<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 DECEMBER 31, 1998
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 333-50681
AURORA FOODS INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
DELAWARE 94-3303521
-------- ----------
<S> <C>
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
</TABLE>
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
(Address of Principal Executive Office, Including Zip Code)
(415) 982-3019
(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
------------------- -----------------------------------------
Common Stock, par value New York Stock Exchange
$0.01 per share Pacific Exchange
----------------------- -----------------------------------------
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 X No __
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 17, 1999, based upon the closing price of the Common
Stock as reported on the New York Stock Exchange on such date, was approximately
$235,625,000.
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock as of the latest practicable date.
Shares Outstanding
February 17, 1999
Common Stock, $0.01 par value 67,016,173
<PAGE>
PART I
- - ------
ITEM 1: BUSINESS
- - ----------------
Aurora Foods Inc. (the "Company") is a leading producer and marketer of premium
branded food products including Duncan Hines(R) baking mix products, Mrs.
Butterworth's(R) and Log Cabin(R) syrup products, Van de Kamp's(R) and Mrs.
Paul's(R) frozen seafood products, Aunt Jemima(R) frozen breakfast products and
Celeste(R) frozen pizza. The Company's brands are among the most widely
recognized food brands in the United States and have leading market positions.
The Company groups its brands into two general divisions: dry grocery division
and frozen food division.
Products and Markets
- - --------------------
The Company seeks to acquire brands with strong brand equity which have been
undermarketed and undermanaged in recent years and have become non-core
businesses to their corporate parents. The Company's objective is to renew the
growth of its brands by giving them the focus, strategic direction, marketing
resources and dedicated sales and marketing organization they have lacked in
recent years. The Company then sustains the growth of the brands with high
levels of marketing support directed towards media, consumer promotions and new
products. Each of the Company's brands is a leading national brand with
significant market share and strong consumer awareness. The Company competes in
two segments of the food industry: dry grocery and frozen food.
[LOGO OF MRS. BUTTERWORTH'S(R) APPEARS HERE] [LOGO OF LOG CABIN(R) APPEARS HERE]
[LOGO OF VAN DE KAMP'S(R) APPEARS HERE] [LOGO OF CELESTE(R) APPEARS HERE]
[LOGO OF MRS. PAUL'S(R) HERE] [LOGO OF DUNCAN HINES(R) APPEARS HERE]
[LOGO OF AUNT JEMIMA(R) APPEARS HERE]
References to market, category and segment sales, market share percentages and
market positions reflect U.S. retail supermarket sales dollars for the 52-week
period ended December 27, 1998, as gathered by Information Resources
Incorporated for the frozen food division and for the 52-week period ended
December 26, 1998, as gathered by A.C. Nielsen Company for the dry grocery
division.
Dry Grocery
- - -----------
The Company has three brands in the dry grocery segment: Mrs. Butterworth's(R),
Log Cabin(R) and Duncan Hines(R).
Mrs. Butterworth's(R) and Log Cabin(R)
Together, the Mrs. Butterworth's(R) and Log Cabin(R) syrup products have a
leading 33% share of the syrup category. Log Cabin(R) and Mrs. Butterworth's(R)
Original 24-ounce bottles are the number one and number two selling stock
keeping units, respectively, in the syrup category. Different consumer
perceptions of these two brands offer unique opportunities for consumer
targeting. Mrs. Butterworth's(R) distinctive, grandmother-shaped bottle
represents a fun image to the family with children. The strong heritage of Log
Cabin(R), which dates back to 1888, represents an authentic, rich maple brand
targeted more to traditional, "warm, cozy" breakfast occasions. The Company also
sells Country Kitchen(R), a value priced syrup, to target the economy segment.
Introduced in 1954, Country Kitchen(R) has the highest share in the economy
segment. The Company's products are sold to the retail, club store, restaurant
and
1
<PAGE>
institutional channels. Mrs. Butterworth's(R), Log Cabin(R), and Country
Kitchen(R) are offered in regular and lite versions. The Company also sells
pancake mixes under the Mrs. Butterworth's(R) brand. In 1998, a sugar-free syrup
was introduced under the Log Cabin(R) label to target health-conscious and
diabetic consumers. In 1999, the Company will introduce flavored syrups
targeting children under the Mrs. Butterworth's(R) brand.
Duncan Hines(R)
For over 40 years, the Duncan Hines(R) brand has represented excellence in
baking mixes. The Duncan Hines(R) product line consists of cake mix, ready-to-
spread frosting, brownie mix, muffin mix, and cookie and other specialty mixes.
The Duncan Hines(R) trademark is among the most widely recognized in the U.S.
with 92% unaided brand awareness. Duncan Hines(R) cake mix products have a 100%
all commodity volume distribution and a market share of 37%. Duncan Hines(R)
baking mixes enjoy consumer satisfaction ratings that are superior to those of
its principal competitors, Betty Crocker(R) and Pillsbury(R) brand baking mixes.
Consumer test results show the Duncan Hines(R) brand appeals to the consumer who
wants to bake a "quality, good as homemade" product. The brownie mix product was
reformulated in 1998. In 1999, cookie and other specialty mixes will be
reformulated and packaging for the entire Duncan Hines(R) product line will be
restaged.
Frozen Food
- - -----------
The Company has four brands in the frozen food segment: Van de Kamp's(R), Mrs.
Paul's(R), Aunt Jemima(R) and Celeste(R).
Van de Kamp's(R) and Mrs. Paul's(R)
The Company manufactures and markets frozen seafood products under the Van de
Kamp's(R) and Mrs. Paul's(R) brands, which together command a leading market
share position of 25%. The frozen seafood product line includes breaded and
battered fish sticks and fish fillets, grilled and plain fish fillets, "healthy"
breaded fish, and specialty seafood items. The Company's dual brand strategy
emphasizes both the brands' respective regional strengths (Van de Kamp's(R) is
stronger in the West and Central U.S., while Mrs. Paul's(R) is stronger in the
Northeast and Southeast) and brand positioning (Van de Kamp's(R) targets
families with children while Mrs. Paul's(R) targets adults). The Van de
Kamp's(R) trademark dates back over 40 years and is recognized as a fun,
"contemporary" image that appeals to families with children. The Mrs. Paul's(R)
franchise began in the mid-1940's with the introduction of deviled crab cakes
and has grown to include a wide range of specialty seafood items that target the
adult consumer. The Company introduced premium grilled products in 1998 and will
introduce new "Tenders" and "Selects" products under both brands in 1999.
Aunt Jemima(R)
Aunt Jemima(R) was established as a brand over 100 years ago. Aunt Jemima(R)
frozen breakfast products are offered in three categories: french toast,
pancakes and waffles. Aunt Jemima(R) has a number one market share position in
french toast, a number two position in pancakes and is the number three brand in
the frozen waffle category. Aunt Jemima(R) waffle and pancake products are
offered in four varieties: original, blueberry, buttermilk and lowfat. The
french toast product is offered in two flavors: regular and cinnamon. The
Company will expand its offerings in frozen breakfast products with the launch
of french toast sticks and mini pancakes in 1999.
Celeste(R)
For over 36 years, Celeste(R) frozen pizza has been a prominent regional brand
in the Northeast. Celeste(R) frozen pizzas are offered in small and large sizes
and a rising crust pizza is offered under the Mama Celeste(TM) label. Celeste(R)
small pizzas (marketed as Celeste(R) Pizza for One) and large pizzas are economy
priced, while the Mama Celeste(TM) Fresh-Baked Rising Crust pizza is premium
priced. In the markets in which it competes, Celeste(R) Pizza for One is the
leading brand of small pizzas. Celeste(R) products are primarily sold in the
Northeast, Florida and California.
The Company's products are sold nationwide to supermarkets and other retail
channels. The Company sells its products through a network of food brokers to
wholesale and retail grocery accounts. The products are distributed either
directly to the customer or through independent wholesalers.
2
<PAGE>
The Company also sells its syrup and frozen food products in the foodservice
distribution channel through a foodservice distributor. Customers include
military bases, restaurant chains and business/industry.
Industry
- - --------
The U.S. food industry is relatively stable with growth based on modest price
and population increases. Over the last ten years, food companies have been
divesting non-core business lines and making strategic acquisitions.
The desire for nutrition and convenience strongly affects consumer demand for
food products. Increasingly, consumers want nutritious food that is convenient
to prepare and can be served as a meal occasion. The Company targets consumers
between the ages of 18 and 48 and particularly households with children. There
are approximately 39 million children between the ages of 5 and 14, which
represent a growing target market for the Company.
The Company competes in the dry grocery and frozen food categories of the retail
food industry. The Company is expanding its presence in the foodservice
markets, which offer further growth opportunities.
Financial Information About Industry Segments
- - ---------------------------------------------
See "Item 14(a) 1.a. Financial Statements of the Company".
Trademarks
- - ----------
The Company's principal trademarks are Duncan Hines(R), Log Cabin(R), Mrs.
Butterworth's(R), Van de Kamp's(R), Mrs. Paul's(R), Celeste(R) and Mama
Celeste(TM). The Company licenses the Aunt Jemima(R) trademark pursuant to a
perpetual, royalty-free, license agreement with The Quaker Oats Company ("Quaker
Oats"). The license agreement requires the Company to obtain the approval of
Quaker Oats for any material change to any labels, packaging, advertising, and
promotional materials bearing the Aunt Jemima(R) trademark. Quaker Oats can only
withhold approval if such proposed use violates the license agreement. The
registrations for the Company's trademarks expire from time to time and the
Company renews them in the ordinary course of business prior to the expiration
dates.
Competition
- - -----------
The food industry is highly competitive. Numerous brands and products compete
for shelf space and sales, with competition based primarily on brand recognition
and loyalty, price, quality, and convenience. The Company competes with a
significant number of companies of varying sizes, including divisions or
subsidiaries of larger companies. A number of these competitors have broader
product lines, substantially greater financial and other resources available to
them, lower fixed costs and/or longer operating histories.
Production
- - ----------
The Company produces its Van de Kamp's(R) and Mrs. Paul's(R) frozen seafood
products at its Erie, Pennsylvania, Jackson, Tennessee and Yuba City, California
manufacturing facilities. Certain specialty seafood items such as shrimp and
clams are contract manufactured by third parties. The Company produces its Aunt
Jemima(R) frozen breakfast and Celeste(R) frozen pizza products at its Jackson,
Tennessee facility. The Company's syrup products are produced by contract
manufacturers at various manufacturing facilities pursuant to syrup co-pack
agreements. These agreements have terms of five to seven years and automatic
renewal provisions for one year unless cancelled by either party. All of the
Company's syrup production equipment, including batching, filling and case-
packing equipment, is located at the contract manufacturers' facilities. Duncan
Hines(R) brownie mixes, specialty mixes and frosting products are also produced
by contract manufacturers pursuant to co-pack agreements. These agreements have
terms of five years and automatic renewal provisions for one year unless
cancelled by either party. All of the Company's brownie mixes, specialty mixes
and frosting production equipment including co-milling, blending and packaging
equipment is located at the contract manufacturers' facilities. Duncan Hines(R)
cake mix products are contract manufactured by The Procter & Gamble Company
("P&G") pursuant to a co-pack agreement. The Company entered into a long-term
co-pack agreement for its Duncan Hines(R) cake mixes with a contract
manufacturer and is in the process of relocating and installing the Duncan
Hines(R) manufacturing assets from P&G's Jackson, Tennessee plant to production
facilities owned or leased by such contract manufacturer. This agreement has a
term of five years and automatic renewal provisions for one year unless
cancelled by either party.
3
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Quality Control
- - ---------------
Quality control processes at the Company's principal manufacturing facilities
and at the production facilities where the Company's products are contract
manufactured emphasize applied research and technical services directed at
quality control and product improvement.
The Company's products and the facilities where the products are manufactured
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.
Seasonality
- - -----------
The Company does not experience any material effects of seasonality in its
business. However, the first and fourth quarters generally experience higher
levels of sales. There are no material backlogs.
Raw Materials and Supplies
- - --------------------------
The principal raw materials used by the Company are corn syrup, flour, sugar,
fish, eggs, cheese, vegetable oils, shortening, other agricultural products and
paper and plastic for packaging materials. All such materials and supplies are
available from numerous independent suppliers. The Company procures ingredients
through its contract manufacturer partners for most of the dry grocery division
and manages the procurement process for its frozen food division and the
production of brownie mixes. The Company's objective is to meet both the
Company's production needs and its quality standards, while at the lowest
aggregate cost to the Company.
Research and Development
- - ------------------------
The Company maintains its primary research and development departments for its
dry grocery division in Columbus, Ohio and for its frozen food division in St.
Louis, Missouri. The departments are responsible for nearly all of the food
research and product development for the Company. The Company uses food
technology consultants where appropriate. The Company's 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 February 17, 1999, the Company had a total of approximately 1,311
employees, none of whom are represented by unions. Management of the Company
believes it generally has good relations with its employees.
Business History
- - ----------------
The Company was incorporated in Delaware on June 19, 1998, as the successor to
Aurora Foods Holdings Inc. ("Holdings") and its subsidiary, AurFoods Operating
Co., Inc. (formerly known as Aurora Foods Inc.) ("AurFoods"), both of which were
incorporated in Delaware in December 1996. AurFoods was wholly-owned by
Holdings, which in turn was wholly-owned by MBW Investors LLC ("MBW LLC").
AurFoods was formed for the purpose of acquiring the Mrs. Butterworth's(R) syrup
business ("MBW") from Conopco, Inc., a subsidiary of Unilever United States,
Inc. ("Conopco" or the "Predecessor"). AurFoods subsequently acquired the Log
Cabin(R) syrup business ("LC") from Kraft Foods, Inc. ("Kraft") in July 1997 and
the Duncan Hines(R) baking mix business ("DH") from P&G in January 1998.
Van de Kamp's, Inc. ("VDK") was a wholly-owned subsidiary of VDK Holdings, Inc.,
a Delaware corporation ("VDK Holdings"), and was incorporated in Delaware in
July 1995 for the purpose of acquiring the Van de Kamp's(R) frozen seafood and
frozen dessert businesses from The Pillsbury Company in September 1995. VDK
then acquired the Mrs. Paul's(R) frozen seafood business from the Campbell Soup
Company in May 1996 and the Aunt Jemima(R) frozen breakfast and Celeste(R)
frozen pizza businesses from Quaker Oats in July 1996. VDK Holdings was wholly-
owned by VDK Foods LLC ("VDK LLC"). On April 8, 1998, MBW LLC and VDK LLC
4
<PAGE>
formed Aurora/VDK LLC ("New LLC"). MBW LLC contributed all of the capital stock
of Holdings and VDK LLC contributed all of the capital stock of VDK Holdings to
New LLC (the "Contribution").
On July 1, 1998, Holdings, AurFoods, VDK Holdings and VDK merged with and into
the Company and the initial public offering of 12,909,372 shares of Common Stock
of the Company and 1,590,628 shares of the Company's Common Stock sold by New
LLC was consummated at an initial public offering price of $21.00 per share (the
"IPO" or "Equity Offerings"). Also, concurrently with the IPO, the Company
issued $200.0 million aggregate principal amount of 8.75% senior subordinated
notes due 2008 (the "Notes Offering" or "New Notes") and borrowed $225.0 million
of senior secured term debt and $99.0 million out of the total available of
$175.0 million of senior secured revolving debt under the Third Amended and
Restated Credit Agreement, dated as of July 1, 1998, among the Company, as
borrower, the lenders listed therein, The Chase Manhattan Bank, as
Administrative Agent, The National Westminster Bank PLC, as Syndication Agent
and Swiss Bank Corporation, as Documentation Agent (the "New Senior Bank
Facilities").
ITEM 2: PROPERTIES
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The Company owns and operates three manufacturing facilities for its frozen food
products described in the following table. The Company also owns a 175,000
square foot manufacturing facility located in Chambersburg, Pennsylvania, which
the Company has made available for sale. The Company manufactured its frozen
desserts product line, which it sold on May 1, 1998, at this facility. The
Company's headquarters are leased by Dartford Partnership L.L.C. ("Dartford")
pursuant to a lease that expires February 2002. See "Certain Relationships and
Related Transactions". The frozen food division's corporate office lease will
expire in March 2001. The dry grocery division's corporate office lease will
expire in March 2004. The Company's facilities, equipment and offices are
subject to security interests granted to its lenders.
<TABLE>
<CAPTION>
Approximate
Location Principal Use Square Footage Owned/Leased
- - --------------------------- --------------------------------------- ------------------ --------------------
<S> <C> <C> <C>
Jackson, TN Frozen breakfast, frozen pizza and 302,000 Owned
grilled fish production
Erie, PA Frozen seafood production 116,000 Owned
Yuba City, CA Frozen seafood production 56,000 Owned
St. Louis, MO Frozen food division corporate office 36,000 Leased
Columbus, OH Dry grocery division corporate office 10,500 Leased
San Francisco, CA Company headquarters 7,000 Leased
</TABLE>
All of the Company's equipment is generally in good physical condition, well
maintained and suitable for the manufacture of the particular product line for
which it is used. The Company's equipment generally operates with some
available capacity.
ITEM 3: LEGAL PROCEEDINGS
- - -------------------------
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.
5
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PART II
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ITEM 5: MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- - -----------------------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange and the
Pacific Exchange under the symbol AOR. The table below states the high and low
closing prices by quarter on the New York Stock Exchange from the date of the
Company's IPO through December 31, 1998:
<TABLE>
<CAPTION>
1998 High Low
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<S> <C> <C>
June 26- June 30 $21.1250 $21.0000
July 1- September 30 $22.3750 $12.6250
October 1- December 31 $19.8750 $ 9.9375
</TABLE>
As of December 31, 1998, there were approximately 140 holders of record of the
Company's common stock. The Company has not paid any cash dividends since its
inception. Due to restrictions imposed by the New Senior Bank Facilities, the
Company cannot declare dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
ITEM 6: SELECTED FINANCIAL DATA
- - -------------------------------
The selected financial data presented below, as of December 31, 1998 and
December 27, 1997 and for the years ended December 31, 1998 and December 27,
1997, is derived from the Company's audited financial statements. The selected
financial data of the Predecessor for the years ended December 31, 1996, 1995,
and 1994 is derived from the audited Statements of Operations of the
Predecessor. The selected financial data should be read in conjunction with the
Company's financial statements and the Predecessor's Statement of Operations and
notes thereto, included in Item 14.
<TABLE>
<CAPTION>
Aurora Foods Inc. Predecessor
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Years Ended Years Ended
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December 31, December 27,
(dollars in thousands) 1998 1997 1996 1995 1994
-------------------- --------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 789,193 $143,020 $89,541 $91,302 $96,729
Gross profit 471,646 97,291 60,586 63,559 66,799
Operating income 44,762 23,398 17,186 17,185 14,100
Net (loss) income (45,377) 1,235 10,570 10,569 8,671
Total assets (1) 1,433,882 372,739 - - -
Total debt (1) 708,092 279,919 - - -
</TABLE>
(1) Total assets and total debt of the Predecessor for the years ended
December 31, 1996, 1995, and 1994 are not available. The Predecessor did
not operate MBW as a separate division or business entity and therefore
maintained debt and certain other components of assets and liabilities on
a consolidated basis. See Note 1 to the Notes to Statement of Operations
of Mrs. Butterworth's Business contained in Item 14.
6
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- - --------------------------------------------------------------------------------
OF OPERATIONS
- - -------------
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, fiscal years in this discussion
refer to the Company's December-ending fiscal years.
Certain statements contained in this report, including, without limitation,
statements containing the words "believes," "anticipates," "intends," "expects,"
"estimates" and words of similar import, constitute "forward-looking statements"
and involve known and unknown risk, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the actions of the Company's competitors; general
economic and business conditions; industry trends; demographics; raw material
costs and availability; the continued success of management's strategy;
integration of acquired businesses into the Company; terms and development of
capital; and changes in, or the failure or inability to comply with,
governmental rules and regulations, including, without limitation, FDA and
environmental rules and regulations. Given these uncertainties, undue reliance
should not be placed on such forward looking statements. The Company disclaims
an obligation to update any such factors or to publicly announce the results of
any revisions to any other forward-looking statements contained herein to
reflect future events or developments.
Results of Operations
- - ---------------------
The following tables set forth for the periods indicated the historical and pro
forma results of operations as well as the percentage, which the historical and
pro forma items in the Statements of Operations bear to net sales. The pro
forma results of operations are presented as if the VDK Holdings and DH
acquisitions had taken place January 1, 1998 and the VDK Holdings, DH and LC
acquisitions had taken place January 1, 1997 for the years ended December 31,
1998 and December 27, 1997, respectively. Certain amounts from prior years have
been reclassified to conform to the Company's current year presentation. The
Statement of Operations column for the year ended December 31, 1996 is that of
the Predecessor.
7
<PAGE>
Statements of Operations
- - ------------------------
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Actual Pro Forma
--------------------------------------------------------- ---------------------------------
Aurora Foods Inc. Predecessor Aurora Foods Inc.
-------------------------------------- ------------ ---------------------------------
Years Ended Years Ended
--------------------------------------------------------- ---------------------------------
December 31, December 27, December 31, December 31, December 27,
1998 1997 1996 1998 1997
------------------ ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 789,193 $ 143,020 $ 91,581 (1) $ 946,984 $ 874,230
Cost of goods sold 317,547 45,729 28,955 377,769 373,101
------------- ------------- -------------- --------------- --------------
Gross profit 471,646 97,291 62,626 569,215 501,129
------------- ------------- -------------- --------------- --------------
Brokerage, distribution and
marketing expenses:
Brokerage and
distribution 74,703 17,096 10,180 (1) 89,616 88,187
Trade promotions 173,467 26,075 17,672 217,859 172,487
Consumer marketing 56,683 15,142 10,835 70,163 65,718
------------- ------------- -------------- --------------- --------------
Total brokerage, distribution and
marketing expenses 304,853 58,313 38,687 377,638 326,392
Amortization of goodwill and
other intangibles 30,048 5,938 - 34,105 33,424
Selling, general and administrative
expenses 25,043 5,229 6,753 30,325 34,426
Incentive plan expense 56,583 2,300 - 121,323 2,300
Transition expenses 10,357 2,113 - 10,357 3,405
------------- ------------- -------------- --------------- --------------
Total operating expenses 426,884 73,893 45,440 573,748 399,947
------------- ------------- -------------- --------------- --------------
Operating income (loss) 44,762 23,398 17,186 (4,533) 101,182
Interest expense, net 64,487 18,242 - 58,474 58,233
Amortization of deferred financing
expense 1,872 3,059 - 1,491 1,491
Other bank and financing expenses 263 83 - 339 304
------------- ------------- -------------- --------------- --------------
(Loss) income before income
taxes and extraordinary item (21,860) 2,014 17,186 (64,837) 41,154
Income tax expense 14,306 779 6,616 22,312 16,256
------------- ------------- -------------- --------------- --------------
Net (loss) income before
extraordinary item (36,166) 1,235 10,570 (87,149) 24,898
Extraordinary loss on early
extinguishment of debt, net of
tax of $5,632 9,211 - - 9,211 -
------------- ------------- -------------- ---------------- --------------
Net (loss) income $ (45,377) $ 1,235 $ 10,570 $ (96,360) $ 24,898
============= ============= ============== ================ ==============
Earnings per share $ (0.85) $ 0.04 n/a $ (1.44) $ 0.37
============= ============= ============== ================ ==============
Adjusted EBITDA (2) $ 151,702 $ 34,809 $ 17,463 $ 173,473 $ 154,403
============= ============= ============== ================ ==============
Adjusted EPS (3) $ 0.51 $ 0.14 n/a $ 0.60 $ 0.42
============= ============= ============== ================ ==============
</TABLE>
(1) Cash discounts of the Predecessor for the year ended December 31,
1996 have been reclassified from net sales to brokerage and
distribution expenses to provide consistency with the Company's
presentation and accounting policy and to facilitate comparison
between periods.
(2) Adjusted EBITDA is defined as operating income before incentive plan
expense, transition expense, depreciation and amortization of
goodwill and other intangibles.
(3) Adjusted EPS is defined as EPS plus the per share after tax effect of
incentive plan expense, transition expense and extraordinary item.
