<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[_] 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 33-97752
VAN DE KAMP'S, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 43-1721518
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1000 St. Louis Union Station
St. Louis, MO 63103
(Address of Principal Executive Office)
(314) 241-0303
(Registrant's Telephone Number, Including Area Code)
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 No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Shares Outstanding
March 31, 1997
<S> <C>
Common stock, no par value 200
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VAN DE KAMP'S, INC.
BALANCE SHEETS
(dollars in thousands)
March 31, June 29,
1997 1996
---------- ----------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 333 $ 4,040
Accounts receivable--net of allowance of
$370 and $190, respectively 43,892 16,250
Accounts receivable - other 816 506
Inventories (Note 3) 36,684 30,202
Prepaid expenses 980 724
Net current deferred tax asset 2,243 3,230
--------- ---------
Total current assets 84,948 54,952
Property, plant, and equipment, net 86,581 35,943
Goodwill and other intangible assets, net 334,094 203,736
Other assets 15,783 10,725
--------- ---------
$ 521,406 $ 305,356
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 13,097 $ 5,000
Revolving credit facility 14,000 -
Accounts payable 16,417 14,144
Accrued liabilities 29,117 15,789
Income taxes payable 1,456 -
--------- ---------
Total current liabilities 74,087 34,933
Deferred tax liability 3,818 2,997
Senior secured term debt 194,759 83,750
Senior subordinated notes 100,000 100,000
--------- ---------
Total liabilities 372,664 221,680
--------- ---------
Stockholder's equity:
Common stock, no par value - -
Paid in capital 144,207 84,115
Retained earnings (accumulated deficit) 4,535 (439)
--------- ---------
Total stockholder's equity 148,742 83,676
--------- ---------
$ 521,406 $ 305,356
========= =========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
VAN DE KAMP'S, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales $ 151,067 $ 62,978
Cost of goods sold 59,941 23,630
---------- ---------
Gross profit 91,126 39,348
Selling, distribution, and marketing expenses:
Selling and distribution 14,181 6,285
Trade promotions 36,863 15,023
Consumer marketing 13,857 6,280
---------- ---------
Total selling, distribution, and marketing expenses 64,901 27,588
Amortization of goodwill and other intangibles 3,222 1,234
General and administrative expenses 3,744 2,083
Other expenses - -
Transition related costs (Note 4) 480 917
---------- ---------
Total operating expenses 72,347 31,822
---------- ---------
Operating income 18,779 7,526
Interest income (307) -
Interest expense 8,159 3,665
Amortization of deferred financing expense 526 170
Other bank and financing expenses 83 -
---------- ---------
Income before income taxes 10,318 3,691
Income tax provision 4,127 1,476
---------- ---------
Net income $ 6,191 $ 2,215
========== =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
VAN DE KAMP'S, INC.
STATEMENT OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1996
-----------------------------------------
The Company Predecessor
------------------------------------------------------------
Operating Period Period
Nine Months September 19, 1995 July 1, 1995
Ended through through
March 31, 1997 March 31, 1996 September 18, 1995
-------------- ------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Net sales $344,113 $106,362 $21,061
Cost of goods sold 143,522 43,304 10,267
-------- -------- -------
Gross profit 200,591 63,058 10,794
Selling, distribution and marketing expenses:
Selling and distribution 37,005 11,657 2,843
Trade promotions 83,908 22,997 3,699
Consumer marketing 23,897 7,875 1,919
-------- -------- -------
Total selling, distribution, and marketing expenses 144,810 42,529 8,461
Amortization of goodwill and other intangibles 9,982 2,641 689
General and administrative expenses 9,777 3,557 1,370
Other expenses 48 - -
Transition related costs (Note 4) 2,073 917 -
-------- -------- -------
Total operating expenses 166,690 49,644 10,520
-------- -------- -------
Operating income 33,901 13,414 274
Interest income (939) - -
Interest expense 24,762 7,979 -
Amortization of deferred financing expense 1,573 354 -
Other bank and financing expenses 215 - -
-------- -------- -------
Income before income taxes 8,290 5,081 274
Income tax provision 3,316 2,032 396
-------- -------- -------
Net income (loss) $ 4,974 $ 3,049 $ (122)
======== ======== =======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
VAN DE KAMP'S, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Retained
Earnings
Common Additional (Accumulated
Shares Paid-in Capital Deficit) Total
------ --------------- ------------ -------
<S> <C> <C> <C> <C>
Balance at June 29, 1996 200 $ 84,115 $ (439) $ 83,676
Capital contribution -- 60,092 -- 60,092
Net earnings -- -- 4,974 4,974
--- -------- ------- --------
Balance at March 31, 1997 200 $144,207 $ 4,535 $148,742
=== ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
VAN DE KAMP'S, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Operating Period
Nine Months September 19, 1995
Ended through
March 31, 1997 March 31, 1996
-------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,974 $ 3,049
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 16,772 4,504
Deferred income taxes 1,808 1,049
Change in assets and liabilities, net
of effects of businesses acquired:
(Increase) in accounts receivable (27,950) (21,534)
(Increase) decrease in inventories (2,748) 3,185
(Increase) decrease in prepaid
expenses (256) 39
Increase in accounts payable 2,273 6,282
Increase in accrued expenses 10,895 12,277
Increase in income taxes payable 1,456 983
(Increase) in other assets (1,751) --
--------- ---------
Net cash provided by operating activities 5,473 9,834
--------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment (12,717) (872)
Payment for acquisition of businesses (190,222) (193,287)
Proceeds from sale of assets 6,192 --
--------- ---------
Net cash used in investing activities (196,747) (194,159)
--------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings 53,000 34,150
Proceeds from long-term borrowings 135,000 100,000
Payment of borrowings (54,894) (4,150)
Capital contributions 60,092 69,420
Debt issuance costs (5,631) (8,583)
--------- ---------
Net cash provided by financing activities 187,567 190,837
--------- ---------
(Decrease) increase in cash and cash
equivalents (3,707) 6,512
Cash and cash equivalents, beginning of
period 4,040 355
--------- ---------
Cash and cash equivalents, end of period $ 333 $ 6,867
========= =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
VAN DE KAMP'S, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1--The Company
Basis of Presentation
The interim financial statements of Van de Kamp's, Inc. (the "Company"),
included herein, have not been audited by independent accountants. The
statements include all adjustments, such as normal recurring accruals, which
management considers necessary for a fair presentation of the financial position
and operating results of the Company for the periods presented. Operating
results during the predecessor's prior year period include certain
reclassifications to conform with the Company's presentation. The statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosure normally included in financial statements prepared in
conformity with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The operating results for
interim periods are not necessarily indicative of results to be expected for an
entire year.
The prior owners did not operate the Company's product lines as separate
divisions, and, accordingly, it is not practicable to present a statement of
cash flows during the predecessor period. The Company was granted a waiver by
the Securities and Exchange Commission with respect to the presentation of these
cash flows.
For further information, reference should be made to the financial statements
for the period ended June 29, 1996 and notes thereto included in the Company's
Annual Report on Form 10-K on file at the Securities and Exchange Commission.
Note 2--Acquisitions
On September 19, 1995 (commencement of operations), Van de Kamp's, Inc. ("VDK")
acquired the assets of the frozen seafood business (which operated as Van de
Kamp's) and the frozen dessert product lines (together "the Businesses") from
The Pillsbury Company and Pet, Incorporated (together the "Predecessor
Company"). The Company acquired the inventories, property, plant, equipment, and
intangible assets of the Businesses for a purchase price of $190 million.
On May 6, 1996, substantially all the assets of the Mrs. Paul's frozen food
business were purchased from Campbell Soup Company ("CSC") for $73.2 million.
The Company acquired the inventories, certain manufacturing equipment, and
intangible assets from CSC.
On July 9, 1996, substantially all of the assets of the frozen food division of
The Quaker Oats Company ("Quaker") were purchased for $188.0 million. The
Company purchased the Celeste(R) trademark and was granted an exclusive
perpetual, transferable, royalty-free license of the Aunt Jemima(R) trademark
for use in the frozen breakfast products business. Also included in the
acquisition were inventories and the manufacturing facility where the Company
produces both product lines. The allocation of purchase price for this
acquisition has not been finalized; however, any changes are not expected to be
material.
7
<PAGE>
The Company's acquisitions have been accounted for using the purchase method
and, accordingly, the results of operations are included in the Statements of
Operations from the dates of acquisition. Assets acquired and liabilities
assumed were recorded at their estimated fair market value, and the excess costs
over net tangible assets are being amortized over the estimated useful lives of
the related intangible assets.
Had the three acquisitions described in this Note 2 taken place July 1, 1995,
the unaudited pro forma net sales and income before income taxes would have been
$136,441,000 and $12,905,000 for the quarter ended March 31, 1996 and
$321,573,000 and $15,898,000 for the nine months then ended. Results for the
quarter and nine months ended March 31, 1997 would not have been significantly
different from those reflected in the Statement of Operations.
Note 3--Inventories
Inventories are stated at the lower of cost (determined by the first-in, first-
out method) or market. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 June 29, 1996
-------------- -------------
<S> <C> <C>
Raw materials $10,349 $ 6,856
Packaging 3,472 2,022
Finished goods 22,863 21,324
------- -------
$36,684 $30,202
======= =======
</TABLE>
Note 4--Transition Related Costs
Transition related costs consist of what management believes are one-time costs
incurred to establish operations and integrate the businesses acquired,
including relocation expenses, recruiting fees, sales training, computer systems
conversion, and other one-time transitional expenses.
Note 5--Sale of Assets
On February 3, 1997, the Company sold substantially all of the assets of its
whipped topping product line, which was part of the frozen desserts business,
including inventory, certain manufacturing equipment, and intangible assets for
approximately $7 million in cash. The impact of the sale on current results was
not material, and the sale will not significantly impact future results. The
net proceeds from the sale, $5.5 million, were used to repay a portion of the
Company's senior term debt.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to Notes to Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations presented in the
Registrant's 1996 Form 10-K for the period ended June 29, 1996.
