<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 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
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1000 St. Louis Union Station
St. Louis, Missouri 63103
(Address of Principal Executive Office)
(314) 241-0303
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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None
------------------- _________________________________________
Securities registered pursuant to Section 12(g) of the Act
None (Title of Class)
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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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of Affiliate in Rule 405.) Not applicable.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
Shares Outstanding
September 24, 1997
Common stock, no par value 200
1
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PART I
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ITEM 1: BUSINESS
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Business History
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Van de Kamp's, Inc., a Delaware corporation (the "Company"), began operations on
September 19, 1995 when it acquired the Van de Kamp's(R) frozen seafood
business and certain frozen dessert product lines (together the "Businesses" and
prior to September 19, 1995, the "Predecessor") from The Pillsbury Company
("Pillsbury") and PET Incorporated ("PET"). The Company acquired the Businesses
from the Predecessor for a purchase price of $190.0 million. The Company
acquired the inventories, property, plant and equipment, and intangible assets
of the Businesses and paid Pillsbury $2.0 million, a contractually agreed upon
amount, to retain all of the Businesses' current liabilities. The acquisition
was financed by (i) an equity capital contribution of approximately $70.0
million from its parent VDK Holdings, Inc., a Delaware corporation ("Holdings"),
(ii) senior subordinated notes in the amount of $100.0 million, and (iii) the
borrowing by the Company of $32.0 million under the senior secured bank
facilities. Holdings is wholly owned by VDK Foods LLC, a Delaware limited
liability company ("Foods").
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. The acquisition was financed by (i) an equity
capital contribution of $15.0 million from Holdings, and (ii) the borrowing by
the Company of $60.0 million under its senior secured bank facilities.
On July 9, 1996, Van de Kamp's, Inc. acquired substantially all of the assets of
the frozen food division of The Quaker Oats Company ("Quaker"). The assets
acquired were the Celeste(R) brand of frozen pizza and the Aunt Jemima(R)
brand of frozen breakfast products (together, "Quaker Frozen Food Business").
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 was the Jackson, Tennessee manufacturing facility where the Company
produces both product lines. The purchase price of $185.8 million was financed
by (i) an equity capital contribution from Holdings of $40.0 million, (ii) the
borrowing by the Company of $135.0 million under its senior secured bank
facility, and (iii) a $20.0 million senior secured convertible loan secured by
cash collateral posted by Holdings. The cash collateral balance received from
Holdings was recorded as a capital contribution and used to repay the senior
secured convertible loan in March 1997.
Products and Markets
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The Company produces and markets frozen seafood, frozen dessert products and
frozen vegetables under its principal trademarks, including Van de Kamp's(R),
Mrs. Paul's(R), Pet-Ritz(R), and Oronoque Orchards(R). Following the
July 9, 1996 acquisition of the Quaker Frozen Food Business, the Company's
product portfolio expanded to include frozen pizza and frozen breakfast
products which are sold under the Celeste(R) and Aunt Jemima(R) brands,
respectively.
2
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[LOGO OF PET-RITZ] [LOGO OF VAN DE KAMP'S] [LOGO OF ORONOQUE ORCHARDS]
[LOGO OF MRS. PAUL'S] [LOGO OF CELESTE] [LOGO OF AUNT JEMIMA]
The Company seeks to generate volume growth and expand the market share of its
products through media advertising and promotional efforts stressing product
quality and brand identification. The Company's principal marketing strategy is
to distinguish target markets for its frozen food product portfolio and focus
sales, production, and marketing efforts in order to generate consumer demand
from those markets. The Company's products are sold nationwide to supermarkets
and other retail channels. The Company sells its products through a network of
frozen food brokers to wholesale and retail grocery accounts. The products are
distributed either directly to the customer or through independent wholesalers.
In the foodservice market, the Company sells primarily frozen breakfast
products. Customers include military bases, restaurant chains, hotels, schools,
hospitals, correction facilities, and business/industry. The Company's products
are sold either direct or through a food service distributor.
Industry
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Van de Kamp's, Inc. participates in the frozen convenience food category. The
retail market for frozen convenience foods is primarily driven by consumers'
desire for food that is convenient, easy to prepare, provides a good price/value
relationship and offers meal occasion alternatives. The Company's primary
product lines which compete in this industry segment are frozen seafood, frozen
desserts, frozen vegetables, frozen pizza and frozen breakfast products.
Financial Information About Industry Segments
- ---------------------------------------------
During fiscal years 1997 and 1996, the Company was engaged only in the frozen
food business and related activities. Accordingly, no separate industry segment
information is provided.
3
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Trademarks
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The Company's products are marketed under trademarks owned by or licensed to the
Company. The Company owns or licenses over 15 trademark registrations. The
Company's trademarks are among its most valuable assets as it pursues its
strategy of building brands throughout the country.
Competition
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The market for frozen convenience foods is large and competitive with numerous
brands and products. The Company has numerous competitors for its various
product lines and competes in all its markets with national and regional
companies. Competition is based primarily on price, quality and convenience.
The Company produces and markets two of the leading retail brands of frozen
seafood in the United States. The Company's frozen seafood products compete with
other brands of frozen seafood and with alternative frozen convenience foods
such as frozen chicken nuggets, frozen pizza and frozen Mexican dishes. The
Company's frozen desserts are sold primarily in regional markets and competition
varies by region and product line. The competition includes alternative dessert
offerings as well as comparable non-frozen products. The Company's frozen
vegetable product line competes against other frozen and non-frozen products as
a convenient side dish to main course meals. The Company's frozen pizza product
offering competes with other frozen pizza manufacturers and home delivered
pizzas as well as main meal occasion alternatives. The Company's frozen
breakfast products compete with other frozen breakfast offerings as well as non-
frozen breakfast products.
Quality Control
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Quality control processes at the Company's principal manufacturing facilities
emphasize applied research and technical services directed at quality control
and product improvement.
The Company's products and manufacturing facilities are subject to various laws
and regulations administered by the Federal Food and Drug Administration, the
United States Department of Agriculture, and other federal, state, and local
governmental agencies relating to the quality of products, safety, and
sanitation. The Company believes that it complies with such laws and regulations
in all material respects.
Customers
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The Company's business is not dependent upon a single customer or a small number
of customers, the loss of whom would have a material adverse effect on the
Company's operations.
4
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Seasonality
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The Company has some seasonality among its product lines. Sales of frozen
seafood products tend to be higher over the period January through April, which
includes the Lenten period. In frozen desserts, sales are higher for cream pies
in May through August and for frozen pie shells during the November and December
holiday baking season.
The Company experiences peaks in its working capital cycle in anticipation of
its sales seasonality. The Company builds inventory during the months of August
through December in advance of the holiday baking season and the Lenten period.
In addition, there is an inventory increase in the spring in advance of the
cream pie selling season. Receivables tend to increase during high seasonal
sales months but decline to normal levels thereafter.
Raw Materials and Supplies
- --------------------------
The principal raw materials used by the Company are fish, flour, egg, cheese,
milk, sugar, various fruits, vegetable oils, other agricultural products, and
paper and plastic for packaging materials. All such materials and supplies are
available from numerous independent suppliers. The Company's objective is to
procure ingredients meeting both the Company's production needs and its quality
standards and at the lowest aggregate cost to the Company.
Environmental Matters
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The Company is subject to a number of federal, state, and local statutes, rules,
regulations and ordinances in the United States relating to the discharge of
materials into the environment and the handling and disposition of wastes
(including solid and hazardous wastes), or otherwise relating to the protection
of the environment. The Company has implemented a program to monitor compliance
with environmental laws and is continually examining its methods of operation
and product packaging to lower its use of natural resources.
5
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Research and Development
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The Company's primary research and development facility is located at its
corporate office in St. Louis, Missouri. The department is responsible for
nearly all of the food research and product development for the Company. Van de
Kamp's, Inc. research and development resources are focused on new product
development, product enhancement, process design and improvement, packaging and
exploratory research in new business areas.
Employees
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As of September 24, 1997, the Company had a total of 1,197 employees. The hourly
employees at the Chambersburg, Pennsylvania manufacturing facility are
represented by the International Brotherhood of Teamsters. None of the Company's
other employees are represented by a union. Management believes that its
relations with its employees are generally excellent.
ITEM 2: PROPERTIES
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The Company owns and operates three manufacturing facilities that are
subject to security interests granted to the Company's senior lenders under its
senior secured bank facility. The Company manufactures frozen seafood products
out of a 116,000 square foot facility in Erie, Pennsylvania. Frozen desserts,
frozen vegetables and certain frozen seafood products are manufactured at the
Company's 180,000 square foot facility in Chambersburg, Pennsylvania. The
Company has a 302,000 square foot manufacturing facility in Jackson, Tennessee,
which produces frozen pizza and frozen breakfast products. The Company leases
its approximately 40,000 square foot headquarters office in St. Louis, Missouri
pursuant to a lease that will expire during fiscal year 2001, subject to one
five year renewal option.
All of the Company's facilities are generally in good physical condition, are
well maintained, and are suitable for the manufacture of the particular product
line for which it is used. The Company's facilities generally operate with some
available capacity. The Company is currently increasing production capacity to
accommodate estimated growth in certain of its product lines. New production
lines and associated equipment will be purchased and installed during fiscal
1998.
ITEM 3: LEGAL PROCEEDINGS
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The Company is subject to litigation in the ordinary course of business. In the
opinion of management, the ultimate outcome of any existing litigation would not
have a material adverse effect on the Company's financial condition or results
of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
Not applicable.
6
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PART II
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ITEM 5: MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
There is no established public trading market for the Company's common stock.
All of its issued and outstanding shares of common stock are owned by Holdings.
No cash dividends have been declared since the incorporation of the Company. The
Company is restricted under its senior secured bank facilities from declaring
dividends, with certain limited exceptions, including for payment of Holdings'
and Foods' taxes, to pay Holdings' and Foods' fees and expenses in connection
with acquisitions, and to make payments under Holdings' incentive compensation
plan.
ITEM 6: SELECTED FINANCIAL DATA
- -------------------------------
The selected financial data presented below, as of June 30, 1997 and June 29,
1996 and for the periods June 30, 1996 through June 30, 1997 and September 19,
1995 through June 29, 1996 is derived from the Company's audited financial
statements. The selected financial data of the Predecessor for the period July
1, 1995 through September 18, 1995 and for the years ended June 30, 1995, 1994
and 1993 is derived from the audited Combined Statements of Income of the
Predecessor. The selected financial data should be read in conjunction with the
Company's financial statements and the Predecessor's Combined Statements of
Income and notes thereto included in Item 14.
<TABLE>
<CAPTION>
(dollars in thousands) Van de Kamp's, Inc. Predecessor
--------------------------------- -----------------------------------------------------------------------
Period September Period July
Year ended 19, 1995 through 1, 1995 through Year ended Year ended Year ended
June 30, 1997 June 29, 1996 September 18, 1995 June 30, 1995 June 30, 1994 June 30, 1993
------------- ---------------- ------------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $435,476 $143,296 $20,545 $149,359 $153,314 $159,004
Gross profit 254,535 82,929 9,567 83,248 85,433 81,617
Operating income 40,437 12,348 274 15,988 18,619 16,549
Net income 4,153 (439) (122) 8,272 9,850 8,486
Total assets (1) 509,591 305,499 - - - -
Total debt (1) 312,856 188,750 - - - -
</TABLE>
(1) Total assets and total debt for the period ended September 18, 1995 and the
years ended June 30, 1995, 1994 and 1993 are not available. The Predecessor
did not operate the Businesses as separate divisions or business entities
and therefore maintained debt and certain other components of assets and
liabilities on a consolidated basis. See Note 2 to the Combined Statement
of Operations of the Van de Kamp's and Frozen Dessert Product Lines of PET
Incorporated contained in Item 14.
7
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
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The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the historical
financial information included in the Financial Statements and notes to the
financial statements. Unless otherwise noted, years (1997, 1996, etc.) in this
discussion refer to the Company's June-ending fiscal years.
Results of Operations
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The following table sets forth for the periods indicated the percentage which
the items in the Statements of Operations bear to net sales and the percentage
change of such items compared to the indicated prior period. Certain amounts
from prior years have been reclassified to conform with the Company's current
year presentation. The Statement of Operations column for the period July 1,
1995 through June 29, 1996 combines the Company's operating period September 19,
1995 through June 29, 1996, including the operations of the Mrs. Paul's(R)
business for the period May 6, 1996 through June 29, 1996, and the Predecessor's
operating period of July 1, 1995 through September 18, 1995. The Statement of
Operations column for the period July 1, 1994 through June 30, 1995 is that of
the Predecessor.
8
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<TABLE>
<CAPTION>
Increase Increase
June 30, July 1, July 1, (Decrease) (Decrease)
1996 through 1995 through 1994 through 1996 to 1995 to
(dollars in thousands) June 30, 1997 June 29, 1996 June 30, 1995 1997 1996
------------------- ------------------ ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $435,476 100.0% $164,357 100.0% $152,382 100.0% 165.0% 7.9%
Cost of goods sold 180,941 41.6 70,634 43.0 63,170 41.5 156.2 11.8
----------- ------ --------- ------ -------- ------ ---------- ----------
Gross profit 254,535 58.4 93,723 57.0 89,212 58.5 171.6 5.1
Selling, distribution and
marketing expenses:
Selling and distribution 45,352 10.4 18,744 11.4 17,340 11.4 142.0 8.1
Trade promotions 108,925 25.0 36,216 22.0 34,530 22.7 200.8 4.9
Consumer marketing 29,524 6.8 13,255 8.1 8,260 5.4 122.7 60.5
----------- ------ --------- ------ -------- ------ ---------- ----------
Total selling, distribution and
marketing expenses 183,801 42.2 68,215 41.5 60,130 39.5 169.4 13.4
Amortization of goodwill and
other intangibles 13,142 3.0 4,912 3.0 3,305 2.2 167.5 48.6
General and administrative
expenses 14,270 3.3 6,637 4.0 9,789 6.4 115.0 (32.2)
Transition related costs 2,885 0.7 1,337 0.8 - - 115.8 -
----------- ------ --------- ------ -------- ------ ---------- ----------
Total operating expenses 214,098 49.2 81,101 49.3 73,224 48.1 164.0 10.8
----------- ------ --------- ------ -------- ------ ---------- ----------
Operating income 40,437 9.3 12,622 7.7 15,988 10.5 220.4 (21.1)
Interest income (965) (0.2) (135) (0.1) - - 614.8 -
Interest expense 32,499 7.5 12,469 7.6 - - 160.6 -
Amortization of deferred
financing expense 2,108 0.5 607 0.4 - - 247.3 -
Other bank and financing expenses 265 0.1 79 0.0 - - 235.4 -
----------- ------ --------- ------ -------- ------ ---------- ----------
Income (loss) before income taxes 6,530 1.5 (398) (0.2) 15,988 10.5 1,740.7 (102.5)
Provision for income taxes 2,377 0.5 163 0.1 7,716 5.1 1,358.3 (97.9)
----------- ------ --------- ------ -------- ------ ---------- ----------
Net income (loss) $4,153 1.0% ($561) (0.3%) $8,272 5.4% 840.3% (106.8%)
=========== ====== ========= ====== ======== ====== ========== ==========
</TABLE>
9
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YEAR ENDED JUNE 30, 1997 COMPARED TO THE YEAR ENDED JUNE 29, 1996
Net Sales. Net sales for the year increased $271.1 million over the prior year
to $435.5 million. Mrs. Paul's(R) seafood, which was acquired from CSC on May
6, 1996, generated $85.8 million in the first full year of ownership. Celeste
(R)/Aunt Jemima(R), which was acquired from Quaker on July 9, 1996, added
$184.1 million in sales following the acquisition. Van de Kamp's(R) seafood
sales increased $10.5 million, or 8.7% versus the prior year, largely due to the
successful introduction of flavored baked and grilled fillet products. Desserts
sales decreased $1.0 million versus 1996 due to lower whipped topping sales
volume resulting from the divestiture of the product line in February 1997.
Excluding the impact of whipped topping sales in both years, desserts sales grew
$5.7 million or 26.4% due to increased promotional efforts and new product
introductions.
Compared to 1996 pro forma sales of $401.5 million, sales increased $34.0
million, or 8.5%. Mrs. Paul's(R) sales increased by $4.7 million, or 5.8%, due
to new product introductions which were supported by advertising and increased
promotional activity. Celeste(R) pizza sales increased by $4.1 million, or
6.0%, behind focused promotional programs and more effective trade spending.
Aunt Jemima(R) sales increased by $11.6 million, or 16.7%, due to increased
consumer marketing and trade promotion spending. Foodservice sales increased
$4.1 million, or 15.8% versus the prior year, due to a focused selling effort on
frozen breakfast products.
Gross Profit. Gross profit increased from 57.0% as a percentage of net sales in
fiscal 1996 to 58.4% in fiscal 1997. The improvement was caused primarily by
lower seafood manufacturing costs stemming from the integration of Mrs.
Paul's(R) seafood production in the Erie, Pennsylvania facility and the effect
of the sale of the lower margin private label whipped topping product line in
February 1997.
Selling, Distribution, and Marketing Expenses. Selling, distribution, and
marketing expenses increased from 41.5% as a percentage of net sales in the
prior year to 42.2% in the current year. The increase was due to an increase in
trade promotion expense, which was partially offset by lower selling and
distribution expense and lower consumer marketing expense.
The increase in trade promotion spending was caused by (i) higher spending
levels to support new product introductions under the Van de Kamp's(R) and Mrs.
Paul's(R) brands, and (ii) 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 net sales
due to the development of a lower cost distribution network than the Predecessor
and distribution efficiencies resulting from the Mrs. Paul's(R) and
Celeste(R)/Aunt Jemima(R) acquisitions. Consumer marketing decreased as a
percentage of net sales because the spending rate was lower for the Celeste(R)
pizza and Aunt Jemima(R) breakfast products than for the Company's other product
lines. The lower Celeste(R)/Aunt Jemima(R) 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 $8.2 million due to the increase in intangibles resulting
from the acquisitions of Van de Kamp's(R) in the first quarter of fiscal 1996,
Mrs. Paul's(R) in the fourth quarter of fiscal 1996, and Celeste(R)/Aunt
Jemima(R) in the first quarter of fiscal 1997.
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General and Administrative Expenses. General and administrative expenses
increased $7.6 million in order to facilitate the management of the businesses
acquired during calendar 1996. General and administrative expenses decreased
from 4.0% as a percentage of net sales to 3.3% during this period due to delays
in reaching full staffing levels following the Mrs. Paul's(R) and
Celeste(R)/Aunt Jemima(R) acquisitions, and lower overhead spending associated
with the Company's stand-alone structure as compared to amounts allocated to the
businesses during the Predecessor ownership period.