8
<PAGE>
Statements of Operations
- - ------------------------
(as a percentage of net sales)
<TABLE>
<CAPTION>
Actual Pro Forma
------------------------------------------------- ---------------------------------
Aurora Foods Inc. Predecessor Aurora Foods Inc.
---------------------------- ------------- ---------------------------------
Years Ended Years Ended
------------------------------------------------- ---------------------------------
December 31, December 27, December 31, December 31, December 27,
1998 1997 1996 1998 1997
------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% (1) 100.0% 100.0%
Cost of goods sold 40.2 32.0 31.6 39.9 42.7
------------ ---------- ---------- ---------- -----------
Gross profit 59.8 68.0 68.4 60.1 57.3
------------ ---------- ---------- ---------- ------------
Brokerage, distribution and
marketing expenses:
Brokerage and distribution 9.5 12.0 11.1 (1) 9.5 10.1
Trade promotions 22.0 18.2 19.3 23.0 19.7
Consumer marketing 7.2 10.6 11.8 7.4 7.5
------------ ---------- ---------- ---------- ------------
Total brokerage, distribution and
marketing expenses 38.7 40.8 42.2 39.9 37.3
Amortization of goodwill and
other intangibles 3.8 4.1 0.0 3.6 3.8
Selling, general and administrative
expenses 3.2 3.6 7.4 3.2 3.9
Incentive plan expense 7.2 1.6 0.0 12.8 0.3
Transition expenses 1.3 1.5 0.0 1.1 0.4
------------ ---------- ---------- ---------- ------------
Total operating expenses 54.2 51.6 49.6 60.6 45.7
------------ ---------- ---------- ---------- ------------
Operating income (loss) 5.6 16.4 18.8 (0.5) 11.6
Interest expense, net 8.1 12.8 0.0 6.2 6.7
Amortization of deferred financing
expense 0.2 2.1 0.0 0.1 0.2
Other bank and financing expenses 0.0 0.1 0.0 0.0 0.0
------------ ---------- ---------- ---------- ------------
(Loss) income before income
taxes and extraordinary item (2.7) 1.4 18.8 (6.8) 4.7
Income tax expense 1.8 0.5 7.2 2.4 1.9
------------ ---------- ---------- ---------- ------------
Net (loss) income before
extraordinary item (4.5) 0.9 11.6 (9.2) 2.8
Extraordinary loss on early
extinguishment of debt, net of
tax of $5,632 1.2 0.0 0.0 1.0 0.0
------------ ---------- ---------- ---------- ------------
Net (loss) income (5.7%) 0.9% 11.6% (10.2%) 2.8%
============ ========== ========== ========== ============
</TABLE>
(1) Cash discounts of the Predecessor for the year ended December 31, 1996
have been reclassified from net sales to brokerage and distribution
expenses to provide consistency with the Company's presentation and
accounting policy and to facilitate comparison between periods.
9
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 27, 1997
Net Sales. Net sales for the year ended December 31, 1998 were $789.2 million,
which was an increase of $646.2 million as compared to net sales in 1997 of
$143.0 million. The 1997 year included results of the Mrs. Butterworth's(R)
brand from January 1, 1997 and the Log Cabin(R) brand from July 1, 1997, which
were the only businesses owned by the Company at the time. The year ended
December 31, 1998 included the results of the Mrs. Butterworth's(R) brand, the
Log Cabin(R) brand, the Duncan Hines(R) brand from January 16, 1998 and the VDK
business from April 9, 1998.
Pro Forma Net Sales. Pro forma net sales (which reflect all the acquisitions
noted previously as if they had occurred on January 1 for both 1998 and 1997)
for the year ended December 31, 1998 were $947.0 million, which represented an
8.3% increase over net sales in the comparable 1997 year of $874.2 million.
Sales growth in the year ended December 31, 1998 was due to unit volume growth
in both the frozen food and dry grocery divisions and higher prices for the
Company's Duncan Hines(R) baking mix products.
Unit volumes increased 5.0% to 51.4 million cases from 49.0 million cases in
the prior year. The frozen food division unit volumes increased 9.7% versus
last year, driven by a 6.2% increase in frozen breakfast products, a 2.9%
increase in Celeste(R) frozen pizza and a 63.5% increase in foodservice
volumes compared to a relatively low sales base in 1997. Unit volumes for
frozen seafood declined by 2.6% due to difficult comparisons with the prior
year, which featured a number of new product introductions, as well as slower
category growth relative to 1997. Unit volumes for the dry grocery division
increased by 1.6% versus the prior year. Unit volumes of the Company's syrup
brands increased by 0.9% and volumes of Duncan Hines(R) baking mix products
increased 1.9%. Unit volumes for Duncan Hines(R) were negatively impacted in
the first half of 1998 by a case load into retail channels initiated by P&G in
the latter part of 1997 prior to P&G's divestiture of the business.
The Company's net sales growth included a 3.3% increase related to pricing,
which was primarily attributable to the competitive price equalization program
initiated on the Duncan Hines(R) brand in March 1998 whereby the Company
increased the list price on cake and frosting products to parity with the
competition. The price equalization program generated approximately $40.5
million in net sales for the year ended December 31, 1998. A price increase
was also taken on syrup products in July 1998 in order to offset a cost
increase in corn syrup. In addition, product mix shifts in both the frozen
pizza and frozen seafood product lines have caused dollar sales for those
segments to increase at a higher rate than unit sales. The dollar sales
increase for the Celeste(R) business was 10.4% due to increased sales of
premium Mama Celeste(TM) Fresh-Baked Rising Crust frozen pizza products, which
sell at a higher list price per case than other Celeste(R) frozen pizza
products. Sales of premium frozen fish fillets for the Company's frozen
seafood brands (Van de Kamp's(R) and Mrs. Paul's(R)) resulted in greater
dollar sales, which mitigated the volume shortfall for the frozen seafood
business. Product mix shifts to higher priced items and higher prices on
baking mix and syrup products were partially offset by lower average prices on
the Company's foodservice volumes.
Gross Profit. Gross profit was 59.8% of net sales, which was lower than the
gross profit in 1997 of 68.0%. The decline was due to the inclusion of Duncan
Hines(R) baking mix products and the VDK business, both of which have lower
gross profit margins than syrup products. Also, the cost of corn syrup
increased over the 1997 year, which the Company has offset with a price increase
as previously described.
Pro Forma Gross Profit. On a pro forma basis, gross profit was 60.1% of net
sales as compared to the prior year gross profit margin of 57.3%. The
increase was due to the pricing action initiated on the Duncan Hines(R)
business, which elevated the gross margin on baking mix products, and cost
savings achieved from outsourcing the production of syrup and baking mix
products.
Brokerage, Distribution and Marketing Expenses. Brokerage, distribution and
marketing expenses for the 1998 year increased $246.5 million as compared to the
prior year due to the inclusion of the acquired businesses. As a percentage of
net sales, brokerage, distribution and marketing expenses were 38.7%, which was
2.1 percentage points lower than the prior year of 40.8%.
Pro Forma Brokerage, Distribution and Marketing Expenses. On a pro forma
basis, brokerage, distribution and marketing expenses increased to $377.6
million, or 39.9% of net sales, which was above the prior year of
10
<PAGE>
37.3%. Brokerage and distribution expenses increased $1.4 million over last
year and decreased as a percentage of net sales to 9.5% from 10.1% in the
prior year. The decrease as a percent of net sales was mainly the result of
lower average brokerage commissions. Marketing expenses increased $49.8
million and were 30.4% of net sales, which was 3.2 percentage points higher
than the prior year of 27.2%. The increase was primarily attributable to trade
and consumer marketing programs implemented on the Duncan Hines(R) business to
compensate for the higher list pricing strategy initiated on cake and frosting
products. The prior owners, P&G, followed an every-day-low-price ("EDLP")
strategy and, consequently, the prior year included comparatively little
marketing support. The balance of the increase was due to consumer promotions
and media support for the Log Cabin(R) brand where none existed in the prior
year and consumer promotions and slotting expenses related to the Company's
new pizza product, Mama Celeste(TM) Fresh-Baked Rising Crust, and new premium
grilled frozen seafood products.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased to $30.0 million from $5.9 million in 1997. The
increase of $24.1 million was due to the additional amortization expense
generated by the goodwill recorded in connection with the brands acquired by the
Company over the past year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses of $25.0 million were $19.8 million higher than the
prior year expense of $5.2 million. The increase was due to the inclusion of VDK
and the additional infrastructure and staffing required by the dry grocery
division to operate the Log Cabin(R) and Duncan Hines(R) businesses, which were
newly integrated in 1998. Selling, general and administrative expenses were 3.2%
of net sales, which was 0.4 percentage points lower than the 3.6% experienced in
the prior year. The decrease as a percentage of net sales reflects the
efficiency gained as the size of the Company has grown dramatically over the
prior year.
Incentive Plan Expense. For the year ended December 31, 1998, the Company
recorded non-cash incentive plan expense of $56.6 million in accordance with the
Aurora Plan contained in the MBW LLC Agreement (See Financial Statement Note 14
- - - Incentive Plan Expense).
Transition Expenses. Transition expenses were $10.3 million as compared to $2.1
million recorded in the prior year and represent one-time costs incurred to
establish the Company's operations and integrate the acquired businesses. The
increase was due to the acquisitions of the Log Cabin(R) and Duncan Hines(R)
brands.
Operating Income. Operating income was $44.8 million as compared to operating
income in the prior year of $23.4 million. Excluding the effects of the
incentive plan expense and transition expenses, the Company would have achieved
operating income of $111.7 million in 1998 versus operating income of $27.8
million in the prior year. The significant increase versus the prior year was
due to the inclusion of operating income generated by the acquired businesses.
Pro Forma Operating (Loss) Income. On a pro forma basis, the Company incurred
an operating loss of $4.5 million as compared to operating income in the prior
year of $101.2 million. Excluding the effects of the incentive plan expense
and transition expenses, the Company would have achieved operating income of
$127.1 million in 1998 versus the prior year operating income of $106.9
million. The increase in operating income was due to the improvement in gross
profit margins and a reduction in selling, general and administrative expenses
as a percentage of net sales, which were partially offset by higher marketing
expenses. Marketing expenses were increased to establish media programs where
none existed in the past, support the change to a high-low pricing strategy
for Duncan Hines(R) and support the introduction of new products in the frozen
food division.
Interest Expense and Amortization of Deferred Financing Expense. The aggregate
of net interest expense and amortization of deferred financing expense in 1998
of $66.4 million was higher than the prior year amount of $21.3 million. The
increase was due to the additional debt associated with the acquisitions over
the past year.
Income Tax Expense. The income tax expense recorded for the 1998 year was $14.3
million and the prior year income tax expense was $0.8 million. The effective
tax rate for the current year was different than the statutory rate primarily
due to the effect of the non-deductible incentive plan expense.
Net (Loss) Income. The Company incurred a net loss of $45.4 million as compared
to net income recorded for the prior year of $1.2 million. In addition to the
incentive plan expense recorded in the current year, the Company also
11
<PAGE>
incurred an extraordinary charge in the net of tax amount of $9.2 million as a
result of the write-off of deferred financing charges associated with the early
extinguishment of debt facilities.
Pro Forma Net (Loss) Income. On a pro forma basis, the Company incurred a pro
forma loss of $96.4 million. Excluding the effects of the incentive plan
expense and transition expenses, adjusted net income would have been $34.2
million and earnings per share would have been $0.60.
YEAR ENDED DECEMBER 27, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales for the period increased $51.4 million versus the prior
year to $143.0 million. The increase was due primarily to the acquisition of Log
Cabin(R), which added $50.4 million in net sales. Net dollar sales for Mrs.
Butterworth's(R) increased 1.0% to $92.6 million for the year ended December 27,
1997 from $91.6 million for the 1996 period, while case volume increased 5.4% to
4.14 million standard cases.
Syrup sales increased $52.1 million to $133.2 million in 1997 from $81.1 million
in 1996. The increase was due primarily to the Log Cabin(R) acquisition, which
added $50.4 million in sales during 1997. Mrs. Butterworth's(R) syrup dollar
sales increased $1.7 million, or 2.1%, to $82.8 million in 1997. Mrs.
Butterworth's(R) syrup case volume increased 7.6% to 3.52 million standard cases
in 1997 from 3.27 million standard cases in 1996. The percentage increase in
Mrs. Butterworth's(R) syrup case volume exceeded the percentage increase in
dollar sales because the Predecessor adopted a value pricing strategy in mid-
1996, which lowered the list cost on 90% of its retail syrup volume by 10%. The
increase in syrup volume was attributable to increases in the Company's Mrs.
Butterworth's(R) Original brand and foodservice and club products. The volume
increase was partially offset by a decrease in sales of Mrs. Butterworth's(R)
Country Best Recipe and Mrs. Butterworth's(R) Lite brands.
Pancake mix sales of $9.8 million in 1997 were down by $0.7 million as compared
to the 1996 period and pancake mix volume decreased 7.0% to 611,000 standard
cases. The overall pancake mix category was down approximately 4.0% in 1997 from
the prior year.
Gross Profit. Gross profit as a percentage of net sales was 68.0% for the 1997
period as compared to 68.4% for the 1996 period. The gross margin percentage in
the 1996 period was impacted by the value pricing strategy implemented in mid-
year 1996. The change to value pricing caused net revenues and gross profits to
be reduced in 1997 relative to the prior year, which only included a partial
year impact of value pricing.
Brokerage, Distribution, and Marketing Expenses. Brokerage, distribution, and
marketing expenses for 1997 were 40.8% of net sales as compared to 42.2% for
1996. The improvement was due to lower trade promotions in 1997 as a result of
the value pricing strategy as well as a reduction in high value in-ad coupons
compared to 1996.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles of $5.9 million was attributable to amortization of goodwill
associated with the acquisitions of Mrs. Butterworth's(R) on December 31, 1996
and Log Cabin(R) on July 1, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses of $5.2 million for 1997 were $1.6 million less than the
$6.8 million of expense incurred for 1996. The favorable variance was due to
lower overhead spending associated with the Company's stand-alone structure as
compared to amounts allocated to Mrs. Butterworth's(R) during the Predecessor's
ownership period.
Transition Expenses. Transition related costs consist of one-time costs
incurred to establish the Company's operations and integrate the acquired
businesses, including relocation expenses, recruiting fees, sales support and
other unique transitional expenses.
Operating Income. Operating income as a percentage of net sales was 16.4% for
1997 as compared to 18.8% for 1996. The decrease in the Company's operating
profit margin was primarily due to amortization of goodwill and other
intangibles (4.1%), incentive plan expense (1.6%) and transition expenses
(1.5%), which were not incurred under the Predecessor's ownership. Excluding the
impact of these expenses, the operating margin increased to 23.6% of net sales
because trade promotions, consumer marketing and selling, general and
administrative expenses were lower than the prior year as a percentage of net
sales. Overall, operating income increased $6.2 million, or 36.1%, to $23.4
million as compared to $17.2 million in 1996.
12
<PAGE>
Interest Expense and Amortization of Deferred Financing Expense. Net interest
expense and amortization of deferred financing expense was $21.3 million in
1997. These expenses were related to the financing of the acquired businesses.
The Predecessor did not separately allocate these respective costs to Mrs.
Butterworth's(R).
Income Tax Expense. The Company has a combined federal and state tax rate of
approximately 38.7% in 1997 as compared to the Predecessor's effective rate in
1996 of 38.5%.
Net Income. Net income was $1.2 million in 1997, which was $9.3 million lower
than the prior year. The decline in net income was attributable to the interest
expense, financing and goodwill expenses incurred during 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, cash provided by operations was $50.2
million. Net loss plus non-cash charges provided $76.1 million of operating cash
flow and an increase in net working capital used $25.9 million of cash during
the current year. As compared to December 27, 1997, current assets, excluding
cash and current deferred tax assets, increased $150.0 million and current
liabilities, excluding current maturities of senior secured debt, increased
$85.1 million. The increase in both current assets and current liabilities was
the result of three factors: (1) the inclusion of items of working capital
related to the Log Cabin(R) and Duncan Hines(R) businesses, which had previously
been recorded on the prior owners' books in accordance with the respective
transition services agreements, (2) the inclusion of all items of working
capital related to the VDK business acquired on April 8, 1998 and (3) increased
inventory levels of certain Duncan Hines(R) products produced by P&G in advance
of relocating certain production equipment to the Company's contract
manufacturers' production facilities, which have been financed mainly from the
Company's senior secured revolving debt facility. The increase in current
assets, primarily additional receivable balances and higher inventory levels,
was greater than the inclusion of current liability balances from the respective
acquisitions, which caused the use of cash for working capital needs to be $25.9
million. Inventory balances are expected to remain near current levels as the
Company continues to carry Duncan Hines(R) transitional inventories while
production equipment is decommissioned and relocated to the Company's contract
manufacturers' production facilities over the next six months.
Net cash used in investing activities was $478.7 million for the year ended
December 31, 1998. The acquisitions of Duncan Hines(R) and VDK Holdings used
cash of $454.3 million and $8.4 million, respectively. On May 1, 1998, VDK
completed the sale of its frozen desserts product line (the "Desserts Sale"),
which generated net proceeds of $28.0 million. During the year, the Company
spent $39.8 million on capital expenditures and received $10.0 million from P&G
as a contractual reimbursement, which offset capital costs incurred in
connection with the relocation of manufacturing equipment to the Company's
contract manufacturers' production facilities. Capital expenditures were
incurred to expand capacity for its frozen breakfast products, establish
internal production of its new rising crust frozen pizza product and relocate
and install acquired manufacturing equipment. The Company expects to spend
approximately $17.0 million on capital projects in 1999.
During the year ended December 31, 1998, financing activities provided cash of
$424.2 million. To finance the acquisition on January 16, 1998 of the Duncan
Hines(R) business and related expenses, the Company borrowed $450.0 million of
senior secured term debt under the Aurora Senior Bank Facilities and received a
$93.8 million capital contribution from Holdings (See Financial Statement Note
3 - Business Acquisitions). The Company repaid the senior secured term debt and
senior secured revolving debt facility that existed prior to the Aurora Senior
Bank Facilities in the amount of $77.5 million and incurred an extraordinary
charge for the write-off of deferred financing charges in connection with the
early extinguishment of debt in the net of tax amount of $1.9 million. The
Company used the net proceeds from the Desserts Sale to repay $25.0 million on
the VDK Senior Bank Facilities.
In conjunction with the consummation of the IPO on July 1, 1998 (See Financial
Statement Note 1 - The Company), the Company used net proceeds from the sale of
12,909,372 of common equity securities in the amount of $254.8 million and
proceeds from the Company's New Senior Bank Facilities and New Notes in the
amount of $324.0 million and $200.0 million, respectively, to repay $647.8
million of senior secured debt and $114.5 million of senior subordinated notes,
including the associated redemption premium, and pay associated fees and
expenses. As a result of the early extinguishment of senior secured debt, the
Company recorded an extraordinary charge of $7.3 million, net of income tax of
$4.4 million, for the write-off of deferred financing charges. The remaining
proceeds and repayments during the year ended December 31, 1998 were periodic
draws and repayments under the Company's senior secured revolving debt
facilities.
At December 31, 1998, the Company had $0.4 million of cash and cash equivalents
and an unused commitment of $89.2 million on its senior secured revolving debt
facility under the Company's New Senior Bank Facilities. The
13
<PAGE>
Company's primary sources of liquidity are cash flows from operations and
available borrowings under the $175.0 million revolving debt facility.
Management believes the available borrowing capacity under the revolving debt
facility combined with cash provided by operations will provide the Company with
sufficient cash to fund operations as well as to meet existing obligations.
Other Information
- - -----------------
Year 2000.
The dates on which the Company believes Year 2000 compliance will be completed
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, or that there will not be
a delay in, or increased costs associated with, the implementation of Year 2000
compliance. Specific factors that might cause differences between the estimates
and actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability to locate and correct all relevant
computer code, timely responses to and corrections by third-parties and
suppliers, the ability to implement interfaces between the new systems and the
systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-parties, the Company cannot
ensure its ability to resolve problems associated with the Year 2000 issue that
may affect its operations and business, or expose it to third-party liability in
a timely and cost-effective manner.
The Year 2000 issue, which is common to most corporations, concerns the
inability of information systems, including computer software programs as well
as non-information technology systems, to properly recognize and process date-
sensitive information related to the Year 2000 and beyond. The Company believes
that it will be able to achieve Year 2000 compliance by the end of 1999 and does
not currently anticipate any material disruption of its operations as a result
of any failure by the Company to be Year 2000 compliant. However, to the extent
the Company is unable to achieve Year 2000 compliance, the Company's business
and results of operations could be materially affected. This could be caused by
computer-related failures in a number of areas including, but not limited to,
the failure of the Company's financial systems or manufacturing and inventory
management systems.
Efforts to identify the risks associated with Year 2000 compliance began in 1997
by identifying the potential areas of exposure. The Company's information
technology was split into three areas of concern: internal mission-critical
systems and applications, internal non-mission-critical systems and applications
and external data sources and trading partners.
Compliance within internal mission-critical systems and applications is nearly
complete. Given the relatively recent incorporation of the Company, most systems
and applications have been purchased within the last year or two. All purchases
made were for systems that were Year 2000 compliant or for those that had
documented plans and dates for future compliance. Currently, the Warehouse
Management System in the frozen food division, which accesses a compliant
information database, is the only remaining mission-critical application not
compliant. The Company has elected to upgrade the functionality of its current
Warehouse Management System and, therefore, will be replacing the entire system.
The new system has been selected and is scheduled to have installation and
testing completed by June 1999. Internal non-mission-critical systems and
applications are currently being analyzed and are presently expected to be
compliant by the middle of 1999.
In addition to reviewing its internal systems, the Company has polled or is in
the process of polling its third-party vendors, customers and freight carriers
to determine whether they are Year 2000 compliant and to attempt to identify any
potential issues. If the Company's customers and vendors do not achieve Year
2000 compliance before the end of 1999, the Company may experience a variety of
problems, which may have a material adverse effect on the Company. Among other
things, to the extent the Company's customers are not Year 2000 compliant by the
end of 1999, such customers may lose electronic data interchange ("EDI")
capabilities at the beginning of the Year 2000. Where EDI communication would no
longer be available, the Company expects to utilize voice, facsimile and/or mail
communications in order to receive customer orders and process customer
billings. To the extent the Company's vendors or co-packers are not Year 2000
compliant by the end of 1999, such vendors or co-packers may fail to deliver
ordered materials and products to the Company and may fail to bill the Company
properly and promptly. Consequently, the Company may not have the correct
inventory to send to its customers and may experience a shortage or surplus of
inventory which could materially adversely affect the Company's business and
results of operations. The Company is in the process of developing a plan to
address potential problems with respect to its vendors; however, the Company
believes it has access to sufficient alternative sources of supply.
14
<PAGE>
To date, the Company has incurred and expensed approximately $0.1 million
related to the assessment and development of the remediation plan and the
purchase of new compliant hardware and software. Management anticipates spending
and expensing an additional $0.5 million through the end of 1999 to implement
its entire Year 2000 plan. The costs of the project and the date on which the
Company plans to complete the Year 2000 modifications are based on management's
best estimates, which were derived using numerous assumptions of future events
including the continued availability of certain resources, third-parties' Year
2000 readiness and other factors.
The Company is in the process of developing contingency plans so that the
Company's critical business processes can be expected to continue to function on
January 1, 2000 and beyond. The Company's contingency plans will be structured
to address both remediation of systems and their components and overall business
operating risk. These plans are intended to mitigate both internal risks as well
as potential risks in the supply chain of the Company's suppliers and customers.
Acquisitions.
Growth of the Company through acquisitions may require the Company to incur
additional indebtedness or issue equity securities. There can be no assurance
that additional debt or equity will be available to the Company or, if
available, on terms acceptable to the Company.
Impact of New Accounting Pronouncements.
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). FAS 133 requires that all derivatives be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Company's results of
operations or its financial position.
The Company currently does not use derivative financial instruments for trading
or speculative purposes. In accordance with the New Senior Bank Facilities, the
Company is required to enter into interest rate protection agreements to the
extent necessary to provide that, when combined with the Company's senior
subordinated notes, at least 50% of the Company's aggregate indebtedness is
subject to either a fixed interest rate or interest rate protection agreements.
Accordingly, the Company's interest rate agreements are as follows:
Interest Rate Collar Agreements.
