<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 24, 1999
[ ] 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)
<TABLE>
<S> <C>
DELAWARE 11-2826129
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 BI-COUNTY BOULEVARD,
FARMINGDALE, NEW YORK 11735
</TABLE>
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
March 15, 2000 was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE> 2
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 74 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
butchers, fine 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 1,000 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 1999 included the purchase of
non-food items. After a customer places an order, a Company representative
delivers and stores the food directly to 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 and high-end restaurants. 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
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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 by premium food wholesalers according to the Company's stringent
specifications. 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
December 24, 1999 were approximately 21%, 23% and 21% of product sales
respectively. Reorder food revenues for each of the three years in the period
ended December 24, 1999 were 40%, 39% and 41%, respectively, of product sales.
NON-FOOD PRODUCTS
As a complement to the customer's food purchases, the Company sells a
diverse line of non-food items related to in-home dining and entertainment. The
purchase of non-food items enables customers to receive a lifetime discount on
their food purchases through the discount marketing program. The Company
currently offers approximately 20 food-related appliances or accessories, such
as freezers, microwave ovens, barbecue grills, cookware, china and crystal,
imported stainless flatware and cutlery. The Company's appliance line includes
home entertainment products such as large screen televisions. 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 December 24,
1999 were approximately 25%, 24%, and 24%, respectively, of product sales.
Reorder non-food revenues for each of the three years in the period ended
December 24, 1999 were 14% 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.
JAMI Marketing Services, Inc. is the primary source of outside lists, accounting
for 38% of the Company's new customers in fiscal 1999. Additional sources
include Donnelly Marketing Services, 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 1999, the Company's referral customers
were the source of approximately 31% of all new customers. Referrals are
particularly valuable to the Company due to the reduced marketing and sales
costs associated with the sale.
Discount Marketing Program
The Company's marketing efforts are facilitated by its discount marketing
program which provides customers with a lifetime discount on food products when
they purchase the Company's non-food products. The discount on the food products
generally offsets a customer's incremental monthly payments on non-food
purchases. The discount increases with each subsequent non-food purchase up to a
maximum possible
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discount of 50%. During fiscal 1999, 91% 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 about
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-arranged 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.
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 warehouse. 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 or at public warehouses
and are delivered by UPS or other delivery service. This significantly reduces
the Company's direct storage, handling and inventory carrying costs.
SUPPLIERS
In December 1998, the Company announced plans to outsource the production
and warehousing of its food items. By September of 1999, the Company had fully
outsourced the production of its food items, although the Company continues to
warehouse its food product and fulfill its food orders. In the first quarter of
fiscal 2000, the Company completed its outsourcing plan to one vendor who will
provide 100% of the food product to the Company. The Company is currently
evaluating other processing and fulfillment vendors to serve as secondary
providers.
The Company purchases its non-food products from a variety of vendors. The
Company strives to maintain relationships with several suppliers to ensure
product availability and to maintain flexibility with regard to cost control. In
fiscal 1999, the Company's two largest non-food suppliers, Broich Enterprises
and C'Ports, Inc., accounted for 38% and 17%, respectively, of total non-food
purchases. The Company believes it has a good relationship with each of its
suppliers and that alternate suppliers are readily available.
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
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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 2,100 employees. Approximately 70
manufacturing and delivery personnel are represented in collective bargaining
agreements (The Collective Bargaining Agreement) by Local 210 of the Warehouse
and Production Employees Union. The Company expects to close its warehouse as it
completes the outsourcing of the pick and pack operation during the first
quarter of fiscal 2000. Upon the closing of the warehouse, there will be
approximately 24 delivery personnel remaining under The Collective Bargaining
Agreement. The current contract expires on October 2, 2002. The Company believes
it has a satisfactory relationship with its union 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 twelve registered trademarks
covering trade names and designs including Colorado Prime and Colorado Prime
Foods. 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 sale of its food and durable goods
and the provision of financing to its customers. The Company's telemarketing
activities and practices are subject to Federal and various state authorities
and its direct marketing activities are subject to federal and state regulation
including the home sales solicitation laws. Additionally, the Company's
extension of credit to its customers is subject to federal and state
truth-in-lending laws, licensing and regulation under retail installment sales
acts, usury laws and similar statutes enacted by the states in which it does
business.
From time to time the Company is the subject of inquiries from regulatory
agencies in various states in which it conducts business. The Company is often
required to provide information concerning its business practices. Such
inquiries have generally not resulted in any material change in the Company's
business practices. The Company has agreed in the form of a settlement
agreement, consent decree, voluntary compliance or other similar agreement to
adjust individual customer accounts, replace merchandise, modify sales and
credit practices and/or pay costs, fines and penalties. None of these matters
have had a material adverse effect on the Company.
ITEM 2. PROPERTIES
The Company believes that its corporate headquarters, storage facilities,
regional sales offices and equipment are adequate for its current needs. The
Company believes all facilities are adequately insured.
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The following table summarizes the Company's primary facilities by
location.
COMPANY FACILITIES
<TABLE>
<CAPTION>
SQUARE LEASE
LOCATION OWNED/LEASED DESCRIPTION OF FACILITY FOOTAGE EXPIRATION
- -------- ------------ --------------------------- ------- -------------
<S> <C> <C> <C> <C>
Farmingdale, NY............ Leased Headquarters 29,000 August 2013
Farmingdale, NY............ Owned Preparation, storage, 32,000 --
shipping plant and repair
depot
Pompano Beach, FL.......... Leased Office, warehouse and 20,000 November 2006
vehicle repair depot
Farmingdale, NY............ Owned Grocery warehouse 6,800 --
</TABLE>
In addition to those facilities indicated in the table above, the Company
leases space for its 74 regional sales offices and 18 regional delivery depots.
The regional sales offices are under short-term commercial leases with terms of
three to five years, the delivery depots are month to month.
In connection with the outsourcing of food processing and fulfillment, the
Company is marketing for sale its Farmingdale preparation, storage and shipping
plant, vehicle repair depot and grocery warehouse.
ITEM 3. LEGAL PROCEEDINGS
In December 1999, the Company agreed to pay $75,000 in civil forfeitures,
penalties and costs to the State Attorney General of Wisconsin for allegedly
violating the state's direct selling and food service plan codes. As part of the
settlement, the Company did not admit to any wrongdoing. Additionally, the
Company is required to make restitution to certain customers, the amount of
which cannot be determined at this point; however, it is not expected to have a
material adverse effect on the financial position or results of operations of
the Company.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Not applicable.
As of March 15, 2000, 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
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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.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL FIFTY-TWO THIRTEEN FISCAL
YEAR WEEK PERIOD WEEK PERIOD YEAR TWENTY WEEK THIRTY-TWO
ENDED ENDED ENDED ENDED PERIOD ENDED WEEK PERIOD
DECEMBER 24, DECEMBER 25, DECEMBER 25, SEPTEMBER 25, SEPTEMBER 26, ENDED
1999 1998 1998 1998 1997 MAY 9, 1997
------------ ------------ ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Product Sales........ $131,206 $138,404 $35,056 $137,726 $54,407 $85,510
Finance income
earned............. 13,562 13,066 2,745(a) 14,005 5,600 8,637
-------- -------- ------- -------- ------- -------
Total revenue........ 144,768 151,470 37,801 151,731 60,007 94,147
Cost of goods sold... 49,569 52,271 13,446 51,649 21,195 32,949
-------- -------- ------- -------- ------- -------
Gross Profit......... 95,199 99,199 24,355 100,082 38,812 61,198
Selling, general and
administrative..... 82,169 89,730 23,568(a) 86,006 31,923 48,749
Restructuring
charges............ -- 5,343(a) 5,343(a) -- -- --
Severance-related
costs.............. -- 791(a) -- 791(a) -- --
Amortization of
goodwill........... 1,623 1,604 406 1,575 540 713
Interest expense..... 16,186 16,441 4,327 16,164 6,222 5,713
Other expense........ 541 728 125 551 245 426
-------- -------- ------- -------- ------- -------
Loss before provision
(benefit) for
income taxes and
extraordinary
item............... (5,320) (15,438) (9,414) (5,005) (118) 5,597
Provision (benefit)
for income taxes... (1,826) (5,063) (3,062) (1,462) 130 2,414
-------- -------- ------- -------- ------- -------
Net income (loss)
before
extraordinary
item............... (3,494) (10,375) (6,352) (3,543) (248) 3,183
Extraordinary item --
gain on
extinguishment of
debt -- net of
tax................ 4,556(d) -- -- -- -- --
-------- -------- ------- -------- ------- -------
Net income (loss).... $ 1,062 $(10,375) $(6,352) $ (3,543) $ (248) $ 3,183
-------- -------- ------- -------- ------- -------
<CAPTION>
FISCAL FISCAL
YEAR YEAR
ENDED ENDED
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
Operating Data
Product Sales........ $142,651 $144,966
Finance income
earned............. 12,792 11,524
-------- --------
Total revenue........ 155,443 156,490
Cost of goods sold... 56,387 59,906
-------- --------
Gross Profit......... 99,056 96,584
Selling, general and
administrative..... 80,901 80,988
Restructuring
charges............ -- --
Severance-related
costs.............. -- --
Amortization of
goodwill........... 1,164 1,164
Interest expense..... 9,130 8,017
Other expense........ 7,089(a) 767(a)
-------- --------
Loss before provision
(benefit) for
income taxes and
extraordinary
item............... 772 5,648
Provision (benefit)
for income taxes... 1,262 2,738
-------- --------
Net income (loss)
before
extraordinary
item............... (490) 2,910
Extraordinary item --
gain on
extinguishment of
debt -- net of
tax................ -- --
-------- --------
Net income (loss).... $ (490) $ 2,910
-------- --------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF FISCAL YEAR ENDED SEPTEMBER,
DECEMBER 24, DECEMBER 25, -----------------------------------------
1999 1998 1998 1997 1996 1995
------------ ------------ -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital................... $ 47,010 $ 50,929 $ 49,431 $ 51,235 $ 52,902 $ 48,065
Total assets...................... 164,382 174,959 172,027 169,773 150,784 143,841
Long-term debt (including current
portion)(b)..................... 128,455 132,882 125,600 118,675 93,541 82,102
Stockholder's equity.............. 16,375 15,313 21,665 25,625 40,669 44,278
</TABLE>
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<TABLE>
<CAPTION>
PRO FORMA
FIFTY-TWO
FISCAL YEAR WEEK THIRTEEN WEEK FISCAL YEAR TWENTY WEEK THIRTY-TWO
ENDED PERIOD ENDED PERIOD ENDED ENDED PERIOD ENDED WEEK PERIOD
DECEMBER 24, DECEMBER 25, DECEMBER 25, SEPTEMBER 25, SEPTEMBER 26, ENDED
1999 1998 1998 1998 1997 MAY 9, 1997
------------ -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Other Financial Data
EBITDA(c).......... $14,040 $ 9,542 $1,032 $14,309 $7,396 $13,397
EBITDA
margin(c).......... 9.7% 6.9% 2.7% 9.4% 12.3% 14.2%
<CAPTION>
FISCAL YEAR
ENDED SEPTEMBER,
-----------------
1996 1995
------- -------
<S> <C> <C>
Other Financial Data
EBITDA(c).......... $20,062 $17,424
EBITDA
margin(c).......... 12.9% 11.1%
</TABLE>
- ---------------
(a) The thirteen weeks and fifty-two weeks ended December 25, 1998 includes a
restructuring charge of $5.3 million. The restructuring plan involved (i)
outsourcing the production and fulfillment of its food products to a third
party and the closing of its Farmingdale, New York processing plant, (ii)
the consolidation of certain of its leased facilities and (iii) the
involuntary termination of certain employees at its Farmingdale, New York
corporate headquarters. The thirteen weeks ended December 25, 1998 includes
$1.2 million of one time charges primarily related to finance income from
the appliance receivables and other non-payroll costs. The fifty-two weeks
ended December 25, 1998 and fiscal year ended September 25, 1998 includes an
$0.8 million charge for severance-related cost incurred in connection with
the former Chief Executive Officer. Fiscal 1996 includes debt financing
expenses of $0.6 million and payments to management of $4.2 million 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 $1.7 million. Fiscal 1995 includes a write-off of capitalized
software costs of $0.2 million.
(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) The fiscal year ended December 24, 1999 includes an extraordinary gain
resulting from the repurchase of $14.7 million of Senior Notes at a cost of
$6.3 million. Additionally, the company incurred $0.8 million of non-cash
charges related to the repurchase. The Company realized an extraordinary
gain of $4.6 million which was net of a tax provision of $3.0 million.
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.
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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.
<TABLE>
<CAPTION>
PRO FORMA
FIFTY-TWO
WEEK PERIOD THIRTEEN PRO FORMA
ENDED WEEK PERIOD 52 WEEK
DECEMBER 25, ENDED PERIOD ENDED
FISCAL 1998 DECEMBER 25, FISCAL SEPTEMBER,
1999 (UNAUDITED) 1998 1998 1997
------ ------------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations and Other
Financial Data:
Total revenue....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........................ 65.8 65.5 64.4 66.0 64.9
Selling, general and administrative
expenses.......................... 56.8 59.2 62.3 56.7 52.4
Restructuring charges............... -- 3.5 14.1 -- --
Severance-related costs............. -- 0.5 -- 0.5 --
Interest expense.................... 11.2 10.9 11.4 10.7 7.7
Amortization of goodwill............ 1.1 1.1 1.1 1.0 0.8
Other expense....................... 0.4 0.5 0.3 0.4 0.4
Provision (benefit) for income
taxes............................. (1.3) (3.3) (8.1) (1.0) 1.6
Extraordinary item.................. 3.1 -- -- -- --
Net income (loss)................... 0.7 (6.8) (16.8) (2.3) 1.9
EBITDA.............................. 9.7 6.9 2.7 9.4 13.4
</TABLE>
Fifty-two Weeks Ended December 24, 1999 Compared to Fifty-two Weeks Ended
December 25, 1998.