Transition Related Costs. Transition related costs of $2.9 million 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 transitional expenses. The increase in transition
related costs was mainly attributable to the Celeste(R)/Aunt Jemima(R)
acquisition and additional CSC costs not incurred in the prior year.
Interest Expense. Interest expense increased versus the prior year due to
additional debt financing required to complete the acquisition of
Celeste(R)/Aunt Jemima(R) and the inclusion of a full year of interest and debt
resulting from Van de Kamp's(R) Businesses and Mrs. Paul's(R) acquisitions.
Income Before Income Taxes. Income before income taxes increased $6.9 million
due to the increased size, and therefore operating income, of the Company as
well as the operating improvements described previously.
Provision for Income Taxes. The Company's combined effective federal and
state tax rate for fiscal year 1997 was 40%. This rate was lower than the rate
experienced by the prior owners, primarily because the Company's amortization of
goodwill is deductible for income tax purposes.
YEAR ENDED JUNE 29, 1996 COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 1995
Net Sales. Consolidated net sales increased $12.0 million to $164.4 million for
the year ended June 29, 1996. This was an increase of 7.9% from the prior year
sales of $152.4 million.
Frozen seafood sales increased $14.3 million, or 12.5%, due to incremental
advertising and promotional support for this segment of the business during the
key Lenten season and the acquisition of Mrs. Paul's(R) in May 1996. Seafood
sales trailed prior year levels in the first half of the fiscal year, which
included two and one-half months of the Predecessor ownership, due to transition
and start-up difficulties associated with the Company's formation and its
acquisition of the business from Pillsbury. In the second half of the year, Van
de Kamp's(R) brand seafood sales exceeded prior year sales by $7.3 million. This
sales increase was due to higher volumes of $5.6 million associated with the
increased advertising and promotion support and a price increase instituted on
selected seafood products in December of 1995, which accounted for higher sales
of $1.7 million.
Mrs. Paul's(R) sales were $8.3 million during the Company's ownership period May
6 through June 29, 1996.
Sales of frozen dessert products decreased $2.3 million, or 6.3%, due to lack of
sales and marketing support by the Predecessor and increased competitive
pressure in the whipped topping segment. Frozen dessert sales rebounded in the
June quarter with a 3.4% increase over the prior year, which was the result of
key marketing initiatives put into place to take advantage of the peak spring
sales period.
Gross Profit. Gross profit increased $4.5 million, or 5.1%, to $93.7 million
from $89.2 million during the prior year.
11
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The gross profit on seafood products increased $7.2 million, or 10.1%. Increased
sales offset a gross margin decline of 1.5 percentage points. The decline in the
gross margin percentage was caused by higher fixed production costs during the
Predecessor ownership period. The gross margin during the Company's ownership
period increased by 0.3 percentage points versus the prior year. During the
Company's ownership period, results were favorable in comparison to the prior
year's results due to higher selling prices and improvements in plant yield,
throughput and overhead spending.
Frozen dessert gross profit fell $2.7 million, or 15.5%, with a gross margin
decline of 4.6 percentage points. The decline was the result of product mix
changes, including a shift to lower margin private label sales, competitive
pricing in whipped toppings and higher packaging and ingredient costs.
Mrs. Paul's(R) contributed $4.1 million in gross profit during the Company's
ownership period May 6 through June 29, 1996. The gross margin during that
period was 50.0%, reflecting CSC's higher production costs. Mrs. Paul's(R)
products were produced by CSC during the fourth quarter in order to accumulate
sufficient inventory prior to the relocation of the production equipment from
CSC to the Company's Erie and Chambersburg facilities.
Selling, Distribution and Marketing Expenses. Selling, distribution and
marketing expenses for the year were 41.5% as a percentage of net sales versus
39.5% in the prior year. Approximately $4.0 million of the $8.1 million
increase was the result of the acquisition of Mrs. Paul's(R).
Selling and distribution expenses remained flat as a percentage of net sales,
reflecting slightly higher freight and warehousing rates offset by a reduction
in brokerage expenses. Trade promotions declined by 0.7 percentage points due
to lower trade spending during the Predecessor ownership period and a sales mix
shift toward private label frozen desserts, on which trade spending is
negligible.
Consumer support increased $5.0 million, or 2.7 percentage points primarily due
to higher advertising and promotional spending. The majority of this increase,
or $4.1 million, was focused on the Company's seafood products. Consumer support
was the key driver behind successfully reversing historical sales trends and
returning seafood sales to growth.
General and Administrative Expenses. General and administrative expenses
totaled $6.6 million for the year, or 4.0% as a percentage of net sales, which
was $3.2 million lower than the prior year. This amount included a first quarter
corporate allocation from Pillsbury. Prior year expense of $9.8 million was a
combination of PET and Pillsbury corporate allocated expenses. The reduction in
expenses reflected the lower overhead spending associated with the Company's
stand-alone structure as compared to amounts allocated to the Businesses during
the Predecessor ownership periods.
Transition Related Costs. Transition related costs of $1.3 million consist of
what management believes are one-time costs incurred to establish Van de Kamp's,
Inc.'s operations, including expenditures to regain distribution of products
that had been discontinued during the transition of the Businesses and Mrs.
Paul's(R) from the Predecessor and CSC to the Company, relocation expenses,
recruiting fees, sales training, computer systems training, and other one-time
transitional expenses.
12
<PAGE>
Operating Income. Operating income decreased $3.4 million, or 21.1%, to $12.6
million. In addition to the factors noted above, amortization of goodwill and
other intangibles increased $1.6 million versus the prior year.
Interest Expense. Interest expense was $12.3 million for the fiscal year ended
June 29, 1996, or 7.5% of sales. During Predecessor ownership periods, debt and
related interest expense were not allocated to the Businesses.
Income Before Income Taxes. The provision for income taxes decreased to $0.2
million from $7.7 million in the prior year. This decrease was primarily the
result of lower earnings in the current period as caused by matters previously
discussed.
Net Income. The Company incurred a $0.6 million loss for fiscal 1996 as
compared to a profit of $8.3 million for fiscal 1995 as a result of the factors
noted above.
LIQUIDITY AND CAPITAL RESOURCES
On July 9, 1996, the Company acquired substantially all of the assets of the
frozen food division of Quaker for approximately $185.8 million. These assets
included the Celeste(R) frozen pizza business and the Aunt Jemima(R) frozen
breakfast products business of Quaker. The acquisition was financed by (i) an
equity capital contribution of $40.0 million from Holdings, (ii) $135.0 million
of additional borrowings through the Company's existing senior bank facility,
and (iii) a $20.0 million senior secured convertible loan which was secured by
cash collateral posted by Holdings. Total sources of financing of $195.0 million
were used to fund the acquisition and pay transaction fees and expenses. The
cash collateral balance received from Holdings was recorded as a capital
contribution and used to repay the senior secured convertible loan in March
1997.
Total debt at June 30, 1997 was $312.9 million, an increase of $124.1 million
from June 29, 1996. The increase in debt was the result of the additional
financing required to fund the acquisition of the Quaker Frozen Food Business,
partially offset by scheduled and additional principal payments of $15.9 million
in the current year. The debt consisted of $212.9 million of senior secured term
and revolving debt and $100.0 million of senior subordinated notes outstanding.
The interest rate on the subordinated notes is 12.0%, with semi-annual interest
payments which commenced in March 1996. The senior secured term debt, of which
$13.1 million will mature during fiscal year 1998, bears interest at a spread to
prime or Eurodollar base rates. The weighted average interest rate at June 30,
1997 for the senior secured term debt was 8.6%. Interest is generally payable
quarterly and principal payments are semi-annual.
The Company also has a $25.0 million senior secured revolving credit facility
with a $5.0 million outstanding balance at June 30, 1997. The available capacity
under the revolving credit facility is subject to limitations based on letters
of credit.
13
<PAGE>
For the year ended June 30, 1997, cash provided by operations was $18.5 million.
Net income before depreciation and amortization provided $26.5 million of
operating cash flow, which was offset by a use of $10.3 million in cash to fund
working capital requirements. Current assets, excluding cash, increased $25.0
million primarily due to the acquisition of the Quaker Frozen Food Business,
which resulted in increased accounts receivable and inventory balances. The
increases in current assets were partially offset by a $8.5 million increase in
accounts payable and accrued expenses.
Net cash used in investing activities was $200.9 million in 1997. In addition to
the acquisition of the Quaker Frozen Food Business, the Company expended $14.4
million in fiscal 1997 for capital expenditures. The majority of the spending in
fiscal 1997 was incurred to relocate and install the Mrs. Paul's(R) production
lines purchased from CSC into the Company's Erie, Pennsylvania facility and
upgrade refrigeration capacity and building layout to accommodate the
installation of the lines. The Company expects to spend approximately $16.4
million on capital expenditures in fiscal 1998. The Company anticipates that
these expenditures will be funded from internal sources and available borrowing
capacity.
During 1997, cash of $188.0 million was provided by financing activities,
primarily from additional borrowings of $155.0 million, periodic draws on the
revolving credit facility of $33.0 million and capital contributions of $60.1
million. Payments on borrowings in 1997 were approximately $63.9 million which
includes repayment of the $20.0 million senior secured convertible loan, a $5.5
million reduction in senior secured long term debt from net proceeds generated
by the sale of the whipped topping business, $10.4 million in principal payments
on senior secured term debt and $28.0 million of periodic repayments on the
revolving credit facility.
At June 30, 1997, the Company had $0.3 million of cash and cash equivalents and
an unused commitment of $19.6 million on its $25.0 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.
14
<PAGE>
Impact of New Accounting Pronouncements. In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards
for reporting and display of comprehensive income and components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. This statement is effective for financial statements for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 will not
have any impact on the financial position or results of operations of Van de
Kamp's, Inc.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. This statement is effective for
financial statements for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 131 will not have any impact on the financial position or
results of operations of Van de Kamp's, Inc.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
Reference is made to Item 14.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
15
<PAGE>
PART III
- --------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
The names, ages and positions of all directors and executive officers of Van de
Kamp's, Inc., as of September 24, 1997, are listed below, followed by a brief
account of their business experience for at least the past five years. Directors
and officers serve in their positions until their resignation or removal.
Officers serve at the pleasure of the Board of Directors.
Name Age Position(s)
- ---- --- -----------
Ian R. Wilson 68 Chairman of the Board of Directors
Thomas O. Ellinwood 42 President and Director
Ray Chung 49 Executive Vice President
James B. Ardrey 39 Executive Vice President and Director
Timothy B. Andersen 43 Chief Financial Officer and Vice President -
Administration
Thomas J. Youngerman 46 Vice President - Sales
C. Renee Sloan 35 Vice President - Marketing
Olafur Gudmundsson 38 Vice President - Purchasing and Research and
Development
Gregory L. Smith 33 Vice President - Manufacturing and Distribution
M. Laurie Cummings 34 Vice President and Secretary
Peter Lamm 45 Director
Andrea Geisser 54 Director
Nicholas Dennis 50 Director
Clive A. Apsey 49 Director
Charles J. Delaney 37 Director
Robert V. Dale 60 Director
IAN R. WILSON - CHAIRMAN OF THE BOARD OF DIRECTORS
Mr. Wilson is the managing partner of Dartford Partnership, LLC ("Dartford"), a
private investment partnership focused on the food and beverage industries. Mr.
Wilson was formerly Chairman and Chief Executive Officer of Windmill Corporation
("Windmill"), a leading specialty miller and supplier of branded consumer
products which he founded in March 1989. Mr. Wilson was also formerly Chairman
and Chief Executive Officer of Wyndham Foods, Inc. ("Wyndham"), a major cookie
company he founded in 1985 and positioned as the leading popular priced cookie
company in the United States. From 1983 to 1984, Mr. Wilson was the Chairman and
Chief Executive Officer of Castle & Cooke (Dole), an international food and real
estate concern. Prior to Castle & Cooke, Mr. Wilson spent 25 years with The
Coca-Cola Company, initially in South Africa, where he was Plant Manager of
Johannesburg and later Vice President - Area Manager for Southern Africa, and
also served in a series of international operating management positions.
Ultimately, Mr. Wilson served as Vice Chairman of The Coca-Cola Company and
President of the Pacific Group. Mr. Wilson's past and present service as a
director includes membership on the boards of Novell, Inc., Revlon, Inc., Crown
Zellerbach Corporation, Castle & Cooke, Inc., Wilson Bottling Corporation,
Golden State Foods, Windy Hill Pet Food Company, Inc. and Aurora Food Inc.
16
<PAGE>
THOMAS O. ELLINWOOD - PRESIDENT AND DIRECTOR
Mr. Ellinwood has been responsible for the management of the Van de Kamp's,
Inc's. Businesses since PET acquired the Businesses from Grand Metropolitan, PLC
("Grand Met") in October 1989, when he headed the acquisition and integration
team as Director/Marketing Manager. Mr. Ellinwood was Vice President and General
Manager of PET from March 1992 until the Company acquired the Businesses.
Between 1990 and 1992, Mr. Ellinwood held the position of Vice President -
Marketing. Prior to PET's acquisition of the Van de Kamp's, Inc. Businesses,
from 1986 to 1989, Mr. Ellinwood held various positions of increasing
responsibility with PET's sales and marketing departments. Mr. Ellinwood served
as General Manager of Omar, Inc., a privately-owned aerospace manufacturing
company from 1983 to 1986. From 1977 to 1983, Mr. Ellinwood was a pilot in the
U.S. Navy.
RAY CHUNG - EXECUTIVE VICE PRESIDENT
Mr. Chung is a partner in Dartford. Mr. Chung has previously served as a
Director, Executive Vice President and Chief Financial Officer of Windmill from
1989 to 1995 and as a Director, Executive Vice President and Chief Financial
Officer of Wyndham from 1985 to 1990. From May 1984 to September 1985, Mr. Chung
served as Vice President - Finance for the Kendall Company (Colgate-Palmolive).
Between 1981 and 1984, Mr. Chung served as Vice President - Finance for Riviana
Foods, Inc. Mr. Chung is a Director of Windy Hill Pet Food Company, Inc., VDK
Foods LLC and Aurora Foods Inc.
JAMES B. ARDREY - EXECUTIVE VICE PRESIDENT AND DIRECTOR
Mr. Ardrey is a partner in Dartford. From January 1993 to February 1995, Mr.
Ardrey was a consultant to Windmill, conducting its divestiture program. Over
the period 1984 to 1992, Mr. Ardrey was an investment banker with Paine Webber
Incorporated, serving as Managing Director from 1990 to 1992. Prior to joining
Paine Webber, Mr. Ardrey was a consultant with Booz, Allen & Hamilton.
Mr. Ardrey is also a director of Aurora Foods Inc.
TIMOTHY B. ANDERSEN - CHIEF FINANCIAL OFFICER AND VICE PRESIDENT -
ADMINISTRATION
Prior to joining the Company in October 1995, Mr. Andersen was a Vice President
on the PET Integration Team for Grand Met/Pillsbury. From 1994 to 1995, he
served as Vice President - Finance of Alpo Pet Foods, Inc. Between 1990 and 1994
he was Director - Grand Met Food Sector Audit, North America and Controller -
Grand Met Foodservice. Prior to joining Pillsbury, Mr. Anderson held several
positions with Burlington Northern, Inc., Burlington Northern Railroad, and
Gelco Corporation, which is now a division of GE Capital.
THOMAS J. YOUNGERMAN - VICE PRESIDENT - SALES
Mr. Youngerman joined PET in August 1987 as Division Manager, Frozen Foods. He
subsequently held numerous positions until his promotion to National Vice
President of Sales in 1993. Prior to joining Pet, Mr. Youngerman was Director of
Special Marketing, Revlon International, New York, and he held several positions
with Trinity Marketing Corporation, a food brokerage company specializing in
sales to the military market.
17
<PAGE>
C. RENEE SLOAN - VICE PRESIDENT - MARKETING
Ms. Sloan became Marketing Manager of the Van de Kamp's, Inc.'s Businesses in
1995. She joined PET in 1991 as an Assistant Product Manager of the Businesses
and held marketing positions of increasing responsibility. Her responsibilities
have included advertising and consumer promotion, new product development and
execution, strategic brand management and financial management. She joined PET
in 1990, working for the Branded Express Foods Group, marketing chilled,
prepared foods. Previously, she worked for Warner-Lambert American Chicle Group
as a Sales Representative, and for Kellogg Cereal Company for five years in
sales and marketing support functions.
OLAFUR GUDMUNDSSON - VICE PRESIDENT - PURCHASING AND RESEARCH AND DEVELOPMENT
Mr. Gudmundsson is responsible for Van de Kamp's Purchasing and Research and
Development. In 1991, he joined the purchasing department at PET Incorporated.
As a Purchasing Manager, he developed and implemented strategies to improve cost
performance and mitigate risk in purchasing all seafood and dairy products on a
corporate level. Prior to joining PET, Mr. Gudmundsson held various positions
of increasing responsibilities in operations with Coldwater Seafood Corporation,
the leading supplier of seafood to the food service industry, where he last
served as Manager of Production Planning and Procurement. Mr. Gudmundsson is on
the Board of Directors of the National Fisheries Institute.
GREGORY L. SMITH - VICE PRESIDENT - MANUFACTURING AND DISTRIBUTION
Mr. Smith has served as Vice President - Manufacturing and Distribution for the
Company's Businesses since 1996. Prior to joining the Company, Mr. Smith
held positions of increasing responsibility in operations and marketing with The
Quaker Oats Company, which he joined in 1985. From 1993 to 1996, he was Plant
Manager of the Jackson, Tennessee facility, which he managed as a stand-alone
unit with responsibility for manufacturing, logistics, purchasing and customer
service. Mr. Smith's experience at The Quaker Oats Company also included service
as Brand Manager for the Oven Stuffs and Aunt Jemima brands.
M. LAURIE CUMMINGS - VICE PRESIDENT AND SECRETARY
Ms. Cummings is a partner in Dartford. Ms. Cummings was Vice President,
Controller and Treasurer of Windmill from 1989 to 1995. Between 1987 and 1990,
Ms. Cummings was the Controller and Assistant Treasurer of Wyndham.
PETER LAMM - DIRECTOR
Mr. Lamm is President of Fenway Partners Management, Inc., the management
company for Fenway, a New York based direct investment firm for institutional
investors with a primary objective of acquiring controlling positions in leading
middle-market companies. From February 1982 to April 1994, Mr. Lamm was employed
by Butler Capital Corporation ("BCC"), most recently as Senior Direct Investment
Officer and a Managing Director. Until April 1994, Mr. Lamm was also a general
partner of the five limited partnerships managed by BCC. Mr. Lamm is
18
<PAGE>
also a director of Central Tractor Farm & Country, Inc. as well as director of
various private corporations.