At December 31, 1998, the Company was party to two interest rate collar
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 6.5% (plus the applicable margin) and a floor rate of 5.75% (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 rate of 7.5% (plus the applicable margin) and a floor rate of
5.5% (plus the applicable margin).
Interest Rate Swap Agreement.
The Company entered into an interest rate swap agreement on March 17, 1998. The
notional principal amount covered under the interest rate swap agreement is
$150.0 million and the term is three years. The effective swap rate was 5.81%.
On November 30, 1998, the Company amended the existing interest agreement
whereby the counterparty received the option to extend the termination date to
March 17, 2003. The new effective swap rate through the termination date of the
interest rate swap agreement is 5.37%.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- - ------------------------------------------------------------------
The Company entered into interest rate swap and collar agreements for non-
trading purposes. Risks associated with the interest rate swap and collar
agreements include those associated with changes in the market value and
interest
15
<PAGE>
rates. Management considers the potential loss in future earnings and cash flows
attributable to the interest rate swap and collar agreements not to be material.
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.
16
<PAGE>
PART III
- - --------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- - ---------------------------------------------------------
The names, ages and positions of all directors and executive officers of Aurora
Foods Inc., as of February 17, 1999, 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.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Ian R. Wilson 69 Chairman of the Board and Chief Executive Officer
James B. Ardrey 40 Vice Chairman and Director
Ray Chung 50 Executive Vice President
M. Laurie Cummings 35 Chief Financial Officer and Secretary
Thomas O. Ellinwood 44 President, Frozen Food Division
Thomas J. Ferraro 50 President, Dry Grocery Division
Anthony A. Bevilacqua 42 Executive Vice President, Sales and
Marketing, Frozen Food Division
C. Gary Willett 44 Executive Vice President, Dry Grocery
Division
Clive A. Apsey 49 Director
Charles Ayres 38 Director
David E. De Leeuw 53 Director
Charles J. Delaney 37 Director
Richard C. Dresdale 42 Director
Andrea Geisser 55 Director
Peter Lamm 46 Director
Tyler T. Zachem 32 Director
</TABLE>
IAN R. WILSON - CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Mr. Wilson has served as Chairman of the Board and Chief Executive Officer of
the Company since June 1998. Prior to that time, Mr. Wilson was Chairman of both
AurFoods from December 1996 to June 1998 and VDK from September 1995 to June
1998. Mr. Wilson is the Managing Partner of Dartford, a private partnership
focused on the food and beverage industries. From 1995 to 1998, Mr. Wilson was
the Chairman of Windy Hill Pet Food Company, Inc. ("Windy Hill"). From 1989
through 1995, Mr. Wilson was Chairman and Chief Executive Officer of Windmill
Holdings Corporation ("Windmill"), a leading specialty miller and supplier of
branded food products. From 1985 through 1989, Mr. Wilson was Chairman and Chief
Executive Officer of Wyndham Foods, Inc. ("Wyndham"), a major cookie company he
founded and positioned as a 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, Inc. (now known as Dole Food Company, Inc.), an
international food and real estate concern. Prior to Castle & Cooke, Inc., Mr.
Wilson spent 25 years with The Coca-Cola Company, serving 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 service as a director includes Chairman of the Board of Wyndham,
Windmill and Windy Hill and membership on the boards of Novell, Inc., Revlon,
Inc., Crown Zellerbach Corporation and Castle & Cooke, Inc.
JAMES B. ARDREY - VICE CHAIRMAN AND DIRECTOR
Mr. Ardrey has served as Vice Chairman and Director of the Company since June
1998. Prior to that time, Mr. Ardrey was Executive Vice President and Director
of VDK from September 1995 to June 1998 and Executive Vice President and
Director of AurFoods from December 1996 to June 1998. Mr. Ardrey is a partner of
Dartford. From 1996 to 1998, Mr. Ardrey was Executive Vice President of Windy
Hill. From 1993 to 1995, Mr. Ardrey was a consultant to Windmill, conducting its
divestiture program. From 1984 to 1992, Mr. Ardrey was an investment banker with
PaineWebber Incorporated, serving as Managing Director from 1990 to 1992. Prior
to joining PaineWebber, Mr. Ardrey was a consultant with Booz, Allen & Hamilton.
17
<PAGE>
RAY CHUNG - EXECUTIVE VICE PRESIDENT
Mr. Chung has served as Executive Vice President of the Company since June 1998.
Prior to that time, Mr. Chung was Executive Vice President of VDK and Director
of VDK Holdings, Inc. from September 1995 to June 1998 and Executive Vice
President and Director of AurFoods from December 1996 to June 1998. Mr. Chung is
a founding partner of Dartford. Mr. Chung has previously served as a Director
and Executive Vice President of Windy Hill from 1995 to 1998, 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. He
currently serves as a director of Doane Pet Care Enterprises, Inc.
M. LAURIE CUMMINGS - CHIEF FINANCIAL OFFICER AND SECRETARY
Ms. Cummings has served as Chief Financial Officer and Secretary of the Company
since June 1998. Prior to that time, Ms. Cummings was Vice President and
Secretary of VDK from September 1995 to June 1998 and Vice President and
Secretary of AurFoods from December 1996 to June 1998. Ms. Cummings is a partner
of Dartford. Ms. Cummings served as Vice President and Secretary of Windy Hill
from 1995 to 1998. 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.
THOMAS O. ELLINWOOD - PRESIDENT, FROZEN FOOD DIVISION
Mr. Ellinwood has been with VDK since 1995. Mr. Ellinwood has been responsible
for the management of VDK since Pet Incorporated ("Pet") acquired Van de Kamp's,
Inc. from Grand Metropolitan, PLC 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 VDK bought
the Van de Kamp's, Inc. business in 1995. Between 1990 and 1992, Mr. Ellinwood
held the position of Vice President, Marketing at Pet. Prior to Pet's
acquisition of Van de Kamp's, 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.
THOMAS J. FERRARO - PRESIDENT, DRY GROCERY DIVISION
Prior to joining AurFoods in December 1996, from September 1994 to June 1996,
Mr. Ferraro served as President of Campfire, Inc., which merged into
International Home Foods, Inc. Prior to joining Campfire, Inc. he was Vice
President of Sales for the Niche Grocery division of Borden, Inc. from 1991 to
1994. Mr. Ferraro's experience with niche grocery products extends back to his
early career with RJR Nabisco Inc. and Dracket products, a division of Bristol-
Meyers Squibb Company, where he held a variety of marketing and sales positions.
ANTHONY A. BEVILACQUA - EXECUTIVE VICE PRESIDENT, SALES AND MARKETING, FROZEN
FOOD DIVISION
Mr. Bevilacqua joined VDK in February 1998 and is responsible for the frozen
food division's sales and marketing functions. Prior to joining VDK, Mr.
Bevilacqua was Senior Vice President at Aramark's Spectrum Healthcare Services
from September 1994 to December 1997. Between 1980 and 1994, Mr. Bevilacqua held
various positions of increasing responsibility in sales and marketing with
Ralston Purina Company ("Ralston"). In 1992, he was promoted to Vice President
of Marketing at Ralston's Eveready Battery Canadian division.
C. GARY WILLETT - EXECUTIVE VICE PRESIDENT, DRY GROCERY DIVISION
Mr. Willett joined AurFoods in December 1996. From August 1995 to September
1996, he served as Executive Vice President/General Manager of Campfire, Inc.,
which merged into International Home Foods, Inc. Prior to joining Campfire,
Inc., Mr. Willett spent 12 years with Borden, Inc., from June 1983 to August
1995, in a series of marketing and general management positions, most recently
as Vice President/General Manager of Elmer's, a division of Borden, Inc.
18
<PAGE>
CLIVE A. APSEY - DIRECTOR
Mr. Apsey has served as a Director of the Company since June 1998. Prior to that
time, Mr. Apsey was a Director of VDK from September 1995 to June 1998. Mr.
Apsey was an Executive Director of Tiger Oats Ltd. ("Tiger Oats") from 1987 to
1998 and currently serves as a non-Executive Director and consultant to the
group.
CHARLES AYRES - DIRECTOR
Mr. Ayres has served as a Director of the Company since June 1998. Prior to that
time, Mr. Ayres was a Director of AurFoods from December 1996 to June 1998. Mr.
Ayres is a managing director of McCown De Leeuw & Co., Inc. ("MDC"). Mr. Ayres
has been associated with MDC since 1991. Prior to joining MDC, Mr. Ayres was a
founding partner of HMA Investments, Inc., a private investment firm focused on
middle market management buyouts. Mr. Ayres began his career as an investment
banker with Lazard Freres & Co. He currently serves as a director of The Brown
Schools, Inc.
David E. De Leeuw - Director
Mr. De Leeuw has served as a Director of the Company since June 1998. Prior to
that time, Mr. De Leeuw was a Director of AurFoods from December 1996 to June
1998. Mr. De Leeuw is a managing director of MDC. Prior to founding MDC with
George E. McCown in 1984, Mr. De Leeuw was Manager of the Leveraged Acquisition
Unit and Vice President in the Capital Markets Group at Citibank, N.A. Mr. De
Leeuw also worked with W.R. Grace & Co. where he was Assistant Treasurer and
Manager of Corporate Finance. Mr. De Leeuw began his career as an investment
banker with Paine Webber Incorporated. He currently serves as a director of
Outsourcing Solutions Inc., American Residential Investment Trust and DIMAC
Holdings, Inc.
CHARLES J. DELANEY - DIRECTOR
Mr. Delaney has served as a Director of the Company since June 1998. Prior to
that time, Mr. Delaney was a Director of VDK from September 1995 to June 1998.
Mr. Delaney has been the President of UBS Capital LLC ("UBS") since it was
established in 1993 as a subsidiary of Union Bank of Switzerland (now UBS AG).
From 1989 to 1993, Mr. Delaney headed the UBS Leverage Finance Group of the
Corporate Banking Division. Mr. Delaney is also a director of ETM Entertainment
Network, Inc. and Peoples Telephone Company, Inc.
RICHARD C. DRESDALE - DIRECTOR
Mr. Dresdale has served as a Director of the Company since June 1998. Prior to
that time, Mr. Dresdale was a Director of AurFoods from December 1996 to June
1998. Mr. Dresdale is President of Fenway Partners, Inc. ("Fenway") and was a
founding partner. Fenway is a New York-based private equity firm for
institutional investors with the primary objective of acquiring leading middle-
market companies. Prior to founding Fenway with Messrs. Lamm and Geisser, Mr.
Dresdale was employed by Clayton, Dubilier and Rice, Inc. from June 1985 to
March 1994, most recently as a Principal. Mr. Dresdale serves as a director of a
number of Fenway's portfolio companies, including Blue Capital Management, LLC,
Central Tractor Farm & Country, Inc., Delimex Holdings, Inc. and Simmons
Company.
ANDREA GEISSER - DIRECTOR
Mr. Geisser has served as a Director of the Company since June 1998. Prior to
that time, Mr. Geisser was a Director of VDK from September 1995 to June 1998
and a Director of AurFoods from December 1996 to June 1998. Mr. Geisser has been
a Managing Director of Fenway since the firm's founding in 1994. Prior to
founding Fenway with Messrs. Lamm and Dresdale, Mr. Geisser was employed by
Butler Capital Corporation ("BCC") from February 1989 to June 1994, most
recently as Managing Director and General Partner of each of the management
partnerships of the investment partnerships sponsored by BCC. From 1986 to 1989,
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 EXOR, a European investment company, where he was a Senior Vice President and
Director. Mr. Geisser serves as a director of a number of Fenway's portfolio
companies, including Decorative Concepts, Inc., New Creative Enterprises, Inc.,
Iron Age Corporation, Simmons Company and Valley Recreation Products, Inc.
19
<PAGE>
PETER LAMM - DIRECTOR
Mr. Lamm has served as a Director of the Company since June 1998. Prior to that
time, Mr. Lamm was a Director of VDK from September 1995 to June 1998 and a
director of AurFoods from December 1996 to June 1998. Mr. Lamm is Chairman and
Chief Executive Officer of Fenway and was a founding partner. Prior to founding
Fenway with Messrs. Dresdale and Geisser, Mr. Lamm was employed by Butler
Capital Corporation from February 1982 to April 1994, most recently as Managing
Director and General Partner of each of the management partnerships of the
investment partnerships sponsored by BCC. Mr. Lamm serves as a director of a
number of Fenway's portfolio companies, including Blue Capital Management, LLC,
Central Tractor Farm & Country, Inc., Delimex Holdings, Inc., Iron Age
Corporation and Simmons Company.
TYLER T. ZACHEM - DIRECTOR
Mr. Zachem has served as a Director of the Company since June 1998. Prior to
that time, Mr. Zachem was a Director of AurFoods from December 1996 to June
1998. Mr. Zachem is a managing director of MDC. Mr. Zachem has been associated
with MDC since July 1993. Mr. Zachem previously worked as a consultant with
McKinsey & Co. and as an investment banker with McDonald & Company. He currently
serves as a director of Outsourcing Solutions Inc., RSP Manufacturing
Corporation, The Brown Schools, Inc. and Papa Gino's, Inc.
There are no family relationships between any directors or executive officers of
the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Each of the entities and individuals who are signatories to the Securityholders
Agreement (defined below) filed a Form 3 in either July or August 1998 instead
of on the due date of June 25, 1998 and filed a Form 4 several days after the
due date August 10, 1998.
ITEM 11: EXECUTIVE COMPENSATION
- - --------------------------------
The following Summary Compensation Table sets forth the compensation received by
the officers of the Company (together, the "Named Executive Officers"), during
the years ended December 31, 1998 and December 27, 1997.
Summary Compensation Table
- - --------------------------
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------- ------------
Securities
Name and Principal Position Underlying All Other
as of December 31, 1998 Year Salary (1) Bonus (1) Options Compensation
- - ---------------------------------- ------ ------------ ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Ian R. Wilson 1998 $ 1,000,000 $ 450,000 - $ -
Chairman of the Board and
Chief Executive Officer
James B. Ardrey 1998 600,000 270,000 - -
Vice Chairman
Ray Chung 1998 350,000 157,500 - -
Executive Vice President
M. Laurie Cummings 1998 250,000 112,500 - -
Chief Financial Officer and
Secretary
Thomas O. Ellinwood 1998 275,000 123,750 175,000 8,895
President, Frozen Food Division
Thomas J. Ferraro 1998 275,000 165,000 175,000 9,000
President, Dry Grocery Division 1997 175,000 143,000 - 9,000
</TABLE>
(1) Amounts have been annualized.
20
<PAGE>
Other compensation includes Company contributions on behalf of the officers to
profit sharing and savings plans and other related benefits.
The following table sets forth information with respect to stock option grants
to the Named Executive Officers during 1998. The options were granted at an
exercise price equal to 100% of the fair market value of the common stock on the
date of grant. The options vest ratably over three years beginning in the third
year after the date of grant and expire ten years after the date of grant.
Option Grants in the Last Fiscal Year
- - -------------------------------------
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options Granted to
Options Employees in Exercise Expiration Grant Date Present
Name Granted (1) Fiscal Year Price Date Value (2)
- - ------------------------- ----------------- ------------------ ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Ian R. Wilson - - $ - - $ -
James B. Ardrey - - - - -
Ray Chung - - - - -
M. Laurie Cummings - - - - -
Thomas O. Ellinwood 175,000 8.6% 21.00 7/1/08 5.96
Thomas J. Ferraro 175,000 8.6% 21.00 7/1/08 5.96
</TABLE>
(1) Options were granted pursuant to the Company's 1998 Incentive Plan dated
July 1, 1998 and vest ratably over three years beginning with the third
year after the date of grant.
(2) Present value was calculated using the Black-Scholes single option
pricing model with the following weighted-average assumptions: dividend
yield of 0%, expected volatility of 0.20, a risk-free interest rate of
4.8% and expected option lives of five years.
The following table sets forth information with respect to each exercise of
stock options during the 1998 fiscal year by a Named Executive Officer and the
number and value of unexercised stock options held by the Named Executive
Officers at December 31, 1998.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
- - --------------------------------------------------------------------------
Values
- - ------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options at Fiscal Year
Options at Fiscal Year End End (2)
-------------------------------- --------------------------------
Shares
Acquired on Value
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- - ------------------------ ------------- --------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ian R. Wilson - $ - - - $ - $ -
James B. Ardrey - - - - - -
Ray Chung - - - - - -
M. Laurie Cummings - - - - - -
Thomas O. Ellinwood - - - 175,000 - -
Thomas J. Ferraro - - - 175,000 - -
</TABLE>
(1) The Value Realized is equal to the fair market value on the date of
exercise, less the exercise price, times the number of shares acquired. No
options were exercised during the last fiscal year.
(2) The Value of Unexercised In-the-Money Options at Fiscal Year End is equal
to $19.8125, the fair market value of each share underlying the options at
December 31, 1998, less the exercise price, times the number of options.
No options were in-the-money at December 31, 1998.
21
<PAGE>
Compensation Committee Interlocks and Insider Participation
- - -----------------------------------------------------------
The Board of Directors has appointed Messrs. Lamm, Ayres and Dresdale as members
of its Compensation Committee. Mr. Wilson, the Chairman of the Board and Chief
Executive Officer of the Company, is an ex officio member of the Compensation
Committee. The Compensation Committee governs the compensation of the executive
officers of the Company subject to ratification by the Board of Directors.
Messrs. Apsey and Delaney are the members of the Compensation Subcommittee. The
Compensation Subcommittee administers the Company's 1998 Incentive Plan and the
1998 Employee Stock Purchase Plan.
Mr. Wilson is the managing partner of Dartford and, until August 1998, was the
Chairman of the Board of Directors and Chief Executive Officer of Windy Hill.
Mr. Ardrey, Vice Chairman of the Company, is also a partner of Dartford and,
until August 1998, was an Executive Vice President of Windy Hill. Pursuant to
an agreement, dated September 19, 1995 and terminated on June 26, 1998, Dartford
provided management oversight on financial and operational matters to the
Company with respect to VDK. Dartford received $900,000, $1,800,000 and $631,000
during 1998, 1997 and 1996, respectively, under such agreement. Further,
pursuant to an agreement with the Company, dated December 31, 1996 and
terminated on July 1, 1998, Dartford provided management oversight to the
Company with respect to AurFoods. Dartford received $951,419 and $768,000 for
1998 and 1997, respectively, under such agreement. Also, Dartford earned
$1,500,000 in fees in connection with the Contribution.
From December 31, 1996 through January 16, 1998, the Company paid Dartford
$1,250,000 in fees for services rendered in connection with the acquisitions of
MBW, LC and DH. Also, from September 1995 through July 9, 1996, VDK paid
Dartford $1,950,000 in fees for services rendered in connection with
acquisitions and related financings by VDK.
The Company has entered into agreements pursuant to which it agreed to pay
transaction fees to each of Dartford, MDC, and Fenway of 0.333% of the
acquisition price for future acquisitions by the Company.
The Company has agreed to pay Dartford $800,000 per year as reimbursement of
corporate headquarters expenses which include staff salaries, miscellaneous
office expenses related to the administration of the Company's corporate
headquarters, and rent for the space leased by Dartford and used by the Company
as its corporate headquarters for a term ending the earlier of July 1, 2000 or
the date that Mr. Wilson is no longer Chairman or Chief Executive Officer of the
Company.
Messrs. Ayres, De Leeuw and Zachem are general partners of MDC. Pursuant to an
agreement, dated December 31, 1996 and terminated on July 1, 1998, MDC
Management Company III, L.P. ("MDC III"), an affiliate of MDC, a beneficial
owner of the Company, advised the Company as to the structuring of the Company's
bank financing and the capital structure of the Company, identification and
financing of future acquisitions, and general management advice relating to the
overall strategy and positioning of the Company. MDC III received $318,000 and
$293,000 during 1998 and 1997, respectively, under such agreement. From
December 31, 1996 through January 16, 1998 the Company paid MDC III $5,700,000
in fees for services rendered in connection with the acquisitions of MBW, LC and
DH. Also, MDC III earned $1,500,000 in fees in connection with the
Contribution.
Messrs. Dresdale, Geisser and Lamm are partners of Fenway. From December 31,
1996 through January 16, 1998, the Company paid Fenway $1,500,000 in fees for
services rendered in connection with the acquisitions of the MBW, LC and DH.
Also, from September 1995 through July 9, 1996, VDK paid Fenway $1,474,000 in
fees for services rendered in connection with acquisitions and related
financings by VDK. Fenway earned $1,500,000 in fees in connection with the
Contribution.
Employment Agreements
- - ---------------------
Mr. Ian R. Wilson serves as the Chairman of the Board and the Chief Executive
Officer of the Company pursuant to an employment agreement dated July 1, 1998.
Under the agreement, Mr. Wilson receives an annual base salary of $1.0 million
during the term of the agreement and is eligible to receive a bonus of up to 80%
of his base salary based on certain earnings criteria. The employment agreement
provides for a term of two years and a non-compete covenant for the term of his
employment and thereafter, if applicable, until the earlier of July 1, 2000 or
the first anniversary of employing a Chief Executive Officer other than Mr.
Wilson. Upon termination by the Company other than for cause (as defined in the
employment agreement), Mr. Wilson shall receive his salary and shall be eligible
to receive his bonus through the remaining term of the non-compete period. In
addition, a termination of Mr. Wilson by the Company other than for cause shall
also constitute a termination of Messrs. Ardrey and Chung and Ms. Cummings other
than for cause under the employment agreements described below.
22
<PAGE>
Mr. James B. Ardrey serves as the Vice Chairman of the Company pursuant to an
employment agreement dated July 1, 1998. Under the agreement, Mr. Ardrey
receives an annual base salary of $600,000 during the term of the agreement and
is eligible to receive a bonus of up to 80% of his base salary based on certain
earnings criteria. The employment agreement provides for a term of two years
and a non-compete covenant for the term of his employment and thereafter, if
applicable, until the earlier of July 1, 2000 or the first anniversary of
employing a Chief Executive Officer other than Mr. Wilson. Upon termination by
the Company of Mr. Ardrey or Mr. Wilson other than for cause, Mr. Ardrey shall
receive his salary and shall be eligible to receive his bonus through the
remaining term of the non-compete period.
Mr. Ray Chung serves as the Executive Vice President of the Company pursuant to
an employment agreement dated July 1, 1998. Under the agreement, Mr. Chung
receives an annual base salary of $350,000 during the term of the agreement and
is eligible to receive a bonus of up to 80% of his base salary based on certain
earnings criteria. The employment agreement provides for a term of two years
and a non-compete covenant for the term of his employment and thereafter, if
applicable, until the earlier of July 1, 2000 or the first anniversary of
employing a Chief Executive Officer other than Mr. Wilson. Upon termination by
the Company of Mr. Chung or Mr. Wilson other than for cause, Mr. Chung shall
receive his salary and shall be eligible to receive his bonus through the
remaining term of the non-compete period.
Ms. M. Laurie Cummings serves as the Chief Financial Officer and Secretary of
the Company pursuant to an employment agreement dated July 1, 1998. Under the
agreement, Ms. Cummings receives an annual base salary of $250,000 during the
term of the agreement and is eligible to receive a bonus of up to 80% of her
base salary based on certain earnings criteria. The employment agreement
provides for a term of two years and a non-compete covenant for the term of her
employment and thereafter, if applicable, until the earlier of July 1, 2000 or
the first anniversary of employing a Chief Executive Officer other than Mr.
Wilson. Upon termination by the Company of Ms. Cummings or Mr. Wilson other
than for cause, Ms. Cummings shall receive her salary and shall be eligible to
receive her bonus through the remaining term of the non-compete period.
Mr. Thomas J. Ferraro serves as the President of the Dry Grocery Division
pursuant to an employment agreement, dated as of December 31, 1996, as amended
(the "Ferraro Employment Agreement"). He receives an annual base salary of
$290,000 (subject to annual adjustment) during the term of the agreement and is
eligible to receive a bonus of up to 80% of his base salary based upon certain
earnings criteria. The Ferraro Employment Agreement provides for a two-year
term ending December 31, 2000; however, on each December 31st, the term
automatically extends for one additional year so that the term ends three years
after such December 31st unless notice by either the Company or Mr. Ferraro to
terminate is given 30 days prior to the automatic extension. If the Company
terminates Mr. Ferraro's employment without cause, the Ferraro Employment
Agreement requires the Company to pay him an amount equal to the base salary he
would have been entitled to receive through the end of the current term of his
employment agreement. Mr. Ferraro is also entitled to receive any bonus for the
preceding fiscal year which has not been paid as of the date of his termination
plus a pro rata portion of any base and supplemental bonus with respect to such
fiscal year based upon the actual number of days the Company employed Mr.