Total revenue for the fifty-two weeks ended December 24, 1999 decreased by
$6.7 million, or 4.4%, to $144.8 million from $151.5 million for the fifty-two
weeks ended December 25, 1998. Food revenue for the fifty-two weeks ended
December 24, 1999 decreased by $4.7 million, or 5.6%, to $80.1 million from
$84.8 million for the fifty-two weeks ended December 25, 1998. Non-food revenue
for the fifty-two weeks ended December 24, 1999 decreased by $2.5 million, or
4.6%, to $51.1 million from $53.6 million for the fifty-two weeks ended December
25, 1998. The reduction in food revenue was due to lower average order size and
volume from new customers. The decrease in non-food revenue was due to lower
volume from new customers and lower average order size from existing customers.
Finance income for the fifty-two weeks ended December 24, 1999 increased by $0.5
million, or 3.8%, to $13.6 million from $13.1 for the fifty-two weeks ended
December 25, 1998 due to an increase in the balance of eligible accounts.
Gross profit for the fifty-two weeks ended December 24, 1999 decreased by
$4.0 million, or 4.0%, to $95.2 million from $99.2 million for the fifty-two
weeks ended December 25, 1998. The gross profit margin for the
8
<PAGE> 10
fifty-two weeks ended December 24, 1999 increased to 65.8% from 65.5% for the
fifty-two weeks ended December 25, 1998. The increase in the gross profit margin
was primarily due to the shift in production of certain of its food products
from the Company-owned facility to an outside processor in connection with the
December 1998 restructuring plan and an increase in finance income.
SG&A expenses are principally comprised of selling, telemarketing, delivery
and general and administrative expenses. For the fifty-two weeks ended December
24, 1999, these expenses decreased by $7.5 million, or 8.4%, to $82.2 million
from $89.7 million for the fifty-two weeks ended December 25, 1998. The decrease
was due to a $3.3 million reduction in fixed and variable salary and benefits, a
$1.3 million reduction in telecommunication costs from a new contract with its
long-distance carrier, a $1.3 million reduction in bad debt expense from
improved receivable performance, a $0.7 million reduction in promotional costs
and approximately $1.0 million reduction in other non salary costs.
During the fifty-two weeks ended December 25, 1998 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.
There were no such cost incurred during the fifty-two weeks ended December 24,
1999.
Interest expense for the fifty-two weeks ended December 24, 1999 decreased
by $0.2 million, or 1.6% to $16.2 million from $16.4 million for the fifty-two
weeks ended December 25, 1998. The reduction was due to lower indebtedness under
its Senior Notes resulting from the repurchase described below, partially offset
by increased indebtedness under its working capital revenue revolver and the
capital lease for its new corporate headquarters which originated in late fiscal
1998.
Other expense for the fifty-two weeks ended December 24, 1999 decreased by
$0.2 million to $0.5 million from $0.7 million for the fifty-two weeks ended
December 25, 1998.
Benefit for income taxes for the fifty-two weeks ended December 24, 1999
decreased by $3.3 million to a benefit of $1.8 million from a benefit of $5.1
million for the fifty-two weeks ended December 25, 1998. The decrease was due to
a lower pre-tax loss.
Net loss before extraordinary item for the fifty-two weeks ended December
24, 1999 decreased to $3.5 million from a loss of $10.4 million for the
fifty-two weeks ended December 25, 1998 for the reasons discussed above.
Extraordinary gain for the fifty-two weeks ended December 24, 1999 resulted
from the repurchase of $14.7 million of Senior Notes at a cost of $6.3 million.
Additionally, the Company incurred $0.8 million of non-cash charges related to
the repurchase. The Company realized an extraordinary gain of $4.6 million which
was net of a tax provision of $3.0 million.
EBITDA for the fifty-two weeks ended December 24, 1999 increased by $4.5
million or 47%, to $14.0 million from $9.5 million for the fifty-two weeks ended
December 25, 1998. EBITDA margin as a percentage of total revenue increased to
9.7% for the fifty-two weeks ended December 24, 1999 from 6.9% for the fifty-
two weeks ended December 25, 1998 for reasons stated above. See footnote (c) to
"Selected Financial Data".
Thirteen Weeks Ended December 25, 1998 Compared to Thirteen Weeks Ended
December 26, 1997.
Total revenue for the thirteen weeks ended December 25, 1998 decreased by
$0.3 million or 0.7%, to $37.8 million from $38.1 million for the thirteen weeks
ended December 26, 1997. Food revenue for the thirteen weeks ended December 25,
1998 increased by $0.5 million or 2.6% to $21.4 million from $20.9 million for
the thirteen weeks ended and December 26, 1997. Non-food revenue for the
thirteen weeks ended December 25, 1998 increased by $0.2 million or 1.0%, to
$13.7 million from $13.5 million for the thirteen weeks ended December 26, 1997.
The increase in food and non-food revenue was due to higher sales to new
customers. Finance income for the thirteen weeks ended December 25, 1998
decreased by $1.0 million or 25.5%, to $2.7 million from $3.7 million for the
thirteen weeks ended December 26, 1997. The decrease resulted primarily from a
one-time charge of $0.7 million due to a reduction in the balance of interest
eligible accounts.
9
<PAGE> 11
Gross profit for the thirteen weeks ended December 25, 1998 decreased by
$1.0 million, or 4.0%, to $24.4 million from $25.4 million for the thirteen
weeks ended December 26, 1997. Gross profit, before the one-time charge to
finance income discussed above, for the thirteen weeks ended December 25, 1998
decreased by $0.3 million, or 1.3%, to $25.1 million from $25.4 million for the
thirteen weeks ended December 26, 1997. The gross profit margin before the
one-time charge to finance income, decreased to 66.3% for the thirteen weeks
ended December 25, 1998 from 66.7% for the thirteen weeks ended December 26.
1997. The decrease in the gross profit margin was due to an increase in the
reserve for appliance returns as the Company experienced a slightly higher
return rate as compared to the previous quarter from the PC product line.
SG&A expenses are principally comprised of selling, telemarketing, delivery
and general and administrative expenses. For the thirteen weeks ended December
25, 1998, these expenses increased by $3.8 million or 19.1%, to $23.6 million
from $19.8 million for the thirteen weeks ended December 26, 1997. The increase
was primarily due to $1.6 million higher bad debt costs due to an increase in
the age and rate of delinquent accounts and was consistent with the quarterly
expense for the previous two quarters, $0.6 million higher incentive and
recruiting costs for sales personnel, $0.2 million of new sales office operating
cost and a $1.0 million increase in telemarketing costs, primarily related to
higher costs for new telemarketing centers supporting the startup of three new
sales offices opened during the thirteen weeks ended December 25, 1998 and
higher telephone costs for existing telemarketing centers due to certain fees
and taxes enacted in January 1998. As a percentage of total revenues, SG&A
expenses increased to 62.3% for the thirteen weeks ended December 25, 1998 from
52.0% for the thirteen weeks ended December 26, 1997.
Restructuring
During the period ended December 25, 1998, management authorized and
committed the Company to undertake three significant restructurings and recorded
a combined restructuring charge of $5.3 million. The restructuring plan involved
(i) outsourcing the production and fulfillment of its food products to a third
party and the closing of its Farmingdale, New York processing plant, (ii) the
consolidation of certain of its leased facilities and (iii) the involuntary
termination of certain employees at its Farmingdale, New York corporate
headquarters. Each as described more fully below;
Plant Restructuring
In order to reduce operating costs and enhance product offering, the
Company planned to close its processing plant and outsource to one or more third
parties. The Company recorded a $2.6 million restructuring charge to recognize
severance and benefits for the plant employees to be terminated, estimated
incremental operating costs during the transition period and an asset write-down
to reflect the net realizable value of certain plant assets. In September 1999,
the Company had fully outsourced the production of certain of its food items to
a third party, however the Company continued to warehouse and pick its own
orders. In March 2000, the Company completed the outsourcing of the production,
warehousing and order fulfillment to a third party vendor.
Operational Restructuring
In order to improve productivity and asset utilization, the Company planned
to reduce the costs associated with certain of its leased facilities. The
Company has recorded a $1.7 million restructuring charge to recognize
obligations for unused space, asset write-downs to reflect the net realizable
value of certain assets within the closed facilities, other move-related costs
and severance and benefits for the employees to be terminated. In August 1999,
the Company closed the nine underperforming sales offices and through
consolidation of its telemarketing branches, vacated twenty locations.
Headquarters Restructuring
In order to reduce operating costs, the Company planned to restructure
certain of its support functions at its corporate headquarters. The Company
recorded a restructuring charge of $1.0 million to recognize
10
<PAGE> 12
severance and benefits for employees to be terminated. During fiscal 1999, the
Company terminated approximately 35% of its corporate headquarters support
staff.
In connection with the above restructuring, for the year ended December 24,
1999 the Company made severance related payments of approximately $0.6 million,
incurred approximately $0.6 million of incremental operating cost in connection
with the transition, wrote off $0.3 million of plant assets, and made payments
of approximately $0.1 million for unused real estate. In fiscal 2000, the
Company expects to make severance related payments of approximately $1.0
million, write off approximately $1.0 million of assets in connection with the
closing of its plant and pay out approximately $0.4 million for unused real
estate if management is unable to negotiate more favorable terms with its
landlords.
Interest expense for the thirteen weeks ended December 25, 1998 increased
to $4.3 million from $4.1 million for the thirteen weeks ended December 26,
1997. The increase was attributable to a greater level of borrowing at a higher
rate of interest as compared to the financing in effect during the previous
period.
Other expense for the thirteen weeks ended December 25, 1998 and December
26, 1997 was $0.1 million.
Provision (Benefit) for income taxes for the thirteen weeks ended December
25, 1998 decreased by $3.6 million to a benefit of $3.1 million as compared to a
provision of $0.5 million for the thirteen weeks ended December 26, 1997. The
decrease was due to a pre-tax loss in the current period and pre-tax income in
the prior period.
Net loss for the thirteen weeks ended December 25,1998 was $6.4 million as
compared to net income of $0.5 million for the thirteen weeks ended December 26,
1997 for the reasons discussed above.
EBITDA for the thirteen weeks ended December 25, 1998 decreased by $4.8
million or 82.2%, to $1.0 million from $5.8 million for the thirteen weeks ended
December 26, 1997. EBITDA margin as a percentage of total revenue decreased to
2.7% for the thirteen weeks ended December 25, 1998 from 15.2% for the thirteen
weeks ended December 26, 1997 for the reasons stated above. See Footnote (C) to
"Selected Financial Data".
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 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
11
<PAGE> 13
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".
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the fifty-two weeks ended
December 24, 1999 was $2.7 million, primarily comprised of an increase in
accounts receivable of $5.2 million and a decrease in accounts payable, accrued
expenses and other liabilities of $7.5 million, partially offset by non cash
charges of $6.5 million including a $4.6 net of tax extraordinary gain on early
extinguishment of debt, net income of $1.0 million, a $1.5 million reduction in
inventory, a $0.9 million reduction in refundable income taxes, and a $0.3
million increase in income tax payable.
Cash provided by financing activities for the fifty-two weeks ended
December 24, 1999 was $3.5 million, primarily comprised of borrowings under the
working capital revolver of $9.8 million to fund the $6.3 million repurchase of
Senior Notes.
The Company's primary use of cash in investing activities is the purchase
of property and equipment. Capital expenditures in fiscal 1999 totalled $1.0
million. The Company expects that capital expenditure requirements will be
approximately $0.5 million for fiscal 2000.
The Company's average working capital borrowings for fiscal 1999 was $41.3
million. The increase is due primarily to borrowings to fund the repurchase of
Senior Notes and to fund the semi-annual interest payments on the Senior Notes.
The Company's maximum working capital borrowings outstanding during the period
was $42.6 million.
The Company has a $50.0 million working capital revolver, with $6.0 million
of available borrowings as of December 24, 1999. The working capital revolver
contains certain covenants requiring the Company to meet certain financial tests
including a minimum fixed charge coverage ratio, a maximum leverage ratio, and a
limitation on capital expenditures. The working capital revolver and the notes
impose certain other restrictions on the Company, including restrictions on its
ability to incur indebtedness, pay dividends, make investments, grant liens,
sell its assets and engage in certain other activities. In addition, the
indebtedness of the Company under its working capital revolver is secured by all
of the assets of the Company, including the Company's real
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<PAGE> 14
and personal property, inventory, accounts receivable, intellectual property and
other intangibles. As of December 24, 1999 the Company was in compliance with
the provisions of the working capital revolver.
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 2000
in order to improve its debt service position and to reduce its net interest
expense.
During January 1999, the Company repurchased in aggregate $14.7 million
(face value) of its Notes at a cost of $6.3 million. Additionally, the Company
wrote-off approximately $0.8 million of unamortized debt issuance cost related
to the repurchased Notes. The Company realized an extraordinary gain of $4.6
million which was net of a tax provision of approximately $3.0 million.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the three fiscal years ended December 24, 1999.
OTHER -- YEAR 2000
Our comprehensive program to address Year 2000 issues was successful in
that our business activities continued without disruption through the days
before and after January 1, 2000. In terms of supply chain readiness, on the
basis of the information available to us, we do not expect disruptions caused by
the failures of third parties to remediate their Year 2000 issues.
