results of operations. The
extent of such lost revenue cannot be estimated at this time; however, the
Company is considering contingency plans to limit, to the extent possible, the
effect of such lost revenue on the Company's results of operations. Any such
plans would necessarily be limited to matters over which the Company can
reasonably control.
The Company's Year 2000 efforts are ongoing and its overall plan, as well as the
consideration of contingency plans, will continue to evolve as new information
becomes available. While the Company anticipates continuity of its business
activities, that continuity will be dependent upon its ability, and the ability
of third parties with whom the Company relies on directly, or indirectly, to be
Year 2000 compliant.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are listed under Item 14 in this
report.
11
<PAGE> 12
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 10. Directors, Executive Officers and Key Employees of the Registrant.
The following table sets forth the names, ages as of September 25, 1998 and
positions of each person who is a director, executive officer or key employee of
the Company.
<TABLE>
<CAPTION>
- ---------------------------------- -------- ----------------------------------------
NAME AGE POSITION
- ---------------------------------- -------- ----------------------------------------
<S> <C> <C>
Dr. Paul Stern 59 Chairman of the Board and Chief
Executive Officer
Paul Roman 48 President, Chief Operating Officer and
Director
Matthew Burris 36 Chief Financial Officer, Vice President
and Director
Ricardo DeSantis 55 Vice President of Marketing
Steven Lachenmeyer 32 Vice President, Controller and
Secretary
Charles Montanino 70 Vice President of Plant Operations
Kenneth Payne 50 Vice President of Operations
Joseph Ugenti 54 Vice President Customer Acquisition
Brian Mulvehill 41 Vice President-East Coast Division
Ronald Mel 32 Vice President-Midwest Division
John DeMaio 43 Vice President-Southwest Division
Joseph Billi 34 Vice President-Northeast Division
Lawrence Scuderi 57 Vice President-Management, Development
and Training
Frederic Malek 61 Director
William Dordelman 57 Director
Daniel J. Altobello 57 Director
William Nicholson 55 Director
Carl J. Rickertsen 38 Director
</TABLE>
Dr. Paul Stern was named Chairman of the Board and Chief Executive Officer of
CPC in September 1998 upon the resignation of William Dordelman as Chairman of
the Board and Chief Executive Officer. Dr. Stern became a Director of CPC
following the consummation of the Merger. Dr. Stern co-founded Thayer Equity
Investors III, L.P. in 1995. Prior to that, Dr. Stern was a Special Limited
Partner at Forstmann Little & Co. From 1989 until 1993, Dr. Stern served as the
Chairman and Chief Executive Officer of Northern Telecom Ltd. Prior to that, Dr.
Stern served as President and Chief Operating Officer of Burroughs (later
Unisys) Corporation, Corporate Vice President and later President of Commercial
Electronics Operations at Rockwell International Corporation and Chairman and
Chief Executive Officer of Braun AG in Germany. Dr. Stern serves on the Board of
Dow Chemical Company, LTV Corporation, Whirlpool Corporation, Software AG
Systems, Inc. and MLC Holdings, Inc.
Paul Roman was appointed President, Chief Operating Officer and Director in
August 1998. From 1990 to 1997, Mr. Roman was President of Rollins Protective
Services, a provider of electronic security services for commercial and
residential alarm customers throughout the United States and a former division
of Rollins Inc. Prior to 1990, Mr. Roman held positions within Rollins
Protective Services ranging from sales to VP of Operations. Prior to that, Mr.
Roman was an owner/operator of American Home Security from 1982 to 1985 and a
consultant to the industry regarding financing, acquisitions, and general
management assignments.
Matthew Burris was appointed Vice President, Chief Financial Officer and
Director in March 1998. Previously, Mr. Burris worked in the finance and
operations areas of Finlay Enterprises, the leading national operator of fine
jewelry departments in major department stores. Mr. Burris joined Finlay in 1985
and was promoted to Vice President in 1988.
Ricardo DeSantis was appointed Vice President of Marketing in June 1993.
Previously, Mr. DeSantis was Senior Vice President of Marketing for Cigna
Healthcare. From 1989 to 1991, Mr. DeSantis was President of the Consumer
Division of Pendaflex Corporation. Prior to that, Mr. DeSantis was a business
unit manager at General Foods.
Steven Lachenmeyer was appointed Vice President and Controller in June 1997 and
Secretary in December 1997. Prior to that, Mr. Lachenmeyer was an audit manager
with Arthur Andersen LLP.
12
<PAGE> 13
Charles Montanino has been Vice President of Plant Operations since March 1987.
Mr. Montanino joined CPC in April 1973 and served as plant manager from 1980
through March 1987.
Kenneth Payne joined CPC as Credit Collections Manager in August 1976. From 1981
until 1987, Mr. Payne served as Operations Manager of CPC. In 1987 Mr. Payne was
elected Vice President of Operations.
Joseph Ugenti began in CPC's sales department in 1975 and was elected Vice
President of Customer Acquisition in August 1991. From June 1983 to July 1991,
Mr. Ugenti was Director of Telemarketing of CPC.
Brian Mulvehill has held the position of Vice President of the East Coast
Division since 1991. Mr. Mulvehill began his career with CPC in 1985. From 1988
until 1991, Mr. Mulvehill served as Divisional Sales Manager. Previously, Mr.
Mulvehill held the position of Sales Manager of Don Rich Industries from 1978 to
1985.
Ronald Mel was appointed Vice President of the Midwest Division in May 1997. Mr.
Mel joined CPC in 1992 as branch manager. In 1994, Mr. Mel served as East Coast
Divisional Trainer. From 1995 through 1997, Mr. Mel served as Divisional Manager
for the Florida region.
John DeMaio has been Vice President of the Southwest Division since 1984. Mr.
DeMaio joined CPC in 1982 and served as Divisional Manager of the Mid-Atlantic
Area from 1982 to 1984. Previously, Mr. DeMaio served as General Sales Manager
of American Frozen Foods from 1974 to 1981.
Joseph Billi was appointed Vice President of the New York/New Jersey Division in
May 1997. Mr. Billi joined CPC in 1990. He held the positions of Corporate
Trainer, Field 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.
William Dordelman resigned as Chief Executive Officer and Chairman of the Board
in September 1998 but remains a member of the Board of Directors. Mr. Dordelman
had 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 for 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.
Frederic Malek became a Director of CPC following the consummation of
the Merger. Mr. Malek founded Thayer Capital Partners in 1991 and co-founded
Thayer Equity Investors III, L.P. in 1995. From 1989 to 1991, Mr. Malek was
President and then Vice Chairman of Northwest Airlines. Prior to that time, Mr.
Malek served as President of Marriott Hotels and Resorts from 1980 through 1988.
Mr. Malek currently serves as director of several publicly-traded companies,
including Automatic Data Processing Corp., American Management Systems, Manor
Care Inc., FPL Group and Northwest Airlines.
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., Blue Cross Blue Shield of Maryland, Inc.,
Care First, Inc., Care First of Maryland, Inc., MESA Air Group, World Airways,
Inc., First Union Realty Trust, Sodexho Marriott Services, Inc., and Atlantic
Aviation Holdings.
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
Amway Corporation's Policy Board.
Carl J. Rickertsen was named Director of CPC in April 1998. Mr. Rickertsen
joined Thayer as a partner in 1994. Prior to joining Thayer, Mr. Rickertsen was
a General Partner with Hancock Park Associates, a Los Angeles-based venture
capital buyout firm specializing in the acquisition of middle market and
family-held companies. Prior to joining Hancock Park, Mr. Rickertsen was an
Associate with Brentwood Associates, a venture capital firm in Southern
California with over $500 million under management. Prior to joining Brentwood,
Mr. Rickertsen worked in the High Technology Group for Morgan Stanley & Co.,
Inc. and at Robertson, Colman & Stephens. Mr. Rickertsen serves as Chairman of
the Board of Directors of Software AG Systems, Inc. and Director of MLC
Holdings, Inc.
13
<PAGE> 14
Board Committees
The Board of Directors of the Company has established a compensation committee
(the "Compensation Committee") and an audit committee (the "Audit Committee").
The Compensation Committee, which consists of Dr. Stern and Messrs. Malek and
Nicholson, determines the compensation of the Company's executive officers. The
Compensation Committee also administers 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. Rickertsen
and Altobello comprise the Audit Committee.
Item 11. Executive Compensation
The following table sets forth certain information concerning the compensation
paid or earned during fiscal 1998 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 1998. 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 THE YEAR ENDED
SEPTEMBER 25, 1998
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS(4) COMPENSATION(1)
<S> <C> <C> <C>
William Dordelman (2) $ 450,000 $ 252,000 --
Former Chairman of the Board and
Chief Executive Officer
Ricardo DeSantis 207,000 100,000 --
Vice President of Marketing
Thomas Taylor (3) 94,000 122,000 --
Former Director and Chief
Financial Officer
Joseph Ugenti 118,000 77,000 --
Vice President of Customer
Acquisition
Kenneth Payne 133,000 40,000 --
Vice President of Operations
</TABLE>
(1) Represents perquisites and other personal benefits, if such benefit
exceeds the lesser of $50,000 or 10% of the total annual salary and
bonus for the executive officer.
(2) Resigned as Chairman of the Board and Chief Executive Officer on
September 9, 1998.
(3) Resigned as Director and Chief Financial Officer on March 27, 1998.
(4) Represents bonus paid in fiscal 1998 for fiscal 1997 Company and
individual performance.
14
<PAGE> 15
The following table sets forth certain information concerning options granted to
the named executive officers during the Company's last fiscal year.(1)
<TABLE>
<CAPTION>
Option/SAR Grants During
Fiscal 1998
Individual Grants
--------------------------------------------------------------------
% of Total
Number of Options
Securities Granted Exercise or Grant
Underlying Employees in Base Price Expiration Date
Name Options Granted Fiscal Year ($/Share) Date(4) Value(5)
<S> <C> <C> <C> <C> <C>
William Dordelman(2)(3)
Former Chairman of the Board and
Chief Executive Officer 12,639 35% $100 10/31/07 $312,815
Ricardo DeSantis(2)
Vice President of Marketing 3,159 9% 100 10/31/07 78,185
Thomas Taylor(2)(3)
Former Director and Chief Financial
Officer 3,159 9% 100 10/31/07 78,185
Joseph Ugenti(2)
Vice President of Customer
Acquisition 1,107 3% 100 10/31/07 27,398
Kenneth Payne(2)
Vice President of Operations 633 2% 100 10/31/07 15,667
</TABLE>
1. The stock option plan relates to shares of Common Stock of CPH. No
stock options were exercised during the Company's last fiscal year.
2. Each of the named executive officers' options have been granted to them
by CPH as part of their compensation with respect to the Company.
Accordingly, each of the named executive officers' options are subject
to certain performance based criteria, whereby a portion of such
options shall vest upon (i) the executives continued employment in the
Company, (ii) CPH achieving or exceeding its projections for a given
fiscal year and (iii) CPH achieving or exceeding an internal rate of
return of 40% with respect to the investment in CPH by Thayer Equity
Investors III, L.P. To the extent that their individual options have
vested, each named executive officer may exercise his options, in whole
or in part, at any time prior to the expiration date.
3. In addition, with respect to the options granted to Messrs, Dordelman,
and Taylor, 8,426, and 3,159 of such options, respectively, have
expired.
4. Each of the named executive officers' options expire upon the earliest
of (i) date of termination for good cause, (ii) ninety (90) days after
termination by reason of retirement, resignation, death or disability,
(iii) ninety (90) days after termination other than for good cause, or
(iv) the expiration date.
5. The fair value of each option grant is estimated on the date of grant
using the minimum value method. The following weighted average
assumptions used were as follows: dividend yield of 0%; expected
volatility of 0%; risk-free interest rate of 5.8%; expected life of 5
years and a fair value of $24.75 per option.
Director Compensation
Directors are reimbursed for certain expenses incurred by them in connection
with attendance at meetings of the Board. Other than with respect to
reimbursements for expenses, directors who are also officers of the Company do
not receive compensation to serve as directors. The Company granted 2,600
options to certain of its non-employee directors in fiscal 1998.
Employment Agreements
The Company has executed employment agreements with Messrs. Paul Roman, Matthew
Burris and Ricardo DeSantis. The employment agreement for Mr. Roman is for a
three year term, the agreements for Messrs. Burris and DeSantis are for a one
year rolling term. The employment agreements provide for (i) payment of a base
annual salary of $300,000 to Paul Roman, $215,000 to Matthew Burris, and
$215,000 to Ricardo DeSantis; (ii) a minimum annual base salary increase to
reflect the change in the consumer price index; (iii) payment of bonuses based
upon achievement of certain profitability and other performance targets of the
Company; and (iv) certain fringe benefits. Each employment agreement provides
that the
15
<PAGE> 16
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. Additionally, the Company
executed an employment agreement with Kenneth Payne. The agreement provides for
payment of up to 12 months salary in the event Mr. Payne's services to the
Company are terminated for any reason other than death, permanent disability,
commission of a felony, fraud or willfull misconduct which has resulted in
material damage to the Company.
Management Equity Investment
In connection with the Merger, certain management ("Management Investors")
exchanged certain of their existing shares of common stock of Holdings (valued
for such purpose at the amount that would otherwise be payable for such shares
in connection with the merger) and contributed cash in the aggregate amount of
$2.1 million in exchange for an aggregate of 21,200 shares of common stock of
CPAC. Upon consummation of the Merger, each share of common stock of CPAC was
converted into one share of common stock of CPH. Pursuant to a shareholders'
agreement, the Management Investors have incidental registration rights,
tag-along rights, antidilution protection and in certain circumstances a
mandatory redemption right, and are subject to certain restrictions on the
transfer of their shares, a bring-along right and certain call provisions
exercisable by CPH or Thayer.
Stock Option Plan
In connection with the merger, the Board of Directors of CPH approved the 1997
Stock Option Plan. Options of up to approximately 15% of CPH's common equity
were originally granted to the Company under its stock option 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. See the
table above regarding the status of certain of the grants of options under the
1997 Stock Option Plan.
Employees' Pension Plan
Since 1976, the Company has maintained a defined contribution pension plan (the
"Plan"). Employees who have completed six months of service and have reached the
age of 20 1/2 are eligible to participate in the Plan. The Company contributes
annually to a participant's account based upon a variable percentage of a
participant's annual compensation. The Plan also permits eligible employees to
make voluntary contributions within specified limits. The contributions for
employees who became participants prior to January 1, 1989 are 30% vested after
three years of service and the contributions for employees who become
participants after January 1, 1989 are 20% vested after three years of service.
Contributions become vested thereafter at a rate of 20% for each additional full
year of service, until fully vested. Benefits are distributed at the time of the
employee's death, disability, termination or retirement after age 55 and may be
distributed in the form of an annuity or, in some circumstances, other methods
of payment, such as lump sum or in installments over a fixed period.
Contributions are forfeited when a participant's employment is terminated prior
to full vesting under the Plan. Such forfeited amounts are used to reduce the
Company's contributions to the Plan.
401(k) Plan
The Company sponsors a 401(k) Plan available for all non-union employees who
have attained the age of 21 and have completed one year of service with the
Company. The plan was adopted effective February 1, 1986 and was amended
effective February 1, 1988 and January 1, 1989, as hereinafter described. Under
the plan's qualified cash or deferred arrangement, a participant may, under an
arrangement with the Company, elect to have up to 20% of their annual
compensation paid to the plan on behalf of the participant, in lieu of the
participant's current receipt of such compensation. In addition to the
employee's contribution, the Company may, but need not, make discretionary
contributions to the plan in such amounts as it determines. A participant's
contributions made under the qualified cash or deferred arrangement are 100%
vested at all times. For employees who became participants of the plan prior to
January 1, 1989, discretionary contributions made under the plan are 20% vested
after three years of service. Discretionary contributions become vested
thereafter at the rate of 20% for each additional full year of service, until
100% vested. Benefits are payable upon a participant's termination of employment
for any reason, in the form of one lump sum payment or in installments extending
over a fixed period of years, depending upon the employee's election.
16
<PAGE> 17
Item 12. Security Ownership of Certain Beneficial Owners and Management
All of the Company's issued and outstanding capital stock is owned by CPH. The
issued and outstanding capital stock of each of the Company's subsidiaries is
owned by the Company. The table sets forth, as of September 25, 1998, 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 executive officer of
the Company; and (iii) by all directors and executive officers of the Company as
a group. In addition, Thayer owns 99.9% of CPH's 10,000 outstanding shares of
15% payable-in-kind redeemable preferred stock, par value $0.01 per share.
17
<PAGE> 18
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF OUTSTANDING
COMMON STOCK OF COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIAL OWNER CPH(1)(3)(5) CPH (1)(3)(5)
<S> <C> <C>
Thayer Equity Investors III, L.P. (2) 128,068(3)(4) 85.4%
1455 Pennsylvania Avenue N.W
Washington, D.C. 20004
William Dordelman 10,000 6.7%
95 Rowayton Avenue
Building A
Rowayton, CT 06853
Ricardo DeSantis 1,650 1.1%
Colorado Prime Corporation
500 Bi-County Blvd
Farmingdale, NY 11735
Other Executive Officers 2,250 1.5%
All directors and executive officers 13,900(2) 9.3%
as a group (2)
</TABLE>
(1) Excludes 19,608 shares of CPH Common Stock that may be acquired upon
the exercise of warrants which represent 10% of CPH Common Stock on a
fully-diluted basis (without taking into account shares of CPH Common
Stock which will be subject to CPH's 1997 Stock Option Plan).