Ferraro during such fiscal year. Mr. Ferraro may not compete with or solicit
employees from the Company until the later of the first anniversary of his
termination and the end of the current term of his employment agreement.
Mr. Thomas O. Ellinwood serves as the President of the Frozen Food Division
pursuant to an employment agreement, dated as of March 1, 1997 as amended (the
"Ellinwood Employment Agreement"). The Ellinwood Employment Agreement provides
for a three-year term; however, on each September 30th, the term automatically
extends for one additional year so that the term ends three years after such
September 30th unless notice by either the Company or Mr. Ellinwood to terminate
is given 30 days prior to the automatic extension. Mr. Ellinwood receives an
annual base salary of $290,000 (subject to annual adjustment) during the term of
the agreement and is eligible to receive a bonus of up to 80% of his base salary
based upon certain earnings criteria. If the Company terminates Mr. Ellinwood's
employment without cause before a change of control (as defined in the
agreement), the Company is required to pay him the greater of (i) 200% of his
base salary then in effect or (ii) the base salary he would have been entitled
to receive through the end of the current term of the employment agreement plus
his base bonus pro rated according to the actual number of days the Company
employed him for such fiscal year. If the Company terminates Mr. Ellinwood's
employment without cause after a change of control (as defined in the agreement)
or Mr. Ellinwood terminates his employment with the Company for "Good Reason"
(as defined in the agreement) after a change of control, the Company must pay
him the sum of 200% of his base salary then in effect plus his bonus pro rated
according to the actual number of days the Company employed him for such fiscal
year. The pro rated portion of his bonus is payable as if the Company's
financial results equal exactly 100% of the EBITDA target for that year. Mr.
Ellinwood's employment agreement also provides that for one year following his
23
<PAGE>
termination of employment with the Company (other than a termination by the
Company without cause), Mr. Ellinwood may not compete with or solicit employees
from the Company.
Directors' Compensation
- - -----------------------
Directors who are officers, employees, or otherwise affiliates of the Company do
not receive compensation for their services as directors. Non-employee
directors receive an annual retainer of $20,000, plus $2,000 for attending each
committee meeting of the Board of Directors and $5,000 per annum for serving as
a Chairman of any committee of the Board of 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.
Aurora Incentive Plan
- - ---------------------
The Amended and Restated Limited Liability Company Agreement of MBW LLC contains
an incentive plan (the "Aurora Plan") as a means by which certain key employees
and other specifically designated persons ("Aurora Covered Employees") of
AurFoods and/or affiliated with Aurora, were given an opportunity to benefit
from appreciation in the value of AurFoods. Under the Aurora Plan, Aurora
Covered Employees were issued a specific class of limited liability company
member units ("Management Units"), at a nominal value, as a means to participate
in the appreciation of the equity value of AurFoods. The Management Units were
subject to vesting requirements based on terms of employment or other factors.
Prior to the closing of the Equity Offerings, the final value of all classes of
Management Units were determined based on the valuation of the Common Stock held
indirectly by MBW LLC, and upon the closing of the Equity Offerings all unvested
Management Units became fully vested. The aggregate value of all Management
Units was $58.9 million. Through December 27, 1997, the Company had recorded
estimated incentive plan expense of $2.3 million based on the estimated
valuation of the Company at that time. Additional incentive plan expense of
$56.6 million was recorded in the first and second quarters of 1998.
The incentive plan expense was recorded as a liability of MBW LLC as sponsor of
the Aurora Plan. However, because the Aurora Plan was for the benefit of Aurora
Covered Employees, expense recognized under the Aurora Plan has been pushed down
to the Company as incentive plan expense and as additional paid-in capital from
its parent. No additional incentive plan expense will be recorded under the
Aurora Plan.
MBW LLC satisfied its liability under the Aurora Plan by distributing 4,152,417
shares of Common Stock of the Company based on the valuation of the Management
Units at the initial public offering price of the Company's Common Stock on the
dissolution of MBW LLC.
Pursuant to the Aurora Plan, Dartford, Thomas J. Ferraro and C. Gary Willett
received 2,699,071, 427,454, and 267,158 shares of Common Stock, respectively,
on the closing of the Equity Offerings in respect of the Aurora Plan. In
addition, 56 other employees received an aggregate of 758,734 shares pursuant to
the Aurora Plan.
VDK Incentive Plan
- - ------------------
VDK LLC provided a compensation arrangement (the "VDK Plan") as a means by which
certain key employees, and other specifically designated persons ("VDK Covered
Employees") of VDK and/or affiliated with VDK, were given an opportunity to
benefit from appreciation in the equity value of VDK. Under the VDK Plan, VDK
Covered Employees were issued a specific class of limited liability company
member units and/or performance-based units (collectively, "VDK Management
Units"), at a nominal value, as a means to participate in the appreciation of
the equity value of VDK. The VDK Management Units were subject to vesting
requirement based on terms of employment or other factors.
Prior to the closing of the Equity Offerings, the final value of all classes of
VDK Management Units were determined based on the valuation of the shares of the
Company held indirectly by VDK LLC, and upon the closing of the Equity Offerings
all unvested VDK Management Units became fully vested. The aggregate value of
all VDK Management Units was $66.7 million. Through December 31, 1997, no
incentive plan expense had been recorded by VDK based on the estimated valuation
of VDK at that time. Incentive plan expense of $66.7 million was recorded in
the first and second quarters of 1998. The incentive plan expense was recorded
as a liability of VDK LLC as sponsor of the VDK Plan. However, because the VDK
Plan was for the benefit of VDK Covered Employees, expense recognized under the
VDK Plan was pushed down to VDK as incentive plan expense and as
24
<PAGE>
additional paid-in capital from its parent. All expense recognized was recorded
on VDK's books prior to its acquisition by the Company; no expense has been
recorded on the Company's books. No additional incentive plan expense will be
recorded under the VDK Plan.
VDK LLC (or the Company as described below) will distribute a fixed number of
shares of Common Stock of the Company upon the dissolution of VDK LLC, based on
the valuation of the VDK Management Units at the initial public offering price
of the Company's Common Stock.
The VDK Plan provides for tax gross-up payments on certain distributions.
Because the Company will receive the tax benefit of such distributions and
related tax gross-up payments, and because the tax benefit is expected to exceed
the amount of the tax gross-up payments, the Company will bear the liability for
any such tax gross-up payments due. The estimated tax gross-up payment is $12.4
million and has been recorded as additional incentive plan expense and other
liabilities. The tax benefit of the tax gross-up payment and related
distributions of $19.6 million, which more than offsets the gross-up payments,
has been recorded to income tax expense and as a deferred tax asset.
To facilitate payment of the tax gross-up obligation and recognition of related
tax benefits, VDK adopted a new incentive plan (the "New VDK Plan" and together
with the VDK Plan, the "VDK Plans"), which was assumed by the Company in
connection with the Contribution. Under the New VDK Plan, the Company is
obligated to distribute no later than July 1, 1999 1,801,769 shares of the
Company's Common Stock to VDK Covered Employees who were granted certain types
of VDK Management Units under the VDK Plan. The issuance of such shares (the
"MC Shares") will not increase the number of outstanding shares of Common Stock
because the Company's obligations to issue the MC Shares is contingent upon the
Company's receiving from VDK LLC, as a contribution, a number of shares of the
Company's Common Stock owned by VDK LLC equal to the number of MC Shares. The
Company will have no obligation to issue MC Shares unless it receives a
contribution of an equal number of shares from VDK LLC. VDK LLC is obligated to
contribute such shares to the Company after the closing of the Equity Offerings.
The Company's obligation to make the tax gross up payments referred to above is
subject to the Company being allowed a deduction for federal income tax purposes
with respect to the payment of the MC Shares and tax gross up payment.
Pursuant to the VDK Plan, Dartford, Thomas O. Ellinwood, and Anthony A.
Bevilacqua are entitled to receive 2,255,334, 244,072, and 91,756 shares of
Common Stock, respectively, under the VDK Plans no later than July 1, 1999. In
addition, 27 employees and other persons are entitled to receive an aggregate of
979,067 shares pursuant to the VDK Plans no later than July 1, 1999.
Compensation Committee Report on Executive Compensation
- - -------------------------------------------------------
The Compensation Committee of the Board of Directors consists exclusively of
non-employee directors and is responsible for setting and administering the
policies that govern the compensation of executive officers of the Company. The
Compensation Committee also administers the Company's 1998 Incentive Plan and
the 1998 Employee Stock Purchase Plan.
Compensation Philosophy
The Company's compensation program for its executive officers is based on the
following objectives:
. Total compensation of the executive officers should be linked to the
financial performance of the Company.
. The compensation paid to the executive officers of the Company should
compare favorably with executive compensation levels of other similarly-
sized companies so that the Company can continue to attract and retain
outstanding executives.
. The compensation program should reward outstanding individual performance
and contributions as well as experience.
25
<PAGE>
Compensation Methodology
The Company's executive compensation program has three components: base salary,
annual bonus and stock options.
The Compensation Committee reviews executive compensation in light of the
Company's performance during the fiscal year and compensation data at companies
that are considered comparable. In reviewing the Company's performance during
1998, the Compensation Committee considered a variety of factors: Pro forma net
sales increased 8.3% to $947.0 million in 1998 from $874.2 million in 1997; pro
forma operating income increased 12.7% to $116.8 million in 1998 from $103.5
million in 1997 excluding non-cash incentive plan expense; and adjusted pro
forma EBITDA increased 12.4% to $173.5 million in 1998 from $154.4 million in
1997. During 1998, the Company also consummated the purchase of the Duncan
Hines(R) brand in January, the merger with VDK in April and the initial public
offering of its common stock in July. The Compensation Committee considered
these strong operating results as a whole without assigning specific weights to
particular factors. The Company, however, sets aggressive standards in
determining executive compensation and, as such, annual bonuses earned were
generally not the maximum allowable under the respective employment agreements.
Base Salary
The annual base salary is designed to compensate executives for their sustained
performance and level of responsibility. The Compensation Committee approves
all salary increases for executive officers, which is then subject to
ratification by the Board of Directors. The salaries of all executive officers
are established by employment agreements as previously discussed.
Annual Bonus
The annual bonus is given to promote the achievement of the Company's
performance objectives. The specific performance objectives for each executive
officer and the payments made relative thereto are governed by earnings criteria
as established in the employment agreements. Such criteria are primarily
measured by Company and/or divisional operating earnings and working capital
targets established in the annual operating budget process. The annual bonus
also takes into consideration any major acquisitions and the executive's
performance in integrating such acquisition into the Company's operations.
Stock Options
Stock options are designed to provide long-term incentives and rewards tied to
the price of the Company's Common Stock. The Compensation Committee believes
that stock options, which provide value to participants only when the Company's
shareholders benefit from stock price appreciation, are an important component
of the Company's executive compensation program. The Compensation Committee has
not established any target level of ownership of the Company's Common Stock by
the Company's executives. Retention of shares of the Company's Common Stock,
however, is encouraged. Stock options are awarded under the Company's 1998
Incentive Plan. Stock options granted to executive officers have exercise
prices equal to the market price of the Company's Common Stock on the date of
grant, vest over five years and have terms of ten years. The Compensation
Subcommittee approves all stock option grants, which is then subject to
ratification by the Board of Directors.
Concurrent with the Company's initial public offering, Messrs. Ellinwood and
Ferraro were each granted options to purchase 175,000 shares of the Company's
Common Stock. The grants were made to give Messrs. Ellinwood and Ferraro
incentives tied to the long-term price of the Company's Common Stock. Messrs.
Wilson, Ardrey and Chung and Ms. Cummings were not granted any stock options
under the 1998 Incentive Plan due to their pre-existing ownership of the
Company's Common Stock through Dartford (See "Security Ownership of Certain
Beneficial Owners and Management").
Compensation of the Chief Executive Officer
Mr. Wilson became Chairman of the Board and Chief Executive Officer of the
Company in June 1998. Mr. Wilson and the Company entered into an employment
agreement dated July 1, 1998 as described in "Executive Compensation -
Employment Agreements".
26
<PAGE>
The Compensation Committee and the Board of Directors approved a total
compensation package that was designed to be competitive with compensation
provided to chief executive officers at companies of comparable size to the
Company as well as provide a compensation level and structure necessary to
obtain an executive with Mr. Wilson's experience and credentials.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986 ("Section 162(m)"), as
amended, limits the federal income tax deductibility of compensation paid to the
executive officers named in the Summary Compensation Table on page 20. The
Company generally may deduct compensation to such an officer only if the
compensation does not exceed $1,000,000 during any fiscal year or is
"performance-based" as defined in Section 162(m). The Compensation Committee
intends to design the Company's compensation programs so that total compensation
paid to any employee will not exceed $1,000,000 in any one year, except for
compensation payments in excess of $1,000,000 which qualify as "performance-
based." However, the Company may pay compensation that is not deductible in
limited circumstances when prudent management of the Company so requires.
The Compensation Committee believes these executive compensation policies and
programs effectively serve the interests of shareholders and the Company and are
appropriately balanced to provide increased motivation for executives to
contribute to the Company's future success.
THE COMPENSATION COMMITTEE
Charles Ayres
Richard C. Dresdale
Peter Lamm
Performance Graph
- - -----------------
The following graph compares the cumulative total return to stockholders of the
Company's Common Stock from July 1, 1998 through December 31, 1998 to the
cumulative total return of (1) the Russell 2000 Index and (2) the S&P Mid Cap
Food Index over the same period (assuming the investment of $100 in the
Company's Common Stock and in each of the other indexes and reinvestment of all
dividends).
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG AURORA FOODS INC., THE
RUSSEL 2000 INDEX AND THE S&P MID CAP FOOD INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
7/1/98 7/31/98 8/31/98 9/30/98 10/30/98 11/30/98 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C>
AOR 100.0 83.3 69.6 65.5 83.3 93.2 94.3
Russell 2000 100.0 91.3 73.5 79.1 82.2 86.4 91.8
S&P Mid Cap Food 100.0 89.9 72.6 77.1 85.8 87.0 91.2
</TABLE>
27
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - ------------------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of February 17, 1999 by (a) each
person who is known to the Company to be the beneficial owner of more than five
percent of the Company's Common Stock, (b) each director and executive officer
of the Company, and (c) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that the persons or
entities listed below have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them, except to the extent such
power may be shared with a spouse.
<TABLE>
<CAPTION>
SHARE BENEFICIALLY OWNED (1)
--------------------------------------
NAME AND ADDRESS OF OWNER NUMBER PERCENT
----------------- --------------
<S> <C> <C>
VDK Foods LLC (2) 22,949,265 34.2%
Fenway Partners Capital Fund, L.P. (3) 16,626,412 24.8%
McCown De Leeuw & Co. entities (4) (5) 16,384,371 24.4%
California Public Employees Retirement System (5) 3,737,581 5.6%
Dartford Partnership L.L.C. (6) 7,275,685 10.9%
Tiger Oats Limited (7) 4,237,394 6.3%
UBS Capital LLC (8) 4,237,394 6.3%
OFFICERS AND DIRECTORS:
Ian R. Wilson (6) 7,275,685 10.9%
James B. Ardrey (6) 7,275,685 10.9%
Ray Chung (6) 7,275,685 10.9%
M. Laurie Cummings (6) 7,275,685 10.9%
Thomas O. Ellinwood (9) 280,514 *
Thomas J. Ferraro (10) 486,444 *
Clive A. Apsey (7) 4,237,394 6.3%
Charles Ayres (4) 16,384,371 24.4%
David E. De Leeuw (4) 16,384,371 24.4%
Charles J. Delaney (8) 4,237,394 6.3%
Richard C. Dresdale (3) 16,626,412 24.8%
Andrea Geisser (3) 16,626,412 24.8%
Peter Lamm (3) 16,626,412 24.8%
Tyler T. Zachem (4) 16,384,371 24.4%
All directors and executive officers of the Company as a
group (14 persons) 49,528,214 73.9%
</TABLE>
* Less than 1%.
(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. The
table above assumes that VDK LLC was dissolved on July 1, 1998 and
22,949,265 shares of Common Stock were distributed to the members of VDK
LLC based on the $21.00 per share initial public offering price of the
Common Stock. Of the 22,949,265 shares directly held by VDK LLC,
2,470,132 shares are distributable under the VDK Plans and the remaining
shares are distributable by VDK LLC to its members upon its dissolution,
which will occur no later than July 1, 1999. The number of shares of
Common Stock distributable to the members of VDK LLC upon its dissolution
will be based on the average closing sales price of the Common Stock for
the actual number of trading days during the 60-day period immediately
preceding the actual date of dissolution.
(2) Immediately prior to the closing of the Equity Offerings, New LLC was the
sole stockholder of the Company. New LLC has been dissolved and its
shares of Common Stock were distributed to MBW LLC and VDK LLC, its sole
members. MBW LLC was dissolved after the dissolution of New LLC and its
shares of Common Stock were distributed to its members including MDC,
Fenway Partners Capital Fund, L.P., Dartford, California Public Employees
Retirement System ("CALPERS"), Sunapee Securities Inc. and Squam Lake
Investors II, L.P., and certain divisional management. Each of these
beneficial owners is party to the Securityholders Agreement dated April
8, 1998 (the "Securityholders Agreement"). The address of VDK LLC is 456
Montgomery Street, Suite 2200, San Francisco, CA 94104.
(3) Includes 16,301,510, 194,619 and 130,283 shares of Common Stock owned
directly or indirectly by the Fenway Partners Capital Fund, L.P. (the
"Fenway Fund"), FPIP, LLC and FPIP Trust, LLC, respectively (assuming the
dissolution VDK LLC). Does not include shares of Common Stock directly
owned by VDK LLC resulting from the dissolution of New LLC in respect of
which Fenway does not have an economic interest and as to which Fenway
disclaims beneficial ownership. The Fenway Fund holds a majority of the
voting interests of VDK LLC, and as such may be deemed to have the power
to
28
<PAGE>
vote or dispose of the shares of Common Stock held directly by VDK LLC.
FPIP, LLC and FPIP Trust, LLC are entities formed by the investment
professionals of Fenway to make co-investments alongside the Fenway Fund.
The managing member of each of FPIP, LLC, and FPIP Trust, LLC is Fenway.
The general partner of the Fenway Fund is Fenway Partners, L.P., a
Delaware limited partnership, whose general partner is Fenway Partners
Management, Inc., a Delaware corporation. Peter Lamm, Richard Dresdale,
and Andrea Geisser are directors and officers of each of Fenway Partners
Management, Inc. and Fenway, and as such may be deemed to have or share
the power to vote or dispose of the shares of Common Stock held by the
Fenway Fund, FPIP, LLC and FPIP Trust, LLC. Each of Messrs. Lamm,
Dresdale, and Geisser has no direct ownership of any shares of the Common
Stock and disclaims beneficial ownership of any of such shares except to
the extent of their direct or indirect partnership or membership
interests in the Fenway Fund, FPIP, LLC and FPIP Trust, LLC. The address
of Fenway is 152 West 57th Street, New York, New York 10019.
(4) Includes 5,897,598 shares of Common Stock owned by McCown De Leeuw & Co.
III, L.P., an investment partnership whose general partner is MDC III,
418,687 shares of Common Stock owned by McCown De Leeuw & Co. III
(Europe), L.P., an investment partnership whose general partner is MDC
III, 98,124 shares of Common Stock owned by McCown De Leeuw & Co. III
(Asia), L.P., an investment partnership whose general partner is MDC
Management Company IIIA, L.P. ("MDC IIIA"), 127,571 shares of Common
Stock owned by Gamma Fund LLC, a California limited liability company,
5,885,400 shares of Common Stock owned by McCown De Leeuw & Co. IV, L.P.,
an investment partnership whose general partner is MDC Management Company
IV, LLC ("MDC IV"), 95,308 shares of Common Stock owned by Delta Fund
LLC, a California limited liability company and 124,102 shares of Common
Stock owned by McCown De Leeuw & Co. IV Associates, L.P. In addition,
includes 3,737,581 shares of Common Stock held by CALPERS for which
McCown De Leeuw & Co. III, L.P. has an irrevocable proxy which provides
the power to vote all of the securities held by CALPERS. The voting
members of Gamma Fund LLC and Delta Fund LLC are George E. McCown, David
E. De Leeuw, David E. King, Robert B. Hellman, Jr., Charles Ayres, and
Steven A. Zuckerman, who are also the only general partners of MDC III
and MDC IIIA and the only managing members of MDC IV. Voting and
dispositive decisions regarding the securities are made by Mr. McCown and
Mr. De Leeuw, as Managing General Partners of each of MDC III and MDC
IIIA who together have more than the required two-thirds-in-interest vote
of the Managing General Partners necessary to effect such decision on
behalf of such entity and by a vote or consent of all of the managing
members of MDC IV. Voting and dispositive decisions regarding securities
owned by Delta Fund LLC and Gamma Fund LLC are made by a vote or consent
of a majority in number of the voting members of Gamma Fund LLC and Delta
Fund LLC. Messrs. McCown, De Leeuw, King, Hellman, Ayres and Zuckerman
have no direct ownership of any securities and disclaim beneficial
ownership of such shares except, in the case of Gamma Fund LLC and Delta
Fund LLC, to the extent of their proportionate membership interests. The
address of each of the above referenced entities is c/o McCown De Leeuw &
Co., 3000 Sand Hill Road, Building 3, Suite 290, Menlo Park, CA 94025.
(5) Under an irrevocable proxy, CALPERS has granted McCown De Leeuw & Co.
III, L.P. the right to vote all of the shares of Common Stock it holds.
The address of California Public Employees Retirement System is Lincoln
Plaza, 400 P Street, Sacramento, CA 95814.
(6) Includes 1,249,031 shares, 796,268 shares, 776,942 shares, 510,800 shares
and 519,292 shares held directly by Ian R. Wilson, James B. Ardrey, Ray
Chung, M. Laurie Cummings and Cary S. Fitchey, respectively. Also
includes 903,595 shares of Common Stock held directly by VDK LLC and
indirectly by Dartford, and 2,255,334 shares of Common Stock to be
distributed to Dartford under the VDK Plan no later than July 1, 1999.
Assuming the dissolution of VDK LLC, also includes 130,017 shares of
Common Stock held directly or indirectly by a trust for the benefit of
certain family members of Ian R. Wilson, an aggregate of 101,526 shares
of Common Stock held directly or indirectly by trusts for the benefit of
certain family members of Ray Chung, and 32,880 shares of Common Stock
held directly or indirectly by certain family members and trusts for the
benefit of certain family members of James B. Ardrey. Pursuant to the
Securityholders Agreement, such permitted transferees of Dartford are
included for the purpose of determining the number of persons Dartford
may designate to the Board of Directors of the Company. Mr. Ian R. Wilson
is the managing partner, and Messrs. James B. Ardrey and Ray Chung and
Ms. M. Laurie Cummings are partners, of Dartford and, as such, they may
be deemed to have or share the power to vote or dispose of the Company's
Common Stock beneficially owned by Dartford. Each of Messrs. Wilson,
Ardrey, and Chung and Ms. Cummings disclaim beneficial ownership of any
such shares of the Company's Common Stock except for those shares held
directly by him or her, respectively, or otherwise in which they have a
pecuniary interest. Does not include shares of Common Stock directly
owned by VDK LLC resulting from the dissolution of New LLC in respect of
which Dartford does not have an economic interest. Dartford is a member
manager of VDK LLC, together with UBS, Gloriande (Luxembourg) SarL
("Gloriande"), and Fenway and as such, may be deemed to have the shared
power to vote or dispose of such shares. Dartford disclaims beneficial
ownership of any such shares. The address of Dartford is 456 Montgomery
Street, Suite 2200, San Francisco, CA 94104.
(7) Includes 3,773,085 shares held directly by VDK LLC. Tiger Oats' shares
are held by Gloriande, a corporation organized under the laws of
Luxembourg, which is the record owner of the Company's Common Stock.