Costs related to the Year 2000 program were not significant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's principal financial instrument is long-term debt under a
Working Capital Revolver that provides for interest at a base rate or libor (as
defined in the agreement) plus a margin (as outlined in the agreement). The
Company is affected by market risk exposure primarily through the effect of
changes in interest rates on amounts payable by the Company under this Working
Capital Revolver. A significant rise in the rate could materially adversely
affect the Company's business, financial condition and results of operations. At
December 24, 1999, an aggregate principal amount of $40.5 million was
outstanding under the Company's Working Capital Revolver and represented a
weighted average annual interest of 9.7%. The Company does not utilize
derivative financial instruments to hedge against changes in interest rates or
for any other purpose.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed under Item 14 in
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT.
The following table sets forth the names, ages as of December 24, 1999 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>
Paul Roman............................. 49 Chairman of the Board and Chief Executive Officer
Steven Lachenmeyer..................... 33 Vice President of Finance
Charles Montanino...................... 72 Vice President of Plant Operations
Joseph Ugenti.......................... 55 Senior Vice President of Operations
Jack Crown............................. 61 Vice President of Credit and Collections
Will Paquin............................ 54 Vice President, Chief Information Officer
Dave Bryant............................ 41 Vice President of Sales
Robert Wilson.......................... 43 Vice President -- Midwest Division
Ronald Mel............................. 33 Vice President -- Southeast Division
John DeMaio............................ 45 Vice President -- West Division
Dave Sebra............................. 39 Vice President -- Northeast Division
Frederic Malek......................... 63 Director
Carl J. Rickertsen(A).................. 39 Director
Dr. Paul Stern......................... 60 Director
William Dordelman...................... 59 Director
Daniel J. Altobello.................... 58 Director
William Nicholson...................... 56 Director
</TABLE>
- ---------------
(A) Effective January 31, 2000, Carl J. Rickertsen resigned as Director of the
Company.
PAUL ROMAN was named Chairman of the Board and Chief Executive Officer in
July 1999. Mr. Roman joined the Company as 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.
STEVEN LACHENMEYER was named Vice President of Finance and acting Chief
Financial Officer in October 1999. Mr. Lachenmeyer joined the Company as Vice
President and Controller in June 1997 and later named Secretary in December
1997. Prior to that, Mr. Lachenmeyer was an audit manager with Arthur Andersen
LLP.
CHARLES MONTANINO has been Vice President of Plant Operations since March
1987. Mr. Montanino joined CPC in April 1973 and served as plant manager from
1980 through March 1987.
JOSEPH UGENTI was named Senior Vice President of Operations in June 1999.
Mr. 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.
JACK CROWN joined the Company as Vice President of Credit and Collections
in September 1999. Prior to joining CPC, Mr. Crown served as National Director
of Credit and Collections for Aaron's Rents from 1995 to 1999. Mr. Crown held
position of Vice President of Operations for Bass & Associates from 1994 to
1995, was Group Vice President for Rollins Inc. from 1983 to 1994 and Vice
President with Citibank. Before joining Citibank, Mr. Crown held management
positions with G.E. Capital/F.W. Woolworth and Sears Roebuck.
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<PAGE> 16
WILL PAQUIN joined the Company as Vice President and Chief Information
Officer in December 1999. Prior to joining the Company, Mr. Paquin was the
President of W.C. Paquin & Associates, a provider of consulting services in the
area of Information Systems, Call Center Integration, Telecommunication and
E-Commerce. Prior to forming his own company, Mr. Paquin was Vice President of
National Accounts for Noble Systems Corporation, a provider of Call Center
consulting services in application development, business re-engineering, and
Electronic Commerce Integration. From 1981-1996, Mr. Paquin held various
management positions at Rollins Inc., an Atlanta based Fortune 500 company and
served as CIO for several divisions of the company.
RONALD MEL was named Vice President of the Southeast Division, prior to
that he was Vice President of the Midwest Division since 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 West 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.
DAVE SEBRA was named Vice President of the Northeast Division in December
1999, prior to that he was Regional Director of New England and New Jersey
Regions. Since joining CPC as a sales representative in 1983, Mr. Sebra has
served as Branch Manager from 1985 to 1990, Regional Manager of New Jersey from
1990-1993 and in 1997 became Reco Manager for the Northeast Division.
ROBERT WILSON was named Vice President of the Midwest Division in April
1999. Since joining CPC in 1992 as a sales representative, Mr. Wilson has served
as Branch Manager from 1993 until 1997 when he became Central Regional Manager.
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, CB Richard Ellis, Inc., Saga
Systems, Inc., and Aegis Communications, Inc.
DR. PAUL STERN resigned as Chairman of the Board and Chief Executive
Officer in July 1999. Dr. Stern remains a Director. 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, Saga
Systems, Inc. and MLC Holdings, Inc.
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.
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
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<PAGE> 17
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.
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. Ms.
Gallagher and Mr. Altobello comprise the Audit Committee.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid or earned during fiscal 1999 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 1999. The Company did not maintain any long-term incentive plans nor did
it grant stock appreciation rights or restricted stock awards during fiscal
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION FOR THE YEAR ENDED
DECEMBER 24, 1999
---------------------------------------
OTHER ANNUAL
NAME SALARY BONUS COMPENSATION(1)
- ---- -------- -------- ---------------
<S> <C> <C> <C>
Paul Roman............................................. $309,000 $157,000(2) $0
Chairman of the Board and Chief Executive Officer
Joseph Ugenti.......................................... $136,000 $ 59,000 $0
Senior Vice President of Operations
Steven Lachenmeyer..................................... $118,000 $ 33,000 $0
Vice President of Finance
Ricardo DeSantis....................................... $230,000 $ 0 $0
Former Vice President of Marketing
Matthew Burris......................................... $197,000 $ 27,000 $0
Former Chief Financial Officer
</TABLE>
- ---------------
(1) Represents perquisites and other personal benefits, if such benefit exceeds
the lesser of $50,000 or 10% of the total annual salary and bonus for the
executive officer.
(2) Represents bonus earned in fiscal 1999 paid in fiscal 2000.
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<PAGE> 18
OPTION/SAR GRANTS DURING
FISCAL 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR GRANT
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION DATE
OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE(3) VALUE(5)
--------------- --------------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C>
Paul Roman(2).................. 6,750 52% $100 December, 2008 $ 0(6)
Chairman of the Board and 3,250 25% $ 25 May, 2008 $20,000
Chief Executive Officer
Matthew Burris(2)(4)........... 3,000 23% $100 October, 2008 (7)
Former Chief Financial
Officer
</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. The 6,750
options granted to Mr. Roman vest as to 3,375 shares on September 30, 1999
and September 30, 2000, respectively. The 3,250 options granted to Mr. Roman
vest on September 30, 2001. The 3,000 options granted to Mr. Burris 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) 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.
(4) With respect to the options granted to Mr. Burris, all of such options have
expired without exercise.
(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 $6.29
per option.
(6) In September 1999 the options were repriced to an exercise price of $0.01
per share.
(7) Grant date value not presented as options have expired without exercise.
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.
EMPLOYMENT AGREEMENTS
The Company has executed an employment agreement with Mr. Paul Roman for a
three year term, and provides for (i) payment of a base annual salary; (ii)
payment of bonuses based upon achievement of certain profitability and other
performance targets of the Company; and (iii) certain fringe benefits. The
employment agreement provides that the executive may be terminated by the
Company only with cause or upon payment of a full year's salary and benefits
following notice of termination, and 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. The Company executed
agreements with Messrs. Bryant, Lachenmeyer, and Paquin which provide for
payment up to 12 months of salary in the event employment is terminated by the
Company for reasons other than good
17
<PAGE> 19
cause. The Company executed an agreement with Mr. Crown that provides for
guaranteed base salary of $0.1 million per year for 30 months, guaranteed $0.3
million for the term October 6, 1999 through March 6, 2002.
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.
EMPLOYEE BENEFIT PLAN
On November 1, 1999, the Company merged the defined contribution pension
plan into the Company's 401(k) plan. The Company sponsors a 401(k) plan ("The
Plan") available for all employees who have attained the age of 21 and have
completed six months of service with the Company. The Plan was adopted effective
February 1, 1986 and was amended effective February 1, 1988, January 1, 1989,
and November 1, 1999 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. The Plan provides for a Company match equal to forty percent
of the first five percent of the employees annual compensation. In addition to
the Company's mandatory 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 vest equally over a three year period. Benefits are payable upon a
participant's termination of employment for any reason, in the form of one lump
sum payment or in installments extending over a fixed period of years, depending
upon the employee's election.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's issued and outstanding capital stock is owned by CPH.
The issued and outstanding capital stock of each of the Company's subsidiaries
is owned by the Company. The table sets forth, as of December 24, 1999, 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.
18
<PAGE> 20
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF OUTSTANDING
COMMON STOCK OF COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIAL OWNER CPH(1)(3) CPH(1)(3)
- ------------------------------------ --------------- ---------------
<S> <C> <C>
Thayer Equity Investors III, L.P.(2)........................ 128,068(3)(4) 79.6%
1455 Pennsylvania Avenue N.W
Washington, D.C. 20004
Paul Roman.................................................. 3,375 2.1%
Colorado Prime Corporation
500 Bi-County Blvd
Farmingdale, NY 11735
Daniel J. Altobello......................................... 400 0.2%
6550 Rock Spring Drive
Bethesda, MD 20817
William Nicholson........................................... 320 0.2%
256 Eucalyptus Drive
Santa Barbara, CA 93108
William Dordelman........................................... 10,000 6.2%
95 Rowayton Avenue
Building A
Rowayton, CT 06853
Steven Lachenmeyer.......................................... 126 0.1%
Colorado Prime Corporation
500 Bi-County Blvd
Farmingdale, NY 11735
Joseph Ugenti............................................... 295 0.2%
Colorado Prime Corporation
500 Bi-County Blvd
Farmingdale, NY 11735
Matthew Burris.............................................. 800 0.5%
Colorado Prime Corporation
500 Bi-County Blvd
Farmingdale, NY 11735
All directors and executive officers as a group(5)..........
</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) Less than 1%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT ADVISORY FEES
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
19
<PAGE> 21
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 fee paid to TC Management
is comparable to fees that would be paid to unaffiliated third parties for
similar services.
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 10-K
(a) (1)-(2) Financial Statements:
The Financial Statements and Schedules listed in the accompanying
index to Consolidated Financial Statements and Supplemental Data on page
F-1 are filed as part of this report.
(b) Reports on Form 8-K:
None
(c) Exhibits:
See Index to Exhibits on page E-1.
20
<PAGE> 22
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
By: /s/ STEVEN LACHENMEYER
------------------------------------
Steven Lachenmeyer
Vice President of Finance
(Principal Accounting Officer)
Date: March 23, 1999
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
---------- ----- ----
<C> <S> <C>
* Chief Executive Officer and March 21, 2000
- --------------------------------------------------- Chairman of the Board (Principal
Paul Roman Executive Officer)
* Vice President of Finance March 21, 2000
- --------------------------------------------------- (Principal Accounting Officer)
Steven Lachenmeyer
* Director March 21, 2000
- ---------------------------------------------------
Dr. Paul Stern
* Director March 21, 2000
- ---------------------------------------------------
Frederic Malek
* Director March 21, 2000
- ---------------------------------------------------
William F. Dordelman
* Director March 21, 2000
- ---------------------------------------------------
Daniel J. Altobello
* Director March 21, 2000
- ---------------------------------------------------
William Nicholson
*By: /s/ STEVEN LACHENMEYER Attorney-in-Fact March 21, 2000
----------------------------------------------
Steven Lachenmeyer
</TABLE>
21
<PAGE> 23
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 December 24, 1999 and September 25, 1998.
Statements of Consolidated Operations for the fiscal year ended December
24, 1999, thirteen week period ended December 25, 1998, fiscal year ended
September 25, 1998 and the twenty-week period ended September 26, 1997.
Statements of Consolidated Stockholder's Equity for the fiscal year ended
December 24, 1999, thirteen week period ended December 25, 1998, fiscal
year ended September 25, 1998 and the twenty-week period ended September
26, 1997.
Statements of Consolidated Cash Flows for the fiscal year ended December
24, 1999, thirteen week period ended December 25, 1998, fiscal year ended
September 25, 1998 and the twenty-week period ended September 26, 1997.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
Statement of Consolidated Operations for the thirty-two week period ended
May 9, 1997.
Statement of Consolidated Stockholder's Equity for the thirty-two week
period ended May 9, 1997.
Statement of Consolidated Cash Flows for the thirty-two week period ended
May 9, 1997.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants on Schedule.
Schedule II for the fiscal year ended December 24, 1999, thirteen week
period ended December 25, 1998, fiscal year ended September 25, 1998 and
the twenty-week period ended September 26, 1997.
Report of Independent Public Accountants on Schedule.
Schedule II for the thirty-two week period ended May 9, 1997.