A. The following tables set forth, for the periods indicated, the percentage
which the items in the Statement of Operations bear to net sales. The
Statement of Operations column for the nine months ended March 31, 1996
combines the Company's operating period of September 19, 1995 through March
31, 1996 and the predecessor's period of July 1, 1995 through September 18,
1995, without any pro forma adjustments.
9
<PAGE>
Comparative Results: Quarter Ended March 31 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
----------------------- -----------------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Net sales $151,067 100.0% $62,978 100.0%
Cost of goods sold 59,941 39.7% 23,630 37.5%
-------- ------ ------- ------
Gross profit 91,126 60.3% 39,348 62.5%
Selling, distribution, and marketing expenses:
Selling and distribution 14,181 9.4% 6,285 10.0%
Trade promotions 36,863 24.4% 15,023 23.8%
Consumer marketing 13,857 9.2% 6,280 10.0%
-------- ------ ------- ------
Total selling, distribution, and marketing expense 64,901 43.0% 27,588 43.8%
Amortization of goodwill and other intangibles 3,222 2.1% 1,234 2.0%
General and administrative expenses 3,744 2.5% 2,083 3.3%
Other expenses -- 0.0% -- 0.0%
Transition related costs 480 0.3% 917 1.4%
-------- ------ ------- ------
Total operating expenses 72,347 47.9% 31,822 50.5%
-------- ------ ------- ------
Operating income 18,779 12.4% 7,526 12.0%
Interest income (307) (0.2)% -- 0.0%
Interest expense 8,159 5.4% 3,665 5.8%
Amortization of deferred financing expense 526 0.3% 170 0.3%
Other bank and financing expenses 83 0.1% -- 0.0%
-------- ------ ------- ------
Income before income taxes 10,318 6.8% 3,691 5.9%
Income tax provision 4,127 2.7% 1,476 2.4%
-------- ------ ------- ------
Net income $ 6,191 4.1% $ 2,215 3.5%
======== ====== ======= ======
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996
Net Sales. Net sales for the quarter were $151.1 million, an increase of $88.1
million versus the same quarter last year. The increase was due to growth in
each of the Company's product lines and the inclusion in the quarter's
results of sales of Celeste(R) frozen pizza and Aunt Jemima(R) frozen breakfast
products (together "Celeste/Aunt Jemima"), which were acquired during July 1996,
and sales of Mrs. Paul's branded seafood, which was acquired in May 1996. VDK
seafood sales increased 2.5% versus the same quarter last year.
Compared to 1996 pro forma sales of $136.4 million, sales in the current quarter
increased 10.8%. Sales of Celeste/Aunt Jemima increased from $43.1 million to
$52.0 million, or 20.7%, due to increased promotional activity. Mrs. Paul's
also contributed to the sales growth, increasing from $30.4 million to $34.5
million, or by 13.5%, due to increased promotional activity and new product
introductions.
Gross Profit. Gross profit declined from 62.5% of sales in fiscal 1996 to 60.3%
in fiscal 1997. The decline was primarily attributable to the inclusion in the
1997 quarter of the Celeste(R) frozen pizza and Aunt Jemima(R) foodservice
businesses, which are lower gross margin businesses than the Company's frozen
seafood businesses. Partially offsetting this decline was an improvement in the
frozen seafood gross margin, which resulted from the integration of Mrs. Paul's
seafood production in the Erie, Pennsylvania facility.
The gross margin in the March quarter is generally higher than the gross margin
for the remainder of the year due to the high percentage of seafood sold during
this period. Seafood sales comprised 91% of total sales in the 1996 quarter and
62% of sales in 1997, which accounted for the relatively high gross margin in
the 1996 quarter.
Selling, Distribution, and Marketing Expenses. Selling, distribution, and
marketing expenses decreased from 43.8% of sales in the prior year to 43.0% of
sales in the current year. The improvement was caused by distribution
efficiencies resulting from the businesses acquired during calendar 1996, which
were partially offset by increased promotional spending on each of the Company's
product lines. Consumer marketing expenses increased significantly in absolute
terms but decreased as a percentage of sales due to lower consumer marketing
expense on the Celeste/Aunt Jemima businesses.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
intangibles increased $2.0 million due to the increase in intangibles resulting
from the acquisitions of Mrs. Paul's in the fourth quarter of fiscal 1996 and
Celeste/Aunt Jemima in the first quarter of fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased $1.7 million to facilitate the management of the businesses acquired
during calendar 1996. General and administrative expenses decreased from 3.3% of
sales to 2.5% of sales during this period due to efficiencies related to the
increased size of the Company.
11
<PAGE>
Transition Related Costs. Transition related costs consist of what management
believes to be one-time costs incurred to establish operations and integrate
acquired businesses, including relocation expenses, recruiting fees, sales
training, broker conversions and orientations, computer systems conversion, and
other unique transition expenses.
Interest Expense. Interest expense increased due to the additional financing
required to complete the acquisitions of Mrs. Paul's and Celeste/Aunt Jemima.
Income Before Income Taxes. Income before income taxes increased 56.6 million
due to the increased size, and therefore operating income, of the Company as
well as the operating improvements described previously. Income before taxes
decreased $2.5 million versus 1996 pro forma results due to increased trade
promotion and consumer marketing expenses necessary to increase sales.
Provision for Income Taxes. The Company anticipates a combined federal and state
tax rate of 40%.
12
<PAGE>
<TABLE>
<CAPTION>
Comparative Results: Nine Months Ended March 31 (unaudited)
Nine Months Ended Nine Months Ended
March 31, 1997 March 31, 1996
---------------------- ----------------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Net sales $344,113 100.0% $127,423 100.0%
Costs of goods sold 143,522 41.7% 53,571 42.0%
------- ----- ------- -----
Gross profit 200,591 58.3% 73,852 58.0%
Selling, distribution, and marketing expenses:
Selling and distribution 37,005 10.8% 14,500 11.4%
Trade promotions 83,908 24.4% 26,696 21.0%
Consumer marketing 23,897 6.9% 9,794 7.6%
------- ----- ------- -----
Total selling, distribution, and marketing expenses 144,810 42.1% 50,990 40.0%
Amortization of goodwill and other intangibles 9,982 2.9% 3,330 2.6%
General and administrative expenses 9,777 2.8% 4,927 3.9%
Other expenses 48 0.0% -- --
Transition related costs 2,073 0.6% 917 0.7%
------- ----- ------- -----
Total operating expenses 166,690 48.4% 60,164 47.2%
------- ----- ------- -----
Operating income 33,901 9.9% 13,688 10.8%
Interest income (939) -0.3% -- 0.0%
Interest expense 24,762 7.2% 7,979 6.3%
Amortization of deferred financing expense 1,573 0.5% 354 0.3%
Other bank and financing expenses 215 0.1% -- 0.0%
------- ----- ------- -----
Income before income taxes 8,290 2.4% 5,355 4.2%
Income tax provision 3,316 1.0% 2,428 1.9%
------- ----- ------- -----
Net income $ 4,974 1.4% $ 2,927 2.3%
======= ===== ======= =====
</TABLE>
13
<PAGE>
Nine Months Ended March 31, 1997 Compared to Nine Months Ended March 31, 1996
Net Sales. Net sales for the period increased $216.7 million versus prior year
to $344.1 million. Sales of Mrs. Paul's seafood and Celeste/Aunt Jemima,
product lines acquired in 1996, contributed significantly to the increase in net
sales. Van de Kamp's seafood and desserts sales increased 6.5% during the nine
months ended March 31, 1997.
Sales increased $22.5 million, or 7%, versus 1996 pro forma sales of $321.6
million. Celeste/Aunt Jemima sales increased by $10.7 million, or 8.4%, to
$137.6 million due to focused promotional efforts in both product lines. Mrs.
Paul's increased from $67.3 million to $70.8 million, or 5.2%, due to new
product introductions and increased promotional activity.
Gross Profit. Gross profit increased from 58.0% of sales in fiscal 1996 to 58.3%
in fiscal 1997. The improvement was caused primarily by lower seafood
manufacturing costs stemming from the integration of Mrs. Paul's seafood
production in the Erie, Pennsylvania facility and lower manufacturing overhead
costs versus the Predecessor Company. These improvements more than offset the
inclusion of the lower gross margin Celeste(R) frozen pizza and Aunt Jemima(R)
foodservice businesses in the current fiscal year.
Selling, Distribution, and Marketing Expenses. Selling, distribution, and
marketing expenses increased from 40.0% of sales in the prior year to 42.1% of
sales in the current year. The increase in trade promotion spending was caused
by (1) higher spending levels to support new product introductions under the Van
de Kamp's and Mrs. Paul's brands and (2) the inclusion in fiscal 1997 of the
Celeste(R) pizza business, which has a higher rate of trade spending than the
seafood product lines. Selling and distribution expenses declined as a
percentage of sales due to the development of a lower cost distribution network
than the Predecessor Company and distribution efficiencies resulting from the
Mrs. Paul's and Celeste/Aunt Jemima acquisitions. Consumer marketing decreased
as a percentage of sales because the historical spending rate is lower for the
Celeste(R) pizza and Aunt Jemima(R) breakfast products than for the Company's
other product lines. The lower spending rate was partially offset by increased
consumer spending to support the introduction of new seafood and dessert
products during fiscal 1997.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
intangibles increased $6.7 million due to the increase in intangibles resulting
from the acquisitions of Van de Kamp's in the first quarter of fiscal 1996, Mrs.