Gloriande is an indirect wholly-owned subsidiary of Tiger Oats. The
shares of capital stock of Tiger Oats are traded publicly on the
Johannesburg Stock Exchange. Mr. Clive A. Apsey is a director of Tiger
Oats and as such may be deemed to have the power to vote or dispose of
the Company's Common Stock held by Tiger Oats. Mr. Apsey disclaims
beneficial ownership of any such shares. Does not include shares directly
owned by VDK LLC resulting from the dissolution of New LLC in respect of
which Tiger Oats does not have an economic interest. Gloriande is a
member manager of VDK LLC, together with Dartford, UBS and Fenway and as
such may be deemed to have or share the power to vote or dispose of the
Company's
29
<PAGE>
Common Stock distributed to VDK LLC. Gloriande disclaims beneficial
ownership of any such shares. The address of Tiger Oats Limited is 85
Bute Lane, Sandown, Sandton 2196, Republic of South Africa.
(8) Includes 3,773,085 shares held directly by VDK LLC. UBS is a member
manager of VDK LLC, together with Dartford, Gloriande, and Fenway and as
such may be deemed to have or share the power to vote or dispose of the
Company's Common Stock distributed to VDK LLC. UBS disclaims beneficial
ownership of any such shares. UBS is a wholly-owned indirect subsidiary
of Union Bank of Switzerland. Does not include shares directly owned by
VDK LLC resulting from the dissolution of New LLC in respect of which UBS
does not have an economic interest and UBS disclaims any beneficial
ownership as to such shares. The shares of capital stock of Union Bank of
Switzerland (now UBS AG) are publicly held. Mr. Charles J. Delaney, a
director of the Company, is the president of UBS and disclaims beneficial
ownership of the Company's Common Stock held by UBS. The address of UBS
is 299 Park Avenue, 34th Floor, New York, NY 10171.
(9) Includes 244,072 shares of Common Stock to be distributed to Mr.
Ellinwood under the VDK Plan no later than July 1, 1999.
(10) Includes 427,454 shares of Common Stock distributed to Mr. Ferraro under
the Aurora Plan and trusts for the benefit of certain of his family
members. Mr. Ferraro disclaims beneficial ownership as to the 128,236 of
such shares which were transferred to trusts for the benefit of certain
of his family members.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------
As of February 17, 1999, Aurora Foods Inc. has maintained business relationships
and engaged in certain transactions described below.
Pursuant to an agreement, dated September 19, 1995 and terminated on the closing
of the Equity Offerings, Dartford, a beneficial owner of the Company, provided
management oversight on financial and operational matters to the Company with
respect to VDK. Dartford received $900,000, $1,800,000 and $631,000 for 1998,
1997 and 1996, respectively, under such agreement.
Pursuant to an agreement with the Company, dated December 31, 1996 and
terminated on the closing of the Equity Offerings, Dartford, a beneficial owner
of the Company, provided management oversight to the Company with respect to
AurFoods. Dartford received $951,419 and $768,000 for 1998 and 1997,
respectively, under such agreement.
Pursuant to an agreement, dated December 31, 1996 and terminated on the closing
of the Equity Offerings, MDC III, an affiliate of MDC, a beneficial owner of the
Company, advised the Company as to the structuring of the Company's bank
financing and the capital structure of the Company, identification and financing
of future acquisitions, and general management advice relating to the overall
strategy and positioning of the Company. MDC III received $318,000 and $293,000
for 1998 and 1997, respectively, under such agreement.
From December 31, 1996 through January 16, 1998, the Company paid the following
fees for services rendered in connection with the acquisitions of MBW, LC and
DH: $1,250,000 to Dartford, whose partners, Messrs. Wilson, Ardrey and Chung,
and Ms. Cummings are executive officers and directors of the Company; $184,000
to Mr. Ferraro (President, Dry Grocery Division) and $75,000 to Mr. Willett
(Executive Vice President, Dry Grocery Division); $5,700,000 to MDC III, whose
general partners and principal include Messrs. Ayres, De Leeuw and Zachem (all
directors of the Company); and $1,500,000 was paid to Fenway, whose partners
include Messrs. Dresdale, Geisser and Lamm (all directors of the Company).
Services provided in connection with such fees included the identification and
analysis of the acquisition opportunity, the negotiation of the acquisition and
the raising of financing for such acquisition. Fees of $1,500,000, $2,925,000,
and $4,025,000, in the aggregate, were paid in connection with the acquisitions
of MBW, LC and DH, respectively.
Also, from September 1995 through July 9, 1996, the Company paid the following
fees for services rendered in connection with acquisitions and related
financings of VDK's acquisitions: $1,950,000 to Dartford; $1,474,000 to Fenway;
$294,000 to National Sun Industries Inc., an indirect wholly-owned subsidiary of
Tiger Oats, whose director is Mr. Apsey (a director of the Company); and
$294,000 to UBS, whose president is Mr. Delaney (a director of the Company).
Services provided in connection with such fees included the identification and
analysis of the acquisition opportunity, the negotiation of the acquisition and
the raising of financing for such acquisition. Fees of $1,012,500, $950,000,
and $2,050,000 in the aggregate were paid in connection with the acquisitions of
Van de Kamp's(R) and Mrs. Paul's(R) frozen food business and the Quaker Oats
frozen breakfast and pizza business, respectively.
30
<PAGE>
Pursuant to an agreement with Windy Hill, dated as of September 5, 1995, the
Company paid $198,000 in both 1996 and 1997 for computer support services. Prior
to its merger with Doane Products Company in August 1998, Dartford (of which Mr.
Wilson is the managing partner) and its partners owned 14.2% of Windy Hill and
Mr. Wilson was the Chairman of the Board and Chief Executive Officer of Windy
Hill.
Each of Fenway, MDC III, and Dartford earned $1,500,000, UBS earned $150,000,
and each of Tiger Oats and CALPERS earned $75,000 in fees in connection with the
Contribution.
The Company has entered into agreements pursuant to which it agreed to pay
transaction fees to each of Fenway, MDC and Dartford of 0.333% of the
acquisition price for future acquisitions by the Company. Acquisition price is
the sum of (i) the cash purchase price actually received by the seller, (ii) the
fair market value of any equity securities issued by the seller, (iii) the face
value of any debt securities issued to the seller less any discounts, (iv) the
amount of liabilities assumed by the Company plus (v) the fair market value of
any other property or consideration paid in connection with the acquisition,
with installment or deferred payments to be calculated using the present value
thereof.
The Company has agreed to pay Dartford $800,000 per year as reimbursement of
corporate headquarters expenses which include staff salaries, miscellaneous
office expenses related to the administration of the Company's corporate
headquarters, and rent for the space leased by Dartford and used by the Company
as its corporate headquarters for a term ending the earlier of July 1, 2000 and
the date that Mr. Wilson is no longer Chief Executive Officer of the Company.
The Company and the Stockholders have entered into the Securityholders Agreement
which provides for certain rights, including registration rights of the
Stockholders.
On December 31, 1996 and January 16, 1998, Mr. Thomas J. Ferraro, President, Dry
Grocery Division, executed promissory notes in the amount of $60,000 and
$131,000, respectively, in favor of the Company to evidence monies borrowed to
assist in the capitalization of his limited liability company interests held in
MBW LLC. The promissory notes mature December 31, 1999 and January 16, 2001.
Interest is due and payable quarterly at the rate of 8% per annum and there are
required annual principal payments. The aggregate balance outstanding on his
promissory notes was $151,000 as of December 31, 1998 and was $40,000 as of
December 27, 1997.
On September 19, 1995, Mr. Thomas O. Ellinwood, President, Frozen Food Division,
executed a promissory note in the amount of $125,000 in favor of the Company to
evidence monies borrowed to assist in the capitalization of his limited
liability company interests held in VDK LLC. The promissory note matures March
31, 1999 with required annual payments. Interest is due and payable quarterly
at the rate of 8.5% per annum. The balance outstanding on his promissory note
as of December 31, 1998 and December 27, 1997 was $41,666.
Pursuant to the VDK Plans, Dartford, Thomas O. Ellinwood, and Anthony A.
Bevilacqua are entitled to receive 2,255,334, 244,072, and 91,756 shares of
Common Stock, respectively, no later than July 1, 1999. See "Executive
Compensation - VDK Incentive Plan".
31
<PAGE>
PART IV
- - -------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- - ------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
(a) 1.a. Financial Statements of the Company
Report of Independent Accountants 39
Balance Sheets as of December 31, 1998
and December 27, 1997 40
Statements of Operations for the years ended
December 31, 1998 and December 27, 1997 41
Statements of Changes in Stockholders' Equity
as of December 31, 1998 and December 27, 1997 42
Statements of Cash Flows for the years ended
December 31, 1998 and December 27, 1997 43
Notes to Financial Statements 44 through 61
b. Financial Statements of the Predecessor
Mrs. Butterworth's Business (A Component of CONOPCO, Inc.):
Report of Independent Accountants 62
Statement of Operations for the year
ended December 31, 1996 63
Notes to Financial Statements 64 through 66
2. Financial Statement Schedule
Schedule IX - Valuation Reserves 67
3. Exhibits 68
</TABLE>
32
<PAGE>
(a) Exhibits
Exhibit
Number Exhibit
- - ------ -------
2.1 Asset Purchase Agreement, dated as of December 18, 1996, by and
between MBW Foods Inc. (as successor-in-interest to MBW Acquisition
Corp.) and Conopco, Inc., as amended. (Incorporated by reference to
Exhibit 2.1 to Aurora Foods Inc.'s Form S-4 filed on August 21, 1997,
File No. 333-24715 ("Aurora S-4")).
2.2 Asset Purchase Agreement, dated as of March 7, 1997, by and between
Aurora Foods Inc. and Kraft Foods, Inc. (Incorporated by reference to
Exhibit 2.2 to the Aurora S-4).
2.3 Asset Purchase Agreement, dated as of November 26, 1997, by and
between Aurora Foods Inc. and The Procter & Gamble Company.
(Incorporated by reference to Exhibit 2.1 to the Aurora Foods Inc.'s
Form 8-K filed on January 30, 1998 (the "Form 8-K")).
2.4 Merger Agreement, dated as of June 22, 1998, between the Aurora Foods
Inc. and A Foods Inc. (Incorporated by reference to Exhibit 2.1 to the
Aurora Foods Inc.'s Form S-1 filed on April 22, 1998, as amended, File
No. 338-50681 (the "S-1")).
2.5 Merger Agreement, dated as of June 25, 1998, among Aurora Foods
Holdings Inc., AurFoods Operating Co. Inc., VDK Holdings, Inc., Van de
Kamp's, Inc. and A Foods Inc. (Incorporated by reference to Exhibit
2.2 to the S-1).
2.6 Certificate of Merger, dated June 23, 1998, of Aurora Foods Inc. with
and into A Foods Inc. (Incorporated by reference to Exhibit 2.14 to
the S-1).
2.7 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 Van de Kamp's, Inc.'s Form 10-Q for the
quarter ended March 31, 1997).
2.8 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 Van de Kamp's, Inc.'s Form 10-Q for the quarter ended
March 31, 1997).
2.10 Supplement No. 1 to Asset Purchase and Sales Agreement, dated as of
July 9, 1996, between Van de Kamp's, Inc. and the Quaker Oats Company
("Quaker Oats"). (Incorporated by reference to Exhibit 2.2 to Van de
Kamp's, Inc.'s Form 8-K dated July 9, 1996).
2.11 Asset Purchase and Sales Agreement, dated as of May 15, 1996 between
Van de Kamp's, Inc. and Quaker Oats. (Incorporated by reference to
Exhibit 2.1 to Van de Kamp's, Inc.'s Form 8-K dated July 9, 1996).
2.12 Asset Purchase and Sale Agreement, dated as of January 17, 1996,
between Shellfish Acquisition Company, LLC ("Shellfish") and Campbell
Soup Company ("Campbell"). (Incorporated by reference to 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 schedule of which is
incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s Form
8-K dated May 6, 1996).
2.13 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 the Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 20,
1996).
2.14 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
Van de Kamp's, Inc.'s Form S-4 filed on October 4, 1995 (the "Van de
Kamp's S-4")).
33
<PAGE>
2.15 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 the Van de Kamp's S-4).
3.1 Certificate of Incorporation of A Foods Inc., filed with the Secretary
of State of the State of Delaware on June 19, 1998. (Incorporated by
reference to Exhibit 3.1 to the S-1).
3.2 Amended and Restated By-laws of Aurora Foods Inc. (Incorporated by
reference to exhibit 3.2 to the S-1).
4.1 Indenture dated as of February 10, 1997, by and between Aurora Foods
Inc. and Wilmington Trust Company. (Incorporated by reference to
Exhibit 4.1 to the Aurora S-4).
4.2 Specimen Certificate of 9 7/8% Series B Senior Subordinated Note due
2007 (included in Exhibit 4.1 hereto). (Incorporated by reference to
Exhibit 4.2 to the Aurora S-4).
4.3 Form of Note Guarantee to be issued by future subsidiaries of Aurora
Foods Inc. pursuant to the Indenture (included in Exhibit 4.1 hereto).
(Incorporated by reference to Exhibit 4.4 to the Aurora S-4).
4.4 Indenture dated as of July 1, 1997 by and between Aurora Foods Inc.
and Wilmington Trust Company (the "Series D Indenture"). (Incorporated
by reference to Exhibit 4.6 to the Aurora S-4).
4.5 Specimen Certificate of 9 7/8% Series D Senior Subordinated Note due
2007 (included in Exhibit 4.4 hereto). (Incorporated by reference to
Exhibit 4.3 to the Aurora S-4).
4.6 Form of Note Guarantee to be issued by future subsidiaries of Aurora
Foods Inc. pursuant to the Series D Indenture (included in Exhibit 4.4
hereto). (Incorporated by reference to Exhibit 4.8 to the Aurora S-4).
4.7 Securityholders Agreement, dated as of April 8, 1998, by and among
Aurora/VDK LLC, MBW Investors LLC, VDK Foods LLC and the other parties
signatory thereto. (Incorporated by reference to Exhibit 4.2 to the S-
1).
4.8 Indenture dated as of July 1, 1998 by and between Aurora Foods Inc.
and Wilmington Trust Company (Incorporated by reference to Exhibit
4.13 to the S-1).
4.9 Specimen Certificate of 8 3/4% Senior Subordinated Notes due 2008.
(Included in Exhibit 4.8 hereto).
4.10 Specimen Certificate of the Common Stock. (Incorporated by reference
to Exhibit 4.1 to the S-1).
4.11 Registration Rights Agreement, dated July 1, 1998, between Aurora
Foods Inc. and Chase Securities Inc., Goldman, Sachs & Co. and Natwest
Capital Markets Limited (Incorporated by reference to Exhibit 4.15 to
the S-1).
4.12 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 Van de Kamp's S-4).
4.13 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 Van de Kamp's S-4).
10.1 VDK Holdings, Inc. Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.1 to S-1).
34
<PAGE>
10.2 Purchase Agreement, dated June 25, 1998, between Aurora Foods Inc. and
Chase Securities Inc., Goldman, Sachs & Co. and NatWest Capital
Markets Limited. (Incorporated by reference to Exhibit 10.3 to S-1).
10.3 Purchase Agreement, dated June 18, 1997, by and among Aurora Foods
Inc., Chase Securities, Inc. and Credit Suisse First Boston
Corporation. (Incorporated by reference to Exhibit 1.2 to the Aurora
S-4).
10.4 Purchase Agreement, dated February 5, 1997, by and between Aurora
Foods Inc. and Chase Securities, Inc. (Incorporated by reference to
Exhibit 1.1 to the Aurora S-4).
10.5 Employment Agreement, dated as of December 31, 1996, by and between
Aurora Foods Inc. and Thomas J. Ferraro (Incorporated by reference to
Exhibit 10.5 to the Aurora S-4).
10.6 Employment Agreement, dated as of December 31, 1996, by and between
Aurora Foods Inc. and C. Gary Willett. (Incorporated by reference to
Exhibit 10.6 to the Aurora S-4).
10.7 Purchase Agreement, dated September 14, 1995, between Van de Kamp's,
Inc. and Chemical Securities, Inc. (Incorporated by reference to
Exhibit 10.6 to S-1).
10.8 Flavor Supply Agreement, dated as of December 31, 1996, by and between
Aurora Foods Inc. and Quest International Flavors & Food Ingredients
Company. (Incorporated by reference to Exhibit 10.8 to the Aurora S-
4).
10.9 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 Van de Kamp's S-4).
10.10 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 Van de Kamp's S-4).
10.11 Trademark License Agreement, dated July 9, 1996 among Quaker Oats, 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).
10.13 Amended Transitional Co-Pack Agreement, dated as of July 1, 1997, by
and between Aurora Foods Inc. and Kraft Foods, Inc. (Incorporated by
reference to Exhibit 10.13 to the Aurora S-4).
10.16 First Amended and Restated Red Wing Co-Pack Agreement, dated as of
November 19, 1997, by and between Aurora Foods Inc. and The Red Wing
Company, Inc. (Confidential treatment for a portion of this document
has been requested by the Company). (Incorporated by reference to
Exhibit 10.16 to Aurora Foods Inc.'s Form 10-K, filed on March 27,
1998 (the "Aurora 10-K")).
10.18 Production Agreement, dated November 19, 1997, by and between Aurora
Foods Inc. and The Red Wing Company, Inc. (Confidential treatment for
a portion of this document has been requested by the Company).
(Incorporated by reference to Exhibit 10.18 to the Aurora 10-K).
10.19 Transitional Supply Agreement, dated January 16, 1998, by and between
Aurora Foods Inc. and The Procter & Gamble Manufacturing Company.
(Confidential treatment for a portion of this document has been
requested by the Company). (Incorporated by reference to Exhibit 10.20
to the Aurora 10-K).
10.20 Amendment No. 1 to Ferraro Employment Agreement, dated as of January
1, 1998, between Aurora Foods Inc. and Thomas J. Ferraro.
(Incorporated by reference to Exhibit 10.10 to the S-1).
10.21 Amendment No. 1 to Willett Employment Agreement, dated as of January
1, 1998, between C. Gary Willett and Aurora Foods Inc. (Incorporated
by reference to Exhibit 10.13 to the S-1).
10.22 Third Amended and Restated Credit Agreement, dated as of July 1, 1998,
among Aurora Foods Inc., as borrower, the Lenders listed therein, The
Chase Manhattan Bank, as Administrative
35
<PAGE>
Agent, National Westminster Bank PLC, as Syndication Agent and Swiss
Bank Corporation, as Documentation Agent. (Incorporated by reference
to Exhibit 10.20 to the S-1).
10.26 Employment Agreement between Ian R. Wilson and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.7 to the S-1).
10.27 Employment Agreement between James B. Ardrey and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.8 to the S-1).
10.28 Employment Agreement between Ray Chung and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.9 to the S-1).
10.29 Employment Agreement between M. Laurie Cummings and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.10 to the S-1).
10.30 Amendment No. 1 to Ellinwood Amended and Restated Employment
Agreement, dated as of January 1, 1998, between Thomas O. Ellinwood
and Van de Kamp's, Inc. (Incorporated by reference to Exhibit 10.15 to
the S-1).
10.31 Amended and Restated Employment Agreement, dated as of March 11, 1997,
by and between Thomas O. Ellinwood and Van de Kamp's, Inc.
(Incorporated by reference to Exhibit 10.16 to the S-1).
10.32 Employment Agreement, dated as of February 16, 1998, by and between
Van de Kamp's, Inc. and Anthony A. Bevilacqua. (Incorporated by
reference to Exhibit 10.17 to the S-1).
10.33 Expense Agreement, made as of July 1, 1998, between Aurora Foods Inc.
and Dartford Partnership L.L.C. (Incorporated by reference to Exhibit
10.32 to the S-1).
10.34 Advisory Agreement, made as of April 8, 1998, among Aurora/VDK LLC,
Van de Kamp's, Inc., VDK Holdings, Inc., Aurora Foods Inc. and Aurora
Foods Holdings Inc. and Dartford Partnership L.L.C. (Incorporated by
reference to Exhibit 10.33 to the S-1).
10.35 Advisory Agreement, made as of April 8, 1998, among Aurora/VDK LLC,
Van de Kamp's, Inc., VDK Holdings, Inc., Aurora Foods Inc. and Aurora
Foods Holdings Inc. and MDC Management Company III, L.P. (Incorporated
by reference to Exhibit 10.34 to the S-1).
10.36 Advisory Agreement, made as of April 8, 1998, between Fenway Partners,
Inc. and Aurora/VDK LLC, Van de Kamp's, Inc., VDK Holdings, Inc.,
Aurora Foods Inc. and Aurora Foods Holdings Inc. (Incorporated by
reference to Exhibit 10.35 to the S-1).
10.37 Indemnity Agreement, dated as of July 1, 1998, between Ian R. Wilson
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.46 to
the S-1).
10.38 Indemnity Agreement, dated as of July 1, 1998, between James B. Ardrey
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.49 to
the S-1).
10.39 Indemnity Agreement, dated as of July 1, 1998, between Clive A. Apsey
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.50 to
the S-1).
10.40 Indemnity Agreement, dated as of July 1, 1998, between Charles Ayres
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.51 to
the S-1).
10.41 Indemnity Agreement, dated as of July 1, 1998, between David E. De
Leeuw and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.52 to the S-1).
10.42 Indemnity Agreement, dated as of July 1, 1998, between Charles J.
Delaney and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.53 to the S-1).
36
<PAGE>
10.43 Indemnity Agreement, dated as of July 1, 1998, between Richard C.
Dresdale and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.54 to the S-1).
10.44 Indemnity Agreement, dated as of July 1, 1998, between Andrea Geisser
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.55 to
the S-1).
10.45 Indemnity Agreement, dated as of July 1, 1998, between Peter Lamm and
Aurora Foods Inc. (Incorporated by reference to Exhibit 10.56 to the
S-1).
10.46 Indemnity Agreement, dated as of July 1, 1998, between Tyler T. Zachem
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.57 to
the S-1).
10.48 1998 Employee Stock Purchase Plan.
10.49 Production Agreement, dated as of June 4, 1998, by and between Aurora
Foods Inc. and Gilster-Mary Lee Corporation. (Incorporated by
reference to Exhibit 10.48 to the S-1).
10.50 1998 Incentive Plan.
12.1 Ratio of Earnings to Fixed Charges
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
37
<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.
AURORA FOODS INC.
By: /s/ Ian R. Wilson
-----------------
Ian R. Wilson Chief Executive Officer
Date: March 12, 1999
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 March 12, 1999.
/s/ Ian R. Wilson
-------------
Ian R. Wilson Chairman of the Board of Directors and
Chief Executive Officer (Principal Executive
Officer)
/s/ James B. Ardrey
---------------
James B. Ardrey Vice Chairman and Director
/s/ Ray Chung
---------
Ray Chung Executive Vice President
/s/ M. Laurie Cummings
------------------
M. Laurie Cummings Chief Financial Officer and Secretary
(Principal Finance and Accounting Officer)
/s/ Clive A. Apsey
--------------
Clive A. Apsey Director
/s/ Charles Ayres
-------------
Charles Ayres Director
/s/ Charles J. Delaney
------------------
Charles J. Delaney Director
/s/ David E. De Leeuw
-----------------
David E. De Leeuw Director
/s/ Richard C. Dresdale
-------------------
Richard C. Dresdale Director
/s/ Andrea Geisser
--------------
Andrea Geisser Director
/s/ Peter Lamm
----------
Peter Lamm Director
/s/ Tyler T. Zachem
---------------
Tyler T. Zachem Director
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders
of Aurora Foods Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14 (a) 1.a. and Item 14 (a) 2. on page 32 present fairly, in all material
respects, the financial position of Aurora Foods Inc. (the "Company") at
December 31, 1998 and December 27, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1998 and December 27, 1997 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.
PricewaterhouseCoopers LLP
San Francisco, California
February 5, 1999
39
<PAGE>
AURORA FOODS INC.