ANDREA GEISSER - DIRECTOR
Mr. Geisser is a Managing Director of Fenway Partners Management, Inc. From
February 1989 to June 1994, Mr. Geisser was employed by BCC as a Managing
Director. Until June 1994, Mr. Geisser was also a general partner of the five
limited partnerships that serve as the respective general partners of the five
investment limited partnerships managed by BCC. Prior to joining BCC, Mr.
Geisser was a Managing Director of Onex Investment Corporation, the largest
Canadian leveraged buyout company, and prior to that started the U.S. operations
of IFINT, a European investment company, where he was a Senior Vice President
and Director. Mr. Geisser is a trustee and member of the audit committee of
Corporate Property Investors, a real estate investment trust, and a director of
various private corporations.
NICHOLAS DENNIS - DIRECTOR
Mr. Dennis has served as Chief Executive Officer of Tiger Oats, Limited ("Tiger
Oats") since 1994. From 1990 to 1994, Mr. Dennis served as Chief Executive
Officer of ICS Limited, a South African processor and marketer of perishable
foods. Prior to joining ICS Limited, Mr. Dennis was employed from 1982 to 1990
by Tiger Oats, where he held various positions of increasing responsibility,
with the last position that of division chairman. Previously, he worked for
Colgate-Palmolive, Germany. Mr. Dennis' past and present service as a director
includes membership on the boards of the following companies: Tiger Oats, ICS
Limited, C.G. Smith Limited, C.G. Smith Foods Limited, Adcock Ingram Limited,
Langeberg Holdings Limited, and Sea Harvest Limited.
CLIVE A. APSEY - DIRECTOR
Mr. Apsey has served as Executive Chairman of Langeberg Foods, a division of
Tiger Oats, since 1990. From 1979 to 1990, Mr. Apsey served as Managing Director
of Jungle Oats Company, Cape Town, a subsidiary of Tiger Oats. Mr. Apsey's past
and present service as a director includes membership on the boards of the
following companies: Tiger Milling & Feeds Ltd., Tiger Foods Ltd., Tiger Oats,
Langeberg Foods, Ltd., Langeberg Holdings Ltd., Beacon Sweets and Chocolates
(Pty) Ltd. and Durban Confectionery Works (Pty) Ltd.
CHARLES J. DELANEY - DIRECTOR
Mr. Delaney has been President of UBS Capital LLC ("UBS") since January 1993 and
Managing Director in charge of the Leveraged Finance Group of the Corporate
Banking Division of Union Bank of Switzerland since May 1989. Mr. Delaney is
also a director of Specialty Foods Corporation, CBP Resources, Inc., Cinnabon
International, Inc. and Peoples Telephone Company, Inc.
ROBERT V. DALE - DIRECTOR
Mr. Dale is the President and a Director of Windy Hill Pet Food Company, Inc.
Mr. Dale was formerly President of Martha White Foods, a baking mix and flour
division of Windmill.
19
<PAGE>
Prior to Windmill, he was President of Beatrice Specialty Products Division,
which bought Martha White in 1975. Mr. Dale's past and present service as a
director includes membership on the boards of Third National Bank of Nashville,
Cracker Barrel Old Country Stores and Zatarain's Seasonings. He has served as
President of the National Soft Wheat Millers Association and President of the
American Corn Millers Federation.
ITEM 11: EXECUTIVE COMPENSATION
- --------------------------------
The following Summary Compensation Table sets forth the compensation received by
the top six executives, including the Company's President, during the year
ended June 30, 1997 and the year ended June 29, 1996.
Summary Compensation Table
- --------------------------
<TABLE>
<CAPTION>
Name and Principal Other
Position as of June 30, 1997 Year Salary (1) Bonus Compensation
- ---------------------------- ---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Thomas O. Ellinwood 1997 $225,000 $112,500 $19,375
President and Director 1996 $175,000 $112,500 $14,375
Timothy B. Andersen 1997 $140,000 $ 56,000 $79,635
Chief Financial Officer and 1996 $125,000 $ 52,500 $37,875
Vice President - Administration
C. Renee Sloan 1997 $140,000 $ 56,000 $12,300
Vice President - Marketing 1996 $125,000 $ 52,500 $ 8,875
Thomas J. Youngerman 1997 $140,000 $ 56,000 $12,300
Vice President - Sales 1996 $125,000 $ 52,500 $ 8,875
Olafur Gudmundsson 1997 $140,000 $ 56,000 $41,650
Vice President - Purchasing 1996 $125,000 $ 52,500 $49,350
and Research and Development
Gregory L. Smith 1997 $140,000 $ 56,000 $61,728
Vice President - Manufacturing
and Distribution
</TABLE>
- -----
(1) 1996 amounts have been annualized.
Other compensation includes Company contributions on behalf of the officers to
profit sharing and savings plans. During the year ended June 30, 1997, other
compensation for Messrs. Andersen, Gudmundsson, and Smith includes $67,335,
$29,350, and $49,428, respectively, of relocation expenses. During the year
ended June 29, 1996, other compensation for Messrs. Anderson and Gudmundsson
includes $14,000 and $40,475, respectively, of relocation expenses.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Members of the compensation committee of the Board of Directors of the Company
are Messrs. Ian R. Wilson, Peter Lamm and Charles J. Delaney. Mr. Wilson serves
as chairman of the compensation committee.
The Company is party to a Management Services Agreement, as described in Item
13, with Dartford, who is a member of Foods. Mr. Wilson is the managing partner
of Dartford.
20
<PAGE>
The Company entered into a Computer Services Agreement with Windy Hill Pet Food
Company ("Windy Hill") pursuant to which Windy Hill provided computer support
services to Van de Kamp's, Inc. for an annual fee of $198,000 through May 1997.
Dartford (of which Mr. Wilson is the managing partner) and its partners own
14.2% of Windy Hill. Mr. Wilson is the Chairman of the Board of Directors of the
Company and of Windy Hill.
During fiscal 1997, Van de Kamp's, Inc. has paid to certain members of Foods,
who are also represented on the Board of Directors and beneficial owners, fees
for services rendered in connection with the acquisition and related financing
of the Company's acquisition. These fees, as discussed in Item 13, included
$750,000 paid to Dartford, of which Mr. Wilson is the managing partner; $900,000
paid to Fenway, of which Mr. Lamm is the president of the general partner of
Fenway; $200,000 paid to UBS, whose president is Mr. Delaney; and $200,000 paid
to National Sun, an indirect, wholly-owned subsidiary of Tiger Oats, whose Chief
Financial Officer and Managing Director is Mr. Dennis.
Employment Agreements
- ---------------------
The Company entered into an employment agreement with Thomas O. Ellinwood to
serve as President of the Company on September 19, 1995, which was subsequently
amended as of July 1, 1996. The agreement provides for a three year term;
however, commencing on the first anniversary date after September 19, 1995 and
each anniversary thereafter, the term will automatically be extended (the
"Automatic Extension") for one additional year so that the term ends three years
after the latest anniversary after September 19, 1995, unless notice by either
the Company or Mr. Ellinwood to terminate is given 30 days prior to the
Automatic Extension. Under his employment agreement, as amended, Mr. Ellinwood
will receive an annual base salary of $275,000 effective July 1, 1997 (subject
to annual adjustment) during the term of the agreement and will be eligible to
receive a bonus of up to 60% of his base salary based upon certain earnings
criteria. If the Company terminates Mr. Ellinwood's employment for any reason
other than (i) for acts of dishonesty detrimental to the best interests of the
Company, (ii) for a conviction of a felony, (iii) for willful malfeasance or
gross negligence in the performance of his duties, (iv) for repeated failure to
follow instructions of the Board of Directors and the Company, or (v) for the
occurrence of permanent disability or death prior to a Change of Control (as
defined below), the Company is required to pay him the greater of (a) 200% of
his base salary and pro rata bonus then in effect, or (b) the base salary and
pro rata bonus he would have been entitled to receive through the end of the
current term of the employment agreement. If such termination occurs after a
Change of Control, the Company is required to pay him 200% of his base salary
and pro rata bonus then in effect. Under Mr. Ellinwood's employment agreement,
the term "Change of Control" is defined as (i) the sale, exchange or other
disposition of (A) more than 50% of the issued and outstanding shares of the
Company, (B) more than 50% of the issued and outstanding shares of Holdings, or
(C) more than 50% of the units of limited liability company interests in Foods,
in each case to or with a person or entity other than the Company, Holdings,
Foods, or an affiliate of any of them, or (ii) the merger, consolidation, or
other business combination of the Company, Holdings or Foods with or into
another entity other than the Company, Holdings, or Foods or an affiliate of any
of them. Mr. Ellinwood's employment agreement also provides that for one year
following his termination of employment with the Company, Mr. Ellinwood may not
compete with, or solicit employees, from the Company.
21
<PAGE>
The Company also entered into employment agreements with each of Timothy B.
Andersen, Thomas J. Youngerman, C. Renee Sloan, Olafur Gudmundsson and Gregory
L. Smith (collectively, the "Vice Presidents") effective September 19, 1995,
with the exceptions of Mr. Andersen and Mr. Smith whose employment agreements
were effective as of October 11, 1995 and November 1, 1996, respectively. Each
of the employment agreements, as amended, with the Vice Presidents (the
"Employment Agreements") has a three year term and contains among other things,
an automatic extension provision and a one year noncompetition covenant which
prohibits such Vice Presidents from competing with, and soliciting employees
from, the Company. Under the Employment Agreements, as amended, each of the Vice
Presidents receives a base salary and is eligible to receive a bonus of up to
50% of the base salary based on certain earnings criteria. Effective July 1,
1997, Ms. Sloan and Messrs. Andersen, Youngerman and Smith each has a base
salary of $170,000, while Mr. Gudmundsson's base salary is $145,000. If the
Company terminates any one of the Vice Presidents' employment without cause, the
Company will be required to pay to such Vice President the greater of (i) 100%
of such Vice President's base salary and pro rata bonus then in effect, or (ii)
the base salary and pro rata bonus such Vice President would have been entitled
to receive through the end of the term of such Vice President's Employment
Agreement.
Directors' Compensation
- -----------------------
Directors, all of whom are officers, employees or otherwise affiliates of the
Company, have not, as of September 24, 1997, and are not expected in the future,
to receive compensation for their services as directors. Directors of the
Company are entitled to reimbursement of their reasonable out-of-pocket expenses
in connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof.
Long Term Incentive Compensation Plan
- -------------------------------------
Foods has implemented an Incentive Compensation Plan (the "Plan") as a means by
which Key Personnel (defined as employees and other specific designated persons)
of the Company, and/or affiliated with the Company, may be given an opportunity
to benefit from the appreciation in the value of the Company. The Amended and
Restated Limited Liability Company Agreement of Foods, dated as of September 19,
1995, was amended and restated as of May 22, 1997 to approve and adopt the Plan.
The effective date of the Plan is as of September 19, 1995.
Under the Plan, Key Personnel are issued various types of incentive compensation
units (the "Units") in the Plan as a means to participate in the valuation of
the Company, as determined based on certain formulae in the Plan document. The
Units are subject to forfeiture based on the failure to meet vesting
requirements, specified earnings targets, and/or rates of return targets for
certain investors in Foods. Pursuant to the Plan document, the Units will have
special valuation and payment provisions upon a change of control or initial
public offering of the Company's or Holdings' stock (an "IPO").
Upon a change of control or IPO, the Units will be valued and amounts will be
paid to Unit holders according to various factors, such as the type of
triggering event and the amount of proceeds paid to the Foods' investors. In
general, there will be no payment on the Units until the Foods' investors have
received a designated return on their investments. The payment to Unit
22
<PAGE>
holders may be cash and/or non-cash securities, depending on the triggering
event and the type of distribution received by Foods' investors. In addition,
the Plan will gross-up payments to the Unit holders in certain events relating
to (i) any excise tax due under federal income tax rules, and (ii) any tax on
the Units in excess of capital gains tax rates.
The total amount due under the Plan, if any, is subject to the rates of return
and forfeiture factors discussed above. Based on management and the Board of
Director's assessment of the current valuation of the Company, there is no basis
to record an accrual for compensation expense at this time. To the extent any
amounts are deemed accruable under the Plan in the future, such amounts will be
a liability of Foods as the sponsor of the Plan. However, because the Plan is
for the benefit of Key Personnel of the Company, any expense to be recognized
under the Plan will be pushed down to the Company, and will be recorded by the
Company as expense and as additional paid in capital from its parent over the
applicable vesting periods.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
All of the outstanding capital stock of the Company is held by Holdings and all
of the outstanding capital stock of Holdings is held by Foods. The Class B and
Class C common limited liability company interests ("Common LLC Securities") are
the only classes of Foods' limited liability company interests that currently
possess voting rights. As of September 24, 1997, there were 114,937 issued and
outstanding interests of Foods' Common LLC Securities. The following table sets
forth certain information regarding the beneficial ownership of the Common LLC
Securities of Foods, as of September 24, 1997, by each person who beneficially
owns more than 5% of Foods' Common LLC Securities, by directors and certain
executive officers of the Company, individually, and by the directors and
executive officers of the Company as a group.
23
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of
Common LLC Common LLC
Name and Address of Beneficial Owner Securities (1) Securities (1)
- ------------------------------------ -------------- --------------
<S> <C> <C>
5% MEMBERS:
Fenway Partners Capital Fund, L.L.P.(2) 62,430.4 54.3%
152 West 57th Street
New York, New York 10019
Tiger Oats Limited (3) 22,410.7 19.5%
85 Bute Lane
Sandown, Sandton 2196
Republic of South Africa
UBS Capital LLC (4) 22,410.7 19.5%
299 Park Avenue
New York, New York 10171
Dartford Partnership, LLC (5) 6,537.1 5.7%
456 Montgomery Street, Suite 2200
San Francisco, California 94104
<CAPTION>
Number of Percentage of
Common LLC Common LLC
Securities (1) Securities (1)
-------------- --------------
<S> <C> <C>
Ian R. Wilson (5) 6,537.1 5.7%
Thomas O. Ellinwood 214.3 0.2%
Ray Chung (5) 6,537.1 5.7%
James B. Ardrey (5) 6,537.1 5.7%
Timothy B. Andersen 72.9 0.1%
Thomas J. Youngerman 72.9 0.1%
C. Renee Sloan 72.9 0.1%
Olafur Gudmundsson 72.9 0.1%
Gregory L. Smith 42.9 0.0%
M. Laurie Cummings (5) 6,537.1 5.7%
Peter Lamm (2) 62,430.4 54.3%
Andrea Geisser (2) 62,430.4 54.3%
Nicholas Dennis (3) 22,410.7 19.5%
Clive A. Apsey (3) 22,410.7 19.5%
Charles J. Delaney (4) 22,410.7 19.5%
All directors and executive 114,337.7 99.4%
officers of the Company as a group (14 persons)
</TABLE>
24
<PAGE>
(1) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared power to
dispose, or direct the disposition, of a security.
(2) The general partner of Fenway is Fenway Partners, L.P., a Delaware limited
partnership, whose general partner is Fenway Partners Management, Inc., a
Delaware corporation. Messrs. Peter Lamm and Andrea Geisser are directors and
officers of Fenway Partners Management, Inc., and as such may be deemed to have
the power to vote or dispose of the Foods' Common LLC Securities held by Fenway.
Each of Messrs. Lamm and Geisser disclaims the existence of a group and
disclaims beneficial ownership of Foods' Common LLC Securities held by Fenway.
(3) As of August 31, 1996, Tiger Oats' shares are held by Gloriande
(Luxembourg) SarL, a corporation organized under the laws of Luxembourg
("Gloriande"), which is the record owner of Foods' Common LLC Securities.
Gloriande is an indirect wholly-owned subsidiary of Tiger Oats. Prior to August
31, 1996, Tiger Oats' shares were held by National Sun Industries, Inc., a North
Dakota corporation ("National Sun") and an indirect wholly-owned subsidiary of
Tiger Oats. The shares of capital stock of Tiger Oats are traded publicly on the
Johannesburg Stock Exchange. Tiger Oats has been granted a right of first offer
with respect to a sale of the Company. Mr. Nicholas Dennis is the Chief
Executive Officer and Managing Director and Mr. Clive A. Apsey is a director of
Tiger Oats and as such may be deemed to have the shared power to vote or dispose
of the Foods' Common LLC Securities held by Tiger Oats. Each of Messrs. Apsey
and Dennis disclaims the existence of a group and disclaims beneficial ownership
of Foods' Common LLC securities held by Tiger Oats.
(4) UBS is a wholly-owned indirect subsidiary of Union Bank of Switzerland. The
shares of capital stock of Union Bank of Switzerland are publicly held. Mr.
Charles J. Delaney, a director of Holdings and the Company, is the President of
UBS and disclaims beneficial ownership of Foods' Common LLC Securities held by
UBS.
(5) Mr. Ian Wilson is the managing partner and Mr. James B. Ardrey, Mr. Ray
Chung and Ms. M. Laurie Cummings are each partners of Dartford, and as such they
may be deemed to have the power to vote or dispose of Foods' Common LLC
Securities held by Dartford and as such, together with Messrs. Wilson, Ardrey,
and Chung and Ms. Cummings may be deemed to have the power to vote and dispose
of Foods' Common LLC Securities held by Dartford. Each of Messrs. Wilson,
Ardrey, and Chung and Ms. Cummings disclaims the existence of a group and
disclaims beneficial ownership of Foods' Common LLC Securities held by Dartford.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
During 1997, Van de Kamp's, Inc. has maintained business relationships and
engaged in certain transactions as described below.
The Company entered into a Management Services Agreement with Dartford pursuant
to which Dartford provides consulting services and management oversight on
financial and operational matters. Prior to the acquisition of the Quaker Frozen
Food Business, the contractual management fee paid to Dartford was $1,200,000.
As a result of the acquisition, the annual management fee was increased to
$1,800,000. The terms of the Management Services Agreement were negotiated on an
arms-length basis between Dartford and the other equity investors. Dartford
partners include Mr. Ian R. Wilson, Mr. Ray Chung, Mr. James B. Ardrey and Ms.
M. Laurie Cummings, who are directors and/or executive officers of the Company.
25
<PAGE>
The Company entered into a Computer Services Agreement with Windy Hill Pet Food
Company ("Windy Hill") pursuant to which Windy Hill provided computer support
services to Van de Kamp's, Inc. for an annual fee of $198,000 through May 1997.
Dartford and its partners own 14.2% of Windy Hill. Mr. Ian Wilson is the
Chairman of the Board of Directors of the Company and of Windy Hill. Mr. Robert
Dale, who is a director of the Company, is the President and a director of Windy
Hill. The Computer Services Agreement was entered into with Windy Hill after
considering proposals from non-affiliated companies. The terms agreed to with
Windy Hill are more favorable to the Company than those offered by the non-
affiliated companies.