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> 24
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 December 24,
1999 and September 25, 1998, and the related statements of consolidated
operations, stockholder's equity and cash flows for the fiscal year ended
December 24, 1999, the thirteen week period ended December 25, 1998, the fiscal
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 auditing standards generally
accepted in the United States. 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 December 24, 1999 and September 25, 1998, and the results
of their operations and their cash flows for the fiscal year ended December 24,
1999, the thirteen week period ended December 25, 1998, the fiscal year ended
September 25, 1998 and the twenty-week period ended September 26, 1997 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Melville, New York
March 15, 2000
23
<PAGE> 25
COLORADO PRIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 24, SEPTEMBER 25,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 754 $ 713
Accounts receivable -- net................................ 51,379 53,698
Inventories............................................... 3,217 4,559
Prepaid expenses and other current assets................. 1,830 1,931
Refundable income taxes................................... -- 926
Deferred income tax asset................................. 7,533 9,357
-------- --------
Total current assets.............................. 64,713 71,184
-------- --------
Property, plant and equipment -- net........................ 8,792 9,356
Noncurrent accounts receivable -- net....................... 36,380 37,022
Goodwill -- net............................................. 43,986 46,015
Other assets................................................ 6,677 8,450
Deferred income tax asset................................... 3,834 --
-------- --------
Total assets...................................... $164,382 $172,027
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,868 $ 4,938
Accrued expenses.......................................... 12,084 16,415
Income and other taxes payable............................ 622 255
Current portion of capital lease obligations.............. 129 145
-------- --------
Total current liabilities......................... 17,703 21,753
-------- --------
Revolver (Note 9)........................................... 40,477 23,416
Senior unsecured notes, net of discount..................... 84,155 98,263
Long-term portion of capital lease obligations.............. 3,694 3,776
Other liabilities........................................... 1,978 3,154
Commitments and contingencies (Note 15)
Stockholder's equity:
Common stock -- par value, $.01, per share; 1,000 shares
authorized, issued and outstanding..................... -- --
Paid-in capital........................................... 25,868 25,868
Accumulated deficit....................................... (9,493) (4,203)
-------- --------
Total stockholder's equity........................ 16,375 21,665
-------- --------
Total liabilities and stockholder's equity........ $164,382 $172,027
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
24
<PAGE> 26
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL THIRTEEN WEEK FISCAL TWENTY-WEEK
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 24, DECEMBER 25, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1998 1997
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Product sales......................... $131,206 $35,056 $137,726 $54,407
Finance income earned................. 13,562 2,745 14,005 5,600
-------- ------- -------- -------
Total revenue....................... 144,768 37,801 151,731 60,007
Cost of goods sold.................... 49,569 13,446 51,649 21,195
-------- ------- -------- -------
Gross profit........................ 95,199 24,355 100,082 38,812
-------- ------- -------- -------
Other costs and expenses:
Selling, general and administrative... 82,169 23,568 86,006 31,923
Restructuring charges (Note 8)........ -- 5,343 -- --
Severance-related costs............... -- -- 791 --
Amortization of goodwill.............. 1,623 406 1,575 540
Interest expense...................... 16,186 4,327 16, 164 6,222
Other expense......................... 541 125 551 245
-------- ------- -------- -------
Total costs and expenses............ 100,519 33,769 105,087 38,930
-------- ------- -------- -------
Loss before provision (benefit) for
income taxes and extraordinary
item................................ (5,320) (9,414) (5,005) (118)
Provision (benefit) for income
taxes............................... (1,826) (3,062) (1,462) 130
-------- ------- -------- -------
Net loss before extraordinary item.... (3,494) (6,352) (3,543) (248)
Extraordinary item -- gain on
extinguishment of debt -- net of tax
(Note 10)........................... 4,556 -- -- --
-------- ------- -------- -------
Net income (loss)..................... $ 1,062 $(6,352) $ (3,543) $ (248)
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE> 27
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDER'S EQUITY
FOR THE FISCAL YEAR ENDED DECEMBER 24, 1999,
THIRTEEN-WEEK PERIOD ENDED DECEMBER 25, 1998,
FISCAL YEAR ENDED SEPTEMBER 25, 1998,
AND THE TWENTY-WEEK PERIOD ENDED SEPTEMBER 26, 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 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 at September 25, 1998...... 1,000 -- 25,868 (4,203) 21,665
Net loss........................... -- -- -- (6,352) (6,352)
----- --- ------- -------- -------
Balance at December 25, 1998....... 1,000 -- 25,868 (10,555) 15,313
Net income......................... -- -- -- 1,062 1,062
----- --- ------- -------- -------
Balance at December 24, 1999....... 1,000 $-- $25,868 $ (9,493) $16,375
===== === ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 28
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN
FISCAL WEEK FISCAL TWENTY-WEEK
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 24, DECEMBER 25, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1998 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ 1,062 $ (6,352) $(3,543) $ (248)
------- -------- ------- --------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization.................. 3,176 833 3,150 1,626
Amortization of debt issuance costs............ 1,201 253 1,234 417
Extraordinary gain, net........................ (4,556) -- -- --
Deferred income taxes.......................... (1,984) (3,062) (737) (706)
Provision for doubtful accounts................ 8,522 2,850 8,202 3,017
Change in operating assets and liabilities:
Accounts receivable.......................... (5,197) (3,214) (7,637) (3,057)
Inventories.................................. 1,478 (136) (21) (153)
Prepaid expenses and other................... (7) 108 (532) (102)
Refundable income taxes...................... 926 -- 1,557 --
Other assets................................. (135) 142 (725) (518)
Accounts payable............................. (58) (12) (1,060) 1,082
Accrued expenses............................. (6,688) 2,365 (914) (1,705)
Other liabilities............................ (768) (408) (583) (235)
Income and other taxes payable............... 302 65 71 183
------- -------- ------- --------
Total adjustments.................................. (3,788) (216) 2,005 (151)
------- -------- ------- --------
Net cash used in operating activities.............. (2,726) (6,568) (1,538) (399)
------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in property, plant, and equipment.... (991) (370) (1,126) (409)
Net assets acquired.............................. -- -- -- (2,352)
------- -------- ------- --------
Net cash used in investing activities............ (991) (370) (1,126) (2,761)
------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayment) under revolver......... 9,842 7,219 3,077 (3,661)
Repurchase of senior notes....................... (6,259) -- -- --
Decrease in capital lease obligations............ (106) -- (255) (103)
Dividend to CPH.................................. -- -- (412) --
Return of capital to CPH......................... -- -- (5) --
Net proceeds from senior unsecured notes......... -- -- -- 87,566
Proceeds from issuance of revolver............... -- -- -- 24,000
Capital contribution from parent................. -- -- -- 25,873
Repayment of note payable........................ -- -- -- (58,707)
Repayment of Senior Notes........................ -- -- -- (43,260)
Distribution to former shareholders.............. -- -- -- (33,120)
------- -------- ------- --------
Cash provided by (used in) financing
activities..................................... 3,477 7,219 2,405 (1,412)
------- -------- ------- --------
NET (DECREASE) INCREASE IN CASH.................... (240) 281 (259) (4,572)
CASH, BEGINNING OF PERIOD.......................... 994 713 972 5,544
------- -------- ------- --------
CASH, END OF PERIOD................................ $ 754 $ 994 $ 713 $ 972
======= ======== ======= ========
</TABLE>
SUPPLEMENTAL CASH FLOW DATA
Income tax cash payments totaled approximately $89 for the fiscal year ended
December 24, 1999, $24 for the thirteen week period ended December 25, 1998, $91
for the fiscal year ended September 25, 1998 and $13 for the twenty-week period
ended September 26, 1997.
Interest cash payments totaled approximately $14,735 for the fiscal year
ended December 24, 1999, $6,748 for the thirteen week period ended December 25,
1998, $14,122 for the fiscal 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> 29
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
In December 1999 the Company approved a change of its fiscal year end from
the last Friday in September to the last Friday in December. The 1999 fiscal
year began December 26, 1998 and ended on December 24, 1999. The financial
statements through September 26, 1997 include only the twenty-week period
subsequent to the merger on May 9, 1997. Fiscal 2000 will be a 53 week year and
end on December 29, 2000.
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.
28
<PAGE> 30
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
At December 24, 1999, 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.................................. $51,379 $51,379(a)
Noncurrent accounts receivable -- net....................... 36,380 36,380(a)
Revolver.................................................... 40,477 40,477(b)
Senior unsecured notes, net of discount..................... 84,155 84,155(b)
</TABLE>
- ---------------
(a) Based on the Company's credit policies and the terms of its receivables,
management believes that the fair value of the Company's receivables
approximates the 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 December 24, 1999, management believes that the
carrying value of its debt instruments approximates its fair value.
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:
<TABLE>
<CAPTION>
CATEGORY USEFUL LIFE
- -------- -----------
<S> <C>
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
</TABLE>
Goodwill
Goodwill is amortized using the straight-line method over a period of
thirty years. At December 24, 1999 and September 25, 1998, goodwill is shown net
of accumulated amortization of $4,144 and $2,115, respectively. Goodwill is
reviewed for impairment based upon estimated undiscounted future cash flows from
operations.
29
<PAGE> 31
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 13).
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" for the
year ended December 24, 1999. This pronouncement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses). The statements requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be classified by their nature. Furthermore, the Company is
required to display the accumulated balances of other comprehensive income
separately from retained earnings and additional paid in capital in the equity
section of the statement of financial position. For the periods presented the
Company's operations did not give rise to items includable in comprehensive
income which were not already included in net income.
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.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board 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, 2000 (as amended by SFAS No. 137) 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.
30
<PAGE> 32
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassification
Certain prior year financial statement amounts have been reclassified to
conform with the current year's presentation.
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.
4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 24, SEPTEMBER 25,
1999 1998
------------ -------------
<S> <C> <C>
Short-term food receivables................................ $25,770 $26,450
Appliance and accessories receivables...................... 71,300 72,270
------- -------
Total accounts receivable........................ 97,070 98,720
Less: Allowance for doubtful accounts...................... 9,311 8,000
------- -------
Accounts receivable -- net....................... 87,759 90,720
Noncurrent accounts receivable -- net...................... 36,380 37,022
------- -------
Current accounts receivable -- net......................... $51,379 $53,698
======= =======
</TABLE>
5. INVENTORIES
Inventories, net of allowance for slow moving, excess and obsolete
inventory, consists of the following:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 24, SEPTEMBER 25,
1999 1998
------------ -------------
<S> <C> <C>
Food....................................................... $2,143 $2,785
Appliances, tableware, entertainment products and
cookware................................................. 1,074 1,774
------ ------
Total............................................ $3,217 $4,559
====== ======
</TABLE>
31
<PAGE> 33
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 24, SEPTEMBER 25,
1999 1998
------------ -------------
<S> <C> <C>
Land.................................................... $ 603 $ 603
Buildings............................................... 617 617
Assets under capital leases............................. 4,424 4,389
Machinery and equipment................................. 983 741
Software................................................ 354 340
Furniture and fixtures.................................. 4,903 4,016
Delivery equipment...................................... 1,020 848
Automobiles............................................. 70 70
Leasehold improvements.................................. 387 377
------- -------
Total......................................... 13,361 12,001
Less: accumulated depreciation and amortization......... 4,569 2,645
------- -------
Property, plant and equipment -- net.................... $ 8,792 $ 9,356
======= =======
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 24, SEPTEMBER 25,
1999 1998
------------ -------------
<S> <C> <C>
Payroll................................................. $ 1,085 $ 1,866
Interest................................................ 1,900 5,294
Restructuring........................................... 3,186 --
Other................................................... 5,913 9,255
------- -------
Total......................................... $12,084 $16,415
======= =======
</TABLE>
8. RESTRUCTURING
In December 1998, management authorized and committed the Company to
undertake three significant restructurings and recorded a combined restructuring
charge of $5.3 million. The restructuring plan involved (i) outsourcing the
production and fulfillment of its food products to a third party and the closing
of its Farmingdale, New York processing plant, (ii) the consolidation of certain
of its leased facilities and (iii) the involuntary termination of certain
employees at its Farmingdale, New York corporate headquarters. Each as described
more fully below;
Plant Restructuring
In order to reduce operating costs and enhance product offering, the
Company planned to close its processing plant and outsource to one or more third
parties. The Company recorded a $2.6 million restructuring charge to recognize
severance and benefits for the plant employees to be terminated, estimated
incremental operating costs during the transition period and an asset write-down
to reflect the net realizable value of certain plant assets. In September 1999,
the Company had fully outsourced the production of certain of its food items to
a third party, however the Company continued to warehouse and pick its own
orders. In
32
<PAGE> 34
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 2000, the Company completed the outsourcing of the production, warehousing
and order fulfillment to a third party vendor.
Operational Restructuring
In order to improve productivity and asset utilization, the Company planned
to reduce the costs associated with certain of its leased facilities. The
Company has recorded a $1.7 million restructuring charge to recognize
obligations for unused space, asset write-downs to reflect the net realizable
value of certain assets within the closed facilities, other move-related costs
and severance and benefits for the employees to be terminated. In August 1999,
the Company closed the nine underperforming sales offices and through
consolidation of its telemarketing branches, vacated twenty locations.
Headquarters Restructuring
In order to reduce operating costs, the Company planned to restructure
certain of its support functions at its corporate headquarters. The Company
recorded a restructuring charge of $1.0 million to recognize severance and
benefits for employees to be terminated. During fiscal 1999, the Company
terminated approximately 35% of its corporate headquarters support staff.
As of December 24, 1999, $3.2 million of the original $5.3 million reserve
remained.
In connection with the above restructuring, for the year ended December 24,
1999 the Company made severance related payments of approximately $0.6 million,
incurred approximately $0.6 million of incremental operating cost in connection
with the transition, wrote off $0.3 million of plant assets, and made payments
of approximately $0.1 million for unused real estate.
9. 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.