Paul's in the fourth quarter of fiscal 1996, and Celeste/Aunt Jemima in the
first quarter of fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased $4.8 million to facilitate the management of the businesses acquired
during calendar 1996. General and administrative expenses decreased from 3.9% of
sales to 2.8% of sales during this period due to efficiencies related to the
increased size of the Company, and lower overhead spending associated with the
Company's stand-alone structure as compared to amounts allocated to businesses
during the Predecessor ownership period.
Transition Related Costs. Transition related costs consist of what management
believes to be one-time costs incurred to establish operations and integrate
acquired businesses, including relocation expenses,
14
<PAGE>
recruiting fees, sales training, broker conversions and orientations, computer
systems conversion, and other unique transitional expenses.
Interest Expense. Interest expense increased versus the prior period due to
additional financing required to complete the acquisitions of Van de Kamp's,
Mrs. Paul's, and Celeste/Aunt Jemima.
Income Before Income Taxes. Income before income taxes increased $8.3 million
due to the increased size, and therefore operating income, of the Company as
well as the operating improvements described previously. Income before taxes
decreased $7.6 million versus 1996 pro forma results due to increased trade
promotion and consumer marketing expenses necessary to increase sales.
Provision for Income Taxes. The Company anticipates a combined federal and state
tax rate of 40%. This rate is lower than the rate experienced by the prior
owners, primarily because the Company's amortization of goodwill is deductible
for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
On July 9, 1996, the Company acquired substantially all of the assets of the
frozen food division of The Quaker Oats Company ("Quaker Oats") for
approximately $188 million. These assets included the Celeste frozen pizza
business and the Aunt Jemima frozen breakfast products business of Quaker Oats.
The acquisition was financed by (i) an equity capital contribution of $40
million from VDK Holdings, Inc. (the Company's parent); (ii) $135 million of
additional borrowings through the Company's existing senior bank facility, and
(iii) a $20 million senior secured convertible loan which is secured by cash
collateral posted by VDK Holdings, Inc. ("Holdings"). Total sources of financing
of $195 million were used to fund the acquisition and pay transaction fees and
expenses. In March 1997, the Board of Directors of Van de Kamp's directed the
Company to repay the $20 million senior secured convertible loan with the cash
collateral balance funded by Holdings. The cash received from Holdings was
recorded as a capital contribution and used to repay the loan.
For the nine months ended March 31, 1997, cash provided by operations was $5.5
million. Net income before depreciation and amortization provided $21.7 million
of operating cash flow, which was offset by a use of $16.2 million in cash to
fund working capital requirements. Current assets, excluding cash, increased
$34.8 million primarily due to the acquisition of the Quaker Oats frozen food
businesses, which resulted in increased accounts receivable and inventory
balances. The increases in current assets were partially offset by a $14.2
million increase in accounts payable and accrued expenses.
The Company spent $12.7 million on property, plant, and equipment during the
nine month period ended March 31, 1997, the majority of which was expended to
relocate and install the Mrs. Paul's production lines purchased from Campbell
Soup Company into the Company's Erie, Pennsylvania facility and upgrade
refrigeration capacity and building layout to accommodate the installation of
the lines. On March 27, 1997, the Company requested and received an amendment
to the Second Amended and Restated Credit and Guarantee Agreement (the
"Agreement") whereby the approval was granted to spend $14.5 million, an
increase of $4.0 million, on property, plant, and equipment during fiscal 1997.
The increase was necessary to complete the installation of the production lines
and take advantage of other capital projects.
15
<PAGE>
At March 31, 1997, the Company had $0.3 million of cash and cash equivalents and
an unused commitment of $10.6 million on its $25 million revolving debt
facility, net of reduction for previously issued letters of credit. Cash
provided by operations and borrowings under the revolving credit facility are
the primary sources of liquidity. The available borrowing capacity under the
revolving credit facility, combined with cash provided by operations, should
continue to provide the Company with the flexibility to fund future operations
as well as to meet existing obligations.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<C> <S>
2.1 Asset Purchase Agreement, dated as of February 3, 1997,
between Van de Kamp's, Inc. and Morningstar Foods, Inc.
2.2 Amendment to Asset Purchase Agreement, dated as of
February 13, 1997, between Van de Kamp's, Inc. and
Morningstar Foods, Inc.
3.1 Certificate of Incorporation of Van de Kamps, Inc. with
amendments thereto (incorporated by reference to Exhibit 3.1
of Van de Kamp's, Inc. Form S-4 filed October 4, 1995
(the "S-4")).
3.2 Amended and Restated By-laws of Van de Kamp's, Inc. (incorporated
by reference to Exhibit 3.2 to the S-4).
10.1 Second Amendment to the Second Amended and Restated Credit and
Guarantee Agreement, dated as of March 27, 1997, among VDK
Holdings, Inc., Van de Kamp's, Inc., the banks, and other
financial institutions named as parties thereto and The Chase
Manhattan Bank, N.A., as agent.
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VAN DE KAMP'S, INC.
Dated May 15, 1997 By: /s/ Timothy B. Andersen
-------------------------- ------------------------------------
Timothy B. Andersen
Chief Financial Officer and
Vice President, Administration
and duly authorized officer
18
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page No.
- ------- ------- --------
<S> <C> <C>
2.1 Asset Purchase Agreement, dated as of February 3,
1997, between Van de Kamp's, Inc. and Morningstar
Foods, Inc.
2.2 Amendment to Asset Purchase Agreement, dated as of
February 13, 1997, between Van de Kamp's, Inc.
and Morningstar Foods, Inc.
3.1 Certificate of Incorporation of Van de Kamps, Inc.
with amendments thereto (incorporated by reference
to Exhibit 3.1 of Van de Kamp's, Inc. Form S-4
filed October 4, 1995 (the "S-4")).
3.2 Amended and Restated By-laws of Van de Kamp's, Inc.
(incorporated by reference to Exhibit 3.2 to the
S-4).
10.1 Second Amendment to the Second Amended and Restated
Credit and Guarantee Agreement, dated as of
March 27, 1997, among VDK Holdings, Inc., Van de Kamp's,
Inc., the banks, and other financial institutions
named as parties thereto and The Chase Manhattan Bank,
NA, as agent.
27.1 Financial Data Schedule
</TABLE>
19
<PAGE>
EXECUTION COPY
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT made this 3rd day of February, 1997, between
Van de Kamp's, Inc., a corporation organized under the laws of Delaware
("Seller"), and Morningstar Foods Inc., a corporation organized under the laws
of Delaware ("Buyer").
WHEREAS Seller wishes to sell and Buyer wishes to purchase certain
assets of Seller relating to the manufacture and sale of frozen whipped toppings
(the "Products") marketed under private label and the LaCreme(R) and Pet
Whip(TM) brand names (excluding the Excluded Assets (as defined in Section 1.2
below), the "Business"); and
WHEREAS Buyer will assume certain liabilities of Seller as more fully
described herein, all on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Seller and Buyer hereby agree as
follows:
ARTICLE I
Transfer of Assets, Assumption of
Liabilities and Purchase Price
------------------------------
I.1 Transfer of Property and Assets. Seller hereby sells, transfers,
assigns, and delivers to Buyer, and Buyer hereby purchases, acquires, and
accepts from Seller, all of Seller's right, title, and interest in and to the
following assets of Seller relating to the Business, as they exist on the
Closing Date (as defined in Section 2.1), but excluding the Excluded Assets (as
defined in Section 1.2) (collectively, the "Transferred Assets") free and clear
of all liens, mortgages, pledges, security interests, charges, claims,
restrictions, and encumbrances of any nature whatsoever except Permitted Liens
(as hereinafter defined):
(i) the machinery and equipment and spare parts physically located
at Seller's plant at Chambersburg, Pennsylvania and used or held for use by
Seller in connection with the Business set forth on Schedule 1.1(i)
(collectively, the "Equipment");
(ii) finished goods inventories, wherever located, of the Business
reflected on the Closing Date Inventory Statement as defined in Section 2.5.1
(the "Inventory");
(iii) subject to Section I.3, all rights of Seller under the
contracts, commitments, understandings, binding arrangements, licenses and
purchase orders listed on Schedule 1.1(iii) (collectively, the "Contracts");
(iv) all of the following books and records, wherever located,
relating exclusively to the Transferred Assets or the Business in Seller's
possession: sales records,
<PAGE>
books of account, files, invoices, inventory records, accounting records,
product specifications, drawings, engineering, maintenance, operating and
production records, advertising materials, customer lists, cost and pricing
information, supplier lists, business plans, catalogs, quality control records
and manuals, blueprints, research and development files, laboratory books,
trademark files, and litigation files, other than records kept for financial
reporting or tax purposes and excluding any of the foregoing related to the
Excluded Assets or the Retained Liabilities;
(v) to the extent transfer is permitted under applicable law or
regulation and subject to Section 1.3, all permits, approvals, franchises,
licenses, or other rights relating exclusively to the Business granted to Seller
by governmental authorities and necessary for the lawful ownership of the
Transferred Assets or the lawful conduct of the Business as presently conducted
by Seller (the "Permits");
(vi) subject to Section 6.9 herein, all those trademarks, trademark
applications and registrations, trade names, and service marks listed in
Schedule 3.10, together with the goodwill and rights to sue arising from or
associated therewith (the "Trademarks");
(vii) all domestic and foreign letters patent, patent applications,
patent licenses, software licenses and know-how licenses, unpatented formulas,
recipes, know-how, manufacturing methods and processes, inventions, discoveries,
trade secrets, improvements, technical knowledge and other technology used or
held for use exclusively in connection with the Business (together with the
Trademarks, the "Intellectual Property"); and
(viii) all goodwill of the Business.