During fiscal 1997, Van de Kamp's, Inc. has paid to certain members of Foods,
who are also represented on the Board of Directors and beneficial owners, fees
for services rendered in connection with the acquisitions and related financing
of the Company's acquisitions. The aggregate amount paid was $2,050,000 and was
funded by the proceeds of the financings. Of this $2,050,000, $750,000 was paid
to Dartford (whose partners include executive officers and directors as
described in Item 10); $900,000 was paid to Fenway, whose general partner's
directors and officers are Mr. Peter Lamm and Mr. Andrea Geisser (both directors
of the Company); $200,000 was paid to National Sun, an indirect wholly-owned
subsidiary of Tiger Oats, whose Chief Executive Officer and Managing Director is
Mr. Nicholas Dennis, and whose director is Mr. Clive A. Apsey (both directors of
the Company); and $200,000 was paid to UBS, whose president is Mr. Charles J.
Delaney (a director of the Company). The fee amounts were negotiated among the
equity investors.
On September 19, 1995, Mr. Thomas O. Ellinwood, the President of the Company,
and Mr. Thomas J. Youngerman, Mr. Olafur Gudmundsson, and Ms. C. Renee Sloan,
Vice Presidents of the Company, executed promissory notes in favor of the
Company in exchange for monies borrowed to assist in the capitalization of their
limited liability company interests held in Foods. The promissory notes mature
September 30, 1998 with required annual payments. Interest is due and payable
quarterly at the rate of 8.5% per annum. The aggregate balances outstanding as
of June 30, 1997 and June 29, 1996 on the promissory notes were $213,333 and
$305,000, respectively. The outstanding balances are as follows:
<TABLE>
<CAPTION>
June 30, June 29,
1997 1996
------------ -----------
<S> <C> <C>
Mr. Ellinwood $ 83,333 $ 125,000
Mr. Youngerman 45,000 60,000
Ms. Sloan 45,000 60,000
Mr. Gudmundsson 40,000 60,000
------------ -----------
$ 213,333 $ 305,000
============ ===========
</TABLE>
26
<PAGE>
PART IV
- -------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
1. Financial Statements of the Company
(a) Report of Price Waterhouse LLP 34
Balance Sheets 35
Statements of Operations 36
Statements of Changes in Stockholder's Equity 37
Statements of Cash Flows 38
Notes to the Financial Statements 39 THROUGH 53
(b) Financial Statements of the Predecessor
Van de Kamp's and Frozen Dessert Product Lines of The Pillsbury Company
and PET Incorporated:
Report of Price Waterhouse LLP 54
Combined Statements of Income 55
Notes to the Combined Statements of Income 56 THROUGH 58
2. Financial Statement Schedule
Schedule IX - Valuation Reserves 59
3. Exhibits 60 THROUGH 63
27
<PAGE>
Exhibit Index
Exhibit
Number Exhibit
- ------ -------
2.1 Asset Purchase Agreement, dated as of July 7, 1995 among Van de
Kamp's, Inc., the Pillsbury Company and Pet Incorporated
(incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s
Form S-4 filed on October 4, 1995 (the "S-4")).
2.2 Agreement and Amendment No. 1, dated September 19, 1995, to the Asset
Purchase Agreement among Van de Kamp's, Inc., the Pillsbury Company
and Pet Incorporated (incorporated by reference to Exhibit 2.2 to the
S-4).
2.3 Asset Purchase and Sales Agreement, dated as of January 17, 1996,
between Shellfish Acquisition Company, LLC ("Shellfish") and Campbell
Soup Company ("Campbell") (the text of which and Exhibits to which are
incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s Form
10-Q for the quarter ended March 30, 1996 and a list of the contents
of the schedules of which is incorporated by reference to Exhibit 2.1
to Van de Kamp's, Inc.'s Form 8-K dated May 6, 1996).
2.4 Asset Purchase Agreement, dated as of January 17, 1996, between Van de
Kamp's, Inc. and Shellfish (incorporated by reference to Exhibit 2.2
to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 30,
1996).
2.5 Asset Purchase and Sales Agreement, dated as of May 15, 1996 between
Van de Kamp's, Inc. and the Quaker Oats Company ("Quaker")
(incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s
Form 8-K dated July 9, 1996).
2.6 Supplement No. 1 to Asset Purchase and Sales Agreement, dated as of
July 9, 1996, between Van de Kamp's, Inc. and Quaker (incorporated by
reference to Exhibit 2.2 to Van de Kamp's, Inc.'s Form 8-K dated July
9, 1996).
2.7 Asset Purchase Agreement, dated as of February 3, 1997, between Van de
Kamp's, Inc. and Morningstar Foods, Inc. (incorporated by reference to
Exhibit 2.1 to the Form 10-Q for quarter ended March 31, 1997).
2.8 Amendment to Asset Purchase Agreement, dated as of February 13, 1997,
between Van de Kamp's, Inc. and Morningstar Foods, Inc. (incorporated
by reference to Exhibit 2.2 to the Form 10-Q for quarter ended March
31, 1997).
3.1 Certificate of Incorporation of Van de Kamp's, Inc., with amendments
thereto (incorporated by reference to Exhibit 3.1 to 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).
4.1 Indenture, dated as of September 15, 1995, between Van de Kamp's, Inc.
and Harris Trust and Savings Bank (incorporated by reference to
Exhibit 4.1 to the S-4).
4.2 Global Note, dated September 19, 1995, issued by Van de Kamp's, Inc.
to the Depository Trust Company and registered in the name of Cede &
Co. in the principal amount of $100,000,000 (incorporated by reference
to Exhibit 4.2 to the S-4).
28
<PAGE>
4.3 Exchange and Registration Rights Agreement, dated September 19, 1995
between Van de Kamp's, Inc. and Chemical Securities Inc. (incorporated
by reference to Exhibit 4.3 to the S-4).
10.1 Guarantee and Collateral Agreement, dated September 19, 1995, among
VDK Holdings, Inc., Van de Kamp's, Inc., the subsidiary grantors named
therein and Chemical Bank as agent (incorporated by reference to
Exhibit 10-19 to the S-4).
10.2 Security Agreement, dated as of September 19, 1995, made by Van de
Kamp's, Inc., in favor of Chemical Bank (incorporated by reference to
Exhibit 10.20 to the S-4).
10.3 Employment Agreement, dated as of September 19, 1995, by and between
Thomas O. Ellinwood and Van de Kamp's, Inc. (incorporated by reference
to Exhibit 10.21 to the S-4).
10.4 Amendment No. 1 to Ellinwood Employment Agreement, dated as of July 1,
1996, between Thomas O. Ellinwood and Van de Kamp's, Inc.
(incorporated by reference to Exhibit 10.4 to the Form 10-K dated as
of June 29, 1996, and filed on September 27, 1996 (the "10-K")).
10.5 Employment Agreement, dated as of September 19, 1995, by and between
Olafur Gudmundsson and Van de Kamp's, Inc. (incorporated by reference
to Exhibit 10.22 to the S-4).
10.6 Amendment No. 1 to Gudmundsson Employment Agreement, dated as of
July 1, 1996 between Olafur Gudmundsson and Van de Kamp's, Inc.
(incorporated by reference to Exhibit 10.6 of the 10-K).
10.7 Employment Agreement, dated as of September 19, 1995 by and between C.
Renee Sloan and Van de Kamp's, Inc. (incorporated by reference to
Exhibit 10.23 to the S-4).
10.8 Amendment No. 1 to Sloan Employment Agreement, dated as of July 1,
1996, between C. Renee Sloan and Van de Kamp's, Inc. (incorporated by
reference to Exhibit 10.8 of the 10-K).
10.9 Employment Agreement, dated as of September 19, 1995 by and between
Thomas J. Youngerman and Van de Kamp's, Inc. (incorporated by
reference to Exhibit 10.8 of the S-4).
10.10 Amendment No. 1 to Youngerman Employment Agreement, dated July 1,
1996, between Thomas J. Youngerman and Van de Kamp's, Inc.
(incorporated by reference to Exhibit 10.10 of the 10-K).
10.11 Employment Agreement, dated as of October 11, 1995, between Van de
Kamp's, Inc. and Timothy B. Andersen (incorporated by reference to
Exhibit 10.1 to Van de Kamp's, Inc.'s Form 10-Q for quarter ended
March 30, 1996).
10.12 Amendment No. 1 to Andersen Employment Agreement, dated as of July 1,
1996, between Timothy B. Andersen and Van de Kamp's, Inc.
(incorporated by reference to Exhibit 10.12 of the 10-K).
29
<PAGE>
10.13 Computer Services Agreement, dated as of September 5, 1995, between
Windy Hill Pet Food Company LLC and Van de Kamp's, Inc. (incorporated
by reference to Exhibit 10.26 to the S-4).
10.14 License Agreement, dated as of February 21, 1979, between General Host
Corporation and VDK Acquisition Corporation (incorporated by reference
to Exhibit 10.27 to the S-4).
10.15 License Agreement, dated as of October 14, 1978, between General Host
Corporation and Van de Kamp's Dutch Bakeries (incorporated by
reference to Exhibit 10.28 to the S-4).
10.16 Agreement, dated March 31, 1994, between Van de Kamp's, Seafood and
Ore-Ida Foods, Inc. (incorporated by reference to Exhibit 10.29 to the
S-4).
10.17 Purchase Agreement, dated September 14, 1995, between Van de Kamp's,
Inc. and Chemical Securities Inc. (incorporated by reference to
Exhibit 10.30 to the S-4).
10.18 Co-Pack Agreement, dated May 6, 1996 between Campbell and Shellfish
(incorporated by reference to Exhibit 10.18 of the 10-K).
10.19 Buyer's Non-Recourse Promissory Note, dated May 6, 1996, issued by
Shellfish in favor of Campbell (incorporated by reference to Exhibit
10.19 of the 10-K).
10.20 First Amendment to Guarantee and Collateral Agreement, dated May 6,
1996 between Van de Kamp's, Inc. and VDK Holdings, Inc. in favor of
Chemical Bank, as agent for the several banks and other financial
institutions from time to time parties to the Amended and Restated
Credit and Guarantee Agreement (incorporated by reference to Exhibit
10.20 of the 10-K).
10.21 Second Amended and Restated Credit and Guarantee Agreement, dated as
of July 9, 1996 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 (incorporated by reference to
Exhibit 10.21 of the 10-K).
10.22 First Amendment, dated as of August 28, 1996, to the Second Amended
and Restated Credit and Guarantee Agreement among VDK Holdings, Inc.,
Van de Kamp's, Inc., the banks and other financial institutions named
as parties hereto and the Chase Manhattan Bank, NA, as Agent
(incorporated by reference to Exhibit 10.22 of the 10-K).
10.23 Second Amendment to Guarantee and Collateral Agreement, dated July 9,
1996, between Van de Kamp's, Inc. and VDK Holdings, Inc. in favor of
The Chase Manhattan Bank, NA., as agent for the several banks and
other financial institutions (incorporated by reference to Exhibit
10.23 of the 10-K).
10.24 Trademark License Agreement, dated July 9, 1996 between Quaker, The
Quaker Oats Company of Canada Limited and Van de Kamp's, Inc.
(incorporated by reference to Exhibit H to Exhibit 2.1 to Van de
Kamp's, Inc.'s Form 8-K dated July 9, 1996).
30
<PAGE>
10.25 Patent License Agreement, dated July 9, 1996, between Quaker and Van
de Kamp's, Inc. (incorporated by reference to Exhibit K to Exhibit 2.1
to Van de Kamp's, Inc.'s Form 8-K dated July 9, 1996).
10.26 Shared Technology License Agreement, dated July 9, 1996, Between
Quaker and Van de Kamp's, (incorporated by reference to Exhibit M to
Exhibit 2.1 to Van de Kamp's, Inc.'s Form 8-K dated July 9, 1996).
10.27 McDonald's Co-Pack Agreement, dated July 9, 1996, by Quaker and Van de
Kamp's, Inc. (incorporated by reference to Exhibit L to Exhibit 2.1 to
Van de Kamp's, Inc.'s Form 8-K dated July 9, 1996).
10.28 Senior Convertible Loan Credit and Guarantee Agreement, dated as of
July 9, 1996, 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 (incorporated by reference to
Exhibit 10.28 of the 10-K).
10.29 Cash Collateral Agreement, dated July 9, 1996, between VDK Holdings,
Inc. and The Chase Manhattan Bank, NA., as agent (incorporated by
reference to Exhibit 10.29 of the 10-K).
10.30 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
(incorporated by reference to Exhibit 10.1 to Van de Kamp's, Inc.'s
Form 10-Q for quarter ended March 31, 1997).
10.31 Employment Agreement, dated as of November 1, 1996 by and between
Gregory L. Smith and Van de Kamp's, Inc.
10.32 Third Amendment to the Second Amended and Restated Credit and
Guarantee Agreement, dated as of September 25, 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.
12.1 Statements Re: Computation of Ratios.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal (incorporated by reference to Exhibit
99.1 to the Second Amendment, filed on November 14, 1995, to the S-4).
99.2 Form of Notice of Guarantee delivery (incorporated by reference to
Exhibit 99.2 to the Second Amendment, filed on November 14, 1995, to
the S-4).
99.3 Form of Exchange Agency Agreement to be entered into by Van de Kamp's,
Inc. and Harris Trust and Savings Bank (incorporated by reference to
Exhibit 99.3 to the First Amendment, filed on November 8, 1995, to the
S-4).
(b) Reports on Form 8K
1. A report on Form 8-K, dated July 9, 1996, was filed on July 24, 1996,
on which Items 2 and 7 were reported. No financial statements were
filed with this filing.
2. A report on Form 8-KA, dated July 9, 1996 was filed on September 22,
1996 with Item 2 and Item 7 and which included the following financial
statements (incorporated by reference to Van de Kamp's, Inc.'s
Form 8-K dated July 9, 1996):
(a) The audited Combined Statements of Certain Assets and
Liabilities, Revenues and Expenses, Changes in Equity and Cash
Flows of the frozen food division of The Quaker Oats Company, as
of and for the twelve months ended June 30, 1996, 1995, and 1994
together with the report of the independent accountants thereon.
(b) The pro forma statement of operations of Van de Kamp's, Inc. for
the year ended June 30, 1996 and the pro forma balance sheet as
of June 30, 1996 together with notes.
(c) Exhibits - The response to this portion of Item 14 is submitted
as a separate section of this report.
(d) Financial Statement Schedules - The response to this portion of
Item 14 is submitted as a separate section of this report.
31
<PAGE>
THIS PAGE LEFT BLANK
32
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Thomas O. Ellinwood
-----------------------
Thomas O. Ellinwood President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on September 26, 1997.
/s/ Thomas O. Ellinwood
-------------------
Thomas O. Ellinwood President and Director
(Principal Executive Officer)
/s/ Timothy B. Andersen
-------------------
Timothy B. Andersen Chief Financial Officer and
Vice President - Administration
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Ian R. Wilson Chairman of the Board of Directors
-------------
Ian R. Wilson
/s/ James B. Ardrey Director
---------------
James B. Ardrey
/s/ Peter Lamm Director
----------
Peter Lamm
/s/ Andrea Geisser Director
--------------
Andrea Geisser
/s/ Nicholas Dennis Director
---------------
Nicholas Dennis
/s/ Clive A. Apsey Director
--------------
Clive A. Apsey
/s/ Charles J. Delaney Director
------------------
Charles J. Delaney
/s/ Robert V. Dale Director
--------------
Robert V. Dale
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of Van de Kamp's, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14 1. (a) and Item 14 2. on page 27, present fairly, in all material
respects, the financial position of Van de Kamp's, Inc. (the Company) at June
30, 1997, and June 29, 1996, and the results of its operations and its cash
flows for the year ended June 30, 1997 and the period September 19, 1995 through
June 29, 1996 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse, LLP
San Francisco, California
September 23, 1997
34
<PAGE>
VAN DE KAMP'S, INC.