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 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 December 24, 1999 and September 25, 1998, the weighted
average rate of interest was approximately 9.7% and 7.4%, 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 maximum leverage ratio, and a limitation on capital
expenditures. The Working Capital Revolver and the Senior Unsecured Notes (the
"Notes") impose certain
33
<PAGE> 35
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. As of December
24, 1999 the Company was in compliance with the provisions of the working
capital revolver.
As of December 24, 1999, the Company had drawn $40,477 against the Working
Capital Revolver and had $5,725 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 December 24, 1999, the Company paid
$3,308 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).
10. SENIOR UNSECURED NOTES
In connection with the merger discussed in Note 1, the Company issued
$100,000 of 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.
During January 1999, the Company repurchased in aggregate $14,700 (face
value) of its Notes at a cost of $6,300. The Company realized an extraordinary
gain of $4,600 which was net of unamortized debt issuance cost and unaccredited
discount of $800 and a tax provision of approximately $3,000.
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
34
<PAGE> 36
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are full, unconditional, joint and several. Summary financial data for Kal-Mar,
Concord and Prime are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 24, 1999
----------------------------
KAL-MAR CONCORD PRIME
------- -------- -----
<S> <C> <C> <C>
Current assets......................................... $ 36 $ 56,214 $ 12
Non-current assets..................................... 1,006 35,334 --
Current liabilities.................................... -- (2,765) (711)
Non-current liabilities................................ -- (39,338) --
------ -------- -----
Net assets (liabilities)............................... $1,042 $ 49,445 $(699)
====== ======== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 24, 1999
---------------------------
KAL-MAR CONCORD PRIME
------- ------- -----
<S> <C> <C> <C>
Net revenues............................................. $160 $19,129 $--
Gross profit............................................. 160 19,129 --
Income before tax........................................ 61 6,705 --
</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.
11. 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. Certain of the options will become vested based upon service
or the achievement of certain performance objectives of the Company. Certain 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. In October 1998 and December 1998, CPH issued 9,750 common stock
options at an exercise price of $100 per share and in September 1999, CPH issued
3,250 common stock options at an exercise price of $25 per share and changed the
exercise price of 6,750 options to $0.01 per share which, in the opinion of CPH
and Company's management, taking into consideration the value of the Company
less debt and the interests of CPH preferred shares, was the fair value of CPH
common stock at the date of the change in exercise price.
<TABLE>
<S> <C>
Outstanding at 9/26/97............................. --
Granted............................................ 35,720
Exercised.......................................... --
Canceled........................................... (18,706)
Outstanding at 9/25/98............................. 17,014
Granted............................................ 13,000
Exercised.......................................... --
Canceled........................................... 9,006
Outstanding at 12/24/99............................ 21,008
</TABLE>
At September 25, 1998, 5,390 shares were exercisable and 14,397 shares were
available for grant under the Plan.
35
<PAGE> 37
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<S> <C>
Net income: As reported........................... $ 1,062
Pro forma........................... $ 1,041
</TABLE>
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 $6.29 per option.
12. PENSION PLAN
On November 1, 1999, the Company merged its defined contribution pension
plan into the Company's 401(k) plan. The Company sponsors a 401(k) plan (the
"Plan") available for all employees who have attained the age of 21 and have
completed six months of service with the Company. The Plan was adopted effective
February 1, 1986 and was amended effective February 1, 1988, January 1, 1989,
and November 1, 1999 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. The Plan provides for a Company match equal to forty percent
of the first five percent of the employee's annual compensation. In addition to
the Company's mandatory contribution, the Company may, but need not, make
discretionary contributions to the Plan.
The cost to the Company under the employee benefit plans for the year ended
December 24, 1999, the thirteen week period ended December 25, 1998, the year
ended September 25, 1998 and the twenty-week period ended September 26, 1997 was
$150, $322, $1,063, and $394, respectively.
36
<PAGE> 38
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
FISCAL THIRTEEN WEEK FISCAL TWENTY-WEEK
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 24, DECEMBER 25, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1998 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current:
Federal...................... $ -- $ -- $ (939) $692
State........................ 157 33 110 144
------- ------- ------- ----
157 33 (829) 836
------- ------- ------- ----
Deferred:
Federal...................... 862 (2,534) (518) (578)
State........................ 191 (561) (115) (128)
------- ------- ------- ----
1,053 (3,095) (633) (706)
------- ------- ------- ----
$ 1,210 $(3,062) $(1,462) $130
Less: Tax provision on early
extinguishment of debt (Note
10).......................... (3,036) -- -- --
------- ------- ------- ----
Total.......................... $(1,826) $(3,062) $(1,462) $130
======= ======= ======= ====
</TABLE>
Significant components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 24, SEPTEMBER 25,
1999 1998
------------ -------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts............................ $ 3,596 $2,433
Inventory................................................ 98 123
Accrued interest......................................... 2,761 2,761
Net operating loss....................................... 3,834 --
Accrued expenses and other, net.......................... 1,396 4,454
------- ------
11,685 9,771
Deferred tax liabilities:
Depreciation............................................. (318) (414)
------- ------
Net deferred tax asset..................................... $11,367 $9,357
======= ======
</TABLE>
37
<PAGE> 39
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the federal statutory tax rate and the effective
rate is as follows:
<TABLE>
<CAPTION>
FISCAL THIRTEEN WEEK FISCAL TWENTY-WEEK
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 24, DECEMBER 25, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1998 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Federal income tax provision at
U.S. statutory rate.......... 34.0% (34.0)% (34.0)% (34.0)%
State income taxes, net of
federal benefit.............. 4.3 .2 -- 9.1
Nondeductible goodwill
amortization................. 10.4 1.5 10.7 138.9
Meals and entertainment........ 0.9 0.1 0.9 15.2
Effect of extinguishment of
debt......................... (57.1) -- -- --
All other, net................. (26.8) (.3) (6.8) (29.1)
----- ----- ----- -----
Effective income tax rate...... (34.3)% (32.5)% (29.2)% 100.1%
===== ===== ===== =====
</TABLE>
14. 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 December 24,
1999, are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING DECEMBER,
-----------------------------
<S> <C>
2000........................................................ $ 458
2001........................................................ 456
2002........................................................ 456
2003........................................................ 471
2004........................................................ 491
Thereafter.................................................. 4,456
------
Total future minimum lease payments......................... 6,788
Less: amount representing interest.......................... 2,965
------
Present value of future minimum lease payments (including
$129 payable currently)................................... $3,823
======
</TABLE>
15. COMMITMENTS AND CONTINGENT LIABILITIES
Future minimum operating lease payments at December 24, 1999 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING DECEMBER,
- -----------------------------
<S> <C>
2000........................................................ $3,571
2001........................................................ 2,930
2002........................................................ 2,420
2003........................................................ 1,806
2004........................................................ 1,090
Thereafter.................................................. 5,010
</TABLE>
38
<PAGE> 40
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense for the fiscal year ended December 24, 1999, the thirteen week
period ended December 25, 1998, the fiscal year ended September 25, 1998 and the
twenty-week period ended September 26, 1997 was $3,213, $852, $3,231 and $1,217,
respectively.
The Company has entered into employment agreements with certain senior
executives, which provide for aggregate annual base salary of $875 plus
performance based incentives.
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 position or results of
operations.
16. RELATED PARTY TRANSACTIONS
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 fee paid to TC Management
is comparable to fees that would be paid to unaffiliated third parties for
similar services.
39
<PAGE> 41
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.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Colorado
Prime Corporation and subsidiaries for the thirty-two week period ended May 9,
1997 in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Melville, New York
November 26, 1997
40
<PAGE> 42
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
32 WEEK
PERIOD ENDED
MAY 9, 1997
------------
<S> <C>
Product sales............................................... $85,510
Finance income earned....................................... 8,637
-------
Total revenue............................................. 94,147
Cost of goods sold.......................................... 32,949
-------
Gross profit.............................................. 61,198
-------
Other costs and expenses:
Selling, general and administrative......................... 48,749
Amortization of goodwill.................................... 713
Interest expense............................................ 5,713
Other expense............................................... 426
-------
Total costs and expenses.................................. 55,601
-------
Income before provision for income taxes.................. 5,597
Provision for income taxes.................................. 2,414
-------
Net income................................................ $ 3,183
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
41
<PAGE> 43
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED STOCKHOLDER'S EQUITY
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 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.
42
<PAGE> 44
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
32 WEEK
PERIOD ENDED
MAY 9, 1997
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $3,183
------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 1,992
Amortization of deferred loan costs....................... 300
Deferred income taxes..................................... 845
Provision for doubtful accounts........................... 3,073
Change in operating assets and liabilities:
Accounts receivable.................................... (6,225)
Inventories-net........................................ (747)
Prepaid expenses and other current assets.............. (77)
Other assets........................................... (33)
Accounts payable....................................... (1,560)
Accrued expenses....................................... (232)
Other liabilities...................................... 37
Income and other taxes payable......................... 1,407
------
Total adjustments........................................... (1,220)
------
Net cash provided by operating activities................... 1,963
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investments in property, plant and
equipment.............................................. (580)
------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable................................. (1,051)
Decrease in capital lease obligations..................... (258)
------
Net cash used in financing activities..................... (1,309)
NET INCREASE IN CASH........................................ 74
CASH, BEGINNING OF PERIOD................................... 1,716
------
CASH, END OF PERIOD......................................... $1,790
======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income tax payments totaled approximately $496 for the thirty-two week
period ended May 9, 1997.
Interest payments totaled approximately $5,534 for the thirty-two week
period ended May 9, 1997.
The accompanying notes are an integral part of the consolidated financial
statements.
43
<PAGE> 45
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 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.
Inventories
Inventories are stated at the lower of cost or market, with the cost
determined on the first-in, first-out basis.
44
<PAGE> 46
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
CATEGORY USEFUL LIFE
- -------- -----------
<S> <C>
Buildings................................................... 17-25 years
Assets under capital leases................................. 5-14 years
Machinery and equipment..................................... 5-8 years
Software.................................................... 7 years
Furniture and fixtures...................................... 5-8 years
Delivery equipment.......................................... 4-8 years
Automobiles................................................. 4 years
Leasehold improvements...................................... 5-19 years
</TABLE>
Goodwill
Goodwill is amortized 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 4).
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. 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
45
<PAGE> 47
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
entitled to their full benefits under the Plan. Such forfeited amounts are used
to reduce the Company's contributions to the Plan. In addition, the Plan allows
for eligible employees to make voluntary contributions within specified limits.
Pension expense was approximately $615 for the thirty-two week period ended May
9, 1997.
4. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
32 WEEK
PERIOD ENDED
MAY 9, 1997
------------
<S> <C>
Current:
Federal................................................... $1,419
State..................................................... 150
------
1,569
------
Deferred:
Federal................................................... 692
State..................................................... 153
------
845
------
Total....................................................... $2,414
======
</TABLE>
A reconciliation between the federal statutory tax rate and the effective
rate is as follows:
<TABLE>
<CAPTION>
32 WEEK
PERIOD ENDED
MAY 9, 1997
------------
<S> <C>
Federal income tax provision at U.S. statutory rate......... 34.0%
State income taxes, net of federal benefit.................. 3.6
Nondeductible goodwill amortization......................... 4.7
Nondeductible compensation.................................. --
Meals and entertainment..................................... 0.5
All other, net.............................................. 0.3
----
Effective income tax rate................................... 43.1%
====
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Rent expense for the thirty-two week period ended May 9, 1997 was
approximately $1,864.
46
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Colorado Prime Corporation:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated balance sheets of Colorado Prime
Corporation and subsidiaries as of December 24, 1999 and September 25, 1998, and
the related statements of consolidated operations, stockholder's equity and cash
flows for the fiscal year ended December 24, 1999, the thirteen week period
ended December 25, 1998, the fiscal year ended September 25, 1998 and the
twenty-week period ended September 26, 1997 included in this Annual Report on
Form 10-K, and have issued our report thereon dated March 15, 2000. 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
March 15, 2000
47
<PAGE> 49
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 END OF PERIOD
- ----------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
For the fiscal year ended December 24, 1999
Allowance for Doubtful Accounts.......... $8,624 $8,522 $(7,835)(1) $9,311
Sales Returns and Allowances............. $ 804 $2,379 $(2,379) $ 804
Restructuring Reserve.................... $5,343 $ 0 $(2,157) $3,186
For the thirteen week period ended
December 25, 1998
Allowance for Doubtful Accounts.......... $8,000 $2,850 $(2,226)(1) $8,624
Sales Returns and Allowances............. $ 804 $ 511 $ (511) $ 804
Restructuring Reserve.................... $ 0 $5,343 $ 0 $5,343
For the fiscal year ended September 25,
1998
Allowance for Doubtful Accounts.......... $7,536 $8,202 $(7,738)(1) $8,000
Sales Returns and Allowances............. $ 804 $1,858 $(1,858) $ 804
For the twenty-week period ended
September 26, 1997
Allowance for Doubtful Accounts.......... $7,275 $3,017 $(2,756)(1) $7,536
Sales Returns and Allowances............. $ 804 $ 847 $ (847) $ 804
</TABLE>
- ---------------
(1) Write-offs, net of recovery of amounts previously written off.
48
<PAGE> 50
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 included in this Annual Report on Form 10-K and have issued
our report thereon dated November 26, 1997. Our audit was made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
accompanying schedule is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Melville, New York
November 26, 1997
49
<PAGE> 51
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
</TABLE>
- ---------------
(1) Write-offs, net of recovery of amounts previously written off.
50
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
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.