(2) Thayer Equity Investors III, L.P. is a Delaware limited partnership
whose general partner is TC Equity Partners, L.L.C. ("TC Equity
Partners"). The members of TC Equity Partners are Fredric Malek, Dr.
Paul Stern and Carl J. Rickertsen. Mr. Malek, Dr. Stern and Mr.
Rickertsen 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, Dr. Stern and Mr. Rickertsen disclaim beneficial
ownership of such shares.
(3) Excludes 26,320 shares of CPH Common Stock that may be acquired upon
the exercise of warrants held by Thayer, which represent 13.4% of CPH
Common Stock on a fully-diluted basis (without taking into account
shares of CPH Common Stock which will be subject to CPH's 1997 Stock
Option Plan).
(4) Includes shares of CPH Common Stock owned by TC Co-Investors, LLC
("Co-Investors"). Co-Investors is a Delaware limited liability company
which is controlled by TC Equity Partners.
(5) Excludes 1,316 shares of CPH Common Stock, which represent .7% of CPH
Common Stock on a fully diluted basis, that may be acquired upon the
exercise of options held by the Executive Officers and Directors of CPC
subject to the 1997 Stock Option Plan.
Item 13. Certain Relationships and Related Transactions
Management advisory and Transaction Fees
In connection with the Merger, the Company paid a transaction fee of $1.4
million to TC Management L.L.C. ("TC Management"), an affiliate of Thayer, in
consideration for services in arranging the financing for the Merger.
In May, 1997 following the consummation of the Merger, the Company and TC
Management entered into a management and consulting agreement pursuant to which
TC Management will provide management advisory and consulting services to the
Company for which it will receive a payment of $0.5 million plus expenses
annually.
The Company believes that the management advisory and transaction fees paid or
to be paid to TC Management are comparable to fees that would be paid to
unaffiliated third parties for similar services.
Management Equity Incentive Plan
In January 1995, the Company implemented an equity incentive plan to provide a
performance incentive to the Company's management. An aggregate of approximately
747,000 shares of Class A, Class B and Class C management Common Stock of
Holdings ("Management Stock") were purchased by certain members of management.
All outstanding shares of Management Stock were redeemed in connection with the
closing of the Merger for an aggregate consideration of approximately $7.3
million of which approximately $2.1 million was reinvested in CPAC as discussed
below.
18
<PAGE> 19
Equity Contribution of CPAC
In connection with and immediately prior to the Merger, Thayer contributed cash
in the amount of $22.9 million in exchange for 128,800 shares of common stock,
$0.01 par value per share, of CPAC, 10,000 shares of 15% payable-in-kind
redeemable preferred stock, $0.01 par value per 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 exchanged certain of their existing common shares
of Holdings (valued for such purpose at the amount that would otherwise be
payable for such shares in connection with the Merger) and contributed cash in
the aggregate amount of $2.1 million in exchange for an aggregate of 21,200
shares of common stock of CPAC.
Shareholders' Agreement
In connection with the Merger, Thayer, CPH and the Management Investors entered
into a shareholders agreement which provides the Management Investors with
incidental registration rights, tag-along rights, antidilution protection and in
certain circumstances mandatory redemption rights. The Management Investors are
subject to a bring-along right and certain call provisions exercisable by CPH or
Thayer.
19
<PAGE> 20
Part IV
Item 14. Exhibits, Financial Statements and Reports on Form 10-K
a. (1)-(2) Financial Statements:
The Financial Statements and Schedules listed in the accompanying index to
Consolidated Financial Statements and Supplemental Data on page F-1 are
filed as part of this report.
(b) Reports on Form 8-K:
On August 19, 1998, the Company filed a Form 8-K announcing the resignation of
William Dordelman as Chairman of the Board and Chief Executive Officer, the
appointment of Dr. Paul Stern as Chairman and Chief Executive Officer and the
appointment of Paul Roman as Director, President and Chief Operating Officer.
(c) Exhibits:
See Index to Exhibits on page E-1.
20
<PAGE> 21
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly insured this report to be signed on its
behalf by the undersigned, thereto duly authorized.
Colorado Prime Corporation
Date: December 23, 1998
By:/s/ Matthew Burris
--------------------------------
Matthew Burris
Chief Financial Officer
Vice President and Director
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
____________________ *Chief Executive Officer and December 23, 1998
Dr. Paul Stern Chairman of the Board
(Principal Executive Officer)
____________________ Chief Operating Officer, December 23, 1998
Paul Roman President and Director
____________________ Chief Financial Officer, Vice December 23, 1998
Matthew Burris President and Director
(Principal Accounting Officer)
____________________ *Director December 23, 1998
Carl J. Rickertsen
____________________ *Director December 23, 1998
Frederic Malek
____________________ *Director December 23, 1998
William F. Dordelman
____________________ *Director December 23, 1998
Daniel J. Altobello
____________________ *Director December 23, 1998
William Nicholson
*By: /s/ Matthew Burris Attorney-in-Fact
-------------------
Matthew Burris
</TABLE>
21
<PAGE> 22
Colorado Prime Corporation and Subsidiaries
Index to Consolidated Financial Statements
and Supplemental Data
The following financial statements of the registrant and its subsidiaries
required to be included in Item 14. (a) (1) and (2) of Form 10-K are listed
below:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of September 25, 1998 and September 26, 1997.
Statements of Consolidated Operations for the year ended September 25, 1998 and
the twenty-week period ended September 26, 1997.
Statements of Consolidated Stockholder's Equity for the twenty-week period ended
September 26, 1997 and the year ended September 25, 1998.
Statements of Consolidated Cash Flows for the year ended September 25, 1998 and
the twenty-week period ended September 26, 1997.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
Statements of Consolidated Operations for the thirty-two week period ended May
9, 1997 and the year ended September 27, 1996.
Statements of Consolidated Stockholder's Equity for the year ended September 27,
1996 and the thirty-two week period ended May 9, 1997.
Statements of Consolidated Cash Flows for the thirty-two week period ended May
9, 1997 and the year ended September 27, 1996.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants on Schedule.
Schedule II for the twenty-week period ended September 26, 1997 and the year
ended September 25, 1998.
Report of Independent Public Accountants on Schedule.
Schedule II for the thirty-two week period ended May 9, 1997 and the year ended
September 27, 1996.
All other schedules not listed above have been omitted as they are not
applicable or because the required information is included in the Consolidated
Financial Statements or in the notes thereto. Columns omitted from schedules
filed have been omitted because the information is not applicable.
22
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Colorado Prime Corporation:
We have audited the accompanying consolidated balance sheets of Colorado Prime
Corporation (a Delaware corporation) and subsidiaries as of September 25, 1998
and September 26, 1997, and the related statements of consolidated operations,
stockholder's equity and cash flows for the year ended September 25, 1998 and
the twenty-week period ended September 26, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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 25, 1998 and September 26, 1997, and the results of
their operations and their cash flows for the year ended September 25, 1998 and
the twenty-week period ended September 26, 1997 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Melville, New York
December 2, 1998
23
<PAGE> 24
Colorado Prime Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 25, SEPTEMBER 26,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash $ 713 $ 972
Accounts receivable - net 53,698 57,482
Inventories 4,559 4,538
Prepaid expenses and other current assets 1,931 1,399
Refundable income taxes 926 2,483
Deferred income tax benefit 9,357 6,992
--------- ---------
Total current assets 71,184 73,866
--------- ---------
Property, plant and equipment - net 9,356 5,905
Noncurrent accounts receivable - net 37,022 36,503
Goodwill 46,015 44,744
Other assets 8,450 8,755
--------- ---------
Total assets $ 172,027 $ 169,773
========= =========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 4,938 $ 5,998
Accrued expenses 16,415 15,191
Income and other taxes payable 255 1,184
Current portion of capital lease obligations 145 258
--------- ---------
Total current liabilities 21,753 22,631
Revolver 23,416 20,339
Senior unsecured notes, net of discount 98,263 98,059
Long-term portion of capital lease obligations 3,776 19
Other liabilities 3,154 3,100
Commitments and contingent liabilities (Note 14)
Stockholder's equity:
Common stock--par value, $.01, per share;
1,000 shares authorized, issued
and outstanding -- --
Paid-in capital 25,868 25,873
Accumulated deficit (4,203) (248)
--------- ---------
Total stockholder's equity 21,665 25,625
--------- ---------
Total liabilities and stockholder's equity $ 172,027 $ 169,773
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 25
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Operations
(Dollars in Thousands)
<TABLE>
<CAPTION>
20 WEEK
YEAR ENDED PERIOD ENDED
SEPTEMBER 25, SEPTEMBER 26,
1998 1997
------------- -------------
<S> <C> <C>
Product sales $ 137,726 $ 54,407
Finance income earned 14,005 5,600
--------- ---------
Total revenue 151,731 60,007
Cost of goods sold 51,649 21,195
--------- ---------
Gross profit 100,082 38,812
--------- ---------
Other costs and expenses:
Selling, general and
administrative 86,006 31,923
Severance-related costs 791 --
Amortization of goodwill 1,575 540
Interest expense 16,164 6,222
Other expense 551 245
--------- ---------
Total costs and expenses 105,087 38,930
--------- ---------
Loss before provision (benefit)
for income taxes (5,005) (118)
Provision (benefit) for income taxes (1,462) 130
--------- ---------
Net loss $ (3,543) $ (248)
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE> 26
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Stockholder's Equity
For the twenty-week period ended September 26, 1997
and the year ended
September 25, 1998
(Dollars in Thousands, except share data)
<TABLE>
<CAPTION>
COMMON STOCK
NUMBER OF TOTAL
OUTSTANDING DOLLAR PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at May 9, 1997 1,000 $ -- $ 25,873 $ -- $ 25,873
Net loss -- -- -- (248) (248)
----- -------- -------- -------- --------
Balance at September 26, 1997 1,000 -- 25,873 (248) 25,625
Dividend to CPH -- -- -- (412) (412)
Return of capital to CPH -- -- (5) -- (5)
Net Loss -- -- -- (3,543) (3,543)
----- -------- -------- -------- --------
Balance September 25, 1998 1,000 $ -- $ 25,868 $ (4,203) $ 21,665
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 27
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
TWENTY-WEEK
YEAR ENDED PERIOD ENDED
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,543) $ (248)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,384 2,043
Provision for doubtful accounts 8,202 3,017
Deferred income taxes (737) (706)
Change in operating assets and liabilities:
Accounts receivable (7,637) (3,057)
Inventories (21) (153)
Prepaid expenses and other current assets (532) (102)
Refundable income taxes 1,557 --
Other assets (725) (518)
Accounts payable (1,060) 1,082
Accrued expenses (914) (1,705)
Income and other taxes payable 71 183
Other liabilities (583) (235)
-------- --------
Total adjustments 2,005 (151)
-------- --------
Net cash used in operating activities (1,538) (399)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in property, plant and equipment (1,126) (409)
Net assets acquired -- (2,352)
-------- --------
Net cash used in investing activities (1,126) (2,761)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (Repayment) of revolver 3,077 (3,661)
Decrease in capital lease obligation (255) (103)
Net proceeds from senior unsecured notes -- 87,566
Proceeds from issuance of revolver -- 24,000
Capital contribution from parent -- 25,873
Repayment of note payable -- (58,707)
Repayment of senior notes -- (43,260)
Distribution to former shareholders -- (33,120)
Dividend to CPH (412) --
Return of capital to CPH (5) --
-------- --------
Net cash provided by (used in) financing activities 2,405 (1,412)
NET DECREASE IN CASH (259) (4,572)
CASH, BEGINNING OF PERIOD 972 5,544
-------- --------
CASH, END OF PERIOD $ 713 $ 972
======== ========
</TABLE>
Supplemental Cash Flow Data
Income tax payments totaled approximately $91 for the year ended September 25,
1998 and $13 for the twenty-week period ended September 26, 1997.
Interest payments totaled approximately $14,122 for the year ended September 25,
1998 and $630 for the twenty-week period ended September 26, 1997.
Supplemental disclosure of non-cash investing and financing activities:
During fiscal year 1998, the Company acquired fixed assets totaling
approximately $3,900 under capital lease obligations.
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 28
Colorado Prime Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
1. Company Background
Colorado Prime (the "Company") is a wholly-owned subsidiary of Colorado Prime
Holdings, Inc., formally KPC Holdings Corporation. Pursuant to the merger
agreement dated March 25, 1997, between the Company's then-parent corporation,
KPC Holdings Corporation ("Holdings") and Thayer Equity Investors III, L.P., a
private equity investment limited partnership ("Thayer"), Colorado Prime
Acquisition Corp., a transitory acquisition subsidiary established by Thayer
prior to the consummation of the merger, merged with and into Holdings,
following which Holdings was the surviving corporation and was renamed Colorado
Prime Holdings Inc. ("CPH"). The Company is a leading direct marketer of high
quality, value-added food programs and products related to in home dining and
entertainment.
As a result of the transaction above, a new basis of accounting under the "push
down" method was adopted effective May 9, 1997. Under this method, the assets
and liabilities of the Company were revalued to reflect CPH's new cost basis in
the Company, which is based on the fair values of such assets and liabilities on
May 9, 1997. Financial data for the period subsequent to May 9, 1997 reflect the
adoption of this new basis of accounting.
2. Summary of Significant Accounting Policies
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.
Company's Year-End
The Company's fiscal year ends on the last Friday of September. The financial
statements through September 26, 1997 include only the twenty-week period
subsequent to the merger on May 9, 1997.
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.
Accounts Receivable
The term of accounts receivable related to food sales is less than one year. The
term of accounts receivable related to appliance sales is generally greater than
one year. As a result, the financial statements reflect a current and noncurrent
portion of these accounts receivable. The Company's customers are families and
individuals located throughout the United States, resulting in no significant
concentration of credit risk. Management closely monitors the aging of the
accounts receivable balances and reserves for account balances and discontinues
the accrual of finance charges on accounts based upon pre-established criteria.
Fair Value of Financial Instruments
At September 25, 1998 the recorded and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
ESTIMATED
RECORDED FAIR VALUE
<S> <C> <C>
Accounts receivable-net $53,698 $53,698(a)
Noncurrent accounts receivable-net 37,022 37,022(a)
Revolver 23,416 23,416(b)
Senior unsecured notes, net of discount 98,263 98,263(b)
Interest rate cap -- 9(c)
</TABLE>
28
<PAGE> 29
(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 net recorded amounts. Since these
receivables arise solely in connection with the sale of the Company's
products and are an integral part of the Company's marketing program,
it is not practical to obtain an appraisal.
(b) Based on terms of the Company's debt instruments as compared to credit
market conditions at September 25, 1998, management believes that the
carrying value of its debt instruments approximates its fair value.
(c) Based on dealer's quotation of the approximate cost to exit the
interest rate cap arrangement.
Inventories
Inventories are stated at the lower of cost or market, with the cost determined
on the first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization (Note 6). Depreciation and amortization are
computed using primarily the straight-line method over the estimated useful
lives of the related assets or the life of the related leases, if less, as
follows:
Category Useful Life
Buildings 17-25 years
Assets under capital leases 5-14 years
Machinery and equipment 8 years
Software 7 years
Furniture and fixtures 5-8 years
Delivery equipment 4-8 years
Automobiles 4 years
Leasehold improvements 2-15 years
Goodwill
Goodwill is amortized using the straight-line method over a period of thirty
years. At September 25, 1998 and September 26, 1997, goodwill is shown net of
accumulated amortization of $2,115 and $540, respectively. Goodwill is reviewed
for impairment based upon estimated undiscounted future cash flows from
operations.
Long-Lived Assets
The Company accounts for long-lived assets pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset in question may not
be recoverable. The adoption of SFAS No. 121, in fiscal 1997 has not had a
material effect on the Company's results of operations, cash flows or financial
position.
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 SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, income taxes are recognized
using a liability approach whereby deferred tax assets and liabilities are
computed for temporary differences between taxable income for financial
reporting and income tax purposes, measured by the enacted rates that are
expected to be in effect when those differences reverse (Note 12).
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.
29
<PAGE> 30
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and will not require
retroactive restatement of prior period financial statements. This statement
requires the recognition of all derivative instruments as either assets or
liabilities in the balance sheet measured at fair value. Derivative instruments
will be recognized as gains or losses in the period of change. If certain
conditions are met where the derivative instrument has been designated as a fair
value hedge, the hedged item may also be marked to market through earnings thus
creating an offset. If the derivative is designed and qualifies as a cash flow
hedge, the changes in fair value of the derivative instrument may be recorded in
comprehensive income. The Company presently does not make material use of
derivative instruments.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 requires additional
information about the changes in the benefit obligation and fair value of plan
assets during the period, while standardizing the disclosure requirements for
pensions and other postretirement benefits. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 established standards for the
reporting of operating segments in interim and annual financial statements, as
well as requiring related disclosures about products and services, geographic
area and major customers. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
Restatement of prior information, if any, will be made for comparative purposes.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
SFAS No. 132, 131 and 130 expand and modify financial statement disclosures and,
accordingly, will have no impact on the Company's results of operations or
financial position.
In March 1998, the American Institute of Certified Public Accountants issued SOP
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance on accounting for the costs of
computer software developed or obtained for internal use, and is effective for
fiscal years beginning after December 15, 1998, with earlier adoption
encouraged. The Company does not expect the effect of the adoption of this
pronouncement to be material.