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, June 29,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 308 $ 4,040
Accounts receivable (net of $416 and $190
allowance, respectively) 33,011 16,250
Accounts receivable - other (Note 5) 9 506
Inventories (Note 6) 33,535 30,202
Prepaid expenses 1,208 724
Current deferred tax asset (Note 12) 8,260 3,373
---------- ----------
Total current assets 76,331 55,095
Property, plant and equipment, net (Note 7) 86,394 35,943
Goodwill and other intangible assets (Note 8) 331,013 203,736
Other assets 15,853 10,725
---------- ----------
Total assets $ 509,591 $ 305,499
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long term debt (Note 10) $ 13,097 $ 5,000
Senior secured revolving debt
facility 5,000 -
Accounts payable 13,791 14,144
Accrued liabilities (Note 9) 24,619 15,789
Current deferred tax liability (Note 12) - 143
---------- ----------
Total current liabilities 56,507 35,076
Deferred tax liability (Note 12) 10,404 2,997
Senior secured term debt (Note 10) 194,759 83,750
Senior subordinated notes (Note 10) 100,000 100,000
---------- ----------
Total liabilities 361,670 221,823
---------- ----------
Stockholder's equity:
Common stock, no par value - -
Paid in capital 144,207 84,115
Retained earnings (accumulated
deficit) 3,714 (439)
---------- ----------
Total stockholder's equity 147,921 83,676
---------- ----------
Total liabilities and
stockholder's equity $ 509,591 $ 305,499
========== ==========
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
VAN DE KAMP'S, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Operating period
Year ended September 19,
June 30, 1995 through
1997 June 29, 1996
------------ -------------
<S> <C> <C>
Net sales $ 435,476 $ 143,296
Cost of goods sold 180,941 60,367
------------ -------------
Gross profit 254,535 82,929
Selling, distribution and marketing
expenses:
Selling and distribution 45,352 15,901
Trade promotions 108,925 32,517
Consumer marketing 29,524 11,336
------------ -------------
Total selling, distribution and 183,801 59,754
marketing expenses
Amortization of goodwill and other 13,142 4,223
intangibles
General and administrative expenses 14,270 5,267
Transition related costs (Note 11) 2,885 1,337
------------ -------------
Total operating expenses 214,098 70,581
------------ -------------
Operating income 40,437 12,348
Interest income (965) (135)
Interest expense 32,499 12,469
Amortization of deferred financing 2,108 607
expense
Other bank and financing expenses 265 79
------------ -------------
Income (loss) before income taxes 6,530 (672)
Income tax expense (benefit) 2,377 (233)
------------ -------------
Net income (loss) $ 4,153 $ (439)
============ =============
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
VAN DE KAMP'S, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Retained
Common Additional Earnings
Stock Paid-in (Accumulated
Shares Capital Deficit) Total
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at September 19, 1995 200 $ 68,920 $ - $ 68,920
Capital contribution (Note 17) - 15,000 - 15,000
Officer payments on promissory notes
(Note 15) - 195 - 195
Net loss - - (439) (439)
--------- ------------- ----------- ---------
Balance at June 29, 1996 200 84,115 (439) 83,676
Capital contribution (Note 17) - 60,000 - 60,000
Officer payments on promissory notes
(Note 15) - 92 - 92
Net income - - 4,153 4,153
--------- ------------- ----------- ---------
Balance at June 30, 1997 200 $ 144,207 $ 3,714 $ 147,921
========= ============= =========== =========
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
VAN DE KAMP'S, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Operating Period
Year ended September 19, 1995
June 30, through June 29,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,153 $ (439)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 22,317 7,454
Deferred income taxes 2,377 (233)
Change in assets and liabilities, net of effects
of businesses acquired:
(Increase) in accounts receivable (16,264) (16,756)
Decrease (increase) in inventories 402 (4,980)
(Increase) in prepaid expenses (484) (139)
(Decrease) increase in accounts payable (353) 14,144
Increase in accrued liabilities 6,396 13,366
---------- ----------
Net cash provided by operating activities 18,544 12,417
---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (14,379) (2,204)
Additions to other non-current assets (2,437) (316)
Proceeds from sale of assets 6,192 -
Payment for acquisition of businesses (Note 3) (190,226) (268,035)
---------- ----------
Net cash used in investing activities (200,850) (270,555)
---------- ----------
Cash flows from financing activities:
Proceeds from senior secured revolving and term debt 188,000 97,150
Proceeds from senior subordinated notes - 100,000
Repayment of borrowings (63,894) (8,400)
Capital contributions from Holdings (Note 17) 60,092 84,115
Debt issuance costs (5,624) (10,687)
---------- ----------
Net cash provided by financing activities 178,574 262,178
---------- ----------
(Decrease) increase in cash and cash equivalents (3,732) 4,040
Cash and cash equivalents, beginning of period 4,040 -
---------- ----------
Cash and cash equivalents, end of period $ 308 $ 4,040
========== ==========
Supplemental Cash Flow Disclosure:
Cash paid for interest $ 32,805 $ 7,738
========== ==========
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - THE COMPANY
- --------------------
ORGANIZATION
Van de Kamp's, Inc. (the "Company"), a Delaware corporation, is a privately held
frozen food company. The Company commenced operations on September 19, 1995,
when it acquired the frozen seafood and frozen dessert businesses of The
Pillsbury Company and PET Incorporated. On May 6, 1996, Van de Kamp's, Inc.
acquired substantially all the assets of the Mrs. Paul's frozen food business
from Campbell Soup Company ("CSC") (Note 3). On July 9, 1996, substantially all
of the assets of the frozen food division of The Quaker Oats Company ("Quaker")
were purchased by the Company for $185.8 million (Note 3). The Company is a
wholly owned subsidiary of VDK Holdings, Inc. ("Holdings"), also a Delaware
corporation. Holdings is wholly owned by VDK Foods LLC ("Foods"), a Delaware
limited liability company. The Company was initially capitalized with a capital
infusion from Holdings, which was contributed by Foods (Note 17), and senior
secured debt and senior subordinated notes (Note 10).
OPERATIONS
The Company produces and markets frozen seafood, frozen dessert products, frozen
vegetables, frozen pizza and frozen breakfast products which are sold across the
United States. The products are manufactured out of three manufacturing
facilities in Erie and Chambersburg, Pennsylvania and in Jackson, Tennessee. The
principal trademarks under which the products are sold are Van de Kamp's(R),
Pet-Ritz(R), Oronoque Orchards(R), Mrs. Paul's(R), Celeste(R), and Aunt
Jemima(R).
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
The policies utilized by the Company in the preparation of the financial
statements conform to generally accepted accounting principles and require
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities. Actual amounts could differ from these estimates and
assumptions. The Company uses the accrual basis of accounting in the preparation
of its financial statements.
FISCAL YEAR
The Company's fiscal year ended June 30, 1997. The Company's prior fiscal year
ended on the last Saturday of June. Accordingly, the results of operations
reflect activity for the year ended June 30, 1997 and the period from September
19, 1995 (commencement of operations) through June 29, 1996. The Company has
presented balance sheets as of June 30, 1997 and June 29, 1996. The Company's
cash flows reflect activity for the year ended June 30, 1997 and the period from
September 19, 1995 to June 29, 1996. Certain prior year amounts have been
reclassified to conform with the current year's presentation.
CASH
The Company considers all highly liquid financial instruments with a maturity of
three months or less to be cash equivalents.
39
<PAGE>
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined
using the first-in first-out (FIFO) method. Inventories include the cost of raw
materials, packaging, labor and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the individual assets ranging from five to thirty years. Costs
which improve an asset or extend its useful life are capitalized, while repairs
and maintenance costs are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets include goodwill, trademarks and various identifiable
intangible assets purchased by the Company. Goodwill is being amortized over
forty years using the straight-line method. Other intangible assets are being
amortized using the straight-line method over periods ranging from five to forty
years. Amortization of goodwill and other intangible assets charged against
income during the year ended June 30, 1997 was $12,301 and for the period ended
June 29, 1996 was $4,152.
IMPAIRMENT OF LONG-LIVED ASSETS
Upon commencement of operations, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 requires the Company to review long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The assessment of impairment is based on the estimated undiscounted
future cash flows from operating activities compared with the carrying value of
the assets. If the undiscounted future cash flows of an asset are less than the
carrying value, a write-down would be recorded, measured by the amount of the
difference between the carrying value of the asset and the fair value of the
asset. Management believes that there has been no impairment at June 30, 1997.
OTHER ASSETS
Other assets consist of deferred loan acquisition costs, systems development
costs, and other miscellaneous assets. Deferred loan acquisition costs of the
senior subordinated notes are being amortized using the interest method over the
term of the respective notes. Deferred loan acquisition costs of the senior
secured debt are being amortized using the straight-line method over the terms
of the related debt tranches. Aggregate amortization of deferred loan
acquisition costs and other assets charged against income in the year ended
June 30, 1997 was $2,949 and in the period ended June 29, 1996 was $678.
40
<PAGE>
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the fair
value of financial instruments approximates book value at June 30, 1997, based
on terms currently available to the Company in financial markets.
CONCENTRATION OF CREDIT RISK
The Company sells its products to supermarkets and other retail channels. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and had no significant concentration of credit risk at June 30, 1997.
INCOME TAXES
The Company records income taxes in accordance with the provisions of Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes". This
method of accounting for income taxes uses an asset and liability approach which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax basis of assets and liabilities.
NOTE 3 - BUSINESS ACQUISITIONS
- ------------------------------
VAN DE KAMP'S AND FROZEN DESSERT PRODUCT LINES
On September 19, 1995 (commencement of operations), Van de Kamp's, Inc. 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 (collectively, the "Sellers"). The Company
manufactures frozen seafood products out of its Erie, Pennsylvania production
facility and its frozen dessert product line is produced out of its
Chambersburg, Pennsylvania manufacturing facility.
The Company acquired the inventories, property, plant and equipment and
intangible assets of the Businesses for a purchase price of $190.0 million. The
Company paid The Pillsbury Company $2.0 million, a contractually agreed upon
amount, to retain all of the current liabilities of the Businesses. The purchase
agreement contains customary representations, warranties and covenants by each
of the Sellers and the Company. The acquisition was accounted for by using the
purchase method of accounting and the allocation of the purchase price has been
finalized.
The acquisition was financed by (i) an equity capital contribution from Holdings
of approximately $70.0 million, (ii) the proceeds from the issuance of $100.0
million of senior subordinated notes (Note 10), and (iii) the borrowing by the
Company of $30.0 million and $2.0 million of senior secured tranche A debt and
senior secured revolving debt, respectively, under the senior secured bank
facilities (Note 10).
41
<PAGE>
The cost to acquire the Businesses has been allocated to tangible and intangible
assets acquired as follows:
<TABLE>
<S> <C>
Cash paid to acquire Businesses $ 190,000
Cash paid for disposition of current liabilities 2,000
Other acquisition costs 2,543
----------
194,543
Costs assigned to tangible assets (50,407)
----------
Cost attributable to intangible assets $ 144,136
==========
</TABLE>
MRS. PAUL'S
On May 6, 1996, Van de Kamp's, Inc. acquired substantially all the assets of the
Mrs. Paul's(R) frozen food business from CSC. Mrs. Paul's(R) frozen food
business includes frozen seafood and frozen vegetable products which are
manufactured at both of the Company's Pennsylvania production facilities.
The Company acquired the inventories, certain manufacturing equipment and
intangible assets from CSC. The manufacturing equipment was removed from a CSC
facility with certain production lines installed in each of the Company's Erie
and Chambersburg production plants. The purchase price was $73.2 million which
included a contractually agreed upon payment related to inventories. The
purchase agreement contains customary representations, warranties and covenants
by each of CSC and the Company. The acquisition was accounted for by using the
purchase method of accounting and the allocation of the purchase price has been
finalized.
The acquisition was financed by (i) an equity capital contribution from Holdings
of $15.0 million, and (ii) the borrowing by the Company of $20.0 million and
$40.0 million of senior secured tranche A debt and senior secured tranche B
debt, respectively, under the senior secured bank facilities (Note 10).
The cost to acquire Mrs. Paul's has been allocated to tangible and intangible
assets acquired, as follows:
<TABLE>
<S> <C>
Cash paid to acquire assets $ 73,203
Other acquisition cost 3,326
---------
76,529
Cost assigned to tangible assets (11,716)
---------
Cost attributable to intangible assets $ 64,813
=========
</TABLE>
42
<PAGE>
QUAKER FROZEN FOOD BUSINESS
On July 9, 1996, substantially all of the assets frozen food division of Quaker
were purchased by the Company for $185.8 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 located in Jackson, Tennessee, where the Company
produces both product lines. The purchase agreement contains customary
representations, warranties and covenants by each of Quaker and the Company. The
acquisition was accounted for by using the purchase method of accounting and the
allocation of the purchase price has been finalized.
The acquisition was financed by (i) an equity capital contribution from Holdings
of $40.0 million, (ii) the borrowing by the Company of $45.0 million, $40.0
million and $50.0 million of senior secured tranche A debt, senior secured
tranche B debt and senior secured tranche C debt, respectively, under the senior
secured bank facilities (Note 10), and (iii) a $20.0 million senior secured
convertible loan secured by cash collateral posted by Holdings. The cash
collateral balance received from Holdings was recorded as a capital contribution
and used to repay the senior secured convertible loan in March 1997.
The cost to acquire the Quaker Frozen Food Business has been allocated to
tangible and intangible assets acquired as follows:
<TABLE>
<S> <C>
Cash paid to acquire assets $ 185,800
Other acquisition costs 3,492
---------
189,292
Costs assigned to tangible assets (49,356)
---------
Cost attributable to intangible assets $ 139,936
=========
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined financial information reflects the historical
net sales and income before income taxes of the Company as if all acquisitions
had occurred on July 1, 1995. Had the acquisitions described in this Note 3
taken place July 1, 1995, the unaudited pro forma net sales and income before
income taxes for the year ended June 30, 1997 would not have been significantly
different from those reflected in the Statement of Operations. For the period
ended June 29, 1996 the pro forma net sales were $401,522 and the income before
income taxes was $11,651.
43
<PAGE>
NOTE 4 - 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 $6.2 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 secured term debt.
NOTE 5 - ACCOUNTS RECEIVABLE - OTHER
- ------------------------------------
Accounts Receivable - Other consist of the following:
<TABLE>
<CAPTION>
June 30, June 29,
1997 1996
-------- --------
<S> <C> <C>
The Pillsbury Company $ - $ 320
Miscellaneous 9 186
------- --------
$ 9 $ 506
======= ========
</TABLE>
The balance due from The Pillsbury Company was comprised of accounts receivable
collected by them on behalf of the Company.
NOTE 6 - INVENTORIES
- --------------------
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, June 29,
1997 1996
-------- --------
<S> <C> <C>
Raw materials $ 12,556 $ 6,856
Packaging supplies 3,178 2,022
Finished goods 17,801 21,324
-------- --------
$ 33,535 $ 30,202
======== ========
</TABLE>
At June 30, 1997 and June 29, 1996, the Company had commitments to purchase
raw materials aggregating approximately $7.0 million and $3.2 million,
respectively.
44
<PAGE>
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, June 29,
1997 1996
-------- --------
<S> <C> <C>
Land $ 2,342 $ 700
Machinery and equipment 73,514 31,105
Building and improvements 18,637 5,155
Constructed-in-progress 1,241 1,607
-------- --------
95,734 38,567
Less accumulated depreciation (9,340) (2,624)
-------- --------
$ 86,394 $ 35,943
======== ========
</TABLE>
At June 30, 1997 and June 29, 1996, the Company had commitments for facility
construction and related machinery and equipment purchases aggregating
approximately $2.3 million and $0.5 million, respectively.
NOTE 8 - INTANGIBLE ASSETS
- --------------------------
Intangible assets consist of the following:
<TABLE>
<CAPTION>
June 30, June 29,
1997 1996
-------- --------
<S> <C> <C>
Goodwill $ 163,599 $ 103,553
Trademarks 151,600 84,200
Other intangibles 32,105 20,135
--------- --------
347,304 207,888
Less accumulated amortization (16,291) (4,152)
--------- --------
$ 331,013 $ 203,736
========= ========
</TABLE>
NOTE 9 - ACCRUED LIABILITIES
- ----------------------------
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, June 29,
1997 1996
-------- --------
<S> <C> <C>
Interest $ 4,425 $ 4,732
Promotional accruals 12,478 4,781
Other 7,716 6,276
------- -------
$ 24,619 $ 15,789
======= =======
</TABLE>
45
<PAGE>
NOTE 10 - LONG TERM DEBT
- ------------------------
Long term debt consists of the following:
<TABLE>
<CAPTION>
June 30, June 29,
1997 1996
--------- ---------
<S> <C> <C>
SENIOR SECURED DEBT
Senior secured tranche A debt -
interest rate of 8.3% at June 30,
1997; principal due in semi-annual
installments through September 19,
2001; floating interest rate at the
prime rate plus 1.5%, or
alternatively, the one, three or
six month Euro dollar rate plus
2.5% payable quarterly or at the
termination of the Euro dollar
contract interest period $ 83,192 $ 48,750
Senior secured tranche B debt -
interest rate of 8.8% at June 30,
1997; principal due in semi-annual
installments through April 30,
2003; floating interest rate at the
prime rate plus 2.0% or,
alternatively, the one, three or
six month Euro dollar rate plus
3.0% payable quarterly or at the
termination of the Euro dollar
contract interest period 76,640 40,000
Senior secured tranche C debt -
interest rate of 9.0% at June 30,
1997; principal due in semi-annual
installments through September 30,
2003; floating interest rate at the
prime rate plus 2.25% or,
alternatively, the one, three or
six month Euro dollar rate plus
3.25% payable quarterly or at the
termination of the Euro dollar
contract interest period 48,024 -
Revolving credit facility - interest
rate of 10.0% at June 30, 1997;
principal due September 19, 2001;
floating interest rate at the prime
plus 1.50% or, alternatively, the one,
three, or six month Euro dollar rate
plus 2.50% payable quarterly or at the
termination of the Euro dollar contract
period 5,000 -
SENIOR SUBORDINATED NOTES
Senior subordinated notes issued
September 15, 1995 at par value of
$100,000,000; coupon interest rate
of 12.0% with interest payable each
March 15 and September 15; matures
on September 15, 2005 100,000 100,000
-------- ---------
312,856 188,750
Less: current portion of long term debt (13,097) (5,000)
current portion of revolving
credit facility (5,000) -
-------- ---------
Long term debt $ 294,759 $ 183,750
======== =========
</TABLE>
46
<PAGE>
Annual principal payments for the next five years and thereafter consist of the
following:
<TABLE>
<S> <C>
1998 $ 18,097
1999 16,978
2000 22,071
2001 24,497
2002 33,227
Thereafter 197,986
--------
$ 312,856
========
</TABLE>
SENIOR SECURED DEBT
- -------------------
On September 19, 1995, the Company and Holdings entered into the VDK Holdings,
Inc. Credit and Guarantee Agreement (the "Agreement") with several banks for
$30.0 million of senior secured term and revolving debt. The proceeds from the
debt were used to acquire the Businesses, pay fees and expenses and fund working
capital. The debt is guaranteed by Holdings, and the Company and its
subsidiaries. The Agreement contains optional prepayment provisions with no
premium. Substantially all assets of the Company are pledged as collateral for
the debt.
In conjunction with the Mrs. Paul's acquisition, the Company amended the
Agreement, dated as of May 6, 1996, to provide for additional borrowings of
$20.0 million under senior secured tranche A debt and $40.0 million of senior
secured tranche B debt. Proceeds from the additional borrowings were used to
acquire the Mrs. Paul's business, pay fees and expenses and to provide the
working capital requirements related to the Mrs. Paul's acquisition.
In conjunction with the acquisition of the Quaker Frozen Food Business, the
Company amended the Agreement, dated as of July 9, 1996 to provide for
additional borrowings of $45.0 million under senior secured tranche A debt,
an increase of $40.0 million to the senior secured tranche B debt and an
increase of $50.0 million to the senior secured tranche C debt. Proceeds from
the additional borrowings were used to acquire the business from Quaker, pay
fees and expenses and to provide the working capital requirements related to the
Celeste(R)/Aunt Jemima(R) acquisition.
The Agreement includes $25.0 million of available borrowing under a revolving
debt facility, subject to limitations based on letters of credit. At June 30,
1997, the Company had unused borrowing availability of $19.6 million after
adjustment for previously issued letters of credit and an outstanding balance of
$5.0 million. The interest rate on the outstanding balance was 10.0%. The
Agreement requires a commitment fee of 0.5% per annum payable quarterly on the
unused portions of the revolving debt facility.
The Agreement includes restrictive covenants which limit additional borrowing,
cash dividends, and capital expenditures while also requiring the Company to
maintain certain financial ratios. The Company was in compliance with these
covenants at June 30, 1997.
47
<PAGE>
SENIOR SUBORDINATED NOTES
- -------------------------
On September 19, 1995, the Company issued $100.0 million of senior subordinated
notes (the "Notes") registered under the Securities Act of 1933. The proceeds
were used to fund the acquisition of the Businesses. The Notes may be redeemed
at any time prior to September 15, 2000. The prepayment redemption price would
be equal to 100% of the principal plus a premium equal to the greater of (i) 1%
of the principal amount or (ii) the excess of (a) present value at time of
redemption plus required interest payments due on the Notes through September
15, 2000 over (b) principal amount of Notes. The indenture includes restrictive
covenants which limit additional borrowing, cash dividends, the sale of assets,
mergers and the sale of stock. The Company was in compliance with these
covenants at June 30, 1997.