I.2 Excluded Assets. Notwithstanding anything to the contrary
contained in this Agreement, the parties understand and agree that Seller
retains all its right, title, and interest in and to, and there shall be
excluded from the sale, transfer, assignment, and delivery to Buyer hereunder,
any and all assets or properties not specifically referred to in Section 1.1
(collectively, the "Excluded Assets"), including, without limitation, those
assets of Seller set forth below:
(i) cash, cash equivalents, investments, and bank accounts;
(ii) all accounts and notes receivable, deferred charges, chattel
paper, and other rights to receive payments arising from the operation of the
Business or other current assets, contracts, books and records, licenses and
permits, intellectual property, or goodwill to the extent related to or arising
from the Excluded Assets or the Retained Liabilities;
(iii) all prepayments, deposits, claims for refunds, and prepaid
expenses relating to the Business;
(iv) any assets related to any employee benefit plan in which any
employees of Seller participate;
(v) any refunds, claims to refunds, or rights to receive refunds
from Federal, state, local, and foreign taxing authorities with respect to the
operation of the Business prior to the Closing Date paid or to be paid by
Seller;
2
<PAGE>
(vi) any records related to taxes paid or payable by Seller;
(vii) Seller's corporate charter documents, minute books, stockholder
records, stock transfer records, corporate seal, and similar corporate records;
(viii) such records as relate to the negotiation and consummation of
the transactions provided for in this Agreement, including without limitation
confidential communications with legal counsel representing Seller and the right
to assert the attorney-client privilege with respect to any such communications;
(ix) those assets listed on Schedule 1.2(ix); and
(x) Seller's rights under this Agreement and any other agreements
contemplated hereby.
I.3 Consents to Certain Assignments. To the extent the sale,
conveyance, transfer, or assignment of any Contract or Permit requires the
consent of any third party, this Agreement shall not constitute an agreement to
complete such sale, conveyance, transfer or assignment if such action would
constitute a breach or violation of the terms of such Contract or Permit. After
the Closing Date, Seller will take all commercially reasonable steps (not
including the payment of consideration) requested by Buyer to secure consents to
the assignment of any Contracts or Permits that have not yet been obtained or
otherwise to transfer or provide to Buyer the benefits of such Contracts or
Permits.
I.4 Assumption of Liabilities. On the Closing Date, Buyer assumes
and shall hereafter pay, honor, and discharge when due and payable in the
ordinary course of business all liabilities and obligations of Seller (i)
arising under or in respect of the Contracts and Permits after the Closing Date;
(ii) arising out of the conduct of the Business after the Closing Date; or (iii)
for refunds, adjustments, allowances, coupons, trade promotions, consumer
promotions, exchanges, returns and warranty, merchantability and other claims in
respect of any and all products of the Business (including, without limitation,
the Inventory) manufactured or sold by or for Buyer at any time after the
Closing Date (collectively, the "Assumed Liabilities"). Notwithstanding anything
contained herein to the contrary, the Buyer does not assume, nor be obligated to
pay, satisfy, honor, discharge, or perform, and will not be deemed by virtue of
the execution and delivery of this Agreement or any document delivered at the
Closing pursuant to this Agreement, to have assumed, or to have agreed to pay,
satisfy, discharge or perform, any liabilities or obligations or indebtedness of
Seller other than the Assumed Liabilities. All liabilities and obligations of
Seller not assumed by Buyer are referred to herein collectively as the "Retained
Liabilities."
I.5 Purchase Price and Payment. The purchase price for the
Transferred Assets is $7,000,000, subject to adjustment in accordance with
Section 2.5. (Such amount, prior to such adjustment, is referred to herein as
the "Closing Date Payment.") Buyer paid the Closing Date Payment to Seller on
the Closing Date by wire transfer of immediately available funds to an account
designated in writing by Seller to Buyer.
I.6 Transfer Taxes. Buyer and Seller shall each pay 50% of all
sales, documentary, use, registration, excise and transfer taxes, and related
fees (including any
3
<PAGE>
penalties, interest, or additions to such taxes) arising from the transfer of
the Transferred Assets or otherwise in connection with this Agreement.
ARTICLE II
Closing and Post-Closing Purchase Price Adjustment
--------------------------------------------------
II.1 Closing. The closing of the transactions contemplated hereby
(the "Closing") is being held at the offices of Buyer at 5956 Sherry Lane, Suite
1500, Dallas, Texas on the date hereof, referred to herein as the "Closing
Date." The Closing shall be deemed to be effective as of the close of business
on the Closing Date.
II.2 Deliveries by Seller. On the Closing Date, Seller delivered to
Buyer the following duly executed documents:
(i) duly executed assignments in recordable form of the Trademarks;
(ii) a duly executed Co-Pack Agreement, providing for certain co-pack
and other services to be rendered by Seller to Buyer for a period of up to 60
days after the Closing Date (the "Co-Pack Services Agreement");
(iii) lien searches for federal and state tax liens, judgment liens,
and other liens on standard form of Request for Information (Uniform Commercial
Code Form UCC-11) for entries in the name of the Seller (including under any
assumed names) completed and certified by the Secretary of State of the State of
Pennsylvania and the Clerks for the county of Franklin, Pennsylvania, dated no
earlier than 30 days prior to Closing Date and showing the absence of any such
liens on the Transferred Assets (other than Permitted Liens); and
(iv) a duly executed receipt evidencing receipt of the Closing Date
Payment.
II.3 Deliveries by Buyer. On the Closing Date, Buyer delivered to
Seller the following:
(i) immediately available funds in an amount equal to the Closing Date
Payment in the manner set forth in Section 1.5; and
(ii) a duly executed Co-Pack Services Agreement.
II.4 Relocation. Title to the Equipment and Inventory shall pass to
Buyer on the Closing Date at the respective locations. Seller will disassemble
the Equipment and have it ready to ship 45 days after it ceases production for
Buyer pursuant to the Co-Pack Services Agreement. Buyer shall promptly remove
the same at its own cost, risk, and expense and without interference to Seller's
normal operations.
4
<PAGE>
II.5 Post-Closing Purchase Price Adjustment.
II.5.1 Closing Date Inventory Statement. (a) Within 45 days after
the Closing Date, Seller shall deliver to Buyer a statement (the "Closing Date
Inventory Statement") of the book value of Inventory of the Business as of the
close of business on the Closing Date (the "Closing Date Inventory"), determined
in accordance with U.S. generally accepted accounting principles ("GAAP"). The
book value of Inventory included on the Closing Date Inventory Statement shall
reflect a physical count of the Inventory conducted on the Closing Date and
shall exclude any Inventory which is not usable or salable in the ordinary
course of business.
(b) For the purpose of the Closing Date Inventory Statement,
Inventory that as of the Closing Date has an Age (as defined below) of 7 months
or less shall be deemed usable or salable in the ordinary course of business.
"Age" shall mean the number of months from the date of manufacture of any
product to the Closing Date plus the number of months within which such product
is expected to be sold based upon the 1996 sales for that period. For example,
if 10,000 units of product on hand on the Closing Date was manufactured in the
month of September, and the historical sales of such product for February and
March 1996 [there are 5 months from September 1, 1996 (the date of manufacture)
to February 3, 1997 (the Closing Date), and therefore there are 2 months
remaining, i.e. February and March] were 4,000 units, then the Inventory that
would be deemed to be usable or salable would equal 4,000 units. As to any
product for which there is no sales data from February 1, 1996, in lieu of such
historical sales data, Seller shall provide a forecast that it represents is a
reasonable projection of what amount of Inventory could be sold to such
customer. Any Inventory relating to a customer of the Products that is no longer
a customer as of the Closing Date will be deemed unusable or unsalabe.
(c) The physical count of the Inventory shall be conducted by Seller
and its representatives. Buyer and its representatives shall have the right to
observe the physical count of the Inventory. After the Closing Date, Buyer at
Seller's request shall cause Buyer's employees to assist Seller and its
representatives in the preparation of the Closing Date Inventory Statement and
shall provide to Seller and its representatives access at all reasonable times
to the personnel, properties, books and records of the Business for such
purpose.
II.5.2 Objections; Resolution of Disputes. Unless Buyer notifies
Seller in writing within 45 days after Buyer's receipt of the Closing Date
Inventory Statement of any objection to the valuation of the Closing Date
Inventory set forth therein (the "Notice of Objection"), such valuation shall be
final and binding. During such 45-day period, Buyer and its representatives
shall be permitted to review the working papers of Seller and Seller's
accountants relating to the Closing Date Inventory Statement. Any Notice of
Objection shall specify in reasonable detail the basis for the objections set
forth therein and shall include only objections based on (i) mathematical errors
in the computation of the Closing Date Inventory or (ii) the Closing Date
Inventory not having been calculated in accordance with GAAP (other than as
provided in the proviso in the first sentence of Section 2.5.1) it being the
intent of the parties that the Closing Date Inventory Statement shall reflect
the change in book value of the Inventory resulting only from the operation of
the Business from the Statement Date (as defined in Section 3.4) to the Closing
Date. If Buyer provides such Notice of Objection to Seller within such 45-day
period, Buyer and Seller shall, during the 45-day period following Buyer's
delivery of such Notice of Objection to Seller, attempt in good faith to resolve
Buyer's
5
<PAGE>
objections. During such 45-day period, Seller and its representatives shall be
permitted to review the working papers of Buyer and Buyer's accountants relating
to the Notice of Objection and the basis therefor. If Buyer and Seller are
unable to resolve all such objections within such period, the matters remaining
in dispute shall be submitted to Ernst & Young (or, if such firm declines to
act, to another nationally recognized public accounting firm mutually agreed
upon by Buyer and Seller and, if Buyer and Seller are unable to so agree within
10 days after the end of such 45-day period, then Buyer and Seller shall each
select such a firm and such firms shall jointly select a third firm to resolve
the disputed matters) (such determining firm being the "Independent Auditor").
The resolution of disputed items by the Independent Auditor shall be final and
binding. The fees and expenses of the Independent Auditor shall be borne equally
by Buyer and Seller. After final determination of the Closing Date Inventory
Statement, Buyer shall have no further right to make any claims against Seller
in respect of any element of the Closing Date Inventory that Buyer raised, or
could have raised, in the Notice of Objection.