3. Merger
On May 9, 1997, Holdings was acquired by Thayer for approximately $149,000. The
purchase price was financed through the issuance of approximately $124,000 of
long-term debt and approximately $25,000 of contributed capital. The proceeds
were used to repay the existing debt, repay the shareholders of Holdings and pay
merger-related fees and expenses. The purchase price exceeded the fair value of
the net assets acquired by approximately $47,800, which is recorded as goodwill
and is being amortized over 30 years. The following unaudited pro forma
information has been prepared assuming the merger had occurred at the beginning
of fiscal 1996. The pro forma information is presented for informational
purposes only and is not necessarily indicative of what would have occurred if
the acquisition had been made as of those dates. In addition, the pro forma
information is not intended to be a projection of future results.
<TABLE>
<CAPTION>
FISCAL YEAR
1997 1996
---- ----
<S> <C> <C>
Interest expense $ 15,392 $ 15,392
Amortization of goodwill 1,405 1,411
Net income (loss) 644 (4,494)
</TABLE>
30
<PAGE> 31
4. Accounts receivable
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
As of As of
September 25, September 26,
1998 1997
---- ----
<S> <C> <C>
Short-term food receivables $ 26,450 $ 28,353
Appliance and accessories receivables 72,270 73,168
-------- --------
Total accounts receivable 98,720 101,521
Less: Allowance for doubtful accounts 8,000 7,536
-------- --------
Accounts receivable-net 90,720 93,985
Noncurrent accounts receivable - net 37,022 36,503
-------- --------
Current accounts receivable - net $ 53,698 $ 57,482
======== ========
</TABLE>
5. Inventories
Inventories, net of allowance for slow moving, excess and obsolete inventory,
consists of the following:
<TABLE>
<CAPTION>
As of As of
September 25, 1998 September 26, 1997
------------------ ------------------
<S> <C> <C>
Food $2,785 $2,635
Appliances, tableware, entertainment products and cookware 1,774 1,903
------ ------
Total $4,559 $4,538
====== ======
</TABLE>
6. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
As of As of
September 25, 1998 September 26, 1997
<S> <C> <C>
Land $ 603 $ 603
Buildings 617 608
Assets under capital leases 4,389 488
Machinery and equipment 741 713
Software 340 337
Furniture and fixtures 4,016 3,059
Delivery equipment 848 782
Automobiles 70 70
Leasehold improvements 377 313
------- -------
Total 12,001 6,973
Less: accumulated depreciation and amortization 2,645 1,068
------- -------
Property, plant and equipment-net $ 9,356 $ 5,905
======= =======
</TABLE>
7. Accrued Expenses
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
As of As of
September 25, September 26, 1997
1998
<S> <C> <C>
Payroll $ 1,866 $ 2,113
Interest 5,294 4,934
Other 9,255 8,144
------- -------
Total $16,415 $15,191
======= =======
</TABLE>
8. Revolver
In connection with the merger discussed in Note 1, the Company entered into a
credit agreement (the "Credit Agreement") with Dresdner Bank AG, as agent, and
certain other financial institutions. The Credit Agreement provides for a
working capital revolver (the "Working Capital Revolver") of $50,000 and has a
final maturity date of April 30, 2002.
The obligations of the Company under the Credit Agreement are guaranteed by CPH.
Each of the Company's subsidiaries were also required to issue a guarantee under
the Credit Agreement, which is secured by first priority perfected security
interests in all the assets of such subsidiary, and CPC pledged the issued and
outstanding capital stock of each such subsidiary owned by CPC to secure
indebtedness under the Credit Agreement.
31
<PAGE> 32
Under the Working Capital Revolver, CPC is entitled to draw amounts subject to
availability pursuant to a borrowing base requirement in order to meet the
Company's working capital requirements. The borrowing base consists of the sum
of certain percentages of (i) eligible food-related and non-food-related
accounts receivable (as defined in the Credit Agreement).
The Working Capital Revolver accrues interest at the Base Rate (as defined in
the Credit Agreement) or LIBOR (as defined in the Credit Agreement) plus, in
each case, the applicable margin. The applicable margin will vary over the term
of the Credit Agreement based on the Company's achievement of specified
financial ratios. As of September 25, 1998 and September 26, 1997, the weighted
average rate of interest was approximately 7.4% and 7.6%, respectively.
The Credit Agreement provides that the Working Capital Revolver will impose
certain covenants and other requirements on the Company. The Credit Agreement
requires the Company to meet certain financial tests, including a minimum fixed
charge coverage ratio, a minimum interest coverage ratio, a maximum leverage
ratio, the maintenance of a minimum net worth and a limitation on capital
expenditures. As of September 25, 1998, the Company was in compliance or had
received waivers for covenants it had violated.
As of September 25, 1998, the Company had drawn $23,416 against the Working
Capital Revolver and had $26,584 in available borrowings. The Credit Agreement
provides that the Company will pay various fees including fees on the unused
portion of the Working Capital Revolver at an annual rate determined pursuant to
the Credit Agreement. For the year ended September 25, 1998, the Company paid
$1,827 in interest and fees.
In connection with the Credit Agreement, the Company incurred approximately
$1,500 of debt issuance costs, which is being amortized over the life of the
Credit Agreement (5 years).
The Company has entered into an interest rate cap agreement with a bank covering
$41,892 of notional principal. The interest rate cap agreement extends for a
term of 30 months from the date of execution and provided coverage when the 30
day rate for commercial paper (as published by the Federal Reserve Schedule
H.15) exceeds 6.5%. The Company utilizes a contingent premium instrument to
execute the cap which provides for fixed monthly payments if the rate exceeds
6.5% during the term of the agreement. The cap had not been utilized as of
September 25, 1998.
9. Senior Unsecured Notes
In connection with the merger discussed in Note 1, the Company issued $100,000
of Senior Unsecured Notes (the "Notes"), which bear interest at 12.5% and mature
in 2004. Interest on the Notes is payable semi-annually in arrears on May 1 and
November 1 of each year, commencing November 1, 1997. The Notes are redeemable
at the option of the Company, in whole or in part at any time on or after May 1,
2002. The redemption price will be equal to 106.250% of the principal amount of
the Notes together with accrued and unpaid interest at any time on or after May
1, 2002 and prior to May 1, 2003, and the redemption price will be equal to
103.125% of the principal amount of the Notes together with accrued and unpaid
interest on or after May 1, 2003. In addition, prior to May 1, 2000, the Company
may redeem up to 35 % of the aggregate principal amount of the Notes with the
net cash proceeds received by the Company or its parent corporation from one or
more offerings of capital stock (other than Disqualified Stock, as defined) at a
redemption price of 112.50% of the principal amount thereof plus accrued and
unpaid interest provided, however, that at least $65,000 in aggregate principal
amount remains after such redemption.
In connection with the issuance of the Notes, the Company incurred approximately
$4,900 of debt issuance costs, which is being amortized over the life of the
Notes (7 years).
The Notes were issued at a discount of approximately $2,000, which is being
accreted using the effective interest method over the life of the Notes. The
Notes were issued in units of $1 which consisted of a principal amount senior
notes and one warrant to purchase .19608 shares of common stock of Holdings.
Based on an estimate of the fair market value of a warrant, $979.87 of the issue
price of a unit was allocated to the note and $8.73 was allocated to the
warrant, the aggregate value of which is part of the discount which is being
accreted. For the year ended September 25, 1998 and the twenty-week period ended
September 26, 1997, $204 and $72, respectively, of discount had been accreted.
32
<PAGE> 33
The Notes impose certain restrictions on the Company, including restrictions on
its ability to incur indebtedness, pay dividends, make investments, grant liens,
sell its assets and engage in certain other activities.
The Notes are guaranteed on a senior unsecured basis by all existing
subsidiaries (there are no non-guarantor subsidiaries) and any future U.S.
subsidiaries of the Company. The guarantees of the subsidiaries are full,
unconditional, joint and several. Summary financial data for Kal-Mar, Concord
and Prime are as follows:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 25, 1998
KAL-MAR CONCORD PRIME
------- ------- -----
<S> <C> <C> <C>
Current assets $ 187 $58,979 $ 12
Non-current assets 869 37,118 --
Current liabilities 89 2,767 --
Non-current liabilities -- 51,078 711
------- ------- -------
Net assets (liabilities) $ 967 $42,252 $ (699)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 25, 1998
KAL-MAR CONCORD PRIME
------- ------- -----
<S> <C> <C> <C>
Net revenues $ 160 $19,843 $ --
Gross profit 160 19,843 --
Income before tax 56 7,960 --
</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 (ii) the data in separate financial statements
other than that presented above would not be material to the investors of the
Notes.
10. Stock Options
In October 1997 and in connection with the merger, the Board of Directors
adopted and the stockholders of CPH approved the 1997 Incentive Stock Option
Plan ("the Plan") pursuant to which key employees of the Company and Directors
are eligible to receive stock options to purchase up to 15% of CPH's common
stock. The plan is administered by the Stock Option Committee of the Board of
Directors of CPH. 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. If an option expires or terminates for any reason
without having been fully vested or exercised, the unissued shares which had
been subject to such option will become available for the grant of additional
options. The option price for all fiscal year 1998 grants was $100, which based
on management's estimate equaled the fair market value of the stock at the date
of grant. Transactions involving the Plan are summarized as follows:
Granted 35,720
Exercised --
Canceled (18,706)
--------
Outstanding at 9/25/98 17,014
At September 25, 1998, 1,316 shares were exercisable and 18,385 shares were
available for grant under the Plan.
The Company accounts for the Plan in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", under which no compensation cost is recognized for stock options
granted with an exercise price at or above the prevailing market price on the
date of grant. Had compensation cost for these plans been determined consistent
with the fair value approach required by SFAS No. 123, "Accounting for Stock
Based Compensation", the Company's net loss would have been the following pro
forma amount:
Net loss: As reported ($3,543)
Pro forma ($3,583)
The fair value of each option grant is estimated on the date of grant using the
minimum value method. The following weighted average assumptions used were as
follows: dividend yield of 0%; expected volatility of 0%; risk-free interest
rate of 5.8%; expected life of 5 years and a fair value of $24.76 per option.
33
<PAGE> 34
11. Pension Plan
The Company maintains a defined contribution pension plan (the "Plan").
Employees who have completed six months of service and have reached the entry
age (twenty and one-half years) are eligible to participate in the Plan. The
Plan provides for 100 percent vesting after seven years of service. The Plan
requires the Company to make annual contributions based upon a variable
percentage of the participant's annual compensation. Forfeitures are created
when participants terminate employment before becoming entitled to their full
benefits under the Plan. Such forfeited amounts are used to reduce the Company's
contributions to the Plan. In addition, the Plan allows for eligible employees
to make voluntary contributions within specified limits. For the year ended
September 25, 1998 and the twenty-week period ended September 26, 1997, pension
expense was approximately $1,063 and $394, respectively.
12. Income Taxes
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year ended Twenty-week period
September 25, ended September 26, 1997
1998
<S> <C> <C>
Current:
Federal $ (939) $ 692
State 110 144
------- -------
(829) 836
------- -------
Deferred:
Federal (518) (578)
State (115) (128)
------- -------
(633) (706)
------- -------
Total $(1,462) $ 130
======= =======
</TABLE>
Significant components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
Deferred tax assets: As of As of
September 25, September 26, 1997
1998
<S> <C> <C>
Allowance for doubtful accounts $ 2,433 $ 2,910
Inventory 123 126
Accrued interest 2,761 642
Accrued expenses and other, net 4,454 3,755
------- -------
9,771 7,433
Deferred tax liabilities:
Depreciation (414) (441)
------- -------
Net deferred tax asset $ 9,357 $ 6,992
======= =======
</TABLE>
A reconciliation between the federal statutory tax rate and the effective rate
is as follows:
<TABLE>
<CAPTION>
Twenty-week
Year ended period ended
September 25, 1998 September 26, 1997
------------------ ------------------
<S> <C> <C>
Federal income tax provision at U.S. (34.0%) (34.0%)
statutory rate
State income taxes, net of federal benefit -- 9.1
Nondeductible goodwill amortization 10.7 138.9
Meals and entertainment 0.9 15.2
All other, net (6.8) 29.1
------ ------
Effective income tax rate (29.2%) 100.10%
====== ======
</TABLE>
34
<PAGE> 35
13. Capital Lease Obligations
The Company has entered into agreements to lease a building and certain
equipment from non-related parties including its new Corporate Headquarters
which the Company occupied in August 1998. 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 25,
1998, are as follows:
Fiscal Years Ending September,
<TABLE>
<S> <C>
1999 $350
2000 453
2001 446
2002 446
2003 453
Thereafter 5,069
-------
Total future minimum lease payments 7,217
Less: amount representing interest 3,296
-------
Present value of future minimum lease payments
(including $145 payable currently) $ 3,921
=======
</TABLE>
14. Commitments and Contingent Liabilities
Future minimum operating lease payments at September 25, 1998 are as follows:
Fiscal Years Ending September,
<TABLE>
<S> <C>
1999 $ 3,318
2000 2,633
2001 1,964
2002 1,438
2003 926
Thereafter 898
</TABLE>
Rent expense for the year ended September 25, 1998 and the twenty-week period
ended September 26, 1997 was $3,231 and $1,217, respectively.
The Company has entered into employment agreements with certain senior
executives, which provide for aggregate base annual salary of $730 plus
performance based incentives. The agreement with the COO is for a three year
term, the others are for one year rolling terms and are renewable.
The Company recorded a charge of approximately $800 in fiscal 1998 for severance
costs in connection with the former CEO pursuant to his employment agreement.
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.
15. Subsequent Events
The Company has approved a change in its fiscal year from the last Friday in
September to a January through December period. The new 1999 fiscal year will
begin on December 26, 1998 and end on December 24, 1999. Fiscal 2000 will be a
53 week year and end December 29, 2000.
Subsequent to the reported period and in view of the results of such period,
the Company's new senior management team undertook an examination of the
Company's operating structure in order to identify opportunities to reduce
operating costs without impacting the products and services the Company
provides its customers. Among the items considered by the Company were a review
of the option to outsource its plant operations and an examination of
administrative processes for possible efficiencies. The Company also examined
its financial reporting obligations for the October to December 1998 quarter in
relation to the change in its fiscal calendar.
As a result, the Company plans to take a restructuring charge in the period
ending December 25, 1998 which may include but not be limited to: (i)transition
plan and plant closing costs associated with entering an outsourcing
contract for its current plant activities, (ii)employee separation costs,
largely related to union negotiations that are not complete, (iii)real estate
expenses associated with changes in operations, and (iv)costs associated with
renegotiating new lending covenants with current lending institutions. The
Company is not yet able to quantify the anticipated amount of the restructuring
charge, the final amount of which will be dependent upon the precise actions
taken in respect of the above-referenced actions. The Company anticipates that
such amounts may total from $3.0 to $6.0 million.
35
<PAGE> 36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Colorado Prime Corporation:
We have audited the accompanying statements of consolidated operations,
stockholder's equity and cash flows of Colorado Prime Corporation (a Delaware
Corporation) and subsidiaries for the thirty-two week period ended May 9, 1997
and the fiscal year 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 results of operations and cash flows of Colorado
Prime Corporation and subsidiaries for the thirty-two week period ended May 9,
1997 and the fiscal year ended September 27, 1996 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Melville, New York
November 26, 1997
36
<PAGE> 37
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Operations
(Dollars in Thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
32 WEEK ENDED
PERIOD ENDED SEPTEMBER 27,
MAY 9, 1997 1996
<S> <C> <C>
Product sales $ 85,510 $ 142,651
Finance income earned 8,637 12,792
--------- ---------
Total revenue 94,147 155,443
Cost of goods sold 32,949 56,387
--------- ---------
Gross profit 61,198 99,056
--------- ---------
Other costs and expenses:
Selling, general and
administrative 48,749 80,901
Amortization of goodwill 713 1,164
Interest expense 5,713 9,130
Other expense 426 7,089
--------- ---------
Total costs and expenses 55,601 98,284
--------- ---------
Income before provision
for income taxes 5,597 772
Provision for income taxes 2,414 1,262
--------- ---------
Net income (loss) $ 3,183 $ (490)
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
37
<PAGE> 38
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Stockholder's Equity
For the year ended
September 27, 1996 and the thirty-two week period ended
May 9, 1997
(Dollars in Thousands, except share data)
<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 29, 1995 1,000 $ -- $ 55,120 $(10,842) $ 44,278
Reversal of prior year accrued
dividend -- -- -- 900 900
Payment of dividend to Holdings -- -- -- (190) (190)
Net return of capital to Holdings -- -- (3,829) -- (3,829)
Net loss -- -- -- (490) (490)
-------- -------- -------- -------- --------
Balance at September 27, 1996 1,000 -- 51,291 (10,622) 40,669
Net income -- -- -- 3,183 3,183
-------- -------- -------- -------- --------
Balance at May 9, 1997 1,000 $ -- $ 51,291 $ (7,439) $ 43,852
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE> 39
Colorado Prime Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
32 WEEK YEAR ENDED
PERIOD ENDED SEPTEMBER
MAY 9, 1997 27, 1996
----------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,183 $ (490)
-------- --------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,992 3,661
Amortization of deferred loan costs 300 611
Deferred income taxes 845 (337)
Provision for doubtful accounts 3,073 5,280
Change in operating assets and liabilities:
Accounts receivable (6,225) (11,554)
Inventories-net (747) 587
Prepaid expenses and other current assets (77) (274)
Other assets (33) 232
Accounts payable (1,560) 909
Accrued expenses (232) (859)
Other liabilities 37 869
Income and other taxes payable 1,407 (906)
-------- --------
Total adjustments (1,220) (1,781)
-------- --------
Net cash provided by (used in) operating
activities 1,963 (2,271)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investments in property,
plant and equipment (580) (1,958)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in notes payable (1,051) 2,426
Decrease in capital lease obligations (258) (547)
Decrease in loan payable to affiliate -- (25,000)
Issuance of senior notes payable -- 34,508
Payment of dividend -- (190)
Payment of fees related to debt refinancing -- (3,253)
Net return of capital to Holdings -- (3,829)
-------- --------
Net cash (used in) provided by financing
activities (1,309) 4,115
NET INCREASE (DECREASE) IN CASH 74 (114)
CASH, BEGINNING OF PERIOD 1,716 1,830
-------- --------
CASH, END OF PERIOD $ 1,790 $ 1,716
======== ========
</TABLE>
Supplemental Disclosure of Cash Flow Information
Income tax payments totaled approximately $496 and $2,490 for the thirty-two
week period ended May 9, 1997 and fiscal 1996, respectively.