9.1 Agreement between CPC and Local 210, Warehouse and
Production Employees Union, AFL-CIO, CLC dated October 2,
1999
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)
10.16 Stock Option Agreement between Matthew Burris and CPH dated
October 1998
10.17 Stock Option Agreement between Paul Roman and CPH dated
December 1998
21. List of subsidiaries of the Company.(1)
</TABLE>
51
<PAGE> 1
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.
-1-
<PAGE> 2
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:
-2-
<PAGE> 3
A. Employees employed as of October 1, 1995.
Length of service Vacation with Pay
- ----------------- -----------------
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.
-3-
<PAGE> 4
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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<PAGE> 5
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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<PAGE> 6
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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<PAGE> 7
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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<PAGE> 8
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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<PAGE> 9
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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<PAGE> 10
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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<PAGE> 11
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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<PAGE> 12
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
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<PAGE> 1
AGREEMENT made effective as of the 2 nd day of October 1999 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 (6 n ) 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 (1 0) 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 (5 th ) day shall be compensated for at the rate of time and
one-half the driver's regular hourly rate.
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,
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<PAGE> 2
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 the said dispute, claim,
demand or controversy shall not be completely settled 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 part 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:
A. Employees employed as of October 1, 1995.
Length of service Vacation with Pay
One (1) year but less than ten (1 0) years- Two (2) weeks.
Ten (1 0) years to seventeen(17) years Three (3) weeks.
Seventeen years (17) or more- Four (4) weeks.
B. Employees employed after October 1, 1995.
Length of Service - See Addendum II
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<PAGE> 3
One (1) year but less than three (3) years- One (1) week.
Three (3) years but less than ten (1 0) years- Two (2) weeks.
Ten (10) years to seventeen (17) years 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 4 th
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.
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
3
<PAGE> 4
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: If the Employer moves or relocates the plant in Farmingdale to a
location in Nassau, Suffolk or Queens counties, the Employer will offer
employees on the payroll on the date of the move or relocation a job in the
moved or relocated plant. The employee will have the choice of accepting the job
or receiving severance pay in accordance with the March 26,1999 Severance
Agreement. If the Employer moves or relocates its Farmingdale plant outside of
Queens, Nassau, or Suffolk counties the plant employees will be entitled to
severance pay pursuant to the March 26, 1999 Severance Agreement. The March 26,
1999 Severance Agreement Benefits will be extended to the employer's depot
drivers, if the depot in which the drivers works, is closed, the driver shall,
at the driver's option, be entitled to bump a less senior depot driver in the
bargaining unit or receive severance pay in accordance with the March 26, 1999
Severance Agreement.
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 11
SIXTEENTH: After twelve (1 2) 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.
4
<PAGE> 5
EIGHTEENTH: All employees shall receive a wage increase of fifty-two (.52) cents
of their hourly rate on October 2, 1999. The minimum starting salary for
employees shall be $6.50 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. All salaried employees on the payroll as of October
2, 2000 shall receive wage increase of forty ($0.40) cents per hour.
All salaried employees on the payroll as of October 2, 2001 shall receive a wage
increase of forty
($0.40) cents per hour.
Minimum salary for any Union employee on the payroll as of October 2, 1999 shall
be $280.00 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 three (3) years, 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 re-negotiate 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 (1 8)
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.
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<PAGE> 6
TWENTY-FIFTH: Any employee called into work on the sixth (6 th ) 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.
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 Leadsman.
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
employees regular wage for employees serving on jury duty. A note will be
required from the courts stating how much time an employee upon his return to
work served.
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.
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<PAGE> 7
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
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 should 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: Not withstanding 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
7
<PAGE> 8
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
re-negotiate 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
8
<PAGE> 9
ADDENDUM I
UNITY WELFARE FUND CONTRIBUTION
A. EFFECTIVE 10/2/99-
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
twenty-eight cents ( $328.28 ). For a month encompassing five (5)
weeks, the total is four hundred ten dollars and thirty-five cents
($410.35 ).
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 seven cents ($69.07) 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 twenty-eight
cents ($328.28). For a month encompassing five (5) weeks, the total is
four hundred ten dollars and thirty-five cents ($410.35).
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 (seven cents ($62.07) 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 twenty-eight
cents ($328.28). For a month encompassing five (5) weeks, the total is
four hundred ten dollars and thirty-five cents ($410.35).
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
9
<PAGE> 10
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 ).
For the second and third year of the contract, the parties shall negotiate to
establish rates for contributions to the Unity Welfare Fund. If the parties
cannot reach an agreement on the rates to be contributed to the Fund for the
second and third years of the contract, the parties agree to submit the issue of
the contribution rate to an arbitrator selected pursuant to Article Sixth of the
contract. The arbitrator's decision on the contribution rate shall be final and
binding.
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.
F. 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.
10
<PAGE> 11
COLORADO PRIME CORPORATION WAREHOUSE & PRODUCTION
EMPLOYEES UNION -
LOCAL 210 AFL-CIO, CLC
- ------------------------------- ---------------------------------
Signed Date Secretary - Treasurer Date
11
<PAGE> 12
AMENDMENT
UNION TRAILER DRIVERS
1. 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,
11. 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.
Ill. 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
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<PAGE> 13
Handling Loads
If driver handles the load he must management sign off, will be paid $15.00 per
stop, for handling.
COLORADO PRIME CORPORATION LOCAL 210 WAREHOUSE &
PRODUCTION EMPLOYEES
UNION AFL-CIO, CLC
- ------------------------------- --------------------------------
Signed Date Secretary- Treasurer Date
13
<PAGE> 14
OVER THE ROAD LOAD RATES
<TABLE>
<CAPTION>
10/98 - 9/99 10/99 - 9/00 10/00 - 9/01 10/01- 9/02
<S> <C> <C> <C> <C>
MICHIGAN - Wisconsin 791.70 814.32 830.32 846.32
NORTH CAROLINA - OCALA 899.64 926.10 942.10 958.10
ERIE 372.40 382.68 390.68 398.68
COLUMBUS 489.65 503.64 511.64 519.64
MARYLAND 279.32 290.32 296.32 302.32
BINGHAMTON 192.50 198.00 206.00 214.00
ST. LOUIS 748.44 771.12 787.12 803.12
</TABLE>
14
<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,
2
<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
3
<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
5
<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
9
<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
10
<PAGE> 11
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
11
<PAGE> 12
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
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<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
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<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.
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<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.
-2-
<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.
-3-
<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.
-4-
<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
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<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
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<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:
----------------------------------
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<PAGE> 12
Title:
----------------------------------
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<PAGE> 13
COLORADO PRIME HOLDINGS, INC.
By:
-------------------------------
Title:
EMPLOYEE:
------------------------------------
Paul A. Roman
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<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
OPTION NO. __
OPTIONEE: Matthew Burris
DATE OF GRANT: October , 1998
OPTION PRICE: $100.00
COVERED SHARES: 3,000
COLORADO PRIME HOLDINGS, INC.
1997 INCENTIVE STOCK OPTION PLAN
* * *
INCENTIVE STOCK OPTION AGREEMENT
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1. "Affiliate" means parent or subsidiary corporations of
the Company, as defined in Sections 424(e) and (f) of the Code (but substituting
"the Company" for "employer corporation").
1.2. "Agreement" means this Incentive Stock Option
Agreement.
1.3. "Board" means the Board of Directors of the Company.
1.4. A "Change of Control" means the occurrence of any of
the following events after the Date of Grant: (i) any person or group of persons
(as defined in Section 13(d) and 14(d) of the Exchange Act) together with its
affiliates, excluding employee benefit plans of the Company, other than Thayer,
becomes, directly or indirectly, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing 51% or
more of the combined voting power of the Company's then outstanding securities;
(ii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation or entity regardless of which entity is the
survivor, other than a merger or consolidation which would result in the voting
securities of the
<PAGE> 2
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation; (iii) an IPO Event; or (iv) the stockholders of the Company
approve a plan of complete liquidation or winding-up of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
1.5. "Closing Date" means May 9, 1997.
1.6. "Code" means the Internal Revenue Code of 1986, as
amended.
1.7. "Committee" means the committee charged, pursuant to the
provisions of the Plan, with the administration of the Plan.
1.8. "Common Stock" means the common stock, par value $0.01
per share, of the Company.
1.9. "Company" means Colorado Prime Holdings, Inc.
1.10. "Covered Shares" means the number of Shares subject to
the Option set forth as the "Covered Shares" on page 1 of this Agreement.
1.11. "Date of Exercise" means the date on which the Company
receives notice pursuant to Section 4.1 of the exercise, in whole or in part, of
the Option.
1.12. "Date of Expiration" means the date on which the Option
shall expire, which shall be the earliest of the following times:
(a) the date the Optionee's Employment is terminated
by the Company or any Affiliate for Good Cause;
(b) ninety (90) days after the termination of the
Optionee's Employment by reason of resignation, retirement, death or Disability;
(c) ninety (90) days after the date the Optionee's
Employment is terminated by the Company or any Affiliate other than for Good
Cause; or
(d) ten (10) years after the Date of Grant.
1.13. "Date of Grant" means the date set forth as the "Date
of Grant" on page 1 of this Agreement.
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<PAGE> 3
1.14. "Disability" means (i) incapacity due to physical or
mental illness or injury where the Optionee shall have been absent from his full
time duties at the Company for four (4) consecutive months; or (ii) the
Optionee's health should become impaired to an extent that makes the continued
performance of his duties at the Company hazardous to his physical or mental
health or his life, provided that the Optionee shall have furnished the Company
with a written statement from a qualified doctor to such effect and provided
further, that, at the Company's request made within thirty (30) days of the date
of such written statement, the Optionee shall submit to an examination by a
doctor selected by the Company who is reasonably acceptable to the Optionee or
the Optionee's doctor and such doctor shall have concurred in the conclusion of
the Optionee's doctor.
1.15. "Employment" means the Optionee's employment with the
Company and its Affiliates, including service as a director.
1.16. "Exchange Act" means the Securities Exchange Act of
1934, as amended.
1.17. "Fair Market Value" means the fair market value of a
Share as determined by the Committee pursuant to a reasonable method adopted in
good faith for such purpose.
1.18. "Good Cause" means a termination based on an
Optionee's (i) willful misconduct or gross negligence in the performance or
intentional nonperformance (continuing for ten (10) days after receipt of
written notice of need to cure) of any of the Optionee's material duties and
responsibilities for the Company; (2) willful dishonesty, fraud, alcohol or
illegal drug abuse, or misconduct with respect to the business or affairs of the
Company, which materially and adversely affects the operations, prospects or
reputation of the Company; or (3) conviction of a felony or other crime
involving moral turpitude.
1.19. "Internal Rate of Return" means the interest rate
(compounded annually) which, when used to calculate the net present value of all
Cash Inflows and all Cash Outflows (each as defined below), causes such net
amount to equal zero. "Cash Inflows" as used herein shall include all cash
payments received by Thayer in relation to its investment in the Company on or
prior to the date of determination. "Cash Outflows" as used herein shall include
the sum of all cash payments and investments made by Thayer to and in the
Company and its affiliates. For purposes of the net present value calculation,
the dates of each payment and each investment specified above will be deemed to
have occurred as of the end of the fiscal month of such payment. If the Optionee
and Thayer (collectively, the "Valuating Parties") are unable to reach agreement
on the
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<PAGE> 4
Internal Rate of Return, each of the Valuating Parties shall, within five (5)
days after either invokes this procedure, (i) select one person with experience
and expertise in making internal rate of return or similar calculations to
determine the Internal Rate of Return and (ii) provide written notice of the
selection to the other Valuating Party. Within fifteen (15) days after their
selection, the two persons selected by the Valuating Parties shall select a
third person with such experience and expertise. Upon selection of the third
person, the three selected persons shall have five (5) days in which to deliver
a joint written determination of the Internal Rate of Return to each of the
Valuating Parties. If the three selected persons are unable to agree as to the
calculation of the Internal Rate of Return, then the determination of the third
person jointly selected shall govern. The determination made in accordance with
the foregoing shall be conclusive, final and binding on the Valuating Parties
and shall be enforceable in any court having jurisdiction over a proceeding
brought to seek such enforcement. The cost of the Internal Rate of Return
determination shall be borne by the Company.
1.20. "IPO Event" means the consummation of an underwritten
public offering, pursuant to an effective registration statement under the
Securities Act, that is underwritten by one or more nationally-recognized
investment banking firms and results in the Company receiving not less than
$25,000,000 in aggregate cash proceeds from such offering.
1.21. "Option" means the incentive stock option granted to
the Optionee in Section 2 of this Agreement.
1.22. "Option Price" means the dollar amount per Share set
forth as the "Option Price" on page 1 of this Agreement.
1.23. "Optionee" means the person identified as the
"Optionee" on page 1 of this Agreement.
1.24. "Plan" means the Colorado Prime Holdings, Inc. 1997
Incentive Stock Option Plan.
1.25. "Projections" means the following fiscal year
operating income projections: Fiscal Year 1998 = $21,815,000; Fiscal Year 1999 =
$25,495,000; Fiscal Year 2000 = $29,542,000; Fiscal Year 2001 = $34,280,000;
Fiscal Year 2002 = $40,223,000. Operating income shall be calculated pursuant to
the Company's audited financial results and in conformity with the methodology
utilized in the Goldman, Sachs & Co. Confidential Memorandum dated December
1996.
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<PAGE> 5
1.26. "Securities Act" means the Securities Act of 1933, as
amended.
1.27. "Share" means a share of Common Stock.
1.28. "Thayer" means Thayer Equity Investors III, L.P.
2. Grant of Option. Pursuant to the Plan and subject to the terms
of this Agreement, the Company hereby grants to the Optionee the Option to
purchase from the Company that number of Shares equal to the Covered Shares,
exercisable at the Option Price.