II.5.3 Adjustment Payment. Within 10 days after the Closing Date
Inventory has been finally determined in accordance with Sections 2.5.1 and
2.5.2, (i) if the book value of such final Closing Date Inventory exceeds
$1,425,000, Buyer shall pay to Seller an amount equal to such excess, and (ii)
if the book value of such final Closing Date Inventory is less than $1,425,000,
Seller shall pay to Buyer an amount equal to such shortfall. Any such payment
hereunder shall be made by wire transfer of immediately available funds.
II.6 Allocation of Purchase Price. The purchase price and the
Assumed Liabilities shall be allocated among the Transferred Assets as set forth
in Schedule 2.6 hereto. Buyer and Seller shall report the tax consequences of
the transactions contemplated hereby in a manner consistent with such allocation
and shall not take any position inconsistent therewith in connection with any
examination of any tax return, any refund claim or in any litigation,
investigation, or other proceeding relating thereto.
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
Seller hereby represents and warrants to Buyer as follows:
III.1 Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
III.2 Authorization. Seller has full corporate power and authority
to carry on the Business as now conducted and to own or lease the Transferred
Assets owned or leased by it. Seller has full corporate power and authority to
execute and deliver this Agreement and all other agreements, certificates, and
documents contemplated hereby to be executed and delivered by Seller and to
consummate the transactions contemplated hereby and thereby. Seller has taken
all corporate action required by its Certificate of Incorporation and By-Laws to
authorize the execution and delivery of this Agreement and all other agreements,
certificates, and documents contemplated hereby to be executed and delivered by
Seller, and to authorize the consummation of the transactions contemplated
hereby and thereby. This Agreement has
6
<PAGE>
been duly and validly executed and delivered by Seller and is a legal, valid,
and binding obligation of Seller, enforceable against it in accordance with its
terms. All other agreements, certificates, and documents contemplated hereby to
be executed and delivered by Seller will on the Closing Date be duly and validly
executed by Seller and be legal, valid, and binding obligations of Seller,
enforceable against it in accordance with their respective terms.
III.3 No Conflicts or Violations; No Consents or Approvals Required.
Except as set forth on Schedule 3.3 hereto, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (i) conflict with or violate any provision of the Certificate of
Incorporation or By-Laws of Seller; (ii) conflict with or violate any statute,
law, rule, regulation, ordinance, order, writ, injunction, judgment or decree
applicable to Seller in respect of the Business or to which any of the
Transferred Assets is subject; or (iii) conflict with or result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would constitute a default) under any agreement or other instrument to which
Seller is a party or to which any of the Transferred Assets is subject or result
in the creation of any mortgage, pledge, lien, security interest, restriction,
claim, charge, or other encumbrance of any kind (collectively, "Liens"), other
than Permitted Liens, on any of the Transferred Assets. Except as set forth on
Schedule 3.3 hereto and for required consents of other parties to the Contracts
and Permits, no notice, declaration, report, or other filing or registration
with, and no waiver, consent, approval, or authorization of, any governmental or
regulatory authority or any other person or entity is required to be made or
obtained by Seller in connection with the execution and delivery of this
Agreement by Seller or the consummation by Seller of the transactions
contemplated hereby.
III.4 Financial Statements. Attached as Schedule 3.4 are the
unaudited direct product profitability statements of the Business for the years
ended June 30, 1994, 1995, and 1996, for the three months ended September 30,
1995 and 1996, and for the three months ended December 31, 1995 and 1996. (The
foregoing financial statements are referred to herein collectively as the
"Financial Statements;" and June 30, 1996 is referred to herein as the
"Statement Date"). The Financial Statements are reconcilable to the books and
records of Seller and fairly present in all material respects sales revenues and
direct product profits of the Business for the respective periods.
III.5 Title to Transferred Assets. On the Closing Date, Seller shall
have, good and marketable title to the Transferred Assets, free and clear of any
Liens other than Permitted Liens. As used herein, the term "Permitted Liens"
means and includes (i) Liens for personal property taxes, assessments, or
governmental charges or levies not yet due and delinquent or being diligently
contested in good faith; (ii) statutory Liens of carriers, warehousemen,
mechanics, materialmen, and the like arising in the ordinary course of business
that do not impair in any material respect the conduct of the Business or the
use of the Transferred Assets in the manner currently used by Seller; (iii)
Liens set forth on Schedule 3.5.
III.6 Contracts. (a) Schedule 3.6A sets forth a list of all
Contracts in effect on the date of this Agreement, except (i) Contracts
involving any obligations of Seller equal to, or having a value of, $10,000 or
less and (ii) Contracts listed and described in Schedule 3.10 relating to
Intellectual Property. Seller has delivered or made available to Buyer copies of
all written Contracts, and descriptions of the material terms of all oral
Contracts, listed on Schedule 3.6A.
7
<PAGE>
(b) Each of the Contracts listed or required to be listed on Schedule
3.6(A), under which Buyer is to acquire rights or obligations hereunder, is
valid and enforceable in accordance with its terms; Seller is, and to Seller's
knowledge all other parties thereto are, in material compliance with the
provisions hereof; Seller is not, and to Seller's knowledge no other party
thereto is, in default in the performance, observance, or fulfillment of any
obligation, covenant, or condition contained therein; and no event has occurred
which with or without the giving of notice or lapse of time, or both, would
constitute a default thereunder. Except as set forth in Schedule 3.6A, no
consent by any third party is required under any of the Contracts set forth on
Schedule 3.6A as a result of or in connection with the execution, delivery, or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
III.7 Conduct of Business Since Statement Date. Except as set forth
in Schedule 3.7, since the Statement Date, Seller has conducted the Business
only in the ordinary course in a manner consistent with past practice. Since the
Statement Date, Seller has not:
(a) sold, encumbered, assigned or transferred any assets or properties
which would have been included in the Transferred Assets, except for the sale of
inventory in the ordinary course of business consistent with past practice;
(b) made or suffered any amendment or termination of any material
agreement, contract, commitment, lease, or plan relating to the Business;
(c) suffered any damage, destruction or loss, whether or not covered
by insurance, (i) materially and adversely affecting the business, operations,
assets, or properties of the Business or (ii) of any item or items carried on
the books of account of the Business individually or in the aggregate of more
than $25,000, or suffered any repeated, recurring, or prolonged shortage,
cessation, or interruption of supplies or services required to conduct the
Business;
(d) changed any of the accounting principles followed by it or the
methods of applying such principles;
(e) entered into any transaction relating to the Business other than
in the ordinary course of business consistent with past practice; or
(f) suffered any material adverse change in the business, operations,
assets, properties, or condition (financial or otherwise) of the Business.
III.8 Compliance with Law and Permits. Except as set forth in
Schedule 3.8, to its knowledge, Seller is in compliance in all material respects
with all applicable statutes, laws, rules, regulations, orders, ordinances,
judgments, and decrees of all governmental and regulatory authorities
(collectively, "Laws") relating to the Business and the terms of all Permits.
All such Permits are in full force and effect and no proceedings are pending or,
to the knowledge of Seller, threatened that may result in the revocation,
cancellation, or suspension thereof.
III.9 Litigation. Except as set forth in Schedule 3.9, no claim,
action, suit, proceeding, or investigation is pending or, to the knowledge of
Seller, threatened before any
8
<PAGE>
court, arbitrator, or governmental agency which is reasonably likely to have a
material adverse effect on the Transferred Assets or the Business or in which
any person or entity seeks to prohibit the consummation of the transactions
contemplated by this Agreement. Without limiting the generality or effect of any
other provision hereof, all claims or allegations asserted within the past two
years that any Product caused any injury or harm to any person are described on
Schedule 3.9.
III.10 Intellectual Property. The Trademarks are listed in Schedule
3.10 and except as set forth therein, Seller owns the right to use such
Trademarks and Seller has not granted to any third party any license or other
right to any of the Intellectual Property. Except as set forth in Schedule 3.10,
the Intellectual Property includes all trademarks, know-how, and other
intellectual property necessary for the operation of the Business as currently
conducted. Except as set forth in Schedule 3.10, no claim is pending or, to the
knowledge of Seller, threatened that Seller's use of the Intellectual Property
in connection with the Business as currently conducted infringes the patent,
trademark, or copyright rights of any person or entity and, to the knowledge of
Seller, such use of the Intellectual Property in connection with the Business as
currently conducted does not infringe any such rights. Except as set forth in
Schedule 3.10, to the knowledge of Seller, no other person or entity is
infringing Seller's rights in the Intellectual Property.
III.11 Brokers and Finders. Seller has not incurred any liability for
finder's or similar fees to any finders, brokers, agents, or others in
connection with the transactions contemplated by this Agreement.
III.12 Equipment. The Equipment generally is in (i) good condition
commensurate with their age and expected useful life and (ii) working order and
repair.
III.13 Inventory. (a) All Inventory was acquired and has been
maintained in the ordinary course of the Business; is of good and merchantable
quality; consists substantially of a quality, quantity, and condition usable, or
saleable in the ordinary course of the Business; is valued at the lower of cost
or market; and, subject to the reserves shown on the Closing Date Inventory
Statement, is not subject to any write-down or write-off. Seller does not have
any Inventory on consignment with any wholesalers, retailers, or other
customers. All Inventory is in material compliance with the Nutrition Labeling &
Education Act of 1990 and all applicable food laws and regulations. (b) For a
period ending 6 months after the Closing Date returns and allowances shall not
exceed $15,000.