Interest payments totaled approximately $5,534, and $9,138 for the thirty-two
week period ended May 9, 1997 and fiscal 1996, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
39
<PAGE> 40
Colorado Prime Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands)
1. Company Background
Colorado Prime Corporation (the "Company") is a wholly-owned subsidiary of KPC
Holdings Corporation ("Holdings"). Holdings is owned by KPC Acquisition Co.
L.P., a partnership which includes Kohlberg Associates L.P. ("Kohlberg") as the
general and controlling partner. The Company is a leading direct marketer of
high quality, value-added food programs and products related to in-home dining
and entertainment.
The accompanying consolidated financial statements give effect to the
acquisition of Holdings by Kohlberg in 1989. The excess of the aggregate
purchase price over the fair value of the net assets acquired, after recording
purchase adjustments to adjust the carrying value of the Company's assets and
liabilities to fair value (substantially related to fixed assets and deferred
income taxes), was recorded as goodwill.
Effective May 9, 1997, the Company was acquired by Thayer Equity Investors III,
L.P., in a transaction that resulted in a new basis of accounting.
2. Summary of Significant Accounting Policies
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.
Company's Year-End
The Company's fiscal year ends on the last Friday of September. The financial
statements for 1996 and 1995 contain fifty-two weeks. The financial statements
for the period through the acquisition on May 9, 1997 contain 32 weeks.
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.
Accounts Receivable
The term of accounts receivable related to food sales is less than one year. The
term of accounts receivable related to appliance sales is generally greater than
one year. As a result, the financial statements reflect a current and noncurrent
portion of these accounts receivable. The Company's customers are families and
individuals located throughout the United States, resulting in no significant
concentration of credit risk. Management closely monitors the aging of the
accounts receivable balances and reserves for account balances and discontinues
the accrual of finance charges on accounts based upon pre-established criteria.
40
<PAGE> 41
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. 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:
Category Useful Life
-------- -----------
Buildings 17-25 years
Assets under capital leases 5-14 years
Machinery and equipment 5-8 years
Software 7 years
Furniture and fixtures 5-8 years
Delivery equipment 4-8 years
Automobiles 4 years
Leasehold improvements 5-19 years
Goodwill
Goodwill is amortized using the straight-line method over forty years. Goodwill
is reviewed for impairment based upon estimated undiscounted future cash flows
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, measured by the enacted rates that are expected to be in effect when
those differences reverse (Note 5).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
presentation.
3. Related Party Transactions
During fiscal 1996, the Company paid interest of $600 on $25,000 aggregate
principal amount of its 11.5% Senior Subordinated Notes due May 17, 1998 to KPC
Acquisition Company L.P. ("KPC"). KPC, the controlling shareholder of Holdings,
purchased the Notes as part of a series of transactions resulting from the
purchase of Holdings. These Notes were repaid on December 20, 1995.
4. Pension Plan
The Company maintains a defined contribution pension plan (the "Plan").
Employees who have completed six months of service and have reached the entry
age (twenty and one-half years) are eligible to participate in the Plan. The
Plan provides for 100 percent vesting after seven years of service. The Plan
requires the Company to make annual contributions based upon a variable
percentage of the participant's annual compensation. Forfeitures are created
when participants terminate employment before becoming entitled to their full
benefits under the Plan. Such forfeited amounts are used to reduce the Company's
contributions to the Plan. In addition, the Plan
41
<PAGE> 42
allows for eligible employees to make voluntary contributions within specified
limits. Pension expense was approximately $615 and $908 for the thirty-two week
period ended May 9, 1997 and the fiscal year ended September 27, 1996,
respectively.
5. Income Taxes
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
32 WEEK YEAR ENDED
PERIOD ENDED SEPTEMBER 27,
MAY 9, 1997 1996
----------- ----
<S> <C> <C>
Current:
Federal $ 1,419 $ 1,301
State 150 299
--- ---
1,569 1,600
----- -----
Deferred:
Federal 692 (277)
State 153 (61)
--- ---
845 (338)
--- ----
Total $ 2,414 $ 1,262
=========== ==========
</TABLE>
A reconciliation between the federal statutory tax rate and the effective rate
is as follows:
<TABLE>
<CAPTION>
32 WEEK
PERIOD ENDED YEAR ENDED
MAY 9, SEPTEMBER 27,
1997 1996
---- ----
<S> <C> <C>
Federal income tax provision at U.S. 34.0% 34.0%
statutory rate
State income taxes, net of federal benefit 3.6 25.6
Nondeductible goodwill amortization 4.7 51.3
Nondeductible compensation -- 51.8
Meals and entertainment 0.5 5.4
All other, net 0.3 (4.7)
--- ----
Effective income tax rate 43.1% 163.4%
==== =====
</TABLE>
6. Commitments and Contingencies
Rent expense for the thirty-two week period ended May 9, 1997 and fiscal 1996
was approximately $1,864 and $3,040, respectively. The Company expensed $1,698
in fiscal 1996 to record estimated losses on unused office and warehouse space.
42
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Colorado Prime Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheet of Colorado Prime Corporation and subsidiaries as of
September 25, 1998 and September 26, 1997, and the related statements of
consolidated operations, stockholder's equity and cash flows for the twenty-week
period ended September 26, 1997 included in this Annual Report on Form 10-K, and
have issued our report thereon dated December 2, 1998. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The accompanying schedule is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Melville, New York
December 2, 1998
43
<PAGE> 44
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
COLORADO PRIME CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------- ---------- ----------- -------------- -----------
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COST AND BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) END OF PERIOD
- ----------- ----------------------- ------------------------------
<S> <C> <C> <C> <C>
For the twenty-week period ended September
26, 1997
Allowance for Doubtful Accounts $ 7,275 $ 3,017 $ (2,756) $ 7,536
Year ended September 25, 1998
Allowance for Doubtful Accounts $7,536 $8,202 (7,738) $8,000
</TABLE>
(1) Write-offs, net of recovery of amounts previously written off.
44
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Colorado Prime Corporation:
We have audited, in accordance with generally accepted auditing standards, the
statements of consolidated operations, stockholder's equity and cash flows of
Colorado Prime Corporation and subsidiaries for the thirty-two week period ended
May 9, 1997 and the fiscal year ended September 27, 1996 included in this Annual
Report on Form 10-K and have issued our report thereon dated November 26, 1997.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Melville, New York
November 26, 1997
45
<PAGE> 46
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
COLORADO PRIME CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------- ---------- ----------- -------------- -----------
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COST AND BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) END OF PERIOD
- ---------------------------------------- ----------------------- ------------------------------
<S> <C> <C> <C> <C>
For the thirty-two week period ended May
9, 1997
Allowance for Doubtful Accounts $7,444 $ 3,073 $(3,242) $ 7,275
Year ended September 27, 1996
Allowance for Doubtful Accounts $7,336 $ 5,280 $(5,172) $ 7,444
</TABLE>
(1) Write-offs, net of recovery of amounts previously written off.
46
<PAGE> 47
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3.1. Certificate of Incorporation of CPC, with Amendments. (1)
3.2. Bylaws of CPC, as amended. (1)
3.3. Certificate of Incorporation of Kal-Mar Properties Corp., with
Amendments. (1)
3.4. Bylaws of Kal-Mar Properties Corp., as amended. (1)
3.5. Certificate of Incorporation of Concord Financial Services, Inc., with
Amendments. (1)
3.6. Bylaws of Concord Financial Services, Inc., as amended. (1)
3.7. Certificate of Incorporation of Prime Foods Development Corporation,
with Amendments. (1)
3.8. Bylaws of Prime Foods Development Corporation, as amended. (1)
4.1. Indenture for the Notes dated as of May 9, 1997 among CPC, the
Subsidiary Guarantors and The Bank of New York, as Trustee (including
form of Note). (1)
9.0 Agreement between CPC and Local 210, Warehouse and Production Employees
Union, AFL-CIO, CLC.
10.1. Exchange Agent Agreement between CPC and The Bank of New York, as
Exchange Agent. (1)
10.2. Stock Option Plan of CPH. (1)
10.3. Stock Purchase Agreement between CPH and certain executive officers.
(1)
10.4. Shareholders' Agreement between CPH and certain executive officers. (1)
10.5. Employment Agreement between CPC, CPH and William F. Dordelman. (1)
10.6. Employment Agreement between CPC, CPH and Ricardo DeSantis. (1)
10.7. Employment Agreement between CPC, CPH and Thomas S. Taylor. (1)
10.8 Employment Agreement between CPC, CPH and Matthew Burris.
10.8.1 Employment Agreement between CPC, CPH and Paul Roman.
10.9. Lease dated September 1, 1983 between Thrift-Pak Food Service, Inc.,
and Masciandaro, Kalpakjian & Masciandaro Co., and Sublease dated
October 15, 1984 between Colorado Prime, Inc., formerly known as
Thrift-Pak Food Service, Inc., and Masciandaro, Kalpakjian &
Masciandaro Co., regarding the space at One Michael Avenue,
Farmingdale, New York. (1)
10.10. Lease dated November 1, 1985 between Colorado Prime (Florida), Inc.,
and Kalpakjian, Masciandaro and Masciandaro Partnership and Amendment
to Lease dated December 26, 1986, regarding the office, warehouse and
vehicle repair depot in Pompano Beach, Florida. (1)
10.11. Credit Agreement among CPC, the institutions party thereto as Lenders
and Dresdener AG, New York and Cayman Branches, as the Agents, dated
May 9, 1997, with Amendment No. 1 dated as of May 9, 1997. (1)
10.12 Lease dated September 18, 1997 between CPC and Blumenfeld Development
Group, Ltd. regarding the headquarters property located at 500
Bi-County Boulevard, Farmingdale NY. (1)
10.13 Amendment No. 2 dated as of October 9, 1997 to Credit Agreement among
CPC, the institutions party thereto as Lenders and Dresdner AG, New
York and Cayman Branches, as the Agents, dated May 9, 1997. (1)
10.14 Amendment No. 3 dated as of December 11, 1997 to Credit Agreement among
CPC, the institutions party thereto as Lenders and Dresdner AG, New
York and Cayman Branches, as the Agents, dated May 9, 1997. (1)
10.14.1 Waiver dated as of September 25, 1998 to Credit Agreement among CPC,
the institutions party thereto as Lenders and Dresdner AG, New York
and Cayman Branches, as the Agents, dated May 9, 1997.
10.15 Form of Stock Option Agreement of CPH. (1)
21. List of subsidiaries of the Company. (1)
24. Power of Attorney. (1)
24.1 Power of Attorney
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27. Financial Data Schedule.
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(1) Incorporated by reference to Form 10-K for the fiscal year ended
September 26, 1997.
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Exhibit 9.0
AGREEMENT made effective as of the 2nd day of October, 1998 by and between
COLORADO PRIME CORPORATION, hereinafter designated as the "Employer" , and Local
210, Warehouse & Production Employees Union, AFL-CIO, CLC, hereinafter
designated as the "Union".
IN CONSIDERATION of the promises and of the mutual and reciprocal promises
herein made and obligations herein assumed, as more fully hereinafter set forth,
the parties agree as follows:
FIRST: The Employer recognizes the Union as the sole collective
bargaining agent for all employees in its employ, excluding executives,
supervisors, office clerical personnel, and armed guards. Whenever the word
"employees" is used in this Agreement, it shall be deemed to refer to all such
employees, whether or not they are members of the Union. As a condition of
continued employment, all employees shall become and remain members of the Union
in good standing after they have completed thirty-one (31) days of probationary
employment or thirty-one (31) days after the execution of this Agreement,
whichever is later, provided, however, that no employee shall be removed from
their employment under this paragraph so long as he/she continues to tender
uniform dues and initiation fees to the Union after such thirty-one (31) day
period. Any employee who fails to maintain their membership to the extent of not
paying uniform dues and initiation fees after such thirty-one (31) day period
shall be discharged by the Employer immediately upon notification from the Union
in person or in writing.
SECOND: The Employer agrees that authorized representatives of the
Union shall be permitted to enter the Employer's place of business at any time
for the adjustment of disputes, grievances or any other matter that may require
their presence.
THIRD: The work week of all employees, excluding drivers, shall
consist of five (5) days, Monday through Saturday, and no more than eight (8)
hours per day and no more than forty (40) hours per week. Overtime beyond forty
(40) hours in any week or for hours worked on the sixth (6th) day shall be
compensated for at the rate of time and one-half the employee's regular hourly
rate. Sunday shall be compensated for at the rate of double the employee's
regular hourly rate. The work week for drivers shall consist of four (4) ten
(10) hour days. Tuesday through Saturday, four (4) late starts per depot with
four (4) days notice. All drivers hired after October 1, 1995, for first three
years, guarantee 40 hours time-in/time-out. Overtime beyond forty (40) hours in
any week or for hours worked on the fifth (5th) day shall be compensated for at
the rate of time and one-half the driver's regular hourly rate.
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FOURTH: The Employer shall deduct from the employee in payment of
uniform membership dues and initiation fees and make such deductions from the
first payroll in each month and transmit all such funds deducted no later than
the 10th day of each month. All funds deducted from the employee's pay for the
payment of such dues and initiation fees shall be held in trust by the Employer
and shall be considered at all times the property of the Union and shall not be
commingled with the Employer's funds, provided, however, that prior to making
such deductions, the Employer has received from each employee on whose account
such deductions are made a written assignment, which shall be irrevocable for
not more than one (1) year or beyond the termination date of this Agreement,
whichever occurs sooner, and which may contain a clause that such assignment be
automatically renewed for additional periods of one (1) year, unless the
employee shall terminate such assignment in writing within thirty (30) days
prior to the expiration date thereof.
FIFTH: No employee shall be discharged, suspended, laid off, or
furloughed except for good and sufficient cause. In the event an employee is
proven to have committed an act amounting to dishonesty or criminal negligence,
the Employer may summarily discharge such employee. Layoffs shall be made in
accordance with seniority where possible and recalls shall be made in accordance
with seniority where possible.
SIXTH: Should any dispute arise concerning the application,
interpretation, effect, purpose or breach of any terms or conditions of this
Agreement; or in the event that there shall exist any claims, demand, dispute or
controversy between the parties hereto, including but not limited to a demand or
dispute arising out of a proposed addition, deletion or modification of this
Agreement, the parties hereto shall first attempt to settle and adjust such
dispute, claim, demand or controversy by negotiation. In the event that said
dispute, claim, demand or controversy shall not be completely settled and
adjusted within then (10) days after it has risen, the parties agree to submit
the question, including any damages that have been suffered, to arbitration in
the following manner:
- The New York State Employment Relations Board, upon request of either
party hereto, designate the Arbitrator who shall conduct a hearing in
such a manner as he/she shall consider proper, and serve as sole
arbitrator of the dispute between the parties. The Arbitrator shall
have the right to conduct an ex parte hearing in the event of the
failure of either party to be present at the time and place designated
for the arbitration, and shall have the power to render a decision on
the testimony before him/her at such hearing. The decision of the
Arbitrator shall be final and binding upon both parties and may be
entered as a final decree or judgment in the Supreme Court of the State
of New York. The costs of arbitration, including the Arbitrator's fee,
shall be borne equally by the Employer and the Union. It is the intent
of the parties hereto that all disputes between them, both within and
outside the Agreement, shall be submitted to arbitration and that no
technical defense to prevent the holding of the arbitration shall be
permitted.
SEVENTH: All employees covered by this Agreement shall
receive vacation pay in accordance with the following schedule:
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A. Employees employed as of October 1, 1995.
Length of service Vacation with Pay
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One (1) year but less than ten (10) years- Two (2) weeks.
Ten (10) years or more- Three (3) weeks.
Seventeen years (17) or more- Four (4) weeks.
B. Employees employed after October 1, 1995.
LENGTH OF SERVICE - SEE ADDENDUM II
One (1) year but less than three (3) years- One (1) week.
Three (3) years but less than ten (10) years- Two (2) weeks.
Ten (10) years or more- Three (3) weeks.
Seventeen years or more- Four (4) weeks.
C. Following each employee's anniversary the employee is entitled to either one
(1) week, two (2) weeks, three (3) weeks or four (4) weeks vacation. The
employees shall be notified by the Employer three (3) months in advance
before closing for vacation.
D. The first week in February the Employer shall post a notice for all those
employees with a third and fourth week of vacation. Each employee, must put in
writing by the first week in March their request for the third and fourth week
he/she will request as their vacation. If more than one employee requests the
same week seniority shall prevail.
EIGHTH: All employees shall receive pay for the legal holidays
listed below, whether or not they are scheduled to work on such holiday. Work
performed on such holiday shall be compensated for at time and one-half the
employee's regular rate in addition to holiday pay:
New Year's Day Labor Day
Washington's Birthday Thanksgiving Day
Memorial Day Christmas Day
July 4th
Employees must work the day before and the day after a holiday in order to be
eligible for holiday pay, unless the employee has a legitimate documented
excuse.