3. Terms of the Option.
3.1. Type of Option. The Option is intended to be an
incentive stock option within the meaning of Section 422 of the Code; provided,
however, that to the extent that, during any calendar year, the Option becomes
exercisable for the first time with respect Shares having an aggregate fair
market value in excess of the limit imposed by Section 422(d) of the Code, (a)
the Option shall be treated as a nonstatutory stock option and not as an
incentive stock option to the extent required by Section 422(d) of the Code, and
(b) upon any exercise of the Option, the Optionee shall be required to designate
the extent to which, if any, the exercise of the Option is with respect that
portion of the Option that is a nonstatutory stock option pursuant to the
preceding clause (a). If, as of the same date, the Optionee exercises the Option
with respect to a portion of the Option that is an incentive stock option and
with respect to a portion of the Option that is a nonstatutory stock option, the
Company shall issue separate certificates to the Optionee representing (i) those
Shares that were acquired pursuant to the exercise of an incentive stock option
(which Shares shall be identified on the Company's stock transfer records as
such), and (ii) those Shares that were acquired pursuant to the exercise of a
nonstatutory stock option.
3.2. Exercise Period. During the period commencing on the
Date of Grant and terminating on the Date of Expiration, the Option may be
exercised with respect to all or a portion of the Covered Shares (in full
shares), to the extent that the Option has vested and has not been previously
exercised with respect to such Covered Shares.
3.3. Vesting Schedule.
(a) Two-fifteenths of the Options shall vest as of
the date of this Agreement.
- 5 -
<PAGE> 6
(b) On each of the second, third, fourth and fifth
anniversaries of the Closing Date, the Option shall vest as to one-fifteenth of
the Covered Shares, rounded up to the nearest whole number of Shares (or, if
less, the remainder of the Covered Shares with respect to which the Option has
not yet vested).
(c) With respect to each of the Company's four fiscal
years commencing with the fiscal year of the Company ending September 25, 1998,
the Option shall vest as to one-fifteenth of the Covered Shares, rounded up to
the nearest whole number of Shares (or, if less, the remainder of the Covered
Shares with respect to which the Option has not yet vested) in the event that
the Company has achieved or exceeded the Projections for that fiscal year. The
achievement of the Projections shall be based on the Company's audited financial
results and the Option as to a particular fiscal year shall vest as of the
declaration by the Committee of the achievement of such Projections.
In the event that as of any such fiscal year, the Company
shall not have achieved the Projections for such year, the following provisions
shall be applicable. In the event that for any such fiscal year the Company
shall have failed to achieve the Projections by less than $500,000, the Option
shall vest as to one-thirtieth of the Covered Shares, rounded up to the nearest
whole number of Shares. In the event that for any such fiscal year the Company
shall have failed to achieve the Projections by $500,000 or more, the Option set
forth in this Section 3.3(c) for such year shall not vest; provided, however,
that in either case in the event that as of any subsequent fiscal year within
such four (4) fiscal year period, the Company shall have achieved or exceeded
the Projections for such year and for the prior year(s) on a cumulative basis,
the Option shall vest for such year and for the theretofore unvested portion
thereof for such prior year(s).
(d) In addition to Sections 3.3(b) and (c), the
Option shall vest as to 33.333% of the Covered Shares in the event that Thayer
shall have achieved an Internal Rate of Return on its investment in the Company
in an amount exceeding 40%.
(e) Notwithstanding the provisions of Sections 3.3(b)
and (c), (i) the portions of the Option set forth in said Sections 3.3(b) & (c)
shall vest in full upon a Change of Control and (ii) no part of the Option shall
vest after the date of termination for any reason of the Optionee's Employment.
- 6 -
<PAGE> 7
4. Exercise.
4.1. Notice. The Option shall be exercised, in whole or in
part, by the delivery to the Company of written notice of such exercise, in such
form as the Committee may from time to time prescribe, accompanied by (i) full
payment of the Option Price with respect to that portion of the Option being
exercised and (ii) any amounts required to be withheld pursuant to applicable
tax laws in connection with such exercise. Options may be exercised only with
respect to whole numbers of Shares. Until the Committee notifies the Optionee to
the contrary, the form attached to this Agreement as Exhibit A shall be used to
exercise the Option.
4.2. Payment of the Option Price. Upon exercise of the
Option, the Optionee shall pay the Option Price and any applicable withholding
tax amounts in cash. With the prior written approval of the Committee, which
approval shall be in the Committee's sole discretion, the Optionee may also pay
the Option Price, in whole or in part, by delivering duly endorsed certificates
representing, or duly executed stock transfer instruments in respect of, a whole
number of Shares having an aggregate value on the Date of Exercise (determined
based on the Fair Market Value) not more than the portion of the Option Price
being paid by delivery of such Shares, or in a combination of cash and Shares.
Notwithstanding the preceding sentence, no Shares may be used to pay any portion
of the Option Price unless those Shares were issued to the Optionee at least six
months prior to the Date of Exercise.
5. Restrictions on Transfer.
5.1. Options. Except by will or the laws of descent and
distribution, the Option may not be sold, transferred, assigned, pledged or
otherwise disposed of or encumbered by the Optionee, and any attempt to do so
shall be null and void. The Option may be exercised during the Optionee's
lifetime only by the Optionee or, in the event of the Optionee's legal
disability, by the Optionee's legal representative. The terms of the Option
shall be binding upon any successor or permitted assignee of the Optionee.
5.2. Shareholders Agreement. The Optionee understands and
agrees that, upon his or her exercise of the Option and receipt of Shares, he or
she will become a party to the Shareholders Agreement dated as of May 9, 1997,
by and among the Company, Thayer Equity Investors III, L.P. and certain
shareholders of the Company (the "Shareholders Agreement"). The Optionee hereby
agrees to be bound as a "Shareholder" to all the terms and conditions and to be
subject to the benefits of the Shareholders Agreement as a "Manager," including
the transfer restrictions of the Shareholders Agreement and the rights and
obligations of the Managers with respect to certain events relating to the
disposition of the Shares
- 7 -
<PAGE> 8
upon the Optionee's termination or resignation of employment with the Company or
its Affiliates. The Optionee acknowledges that a copy of the Shareholders
Agreement has been made available to the Optionee for inspection.
6. Capital Adjustments. In the event of any change in the
outstanding Common Stock by reason of any stock dividend, split-up (or reverse
stock split), reclassification, reincorporation, liquidation or similar change
in corporate structure, the Committee shall, in its discretion, provide for a
substitution for or adjustment in (i) the number and class of Covered Shares and
(ii) the Option Price.
7. Investment Intent; Legends.
7.1. Representations. The Optionee agrees that, upon the
issuance of any Shares upon the exercise of the Option, the Optionee will, upon
the request of the Company, represent and warrant in writing that the Optionee
(i) has received and reviewed a copy of the Plan; (ii) is capable of evaluating
the merits and risks of exercising the Option and acquiring the Shares and able
to bear the economic risks of such investment; (iii) has made such
investigations as he or she deems necessary and appropriate of the business and
financial prospects of the Company; and (iv) is acquiring the Shares for
investment only and not with a view to resale or other distribution thereof. The
Optionee acknowledges that the Company has made available to the Optionee the
opportunity to obtain information to evaluate the merits and risks associated
with this Agreement and the transactions contemplated hereby. The Optionee
further acknowledges that the investment contemplated by the Option involves a
high degree of risk, including risks associated with the Company's business
operations and prospects, the lack of a public market for the Shares, and the
limitations on the transferability of the Option and the Shares.
7.2. Legends. The Optionee agrees that the certificates
evidencing the Shares issued upon exercise of the Option may include any legend
which the Committee deems appropriate to reflect any transfer or other
restrictions contained in the Plan, this Agreement or the Shareholders Agreement
or to comply with applicable laws.
8. Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Covered Shares until and unless a certificate or
certificates representing such shares are issued to the Optionee pursuant to
this Agreement. Except as provided in Section 6, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
9. Employment. Neither the granting of the Option evidenced by this
Agreement nor any term or provision of this Agreement shall constitute or be
- 8 -
<PAGE> 9
evidence of any understanding, express or implied, on the part of the Company or
any of its Affiliates to employ the Optionee (or have the Optionee serve as a
director) for any period.
10. Subject to the Plan. The Option evidenced by this Agreement and
the exercise thereof are subject to the terms and conditions of the Plan, which
are incorporated herein by reference and made a part hereof, but the terms of
the Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, the Option is subject to any rules and regulations
promulgated by the Committee pursuant to the Plan.
11. Notice. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered
personally, by facsimile or sent by overnight express or by registered or
certified mail, postage prepaid, addressed as follows:
If to the Company to:
Colorado Prime Holdings, Inc.
1 Michael Avenue
Farmingdale, New York 11735
Attention: Chairman of the Board of Directors
Facsimile: 516-694-8493
If to the Optionee, to the address set forth beneath the Optionee's signature on
the signature page hereof.
All deliveries of notice shall be deemed effective when received by
the person entitled to such receipt or when delivery has been attempted but
refused by such person. Any party may change the person or address to which such
deliveries shall be made with respect to such party by delivering notice thereof
to the other party hereto in accordance with this Section 11.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
signed on its behalf effective as of the Date of Grant.
ATTEST: COLORADO PRIME HOLDINGS, INC.
By:
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<PAGE> 10
Accepted and agreed to as of the Date of Grant.
Optionee:
Address:
-10-
<PAGE> 11
EXERCISE OF OPTION
Board of Directors
Colorado Prime Holdings, Inc.
1 Michael Avenue
Farmingdale, New York 11735
Ladies and Gentlemen:
The undersigned, the Optionee under the Incentive Stock Option
Agreement identified as Option No. ______ (the "Agreement"), granted pursuant to
the Colorado Prime Holdings, Inc. 1997 Incentive Stock Option Plan (the "Plan"),
hereby irrevocably elects to exercise the option granted in such Agreement (the
"Option") to purchase [whole numbers only] shares of Common Stock, par
value $0.01 per share, (the "Shares") of Colorado Prime Holdings, Inc. (the
"Company"), and herewith makes payment of $ in cash.
The Optionee hereby represents and warrants as follows:
1. The Optionee has received and reviewed a copy of the Plan;
2. The Optionee is capable of evaluating the merits and risks of
exercising the Option and acquiring the Shares and able to bear the economic
risks of such investment;
3. The Optionee has made such investigations as he or she deems
necessary and appropriate of the business and financial prospects of the
Company; and
4. The Optionee is acquiring the Shares for investment only and not
with a view to resale or other distribution thereof.
The Optionee acknowledges that the Company has made available to
the Optionee the opportunity to obtain information to evaluate the merits and
risks associated with the Agreement and the transactions contemplated thereby.
The Optionee further acknowledges that the investment contemplated by the Option
involves a high degree of risk, including risks associated with the Company's
business operations and prospects, the lack of a public market for the Shares,
and the limitations on the transferability of the Option and the Shares.
The Optionee understands and agrees that, upon his or her exercise
of the Option and receipt of Shares, he or she becomes a party to the
Shareholders Agreement dated as of May 9, 1997, by and among the Company, Thayer
Equity Investors III, L.P. and certain shareholders of the Company (the
"Shareholders Agreement"). The Optionee hereby agrees to be bound as a
"Shareholder" to all the terms and conditions, including the transfer
restrictions, of the Shareholders Agreement, a copy of which has been made
available to the Optionee for inspection.
<PAGE> 12
Dated:
(Signature of Optionee)
Date Received by
Colorado Prime Holdings, Inc.:
Received by:
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<PAGE> 1
OPTION NO. [ ]
OPTIONEE: Paul A. Roman
DATE OF GRANT: December , 1998
OPTION PRICE: $100.00
COVERED SHARES: 6,750
COLORADO PRIME HOLDINGS, INC.
1997 INCENTIVE STOCK OPTION PLAN
* * *
INCENTIVE STOCK OPTION AGREEMENT
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1. "Affiliate" means parent or subsidiary corporations of the
Company, as defined in Sections 424(e) and (f) of the Code (but substituting
"the Company" for "employer corporation").
1.2. "Agreement" means this Incentive Stock Option Agreement.
1.3. "Board" means the Board of Directors of the Company.
1.4. A "Change of Control" means the occurrence of any of the
following events after the Date of Grant: (i) any person or group of persons
(as defined in Section 13(d) and 14(d) of the Exchange Act) together with its
affiliates, excluding employee benefit plans of the Company, other than Thayer,
becomes, directly or indirectly, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing 51% or
more of the combined voting power of the Company's then outstanding securities;
(ii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation or entity regardless of which entity is the
survivor, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted into voting
securities of the surviving entity) at least 50% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or
<PAGE> 2
consolidation; (iii) an IPO Event; or (iv) the stockholders of the Company
approve a plan of complete liquidation or winding-up of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all of the Company's assets.
1.5. "Code" means the Internal Revenue Code of 1986, as amended.
1.6. "Committee" means the committee charged, pursuant to the provisions
of the Plan, with the administration of the Plan.
1.7. "Common Stock" means the common stock, par value $0.01 per share, of
the Company.
1.8. "Company" means Colorado Prime Holdings, Inc.
1.9. "Covered Shares" means the number of Shares subject to the Option set
forth as the "Covered Shares" on page 1 of this Agreement.
1.10. "Date of Exercise" means the date on which the Company receives
notice pursuant to Section 4.1 of the exercise, in whole or in part, of the
Option.