INTEREST RATE COLLAR AGREEMENTS
- -------------------------------
The Company uses interest rate collar agreements (the "Agreements") to reduce
the impact of changes in interest rates on its floating rate term debt. Premiums
paid for such Agreements are being amortized to interest expense over the terms
of the Agreements. Unamortized premiums are included in Other assets in the
balance sheet. Amounts to be paid or received, if any, under the Agreements are
recognized as an increase or decrease, respectively, in interest expense.
The counterparty to the Company's Agreements is a major financial institution.
At June 30, 1997, the Company was party to two Agreements. On August 22, 1996,
the Company entered into a three year interest rate collar agreement with a
notional principal amount of $70.0 million, a cap rate of 7.5% (plus the
applicable margin) and a floor rate of 5.5% (plus the applicable margin). On
November 26, 1996, the Company entered into a three year interest rate collar
agreement with a notional principal amount of $50.0 million, a cap of 6.5% (plus
the applicable margin) and a floor rate of 5.75% (plus the applicable margin).
The aggregate premiums paid for the two Agreements was $0.1 million.
Under the Agreements, the Company would receive payments from the counterparty
if the three-month LIBOR rate exceeds the cap rates and make payments to the
counterparties if the three-month LIBOR rate falls below the floor rates. The
payments would be calculated based upon the respective notional principal
amount. During fiscal 1997 the Company made payments aggregating $0.1 million
under the Agreements. At June 30, 1997, the three-month LIBOR rate was 5.94%.
Risk associated with the Agreements include those associated with changes in
market value and interest rates. At June 30, 1997, the fair value of the
Company's interest rate collars was immaterial and management considers the
potential loss in future earnings and cash flows attributable to such collars to
be immaterial.
NOTE 11 - TRANSITION RELATED COSTS
- ----------------------------------
Transition related costs consist of what management believes are one-time costs
incurred to establish the Company's operations, including expenditures to regain
distribution of products that had been discontinued during the transition of the
acquired Businesses, relocation expenses, recruiting fees, sales training,
computer systems training and other one-time transitional expenses. Transition
related costs for the year ended June 30, 1997 and the period ended June 29,
1996 were approximately $2.9 million and $1.3 million, respectively.
NOTE 12 - INCOME TAXES
- ----------------------
The Company is included in the consolidated federal income tax return of
Holdings. State income tax returns are filed by Holdings and the Company on a
separate company basis or on a combined basis depending on the particular rules
in each state. The Company's income tax provision is computed as if all income
tax returns were filed on a stand alone basis.
48
<PAGE>
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year ended Period ended
June 30, June 29,
1997 1996
----------- -------------
<S> <C> <C>
Current tax expense:
Federal $ - $ -
State - -
---------- -----------
Total current provision - -
---------- -----------
Deferred tax expense:
Federal 1,989 (196)
State 388 (37)
---------- -----------
Total deferred provision 2,377 (233)
---------- -----------
Total provision for income taxes $ 2,377 $ (233)
========== ===========
Deferred tax assets (liabilities) consist of the following:
Deferred tax assets - current:
Loss carryforwards $ 5,679 $ 1,697
Promotion reserves 1,658 1,305
Other 923 371
---------- -----------
Total deferred tax assets - current 8,260 3,373
---------- -----------
Deferred tax liabilities - current:
Inventory reserves - (130)
Deferred state taxes - (13)
---------- -----------
Total deferred tax liabilities - current - (143)
---------- -----------
Deferred tax liabilities - non-current:
Goodwill (7,043) (1,961)
Depreciation (3,361) (1,036)
---------- -----------
Total deferred tax liabilities - non-current (10,404) (2,997)
---------- -----------
Total deferred tax liabilities (10,404) (3,140)
---------- -----------
Net deferred tax asset (liability) $ (2,144) $ 233
========== ===========
</TABLE>
49
<PAGE>
The Company has not recorded a valuation allowance for its deferred tax assets.
Management believes the deferred tax assets are more likely than not to be
realized.
At June 30, 1997, the Company has federal net operating loss carryforwards of
approximately $14.2 million. These losses can be used to offset future taxable
income through the year 2011. The Company is a loss corporation as defined in
section 382 of the Internal Revenue Code. Therefore, if certain substantial
changes of the Company's ownership should occur, there could be significant
annual limitations of the amount of net operating loss carryforwards which can
be utilized.
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income as a result of the following differences:
<TABLE>
<CAPTION>
Year ended Period ended
June 30, June 29,
1997 1996
---------- --------------
<S> <C> <C>
Provision for income taxes at U.S. statutory rate $ 2,220 $ (229)
Increase (decrease) in tax resulting from:
Nondeductible expenses 36 20
State taxes, net of federal benefit 121 (24)
--------- ---------
$ 2,377 $ (233)
========= =========
</TABLE>
NOTE 13 - LEASES
- ----------------
The Company leases certain facilities, machinery and equipment under operating
lease agreements with varying terms and conditions. The leases are
noncancellable operating leases which expire on various dates through 2002.
Future annual minimum lease payments under these leases are summarized as
follows:
<TABLE>
<CAPTION>
Minimum
Lease
Years ending June 30, Payments
--------------------- ----------
<S> <C>
1998 $ 753
1999 758
2000 728
2001 574
2002 143
Thereafter -
--------
$ 2,956
========
</TABLE>
50
<PAGE>
Rent expense was $0.5 million for the year ended June 30, 1997 and $0.2 million
for the period ended June 29, 1996.
NOTE 14 - SAVINGS AND BENEFIT PLANS
- -----------------------------------
The Company offers a retirement savings plan to its nonunion employees in the
form of 401(k) and profit sharing plans. Under the 401(k) plan, employee
contributions up to 3% of total compensation are matched by the Company, with
vesting occurring ratably over a five year period. Profit sharing contributions
of 2% of compensation are made on behalf of all nonunion employees on an annual
basis. Profit sharing contributions also vest ratably over a five year period.
The Company's contributions to the 401(k) plan for the year ended June 30, 1997
and the period ended June 29, 1996 were $0.6 million and $0.1 million,
respectively. The Company's contributions to the profit sharing plan for the
year ended June 30, 1997 and the period ended June 29, 1996 were $0.5 million
and $0.1 million, respectively.
The Company has a defined benefit retirement plan for unionized employees in the
Chambersburg plant. Benefits are based on years of credited service and average
compensation or stated amounts for each year of service. Net pension expense for
the defined benefit retirement plan totaled $0.1 million and $0 for the year
ended June 30, 1997 and the period ended June 29, 1996, respectively. The
funding policy is consistent with the requirements of federal law and
regulations.
NOTE 15 - RELATED PARTY TRANSACTIONS
- ------------------------------------
The Company has a Management Services Agreement with Dartford Partnership, LLC
("Dartford") to provide consulting services and management oversight on
financial and operational matters. The Company paid fees totaling $1.8 million
to Dartford, a member of Foods, during the year ended June 30, 1997 and $0.6
million during the period ended June 29, 1996. The annual management fee was
$0.7 million prior to the acquisition of Mrs. Paul's(R) and $1.2 million prior
to the acquisition of the Quaker Frozen Food Business. The charge is included in
general and administrative expenses in the Statement of Operations.
The Company paid certain members of Foods fees totaling $2.1 million during the
year ended June 30, 1997 and $2.0 million during the period ended June 29, 1996.
The fees were paid for services provided in identifying, negotiating and
consummating the Company's acquisitions. The fees were included in the costs of
the acquisitions.
On September 19, 1995, Mr. Thomas O. Ellinwood, the President of the Company,
and Mr. Thomas J. Youngerman, Mr. Olafur Gudmundsson and Ms. C. Renee Sloan,
Vice Presidents of the Company, executed promissory notes in favor of the
Company in exchange for monies borrowed to assist in the capitalization of their
limited liability company interests held with VDK Foods LLC. The promissory
notes mature September 30, 1998 with required annual payments. Interest is due
and payable quarterly at the rate of 8.5% per annum. The aggregate balance
outstanding on the promissory notes was $213.3 and $305.0 at June 30, 1997 and
June 29, 1996, respectively. This amount has been recorded as a reduction to
paid-in capital and is reflected as such on the Statement of Changes in
Stockholder's Equity.
NOTE 16 - LONG TERM INCENTIVE COMPENSATION PLAN
- -----------------------------------------------
Foods has implemented an Incentive Compensation Plan (the "Plan") as a means by
which Key Personnel (defined as employees and other specific designated persons)
of the Company, and/or affiliated with the Company, may be given an opportunity
to benefit from the appreciation in the value of the Company. The Amended and
Restated Limited Liability Company Agreement of
51
<PAGE>
Foods, dated as of September 19, 1995, was amended and restated as of May 22,
1997 to approve and adopt the Plan. The effective date of the Plan is as of
September 19, 1995.
Under the Plan, Key Personnel are issued various types of incentive compensation
units (the "Units") in the Plan as a means to participate in the valuation of
the Company, as determined based on certain formulae in the Plan document. The
Units are subject to forfeiture based on the failure to meet vesting
requirements, specified earnings targets, and/or rates of return targets for
certain investors in Foods. Pursuant to the Plan document, the Units will have
special valuation and payment provisions upon a change of control or initial
public offering of the Company's or Holdings' stock (an "IPO").
Upon a change of control or IPO, the Units will be valued and amounts will be
paid to Unit holders according to various factors, such as the type of
triggering event and the amount of proceeds paid to the Foods' investors. In
general, there will be no payment on the Units until the Foods' investors have
received a designated return on their investments. The payment to Unit holders
may be cash and/or non-cash securities, depending on the triggering event and
the type of distribution received by Foods' investors. In addition, the Plan
will gross-up payments to the Unit holders in certain events relating to (i) any
excise tax due under federal income tax rules, and (ii) any tax on the Units in
excess of capital gains tax rates.
The total amount due under the Plan, if any, is subject to the rates of return
and forfeiture factors discussed above. Based on management and the Board of
Director's assessment of the current valuation of the Company, there is no basis
to record an accrual for compensation expense at this time. To the extent any
amounts are deemed accruable under the Plan in the future, such amounts will be
a liability of Foods as the sponsor of the Plan. However, because the Plan is
for the benefit of Key Personnel of the Company, any expense to be recognized
under the Plan will be pushed down to the Company, and will be recorded by the
Company as expense and as additional paid in capital from its parent over the
applicable vesting periods.
52
<PAGE>
NOTE 17 - STOCKHOLDER'S EQUITY
- ------------------------------
The authorized capital stock of the Company consists of 200 shares of common
stock, no par value, all of which are issued and outstanding and held by VDK
Holdings, Inc. All of the capital stock of Holdings is held by VDK Foods LLC.
NOTE 18 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company is subject to litigation in the ordinary course of business. In the
opinion of management, the ultimate outcome of any existing litigation would not
have a material adverse effect on the Company's financial condition or results
of operations.
53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareholder of
Pet Incorporated
In our opinion, the accompanying combined statements of income of Van de Kamp's
frozen seafoods business and frozen dessert product lines (the Businesses),
comprising businesses of Pet Incorporated (the Company), present fairly, in all
material respects, results of operations of the Businesses for the period July
1, 1995 through September 18, 1995 and for the years ended June 30, 1995 and
1994 in conformity with generally accepted accounting principles. These
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether these statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall presentation of these statements. We believe that our
audits of these statements provide a reasonable basis for the opinion expressed
above.
As explained in Note 1, Van de Kamp's, Inc. acquired the assets of the
Businesses from The Pillsbury Company and Pet Incorporated on September 19,
1995.
Price Waterhouse LLP
San Francisco, California
July 22, 1996
54
<PAGE>
VAN DE KAMP'S AND FROZEN DESSERT
PRODUCT LINES OF PET INCORPORATED
COMBINED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
July 1, 1995
through September For the Years ended June 30,
18, 1995 1995 1994
---------- -----------------------------------
<S> <C> <C> <C>
Net sales $ 20,545 $ 149,359 $ 153,314
Cost of goods sold 10,978 66,111 67,881
---------- ------------ -----------
Gross profit 9,567 83,248 85,433
---------- ------------ -----------
Selling distribution and marketing expenses:
Selling and distribution 1,616 11,376 11,671
Trade promotions 3,699 34,530 33,304
Consumer marketing 1,919 8,260 9,852
---------- ------------ -----------
Total selling, distribution and marketing expenses 7,234 54,166 54,827
Amortization of goodwill 689 3,305 3,305
General and administrative expenses 1,370 9,789 8,682
---------- ------------ -----------
Total operating expenses 9,293 67,260 66,814
---------- ------------ -----------
Income from operations before income taxes 274 15,988 18,619
Provision for income taxes 396 7,716 8,769
---------- ------------ -----------
Net income (loss) $ (122) $ 8,272 $ 9,850
========== ============ ===========
</TABLE>
See notes to the combined statements.
55
<PAGE>
VAN DE KAMP'S AND FROZEN DESSERT
PRODUCT LINES OF THE PILLSBURY COMPANY AND PET INCORPORATED
NOTES TO THE COMBINED STATEMENTS OF INCOME
------------------------------------------
1. THE ENTITY
----------
The Van de Kamp's frozen seafoods business (VDK) and certain frozen dessert
product lines (Desserts, together with VDK referred to as the
"Businesses"), were owned by Pet Incorporated (Pet) which had operated as a
stand alone entity from April 1, 1991 through February 8, 1995, upon which
date Pet was acquired as a wholly-owned subsidiary of The Pillsbury Company
(Pillsbury), an indirect wholly-owned subsidiary of Grand Metropolitan PLC,
a company incorporated in England. In accordance with the Asset Purchase
Agreement dated as of July 7, 1995 (the Agreement), Pillsbury and Pet
agreed to sell and transfer certain assets of the Businesses to Van de
Kamp's, Inc. VDK produces and markets branded frozen seafood in the United
States. The Desserts businesses represent frozen dessert lines consisting
of Pet-Ritz brand cream pies and cobblers, Oronoque Orchards brand pie
crusts and private label whipped toppings. Assets acquired by Van de
Kamp's, Inc. on September 19, 1995 were limited to inventories, property,
plant and equipment, and the intangible assets of the Businesses. No other
assets were acquired and no liabilities of the Businesses were assumed.
The historical net sales of the Businesses represented approximately 10% of
Pet's consolidated net sales in recent years. Of the Businesses' net sales
for the period July 1, 1995 through September 18, 1995 and the years ended
June 30, 1995 and 1994, approximately 67.7%, 75.6% and 74.6%, respectively,
relate to VDK, with the remainder relating to Desserts.
2. BASIS OF PRESENTATION
---------------------
The combined statements of income of the Businesses were derived from the
accounting records of Pillsbury and Pet and have been presented on a Pet
historical cost basis. Purchase accounting adjustments reflecting the
Pillsbury basis after February 8, 1995, in conjunction with the acquisition
of Pet, were not pushed down to the asset balances of the Businesses and
are not reflected in the related financial information presented herein.
The combined statements of income include revenue and expenses directly
attributable to the manufacture and sale of the Businesses' products as
well as the allocation of general and administrative expenses (see Note 3).
However, Pillsbury and Pet maintained all debt and notes payable on a
consolidated basis to fund and manage all product lines and businesses;
debt and related interest expense were not allocated to individual product
lines. Accordingly, no interest expense for these Businesses is included in
the combined statements of income presented herein.
Full financial statements, including complete historical balance sheets and
statements of cash flows, of the Businesses have not been presented.
Neither Pillsbury nor Pet operated these product lines as separate
divisions or business entities. Accordingly, it is not practicable to
separate other components of assets, liabilities or cash flows related
56
<PAGE>
specifically to these product lines. The financial information in these
statements is not necessarily indicative of results that would have
occurred if the Businesses had been a separate stand alone entity during
the periods presented or of future results of the Businesses.
3. SUMMARY OF ACCOUNTING POLICIES
------------------------------
Revenue recognition -- Revenue from the sale of the Businesses' products is
recognized upon shipment to the customer. Costs and related expenses to
manufacture the Businesses' products are recorded as costs of goods sold
when the related revenue is recognized.
Allocation of general and administrative expenses -- Prior to the
acquisition by Pillsbury, Pet provided various general and administrative
services to the Businesses including quality control, quality assurance,
engineering, cost accounting, labor relations, product development,
computer processing systems, treasury, legal, employee benefits, human
resources, insurance and corporate facilities and management. These
expenses were allocated to all of Pet's product lines, including the
Businesses, based primarily on budgeted sales. Upon conversion to
Pillsbury's systems as of May 1, 1995, similar costs for the months of May
and June of 1995 and during the period ended September 18, 1995 were
allocated from Pillsbury on a consistent basis.
Warehousing costs -- Warehousing costs, including internal and external
costs, of $1,176, $4,248 and $4,612 for the period July 1, 1995 through
September 18, 1995 and the years ended June 30, 1995 and 1994,
respectively, are reflected in cost of goods sold.
Selling, distribution and marketing expenses -- Pet aggregates its selling,
distribution and marketing expenses into three categories. Selling and
distribution expenses include costs of the outside brokerage network and
outbound freight. Trade promotions represent promotional incentives offered
to retailers. Consumer marketing expense is comprised of costs for
advertising and coupon placements and related processing.
Property, plant and equipment -- Property, plant and equipment are stated
at cost and depreciation is computed using the straight line method at
annual rates of 2% to 20%. Expenditures for improvements which
substantially extend the useful life or increase the capacity of assets,
including interest during the construction period, are capitalized. Capital
expenditures for the Businesses were $0, $1,884 and $2,075 for the period
July 1, 1995 to September 18, 1995 and the years ended June 30, 1995 and
1994, respectively. Ordinary repairs and maintenance are expensed as
incurred. When property, plant and equipment are sold or retired, cost and
accumulated depreciation are removed from the accounts and gains and losses
are recorded in income. Depreciation expense for the Businesses was $653,
$3,016 and $2,902 for the period July 1, 1995 through September 18, 1995
and for the years ended June 30, 1995 and 1994, respectively.
Goodwill -- Goodwill consists of the excess of cost over the fair market
value of net tangible assets acquired. Goodwill is being amortized on a
straight-line basis over 40 years.
57
<PAGE>
4. PROVISION FOR INCOME TAXES
--------------------------
The Businesses have been included in the combined federal and certain state
tax returns of Pet through February 8, 1995 and included with those of
Pillsbury through September 18, 1995. The provision for income taxes
included in these statements has been calculated based upon statutory rates
applied to pre-tax income adjusted for goodwill amortization and may not
necessarily be indicative of the Businesses' tax expense on a stand alone
basis.