Additional days off which employees are entitled to are:
One Personal Day (no restrictions)
Employee's Birthday *
One Personal Day (after twelve (12) months employment)
Employee's anniversary (starting date) after five (5) years
employment
Day-After Thanksgiving- All employees are to get one-half hour
of extra break time with pay.
- Employees must give thirty (30) days notice of an upcoming Birthday.
NINTH: All employees shall receive two (2) fifteen (15) minute
rest periods with pay daily.
All employees shall receive five (5) minutes wash-up time before
lunch with pay daily.
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TENTH: This contract shall not take effect until it is
approved and executed by an authorized officer of the Union. No term, condition
or provision of this Agreement may be modified or changed, except in writing by
both parties.
ELEVENTH: Should the Employer fail to meet promptly the
financial obligations under the terms of this Agreement, or breach any term or
condition thereof, the Union reserves the right to demand that the Employer post
cash security or a bond in a reasonable sum, to assure the faithful performance
of this Agreement.
TWELFTH: All good conditions, customs, and privileges enjoyed
by the employees prior to the execution of this Agreement shall continue in full
force and effect without suspension or interruption as though they were actually
enumerated within.
THIRTEENTH: This Agreement and all of the conditions and terms
thereof shall be binding upon the Employer and upon each partner of the
Employer, if such Employer is a partnership, and upon each individual member of
the Employer, if the Employer is a corporation, and shall also be binding upon
and govern the working conditions and terms of employment in any new or future
acquired establishment that the Employer or any partner or member of the
Employer shall acquire, conduct or maintain during the term of this Agreement.
The Employer will not move his plant, or any part thereof, outside the city
limits, during the term of this Agreement, bit may open distribution centers
outside the city limits.
FOURTEENTH: There shall be no strike by the Union or lockout
by the Company during this Agreement or while negotiations are in process for
the renewal of this Agreement.
FIFTEENTH: All employees covered by this Agreement and
continuously employed by the Employer for three (3) months shall receive two (2)
sick days with pay. All employees covered by this Agreement and continuously
employed by the Employer for six (6) months shall receive two (2) additional
sick days with pay. All employees covered by this agreement and continuously
employed by the Employer for nine (9) months or more shall receive two (2)
additional sick days with pay. If the allotted six (6) days are not taken or any
portion thereof, it shall be paid for by the Employer at the employee's
anniversary date at the rate of time and one-half per hour. All employees
covered by the Agreement and continuously employed by the Employer for one (1)
year or more shall receive an additional four (4) days on their anniversary
date. Total of ten (10) days.
SEE ADDENDUM II
SIXTEENTH: After twelve (12) months of employment, employees
shall be entitled to three (3) days off when death occurs in their immediate
family, namely father, mother, sister, brother, spouse, children, mother-in-law,
and father-in-law. Employee shall submit proof of such death upon request.
SEVENTEENTH: The Union may elect or select shop stewards from
amongst the employees, who shall maintain top seniority, and such shop steward
shall have the authority to report grievances and violations of the contract to
the Union. No shop steward shall have the right to call any strike, stoppage or
cessation of work. The duty of the Union in the event that a shop steward so
transcends their authority shall be limited to ordering the employees to return
to work after notice from the Employer. The shop steward shall have the right to
discuss grievances or perform such other duties as the Union may require during
working hours.
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EIGHTEENTH: All employees shall receive a wage increase of
fifty-two (.52) cents of their hourly rate on October 2, 1998. The minimum
starting salary for employees shall be $5.50 per hour. New employees shall
receive a wage increase of fifty cents ($0.50) per hour after thirty (30) days.
Each employee shall receive, during the first year of this Agreement, the wage
set forth below and made a part hereof. The fact that the employee's name is not
on such schedule shall not indicate that such employee is not within the
bargained unit, and the Union reserves the right to negotiate a wage schedule
for each employee in the establishment at any time.
Minimum salary for any Union employee on the payroll as of October 2, 1998 shall
be $240.00 per week.
NINETEENTH: This Agreement shall become effective from the date of
execution hereof and shall remain effective and binding upon the parties hereto,
their heirs, successors, assignees, for a period of one (1) year, and shall
automatically continue thereafter for annual periods. Should either party desire
to terminate this Agreement, notice thereof shall be given by registered mail to
the other party at least ninety (90) days prior to each expiration date.
However, either party may notify the other in writing at least thirty (30) days
prior to the renewal date to the desire to renegotiate or alter any of the
clauses of this agreement.
TWENTIETH: Temperatures- Temperature in the Meat Cutting
Department to be regulated by government standards.
TWENTY-FIRST: Should the Employer decide to change the working
hours, he shall give two (2) weeks notice to the employees affected.
Driver's starting time by seniority.
TWENTY-SECOND: It is agreed by the parties herein to the formation
of a Grievance Committee. Such Grievance Committee should be notified before any
discharge or suspension takes place.
TWENTY-THIRD: The Employer shall provide for all freezer employees
boots, jackets, and pants; thereafter the Employer shall supply every twelve
(12) months boots, and every eighteen (18) months jackets and pants for all the
employees in the Freezer Department. The Employer shall also provide boots and
rainwear for all employees in the Clean-Up Department every eighteen (18)
months. The Employer shall provide rainwear and weight belts to all drivers.
Overnight driver food allowance- $23.00 per day.
TWENTY-FOURTH: Any employee on disability or workers' compensation
shall be guaranteed their job up to twelve (12) months, providing that the
employee can satisfactorily perform their duties for the next job opening.
TWENTY-FIFTH: Any employee called into work on the sixth (6th) day
of the work week shall be guaranteed four (4) hours work.
TWENTY-SIXTH:
1. Employees retained beyond the probationary period shall be considered
permanent employees and receive seniority from the start, unless the
Employer notifies the Union that they are temporary employees.
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2. In the reduction or restoration of the working force, the rule to be
followed shall be the longevity of the employees with the Employer,
qualified only by the ability and experience of the senior employee to
perform the available work in a satisfactory manner. Seniority shall be
applied on a classification basis. Temporary layoffs and recalls shall
be within the occupation affected.
3. Seniority shall cease under the following conditions:
A. When an employee quits or resigns his position
B. When an employee is discharged for just cause
C. When an employee is laid off and fails to return to work within
three (3) days after receiving notice of recall by mail, telephone
or telegram addressed to the last known address of said employee.
D. When an employee is absent for three (3) days without excuse
acceptable to the Employer.
E. When an employee does not work for a period exceeding one (1)
year.
TWENTY-SEVENTH: Overtime shall only commence after forty (40)
hours, unless an employee has a legitimate documented excuse. Overtime will be
distributed on an equal basis, rotated fairly, and without discrimination in all
departments, except for the Leadmen.
TWENTY-EIGHTH: Merit raises will be given to all employees in
consideration for outstanding performance and achievement by that individual.
They must be recommended by the immediate supervisor, with the approval of the
Shop Steward. There shall be a review every six (6) months for merit increases.
TWENTY-NINTH: All warning letters shall be null and void after
twelve (12) months.
THIRTIETH: The company shall pay the difference between jury duty
pay and the employee's regular wage for employees serving on jury duty. A note
will be required form the courts stating how much time was served by an employee
upon his return to work.
THIRTY-FIRST: Employees shall be given five (5) minutes clean-up
time and the end of the work shift. Drivers shall be given thirty (30) minutes
each day for write-up time.
THIRTY-SECOND: Within thirty (30) days of the signing of this
agreement, the Company shall submit to the Union a review of Workers'
Compensation and Disability.
THIRTY-THIRD: It is hereby agreed between the respective parties
that commencing with the effective date of this Agreement, the Employer shall
contribute to the Unity Welfare Fund each and every month the sum of
$_____________ * for each employee who is employed within the bargaining unit,
commencing with the thirty-first day of employment of such employee and
regardless of whether such employee is a member of the Union and regardless of
the number of hours worked in the week, shall submit to the Union a list of the
employees for whom such payments are made, together with the Social Security
numbers of each employee. Vacations with pay and time off due to accident,
illness or other disability shall all be deemed time employed within the meaning
of this provision. In the event that an employee is out sick, the Employer
agrees to continue to pay the Fund for a period of three (3) months starting
with the first day of illness. The Employer, at its discretion, may request and
the employee shall be required to submit verification of illness. The payroll
records or other pertinent data upon which
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such payments are based shall be open for inspection by the Fund on demand. Such
payments shall be paid directly to the Unity Welfare Fund and held subject to
the provisions of a Trust Indenture effective 12/1/61, and any amendments,
changes or additions thereto. The union, as the representative of the employees,
and the Employers shall be equally represented in the administration of such
Fund. In the event the Employer and employee groups deadlock on the
administration of such fund, the two groups shall agree on an impartial umpire
to decide such a dispute, or in the event of their failure to agree within a
reasonable length of time an impartial umpire to decide such dispute shall, on
petition of either group, be appointed to the United States District Court for
the district where the Trust has its principal office. The Trustees shall make
provisions for an annual audit of the Trust Fund, a statement of the results of
which shall be available for inspection by interested persons at the principal
office of the Trust Fund and at such other places as may be designated by the
Trustees.
The Fund shall be used for the purpose of purchasing insurance, welfare and
similar benefits for employees employed by the Employer and employees employed
by all other employers similarly situated and their families, and the reasonable
administrative expense of the Fund, and shall be disbursed by the Trustees
pursuant to said Trust Indentures and the rules and regulations adopted
thereunder. The Employer shall have no right, title or interest in and to the
said Fund for the administration thereof. No individual employee or member of
the Union shall have any right, title or interest in or claim against said fund,
or any part thereof, or any insurance or other benefit provided thereunder
except as prescribed by the rules, regulations and provisions established or
adopted as aforesaid. The discretion of the Trustees as to the administration
and use of the Trust Fund shall be final and conclusive.
In the event that the Employer fails to promptly remit the amounts herein
above mentioned per employee per month for more than a period of one (1)
month, the Employer shall then be liable for all collection costs and legal
fees incurred by the Union or by the Trustees of the Fund for the collection
of such sums.
* SEE ADDENDUM I
THIRTY- FOURTH: Notwithstanding anything to the contrary herein
contained, in the event the Employer fails to remit the dues deducted from the
employee' s wages or the contributions to the Unity Welfare Fund, as herein
provided, the Union may deem it a breach of contract and shall have the right to
call a work stoppage without notice and the Employer shall further be liable to
all employees for the monies lost in salary and benefits, as liquidated damages,
as the result of said work stoppage. In all suits and / or proceedings for the
recovery of Employer contributions for dues, initiation fees, welfare payments,
pension payments or any other payments due, the Employer shall be liable not
only for the contribution or other payments which may be due, but also for all
expenses incurred in the collection thereof, including interest of six percent
(6%) from the date of the initial indebtedness, plus reasonable attorney's fees,
and all arbitration costs, including the full fees and charges of the
Arbitrator.
THIRTY-FIFTH: At the expiration of each contract period during the
term of this Agreement, the Union shall have the right to reopen the contract in
order to renegotiate wages and other benefits for all employees. Should the
parties fail to agree upon such reopening, then any issue in dispute shall be
submitted to arbitration in accordance with the procedure set forth in Paragraph
SIXTH above. The right to reopen shall not be waived by failure to give notice
under this clause and any agreement reached upon such reopening, no matter when
had, shall be retroactive to the anniversary date of this Agreement.
COLORADO PRIME CORPORATION LOCAL 210, WAREHOUSE &
PRODUCTION EMPLOYEES UNION
AFL-CIO, CLC
- ---------------------------------- ---------------------------------
SIGNED DATE SECRETARY-TREASURER DATE
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ADDENDUM I
UNITY WELFARE FUND CONTRIBUTION
A. EFFECTIVE 10/2/98-
A. EMPLOYEES EMPLOYED AS OF OCTOBER 2, 1992-
i. For Dependent coverage the Employer will contribute seventy-four
dollars and seven cents ($74.07) per week, and the employee will
contribute eight dollars ($8.00) per week. For a month encompassing
four (4) weeks, the total is three hundred twenty-eight dollars and
forty cents ($328.40). For a month encompassing five (5) weeks, the
total is four hundred ten dollars and fifty cents ($410.50).
ii. For single coverage, the Employer will contribute twenty-five dollars
and sixty-seven cents ($25.67) per week and the employee will
contribute six dollars ($6.00) per week. For a month encompassing four
(4) weeks, the total is one hundred twenty-six dollars and sixty-eight
cents ($126.68). For a month encompassing five (5) weeks, the total is
one hundred fifty-eight dollars and thirty-five cents ($158.35).
B. EMPLOYEES HIRED AFTER OCTOBER 2, 1992 AND BEFORE OCTOBER 2, 1995-
i. For Dependent coverage, the Employer will contribute sixty-nine
dollars and ten cents ($69.10) per week and the employee will
contribute thirteen dollars ($13.00) per week. For a month
encompassing four (4) weeks, the total is three hundred twenty-eight
dollars and forty cents ($328.40). For a month encompassing five (5)
weeks, the total is four hundred ten dollars and fifty cents
($410.50).
ii. For single coverage, the Employer will contribute twenty dollars and
sixty-seven cents ($20.67) per week and the employee will contribute
eleven dollars ($11.00) per week. For a month encompassing four (4)
weeks, the total is one hundred twenty-six dollars and sixty-eight
cents ($126.68). For a month encompassing five (5) weeks, the total is
one hundred fifty-eight dollars and thirty-five cents ($158.35).
C. EMPLOYEES HIRED AFTER OCTOBER 2, 1995-
i. For Dependent coverage, the Employer will contribute sixty-two dollars
and ten cents ($62.10) per week and the employee will contribute
twenty dollars ($20.00) per week. For a month encompassing four (4)
weeks, the total is three hundred twenty-eight dollars and forty cents
($328.40). For a month encompassing five (5) weeks, the total is four
hundred ten dollars and fifty cents ($410.50).
ii. For single coverage, the Employer will contribute fifteen dollars and
sixty-seven cents ($ 15.67) per week and the employee will contribute
sixteen dollars ($16.00) per week. For a month encompassing four (4)
weeks, the total is one hundred twenty-six dollars and sixty-eight
cents ($126.68). For a month encompassing five (5) weeks, the total is
one hundred fifty-eight dollars and thirty cents ($158.30).
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B. SECTION 125 OF EMPLOYEE CONTRIBUTIONS
Employee contributions towards the cost of insurance benefits
shall be deducted from Pre-Tax earnings in accordance with Section 125 of the
Internal Revenue Code.
C. WAIVER OF COVERAGE
Employees may waive coverage. To be effective, waivers must be in
writing and must be given voluntarily. No contributions shall be made on
behalf of employees who waive coverage. After waiving coverage, employees
may resume participation in the health insurance program only upon
presentation of evidence of good health.
D. CHANGE OF STATUS
An employee who desires to change his status from single to
dependent coverage must request the same in writing. Any such request will
become effective six (6) months after the Employer receives it. The Employer
shall have the right to require proof of marital status before allowing a change
to dependent coverage.
E. COVERAGE DURING ABSENCE FROM WORK
Employee eligibility shall continue and the Employer shall
continue to make contributions on behalf of employees during periods of paid
leave pursuant to this Agreement, provided that the employee continues to make
all required contributions during such periods of paid leave. Employee
eligibility shall continue and the Employer shall continue to make contributions
on behalf of employees during periods of unpaid leave due to accident, illness
or disability for a period of up to three (3) months starting with the first day
of absence due to accident, illness or other disability, provided that the
employee continues to make all required contributions during such periods of
unpaid leave, and provided further that the Employer shall have the right to
require any employee to submit verification of accident, illness or other
disability as a condition for continued eligibility hereunder.
COLORADO PRIME CORPORATION WAREHOUSE & PRODUCTION
EMPLOYEES UNION- LOCAL 210
AFL-CIO, CLC
- -------------------------------- ------------------------------
SIGNED DATE SECRETARY-TREASURER DATE
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ADDENDUM II
VACATION OPTION
Employees with greater than one (1) but less than three (3) years of employment
will have the option of having two (2) weeks vacation and eight (8) sick days,
annually, or one (1) week's vacation and ten (10) sick days annually.
COLORADO PRIME CORPORATION WAREHOUSE & PRODUCTION
EMPLOYEES UNION- LOCAL 210
AFL-CIO, CLC
- -------------------------- ----------------------------
SIGNED DATE SECRETARY-TREASURER DATE
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CHANGES TO UNION CONTRACT FOR TRAILER DRIVERS
1. $.01 PER MILE INCREASE EACH YEAR OF THE CONTRACT
2. $1.00 PER STOP INCREASE
3. ALLOW TRAILER DRIVERS TO JOIN THE 401K PLAN
4. BASE VACATION ON LAST YEARS ANNUAL SALARY DIVIDED BY 52 WEEKS
5. SCHEDULE OVER THE ROAD RUNS 1 MONTH IN ADVANCE
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AMENDMENT
UNION TRAILER DRIVERS
I. ALL LOADS WILL BE ASSIGNED BY MANAGEMENT
a) Will assign work by seniority
b) Drivers will call in between 12:00 noon and 5:00 PM on Friday for
assignments
c) Loads will be paid by set amount per load, set by management
d) Loads cut - Bottom man will be laid off that day
e) To refuse any load is to refuse work, which will result in immediate
termination.
II. HOLIDAYS
a) Drivers at times will have to work holidays. Drivers will be paid
$225.00 for Holiday, plus the pay he is making for that load.
III. SICK DAY FOR OVER THE ROAD DRIVERS
a) If driver calls in sick he will be paid for one day's rate
b) Rate will be mileage pay divided by number of normal days.
c) Any other sick pay will be at manager's discretion.