1.11. "Date of Expiration" means the date on which the Option shall expire,
which shall be the earliest of the following times:
(a) the date the Optionee's Employment is terminated by the Company
or any Affiliate for Good Cause;
(b) ninety (90) days after the termination of the Optionee's
Employment by reason of resignation, retirement, death or Disability;
(c) ninety (90) days after the date the Optionee's Employment is
terminated by the Company or any Affiliate other than for Good Cause; or
(d) ten (10) years after the Date of Grant.
1.12. "Date of Grant" means the date set forth as the "Date of Grant" on
page 1 of this Agreement.
-2-
<PAGE> 3
1.13. "Disability" means (i) incapacity due to physical or mental illness
or injury where the Optionee shall have been absent from his full time duties at
the Company for four (4) consecutive months.
1.14. "Employment" means the Optionee's employment with the Company and
its Affiliates, including service as a director.
0.2. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.16. "Fair Market Value" means the fair market value of a Share as
determined by the Committee pursuant to a reasonable method adopted in
good faith for such purpose.
1.17. "Good Cause" means a termination based on an Optionee's (i) willful
misconduct or gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of the Optionee's material duties and responsibilities for the Company;
(2) willful dishonesty, fraud, alcohol or illegal drug abuse, or misconduct with
respect to the business or affairs of the Company, which materially and
adversely affects the operations, prospects or reputation of the Company; or
(3) conviction of a felony or other crime involving moral turpitude.
0.18. "IPO Event" means the consummation of an underwritten public offering,
pursuant to an effective registration statement under the Securities Act, that
is underwritten by one or more nationally-recognized investment banking firms
and results in the Company receiving not less than $25,000,000 in aggregate cash
proceeds from such offering.
1.19. "Option" means the incentive stock option granted to the Optionee
in Section 2 of this Agreement.
1.20. "Option Price" means the dollar amount per Share set forth as the
"Option Price" on page 1 of this Agreement.
1.21. "Optionee" means the person identified as the "Optionee" on page 1
of this Agreement.
1.22. "Plan" means the Colorado Prime Holdings, Inc. 1997 Incentive Stock
Option Plan.
0.23. "Securities Act" means the Securities Act of 1933, as amended.
-3-
<PAGE> 4
1.24. "Share" means a share of Common Stock.
0.3. "Thayer" means Thayer Equity Investors III, L.P.
2. Grant of Options. Pursuant to the Plan and subject to the terms of this
Agreement, the Company hereby grants to the Optionee the Option to purchase from
the Company that number of Shares equal to the Covered Shares, exercisable at
the Option Price.
3. Terms of the Option.
3.1. Type of Option. The Option is intended to be an incentive stock
option within the meaning of Section 422 of the Code; provided, however, that to
the extent that, during any calendar year, the Option becomes exercisable for
the first time with respect to Shares having an aggregate fair market value in
excess of the limited imposed by Section 422(d) of the Code, (a) the Option
shall be treated as a nonstatutory stock option and not as an incentive stock
option to the extent required by Section 422(d) of the Code, and (b) upon any
exercise of the Option, the Optionee shall be required to designate the extent
to which, if any, the exercise of the Option is with respect that portion of the
Option that is a nonstatutory stock option pursuant to the preceding clause (a).
If, as of the same date, the Optionee exercises the Option with respect to a
portion of the Option that is an incentive stock option and with respect to a
portion of the Option that is a nonstatutory stock option, the Company shall
issue separate certificates to the Optionee representing (i) those Shares that
were acquired pursuant to the exercise of an incentive stock option (which
Shares shall be identified on the Company's stock transfer records as such), and
(ii) those Shares that were acquired pursuant to the exercise of a nonstatutory
stock option.
3.2. Exercise Period. During the period commencing on the Date of
Grant and terminating on the Date of Expiration, the Option may be exercised
with respect to all or a portion of the Covered Shares (in full shares), to the
extent that the Option has vested and has not been previously exercised with
respect to such Covered Shares.
3.3. Vesting Schedule. On each of September 30, 1999 and September 30,
2000, the Option shall vest as to 3,375 Shares, respectively. Notwithstanding
the foregoing, (i) the Option shall vest in full upon a Change of Control; and
(ii) no part of the Option shall vest after the date of termination for any
reason of the Optionee's Employment.
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<PAGE> 5
4. Exercise.
4.1. Notice. The Option shall be exercised, in whole or in part, by
the delivery to the Company of written notice of such exercise, in such form as
the Committee may from time to time prescribe, accompanied by (i) full payment
of the Option Price with respect to that portion of the Option being exercised
and (ii) any amounts required to be withheld pursuant to applicable tax laws in
connection with such exercise. Options may be exercised only with respect to
whole numbers of Shares. Until the Committee notifies the Optionee to the
contrary, the form attached to this Agreement as Exhibit A shall be used to
exercise the Option.
4.2. Payment of the Option Price. Upon exercise of the Option, the
Optionee shall pay the Option Price and any applicable withholding tax amounts
in cash. With the prior written approval of the Committee, which approval shall
be in the Committee's sole discretion, the Optionee may also pay the Option
Price, in whole or in part, by delivering duly endorsed certificates
representing, or duly executed stock transfer instruments in respect of, a
whole number of Shares having an aggregate value on the Date of Exercise
(determined based on the Fair Market Value) not more than the portion of the
Option Price being paid by delivery of such Shares, or in a combination of cash
and Shares. Notwithstanding the preceding sentence, no Shares may be used to
pay any portion of the Option Price unless those Shares were issued to the
Optionee at least six months prior to the Date of Exercise.
5. Restrictions on Transfer.
5.1. Options. Except by will or the laws of descent and distribution,
the Option may not be sold, transferred, assigned, pledged or otherwise
disposed of or encumbered by the Optionee, and any attempt to do so shall be
null and void. The Option may be exercised during the Optionee's lifetime only
by the Optionee or, in the event of the Optionee's legal disability, by the
Optionee's legal representative. The terms of the Option shall be binding upon
any successor or permitted assignee of the Optionee.
5.2. Shareholders Agreement. The Optionee understands and agrees
that, upon his or her exercise of the Option and receipt of Shares, he or she
will become a party to the Shareholders Agreement dated as of May 9, 1997, by
and among the Company, Thayer Equity Investors III, L.P. and certain
shareholders of the Company (the "Shareholders Agreement"). The Optionee hereby
agrees to be bound as a "Shareholder" to all the terms and conditions and to be
subject to the benefits of the Shareholders Agreement as a "Manager," including
the transfer restrictions of the Shareholders Agreement and the rights and
obligations of the Managers with respect to certain events relating to the
disposition of the Shares
-5-
<PAGE> 6
upon the Optionee's termination or resignation of employment with the Company
or its Affiliates. The Optionee acknowledges that a copy of the Shareholders
Agreement has been made available to the Optionee for inspection.
6. Capital Adjustments. In the event of any change in the outstanding
Common Stock by reason of any stock dividend, split-up (or reverse stock
split), reclassification, reincorporation, liquidation or similar change in
corporate structure, the Committee shall, in its discretion, either provide for
a substitution for or adjustment in (i) the number and class of Covered Shares
and (ii) the Option Price.
7. Investment Intent; Legends.
7.1. Representations. The Optionee agrees that, upon the issuance of
any Shares upon the exercise of the Option, the Optionee will, upon the request
of the Company, represent and warrant in writing that the Optionee (i) has
received and reviewed a copy of the Plan; (ii) is capable of evaluating the
merits and risks of exercising the Option and acquiring the Shares and able to
bear the economic risks of such investment; (iii) has made such investigations
as he or she deems necessary and appropriate of the business and financial
prospects of the Company; and (iv) is acquiring the Shares for investment only
and not with a view to resale or other distribution thereof. The Optionee
acknowledges that the Company has made available to the Optionee the
opportunity to obtain information to evaluate the merits and risks associated
with this Agreement and the transactions contemplated hereby. The Optionee
further acknowledges that the investment contemplated by the Option involves a
high degree of risk, including risks associated with the Company's business
operations and prospects, the lack of a public market for the Shares, and the
limitations on the transferability of the Option and the Shares.
7.2. Legends. The Optionee agrees that the certificates evidencing
the Shares issued upon exercise of the Option may include any legend which the
Committee deems appropriate to reflect any transfer or other restrictions
contained in the Plan, this Agreement or the Shareholders Agreement or to
comply with applicable laws.
8. Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Covered Shares until and unless a certificate
or certificates representing such shares are issued to the Optionee pursuant to
this Agreement. Except as provided in Section 6, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
-6-
<PAGE> 7
9. Employment. Neither the granting of the Option evidenced by this
Agreement nor any term or provision of this Agreement shall constitute or be
evidence of any understanding, express or implied, on the part of the Company or
any of its Affiliates to employ the Optionee (or have the Optionee serve as a
director) for any period.
10. Subject to the Plan. The Option evidenced by this Agreement and the
exercise thereof are subject to the terms and conditions of the Plan, which are
incorporated herein by reference and made a part hereof, but the terms of the
Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, the Option is subject to any rules and regulations
promulgated by the Committee pursuant to the Plan.
11. Notice. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally,
by facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to the Company to:
Colorado Prime Holdings, Inc.
1 Michael Avenue
Farmingdale, New York 11735
Attention: Mr. Matthew Burris, Vice President
Facsimile: 516-694-8493
If to the Optionee, to the address set forth beneath the Optionee's signature
on the signature page hereof.
All deliveries of notice shall be deemed effective when received by the
person entitled to such receipt or when delivery has been attempted but refused
by such person. Any party may change the person or address to which such
deliveries shall be made with respect to such party by delivering notice
thereof to the other party hereto in accordance with this Section 11.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed on
its behalf effective as of the Date of Grant.
ATTEST: COLORADO PRIME HOLDINGS, INC.
By:
- --------------------------------- ------------------------------------
Accepted and agreed to as of the Date of Grant.
- ---------------------------------
Optionee:
Address:
-8-
<PAGE> 9
EXHIBIT A
EXERCISE OF OPTION
Board of Directors
Colorado Prime Holdings, Inc.
1 Michael Avenue
Farmingdale, New York 11735
Ladies and Gentlemen:
The undersigned, the Optionee under the Incentive Stock Option Agreement
identified as Option No. ____ (the "Agreement"), granted pursuant to the
Colorado Prime Holdings, Inc. 1997 Incentive Stock Option Plan (the "Plan"),
hereby irrevocably elects to exercise the option granted in such Agreement (the
"Option") to purchase ____ [whole numbers only] shares of Common Stock, par
value $0.01 per share, (the "Shares") of Colorado Prime Holdings, Inc. (the
"Company"), and herewith makes payment of $______ in cash.
The Optionee hereby represents and warrants as follows:
1. The Optionee has received and reviewed a copy of the Plan;
2. The Optionee is capable of evaluating the merits and risks of
exercising the Option and acquiring the Shares and able to bear the economic
risks of such investment;
3. The Optionee has made such investigations as he or she deems necessary
and appropriate of the business and financial prospects of the Company; and
4. The Optionee is acquiring the Shares for investment only and not with a
view to resale or other distribution thereof.
The Optionee acknowledges that the Company has made available to the
Optionee the opportunity to obtain information to evaluate the merits and risks
associated with the Agreement and the transactions contemplated thereby. The
Optionee further acknowledges that the investment contemplated by the Option
involves a high degree of risk, including risks associated with the Company's
business operations and prospects, the lack of a public market for the Shares,
and the limitations on the transferability of the Option and the Shares.
The Optionee understands and agrees that, upon his or her exercise of the
Option and receipt of Shares, he or she becomes a party to the Shareholders
Agreement dated as of May 9, 1997, by and among the Company, Thayer Equity
Investors III, L.P. and certain shareholders of the Company (the "Shareholders
Agreement"). The Optionee hereby agrees to be bound as a "Shareholder" to all
the terms and conditions, including
<PAGE> 10
the transfer restrictions, of the Shareholders Agreement, a copy of which has
been made available to the Optionee for inspection.
Dated:
------------------------- ---------------------------------
(Signature of Optionee)
Date Received by
Colorado Prime Holdings, Inc.:
----------------------
Received by:
----------------------------------------
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<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 Steven Lachenmeyer
("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 Operating Officer,
- ----------------------------- and Chairman of the Board March 22, 2000
Paul Roman
- ----------------------------- March 22, 2000
Dr. Paul Stern Director
- -----------------------------
Sisi Gallagher Director March 22, 2000
- -----------------------------
Frederick Malek Director March 22, 2000
- -----------------------------
William F. Dordelman Director March 22, 2000
- -----------------------------
Daniel J. Altobello Director March 22, 2000
- -----------------------------
William Nicholson Director March 22, 2000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-24-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> DEC-24-1999
<CASH> 754
<SECURITIES> 0
<RECEIVABLES> 97,070
<ALLOWANCES> 9,311
<INVENTORY> 3,217
<CURRENT-ASSETS> 64,713
<PP&E> 13,361
<DEPRECIATION> 4,569
<TOTAL-ASSETS> 164,382
<CURRENT-LIABILITIES> 17,703
<BONDS> 84,155
0
0
<COMMON> 0
<OTHER-SE> 25,868
<TOTAL-LIABILITY-AND-EQUITY> 164,382
<SALES> 131,206
<TOTAL-REVENUES> 13,562
<CGS> 49,569
<TOTAL-COSTS> 131,738
<OTHER-EXPENSES> 2,164
<LOSS-PROVISION> 8,522
<INTEREST-EXPENSE> 16,186
<INCOME-PRETAX> (5,320)
<INCOME-TAX> (1,826)
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<EPS-DILUTED> 0
</TABLE>