III.14 Customers and Suppliers. Schedule 3.14 sets forth (a) a list
of (i) the ten largest customers of the Business based on sales during the
fiscal year ended June 30, 1996 and (ii) the ten largest customers of the
Business during the six months ended December 31, 1996, showing the approximate
total sales by the Business to each such customer during the fiscal year ended
June 30, 1996 and the six months ended December 31, 1996, respectively, (b) a
list of (i) the ten largest suppliers of the Business based on purchases during
the fiscal year ended June 30, 1996, and (ii) the ten largest suppliers of the
Business based on purchases during the three months ended September 30, 1996,
showing the approximate total purchases by the Business from each such supplier
during the fiscal year ended June 30, 1996, and the three months ended September
30, 1996, respectively. Except as described in Schedule 3.14,
9
<PAGE>
there has not been any material adverse change in the business relationship of
the Business with any customer or supplier named in Schedule 3.14 since the
Statement Date. None of Messrs. Thomas O. Ellinwood, President; Timothy B.
Andersen, Chief Financial Officer; Thomas Youngerman, Vice President of Sales;
Greg Smith, Vice President of Manufacturing and Distribution; John Crowder,
Director of Marketing; and Ms. Renee Sloan, Vice President of Marketing
(collectively, the "Officers"), have been informed, either orally or in writing,
that any current customer listed in Schedule 3.14(i) intends to terminate its
purchase of the Products.
ARTICLE IV
Representations and Warranties of Buyer
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
IV.1 Organization. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware.
IV.2 Authorization. Buyer has full corporate power and authority to
execute and deliver this Agreement and all other agreements, certificates, and
documents contemplated hereby to be executed and delivered by Buyer and to
consummate the transactions contemplated hereby and thereby. Buyer has taken all
corporate action required by its certificate or articles of incorporation and
By-Laws to authorize the execution and delivery of this Agreement and all other
agreements, certificates, and documents contemplated hereby to be executed and
delivered by Buyer and to authorize the consummation of the transactions
contemplated hereby and thereby. This Agreement has been duly and validly
executed and delivered by Buyer and is a legal, valid, and binding obligation of
Buyer, enforceable against it in accordance with its terms. All other
agreements, certificates, and documents contemplated hereby to be executed and
delivered by Buyer will on the Closing Date be duly and validly executed by
Buyer and be legal, valid, and binding obligations of Buyer, enforceable against
it in accordance with their respective terms.
IV.3 No Violations; No Consents or Approvals Required. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) conflict with or violate any provision
of the certificate or articles of incorporation or By-Laws of Buyer; (ii)
conflict with or violate any statute, law, rule, regulation, ordinance, order,
writ, injunction, judgment or decree applicable to Buyer, or (iii) conflict with
or result in any breach of or constitute a default (or an event that with notice
or lapse or time or both would constitute a default) under any agreement or
other instrument to which Buyer is a party. No notice, declaration, report, or
other filing or registration with, and no waiver, consent, approval or
authorization of, any governmental or regulatory authority or any other person
or entity is required to be made or obtained by Buyer in connection with the
execution, delivery, and performance of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated hereby.
IV.4 Brokers and Finders. There is no investment banker, broker,
finder, financial advisor, or other intermediary who has been retained by or is
authorized to act on
10
<PAGE>
behalf of Buyer who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement.
ARTICLE V
Indemnification
---------------
V.1 Obligation of Parties to Indemnify.
V.1.1 Indemnification by Seller. Subject to the limitations set
forth in Section 5.3, Seller shall indemnify, defend, and hold harmless Buyer
from and against any and all claims, losses, damages, liabilities, deficiencies,
obligations, or expenses, including without limitation reasonable legal fees and
expenses (collectively, "Losses"), but net of any insurance recoveries or tax
benefits actually received by Buyer because of such Losses, arising or resulting
from any of the following:
(i) the failure of Seller to pay or otherwise discharge when due and
payable the Retained Liabilities;
(ii) the non-fulfillment or non-performance by Seller of any agreement
or covenant of Seller hereunder; and
(iii) notwithstanding any investigation or examination made by Buyer,
the inaccuracy of any representation or breach of any warranty made by Seller
herein.
V.1.2 Indemnification by Buyer. Subject to the limitations set forth
in Section 5.3, Buyer shall indemnify, defend, and hold harmless Seller from and
against any and all Losses, but net of any insurance recoveries or tax benefits
actually received by Seller because of such Losses, arising or resulting from
any of the following:
(i) the failure of Buyer to pay or otherwise discharge when due and
payable the Assumed Liabilities;
(ii) the non-fulfillment or non-performance by Buyer of any agreement
or covenant of Buyer hereunder;
(iii) the inaccuracy of any representation or the breach of any
warranty made by Buyer herein; and
(iv) the conduct of the Business or the ownership of the Transferred
Assets after the Closing Date.
V.2 Indemnification Procedure for Third Party Claims. If any party
(the "Indemnified Party") receives written notice of the commencement of any
action or proceeding or the assertion of any claim by a third party or the
imposition of any penalty or assessment for which indemnity may be sought under
this Article V (a "Third Party Claim"), and such Indemnified Party intends to
seek indemnity pursuant to this Article V, the
11
<PAGE>
Indemnified Party shall promptly provide the other party (the "Indemnifying
Party") with notice of such Third Party Claim. The Indemnifying Party shall be
entitled to participate in or, at its option, assume the defense, appeal, or
settlement of such Third Party Claim. Such defense or settlement shall be
conducted through counsel selected by the Indemnifying Party and approved by the
Indemnified Party, which approval shall not be unreasonably withheld or delayed,
and the Indemnified Party shall fully cooperate with the Indemnifying Party in
connection therewith. In the event that the Indemnifying Party fails to assume
the defense or settlement of any Third Party Claim within 20 days after receipt
of notice thereof from the Indemnified Party, the Indemnified Party shall have
the right to undertake the defense, appeal or settlement of such Third Party
Claim at the expense and for the account of the Indemnifying Party. The
Indemnifying Party shall not settle any Third Party Claim the defense or
settlement of which is controlled by it without the Indemnified Party's prior
written consent (which consent shall not be unreasonably withheld or delayed),
unless the terms of such settlement or compromise release such Indemnified Party
from any and all liability with respect to such Third Party Claim.
V.3 Limitations on Indemnification. Notwithstanding the foregoing
provisions of this Article VIII, (i) neither party shall be responsible,
pursuant to Section 5.1.1(iii) or 5.1.2(iii), for any indemnifiable Losses
suffered by the other party arising out of inaccuracies in the representations
or breaches of warranties of such other party herein unless a claim therefor is
asserted in writing on or prior to the first anniversary of the Closing Date,
failing which such claim shall be waived and extinguished; (ii) neither party
shall be liable, pursuant to Section 5.1.1 (iii) or 5.1.2 (iii), for any Losses
suffered by the other party arising out of inaccuracies in the representations
or breaches of warranties herein (other than with respect to the representation
and warranty set in Section 3.13(b) hereof) unless the aggregate amount of such
Losses exceeds $125,000 of the Closing Date Payment (as adjusted pursuant to
Section 2.5), and then only to the extent of any such excess; and (iii) the
aggregate liability of either party hereunder, pursuant to Section 5.1.1 (iii)
or 5.1.2 (iii), for Losses suffered by the other shall in no event exceed 50% of
the Closing Date Payment (as adjusted pursuant to Section 2.5).
V.4 Tax Considerations. Notwithstanding any other provision of this
Article V, neither Buyer nor Seller shall be required to alter any tax positions
or elections it would otherwise take or make in order to reduce the amount of
indemnifiable Losses under Section 5.1.1 or Section 5.1.2, as the case may be.
ARTICLE VI
Additional Agreements
---------------------
V1.1 Termination of Insurance. Buyer acknowledges that Seller's
insurance coverage for the Transferred Assets shall terminate as of the Closing
Date.
V1.2 Seller's Access to Information. After the Closing Date, Buyer
shall grant to Seller such access to financial records and other information in
Buyer's possession related to Seller's conduct of the Business on or prior to
the Closing Date and such cooperation and assistance as shall be reasonably
required to enable Seller to complete its financial reports
12
<PAGE>
and tax returns for any period ending on or prior to or including the Closing
Date. In the event that any tax return of Seller for any such period becomes the
subject of any audit or investigation, Buyer shall give Seller all reasonable
cooperation, access and assistance as needed during normal business hours with
respect to books and records and other financial data included in the
Transferred Assets to enable Seller to defend any such audit or investigation.
Buyer will, for a period ending on the expiration of the statute of limitations
applicable to taxes plus any additional time during which Seller advises Buyer
that there is an ongoing tax audit or investigation with respect to such
periods, keep such materials reasonably accessible and not destroy or dispose of
such materials without the written consent of Seller. Seller shall promptly
reimburse Buyer for Buyer's reasonable out-of-pocket expenses associated with
requests made by Seller under this Section 6.2, but no other charges shall be
payable by Seller to Buyer in connection with such requests.
VI.3 Buyer's Access to Information. After the Closing Date Seller
shall grant Buyer access to such financial records and other information in
Seller's possession related to Seller's conduct of the Business on or prior to
the Closing Date as Buyer may reasonably request in order to provide Buyer with
the intended benefits of this Agreement.
VI.4 Public Announcements. Neither party will issue any press
release or other public announcement with respect to this Agreement or the
transactions contemplated hereby without the prior written approval of the other
party, except as may be required by applicable Laws.
VI.5 Further Assurances. After the Closing, each party shall take
such further actions and execute such further documents as may be necessary or
reasonably requested by the other party in order to effectuate the intent of
this Agreement and to provide such other party with the intended benefits of
this Agreement including using its best efforts to obtain the consent of Piggly
Wiggly Company to the assignment of its agreement with VDK within 30 days after
the Closing Date.
VI.6 UCC Matters. From and after the Closing Date, Seller will
promptly refer all inquires with respect to ownership of the Transferred Assets
or the Business to Buyer. In addition, Seller will execute such documents and
financing statements as Buyer may reasonably request from time to time to
evidence transfer of the Transferred Assets to Buyer, including any necessary
assignments of financing statements.