IV. STOPS FOR ADDITIONAL DEPOSITS OR PICK UPS
a) Paid at $27.00 per stop
b) After 1 -1/2 hours, driver will be paid delay time (see Section VI
Delay Time)
V. BACK UP DRIVERS FOR OVER THE ROAD LOADS
a) Drivers will be assigned as back ups. Refusal to back up is a
refusal to work and will result in immediate termination.
b) Will be paid by the load, plus $100.00 bonus for taking out the
load.
VI. DELAY TIME
a) $16.00 an hour
b) Delay time will be given for excess time on loads, at management's
discretion.
c) Delay time will be given to make pick ups of equipment at managers
discretion.
VII. STARTING TIMES
a) Will be assigned by manager
b) Failure to be on time will result in:
1. Written notice
2. Suspension, at managers discretion
3. Termination
COLORADO PRIME CORPORATION LOCAL 210-WAREHOUSE &
PRODUCTION EMPLOYEES UNION
AFL-CIO, CLC
- ------------------------------- -------------------------------
SIGNED DATE SECRETARY-TREASURER DATE
-12-
<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Colorado Prime
Corporation, a Delaware corporation (the "Company") and a wholly-owned
subsidiary of Colorado Prime Holdings Inc. ("CPH"), a Delaware corporation, CPH,
and Matthew Burris ("Employee") is hereby entered into and effective as of the
30th day of March, 1998.
R E C I T A L S
The following statements are true and correct:
Employee is employed hereunder by CPH and the Company in a confidential
relationship wherein Employee, in the course of his employment with the Company,
has and will continue to become familiar with and aware of information as to the
Company's customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by the Company, and future plans with
respect thereto, all of which will be established and maintained at great
expense to the Company; this information is a trade secret and constitutes the
valuable good will of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. Employment and Duties.
(a) The Company hereby employs Employee as Chief Financial Officer,
Vice President and a Director of the Company and CPH (or such other comparable
positions as shall be given to Employee by the Company's or CPH's Board of
Directors). Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of such positions, including those set forth
in the Company's and CPH's by-laws and as otherwise may be directed from time to
time by the Board of Directors of the Company and CPH (collectively referred to
as the "Board"). Employee hereby accepts this employment upon the terms and
conditions contained herein and agrees to devote his full business time,
attention and efforts to promote and further the business of the Company.
<PAGE> 2
(b) Employee faithfully shall adhere to, execute and fulfill all
policies established by the Company.
(c) Employee shall not, during the Term of his employment hereunder
(as defined in Section 5 hereof), be engaged in any other business activity
pursued for gain, profit or other pecuniary advantage if such activity
interferes with Employee's duties and responsibilities hereunder without the
prior consent of the Board. However, the foregoing limitations shall not be
construed as prohibiting Employee from making personal investments in such form
or manner as will neither require his services in the operation or affairs of
the companies or enterprises in which such investments are made nor violate the
terms of Section 3 hereof. Additionally, the Employee represents and warrants
that attached hereto as Schedule 2 is a list of all of the corporations for
which the Employee serves as a director or advisory board member indicating the
nature of the position held by the Employee. The Employee further represents and
warrants that the corporations set forth on Schedule 2 are not engaged in any
businesses or activities which compete, directly or indirectly, with the
business of the Company, its parents, affiliates, subsidiaries or related
entities. Employee further represents and warrants that the services required by
the board memberships set forth in Schedule 2 will not interfere with the
Employee's employment hereunder. In reliance upon the foregoing representations,
the parties agree that the Employee's continued service on the boards as set
forth on Schedule 2 will not constitute a breach of this Agreement.
2. Compensation. For all services rendered by Employee in any capacity
required hereunder, the Company shall compensate Employee as follows:
(a) Base Salary. Effective on the date hereof through the end of the
Company's current fiscal year ending September 30, 1998 the base salary payable
to Employee shall be $215,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less frequently than
monthly. Such base salary shall, in the sole discretion of the Board, be subject
to an annual increase; provided that, at the beginning of the Company's fiscal
year, Employee's base salary shall be adjusted to reflect any increase during
the prior fiscal year in the consumer price index for All Urban Consumers, All
Items for New York-Northeast New Jersey, Long Island, NY-NJ-CT (1982-84 = 100),
published by the United States Bureau of Labor Statistics.
(b) Incentive Bonus Plan. Annually, as of the commencement of each fiscal
year, the Chairman of the Company and the Employee shall fix the criteria under
which Employee and other officers and key employees will be eligible to receive
year-end bonus awards based upon individual performance and the achievement by
the Company of the prior year projections (the "Incentive Bonus Plan*"). The
Incentive Bonus Plan will provide for Employee's bonus as set forth in Schedule
1 hereto.
*The Incentive Bonus Plan is the board approved bank budget.
(c) Performance Based Bonus Plan. Except in the case of a
termination of this Agreement pursuant to Section 5(a) or 5(c), for a period of
five years following the consummation of the transactions referenced in the
Merger Agreement dated as of March 25,
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<PAGE> 3
1997 by and between Thayer Equity Investors III, L.P. and KPC Holdings
Corporation (the "Merger Agreement"), the Employee, along with the Company's
Chief Executive Officer, Chief Operating Officer, and Vice President for
Marketing (collectively, the "Senior Executive Officers"), shall participate in
a performance based bonus plan (the "Performance Bonus Plan") in which each of
the Senior Executive officers will receive an aggregate of 25% of the excess
EBIT (after Incentive Bonus Plan bonuses are awarded) for each fiscal year above
EBIT projected for such year in the Goldman, Sachs & Co. Confidential Memorandum
dated December, 1997 (the "Goldman, Sachs Memorandum") or another mutually
agreed-upon alternative profit target. The maximum aggregate amount that the
Senior Executive officers shall be entitled to receive under the term of the
Performance Bonus Plan shall be $750,000.
(d) The Company hereby guarantees that Employee's bonus pursuant to
the provisions of subparagraphs 2 (b) and (c) above for the period commencing
April 1, 1998 and ending September 30, 1998 shall in no event be less than 25%
of the Employee's base salary for the applicable period.
(e) Executive Perquisites, Benefits and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(1) Payment of such premiums (or such portion thereof as is
provided by the Company's plans) for coverage for Employee and
his dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that the
Company may have in effect from time to time. Benefits
provided to Employee under this clause (1) shall be at least
comparable to such benefits provided to the Company's Senior
Executive Officers immediately prior to the date of this
Agreement.
(2) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of
his services pursuant to this Agreement. All reimbursable
expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy.
(3) Payment of car and driver expenses for Employee's
transportation to and from work.
(4) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for
Employee by the Board and shall allow Employee to participate
in all other Company-wide employee benefits, including the
Company's defined contribution pension plan and 401(k) Plan,
as may be made available generally to employees of either from
time to time. Such perquisites shall be at least comparable to
the
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<PAGE> 4
Company's policies with respect thereto prior to the
consummation of the Merger Agreement.
(5) The Employee shall be entitled to take vacation time subject
to the discretion of the Company. For the purposes of Section
5 (f), in the event that the Employee is terminated in
accordance with the provisions of Section 5 (b),(d) or (e),
the Employee shall have earned the following: (i) three (3)
weeks annual vacation during the first five (5) years of the
Employee's employment with the Company; and (ii) four (4)
weeks annual vacation after the completion by Employee of five
(5) years of employment with the Company.
3. Non-Competition Agreement.
(a) Employee shall not, during the period of his employment by or
with the Company and for a two (2) year period following the termination of his
employment under Section 5(c) hereof, or for a one (1) year period following the
termination of his employment other than under Section 5(c) hereof, for any
reason whatsoever, for himself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, trustee, or in a managerial capacity, whether as an
employee, independent contractor, agent, consultant or advisor, or as a
sales representative, in any business selling any products or services in
direct competition with the Company;
(ii) call upon any person who is, at that time, an employee of the
Company in a managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of the
Company for the purpose of soliciting or selling products or services in
competition with the Company; or
(iv) call upon any prospective acquisition candidate, on the
Employee's own behalf or on behalf of any competitor of the Company, which
candidate was either called upon by the Company or for which the Company
made an acquisition analysis, for the purpose of acquiring such entity.
For purposes of this Section and for purposes of Sections 5, 6, 7, 8 and
16, the term "Company" shall be deemed to include all direct and indirect
subsidiaries, and affiliates of the Company. Notwithstanding the above, the
foregoing covenant shall not be deemed to prohibit Employee from acquiring as an
investment not more than five percent (5%) of the capital stock
4
<PAGE> 5
of a competing business, whose stock is publicly traded on a national securities
exchange or on the over-the-counter market.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company for which
it would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by him, by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company on the date of the execution of this Agreement and
the Company's current plans; but it is also the intent of the Company and
Employee that such covenants be construed and enforced in accordance with the
changing activities, business and locations of the Company throughout the term
of this covenant.
(d) The covenants in this Section 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant.
(e) All of the covenants in this Section 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement of such covenants; provided, however, that the
Company's continued failure to make payments to Employee under Section 2 of this
Agreement shall constitute such a defense.
(f) Notwithstanding any of the foregoing, if any applicable law
shall reduce the time period during which Employee shall be prohibited from
engaging in any competitive activity described in Section 3(a) hereof, the
period of time for which Employee shall be prohibited pursuant to Section 3(a)
hereof shall be the maximum time permitted by law.
4. Place of Performance.
(a) Employee understands that he may be requested by the Board to
relocate from his present residence to another geographic location in order to
more efficiently carry out his duties and responsibilities under this Agreement.
In such event, if Employee agrees to relocate, the Company shall pay all
reasonable relocation costs to move Employee, his immediate family and their
personal property and effects. Such costs may include, by way of example, but
are not limited to, pre-move visits to search for a new residence, investigate
schools or for other purposes; temporary lodging and living costs prior to
moving into a new permanent residence; duplicate home carrying costs; all
reasonable closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if, but only to the extent that, any such relocation
costs
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<PAGE> 6
are not deductible for tax purposes. The general intent of the foregoing
is that Employee shall not personally bear any out-of-pocket cost as a result of
the relocation, with an understanding that Employee shall use his best efforts
to incur only those costs which are reasonable and necessary to effect a smooth,
efficient and orderly relocation with minimal disruption to the business affairs
of the Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by the Board
to relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of Section 5(c) and, if Employee
is terminated for such refusal, Employee shall be entitled to receive all
payments under this Agreement as if he were terminated by the Company without
cause.
5. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the date hereof and continue for one year (the "Initial
Term"), and, unless terminated as herein provided, shall be extended at the end
of the Initial Term and ongoing successive terms, for a period of one year on
the same terms and conditions contained herein (the "Term"), provided, however,
that each successive Term, Employee's compensation shall be adjusted in
accordance with Section 2 hereof. This Agreement and Employee's employment may
be terminated in any one of the following ways:
(a) Death. The death of Employee shall immediately terminate the
Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been absent from his full time
duties hereunder for four (4) consecutive months, then thirty (30) days after
written notice to the Employee (which notice may occur before or after the end
of such four (4) month period, but which shall not be effective earlier than the
last day of such four (4) month period), the Company may terminate Employee's
employment hereunder provided Employee is unable to resume his full-time duties
at the conclusion of such notice period. Also, Employee may terminate his
employment hereunder if his health should become impaired to an extent that
makes the continued performance of his duties hereunder hazardous to his
physical or mental health or his life, provided that Employee shall have
furnished the Company with a written statement from a qualified doctor to such
effect and provided, further, that, at the Company's request made within thirty
(30) days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by the Company who is reasonably acceptable to
Employee or Employee's doctor and such doctor shall have concurred in the
conclusion of Employee's doctor. In the event this Agreement is terminated as a
result of Employee's disability, Employee shall receive from the Company the
base salary at the rate then in effect for a period of eight (8) months from the
date of such termination (the "Disability Period"); provided that, such amounts
shall be offset by any amounts otherwise paid to the Employee under any
disability program then maintained by the Company. During the Disability Period,
Employee shall also receive all benefits to which Employee would otherwise be
entitled. In addition, earned but unpaid base salary as of the date of such
termination shall be paid in full and any bonus award to which the Employee
would have been entitled under the Incentive Bonus Plan had he been employed
throughout the year in which such
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<PAGE> 7
bonus is calculated shall be payable on a prorated basis for the year in which
such termination occurs only.
(c) Good Cause. The Company may terminate the Agreement immediately
upon written notice to Employee for good cause, which shall be: (1) Employee's
willful misconduct or gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of written notice of
need to cure) of any of Employee's material duties and responsibilities
hereunder; (2) Employee's willful dishonesty, fraud, alcohol or illegal drug
abuse, or misconduct with respect to the business or affairs of the Company,
which materially and adversely affects the operations, prospects or reputation
of the Company; or (3) Employee's conviction of a felony or other crime
involving moral turpitude. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment,
the Company may, without cause, terminate this Agreement and Employee's
employment, effective thirty (30) days after written notice is provided to the
Employee. Should Employee be terminated by the Company without cause or if this
Agreement is not renewed pursuant to Section 5 hereof, Employee shall receive
from the Company the base salary at the rate then in effect for one year from
the date Employee's employment is terminated, payable over such time period, and
any other benefits to which Employee would otherwise be entitled. If Employee
resigns or otherwise terminates his employment for any reason other than Good
Reason as defined in Section 5(e), Employee shall receive no severance
compensation.
(e) Termination by Employee for Good Reason. The Employee may
terminate his employment hereunder for "Good Reason." As used herein, "Good
Reason" shall mean the continuance of any of the following after ten (10) days
prior written notice by Employee to the Company and to CPH, specifying the basis
for such Employee's having Good Reason to terminate this Agreement:
(i) a material adverse change in Employee's status, title,
position or responsibilities;
(ii) the assignment to Employee of any duties materially and
adversely inconsistent with the Employee's position as specified in
Section 1 hereof (or such other position to which he may be
promoted), including status, offices, responsibilities or persons
to whom the Employee reports as contemplated under Section 1 of
this Agreement, or any other action by the Company which results in
a material and adverse change in such position, status, offices,
titles or responsibilities;
(iii) Employee's removal from, or failure to be reappointed or
reelected to, Employee's position under this Agreement, except as
contemplated by Sections 5(a), (b) and (c); or
(iv) any other material breach of this Agreement by the
Company,
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<PAGE> 8
including the regular failure to pay Employee on a timely
basis the amounts to which he is entitled under this Agreement.
In the event of any termination by the Employee for Good Reason, Employee
shall be entitled to receive from the Company the base salary at the rate then
in effect for one year from the date Employee's employment is terminated,
payable over such time period, and any other benefits to which Employee would
otherwise be entitled.
(f) Payment Through Termination. Upon termination of this Agreement
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave) due through the effective date of termination.
Additional compensation subsequent to termination, if any, shall be due and
payable to Employee only to the extent and in the manner expressly provided
above. All other rights and obligations under this Agreement shall cease as of
the effective date of termination, except that the Company's, obligations under
Section 9 herein and Employee's obligations under Sections 3, 6, 7, 8 and 10
herein shall survive such termination in accordance with their terms.
6. Inventions. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment and which are
directly related to the business or activities of the Company and which Employee
conceives as a result of his employment by the Company. Employee hereby assigns
and agrees to assign all his interests therein to the Company or its nominee.
Employee agrees that all such materials which he develops or conceives and/or
documents during such period shall be deemed works made-for-hire for the Company
within the meaning of the copyright laws of the United States or any similar or
analogous law or statute of any other jurisdiction and accordingly, the Company
shall be the sole and exclusive owner for all purposes for the distribution,
exhibition, advertising and exploitation of such materials or any part of them
in all media and by all means now known or which may hereafter be devised,
throughout the universe in perpetuity. Employee agrees that in furtherance of
the foregoing, he shall disclose, deliver and assign to the Company all such
conceptions, ideas, improvements and discoveries and shall execute all such
documents, including patent and copyright applications, as the Company
reasonably shall deem necessary to further document the Company's ownership
rights therein and to provide the Company the full and complete benefit thereof.
Should any arbitrator or court of competent jurisdiction ever hold that the
materials derived from Employee's contributions to the Company do not constitute
works made-for-hire, Employee hereby irrevocably assigns to the Company, and
agrees that the Company shall be the sole and exclusive owner of, all right,
title and interest in and to all such materials, including the copyrights and
any other proprietary rights arising therefrom. Employee reserves no rights with
respect to any such materials, and hereby acknowledges the adequacy and
sufficiency of the compensation paid and to be paid by the Company to Employee
for the materials and the contributions he will make to the development of any
such information or materials. Employee agrees to cooperate with all lawful
efforts of the Company to protect the Company's rights in and to any, or all of
such information and materials and will at the request of the Company execute
any and all instruments
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<PAGE> 9
or documents necessary or desirable in order to register, establish, acquire,
prosecute, maintain, perfect or defend the Company's rights in and to such
information materials.
7. Confidential Information and Trade Secrets. Employee acknowledges and
agrees that all Confidential Information, Trade Secrets and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Employee agrees that he shall maintain
strictly the confidentiality of, and shall not, during or after the term of this
Agreement with the Company, disclose, any such Confidential Information or Trade
Secrets.
For purposes hereof, the parties agree that "Confidential Information"
means and includes
- All business or financial information, plans, processes and
strategies, market research and analyses, projections,
financing arrangements, consulting and sales methods and
techniques, expansion plans, forecasts and forecast
assumptions, business practices, operations and procedures,
marketing and merchandising information, distribution
techniques, customer information and other business
information, including records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and
other documentation respecting the Company;
- All information and materials which are proprietary and
confidential to a third party and which have been provided to
the Company by such third party for the Company's use; and
- All information derived from such Confidential Information.