The items which gave rise to differences between the income taxes provided
in the statement of income and income taxes computed at the U.S. statutory
rate are summarized below (in thousands):
<TABLE>
<CAPTION>
July 1, 1995
through September
18, 1995 1995 1994
----------------- ------------------ --------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense computed at statutory rate $ 96 35.0 $5,595 35.0 $6,516 35.0
State income taxes, net of federal income tax benefit 14 5.0 799 5.0 931 5.0
Goodwill amortization 286 4.4 1,322 8.3 1,322 7.1
---- ---- ------ ---- ------ ----
Provision for income taxes $396 44.4 $7,716 48.3 $8,769 47.1
==== ==== ====== ==== ====== ====
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Schedule IX - Valuation Reserves
--------------------------------
Column A Column B Column C Column D Column E
Additions
---------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Year
----------------------------------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
June 29, 1996 Allowance for doubtful accounts $ - $ 190,000 $ - $ - $ 190,000
============ =========== ============ =========== ===========
June 30, 1997 Allowance for doubtful accounts $ 190,000 $ 240,000 $ - $ (14,000) $ 416,000
============ =========== ============ =========== ===========
</TABLE>
59
<PAGE>
Exhibit Index
Exhibit
Number Exhibit
- ------ -------
2.1 Asset Purchase Agreement, dated as of July 7, 1995 among Van de
Kamp's, Inc., the Pillsbury Company and Pet Incorporated
(incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s
Form S-4 filed on October 4, 1995 (the "S-4")).
2.2 Agreement and Amendment No. 1, dated September 19, 1995, to the Asset
Purchase Agreement among Van de Kamp's, Inc., the Pillsbury Company
and Pet Incorporated (incorporated by reference to Exhibit 2.2 to the
S-4).
2.3 Asset Purchase and Sales Agreement, dated as of January 17, 1996,
between Shellfish Acquisition Company, LLC ("Shellfish") and Campbell
Soup Company ("Campbell") (the text of which and Exhibits to which are
incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s Form
10-Q for the quarter ended March 30, 1996 and a list of the contents
of the schedules of which is incorporated by reference to Exhibit 2.1
to Van de Kamp's, Inc.'s Form 8-K dated May 6, 1996).
2.4 Asset Purchase Agreement, dated as of January 17, 1996, between Van de
Kamp's, Inc. and Shellfish (incorporated by reference to Exhibit 2.2
to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 30,
1996).
2.5 Asset Purchase and Sales Agreement, dated as of May 15, 1996 between
Van de Kamp's, Inc. and the Quaker Oats Company ("Quaker")
(incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s
Form 8-K dated July 9, 1996).
2.6 Supplement No. 1 to Asset Purchase and Sales Agreement, dated as of
July 9, 1996, between Van de Kamp's, Inc. and Quaker (incorporated by
reference to Exhibit 2.2 to Van de Kamp's, Inc.'s Form 8-K dated July
9, 1996).
2.7 Asset Purchase Agreement, dated as of February 3, 1997, between Van de
Kamp's, Inc. and Morningstar Foods, Inc. (incorporated by reference to
Exhibit 2.1 to the Form 10-Q for quarter ended March 31, 1997).
2.8 Amendment to Asset Purchase Agreement, dated as of February 13, 1997,
between Van de Kamp's, Inc. and Morningstar Foods, Inc. (incorporated
by reference to Exhibit 2.2 to the Form 10-Q for quarter ended March
31, 1997).
3.1 Certificate of Incorporation of Van de Kamp's, Inc., with amendments
thereto (incorporated by reference to Exhibit 3.1 to 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).
4.1 Indenture, dated as of September 15, 1995, between Van de Kamp's, Inc.
and Harris Trust and Savings Bank (incorporated by reference to
Exhibit 4.1 to the S-4).
4.2 Global Note, dated September 19, 1995, issued by Van de Kamp's, Inc.
to the Depository Trust Company and registered in the name of Cede &
Co. in the principal amount of $100,000,000 (incorporated by reference
to Exhibit 4.2 to the S-4).
60
<PAGE>
4.3 Exchange and Registration Rights Agreement, dated September 19, 1995
between Van de Kamp's, Inc. and Chemical Securities Inc. (incorporated
by reference to Exhibit 4.3 to the S-4).
10.1 Guarantee and Collateral Agreement, dated September 19, 1995, among
VDK Holdings, Inc., Van de Kamp's, Inc., the subsidiary grantors named
therein and Chemical Bank as agent (incorporated by reference to
Exhibit 10-19 to the S-4).
10.2 Security Agreement, dated as of September 19, 1995, made by Van de
Kamp's, Inc., in favor of Chemical Bank (incorporated by reference to
Exhibit 10.20 to the S-4).
10.3 Employment Agreement, dated as of September 19, 1995, by and between
Thomas O. Ellinwood and Van de Kamp's, Inc. (incorporated by reference
to Exhibit 10.21 to the S-4).
10.4 Amendment No. 1 to Ellinwood Employment Agreement, dated as of July 1,
1996, between Thomas O. Ellinwood and Van de Kamp's, Inc.
(incorporated by reference to Exhibit 10.4 to the Form 10-K dated as
of June 29, 1996, and filed on September 27, 1996 (the "10-K")).
10.5 Employment Agreement, dated as of September 19, 1995, by and between
Olafur Gudmundsson and Van de Kamp's, Inc. (incorporated by reference
to Exhibit 10.22 to the S-4).
10.6 Amendment No. 1 to Gudmundsson Employment Agreement, dated as of
July 1, 1996 between Olafur Gudmundsson and Van de Kamp's, Inc.
(incorporated by reference to Exhibit 10.6 of the 10-K).
10.7 Employment Agreement, dated as of September 19, 1995 by and between C.
Renee Sloan and Van de Kamp's, Inc. (incorporated by reference to
Exhibit 10.23 to the S-4).
10.8 Amendment No. 1 to Sloan Employment Agreement, dated as of July 1,
1996, between C. Renee Sloan and Van de Kamp's, Inc. (incorporated by
reference to Exhibit 10.8 of the 10-K).
10.9 Employment Agreement, dated as of September 19, 1995 by and between
Thomas J. Youngerman and Van de Kamp's, Inc. (incorporated by
reference to Exhibit 10.8 of the S-4).
10.10 Amendment No. 1 to Youngerman Employment Agreement, dated July 1,
1996, between Thomas J. Youngerman and Van de Kamp's, Inc.
(incorporated by reference to Exhibit 10.10 of the 10-K).
10.11 Employment Agreement, dated as of October 11, 1995, between Van de
Kamp's, Inc. and Timothy B. Andersen (incorporated by reference to
Exhibit 10.1 to Van de Kamp's, Inc.'s Form 10-Q for quarter ended
March 30, 1996).
10.12 Amendment No. 1 to Andersen Employment Agreement, dated as of July 1,
1996, between Timothy B. Andersen and Van de Kamp's, Inc.
(incorporated by reference to Exhibit 10.12 of the 10-K).
61
<PAGE>
10.13 Computer Services Agreement, dated as of September 5, 1995, between
Windy Hill Pet Food Company LLC and Van de Kamp's, Inc. (incorporated
by reference to Exhibit 10.26 to the S-4).
10.14 License Agreement, dated as of February 21, 1979, between General Host
Corporation and VDK Acquisition Corporation (incorporated by reference
to Exhibit 10.27 to the S-4).
10.15 License Agreement, dated as of October 14, 1978, between General Host
Corporation and Van de Kamp's Dutch Bakeries (incorporated by
reference to Exhibit 10.28 to the S-4).
10.16 Agreement, dated March 31, 1994, between Van de Kamp's, Seafood and
Ore-Ida Foods, Inc. (incorporated by reference to Exhibit 10.29 to the
S-4).
10.17 Purchase Agreement, dated September 14, 1995, between Van de Kamp's,
Inc. and Chemical Securities Inc. (incorporated by reference to
Exhibit 10.30 to the S-4).
10.18 Co-Pack Agreement, dated May 6, 1996 between Campbell and Shellfish
(incorporated by reference to Exhibit 10.18 of the 10-K).
10.19 Buyer's Non-Recourse Promissory Note, dated May 6, 1996, issued by
Shellfish in favor of Campbell (incorporated by reference to Exhibit
10.19 of the 10-K).
10.20 First Amendment to Guarantee and Collateral Agreement, dated May 6,
1996 between Van de Kamp's, Inc. and VDK Holdings, Inc. in favor of
Chemical Bank, as agent for the several banks and other financial
institutions from time to time parties to the Amended and Restated
Credit and Guarantee Agreement (incorporated by reference to Exhibit
10.20 of the 10-K).
10.21 Second Amended and Restated Credit and Guarantee Agreement, dated as
of July 9, 1996 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 (incorporated by reference to
Exhibit 10.21 of the 10-K).
10.22 First Amendment, dated as of August 28, 1996, to the Second Amended
and Restated Credit and Guarantee Agreement among VDK Holdings, Inc.,
Van de Kamp's, Inc., the banks and other financial institutions named
as parties hereto and the Chase Manhattan Bank, NA, as Agent
(incorporated by reference to Exhibit 10.22 of the 10-K).
10.23 Second Amendment to Guarantee and Collateral Agreement, dated July 9,
1996, between Van de Kamp's, Inc. and VDK Holdings, Inc. in favor of
The Chase Manhattan Bank, NA., as agent for the several banks and
other financial institutions (incorporated by reference to Exhibit
10.23 of the 10-K).
10.24 Trademark License Agreement, dated July 9, 1996 between Quaker, The
Quaker Oats Company of Canada Limited and Van de Kamp's, Inc.
(incorporated by reference to Exhibit H to Exhibit 2.1 to Van de
Kamp's, Inc.'s Form 8-K dated July 9, 1996).
62
<PAGE>
10.25 Patent License Agreement, dated July 9, 1996, between Quaker and Van
de Kamp's, Inc. (incorporated by reference to Exhibit K to Exhibit 2.1
to Van de Kamp's, Inc.'s Form 8-K dated July 9, 1996).
10.26 Shared Technology License Agreement, dated July 9, 1996, Between
Quaker and Van de Kamp's, (incorporated by reference to Exhibit M to
Exhibit 2.1 to Van de Kamp's, Inc.'s Form 8-K dated July 9, 1996).
10.27 McDonald's Co-Pack Agreement, dated July 9, 1996, by Quaker and Van de
Kamp's, Inc. (incorporated by reference to Exhibit L to Exhibit 2.1 to
Van de Kamp's, Inc.'s Form 8-K dated July 9, 1996).
10.28 Senior Convertible Loan Credit and Guarantee Agreement, dated as of
July 9, 1996, 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 (incorporated by reference to
Exhibit 10.28 of the 10-K).
10.29 Cash Collateral Agreement, dated July 9, 1996, between VDK Holdings,
Inc. and The Chase Manhattan Bank, NA., as agent (incorporated by
reference to Exhibit 10.29 of the 10-K).
10.30 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
(incorporated by reference to Exhibit 10.1 to Van de Kamp's, Inc.'s
Form 10-Q for quarter ended March 31, 1997).
10.31 Employment Agreement, dated as of November 1, 1996 by and between
Gregory L. Smith and Van de Kamp's, Inc.
10.32 Third Amendment to the Second Amended and Restated Credit and
Guarantee Agreement, dated as of September 25, 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.
12.1 Statements Re: Computation of Ratios.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal (incorporated by reference to Exhibit
99.1 to the Second Amendment, filed on November 14, 1995, to the S-4).
99.2 Form of Notice of Guarantee delivery (incorporated by reference to
Exhibit 99.2 to the Second Amendment, filed on November 14, 1995, to
the S-4).
99.3 Form of Exchange Agency Agreement to be entered into by Van de Kamp's,
Inc. and Harris Trust and Savings Bank (incorporated by reference to
Exhibit 99.3 to the First Amendment, filed on November 8, 1995, to the
S-4).
(b) Reports on Form 8K
1. A report on Form 8-K, dated July 9, 1996, was filed on July 24, 1996,
on which Items 2 and 7 were reported. No financial statements were
filed with this filing.
2. A report on Form 8-KA, dated July 9, 1996 was filed on September 22,
1996 with Item 2 and Item 7 and which included the following financial
statements (incorporated by reference to Van de Kamp's, Inc.'s Form
8-K dated July 9, 1996):
(a) The audited Combined Statements of Certain Assets and
Liabilities, Revenues and Expenses, Changes in Equity and Cash
Flows of the frozen food division of The Quaker Oats Company, as
of and for the twelve months ended June 30, 1996, 1995, and 1994
together with the report of the independent accountants thereon.
(b) The pro forma statement of operations of Van de Kamp's, Inc. for
the year ended June 30, 1996 and the pro forma balance sheet as
of June 30, 1996 together with notes.
(c) Exhibits - The response to this portion of Item 14 is submitted
as a separate section of this report.
(d) Financial Statement Schedules - The response to this portion of
Item 14 is submitted as a separate section of this report.
63
<PAGE>
Exhibit 10.31
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November 1, 1996, by and between VAN DE
KAMP'S, INC. (the "Company"), a Delaware corporation, and GREGORY L. SMITH (the
"Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, upon the terms and subject to the conditions of this Agreement,
the Company desires to employ the Employee and the Employee desires to accept
employment by the Company;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Upon the terms and subject to the conditions of this
Agreement, the Company hereby employs the Employee and the Employee hereby
accepts employment with the Company in the capacities hereinafter set forth.
2. Term of Employment. Except as provided in Section 6, the term (the
"Term") of this Agreement shall commence as of the date hereof and shall
continue in effect through September 30, 1998; provided that the Term of this
Agreement shall be automatically extended for successive annual periods of 12
months each commencing on September 30, 1998.
3. Duties; Extent of Services.
(a) Duties. During the Term, the Employee shall serve in such executive
capacity as may be reasonably designated by the board of directors of the
Company (the "Board"), initially as Vice President-Manufacturing and
Distribution of the Company, and shall, in accordance with and subject to the
provisions of the By-laws (as amended from time to time) of the Company and as
set forth in Schedule A hereto, perform the duties, undertake the
responsibilities and exercise the authority customarily performed, undertaken
and exercised by a person in such position in the business in which the Company
is engaged. The Employee shall report to and carry out the lawful directions of
the Board.
(b) Extent of Services. Except for illness and permitted vacation
periods, during the Term the Employee shall (i) devote his full time and
attention during normal business hours to the businesses of the Company and its
subsidiaries and affiliates; (ii) use his best efforts to promote the interests
of the Company and its subsidiaries and affiliates; (iii) discharge such
executive and administrative duties not inconsistent with his position as
<PAGE>
may be assigned to him by the Board; and (iv) serve, without additional
compensation, as a director or officer of any subsidiary of the Company if
elected as such.
4. Compensation.
(a) Base Salary. In consideration of the services rendered by the
Employee hereunder and provided that the Employee has substantially performed
all of his obligations provided for herein, the Company will pay to the Employee
a base salary (the "Base Salary") at the rate of $140,000 per year during the
Term. The Base Salary shall be paid in accordance with the Company's normal
payroll practice and shall be subject to annual review by the Board; provided,
that the Base Salary shall not be subject to reduction.
(b) Base Bonus. The Company shall pay the Employee a bonus with
respect to each fiscal year or portion thereof during the Term in accordance
with the following provisions:
(i) If the Financial Results of the Company for a fiscal year
during the Term are at least 90% but less than 95% of the EBITDA
Target for such year, Employee shall be paid an amount equal to 20% of
so much of his Base Salary as was paid with respect to such year.
(ii) If the Financial Results of the Company for a fiscal year
during the Term are at least 95% but less than 100% of the EBITDA
Target for such year, Employee shall be paid an amount equal to 30% of
so much of his Base Salary as was paid with respect to such year.
(iii) If the Financial Results of the Company for a fiscal year
equal or exceed 100% of the EBITDA Target for such year, Employee
shall be paid an amount equal to 40% of so much of his Base Salary as
was paid with respect to such year.
(c) Supplemental Bonus. In addition to the Base Bonus, if any, to
which the Employee may be entitled under Section 4(b), the Company shall pay the
Employee a bonus with respect to such fiscal year or portion thereof during the
Term in accordance with the following provisions:
(i) If the Financial Results of the Company for a fiscal year
during the Term are at least 105%, but less than 110% of the EBITDA
Target for such year, Employee shall be paid an amount equal to 5% of
so much of his Base Salary as was paid with respect to such year.
-2-
<PAGE>
(ii) If the Financial Results of the Company for a fiscal year
during the Term are at least 110%, but less than 115% of the EBITDA Target
for such year, Employee shall be paid an amount equal to 10% of so much of
his Base Salary as was paid with respect to such year.
(iii) If the Financial Results of the Company for a fiscal year
during the Term are at least 115% but less than 120% of the EBITDA Target
for such year, the employee shall be paid an amount equal to 15% of so much
of his Base Salary as was paid with respect to such year.
(iv) If the Financial Results of the Company for a fiscal year
during the Term equal or exceed 120% of the EBITDA Target for such year,
the Employee shall be paid an amount equal to 20% of so much of his Base
Salary as was paid with respect to such year.
(d) For the purpose of this Agreement (1) the term "EBITDA Target" shall
mean the Company's projected earnings before interest, taxes, one-time
transition expenses, depreciation and amortization, as contained in the
Company's annual budget which is approved by the Board (without reference to
any adjustments or revision, upwards or downwards, to such projected earnings
which are subsequently approved by the Board as part of any subsequent revision
to such annual budget), (2) the term "Financial Results" shall mean the
Company's annual financial results reflected in the Company's annual audited
financial statements and (3) the Company's 1997 fiscal year shall be deemed to
begin as of the date hereof.
(e) The bonus due under Section 4(b) and (c) shall be paid to the
Employee within 30 days of the publication of the Company's annual audited
financial statements for the relevant year.
5. Other Employee Benefits. During the Term, the Employee shall be
entitled (i) to vacation time in accordance with the Company's policy from time
to time in effect; (ii) to participate in all employee insurance and other
fringe benefit programs, including, without limitation, life, health, dental and
accident insurance plans and long term disability now or hereafter maintained by
the Company for senior executive or other salaried personnel for which the
Employee is eligible; (iii) to participate in a pension plan with terms similar
to those applicable to executives of the Company; and (iv) to participate in the
VDK incentive compensation plan.