BALANCE SHEETS
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 354 $ 4,717
Accounts receivable, net of $670 and $140 allowance,
respectively 86,539 13,836
Inventories (Note 4) 76,674 6,902
Prepaid expenses and other assets 6,517 1,955
Asset held for sale 3,000 -
Current deferred tax assets (Note 10) 8,251 2,966
---------- --------
Total current assets 181,335 30,376
Property, plant and equipment, net (Note 5) 153,167 14,075
Goodwill and other intangible assets, net (Note 6) 1,072,760 315,241
Other assets 26,620 13,047
---------- --------
Total assets $1,433,882 $372,739
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of senior secured term debt (Note 8) $ 20,000 $ 4,375
Senior secured revolving debt facility (Note 8) 85,850 -
Accounts payable 59,078 6,443
Accrued liabilities (Note 7) 49,836 17,409
---------- --------
Total current liabilities 214,764 28,227
Non-current deferred tax liabilities (Note 10) 649 3,745
Other liabilities 12,372 -
Senior secured revolving debt facility (Note 8) - 37,500
Senior secured term debt (Note 8) 200,000 35,625
Senior subordinated notes (Note 8) 402,242 202,419
---------- --------
Total liabilities 830,027 307,516
---------- --------
Stockholders' equity:
Preferred stock, $0.01 par value; 25,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $0.01 par value; 250,000,000 and
87,159,000 shares
authorized, respectively; 67,016,173 and 29,053,000
shares issued and outstanding, respectively 670 291
Paid-in capital 647,889 63,912
Promissory notes (Note 13) (562) (215)
(Accumulated deficit) retained earnings (44,142) 1,235
---------- --------
Total stockholders' equity 603,855 65,223
---------- --------
Commitments and contingent liabilities (Note 15)
Total liabilities and stockholders' equity $1,433,882 $372,739
========== ========
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
AURORA FOODS INC.
STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended
------------------------------------
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 789,193 $ 143,020
Cost of goods sold 317,547 45,729
------------ ------------
Gross profit 471,646 97,291
------------ ------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution 74,703 17,096
Trade promotions 173,467 26,075
Consumer marketing 56,683 15,142
------------ ------------
Total brokerage, distribution and marketing expenses 304,853 58,313
Amortization of goodwill and other intangibles 30,048 5,938
Selling, general and administrative expenses 25,043 5,229
Incentive plan expense (Note 14) 56,583 2,300
Transition expenses (Note 9) 10,357 2,113
------------ ------------
Total operating expenses 426,884 73,893
------------ ------------
Operating income 44,762 23,398
Interest expense, net 64,487 18,242
Amortization of deferred financing expense 1,872 3,059
Other bank and financing expenses 263 83
------------ ------------
(Loss) income before income taxes and extraordinary item (21,860) 2,014
Income tax expense (Note 10) 14,306 779
------------ ------------
Net (loss) income before extraordinary item (36,166) 1,235
Extraordinary loss on early extinguishment of debt,
net of tax of $5,632 9,211 -
------------ ------------
Net (loss) income $ (45,377) $ 1,235
============ ============
Basic and diluted (loss) earnings per share before
extraordinary item $ (0.68) $ 0.04
Extraordinary item per share 0.17 -
------------ ------------
Basic and diluted (loss) earnings per share $ (0.85) $ 0.04
============ ============
Weighted average number of shares outstanding 53,541 29,053
============ ============
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
AURORA FOODS INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Retained
Common Additional Earnings
Stock Paid-in Promissory (Accumulated
------------------------------
Shares Amount Capital Notes Deficit) Total
------------- ------------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 29,053 $ 291 $ 32,979 $ (110) $ - $ 33,160
Capital contribution - - 28,633 (125) - 28,508
Payments on officer promissory
notes (Note 13) - - - 20 - 20
Incentive plan expense (Note 14) - - 2,300 - - 2,300
Net income - - - - 1,235 1,235
------------- ------------- -------------- ------------- ------------- -----------
Balance at December 27, 1997 29,053 291 63,912 (215) 1,235 65,223
Capital contribution (Note 1) - - 94,263 (473) - 93,790
Shares issued for acquisition
of business (Note 2) 25,038 250 183,219 - - 183,469
Shares issued (Note 1) 12,909 129 254,702 - - 254,831
Equity offering costs - - (5,062) - - (5,062)
Employee stock
purchases (Note 16) 16 - 272 - - 272
Payments on officer promissory
notes (Note 13) - - - 126 - 126
Incentive plan expense (Note 14) - - 56,583 - - 56,583
Net loss - - - - (45,377) (45,377)
------------- ------------- -------------- ------------- ------------- -----------
Balance at December 31, 1998 67,016 $ 670 $ 647,889 $ (562) $ (44,142) $ 603,855
============= ============= ============== ============= ============= ===========
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
AURORA FOODS INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
December 31, December 27,
1998 1997
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (45,377) $ 1,235
Early extinguishment of debt, net of tax of $5,632 9,211 -
Adjustments to reconcile net (loss) income to cash provided by
operating activities:
Depreciation and amortization 41,343 10,057
Deferred income taxes 14,306 779
Incentive plan expense (Note 14) 56,583 2,300
Change in assets and liabilities, net of effects of
businesses acquired:
Increase in accounts receivable (34,318) (13,356)
(Increase) decrease in inventories (36,575) 2,975
Increase in prepaid expenses and other current assets (3,400) (1,946)
Increase in accounts payable 43,284 6,443
Increase in accrued liabilities 5,132 14,624
--------------- -------------
Net cash provided by operating activities 50,189 23,111
--------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (39,799) (2,411)
Changes to other non-current assets and liabilities (4,164) (925)
Proceeds from sale of assets 28,012 -
Payment for acquisition of businesses (Note 3) (462,784) (225,930)
--------------- -------------
Net cash used in investing activities (478,735) (229,266)
--------------- -------------
Cash flows from financing activities:
Proceeds from senior secured revolving and term debt (Note 8) 864,350 90,000
Proceeds from senior subordinated notes (Note 8) 200,000 202,500
Repayment of borrowings (947,259) (107,500)
Payment of redemption premium (Note 1) (14,500) -
Proceeds from initial public offering 254,831 -
Capital contributions, net of officer promissory notes 94,188 28,500
Debt issuance and equity offering costs (27,427) (11,294)
--------------- -------------
Net cash provided by financing activities 424,183 202,206
--------------- -------------
Decrease in cash and cash equivalents (4,363) (3,949)
Cash and cash equivalents, beginning of period 4,717 8,666
--------------- -------------
Cash and cash equivalents, end of period $ 354 $ 4,717
=============== =============
Supplemental Cash Flow Disclosure:
Cash paid for interest $ 60,195 $ 10,091
Cash paid for income taxes $ 337 $ 195
</TABLE>y
See accompanying notes to financial statements.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
- - --------------------
OPERATIONS
Aurora Foods Inc. (the "Company") produces and markets branded food products
that are sold across the United States. The Company groups its brands into two
general divisions: dry grocery division and frozen food division. The dry
grocery division includes Duncan Hines(R) baking mix products and Mrs.
Butterworth's(R) and Log Cabin(R) syrup products. The frozen food division
includes Van de Kamp's(R) and Mrs. Paul's(R) frozen seafood, Aunt Jemima(R)
frozen breakfast and Celeste(R) frozen pizza products. The dry grocery
division's products are manufactured under long-term co-packing agreements with
third parties and under a temporary co-packing agreement with The Procter &
Gamble Company ("P&G"). The Company's manufacturing equipment has been or will
be installed at certain production facilities of contract manufacturer partners.
The frozen food division's products are manufactured out of production
facilities that are owned and operated by the Company in Erie, Pennsylvania,
Jackson, Tennessee and Yuba City, California.
ORGANIZATION
The Company was incorporated in Delaware on June 19, 1998, as the successor to
Aurora Foods Holdings Inc. ("Holdings") and its subsidiary, AurFoods Operating
Co., Inc. (formerly known as Aurora Foods Inc.) ("AurFoods"), both of which were
incorporated in Delaware in December 1996. AurFoods was wholly-owned by
Holdings, which in turn was wholly-owned by MBW Investors LLC ("MBW LLC").
AurFoods was formed for the purpose of acquiring the Mrs. Butterworth's(R) syrup
business ("MBW") from Conopco, Inc., a subsidiary of Unilever United States,
Inc. ("Conopco"). AurFoods subsequently acquired the Log Cabin(R) syrup business
("LC") from Kraft Foods, Inc. ("Kraft") in July 1997 and the Duncan Hines(R)
baking mix business ("DH") from P&G in January 1998.
Van de Kamp's, Inc. ("VDK") was a wholly-owned subsidiary of VDK Holdings, Inc.,
a Delaware corporation ("VDK Holdings") which was incorporated in Delaware in
July 1995 for the purpose of acquiring the Van de Kamp's(R) frozen seafood and
frozen dessert businesses from The Pillsbury Company in September 1995. VDK then
acquired the Mrs. Paul's(R) frozen seafood business from the Campbell Soup
Company in May 1996 and the Aunt Jemima(R) frozen breakfast and Celeste(R)
frozen pizza businesses from The Quaker Oats Company in July 1996. VDK Holdings
was wholly-owned by VDK Foods LLC ("VDK LLC").
On April 8, 1998, MBW LLC and VDK LLC formed Aurora/VDK LLC ("New LLC"). MBW LLC
contributed all of the capital stock of Holdings and VDK LLC contributed all of
the capital stock of VDK Holdings to New LLC (the "Contribution"). In return for
these contributions, MBW LLC was issued 55.5% of the interests in New LLC plus a
right to receive a special $8.5 million priority distribution from New LLC, and
VDK LLC was issued 44.5% of the interests in New LLC plus a right to receive a
special $42.4 million priority distribution from New LLC. The amount and source
of consideration used by MBW LLC and VDK LLC for their acquisition of interests
in New LLC was their equity in Holdings and VDK Holdings, respectively. New LLC
accounted for the contribution of the ownership of Holdings at MBW LLC's
historical cost and the contribution of the ownership of VDK Holdings was
accounted for as an acquisition using the purchase method of accounting at New
LLC's cost. After giving effect to the Contribution, New LLC directly held 100%
of Holdings' capital stock and Holdings continued to hold directly 100% of
AurFoods capital stock and New LLC directly held 100% of VDK Holdings' capital
stock and VDK Holdings continued to hold directly 100% of VDK's capital stock.
On June 25, 1998, New LLC contributed to the Company all the issued and
outstanding stock of Holdings and VDK Holdings. Therefore, the Company's
financial statements, as it is the successor to Holdings, includes the
historical financial information of Holdings from its inception. New LLC was
then dissolved in connection with the IPO (defined below).
On July 1, 1998, Holdings, AurFoods, VDK Holdings and VDK merged with and into
the Company and the initial public offering of 12,909,372 shares of Common Stock
of the Company and 1,590,628 shares of the Company's common stock sold by New
LLC was consummated at an initial public offering price of $21.00 per share (the
"IPO" or "Equity Offering"). The proceeds received by New LLC were used to
satisfy the $8.5 million priority distribution to MBW LLC and, in combination
with common stock, also satisfied the $42.4 million priority distribution to VDK
LLC. Also, concurrently with the IPO, the Company issued $200.0 million
aggregate principal amount of 8.75% senior subordinated notes due 2008 (the
"Notes Offering" or "New Notes") and borrowed $225.0 million of senior secured
term debt and $99.0 million out of the total available of $175.0 million of
senior secured revolving debt under the Third Amended and Restated Credit
Agreement, dated as of July 1, 1998, among the
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<PAGE>
Company, as borrower, the lenders listed therein, The Chase Manhattan Bank, as
Administrative Agent, The National Westminster Bank PLC, as Syndication Agent
and Swiss Bank Corporation, as Documentation Agent (the "New Senior Bank
Facilities").
The Company used the net proceeds from the IPO, the Notes Offering and the New
Senior Bank Facilities to (i) repay $180.8 million of senior secured bank debt
under the Second Amended and Restated Credit and Guarantee Agreement, dated as
of July 9, 1996, among VDK Holdings, VDK, the banks and other financial
institutions parties thereto and The Chase Manhattan Bank, as agent, as amended
(the "VDK Senior Bank Facilities"), (ii) repay $467.0 million under the Aurora
Senior Bank Facilities (as defined in Note 3), (iii) redeem the 12% Senior
Subordinated Notes due 2005 issued under an Indenture dated as of September 15,
1995, between VDK and Harris Trust and Savings Bank, as Trustee (the "VDK
Notes") (redemption completed on July 31, 1998) in the principal amount of
$100.0 million and (iv) pay the $14.5 million redemption premium associated with
the VDK Notes (in whole or in part, the "Refinancings"). As a result of the
early extinguishment of the Aurora Senior Bank Facilities, the Company recorded
in the year ended December 31, 1998 an extraordinary charge of $7.3 million, net
of income tax of $4.4 million, for the write off of deferred financing charges.
As a consequence of the IPO, no additional incentive plan expense will be
recorded under the Aurora Plan (See Note 14 - Incentive Plan Expense). MBW LLC
satisfied its liability under the Aurora Plan by distributing shares of the
Company's common stock in connection with the liquidation of MBW LLC.
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 ends on December 31. The Company's prior fiscal year
ended on the last Saturday of December. Accordingly, the results of operations
and cash flows reflect activity for the period from December 28, 1997 through
December 31, 1998 and from December 31, 1996 (commencement of operations)
through December 27, 1997. The Company has presented balance sheets as of
December 31, 1998 and December 27, 1997. Certain prior year amounts have been
reclassified to conform with the current year's presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with original
maturities of three months or less to be cash equivalents.
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 the
Company's or the contract manufacturers' 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 three to thirty years. Costs
which improve an asset or extend its useful life are capitalized, while repairs
and maintenance costs are expensed as incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other 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.
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<PAGE>
Amortization of goodwill and other intangible assets charged against income for
the years ended December 31, 1998 and December 27, 1997 was $30.0 million and
$5.9 million, respectively.
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 December 31, 1998.
OTHER ASSETS
Other assets consist of deferred loan acquisition costs, systems software,
packaging design and plates, and other miscellaneous assets. Deferred loan
acquisition costs are being amortized using the interest method over the terms
of the respective debt. Aggregate amortization of deferred loan acquisition
costs and other assets charged against income for the years ended December 31,
1998 and December 27, 1997 was $1.9 million and $3.1 million, respectively.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the fair
value of financial instruments, other than the senior subordinated notes,
approximates book value at December 31, 1998. The fair market value of the New
Notes and the Notes (as defined in Note 8 Long Term Debt) at December 31, 1998,
based on market prices, was $186.4 million and $200.0 million, respectively.
CONCENTRATION OF CREDIT RISK
The Company sells its products to supermarkets, foodservice operators 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 December 31, 1998.
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 bases of assets and liabilities.
ADVERTISING
Costs related to advertising the Company's products are expensed in the period
incurred or expensed ratably over the year in relation to revenues. Advertising
expense for the years ended December 31, 1998 and December 27, 1997 was $15.6
million and $4.1 million, respectively.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock Based Compensation", allows companies to measure compensation cost in
connection with employee stock compensation plans either using a fair value-
based method or to continue to use the intrinsic value-based method prescribed
by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees", and its related interpretations, which generally does not
result in compensation cost. The Company measures compensation cost in
accordance with APB 25. The Company's stock-based compensation plans are
discussed in Note 16.
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<PAGE>
NOTE 3 - BUSINESS ACQUISITIONS
- - ------------------------------
MRS. BUTTERWORTH'S
At the close of business on December 31, 1996, the Company acquired
substantially all the assets of MBW from Conopco. The Company manufactures the
products under co-packing agreements with third parties.
The Company acquired the inventories, manufacturing equipment and intangible
assets of MBW for a purchase price of $114.1 million. The acquisition was
accounted for by using the purchase method of accounting. The acquisition was
financed by (i) a net capital contribution from Holdings of approximately $33.2
million, (ii) term loans of $15.0 million and revolving loans of $30.0 million
borrowed under a $60.0 million senior secured debt facility and (iii) loans of
$50.0 million borrowed under a senior subordinated debt facility. On February
10, 1997, the senior subordinated debt facility of $50.0 million and the senior
secured facilities of $15.0 million of term debt and $30.0 million of revolving
debt were repaid with proceeds from a $100.0 million senior subordinated note
offering.
The cost to acquire MBW has been allocated to tangible and intangible assets
acquired as follows (in thousands):
<TABLE>
<S> <C>
Cash paid to acquire assets $ 114,132
Other acquisition costs 3,663
----------
117,795
Costs assigned to tangible assets (6,138)
----------
Cost attributable to intangible assets $ 111,657
==========
</TABLE>
LOG CABIN
On July 1, 1997, the Company acquired substantially all the assets of LC from
Kraft. The Company manufactures the products under co-packing agreements with
third parties.
The Company acquired the inventories, certain manufacturing equipment and
intangible assets of LC for a purchase price of $222.0 million. The acquisition
was accounted for by using the purchase method of accounting. The acquisition
was financed by (i) a capital contribution from Holdings of approximately $28.6
million, (ii) term loans of $40.0 million and revolving loans of $47.0 million
borrowed under a senior secured debt facility, and (iii) proceeds of $102.5
million received in a senior subordinated note offering.
The cost to acquire LC has been allocated to tangible and intangible assets
acquired, as follows (in thousands):
<TABLE>
<S> <C>
Cash paid to acquire assets $ 221,995
Other acquisition costs 4,169
----------
226,164
Costs assigned to tangible assets (15,266)
----------
Cost attributable to intangible assets $ 210,898
==========
</TABLE>
DUNCAN HINES
On January 16, 1998, the Company acquired all the assets of DH from P&G for a
purchase price of $445.0 million. The assets acquired by the Company include
(i) the Duncan Hines(R) brand and associated trademarks, (ii) substantially all
of the equipment used for the manufacture of Duncan Hines(R) products currently
located in P&G's Jackson, Tennessee facility, (iii) proprietary formulations for
Duncan Hines(R) products, (iv) other product specifications and customer lists
and (v) rights under certain contracts, licenses, purchase orders and other
arrangements and permits. The Company uses the acquired assets in its
operations of DH. The acquisition was accounted for by using the purchase
method of accounting. The allocation of purchase price has not been finalized;
however, any changes are not expected to be material.
To finance the acquisition of DH and related costs, the Company refinanced its
previously existing senior bank facilities with $450.0 million of senior secured
term debt under the Second Amended and Restated Credit
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<PAGE>
Agreement, dated as of January 16, 1998 by and among Holdings, the Company, the
lenders listed therein, The Chase Manhattan Bank, The National Westminster Bank
PLC, and Swiss Bank Corporation (the "Aurora Senior Bank Facilities"), and
received a capital contribution from Holdings of $93.8 million. As a result of
the new bank borrowings under the Aurora Senior Bank Facilities, the Company
incurred an early extinguishment of its pre-DH senior secured bank debt and the
write-off of the associated deferred financing charges was recorded in the
quarter ended March 28, 1998 as an extraordinary charge of $1.9 million, net of
income taxes of $1.2 million.
The cost to acquire DH has been allocated to tangible and intangible assets
acquired as follows (in thousands):
<TABLE>
<S> <C>
Cash paid to acquire assets $ 445,000
Other acquisition costs 9,343
----------
454,343
Cost assigned to tangible assets (40,672)
----------
Cost attributable to intangible assets $ 413,671
==========
</TABLE>
VDK HOLDINGS, INC.
On April 8, 1998, the Company completed a stock purchase of VDK Holdings (See
Note 1 - The Company). The Company acquired all the capital stock of VDK
Holdings in exchange for $183.5 million of the Company's equity. The acquisition
was accounted for using the purchase method of accounting. The allocation of
purchase price has not been finalized; however, any changes are not expected to
be material.
The cost to acquire VDK Holdings has been allocated to tangible and intangible
assets acquired as follows (in thousands):
<TABLE>
<S> <C>
Value of stock used to acquire VDK Holdings $ 183,469
Liabilities assumed 381,212
Other acquisition costs 8,431
----------
573,112
Cost assigned to tangible assets (201,545)
----------
Cost attributable to intangible assets $ 371,567
==========
</TABLE>
Had the VDK Holdings and DH acquisitions taken place January 1, 1998 and had the
VDK Holdings, DH and LC acquisitions taken place January 1, 1997, the unaudited
pro forma results of operations for the years ended December 31, 1998 and
December 27, 1997, respectively, would have been as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
---------------------------
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 946,984 $ 874,230
============ ============
Gross profit $ 569,215 $ 501,129
============ ============
Operating (loss) income $ (4,533) $ 101,182
============ ============
</TABLE>
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<PAGE>
NOTE 4 - INVENTORIES
- - --------------------
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 17,982 $ 270
Work in process 271 -
Finished goods 54,640 6,632
Packaging and other supplies 3,781 -
----------- ------------
$ 76,674 $ 6,902
=========== ============
</TABLE>
At December 31, 1998, the Company had commitments to buy raw materials of $23.8
million. No commitments existed at December 27, 1997.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
- - --------------------------------------
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Land $ 2,300 $ -
Machinery and equipment 106,577 14,357
Buildings and improvements 14,339 -
Furniture and fixtures 2,163 416
Computer equipment 2,065 313
Construction in progress 36,421 -
------------ ------------
163,865 15,086
Less accumulated depreciation (10,698) (1,011)
------------ ------------
$ 153,167 $ 14,075
============ ============
</TABLE>
At December 31, 1998, the Company had commitments for facility construction and
related machinery and equipment purchases aggregating approximately $4.9
million. No commitments existed at December 27, 1997.
NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS
- - --------------------------------------------
Goodwill and other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Goodwill $ 639,741 $ 216,485
Trademarks 342,162 99,600
Other intangibles 125,823 5,040
------------ ------------
1,107,726 321,125
Less accumulated amortization (34,966) (5,884)
------------ ------------
$ 1,072,760 $ 315,241
============ ============
</TABLE>
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<PAGE>
NOTE 7- ACCRUED LIABILITIES
- - ---------------------------
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Accrued interest $ 16,332 $ 8,383
Accrued marketing expenses 8,869 5,092
Accrued brokerage and distribution expenses 7,986 1,529
Accrued acquisition costs 6,059 895
Other 10,590 1,510
------------ ------------
$ 49,836 $ 17,409
============ ============
</TABLE>
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<PAGE>
NOTE 8 -- LONG TERM DEBT
Long term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
SENIOR SECURED DEBT
Senior secured term debt; interest rate of 6.8% at December
31, 1998; principal due in quarterly installments through
June 30, 2005; floating interest rate at the prime rate plus
0.50% or, alternatively, the one, two, three or six month
Eurodollar rate plus 1.50% payable quarterly or at the
termination of the Eurodollar contract interest period $ 220,000 $ -
Senior secured revolving debt; weighted average interest
rate of 7.0% at December 31, 1998; principal due June 30,
2005; floating interest rate at the prime rate plus 0.50%
or, alternatively, the one, two, three, or six month
Eurodollar rate plus 1.50% payable quarterly or at the
termination of the Eurodollar contract interest period 85,850 -
Senior secured term debt; weighted average interest rate of
8.0% at December 27, 1997; principal due in quarterly
installments through December 31, 2003; floating interest
rate at the prime rate plus 1.25% or, alternatively, the
one, two, three or six month Eurodollar rate plus 2.25%
payable quarterly or at the termination of the Eurodollar
contract interest period - 40,000
Senior secured revolving debt facility; interest rate of
8.0% at December 27, 1997; principal due December 31, 2003;
floating interest rate at prime plus 1.25% or,
alternatively, the one, two, three, or six month Eurodollar
rate plus 2.25% payable quarterly or at the termination of
the Eurodollar contract period - 37,500
SENIOR SUBORDINATED NOTES
Senior subordinated notes issued July 1, 1998 at par value
of $200,000; coupon interest rate of 8.75% with interest
payable each January 1 and July 1; matures July 1, 2008 200,000 -
Senior subordinated notes issued July 1, 1997 at par
value of $100,000 plus premium of $2,500; net of
unamortized premium of $2,242 and $2,419 at December 31,
1998 and December 27, 1997, respectively; coupon interest
rate of 9.875% with interest payable each August 15 and
February 15; matures on February 15, 2007 100,000 100,000
Senior subordinated notes issued February 10, 1997 at
par value of $100,000; coupon interest rate of 9.875%
with interest payable each August 15 and February 15;
matures on February 15, 2007 100,000 100,000
----------- ----------
705,850 277,500
Add: unamortized premium on senior subordinated notes 2,242 2,419
Less: current portion of senior secured term debt and
senior secured revolving debt facility (105,850) (4,375)
----------- ----------
Long term debt $ 602,242 $ 275,544
=========== ==========
</TABLE>
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<PAGE>
Annual principal payments for the next five years and thereafter consist of the
following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 20,000
2000 25,000
2001 30,000
2002 35,000
2003 40,000
Thereafter 555,850
--------
Total $705,850
========
</TABLE>
SENIOR SECURED DEBT
On December 31, 1996, the Company entered into a Credit Agreement (the
"Agreement") with several banks for $15.0 million of senior secured term debt
and a $45.0 million senior secured revolving debt facility.