VI.7 Covenant Not to Compete; Confidentiality. Seller agrees that
for a period of three years after the Closing Date, neither it nor any of its
Affiliates will, directly or indirectly, (i) own, manage, operate, control or
participate in the ownership, management, operation or control of any business,
whether in corporate, proprietorship or partnership form or otherwise, engaged
in the design, manufacturing or marketing of the Products or that otherwise
competes with the Business or (ii) disclose, reveal, divulge or communicate to
any person or entity other than authorized officers, directors and employees of
Buyer, or use or other wise exploit for its own benefit or for the benefit of
anyone other than Buyer, any Confidential Information (as defined below). Seller
shall not have any obligation to keep confidential any Confidential Information
if and to the extent disclosure thereof is specifically
13
<PAGE>
required by law; provided, however, that in the event disclosure is required by
applicable law, Seller shall, to the extent reasonably possible, provide Buyer
with prompt notice of such requirement prior to making any disclosure so that
Buyer may seek an appropriate protective order. For purposes of this Section
6.7, "Confidential Information" shall mean any confidential information with
respect to the conduct or details of the Business, including, without
limitation, methods of operation, customers, and customer lists, products,
proposed products, former products, proposed, pending or completed acquisitions
of any company, division, product line or other business unit, prices, fees,
costs, plans, designs, technology, inventions, trade secrets, know-how,
software, marketing methods, policies, plans, personnel, suppliers, competitors,
markets or other specialized information or proprietary matters. The term
"Confidential Information" does not include, and there shall be no obligation
hereunder with respect to, information that (a) is generally available to the
public on the date of this Agreement, or (b) becomes generally available to the
public other than as a result of a disclosure by Seller not otherwise
permissible thereunder, or (c) Seller learns from other sources which such
sources have not violated their confidentiality obligation to Buyer required by
law. The parties hereto specifically acknowledge and agree that the remedy at
law for any breach of the foregoing will be inadequate and that the Buyer, in
addition to any other relief available to it, shall be entitled to temporary and
permanent injunctive relief without the necessity of proving actual damage or
posting any bond whatsoever. In the event that the provisions of this Section
6.7 should ever be deemed to exceed the limitation provided by applicable law,
then the parties hereto agree that such provisions shall be reformed to set
forth the maximum limitations permitted.
VI.8 Insurance. With respect to any loss, liability or damage
relating to, resulting from or arising out of the conduct of the Business on or
prior to the Closing Date for which Seller would be entitled to assert, or cause
any Affiliate or other person or entity to assert, a claim for recovery under
any policy of insurance maintained by or for the benefit of Seller or any
Affiliate thereof in respect of the Business or the Transferred Assets, at the
request of Buyer, Seller will use reasonable efforts to assert, or to assist
Buyer to assert, one or more claims under such insurance covering such loss,
liability or damage if Buyer is not itself entitled to assert such claim but
Seller is so entitled. In the case of any damage to or destruction of the
Transferred Assets occurring prior to Closing that is covered by insurance
maintained by Seller or any Affiliate of Seller, Seller shall deliver all
insurance proceeds realized therefrom to Buyer at Closing or as soon thereafter
as collected by Seller or such Affiliate.
VI.9 Intellectual Property. Buyer hereby acknowledges and agrees
that nothing in this Agreement grants, or shall be deemed to grant, to Buyer the
right to the use of the trademark "Pet" or any trademark, trade name, service
mark or other similar right which is related to or is a derivative of "Pet,"
other than the "Pet Whip" trademarks or any trademark, trade name, service mark
or similar right which is a derivative of the mark "Pet Whip."
VI.10 Disposal of Unusable or Unsalable Inventory. Seller has the
right to dispose of any unusable or unsalable Inventory through alternate
channels outside of its regular retail sale channels, subject to the approval of
Buyer, such approval to be given within 24 hours of notice and not to be
unreasonably withheld. It is acknowledged that it shall be unreasonable for
Buyer to withhold approval other than out of a legitimate concern that any such
disposal would adversely affect Buyer's relations with its customers or its
contractual relations with third parties.
14
<PAGE>
ARTICLE VII
Miscellaneous
-------------
VII.1 Expenses. Each of the parties hereto shall pay its own legal,
accounting, and other fees and expenses incurred in connection with the
preparation, execution, and delivery of this Agreement and all documents and
instruments executed pursuant hereto and the consummation of the transactions
contemplated hereby and any other costs and expenses incurred by such party,
except as otherwise expressly set forth herein.
VII.2 Notices. Any notice or other communication given under this
Agreement shall be in writing and shall be (i) delivered personally; (ii) sent
by documented overnight delivery service; (iii) sent by facsimile transmission,
provided that a confirmation copy thereof is sent no later than the business day
following the day of such transmission by documented overnight delivery service
or first class mail, postage prepaid (certified or registered mail, return
receipt requested); or (iv) sent by first class mail, postage prepaid (certified
or registered mail, return receipt requested). Such notice shall be deemed to
have been duly given (i) on the date of delivery, if delivered personally; (ii)
on the business day after dispatch by documented overnight delivery service, if
sent in such manner; (iii) on the date of facsimile transmission, if so
transmitted; or (iv) on the fifth business day after sent by first-class mail,
postage prepaid, if sent in such manner. Notices or other communications shall
be directed to the following addresses:
Notices to Seller:
Van de Kamp's, Inc.
1000 St. Louis Union Station
Suite 200
St. Louis, Missouri 63103
Attention: Thomas O. Ellinwood
with copies to:
Dartford Partnership LLC
801 Montgomery Street
Suite 400
San Francisco, California 94133
Attention: Mr. Ray Chung
15
<PAGE>
Notices to Buyer:
Morningstar Foods Inc.
c/o The Morningstar Group Inc.
5956 Sherry Lane, Suite 1500
Dallas, Texas 75225
Facsimile: 214-360-0948
Attention: Mr. C. Dean Metropoulos
with copies to:
The Morningstar Group Inc.
5956 Sherry Lane, Suite 1500
Dallas, Texas 75225
Facsimile: 214-360-0948
Attention: Mr. Joseph B. Armes
Either party may, by notice given in accordance with this Section 7.2, specify a
new address for notices under this Agreement.
VII.3 Entire Agreement; Amendment; Waiver. This Agreement and the
exhibits and schedules annexed hereto and the Confidentiality Agreement, dated
October 24, 1996, between Buyer and Seller, constitute the entire understanding
between the parties with respect to the subject matter hereof, and supersede all
other understandings and negotiations with respect thereto. This Agreement may
be amended only in a writing signed by both parties hereto. Any provision of
this Agreement may be waived only in a writing signed by the party to be charged
with such waiver. No course of dealing between the parties shall be effective to
amend or waive any provision of this Agreement.
VII.4 Severability. In the event that any provision contained in
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any jurisdiction, such provision shall be ineffective as to
such jurisdiction to the extent of such invalidity, illegality or
unenforceability without invalidating or affecting the remaining provisions
hereof or affecting the validity, legality, or enforceability of such provision
in any other jurisdiction.
VII.5 Assignment. This Agreement may not be assigned in whole or in
part by either party without the prior written consent of the other party;
provided, however, that Buyer may make a collateral assignment of its rights
under this Agreement to any institutional lender who provides funds to Purchaser
for the acquisition of the Transferred Assets.
VII.6 Governing Law. This Agreement shall be governed by the laws of
the State of New York without reference to any conflicts of law principles
thereof.
VII.7 Jurisdiction. Except as otherwise provided in Section 2.5.2
hereof, each party irrevocably agrees that any legal action, suit, or proceeding
against either of them with respect to its obligations or liability under or
arising out of or in connection with this
16
<PAGE>
Agreement may be brought in the United States District Court for the Southern
District of New York or the Northern District of Texas, or if any such court
does not have subject matter jurisdiction, the state courts of New York located
within New York County or the state courts of Texas located within Dallas
County, and hereby irrevocably accepts and submits to the non-exclusive
jurisdiction of the aforesaid courts in personam, with respect to any such
action, suit, or proceeding.
VII.8 Specific Performance. The parties recognize that if the Seller
refuses to perform under the provisions of this Agreement, monetary damages
alone will not be adequate to compensate Buyer for its injury. Buyer shall
therefore be entitled, in addition to any other remedies that may be available,
to obtain specific performance of the terms of this Agreement. If any action is
brought by Buyer to enforce this Agreement, the Seller shall waive the defense
that there is an adequate remedy at law. In the event of a default by the Seller
which results in the filing of a lawsuit for damages, specific performances, or
other remedies, Buyer shall be entitled to reimbursement by the Seller of
reasonable legal fees and expenses incurred by Buyer.
VII.9 Captions. The captions in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the interpretation
hereof.
VII.10 Defined Terms. References to defined terms in the singular
shall include the plural and references to defined terms in the plural shall
include the singular. References to "to the knowledge of Seller" or similar
terms shall mean to the actual knowledge of the Officers.
VII.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
VII.12 Bulk Sales Law. Buyer hereby waives compliance with the
provisions of all applicable bulk sales Laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
VAN DE KAMP'S, INC.
By:
---------------------------------
Name:
Title:
MORNINGSTAR FOODS INC.
By:
---------------------------------
Name:
Title:
17
<PAGE>
AMENDMENT TO ASSET PURCHASE AGREEMENT
AMENDMENT, made this 13th day of February, 1997 ("Amendment") to that
ASSET PURCHASE AGREEMENT, dated February 3, 1997 (the "Asset Purchase
Agreement"), between Van de Kamp's, Inc., a corporation organized under the laws
of Delaware ("Seller"), and Morningstar Foods Inc., a corporation organized
under the laws of Delaware ("Buyer").