- 3 -
<PAGE>
6. Termination Provisions.
(a) Termination for Cause. The Board may terminate the Employee's
employment hereunder for Cause, as hereinafter defined, immediately upon written
notice to the Employee. For purposes of this Agreement, "Cause" shall mean (A)
proven dishonesty of the Employee detrimental to the best interests of either
the Company or any of its subsidiaries or affiliates or conviction of the
Employee of a crime which constitutes a felony, (B) any material act or omission
by the Employee during the Term involving willful malfeasance or gross
negligence in the performance of his duties hereunder, or (C) repeated failure
of the Employee to follow the reasonable instructions of the Board (other than
inattention or neglect resulting from illness or disability of the Employee)
which inattention and neglect does not cease within fifteen days after written
notice thereof specifying the details of such conduct is given by the Board to
the Employee. During the Term, the Employee shall be entitled to only one such
notice and right to cure for any single act or event. If the Employee's
employment is terminated for Cause, the Employee shall be entitled to receive
only the unpaid portion of the Base Salary then in effect which has accrued to
the date of termination.
(b) Termination By Reason of Permanent Disability. If at any time
during the Term an independent licensed physician selected by the Board
determines that the Employee has been or will be unable, as a result of physical
or mental illness or incapacity, to perform his duties hereunder for a period of
four consecutive months or for an aggregate of more than six months in any
twelve month period (a "Permanent Disability"), the Employee's employment
hereunder may be terminated by the Board upon thirty days' written notice to the
Employee. If the Employee's employment is terminated by reason of Permanent
Disability, the Employee shall be entitled to receive only the sum of (x) the
unpaid portion of the Base Salary then in effect which has accrued to the date
of termination plus (y) an amount equal to six months of Employee's Base Salary
plus (z) an amount equal to a pro rata portion of the Base Bonus payable
pursuant to Section 4(b)(iii) hereof assuming that the Financial Results of the
Company for the then current fiscal year equal exactly 100% of the EBITDA Target
for such year, with such pro rata portion based on the actual number of days
during such fiscal year that Employee was employed by the Company.
(c) Termination By Reason of Death. The Employee's employment
hereunder shall automatically terminate on the date of his death. If the
Employee's employment is so terminated by his death, the Company shall pay to
the Employee's estate in addition to the unpaid portion of the Base Salary then
in effect through date of Employee's death the sum of (y) an amount equal to six
months of Employee's Base Salary plus (z) an amount equal to a pro rata portion
of the Base Bonus payable pursuant to Section 4(b)(iii) hereof assuming that the
Financial Results of the Company for the then current fiscal year equal exactly
100% of the EBITDA Target for such year, with such pro rata portion based on
-4-
<PAGE>
the actual number of days during such fiscal year that Employee was employed by
the Company. Such amount shall be paid within thirty days after the date of his
death if a personal representative has been appointed by the end of such thirty
day period or, if a personal representative has not been appointed by the end of
such thirty day period, promptly after a personal representative has been
appointed.
(d) Termination Without Cause. The Board may terminate the Employee's
employment hereunder at any time for any reason without Cause in which case the
Employee shall be entitled to receive an amount (the "Severance Amount") equal
to the sum of (y) an amount equal to the greater of (i) one year's Base Salary
then in effect, or (ii) the Base Salary the Employee would have been entitled to
receive through the end of the Term plus (z) an amount equal to a pro rata
portion of the Base Bonus payable pursuant to Section 4(b)(iii) hereof assuming
that the Financial Results of the Company for the then current fiscal year equal
exactly 100% of the EBITDA Target for such year, with such pro rata portion
based on the actual number of days during such fiscal year that Employee was
employed by the Company. The Severance Amount shall be in lieu of any other
severance payment to which Employee may be otherwise entitled under any other
severance plan maintained by the Company. The Severance Amount shall be paid
within 30 days of such termination.
(e) Change of Control. This Agreement may be assigned in connection with a
Change of Control (as defined below) as provided in Section 8(a) hereof. In the
event of a Change of Control:
(i) the employee shall have no obligation to move to a new work
location that is more than 50 miles from the Employee's principal work
location immediately prior to such Change of Control;
(ii) the amount of Base Salary set forth in Section 4(a) hereof and
the base bonus opportunities set forth in Section 4(b) hereof shall not be
subject to reduction;
(iii) the Employee's title, duties and responsibilities as set forth
in Section 3(a) hereof shall not be subject to reduction; and
(iv) the Employee's reasonable, documented business expenses shall
continue to be reimbursed in a manner consistent with the Company's
reimbursement practice prior to such Change of Control.
Following a Change of Control, the failure by the Company (or its successor or
assign) to comply with any of subparagraphs (i)-(iv) shall permit the Employee
to terminate this Agreement for "Good Reason", on written notice to the Company
(or its successor or
-5-
<PAGE>
assign). In the event the Employee terminates this Agreement for Good Reason,
the Employee shall be entitled to receive the Severance Amount. The Severance
Amount shall be in lieu of any other severance payment to which the Employee may
otherwise be entitled under any other severance plan maintained by the Company
(or its successor or assign). The Severance Amount shall be paid within 30 days
of such termination.
For purposes of this Agreement, a "Change of Control" shall mean (i)
the sale, exchange or other disposition of (A) more than 50% of the issued and
outstanding shares of the Company, (B) more than 50% of the issued and
outstanding shares of VDK Holdings, Inc., the parent of the Company, or (C) more
than 50% of the voting units of limited liability company interests of VDK Foods
LLC, the parent of VDK Holdings, Inc., in each case to or with a person or
entity other than the Company, VDK Holdings, Inc. or VDK Foods LLC or an
affiliate of the Company, VDK Holdings, Inc. or VDK Foods LLC, (ii) the sale of
all or substantially all of the assets of the Company to a person or entity
other than the Company, VDK Holdings, Inc. or VDK Foods LLC or an affiliate of
any of them, or (iii) the merger, consolidation or other business combination of
the Company, VDK Holdings, Inc. or VDK Foods LLC with or into another entity
that is either not, or not controlled by, the Company, VDK Holdings, Inc., VDK
Foods LLC or an affiliate of any of them.
7. Covenants of the Employee.
-------------------------
(a) Non-Competition. Except with respect to a termination described
in Section 6(b) or 6(d) hereof, until the first anniversary of the date of the
termination of the Employee's employment hereunder, the Employee shall not,
directly or indirectly, be associated with any entity which competes with the
Company and whose primary business is, or personally engage in, the same line of
business of the Company, whether as a director, officer, employee, agent,
consultant, partner, owner, independent contractor or otherwise.
(b) Non-Solicitation of Employees of the Employer. Until the first
anniversary of the date of the termination of the employment of the Employee
hereunder, the Employee shall not, and shall cause each business or entity with
which he shall become associated in any capacity not to, solicit for employment
or employ any person who is then, or who was at any time after the date four
months prior to the date of such termination, employed in a professional or
managerial position by the Company, its subsidiaries or affiliates.
(c) Confidentiality. The Employee agrees and acknowledges that the
Confidential Information (as hereinafter defined) of the Company and its
subsidiaries and affiliates, is valuable, special and unique to their business;
that such business depends on such Confidential Information; and that the
Company wishes to protect such Confidential
-6-
<PAGE>
Information by keeping it confidential for the use and benefit of the Company
and its subsidiaries and affiliates. Based on the foregoing, the Employee
agrees to undertake the following obligations with respect to such Confidential
Information:
(i) the Employee agrees to keep any and all Confidential
Information in trust for the use and benefit of the Company and its
subsidiaries and affiliates;
(ii) the Employee agrees that, except as required by applicable
law or as authorized in writing by the Board, he will not at any time
during or after the termination of his employment hereunder, disclose,
directly or indirectly, any Confidential Information of the Company or
any of its subsidiaries or affiliates;
(iii) the Employee agrees to take all reasonable steps
necessary, or reasonably requested by the Company, to ensure that all
Confidential Information is kept confidential for the use and benefit
of the Company and its subsidiaries and affiliates; and
(iv) the Employee agrees that, upon termination of his
employment hereunder or at any other time the Company may in writing
so request, he will promptly deliver to the Company all materials
constituting Confidential Information (including all copies thereof)
that are in his possession or under his control. The Employee further
agrees, that if requested by the Company, to return any Confidential
Information pursuant to this subparagraph (iv), he will not make or
retain any copy or extract from such materials.
For purposes of paragraph (c) of this Section 7, "Confidential
Information" means any and all information developed by or for the Company or
any of its subsidiaries or affiliates of which the Employee gains or has
acquired knowledge during or prior to the Term by reason of his employment with
the Company that is (A) not generally known in any industry in which the Company
or any of its subsidiaries or affiliates is or may become engaged or (B) not
publicly available. Confidential Information includes, but is not limited to,
any and all information developed by or for the Company or any of its
subsidiaries or affiliates concerning plans, marketing and sales methods,
customer lists, materials, processes, business forms, procedures, devices, plans
for development of products, services or expansion into new areas or markets,
internal operations, and any trade secrets and proprietary information of any
type owned by the Company or any of its subsidiaries or affiliates, together
with all written, graphic and other materials relating to all or any part of the
same.
-7-
<PAGE>
8. Successors; Assignment.
----------------------
(a) The Company. The Company may assign any of its rights and
obligations hereunder, without the written consent of the Employee, in
connection with a Change of Control. This Agreement shall be binding upon and
shall inure to the benefit of the Company and its successors and assigns.
(b) The Employee. Neither this Agreement nor any right or interest
hereunder may be assigned by the Employee, his beneficiaries, or legal
representatives without the prior written consent of the Board; provided,
however, that nothing in this Section 8 shall preclude (i) the Employee from
designating a beneficiary to receive any benefit payable hereunder upon his
death, or (ii) the executors, administrators, or other legal representatives of
the Employee or his estate from assigning any rights hereunder to distributes,
legatees, beneficiaries, testamentary trustees or other legal heirs of the
Employee.
9. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given when delivered by hand, mailed
by first-class registered or certified mail, postage prepaid and return receipt
requested, or delivered by overnight courier addressed as follows:
(i) If to the Company:
Van de Kamp's, Inc.
1000 St. Louis Union Station
St. Louis, Missouri 63103
with a copy to:
VDK Foods LLC
c/o Dartford Partnership, L.L.C.
801 Montgomery Street
Suite 400
San Francisco, CA 94133
(ii) If to the Employee:
2101 Saddlebred Court
Chesterfield, Missouri 63005
-8-
<PAGE>
or, in each case, at such other address as may from time to time be specified to
the other party in a notice similarly given.
10. Governing Law; Expenses.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the conflicts of law principles thereof.
(b) Expenses. All costs and expenses (including attorneys' fees)
incurred in connection with any claim, dispute or litigation pertaining to
this Agreement shall be paid by the party incurring such expenses.
11. Entire Agreement. This Agreement contains the entire agreement
of the parties and their affiliates relating to the subject matter hereof and
supersedes all prior agreements, representations, warranties and understandings,
written or oral, with respect thereto.
12. Severability. If any term or provision of this Agreement or the
application thereof to any person, property or circumstance shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons, property or circumstances other than those
as to which it is invalid or unenforceable, shall not be affected thereby, and
each term and provision of this Agreement shall remain valid and enforceable to
the fullest extent permitted by law.
13. Remedies.
(a) Injunctive Relief. The Employee acknowledges and agrees
that the covenants and obligations of the Employee contained in subsections (a),
(b) and (c) of Section 7 hereof relate to special, unique and extraordinary
matters and are reasonable and necessary to protect the legitimate interests of
the Company and its subsidiaries and affiliates and that a breach of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies at law are not available. Therefore the
Employee agrees that the Company shall be entitled to an injunction,
restraining order, or other equitable relief from any court of competent
jurisdiction, restraining the Employee from any such breach.
(b) Remedies Cumulative. The Company's rights and remedies
under this Section 13 are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity.
- 9 -
<PAGE>
14. Withholding Taxes. The Company may deduct any federal, state or
local withholding or other taxes from any payments to be made by the Company
hereunder in such amounts which the Company reasonably determine are required to
deduct under applicable law.
15. Amendments, Miscellaneous, etc. Neither this Agreement nor any
term hereof may be changed, waived, discharged or terminated except by an
instrument in writing signed by the party against which such change, waiver,
discharge or termination is sought to be enforced. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
and all of which together shall constitute one and the same instrument. The
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first written above.
VAN DE KAMP'S, INC.
By: /s/ T. Ellinwood
--------------------------
Name: T. ELLINWOOD
Title: President
/s/ Gregory L. Smith
-----------------------------
GREGORY L. SMITH
-10-
<PAGE>
SCHEDULE A
----------
RESPONSIBILITIES OF VICE PRESIDENT -
MANUFACTURING AND DISTRIBUTION
------------------------------------
Reporting to the President, the Vice President of Manufacturing and
Distributing is responsible for all aspects of product planning, conversion,
packaging and distribution for the company's three manufacturing facilities. He
also has direct responsibility for the customer service, order fulfillment,
distribution and quality assurance functions. He is indirectly responsible for
the consumer affairs and regulatory functions of the company. His key
responsibilities are as follows:
. Lead the Supply Chain initiative to significantly reduce
operating costs and improve asset utilization.
. Optimize the distribution network.
. Develop and implement the staff, systems and procedures to ensure
product availability in excess of 99%.
. Ensure that the appropriate quality programs are in place that
optimize weight control and ensure product and consumer safety.
. Ensure that the appropriate safety programs are in place to
ensure employee well-being.
. Develop and implement the strategic direction for the consumer
affairs department.
. Ensure compliance with all Local, State and Federal regulations.
-11-
<PAGE>
Exhibit 10.32
THIRD AMENDMENT, dated as of September 25, 1997 (this "Third
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 Third 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 Third 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 Third 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 $16,500,000 in the aggregate for the
Borrower and its Subsidiaries during the 1998 fiscal year of the Borrower
and in excess of $12,000,000 in the aggregate for the Borrower and its
Subsidiaries during any subsequent fiscal year of the Borrower, provided,
that (i) 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 (ii) 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."
3. Deletion of Schedule 8.8. The Credit Agreement is hereby amended
by deleting Schedule 8.8 to the Credit Agreement in its entirety.
<PAGE>
4. Miscellaneous.
(a) Effectiveness. The amendments provided for herein shall become
effective as of the date hereof (the "Effective Date") upon the receipt by the
Administrative Agent of counterparts of this Third 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 Third
Amendment and to the Credit Agreement as amended by this Third 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) Counterparts. This Third 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.
(e) GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
VDK HOLDINGS, INC.
By: /s/ M. Laurie Cummings
----------------------
Title: Vice President
VAN DE KAMP'S, INC.
By: /s/ M. Laurie Cummings
----------------------
Title: Vice President
THE CHASE MANHATTAN BANK, as Agent
and as a Lender
By: /s/ Timothy J. Storms
------------------------
Title: Managing Director
<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: /s/ Brian J. Klatt
------------------------------
Title: Vice President
By: /s/ W. Pieter C. Kodde
------------------------------
Title: Vice President
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: /s/ Eugenie M. Sullivan
------------------------------
Title: Senior Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ Karen Knudsen
------------------------------
Title: Vice President
<PAGE>
5
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ C. Andrew Picullell
------------------------------
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ Anthony R. Clemente
------------------------------
Title: Authorized Signatory
PRIME INCOME TRUST
By:
------------------------------
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Kathleen A. Zarn
------------------------------
Title: Vice President
MORGAN STANLEY SENIOR FUNDING, INC.
By: /s/ Christopher A. Pucillo
------------------------------
Title: Vice President
STRATA FUNDING LTD.
By: /s/ John Cullinane
------------------------------
Title: Director
<PAGE>
6
MERRILL LYNCH PRIME RATE PORTFOLIO
By: MERRILL LYNCH ASSET MANAGEMENT
L.P., as Investment Adviser
/s/ Anthony R. Clemente
By: ____________________________
Title: Authorized Signatory
BANQUE NATIONALE DE PARIS
By: ____________________________
Title:
By: ____________________________
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
/s/ Henry R. Biedrzycki
By: ____________________________
Title: Vice President
FIRST BANK NATIONAL ASSOCIATION
/s/ Elliot J. Jaffee
By: ____________________________
Title: Vice President
MARINE MIDLAND BANK
/s/ Martin Brown
By: ____________________________
Title: Authorized Signatory
NEW YORK LIFE INSURANCE COMPANY
By: ____________________________
Title:
<PAGE>
7
PILGRIM AMERICA PRIME RATE TRUST
/s/ Daniel A. Norman
By: __________________________
Title: Senior Vice President
SENIOR HIGH INCOME PORTFOLIO, INC.
/s/ Anthony R. Clemente
By: __________________________
Title: Authorized Signatory
FEDERAL STREET PARTNERS
By: __________________________
Title:
SENIOR DEBT PORTFOLIO
By: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By: __________________________
Title:
<PAGE>
EXHIBIT 12.1
VAN DE KAMP'S, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period
September 19,
Year ended 1995 through
June 30, June 29,
1997 1996
---------- ------------
<S> <C> <C>
Income (loss) before income taxes $ 6,530 $ (672)
Fixed charges:
Interest expense 32,499 12,469
Amortization of deferred financing expense 2,108 607
Interest portion of rentals 162 58
--------- ---------
Earnings available for fixed charges $ 41,299 $ 12,462
========= =========
Fixed charges:
Interest expense $ 32,499 $ 12,469
Amortization of deferred financing expense 2,108 607
Interest portion of rentals 162 58
--------- ---------
$ 34,769 $ 13,134
========= =========
Ratio of earnings to fixed charges(1) 1.19 -
========= =========
</TABLE>
(1) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net income before provision for income taxes, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of deferred financing fees and one-third of
rental expense on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
Exhibit 27.1
<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> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-29-1996
<PERIOD-START> JUN-30-1996 SEP-19-1995
<PERIOD-END> JUN-30-1997 JUN-29-1996
<CASH> 308 4,040
<SECURITIES> 0 0
<RECEIVABLES> 33,436 16,946
<ALLOWANCES> 416 90
<INVENTORY> 33,535 30,202
<CURRENT-ASSETS> 76,331 55,095
<PP&E> 95,734 38,567
<DEPRECIATION> 9,340 2,624
<TOTAL-ASSETS> 509,591 305,499
<CURRENT-LIABILITIES> 56,507 35,076
<BONDS> 100,000 100,000
144,207 84,115
0 0
<COMMON> 0 0
<OTHER-SE> 3,714 (439)
<TOTAL-LIABILITY-AND-EQUITY> 509,591 305,499
<SALES> 435,476 143,296
<TOTAL-REVENUES> 435,476 143,296
<CGS> 180,941 60,367
<TOTAL-COSTS> 364,742 120,121
<OTHER-EXPENSES> 31,465 11,188
<LOSS-PROVISION> 240 190
<INTEREST-EXPENSE> 32,499 12,469
<INCOME-PRETAX> 6,530 (672)
<INCOME-TAX> 2,377 (233)
<INCOME-CONTINUING> 4,153 (439)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,153 (439)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