The Company amended the Agreement, dated as of July 1, 1997, to provide for
borrowings of $40.0 million of senior secured term debt and a $60.0 million
senior secured revolving debt facility. Together with a $100.0 million senior
subordinated note offering and capital contributed from Holdings, the Company
consummated the LC acquisition, paid fees and expenses and provided for the
working capital requirements related to the acquisition.
The Company amended the Agreement, dated as of January 16, 1998, to provide for
borrowings of $450.0 million of senior secured term debt and $75.0 million
senior secured revolving debt facility. Together with capital contributed from
Holdings, the Company consummated the DH acquisition, paid fees and expenses and
provided for the working capital requirements related to the acquisition.
The Company amended the Agreement, dated as of July 1, 1998, to provide for
borrowings of $225.0 million of senior secured term debt and a $175.0 million
senior secured revolving debt facility. Together with a $200.0 million senior
subordinated note offering, the Company completed the repayment of debt in
connection with the Refinancings.
The $175.0 million senior secured revolving debt facility is subject to
limitations based on letters of credit. At December 31, 1998, the Company had
unused borrowing availability of $89.2 million. The Agreement requires a
commitment fee of 0.375% 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 December 31, 1998.
SENIOR SUBORDINATED NOTES
On February 10, 1997, the Company issued $100.0 million of senior subordinated
notes (the "MBW Notes"). The proceeds from the MBW Notes were primarily used to
retire debt incurred to finance the MBW acquisition. On July 1, 1997, the
Company issued $100.0 million of senior subordinated notes (the "LC Notes").
The LC Notes were issued at a premium in the amount of $2.5 million. The
unamortized balance of the premium on the LC Notes at December 31, 1998 and
December 27, 1997 was $2.2 million and $2.4 million, respectively. The proceeds
from the LC Notes were primarily used to fund the acquisition of LC (together,
the MBW Notes and the LC Notes are the "Notes").
The Company may redeem the Notes at any time after February 15, 2002, at the
redemption price together with accrued and unpaid interest. In addition, the
Company may redeem $35.0 million of the Notes at any time prior to February 15,
2000 subject to certain requirements, with the cash proceeds received from one
or more Equity Offerings (as defined), at a redemption price of 109.875%
together with accrued and unpaid interest. Upon a Change in Control (as
defined), the Company has the option at any time prior to February 15, 2002 to
redeem the Notes at a redemption price of 100% plus the Applicable Premium (as
defined), together with accrued and unpaid interest. If the Company does not
redeem the Notes or if the Change of Control occurs after February 15, 2002, the
Company is required to offer to repurchase the Notes at a price equal to 101%
together with accrued and unpaid interest.
52
<PAGE>
On July 1, 1998, the Company issued the New Notes. The proceeds from the New
Notes were used to repay senior secured debt and senior subordinated debt and
pay fees and expenses related to the repayment of the debt in connection with
the Refinancings.
The Company may redeem the New Notes at any time after July 1, 2003, at the
redemption price together with accrued and unpaid interest. In addition, the
Company may redeem $70.0 million of the New Notes at any time prior to July 1,
2003 subject to certain requirements, with the cash proceeds received from one
or more Subsequent Equity Offerings (as defined), at a redemption price of
108.75% together with accrued and unpaid interest. Upon a Change in Control (as
defined), the Company has the option at any time prior to July 1, 2003, to
redeem the New Notes at a redemption price of 100% plus the Applicable Premium
(as defined), together with accrued and unpaid interest. If the Company does
not redeem the New Notes or if the Change of Control occurs after July 1, 2003,
the Company is required to offer to repurchase the New Notes at a price equal to
101% together with accrued and unpaid interest.
The indentures include restrictive covenants, which limit additional borrowings,
cash dividends, sale of assets, mergers and the sale of stock. The Company was
in compliance with these covenants at December 31, 1998.
INTEREST RATE AGREEMENTS
The Company does not use derivative financial instruments for trading or
speculative purposes. In accordance with the New Senior Bank Facilities, the
Company is required to enter into interest rate protection agreements to the
extent necessary to provide that, when combined with the Company's senior
subordinated notes, at least 50% of the Company's aggregate indebtedness is
subject to either a fixed interest rate or interest rate protection agreements.
Accordingly, the Company's interest rate agreements are as follows:
Interest Rate Collar Agreement - At December 31, 1998, the Company was party to
two interest rate collar 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 6.5% (plus the applicable margin) and a
floor rate of 5.75% (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 rate of 7.5% (plus the applicable
margin) and a floor rate of 5.5% (plus the applicable margin).
Under the interest rate collar agreements, the Company would receive payments
from the counterparty if the three-month LIBOR rate exceeds the cap rates and
make payments to the counterparty 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 1998, the Company made payments
aggregating $0.1 million under the interest rate collar agreements. At December
31, 1998, the three-month LIBOR rate was 5.28%.
Interest Rate Swap Agreement - The Company entered into an interest rate swap
agreement on March 17, 1998. The notional principal amount covered under the
interest rate swap agreement is $150.0 million and the term is three years. The
effective swap rate was 5.81%. On November 30, 1998, the Company amended the
existing interest rate agreement whereby the counterparty received the option to
extend the termination date to March 17, 2003. The new effective swap rate
through the termination date of the interest rate swap agreement is 5.37%.
Under the interest rate swap agreement, the Company would receive payments from
the counterparty if the three-month LIBOR rate exceeds 5.37% and make payments
to the counterparty if the three-month LIBOR rate is less than 5.37%. The
payments would be calculated based upon the respective notional principal
amount. During fiscal 1998 the Company made payments aggregating $0.2 million
under the interest rate swap agreement.
Risks associated with the interest rate agreements include those associated with
changes in market value and interest rates. At December 31, 1998, the fair
value of the Company's interest rate agreements was immaterial and management
considers the potential loss in future earnings and cash flows attributable to
such agreements to be immaterial.
NOTE 9 - TRANSITION EXPENSES
- - ----------------------------
Transition expenses consist of one-time costs incurred to establish the
Company's operations and integrate the acquired businesses, including relocation
expenses, recruiting fees, sales support and other unique transitional expenses.
Transition expenses for the years ended December 31, 1998 and December 27, 1997
were approximately $10.3 million and $2.1 million, respectively.
53
<PAGE>
NOTE 10 - INCOME TAXES
- - ----------------------
The Company is included in the consolidated federal income tax return of
Holdings for the year ended December 27, 1997 and the six months ended June 25,
1998. 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 for the year ended December 27, 1997 and the six months ended June
25, 1998. The Company will file short period federal and state returns for the
six months ended December 31, 1998.
The provision for income taxes is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------
December 31, December 27,
1998 1997
------------- --------------
<S> <C> <C>
Current tax expense:
Federal $ - $ -
State - -
------------- --------------
Total current provision - -
------------- --------------
Deferred tax expense:
Federal 12,348 656
State 1,958 123
------------- --------------
Total deferred provision 14,306 779
------------- --------------
Total provision for income taxes $ 14,306 $ 779
============= ==============
Deferred tax assets (liabilities) consist of the
following:
Deferred tax assets - current:
Loss carryforwards $ - $ 1,230
Accounts receivable 1,350 -
Asset held for sale 1,814 -
Coupon reserves 1,321 844
Inventory 3,207 325
Accrued expenses 340 320
Other 219 247
------------- --------------
Total deferred tax assets - current 8,251 2,966
------------- --------------
Deferred tax assets - non-current:
Loss carryforwards 29,349 -
Incentive plan expense 19,773 873
------------- --------------
Total deferred tax assets - non-current 49,122 873
------------- --------------
Deferred tax liabilities - non-current:
Goodwill (40,421) (4,237)
Depreciation (9,350) (381)
------------- --------------
Total deferred tax liabilities - non-current (49,771) (4,618)
------------- --------------
Net deferred tax assets (liabilities) $ 7,602 $ (779)
============= ==============
</TABLE>
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 December 31, 1998, the Company generated a federal net operating loss of
approximately $78.3 million. These losses can be used to offset future taxable
income through the year 2018. 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.
54
<PAGE>
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 (in thousands):
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------
December 31, December 27,
1998 1997
-------------- -------------
<S> <C> <C>
(Benefit from) provision for income taxes
at U.S. statutory rate $ (7,432) $ 685
Increase (decrease) in tax
resulting from:
Non-deductible incentive plan expense 19,238 -
Non-deductible goodwill 393 -
Other non-deductible expenses 136 13
State taxes, net of federal benefit 1,293 81
Provision to return differences 775 -
Change in net state tax rate (97) -
-------------- -------------
$ 14,306 $ 779
============== =============
</TABLE>
NOTE 11 - LEASES
- - ----------------
The Company leases certain facilities, machinery and equipment under operating
lease agreements with varying terms and conditions. The leases are
noncancellable and expire on various dates through 2004.
Future annual minimum lease payments under these leases are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Minimum
Lease
Years ending December 31, Payments
------------------------- ----------------
<S> <C>
1999 $ 1,290
2000 1,273
2001 788
2002 618
2003 590
Thereafter 139
---------------
$ 4,698
===============
</TABLE>
Rent expense for the years ended December 31, 1998 and December 27, 1997 was
$1.0 million and $0.1 million, respectively.
NOTE 12 - SAVINGS AND BENEFIT PLANS
- - -----------------------------------
The Company offers a retirement savings plan to employees in the form of 401(k)
and profit sharing plans. Under the 401(k) plan, dry grocery division employee
contributions up to 6% of total compensation are matched 50% by the Company and
frozen food division employee contributions up to 3% of total compensation are
matched 100% 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 employees on an annual basis. Profit sharing contributions also vest
ratably over a five year period. The Company's contributions to the 401(k) and
profit sharing plans for the years ended December 31, 1998 and December 27, 1997
were $0.7 million and $0.1 million, respectively.
NOTE 13 - RELATED PARTY TRANSACTIONS
- - ------------------------------------
The Company maintains business relationships and engages in certain transactions
as described below.
The Company entered into a Management Services Agreement, dated December 31,
1996 and terminated on July 1, 1998, with Dartford Partnership L.L.C.
("Dartford"), whose partners include Messrs. Ian R. Wilson, Ray Chung and James
B. Ardrey and Ms. M. Laurie Cummings (all are directors and/or executive
officers of the Company) pursuant to which Dartford provided management
oversight on financial and operational matters. The Company
55
<PAGE>
paid fees to Dartford in connection with this agreement totaling $1.0 million
and $0.8 million for the years ended December 31, 1998 and December 27, 1997,
respectively. The annual management fee was $0.6 million prior to the
acquisition of LC, $0.9 million after the acquisition of LC but before the
acquisition of DH and $2.0 million after the acquisition of DH.
The Company entered into an Advisory Services Agreement, dated December 31, 1996
which terminated on July 1, 1998, with McCown De Leeuw & Co. III, L.P. ("MDC")
whose general partners and principal include Mr. David E. De Leeuw, Mr. Charles
Ayres and Mr. Tyler T. Zachem (all directors of the Company) pursuant to which
MDC provided certain advisory functions. The Company paid fees to MDC in
connection with this agreement totaling $0.3 million for each of the years ended
December 31, 1998 and December 27, 1997. The annual advisory fee was $0.2
million prior to the acquisition of LC, $0.3 million after the acquisition of LC
but before the acquisition of DH and $0.7 million after the acquisition of DH.
In connection with the acquisitions of MBW, LC and DH the Company paid to
certain members of MBW LLC, who are also represented on the Board of Directors
or officers of the Company and beneficial owners, fees for services rendered in
connection with the acquisitions and related financings. The aggregate amount
paid to certain members of MBW LLC for the years ended December 31, 1998 and
December 27, 1997 was $4.0 million and $4.7 million, respectively, and was
funded by the proceeds of the financings. Of this amount, $0 and $1.2 million
was paid to Dartford; $0 and $0.3 million in total was paid to Mr. Thomas J.
Ferraro (President, Dry Grocery Division) and Mr. C. Gary Willett (Executive
Vice President, Dry Grocery Division); $3.0 million and $2.7 million was paid to
MDC; and $1.0 million and $0.5 million was paid to Fenway Partners Capital Fund,
L.P. ("Fenway"), whose partners include Mr. Peter Lamm, Mr. Andrea Geisser and
Mr. Richard C. Dresdale (all directors of the Company) in 1998 and 1997,
respectively. The fee amounts were negotiated among the equity investors.
Each of Fenway, MDC, and Dartford earned $1.5 million; UBS Capital LLC, whose
president is Mr. Charles J. Delaney (a director of the Company), earned $0.2
million; and each of Tiger Oats Limited, whose directors include Mr. Clive A.
Apsey (a director of the Company), and the California Public Employees
Retirement System, who granted the right to vote all of the public shares of
common stock of the Company it holds to MDC under an irrevocable proxy, earned
$0.1 million in fees in connection with the Contribution transaction.
The Company has entered into agreements pursuant to which it agreed to pay
transaction fees to each of Fenway, MDC, and Dartford of 0.333% of the
acquisition price for future acquisitions by the Company. The acquisition price
is defined as the sum of (i) the cash purchase price actually received by the
seller, (ii) the fair market value of any equity securities issued by the
seller, (iii) the face value of any debt securities issued to the seller less
any discounts, (iv) the amount of liabilities assumed by the Company plus (v)
the fair market value of any other property or consideration paid in connection
with the acquisition, with installment or deferred payments to be calculated
using the present value thereof.
The Company has agreed to pay Dartford $0.8 million per year as reimbursement of
corporate headquarters expenses which include staff salaries, miscellaneous
office expenses related to the administration of the Company's corporate
headquarters, and rent for the space leased by Dartford and used by the Company
as its corporate headquarters for a term ending the earlier of July 1, 2000 and
the date that Mr. Wilson is no longer Chief Executive Officer of the Company.
On December 31, 1996 and January 16, 1998, Mr. Ferraro, executed promissory
notes in the amount of $60,000 and $131,000, respectively, in favor of the
Company to evidence monies borrowed to assist in the capitalization of his
limited liability company interests held in MBW LLC. The promissory notes
mature December 31, 1999 and January 16, 2001. Interest is due and payable
quarterly at the rate of 8% per annum and there are required annual principal
payments. The aggregate balance outstanding on his promissory notes was
$151,000 as of December 31, 1998 and was $40,000 as of December 27, 1997.
On September 19, 1995, Mr. Ellinwood, executed a promissory note in the amount
of $125,000 in favor of VDK to evidence monies borrowed to assist in the
capitalization of his limited liability company interests held in VDK LLC. The
promissory note matures March 31, 1999. Interest is due and payable quarterly
at the rate of 8.5% per annum. The balance outstanding on his promissory note
as of December 31, 1998 and December 27, 1997 was $41,666.
56
<PAGE>
NOTE 14 - INCENTIVE PLAN EXPENSE
- - --------------------------------
AURORA INCENTIVE PLAN
The Amended and Restated Limited Liability Company Agreement of MBW LLC
contained an incentive plan (the "Aurora Plan") as a means by which certain key
employees and other specifically designated persons ("Aurora Covered Employees")
of AurFoods and/or affiliated with AurFoods, were given an opportunity to
benefit from appreciation in the value of AurFoods. Under the Aurora Plan,
Aurora Covered Employees were issued a specific class of limited liability
company member units ("Management Units"), at a nominal value, as a means to
participate in the appreciation of the equity value of AurFoods. The Management
Units were subject to vesting requirements based on terms of employment or other
factors.
Prior to the closing of the Equity Offerings, the final value of all classes of
Management Units were determined based on the valuation of the Common Stock held
indirectly by MBW LLC, and upon the closing of the Equity Offerings all unvested
Management Units became fully vested. The aggregate value of all Management
Units was $58.9 million. Through December 27, 1997, the Company had recorded
estimated incentive plan expense of $2.3 million based on the estimated
valuation of the Company at that time. Additional incentive plan expense of
$56.6 million was recorded in the first and second quarters of 1998.
The incentive plan expense was recorded as a liability of MBW LLC as sponsor of
the Aurora Plan. However, because the Aurora Plan was for the benefit of Aurora
Covered Employees, expense recognized under the Aurora Plan was pushed down to
the Company as incentive plan expense and as additional paid-in capital from its
parent. No additional incentive plan expense will be recorded under the Aurora
Plan.
MBW LLC satisfied its liability under the Aurora Plan by distributing 4,152,417
shares of Common Stock of the Company based on the valuation of the Management
Units at the initial public offering price of the Company's Common Stock on the
dissolution of MBW Investors LLC.
VDK INCENTIVE PLAN
VDK LLC provided a compensation arrangement (the "VDK Plan") as a means by which
certain key employees, and other specifically designated persons ("VDK Covered
Employees") of VDK and/or affiliated with VDK, were given an opportunity to
benefit from appreciation in the equity value of VDK. Under the VDK Plan, VDK
Covered Employees were issued a specific class of limited liability company
member units and/or performance-based units (collectively, "VDK Management
Units"), at a nominal value, as a means to participate in the appreciation of
the equity value of VDK. The VDK Management Units were subject to vesting
requirement based on terms of employment or other factors.
Prior to the closing of the Equity Offerings, the final value of all classes of
VDK Management Units were determined based on the valuation of the shares of the
Company held indirectly by VDK LLC, and upon the closing of the Equity Offerings
all unvested VDK Management Units became fully vested. The aggregate value of
all VDK Management Units was $66.7 million. Through December 31, 1997, no
incentive plan expense had been recorded by VDK based on the estimated valuation
of VDK at that time. Incentive plan expense of $66.7 million was recorded in
the first and second quarters of 1998. The incentive plan expense was recorded
as a liability of VDK LLC as sponsor of the VDK Plan. However, because the VDK
Plan was for the benefit of VDK Covered Employees, expense recognized under the
VDK Plan was pushed down to VDK as incentive plan expense and as additional
paid-in capital from its parent. No additional incentive plan expense will be
recorded under the VDK Plan.
VDK LLC (or the Company as described below) will distribute a fixed number of
shares of Common Stock of the Company upon the dissolution of VDK LLC, based on
the valuation of the VDK Management Units at the initial public offering price
of the Company's Common Stock.
The VDK Plan provides for tax gross-up payments on certain distributions.
Because the Company will receive the tax benefit of such distributions and
related tax gross-up payments, and because the tax benefit is expected to exceed
the amount of the tax gross-up payments, the Company will bear the $12.4 million
liability for any such tax gross-up payments due. The tax benefit of the tax
gross-up payment and related distributions of $19.6 million, which more than
offsets the gross-up payments, has been recorded to income tax expense and as a
deferred tax asset.
57
<PAGE>
To facilitate payment of the tax gross-up obligation and recognition of related
tax benefits, VDK adopted a new incentive plan (the "New VDK Plan" and together
with the VDK Plan, the "VDK Plans"), which was assumed by the Company in
connection with the Contribution. Under the New VDK Plan, the Company is
obligated to distribute no later than July 1, 1999 1,801,769 shares of the
Company's Common Stock to VDK Covered Employees who were granted certain types
of VDK Management Units under the VDK Plan. The issuance of such shares (the
"MC Shares") will not increase the number of outstanding shares of Common Stock
because the Company's obligations to issue the MC Shares is contingent upon the
Company's receiving from VDK LLC, as a contribution, a number of shares of the
Company's Common Stock owned by VDK LLC equal to the number of MC Shares. The
Company will have no obligation to issue MC Shares unless it receives a
contribution of an equal number of shares from VDK LLC. VDK LLC is obligated to
contribute such shares to the Company after the closing of the Equity Offerings.
The Company's obligation to make the tax gross-up payments referred to above is
subject to the Company being allowed a deduction for federal income tax purposes
with respect to the payment of the MC Shares and tax gross-up payment.
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
- - ------------------------------------------------
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.
The Company has entered into manufacturing contracts, which require minimum
annual production orders. The minimum annual production orders for all
contracts through the year 2002 are 5.8 million cases of product. This volume
represents substantially less than the Company's current production
requirements.
NOTE 16 - STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
- - --------------------------------------------------------
The Company has a stock option plan and an employee stock purchase plan as
described below. The Company applies APB 25 and its related interpretations in
accounting for its plans. No compensation cost has been recognized for its
stock option plans because grants have been made at exercise prices at or above
fair market value of the common stock on the date of grant.
Prior to the Equity Offerings, the Board of Directors adopted the 1998 Long Term
Incentive Plan (the "1998 Option Plan") and the sole stockholder approved such
plan. Under the 1998 Option Plan, the Company is authorized to grant both
incentive and non-qualified stock options to purchase common stock up to an
aggregate amount of 3,500,000 shares. No incentive stock options may be granted
with an exercise price less than fair market value of the stock on the date of
grant; non-qualified stock options may be granted at any price but, in general,
are not granted with an exercise price less than the fair market value of the
stock on the date of grant. Options are generally granted with a term of ten
years and vest ratably over three years beginning on either the first or third
anniversary of the date of grant.
As of December 31, 1998, the Company has granted 2,031,900 options under the
1998 Option Plan. Exercise prices ranged from $15 to $21 per share. The
weighted average option price for 1998 was $20.91.
For the purposes of calculating compensation cost under SFAS 123, the minimum
fair value of each option grant is estimated on the date of grant using the
Black-Scholes single option pricing model with the following weighted-average
assumptions: dividend yield of 0%, expected volatility of 0.20, a risk-free
interest rate of 4.8% and expected option lives of three to five years. Had the
minimum value of the options been calculated in accordance with SFAS 123, net
loss available to common stockholders would have been $46.2 million and loss per
diluted share would have been $0.86.
Prior to the Equity Offerings, the Board of Directors adopted the 1998 Employee
Stock Purchase Plan (the "1998 Purchase Plan") and the sole stockholder approved
such plan covering an aggregate of 200,000 shares of common stock. Under the
1998 Purchase Plan, eligible employees have the right to purchase common stock
at 85% of the lower of the fair market value of the common stock on the
commencement date of each offering period or the date of purchase. Purchases
are made from accumulated payroll deductions of up to 15% of such employee's
earnings. During the year ended December 31, 1998, 16,193 shares were purchased
under the 1998 Purchase Plan at $16.84 per share.
58
<PAGE>
NOTE 17 - EARNINGS PER SHARE
- - ----------------------------
Basic earnings per share represents the income available to common stockholders
divided by the weighted average number of common shares outstanding during the
measurement period. Diluted earnings per share represents the income available
to common stockholders divided by the weighted average number of common shares
outstanding during the measurement period while also giving effect to all
potentially dilutive common shares that were outstanding during the period.
Potentially dilutive common shares consist of stock options (the dilutive impact
is calculated by applying the "treasury stock method").
The table below summarizes the numerator and denominator for the basic and
diluted earnings per share calculations (in thousands except per share amounts):
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
December 31, December 27,
1998 1997
-------------- --------------
<S> <C> <C>
Numerator:
Net (loss) income before
extraordinary item $ (36,166) $ 1,235
Extraordinary item, net of tax 9,211 -
-------------- --------------
Net (loss) income $ (45,377) $ 1,235
============== ==============
Denominator - Basic shares:
Average common shares outstanding 53,541 29,053
Basic earnings per share $ (0.85) $ 0.04
============== ==============
Denominator - Diluted shares:
Average common shares outstanding 53,541 29,053
Dilutive effect of common stock
equivalents - -
-------------- --------------
Total diluted shares 53,541 29,053
-------------- --------------
Diluted earnings per share $ (0.85) $ 0.04
============== ==============
</TABLE>
NOTE 18 - SEGMENT INFORMATION
- - -----------------------------
The Company groups its businesses in two operating segments: dry grocery
division and frozen food division. The operating segments are managed as
strategic units due to their distinct manufacturing methodologies, distribution
channels and dedicated segment management teams. The dry grocery division
includes Duncan Hines(R) baking mix, and Mrs. Butterworth's(R) and Log Cabin(R)
syrup products. The frozen food division includes Van de Kamp's(R) and Mrs.