WHEREAS Seller and Buyer wish to enter into this Amendment to the
Asset Purchase Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Seller and Buyer hereby agree as
follows:
1. Subparagraph (a)(ii) of Section 3.14 of the Asset Purchase
Agreement is hereby amended to delete the clause "three months ended September
30" where it appears twice and insert in lieu thereof "six months ended December
31" such that Section 3.14 reads in its entirety as follows:
"Schedule 3.14 sets forth (a) a list of (i) the ten largest customers
of the Business based on sales during the fiscal year ended June 30,
1996 and (ii) the ten largest customers of the Business during the six
months ended December 31, 1996, showing the approximate total sales by
the Business to each such customer during the fiscal year ended June
30, 1996 and the six months ended December 31, 1996, respectively, (b)
a list of (i) the ten largest suppliers of the Business based on
purchases during the fiscal year ended June 30, 1996, and (ii) the ten
largest suppliers of the Business based on purchases during the three
months ended September 30, 1996, showing the approximate total
purchases by the Business from each such supplier during the fiscal
year ended June 30, 1996, and the three months ended September 30,
1996, respectively. Except as described in Schedule 3.14, there has
not been any material adverse change in the business relationship of
the Business with any customer or supplier named in Schedule 3.14
since the Statement Date. None of Messrs. Thomas O. Ellinwood,
President; Timothy B. Andersen, Chief Financial Officer; Thomas
Youngerman, Vice President of Sales; Greg Smith, Vice President of
Manufacturing and Distribution; John Crowder, Director of Marketing;
and Ms. Renee Sloan, Vice President of Marketing (collectively, the
"Officers"), have been informed, either orally or in writing, that any
current customer listed in Schedule 3.14(i) intends to terminate its
purchase of the Products."
2. Schedule 3.14 is attached hereto in its entirety and is deemed to
have been delivered as of the Closing of the Asset Purchase Agreement and any
schedule previously delivered relating to Section 3.14 is hereby deemed null and
void.
<PAGE>
3. Except as provided herein, all of the terms and conditions
contained in the Asset Purchase Agreement shall remain in full force and effect.
4. This Amendment shall be governed by the laws of the State of New
York without reference to any conflicts of law principles thereof.
5. Defined terms used herein and not defined herein shall have the
respective meanings set forth in the Asset Purchase Agreement.
6. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
VAN DE KAMP'S, INC.
By:
-------------------------------
Name: Ray Chung
Title: Executive Vice President
MORNINGSTAR FOODS INC.
By:
-------------------------------
Name:
Title:
2
<PAGE>
SECOND AMENDMENT, dated as of March 27, 1997 (this "Second
Amendment"), among: i) VDK HOLDINGS, INC., a Delaware corporation ("Holdings");
ii) VAN DE KAMP'S, INC., a Delaware corporation (the "Borrower"); iii) the
several lenders and other financial institutions listed on the signature pages
of this Second Amendment (individually, a "Lender", and collectively, the
"Lenders") and iv) THE CHASE MANHATTAN BANK, a New York banking corporation (as
successor to The Chase Manhattan Bank, N.A.), as Agent, amending the Second
Amended and Restated Credit and Guarantee Agreement, dated as of July 9, 1996
(as amended, supplemented or otherwise modified prior to the date hereof, the
"Credit Agreement"), among the Borrower, Holdings, the Lenders and the Agent.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested the Lenders to agree to amend the
Credit Agreement to adjust the capital expenditures covenant of the Borrower as
set forth in this Second Amendment;
WHEREAS, the Lenders are willing to agree to the amendments requested
by the Borrower;
NOW THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
1. Defined Terms. Unless otherwise defined herein and except as set
forth in this Second Amendment, terms defined in the Credit Agreement are used
herein as therein defined.
2. Amendment to Subsection 8.8. Subsection 8.8 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
inserting in lieu thereof the following new subsection 8.8:
"8.8 Limitation on Capital Expenditures. Make or commit to make
Capital Expenditures in excess of $5,000,000 in the aggregate for the
Borrower and its Subsidiaries during any fiscal year of the Borrower;
provided, that (i) Capital Expenditures with respect to the 1997 fiscal
year shall not include expenditures up to an aggregate amount equal to
$7,800,000 made in connection with the relocation of the Mrs. Paul's
Business from the Campbell Soup-owned facility in Omaha, Nebraska to the
Borrower's Erie, Pennsylvania facility or the Borrower's Chambersburg,
Pennsylvania facility, (ii) Capital Expenditures with respect to the 1997
and 1998 fiscal years shall not include expenditures up to an aggregate
amount equal to $2,500,000 made in connection with the Jackson, Tennessee
pizza sheeting line and the Aunt Jemima packaging automation line, (iii)
Capital Expenditures with respect to the 1997 fiscal year shall not include
expenditures up to an aggregate amount equal to $900,000 made in connection
with the projects described on Schedule 8.8, (iv) Capital Expenditures not
in excess of $1,500,000 permitted to be made during any fiscal year (and
not carried over from a prior fiscal year) and not made during such fiscal
year may be carried over and expended during the next succeeding fiscal
year and (v) Capital Expenditures made during any fiscal year shall be
first deemed made in respect of amounts carried over from the prior fiscal
year and then deemed made in respects of amounts permitted for such fiscal
year."
<PAGE>
2
3. New Schedule 8.8. The Credit Agreement is hereby amended by
inserting Schedule 8.8 attached hereto as Schedule 8.8 to the Credit Agreement.
4. Miscellaneous.
(a) Effectiveness. The amendments provided for herein shall become
effective as of March 27, 1997 (the "Effective Date") upon the receipt by the
Administrative Agent of counterparts of this Second Amendment, duly executed and
delivered by the Borrower, Holdings and the Required Lenders.
(b) Representations and Warranties. After giving effect to the
amendments contained herein, on the Effective Date, the Borrower hereby
confirms, reaffirms and restates the representations and warranties set forth in
Section 5 of the Credit Agreement; provided that each reference in such Section
5 to "this Agreement" shall be deemed to be a reference both to this Second
Amendment and to the Credit Agreement as amended by this Second Amendment.
(c) Continuing Effect; No Other Amendments. Except as expressly
amended or waived hereby, all of the terms and provisions of the Credit
Agreement are and shall remain in full force and effect. The amendments
contained herein shall not constitute an amendment or waiver of any other
provision of the Credit Agreement or for any purpose except as expressly set
forth herein.
(d) No Default. No Default or Event of Default shall have occurred
and be continuing as of the Effective Date.
(e) Counterparts. This Second Amendment may be executed in any
number of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
(f) GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
VDK HOLDINGS, INC.
By:
----------------------------------
Title:
VAN DE KAMP'S, INC.
By:
----------------------------------
Title:
THE CHASE MANHATTAN BANK, as Agent and
as a Lender
By:
----------------------------------
Title:
<PAGE>
4
BANQUE PARIBAS
By:
-------------------------------------------
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By:
-------------------------------------------
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH
By:
-------------------------------------------
Title:
By:
-------------------------------------------
Title:
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN
BRANCHES
By:
-------------------------------------------
Title:
By:
-------------------------------------------
Title:
FLEET NATIONAL BANK (successor in interest to
Fleet Bank of Massachusetts, N.A.)
By:
-------------------------------------------
Title:
HARRIS TRUST AND SAVINGS BANK
By:
-------------------------------------------
Title:
<PAGE>
5
THE FIRST NATIONAL BANK OF BOSTON
By:
----------------------------------
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By:
----------------------------------
Title:
PRIME INCOME TRUST
By:
----------------------------------
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST
By:
----------------------------------
Title:
RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS,
B.V.
By: its Managing Director, ABN TRUSTCOMPANY
(NEDERLAND) B.V.
By:
----------------------------------
Title:
By:
----------------------------------
Title:
STRATA FUNDING LTD.
By:
----------------------------------
Title:
<PAGE>
6
MERRILL LYNCH PRIME RATE PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT L.P., as
Investment Adviser
By:
----------------------------------
Title:
BANQUE NATIONALE DE PARIS
By:
----------------------------------
Title:
By:
----------------------------------
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
----------------------------------
Title:
FIRST BANK NATIONAL ASSOCIATION
By:
----------------------------------
Title:
MARINE MIDLAND BANK
By:
----------------------------------
Title:
NEW YORK LIFE INSURANCE COMPANY
By:
----------------------------------
Title:
<PAGE>
7
PILGRIM AMERICA PRIME RATE TRUST
By:
----------------------------------
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.
By:
----------------------------------
Title:
FEDERAL STREET PARTNERS
By:
----------------------------------
Title:
SENIOR DEBT PORTFOLIO
By: BOSTON MANAGEMENT AND RESEARCH, as Investment
Advisor
By:
----------------------------------
Title:
<PAGE>
SCHEDULE 8.8
Additional Projects for Fiscal Year 1997
----------------------------------------
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Grilled Fillet equipment $200,000
Block Splitter $100,000
Adjustment to Package Sizing $300,000
Sanitation Projects $100,000
Adjustment to Package Sizing $100,000
Installation of Tray Line $100,000
--------
$900,000
========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
balance sheets and statements of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 333
<SECURITIES> 0
<RECEIVABLES> 45,078
<ALLOWANCES> (370)
<INVENTORY> 36,684
<CURRENT-ASSETS> 84,948
<PP&E> 94,070
<DEPRECIATION> (7,489)
<TOTAL-ASSETS> 521,406
<CURRENT-LIABILITIES> 74,087
<BONDS> 294,759
0
0
<COMMON> 0
<OTHER-SE> 148,742
<TOTAL-LIABILITY-AND-EQUITY> 521,406
<SALES> 344,113
<TOTAL-REVENUES> 344,113
<CGS> 143,522
<TOTAL-COSTS> 288,332
<OTHER-EXPENSES> 22,549
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 24,762
<INCOME-PRETAX> 8,290
<INCOME-TAX> 3,316
<INCOME-CONTINUING> 4,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,974
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