Confidential Information shall not include information and materials that
are already, or otherwise become, known by or generally available to the public
without restriction on disclosure, other than as a result of an act or omission
by the Employee in breach of the provisions of this Agreement or any other
applicable agreement between the Employee and the Company.
For purposes hereof, the term "Trade Secret" shall have the meaning given
in the Delaware enactment of the Uniform Trade Secrets Act, and shall include,
without limitation, the whole or any portion or phase of any scientific or
technical information, design, process, formula concept, data organization,
manual, other system documentation, or any improvement of any thereof, in any
case that is valuable and secret (in the sense that it is not generally known to
the Company's competitors).
8. Return Of Company Property; Termination of Employment. At such time, if
ever, as Employee's employment with the Company is terminated, he shall be
required to
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<PAGE> 10
participate in an exit interview for the purpose of assuring a proper
termination of his employment and his obligations hereunder. On or before the
actual date of such termination, Employee shall return to the Company all
records, materials and other physical objects relating to his employment with
the Company, including, without limitation, all Company credit cards and access
keys and all materials relating to, containing or derived from any Trade Secrets
or Confidential Information.
9. Indemnification. If Employee is made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by the Company against Employee), by
reason of the fact that he is or was performing services under this Agreement or
as an officer or director of the Company (and whether or not the basis of such
action is the Employee's action in such official capacity), then the Company
shall indemnify Employee against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, as actually and reasonably
incurred by Employee in connection therewith to the fullest extent permitted by
applicable law, and such indemnification shall continue as to Employee even if
he has ceased to be an employee, officer or director of the Company and shall
inure to the benefit of his heirs and estate. The Company shall advance to
Employee all reasonable costs and expenses directly related to the defense of
such action, suit or proceeding within twenty days after written request
therefore by the Employee to the Company, provided that such request shall
include an undertaking by the Employee to repay such advances if it shall
ultimately be determined that Employee is or was not entitled to be indemnified
by the Company against such costs and expenses. If both Employee and the Company
are made a party to the same third-party action, complaint, suit or proceeding,
the Company agrees to engage competent legal representation, and Employee agrees
to use the same representation, provided that if counsel selected by the Company
shall have a conflict of interest that prevents such counsel from representing
Employee, Employee may engage separate counsel and the Company shall pay all
attorneys fees of such separate counsel. Further, while Employee is expected at
all times to use his best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to the Company for errors or omissions
made in good faith where Employee has not exhibited gross, willful or wanton
negligence or misconduct or performed criminal or fraudulent acts which
materially damage the business of the Company. The provisions of this Section 9
are addition to, and not in derogation of, the indemnification provisions of the
Company's By-laws.
10. No Prior Agreements. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for, and hold the
Company harmless from and against, all claims, including, but not limited to,
attorneys' fees and expenses of investigation, by any such third party that such
third party may now have or may hereafter come to have against the Company based
upon or arising out of any noncompetition agreement, invention or secrecy
agreement between Employee and such third party which was in existence as of the
date of this Agreement.
11. Binding Effect; Assignment. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal
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representatives, successors and assigns. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement.
12. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreement
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements.
13. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Colorado Prime Corporation
1 Michael Avenue
Farmingdale, N.Y. 11735
Attention: Secretary
to CPH: Colorado Prime Holdings Inc.
1455 Pennsylvania Avenue N.W.
Suite 350
Washington, D.C. 20004
Attn: [ ]
To Employee: Matthew Burris
26 Burr School Road, Westport, CT 06880
Notice shall be deemed given and effective three (3) days after the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received, if
earlier. Either party may change the address for notice by notifying the other
party of such change in accordance with this Section 13.
14. Severability; Headings. It is the intention of the parties that the
provisions herein shall be enforceable to the fullest extent permitted under
applicable law, and that the unenforceability of any the provision or provisions
hereof, or any portion thereof, shall not render unenforceable or otherwise
impair any other provisions or portions thereof. If any provision of this
Agreement is determined by a court of competent jurisdiction to be
unenforceable, void or invalid in whole or in part, this Agreement shall be
deemed amended to delete or modify, as necessary, the offending provisions
thereof and to alter the bounds thereof, including specifically, any time, place
and manner restrictions contained in any of the restrictive covenants contained
herein, in order to render it valid and enforceable. In any event, the balance
of this Agreement shall be enforced to the fullest extent possible without
regard to such unenforceable, void or invalid provisions or part thereof. The
Section headings herein are for
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reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
15. Company Actions. Employee acknowledges that in any action by the
Company to enforce the provisions of Sections 3, 6, 7 or 8 of this Agreement,
claims asserted by Employee against the Company arising out of his employment
with the Company or otherwise shall not constitute a defense to enforcement of
his obligations hereunder; provided, however, that the Company's continued
failure to make payments to Employee under Section 2 of this Agreement shall
constitute such a defense.
16. Arbitration. Any unresolved dispute or controversy arising under or in
connection with this Agreement (excluding specifically, however, claims and
counterclaims of the Company arising out of any breach by Employee of the
provisions of Sections 3, 7 or 8 hereof) shall be settled exclusively by
arbitration, conducted in accordance with the rules of the American Arbitration
Association then in effect, as modified hereby. Notwithstanding anything
contained in the rules to the contrary, however, the arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive or special damages to any injured party. Judgment may be entered
on the arbitrators' award in any court having jurisdiction. The arbitration
proceeding shall be held in New York, New York.
17. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of New York without reference to its
conflicts of laws provisions.
18. Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered (which deliveries may be
by telefax) by the parties. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any of the other
counterparts.
19. Modifications. This Agreement may not be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought, or his or its duly authorized representative or officer. No waiver by
Employee or the Company of any breach of any provision hereof will be deemed a
waiver of any prior or subsequent breach of the same or any other provision. The
failure of Employee or the Company to exercise any right provided herein will
not be deemed on any subsequent occasions to be a waiver of any right granted
hereunder to either of them.
20. EMPLOYEE ACKNOWLEDGES THAT, BEFORE SIGNING THIS AGREEMENT, HE WAS
GIVEN AN OPPORTUNITY TO READ IT, CAREFULLY EVALUATE IT, AND ASK ANY QUESTIONS HE
MAY HAVE HAD REGARDING IT OR ITS PROVISIONS. EMPLOYEE ALSO ACKNOWLEDGES THAT HE
HAD THE RIGHT TO HAVE THIS AGREEMENT REVIEWED BY AN ATTORNEY OF HIS CHOOSING AND
12
<PAGE> 13
THAT THE COMPANY GAVE HIM A REASONABLE PERIOD OF TIME TO DO SO IF HE SO WISHED.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COLORADO PRIME CORPORATION
By:/s/ William F. Dordelman
---------------------------
Title:
COLORADO PRIME HOLDINGS, INC.
By: /s/ Illegible
---------------------------
Title:
EMPLOYEE:
/s/ Matthew Burris
---------------------------
Matthew Burris
14
<PAGE> 15
SCHEDULE 1
BONUS GUIDELINE
MATT BURRIS
A. Bonus based upon Operating Income
<TABLE>
<CAPTION>
% Operating Income % of Salary
- ------------------ -----------
Before Bonus Accomplished
- -------------------------
<S> <C>
80 or lower 0
85 8.5
90 17
95 21
100 25
105 31
110 37.5
115 44
120+ 50%
</TABLE>
B. Bonus based upon Achievement of Objectives
The Employee may receive a bonus based upon the achievement of certain
annual objectives mutually determined by the Employee and the Company. The bonus
shall be a percentage of the Employee's base salary as follows: (i) 0%, if the
Employee does not meet annual objectives; (ii) 25% of his base salary if the
Employee meets his annual objectives and; (iii) up to 50% of his base salary if
the Employee exceeds his annual objectives.
Note: a) Any combination is possible e.g. at 80% profit and achievement
of annual objectives a bonus equal to 25% of salary is paid.
b) Performance between the levels is prorated on a straight line
basis.
c) Performance vs. objectives is management judgment.
15
<PAGE> 16
SCHEDULE 2
List of All Companies for which Matthew Burris serves as a director or
Advisory Board Member
Advisory Board Positions:
Fuller Box Company
North Attleboro, Massachusetts
Jewelpak Technologies
Los Angeles, California
Director Position:
The Alsa Corporation
Vernon, California
16
<PAGE> 1
Exhibit 10.8.1
Execution Version
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and among Colorado Prime
Corporation, a Delaware corporation (the "Company") and a wholly-owned
subsidiary of Colorado Prime Holdings, Inc. ("CPH"), a Delaware corporation,
CPH, and Paul A. Roman ("Employee") is hereby entered into and effective as of
the 1st day of September, 1998.
R E C I T A L S
The following statements are true and correct:
Employee is employed hereunder by CPH and the Company in a confidential
relationship wherein Employee, in the course of his employment with the Company,
has and will continue to become familiar with and aware of information as to the
Company's customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by the Company, and future plans with
respect thereto, all of which has been and will be established and maintained at
great expense to the Company; this information is a trade secret and constitutes
the valuable good will of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. Employment and Duties.
(a) The Company hereby employs Employee as President and Chief Operating
Officer of the Company and as Director of the Company and CPH (or such other
comparable positions as shall be given to Employee by the Company's or CPH's
Board of Directors). Employee shall have direct and primary responsibility over
the areas of sales, operations and telemarketing and shall report to the Chief
Executive Office of the Company and to the Board of Directors of the Company,
and shall have such further duties and authority reasonably accorded to and
expected of such positions and as otherwise may be directed from time to time by
the Chief Executive Officer or the Board of Directors of the Company and CPH
(collectively referred to as the "Board"). Employee hereby accepts this
employment upon the terms and conditions contained herein and agrees to devote
his full business time, attention and efforts to promote and further the
business of the Company.
(b) Employee faithfully shall adhere to, execute and fulfill all policies
established by the Company.
<PAGE> 2
(c) Employee shall not, during the Term of his employment hereunder (as
defined in Section 5 hereof), be engaged in any other business activity pursued
for gain, profit or other pecuniary advantage without the prior consent of the
Board. However, the foregoing limitations shall not be construed as prohibiting
Employee from making personal investments in such form or manner as will neither
require his services in the operation or affairs of the companies or enterprises
in which such investments are made nor violate the terms of Section 3 hereof.
2. Compensation. For all services rendered by Employee in any capacity
required hereunder, the Company shall compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $300,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less frequently than
monthly. Such base salary shall, in the sole discretion of the Board, be subject
to an annual increase.
(b) Incentive Bonus Plan. Employee shall be eligible to receive year-end
bonus awards based upon individual performance and the achievement by the
Company of specified financial and operating targets. Employee's annual bonus
will range from 0% to 120% of Employee's annual base salary, and Employee's
annual target bonus will be 60% of Employee's base salary. The criteria upon
which Employee's annual bonus shall be based shall be developed by the
Compensation Committee of the Board after taking into consideration the proposed
business plan and financial and operating targets for the Company to be
developed by Employee. Employee and the Compensation Committee shall use all
reasonable efforts to develop such targets and criteria no later than January
31, 1999, and upon adoption by the Compensation Committee such criteria shall be
deemed to be incorporated by reference into this Agreement.
(c) Executive Perquisites, Benefits and Other Compensation. Employee shall
be entitled to receive additional benefits and compensation from the Company in
such form and to such extent as specified below:
(1) Payment of such premiums (or such portion thereof as is provided by
the Company's plans) for coverage for Employee and his dependent
family members under health, hospitalization, disability, dental,
life and other insurance plans that the Company may have in effect
from time to time. Benefits provided to Employee under this clause
(1) shall be at least comparable to such benefits provided to the
Company's senior executive officers on the date of this Agreement.
(2) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall
be appropriately documented in reasonable detail by Employee upon
submission of any request for reimbursement, and in a format and
manner consistent with the Company's expense reporting policy.
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<PAGE> 3
(3) Payment of a car allowance in the amount of $750.00 per month.
(4) Reimbursement of relocation expenses up to $75,000.00.
(5) The Company shall provide Employee with other executive perquisites
as may be available to or deemed appropriate for Employee by the
Board and shall allow Employee to participate in all other
Company-wide employee benefits, including the Company's defined
contribution pension plan and 401(k) Plan, as may be made available
generally to employees from time to time.
3. Non-Competition Agreement.
(a) Employee shall not, during the period of his employment by or with the
Company and for a two (2) year period following the termination of his
employment under Section 5(c) hereto, or for a one (1) year period following the
termination of his employment other than under Section 5(c) hereto, for any
reason whatsoever, for himself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, trustee, or in a managerial capacity, whether as an
employee, independent contractor, agent, consultant or advisor, or as a
sales representative, in any business selling any products or services in
direct competition with the Company;
(ii) call upon any person who is, at that time, an employee of the
Company in a managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of the
Company for the purpose of soliciting or selling products or services in
competition with the Company; or
(iv) call upon any prospective acquisition candidate, on the
Employee's own behalf or on behalf of any competitor of the Company, which
candidate was either called upon by the Company or for which the Company made an
acquisition analysis, for the purpose of acquiring such entity.
For purposes of this Section 3 and for purposes of Sections 5, 6, 7, 8 and 15,
the term "Company" shall be deemed to include all direct and indirect
subsidiaries of the Company. Notwithstanding the above, the foregoing covenant
shall not be deemed to prohibit Employee from acquiring as an investment not
more than five percent (5%) of the capital stock of a competing business, whose
stock is publicly traded on a national securities exchange or on the
over-the-counter market.
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<PAGE> 4
(b) Because of the difficulty of measuring economic losses to the Company
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to the Company for which it would
have no other adequate remedy, Employee agrees that the foregoing covenant may
be enforced by the Company in the event of breach by him, by injunctions and
restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Employee in light of the activities,
business and plans of the Company on the date of the execution of this
Agreement; but it is also the intent of the Company and Employee that such
covenants be construed and enforced in accordance with any planned change in
activities, business or locations of the Company throughout the term of this
Agreement.
(d) The covenants in this Section 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant.
(e) All of the covenants in this Section 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement of such covenants; provided, however, that the
Company's continued failure to make payments to Employee under Section 2 of this
Agreement shall constitute such a defense.
(f) Notwithstanding any of the foregoing, if any applicable law shall
reduce the time period during which Employee shall be prohibited from engaging
in any competitive activity described in Section 3(a) hereof, the period of time
for which Employee shall be prohibited pursuant to Section 3(a) hereof shall be
the maximum time permitted by law.
4. Place of Performance.
(a) Employee understands that he may be requested by the Board to relocate
to another geographic location in order to more efficiently carry out his duties
and responsibilities under this Agreement. In such event, if Employee agrees to
relocate, the Company shall pay all reasonable relocation costs to move
Employee, his immediate family and their personal property and effects. Such
costs may include, by way of example, but are not limited to, pre-move visits to
search for a new residence, investigate schools or for other purposes; temporary
lodging and living costs prior to moving into a new permanent residence;
duplicate home carrying costs; all reasonable closing costs on the sale of
Employee's present residence and on the purchase of a comparable residence in
the new location; and added income taxes that Employee may incur if, but only to
the extent that, any such relocation costs are not deductible for tax purposes.
The general intent of the foregoing is that Employee shall not personally bear
any out-of-pocket cost as a result of the relocation, with an understanding that
Employee shall use his best efforts to incur only those costs which are
reasonable and necessary to effect a smooth, efficient and orderly relocation
with minimal disruption to the business affairs of the Company and the personal
life of Employee and his family.
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<PAGE> 5
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "good cause"
for termination of this Agreement under the terms of Section 5(c) and, if
Employee is terminated for such refusal, Employee shall be entitled to receive
all payments under this Agreement as if he were terminated by the Company
"without cause."
5. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the date hereof and continue for three years (the "Initial
Term"), and, unless terminated as herein provided, shall be extended at the end
of the Initial Term and ongoing successive terms, for a period of one year on
the same terms and conditions contained herein (the "Term"). This Agreement and
Employee's employment may be terminated in any one of the following ways:
(a) Death. The death of Employee shall immediately terminate the Agreement
with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of the Employee's incapacity due to
physical or mental illness, the Employee shall not have performed his duties
hereunder on a full-time basis for four (4) consecutive months, the Employee's
employment under this Agreement may be terminated by the Company upon thirty
(30) days written notice if Employee is unable to resume his full time duties at
the conclusion of such notice period. Such termination for disability shall
require the affirmative vote of a majority of the Board. The Employee's
compensation during any period of disability prior to the effective date of such
termination shall be the amounts normally payable to him in accordance with his
then current annual base salary, reduced by the amounts of disability pay, if
any, paid to the Employee under any Company disability program. The Employee
shall not be entitled to any further compensation from the Company or its
subsidiaries for any period subsequent to the effective date of such
termination, except for pay or benefits, if any, in accordance with then
existing severance policies of the Company or its subsidiaries and the severance
terms of the Incentive Bonus Plan and Company benefit plans.
(c) Good Cause. The Company may terminate the Agreement immediately upon
written notice to Employee for good cause, which shall be: (1) Employee's
willful misconduct or gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of written notice of
need to cure) of any of Employee's material duties and responsibilities
hereunder; (2) Employee's willful dishonesty, fraud, alcohol or illegal drug
abuse, or misconduct with respect to the business or affairs of the Company,
which materially and adversely affects the operations, prospects or reputation
of the Company; or (3) Employee's conviction of a felony or other crime
involving moral turpitude. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Employee.
Should Employee
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<PAGE> 6
be terminated by the Company without cause, or if this Agreement is not renewed
pursuant to Section 5 hereof, Employee shall receive from the Company his base
salary at the rate then in effect for one year from the date Employee's
employment is terminated, payable over such time period, and any other benefits
to which Employee would otherwise be entitled; provided, however, that if
Employee is terminated without cause at any time prior to September 1, 2000,
Employee shall receive from the Company his base salary at the rate then in
effect from the date Employee's employment is terminated, payable over such time
period, and any other benefits to which Employee would otherwise be entitled,
through September 1, 2001. If Employee resigns or otherwise terminates his
employment for any reason other than Good Reason as defined in Section 5(e),
Employee shall receive no severance compensation.
(e) Termination by Employee for Good Reason. Employee may terminate his
employment under this Agreement upon written notice to the Company for "Good
Reason." As used herein, "Good Reason" shall mean the continuance of any of the
following after ten (10) days prior written notice by Employee to the Company
and to CPH, specifying the basis for such Employee's having Good Reason to
terminate this Agreement:
(i) a material adverse change in Employee's status, title, position
or responsibilities; provided, however, that no such change shall be
deemed to have occurred as a result of the hiring by the Company of a
full-time chief executive officer after the date hereof and the assumption
by such person of the duties normally undertaken by a chief executive
officer (which duties shall not include direct and primary responsibility
over the areas of sales, operations and telemarketing);
(ii) the assignment to Employee of any duties materially and
adversely inconsistent with the Employee's position as specified in
Section 1 hereof (or such other position to which he may be promoted),
including status, offices, responsibilities or persons to whom the
Employee reports as contemplated under Section 1 of this Agreement, or any
other action by the Company which results in a material and adverse change
in such position, status, offices, titles or responsibilities; provided,
however, that any change in Employee's duties which occurs as a result of
the hiring by the Company of a full-time chief executive officer after the
date hereof and the assumption by such person of the duties normally
undertaken by a chief executive officer (which duties shall not include
direct and primary responsibility over the areas of sales, operations and
telemarketing) shall not be the basis for the termination by Employee for
Good Reason;
(iii) at any time prior to September 1, 2000, the Company hires a
new chief executive officer (other than a representative or affiliate of
Thayer Capital Partners) and Employee demonstrates to the Board that the
new chief executive officer refuses to, or is unable or unwilling to, work
constructively with Employee;
(iv) Employee's removal from, or failure to be reappointed or
reelected to, Employee's position under this Agreement, except as
contemplated by Sections 5(a), (b) and (c); or
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<PAGE> 7
(v) any other material breach of this Agreement by the Company,
including the failure to pay Employee on a timely basis the amounts to
which he is entitled under this Agreement.
In the event of any termination by the Employee for Good Reason, Employee shall
be entitled to receive from the Company the base salary at the rate then in
effect for one year from the date Employee's employment is terminated, payable
over such time period, and any other benefits to which Employee would otherwise
be entitled; provided, however, that in the event of a termination by the
Employee for Good Reason at any time prior to September 1, 2000, Employee shall
receive from the Company his base salary at the rate then in effect from the
date Employee's employment is terminated, payable over such time period, and any
other benefits to which Employee would otherwise be entitled, through September
1, 2001. In addition, in the event of any termination by the Employee for Good
Reason, Employee shall be entitled to receive any incentive bonus award earned
and due under Section 2(b), pro rated as through the date Employee's employment
is terminated. The amount of such incentive bonus (if any) shall be determined
at the end of the year for which such bonus relates and shall be paid at such
time as it would have been paid in the event of Employee's continued employment
with the Company.
(f) Payment Through Termination. Upon termination of this Agreement for
any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave) due through the effective date of termination.
Additional compensation subsequent to termination, if any, shall be due and
payable to Employee only to the extent and in the manner expressly provided
above. All other rights and obligations under this Agreement shall cease as of
the effective date of termination, except that Employee's obligations under
Sections 3, 6, 7, 8 and 9 herein shall survive such termination in accordance
with their terms.
6. Inventions. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment and which are
directly related to the business or activities of the Company and which Employee
conceives as a result of his employment by the Company. Employee hereby assigns
and agrees to assign all his interests therein to the Company or its nominee.
Employee agrees that all such materials which he develops or conceives and/or
documents during such period shall be deemed works made-for-hire for the Company
within the meaning of the copyright laws of the United States or any similar or
analogous law or statute of any other jurisdiction and accordingly, the Company
shall be the sole and exclusive owner for all purposes for the distribution,
exhibition, advertising and exploitation of such materials or any part of them
in all media and by all means now known or which may hereafter be devised,
throughout the universe in perpetuity. Employee agrees that in furtherance of
the foregoing, he shall disclose, deliver and assign to the Company all such
conceptions, ideas, improvements and discoveries and shall execute all such
documents, including patent and copyright applications, as the Company
reasonably shall deem necessary to further document the Company's ownership
rights therein and to provide the Company the
-7-
<PAGE> 8
full and complete benefit thereof. Should any arbitrator or court of competent
jurisdiction ever hold that the materials derived from Employee's contributions
to the Company do not constitute works made-for-hire, Employee hereby
irrevocably assigns to the Company, and agrees that the Company shall be the
sole and exclusive owner of, all right, title and interest in and to all such
materials, including the copyrights and any other proprietary rights arising
therefrom. Employee reserves no rights with respect to any such materials, and
hereby acknowledges the adequacy and sufficiency of the compensation paid and to
be paid by the Company to Employee for the materials and the contributions he
will make to the development of any such information or materials. Employee
agrees to cooperate with all lawful efforts of the Company to protect the
Company's rights in and to any or all of such information and materials and will
at the request of the Company execute any and all instruments or documents
necessary or desirable in order to register, establish, acquire, prosecute,
maintain, perfect or defend the Company's rights in and to such information
materials.
7. Confidential Information and Trade Secrets. Employee acknowledges and
agrees that all Confidential Information, Trade Secrets and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Employee agrees that he shall maintain
strictly the confidentiality of, and shall not, during, or for a period of five
(5) years after, the term of this Agreement, disclose, any such Confidential
Information or Trade Secrets.
For purposes hereof, the parties agree that "Confidential Information"
means and includes
- All business or financial information, plans, processes and
strategies, market research and analyses, projections,
financing arrangements, consulting and sales methods and
techniques, expansion plans, forecasts and forecast
assumptions, business practices, operations and procedures,
marketing and merchandising information, distribution
techniques, customer information and other business
information, including records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and
other documentation respecting the Company;
- All information and materials which are proprietary and
confidential to a third party and which have been provided to
the Company by such third party for the Company's use; and
- All information derived from such Confidential Information.
Confidential Information shall not include information and materials that
are already, or otherwise become, known by or generally available to the
public without restriction on disclosure, other than as a result of an act
or omission by the Employee in breach of
-8-
<PAGE> 9
the provisions of this Agreement or any other applicable agreement between
the Employee and the Company.
For purposes hereof, the term "Trade Secret" shall have the meaning given in the
Delaware enactment of the Uniform Trade Secrets Act, and shall include, without
limitation, the whole or any portion or phase of any scientific or technical
information, design, process, formula, concept, data organization, manual, other
system documentation, or any improvement of any thereof, in any case that is
valuable and secret (in the sense that it is not generally known to the
Company's competitors).
8. Return of Company Property; Termination of Employment. At such time, if
ever, as Employee's employment with the Company is terminated, he shall be
required to participate in an exit interview for the purpose of assuring a
proper termination of his employment and his obligations hereunder. On or before
the actual date of such termination, Employee shall return to the Company all
records, materials and other physical objects relating to his employment with
the Company, including, without limitation, all Company credit cards and access
keys and all materials relating to, containing or derived from any Trade Secrets
or Confidential Information.
9. No Prior Agreements. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for, and hold the
Company harmless from and against, all claims, including, but not limited to,
attorneys' fees and expenses of investigation, by any such third party that such
third party may now have or may hereafter come to have against the Company based
upon or arising out of any noncompetition agreement, invention or secrecy
agreement between Employee and such third party which was in existence as of the
date of this Agreement.
10. Binding Effect; Assignment. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns. Employee
understands that he has been selected for employment by the Company on the basis
of his personal qualifications, experience and skills. Employee agrees,
therefore, that he cannot assign all or any portion of his performance under
this Agreement.
11. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements.
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<PAGE> 10
12. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Colorado Prime Corporation
1 Michael Avenue
Farmingdale, N.Y. 11735
Attention: Chairman of the Board of Directors
to CPH: Colorado Prime Holdings, Inc.
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D.C. 20004
Attn: Dr. Paul G. Stern
To Employee: Paul A. Roman
1 Michael Avenue
Farmingdale, New York 11735
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received, if earlier.
Either party may change the address for notice by notifying the other party of
such change in accordance with this Section 12.
13. Severability; Headings. It is the intention of the parties that the
provisions herein shall be enforceable to the fullest extent permitted under
applicable law, and that the unenforceability of any the provision or provisions
hereof, or any portion thereof, shall not render unenforceable or otherwise
impair any other provisions or portions thereof. If any provision of this
Agreement is determined by a court of competent jurisdiction to be
unenforceable, void or invalid in whole or in part, this Agreement shall be
deemed amended to delete or modify, as necessary, the offending provisions or
portions thereof and to alter the bounds thereof, including specifically, any
time, place and manner restrictions contained in any of the restrictive
covenants contained herein, in order to render it valid and enforceable. In any
event, the balance of this Agreement shall be enforced to the fullest extent
possible without regard to such unenforceable, void or invalid provisions or
part thereof. The Section headings herein are for reference purposes only and
are not intended in any way to describe, interpret, define or limit the extent
or intent of the Agreement or of any part hereof.
14. Company Actions. Employee acknowledges that in any action by the
Company to enforce the provisions of Sections 3, 6, 7 or 8 of this Agreement,
claims asserted by Employee against the Company arising out of his employment
with the Company or otherwise shall not constitute a defense to enforcement of
his obligations hereunder; provided, however, that the Company's continued
failure to make payments to Employee under Section 2 of this Agreement shall
constitute such a defense.
15. Arbitration. Any unresolved dispute or controversy arising under or in
connection with this Agreement (excluding specifically, however, claims and
counterclaims of
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<PAGE> 11
the Company arising out of any breach by Employee of the provisions of Sections
3, 7 or 8 hereof) shall be settled exclusively by arbitration, conducted in
accordance with the rules of the American Arbitration Association then in
effect, as modified hereby. Notwithstanding anything contained in the rules to
the contrary, however, the arbitrators shall not have the authority to add to,
detract from, or modify any provision hereof nor to award punitive or special
damages to any injured party. Judgment may be entered on the arbitrators' award
in any court having jurisdiction. The arbitration proceeding shall be held in
New York, New York.
16. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of New York without reference to its
conflicts of laws provisions.
17. Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered (which deliveries may be
by telefax) by the parties. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any of the other
counterparts.
18. Modifications. This Agreement may not be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought, or his or its duly authorized representative or officer. No waiver by
Employee or the Company of any breach of any provision hereof will be deemed a
waiver of any prior or subsequent breach of the same or any other provision. The
failure of Employee or the Company to exercise any right provided herein will
not be deemed on any subsequent occasions to be a waiver of any right granted
hereunder to either of them
19. EMPLOYEE ACKNOWLEDGES THAT, BEFORE SIGNING THIS AGREEMENT, HE WAS
GIVEN AN OPPORTUNITY TO READ IT, CAREFULLY EVALUATE IT, AND ASK ANY QUESTIONS HE
MAY HAVE HAD REGARDING IT OR ITS PROVISIONS. EMPLOYEE ALSO ACKNOWLEDGES THAT HE
HAD THE RIGHT TO HAVE THIS AGREEMENT REVIEWED BY AN ATTORNEY OF HIS CHOOSING AND
THAT THE COMPANY GAVE HIM A REASONABLE PERIOD OF TIME TO DO SO IF HE SO WISHED.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COLORADO PRIME CORPORATION
By:
----------------------------------
-11-
<PAGE> 12
Title:
----------------------------------
-12-
<PAGE> 13
COLORADO PRIME HOLDINGS, INC.
By:
-------------------------------
Title:
EMPLOYEE:
------------------------------------
Paul A. Roman
-13-
<PAGE> 1
Exhibit 10.14.1
WAIVER
This Waiver (this "WAIVER") waives certain covenants of that certain
Credit Agreement dated as of May 9, 1997 (as amended, modified and supplemented
from time to time, the "CREDIT AGREEMENT"), among COLORADO PRIME CORPORATION, a
Delaware corporation ("BORROWER"), each institution identified as a lender on
Annex I thereto (each, together with its successors and assigns, a "LENDER"),
and DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, ("ADMINISTRATIVE
AGENT") acting as the Agents for itself and the other Lenders, and is entered
into as of September 25, 1998 among Borrower, the Administrative Agent and the
Lenders executing the signature pages hereof.
RECITALS
WHEREAS, Borrower is required pursuant to Sections 8.1 and 8.2 of the
Credit Agreement to satisfy certain financial covenants;
WHEREAS, for the Fiscal Quarter ending on the date hereof, Borrower is
out of compliance with the financial ratios contained in Section 8.1, and for
the Fiscal Year ending on the date hereof, Borrower has exceeded the permitted
level of Capital Expenditures contained in Section 8.2; and
WHEREAS, Borrower has requested that the Lenders waive the Events of
Default which have resulted from Borrower's failure to comply with the
requirements of Section 8.1 for the Fiscal Quarter ending on the date hereof and
Section 8.2 for the Fiscal Year ending on the date hereof;
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings assigned to such terms in the Credit Agreement, and the
provisions of Section 1.2 of the credit agreement shall apply hereto as if fully
set forth herein.
2. Waiver.
(a) Section 8.1. Required Lenders waive the Events of Default which
have resulted from Borrower's failure to comply with Section 8.1 of the Credit
Agreement solely with respect to the Fiscal Quarter ending on the date hereof.
(b) Section 8.2. Required Lenders waive the Events of Default which
have resulted
<PAGE> 2
from Borrower's failure to comply with Section 8.2 of the Credit
Agreement solely with respect to the Fiscal Year ending on the date hereof.
3. Fee. As consideration for Lenders agreeing to the various waivers
contained herein, Borrower agrees to pay Lenders a one time fee equal to the
Total Commitments outstanding on the date hereof multiplied by three-eighths of
one percent (0.375%).
4. Representations. To induce the Administrative Agent and the Lenders to
enter into this Waiver, Borrower hereby represents and warrants as follows:
(a) Representations and Warranties. All representations and warranties
contained in the Credit Agreement and the other Credit Documents are true and
correct in all material respects on and as of the date hereof as if made on the
date hereof, other than representations and warranties that expressly relate
solely to an earlier date; and
(b) No Defaults. Except as waived hereby, no Default or Event of
Default has occurred and is continuing as of the date hereof;
5. Counterparts. This Waiver may be executed in any number of
counterparts, each of which counterparts when executed and delivered shall be an
original, but all of which shall together constitute one and the same agreement.
[SIGNATURE PAGES FOLLOW]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
executed and delivered by their proper and duly authorized officers as of the
date set forth above.
BORROWER:
COLORADO PRIME CORPORATION,
a Delaware corporation
By: _______________________________
Title: ______________________________
ADMINISTRATIVE AGENT:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as the
Administrative Agent
By: _______________________________
By: _______________________________
LENDERS:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as a Lender
By: _______________________________
By: _______________________________
BANK LEUMI TRUST COMPANY OF NEW
YORK, as a Lender
<PAGE> 4
By: _______________________________
By: _______________________________
BANKBOSTON, N.A., as a Lender
By: _______________________________
By: _______________________________
IBJ SCHRODER BANK & TRUST COMPANY,
as a Lender
By: _______________________________
By: _______________________________
4
<PAGE> 1
EXHIBIT 24.1
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below (each, a "Signatory") constitutes and appoints Matthew Burris ("Agent")
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for and in his name, place and stead, in any all capacities,
to sign this Report and any and all amendments thereto and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission. Each signatory further grants to the
Agent full power and authority to do and perform each and every act and thing
requisite and necessary, in the judgment of such Agent to be done in connection
with any such signing and filing, as full to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all that said
Agent, his other substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chief Executive Officer
- ----------------------------- and Chairman of the Board December 22, 1998
Dr. Paul Stern
Chief Operating Officer,
- ----------------------------- President and Director December 22, 1998
Paul Roman
- -----------------------------
Carl J. Rickertsen Director December 22, 1998
- -----------------------------
Frederick Malek Director December 22, 1998
- -----------------------------
William F. Dordelman Director December 22, 1998
- -----------------------------
Daniel J. Altobello Director December 22, 1998
- -----------------------------
William Nicholson Director December 22, 1998
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-25-1998
<PERIOD-START> SEP-27-1997
<PERIOD-END> SEP-25-1998
<CASH> 713
<SECURITIES> 0
<RECEIVABLES> 98,720
<ALLOWANCES> 8,000
<INVENTORY> 4,559
<CURRENT-ASSETS> 71,184
<PP&E> 12,001
<DEPRECIATION> 2,645
<TOTAL-ASSETS> 172,027
<CURRENT-LIABILITIES> 21,753
<BONDS> 98,263
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,665
<SALES> 137,726
<TOTAL-REVENUES> 151,731
<CGS> 51,649
<TOTAL-COSTS> 137,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,202
<INTEREST-EXPENSE> 16,164
<INCOME-PRETAX> (5,005)
<INCOME-TAX> (1,462)
<INCOME-CONTINUING> (3,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,543)
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>The Company has not disclosed EPS as there is no public market for its
common equity. However, the Company does have publicly traded senior unsecured
notes.
</FN>
</TABLE>