Paul's(R) frozen seafood, Aunt Jemima(R) frozen breakfast and Celeste(R) brand
frozen pizza products.
59
<PAGE>
The following table presents a summary of operations by segment (in thousands):
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
December 31, December 27,
1998 1997
-------------- ---------------
<S> <C> <C>
Net sales
Dry grocery $ 508,364 $ 143,020
Frozen food 280,829 -
-------------- ---------------
Total $ 789,193 $ 143,020
============== ===============
Operating income
Dry grocery $ 88,646 $ 27,811
Frozen food 22,783 -
Other (66,667) (4,413)
-------------- ---------------
Total $ 44,762 $ 23,398
============== ===============
Total assets
Dry grocery $ 958,129 $ 372,739
Frozen food 475,753 -
-------------- ---------------
Total $ 1,433,882 $ 372,739
============== ===============
Depreciation and amortization
Dry grocery $ 26,754 $ 10,057
Frozen food 14,589 -
-------------- ---------------
Total $ 41,343 $ 10,057
============== ===============
Capital expenditures
Dry grocery $ 25,895 $ 2,411
Frozen food 13,904 -
-------------- ---------------
Total $ 39,799 $ 2,411
============== ===============
</TABLE>
The Other line item in operating income is comprised of one-time expenses
related to incentive plan expense (See Note 14-Incentive Plan Expense) and
transition expenses (See Note 9-Transition Expenses) that were incurred in the
respective periods.
60
<PAGE>
NOTE 19- QUARTERLY FINANCIAL DATA
- - ---------------------------------
Unaudited quarterly financial data for the years ended December 31, 1998 and
December 27, 1997 are as follows (in thousands except per share data):
<TABLE>
<CAPTION>
Quarter 1 Quarter 2 Quarter 3 Quarter 4
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Net sales $ 89,385 $ 199,813 $ 220,368 $ 279,627
Gross profit 51,651 118,070 131,104 170,821
Operating income (loss) (50,138) 25,562 28,215 41,123
Adjusted operating income 11,788 24,667 29,484 45,763
Net income (loss) (64,832) 3,230 654 15,571
Basic earnings (loss) per share (1.20) 0.06 0.01 0.28
Diluted earnings (loss) per share (1.20) 0.06 0.01 0.28
Adjusted basic earnings per share 0.08 0.03 0.12 0.28
Year ended December 27, 1997:
Net sales $ 21,253 $ 21,639 $ 49,125 $ 51,003
Gross profit 14,086 14,535 33,896 34,774
Operating income 4,826 3,346 10,146 5,080
Adjusted operating income 4,952 3,528 11,135 8,196
Net income (loss) (71) 415 1,923 (1,032)
Basic earnings (loss) per share 0.00 0.01 0.07 (0.04)
Diluted earnings (loss) per share 0.00 0.01 0.07 (0.04)
Adjusted basic earnings per share 0.00 0.02 0.09 0.03
</TABLE>
Adjusted operating income excludes incentive plan expense and transition
expenses for the respective quarters. Adjusted basic earnings per share exclude
the after-tax effect of incentive plan expense, transition expenses and
extraordinary items for the respective quarters.
61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors
of CONOPCO, Inc.
We have audited the accompanying statement of operations for the year ended
December 31, 1996 of Mrs. Butterworth's Business, a component of CONOPCO, Inc.
(the "Business"). This financial statement is the responsibility of CONOPCO,
Inc.'s management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statement was prepared to present the results of
operations of the Business pursuant to the purchase agreement between CONOPCO,
Inc. and MBW Acquisition Corp. (the "Buyer") as described in Note 1.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the results of its operations for the Business for the
year ended December 31, 1996, pursuant to the purchase agreement referred to in
Note 1, in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
San Francisco, California
March 14, 1997
62
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
---------------------
<S> <C>
Net sales $ 89,541
Costs and expenses:
Cost of products
sold 28,955
Brokerage and distribution 8,140
Trade promotions 17,672
Consumer marketing 10,835
Selling, general and administrative 6,753
---------
Total costs and expenses 72,355
---------
Income before taxes 17,186
Provision for income taxes 6,616
---------
Net income $ 10,570
=========
</TABLE>
The accompanying notes are an integral part of the statement of operations.
63
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
NOTES TO STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
In December 1996, CONOPCO, Inc. ("CONOPCO" or the "Company"), a subsidiary
of Unilever United States, Inc., entered into an Asset Purchase Agreement
(the "Agreement") with MBW Acquisition Corp., the predecessor of MBW Foods
Inc. (the "Buyer"). The Agreement provides for the sale of certain assets
of CONOPCO pertaining to its Mrs. Butterworth's Business (the "Business")
and the assumption of certain liabilities relating to future commitments as
defined (see Note 7). The Business was operated as part of Van den Bergh
Foods Company ("Van den Bergh"), a division of the Company. The Business'
products, which are distributed on a national basis, consist of syrup and
pancake mix. A significant portion of the Business' net sales are with
major retailers.
The sale was consummated on December 31, 1996, after the close of business
but before the end of the business day. Under the terms of the Agreement,
CONOPCO, Inc. sold to the Buyer certain assets exclusively used in the
Business, as defined in the Agreement, and retains the manufacturing
plants, employees and the retained liabilities of the Business, as defined
in the Agreement.
Throughout the period covered by the financial statements, the Business
operations were conducted and accounted for as a part of the Company. The
Statement of Operations has been carved out from the Company's historical
accounting records.
Under the Company's centralized cash management system, cash requirements
of the Business were generally provided directly by the Company and cash
generated by the Business was generally remitted directly to the Company.
Transaction systems (e.g., payroll, employee benefits, accounts payable)
used to record and account for cash disbursements were provided by
centralized company organizations outside the defined scope of the
Business. Most of these corporate systems are not designed to track
assets/liabilities and receipts/payments on a business specific basis.
Given these constraints and the fact that only certain assets of the
Business were sold, statements of financial position and cash flows could
not be prepared.
The manufacturing and distribution operations of the Business are conducted
at sites where other Company manufacturing and distribution not included in
the Business are present. In addition, certain non-manufacturing
operations of the Business share facilities and space with other Company
operations. At these shared sites, only the assets of the Business
(inventories and machinery and equipment) were sold in accordance with the
Agreement.
Net sales in the accompanying Statement of Operations represent net sales
directly attributable to the Business. Costs and expenses in the
accompanying statement of operations represent direct and allocated costs
and expenses related to the Business. Costs for certain functions and
services performed by centralized Company organizations outside the defined
scope of the Business have been allocated to the Business based on usage or
sales of the Business, as appropriate, compared to total Van Den Bergh
usage or sales. The results of operations include expense allocations for
(1) costs for administrative functions and services performed on behalf of
the Business by centralized staff groups within the Company, (2) research
and development expense and (3) CONOPCO's general corporate expenses
including pension and certain other postretirement benefits costs (see Note
2, 3 and 5 for a description of the allocation methodologies employed).
CONOPCO maintains all debt and notes payable on a consolidated basis to
fund and manage all of its operations. Debt and related interest expense
were not allocated to the Business.
All of the allocations and estimates in the Statement of Operations are
based on assumptions that Company management believes are reasonable under
the circumstances. However, these allocations and estimates are not
necessarily indicative of the costs and expenses that would have resulted
if the Business had been operated as a separate entity or future results of
the Business.
64
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
NOTES TO STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income recognition. Sales and related cost of products sold are included
in income and expense, respectively, when products are shipped to the
customer.
Inventories. Inventories are priced at the lower of cost or market with
cost determined by the last-in, first-out (LIFO) method.
Machinery and equipment ("M&E"). M&E is stated at historical cost.
Alterations and major overhauls which extend the lives of its property or
increase the capacity of M&E are capitalized. The amounts for property
disposals are removed from M&E and accumulated depreciation accounts and
any resultant gain or loss is included in earnings. Ordinary repairs and
maintenance are charged to operating costs.
Depreciation. Van Den Bergh calculates depreciation using the straight-line
method over the useful lives of its property and M&E. Depreciation provided
in costs and expenses is allocated to the Business based on sales of the
Business compared to total Van Den Bergh sales.
Cost of Products Sold. Cost of products sold includes direct costs of
materials, labor, and overhead and allocated costs for facilities,
functions and services used by the Business at shared sites. Overhead
allocations are based on estimated time spent by employees, relative use of
facilities, estimated consumption of supplies, and sales of the Business
compared to total Van Den Bergh sales.
Brokerage and distribution. Brokerage and distribution includes costs of
the outside brokerage network and outbound freight.
Trade promotions. Trade promotions represents promotional incentives
offered to retailers.
Consumer marketing. Consumer marketing is comprised of all costs associated
with advertising coupons. Advertising expense is accrued as incurred.
Production costs are expensed on the initial use of the advertisement.
Selling, general and administrative. Selling, general and administrative
consists solely of allocated selling, administration and research and
development expenses. The Business is allocated these expenses based on
sales of the Business compared to total Van den Bergh sales.
Income taxes. The taxable income of the Business was included in the tax
returns of CONOPCO. As such, separate income tax returns were not prepared
or filed for the Business. The provision for income taxes included in the
accompanying Statement of Operations has been determined based upon
statutory rates applied to pre-tax income.
Pensions. The Company has noncontributory defined benefit plans covering
substantially all U.S. employees, including the employees of the Business.
The benefits for these plans are based primarily on employees' years of
service and employees' compensation during the last years of employment.
It is the Company's policy to fund at least the minimum amounts required by
the Employee Retirement Income Security Act of 1974. The Company maintains
profit-sharing and savings plans for full-time employees who meet certain
eligibility requirements. The costs allocated to the Business relative to
the aforementioned plans are based on sales of the Business.
Other post retirement benefits. The Company provides certain health care
and life insurance benefits (post retirement benefits) to substantially all
eligible retired U.S. employees and their dependents. These benefits are
accounted for as they are earned by active employees. The post retirement
costs allocated to the Business are based on sales of the Business.
65
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
NOTES TO STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
these estimates. Also, as discussed in Note 1, the Statement of Operations
includes allocations and estimates that are not necessarily indicative of
the costs and expenses that would have resulted if the Business had been
operated as a separate entity or future results of the Business.
3. Related Party Transactions
The Statement of Operations includes significant allocations from other
Company organizations involving functions and services (such as finance and
accounting, management information systems, research and development,
legal, human resources and purchasing) that were provided to the Business
by centralized CONOPCO organizations outside the defined scope of the
Business. The costs of these functions and services have been allocated to
the Business using methods that CONOPCO's management believes are
reasonable. Such allocations are not necessarily indicative of the costs
that would have been incurred if the Business had been a separate entity.
Total cost of products sold includes $2,656 in allocated costs for the year
ended December 31, 1996. Selling, general and administrative expenses
include $6,753 of allocated costs for the year ended December 31, 1996.
4. PROVISION FOR INCOME TAXES
Taxes computed at the U.S. statutory rates are summarized below:
<TABLE>
<CAPTION>
1996
-------------------------
Amount %
----------- ---------
<S> <C> <C>
Federal $ 5,843 34.0
State (net of federal tax benefit) 773 4.5
----- ----
Provision for income taxes $ 6,616 38.5
===== ====
</TABLE>
5. INVENTORIES
The Company's application of LIFO is not attributable to individual
business units. Accordingly, the results of applying LIFO have been
allocated to the Business based on relative inventory values. Management
believes such allocations are reasonable, but may not necessarily reflect
the cost that would have been incurred if LIFO had been applied on a
business specific basis.
6. DEPRECIATION EXPENSE
Depreciation provided in costs and expenses was $277 in 1996.
7. COMMITMENTS AND CONTINGENCIES
The Business is currently subject to certain lawsuits and claims with
respect to matters such as product liability and other actions arising in
the normal course of business. Such lawsuits and claims, as defined in the
Agreement, are the responsibility of CONOPCO.
In the normal course of its operations, the Business has informal
agreements with two suppliers to provide the Business with its glass bottle
requirements. These informal agreements contain no specified duration and
are subject to price adjustments. If these agreements were to terminate,
the Company expects that the Business would acquire any on-hand inventory
of the suppliers.
66
<PAGE>
Schedule IX - Valuation Reserves
- - ---------------------------------
<TABLE>
<CAPTION>
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>
December 27, 1997
Allowance for doubtful accounts $ - $ 140,000 $ - $ - $ 140,000
========== ========== ========= ========== ============
December 31, 1998
Allowance for doubtful accounts $ 140,000 $ 202,000 $ 419,000 $ (91,000) $ 670,000
========== ========== ========= ========== ============
</TABLE>
67
<PAGE>
Exhibit 10.48
AURORA FOODS INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the 1998 Employee Stock Purchase Plan is to
-------
provide employees of the Company and its Designated Subsidiaries with an
opportunity to purchase Common Stock of the Company through accumulated payroll
deductions. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of
1986, as amended. The provisions of the Plan, accordingly, shall be construed so
as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Aurora Foods Inc., a Delaware corporation,
-------
and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
-1-
<PAGE>
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Offering
-------------
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the NASDAQ
National Market or The NASDAQ Small Cap Market of The NASDAQ Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "Offering Period" shall mean a period of approximately six (6)
---------------
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after January 1 and terminating on the
last Trading Day in the period ending the following June 30, or commencing on
the first Trading Day on or after July 1 (beginning in 1998) and terminating on
the last Trading Day in the period ending the following December 31. The
duration of Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1998 Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
-2-
<PAGE>
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the NASDAQ System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company for the three
(3) months immediately preceding a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its Subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after January 1 and July 1 of each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which
-3-
<PAGE>
such authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may decrease the rate of his or her payroll
deductions during the Offering Period to 0% by completing or filing with the
Company a new subscription agreement authorizing a change in payroll deduction
rate. The Board may, in its discretion, limit the number of participation rate
changes during any Offering Period. The change in rate shall be effective with
the first full payroll period following five (5) business days after the
Company's receipt of the new subscription agreement unless the Company elects to
process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the
-4-
<PAGE>
Exercise Date of such Offering Period (at the applicable Purchase Price) up to a
number of shares of the Company's Common Stock determined by dividing such
Employee's payroll deductions accumulated prior to such Exercise Date and
retained in the Participant's account as of the Exercise Date by the applicable
Purchase Price; provided that in no event shall an Employee be permitted to
purchase during each Offering Period more than 5,000 shares (subject to any
adjustment pursuant to Section 19), and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The Option shall expire
on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
-5-
<PAGE>
11. Termination of Employment. Upon a participant's ceasing to be an
-------------------------
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 200,000 shares. Shares issued under the Plan may be authorized but
unissued shares or reacquired shares; provided, however, that a maximum of
100,000 (as adjusted according to Section 19, hereof) of the shares may be
authorized but unissued shares. If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event
-6-
<PAGE>
of such participant's death subsequent to an Exercise Date on which the option
is exercised but prior to delivery to such participant of such shares and cash.
In addition, a participant may file a written designation of a beneficiary who
is to receive any cash from the participant's account under the Plan in the
event of such participant's death prior to exercise of the option. If a
participant is married and the designated beneficiary is not the spouse, spousal
consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
-7-
<PAGE>
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
-8-
<PAGE>
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an Offing
Period may be terminated by the Board of Directors on any Exercise Date if the
Board determines that the termination of the Plan is in the best interests of
the Company and its stockholders. Except as provided in section 19 hereof, no
amendment may make any change in any option theretofore granted which adversely
affects the rights of any participant. To the extent necessary to comply with
Section 423 of the Code (or any other applicable law, regulation or stock
exchange rule), the Company shall obtain stockholder approval in such a manner
and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant's rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Condition Upon Issuance of Shares. Shares shall not be issued with
---------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in, the opinion of
counsel for the Company, such a representation is required by
-9-
<PAGE>
any of the aforementioned applicable provisions of law.
23. Term of Plan. Subject to Section 19, the Plan shall become effective
------------
upon the date of the Company's initial public offering of its equity securities
registered on Form S-1 with the Securities and Exchange Commission. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 20 hereof.
-10-
<PAGE>
EXHIBIT A
---------
AURORA FOODS INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ______________________________________ hereby elects to participate in the
Aurora Foods Inc. 1998 Employee Stock Purchase Plan (the "Purchase Plan")
and subscribes to purchase shares of the Company's Stock in accordance with
this Subscription Agreement and the Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
_____% of my Compensation on each payday (not to exceed 15%) during the
Offering Period in accordance with the Purchase Plan. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Purchase Plan. I understand that if I do
not withdraw from an Offering Period, any accumulated payroll deductions
will be used to automatically exercise my option.
4. I have received a copy of the complete Purchase Plan. I understand that my
participation in the Purchase Plan is in all respects subject to the terms
of the Plan.
5. Shares purchased for me under the Purchase Plan should be issued in the
name(s) of (Employee or Employee and Spouse only):________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Purchase Plan within 2 years after the Enrollment Date (the first day of
the Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary income
at the time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were purchased by
me over the price which I paid for the shares. I hereby agree to notify
------------------------
the Company in writing within 30 days after the date of any disposition of
--------------------------------------------------------------------------
shares and I will make adequate provision for Federal, state or other tax
-------------------------------------------------------------------------
withholding obligations, if any,
-------------------------------
Ex. A-1
<PAGE>
which arise upon the disposition of the Common Stock. The Company may, but
----------------------------------------------------
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions
or benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the 2-
year holding period, I understand that I will be treated for federal income
tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Purchase Plan. The
effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Purchase Plan:
NAME: (Please print)
__________________________________________________
(First) (Middle) (Last)
___________________ __________________________________________________
Relationship
__________________________________________________
(Address)
Employee's Social
Security Number: __________________________________________________
Employee's Address: __________________________________________________
__________________________________________________
__________________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Ex. A-2
<PAGE>
Date:________________ __________________________________________________
Signature of Employee
_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
Ex. A-3
<PAGE>
EXHIBIT B
---------
AURORA FOODS INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Aurora Foods Inc.
1998 Employee Stock Purchase Plan which began on ______, 19___ (the "Enrollment
Date") hereby notifies the Company that he or she hereby withdraws from the
Offering Period. He or she hereby directs the Company to pay to the undersigned
as promptly as practicable all the payroll deductions credited to his or her
account with respect to such Offering Period. The undersigned understands and
agrees that his or her option for such Offering Period will be automatically
terminated. The undersigned understands further that no further payroll
deductions will be made for the purchase of shares in the current Offering
Period and the undesigned shall be eligible to participate in succeeding
Offering Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
_______________________________________
_______________________________________
_______________________________________
Signature:
_______________________________________
Date:__________________________________
Ex. B-1
<PAGE>
Exhibit 10.50
AURORA FOODS INC. 1998 LONG TERM INCENTIVE PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SECTION 1. GENERAL PROVISIONS RELATING
TO PLAN GOVERNANCE, COVERAGE AND BENEFITS.............................. 1
1.1. PURPOSE........................................................... 1
1.2. DEFINITIONS....................................................... 1
1.3. ADMINISTRATION.................................................... 4
1.4. SHARES OF COMMON STOCK SUBJECT TO THE PLAN........................ 5
1.5. PARTICIPATION..................................................... 6
1.6. INCENTIVE AWARDS.................................................. 6
1.7. MAXIMUM INDIVIDUAL RIGHTS......................................... 6
SECTION 2. STOCK OPTIONS........................................................... 6
2.1. GRANT OF OPTIONS.................................................. 6
2.2. OPTION TERMS...................................................... 7
2.3. OPTION EXERCISES.................................................. 7
SECTION 3. PROVISIONS RELATING TO PLAN PARTICIPATION............................... 8
3.1. PLAN CONDITIONS................................................... 8
3.2. TRANSFERABILITY................................................... 9
3.3. RIGHTS AS A STOCKHOLDER........................................... 9
3.4. LISTING AND REGISTRATION OF SHARES OF COMMON STOCK................ 10
3.5. CHANGE IN STOCK AND ADJUSTMENTS................................... 10
3.6. TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT....... 11
3.7. CHANGES OF CONTROL................................................ 12
3.8. AMENDMENTS TO INCENTIVE AWARDS.................................... 14
3.9. EXCHANGE OF INCENTIVE AWARDS...................................... 14
3.10. FINANCING......................................................... 14
SECTION 4. MISCELLANEOUS........................................................... 14
4.1. EFFECTIVE DATE AND GRANT PERIOD................................... 14
4.2. FUNDING........................................................... 15
4.3. WITHHOLDING TAXES................................................. 15
4.4. CONFLICTS WITH PLAN............................................... 15
4.5. NO GUARANTEE OF TAX CONSEQUENCES.................................. 15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.6. SEVERABILITY...................................................... 16
4.7. GENDER, TENSE AND HEADINGS........................................ 16
4.8. AMENDMENT AND TERMINATION......................................... 16
4.9. SECTION 280G PAYMENTS............................................. 16
4.10. GOVERNING LAW..................................................... 17
4.11. LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND
PERFORMANCE-BASED COMPENSATION.................................... 17
</TABLE>
(ii)
<PAGE>
AURORA FOODS INC. 1998 LONG TERM INCENTIVE PLAN
SECTION 1. GENERAL PROVISIONS RELATING
TO PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1. PURPOSE
-------
The purpose of the Aurora Foods Inc. 1998 Long Term Incentive Plan
(the "Plan") is to foster and promote the long-term financial success of Aurora
Foods Inc. (the "Company") and materially increase the value of the equity
interests in the Company by: (a) encouraging the long-term commitment of
selected key employees (defined in Section 1.2(h) below), (b) motivating
superior performance of key employees by means of long-term performance related
incentives, (c) encouraging and providing key employees with a formal program
for obtaining an ownership interest in the Company, (d) attracting and retaining
outstanding key employees by providing incentive compensation opportunities
competitive with other major companies and (e) enabling participation by key
employees in the long-term growth and financial success of the Company. The Plan
provides for payment of various forms of incentive compensation and,
accordingly, is not intended to be a plan that is subject to the Employee
Retirement Income Security Act of 1974, as amended, and shall be administered
accordingly.
1.2. DEFINITIONS
-----------
The following terms shall have the meanings set forth below:
(a) BOARD. The Board of Directors (or equivalent governing authority)
of the Company.
(b) CHANGE OF CONTROL. Any of the events described in and subject to
SECTION 3.7.
(c) CODE. The Internal Revenue Code of 1986, as amended.
(d) COMMITTEE. The Committee, which shall be comprised of two or more
members of the Board, each of whom is both a "non-employee director" as defined
by Rule 16b-3 of the Exchange Act and an "outside director" for purposes of
Section 162(m) of the Code, who shall be appointed by the Board to administer
the Plan, which Board shall have the power to fill vacancies on the Committee
arising by resignation, death, removal or otherwise. In the absence of a
Committee, reference thereto shall be to the Board.
(e) COMMON STOCK. Company Common Stock, par value $.01 per share,
which the Company is authorized to issue or may in the future be authorized to
issue.
-1-
<PAGE>
(f) COMPANY. Aurora Foods Inc. and any successor corporation.
(g) DISABILITY. Any complete and permanent disability as defined in
Section 22(e)(3) of the Code and determined in accordance with the procedures
set forth in the regulations, thereunder.
(h) EMPLOYEE. Any common-law employee of the Company, Parent or
Subsidiary, who, in the opinion of the Committee, is one of a select group of
executive officers, other officers or other key management personnel of the
Company, Parent or Subsidiary who is in a position to contribute materially to
the continued growth and development and to the continued financial success of
the Company, Parent or Subsidiary, including executive officers and officers who
are members of the Board and including consultants and advisors.
(i) EXCHANGE ACT. The Securities and Exchange Act of 1934, as
amended.
(j) FAIR MARKET VALUE. The closing sales price of Common Stock as
reported or listed on a national securities exchange on any relevant date for
valuation, or, if there is no such sale on such date, the applicable prices as
so reported on the nearest preceding date upon which such sale took place. In
the event the shares of Common Stock are not listed on a national securities
exchange, the Fair Market Value of such shares shall be determined by the
Committee in its sole discretion.
(k) GRANTEE. Any Employee who in the opinion of the Committee
performs significant services for the benefit of the Company and who is granted
an Incentive Award under the Plan.
(l) INCENTIVE AWARD. Any incentive award, individually or
collectively, as the case may be, including any Non-Qualified Stock Option or
Incentive Stock Option granted under the Plan.
(m) INCENTIVE AWARD AGREEMENT. The written agreement entered into
between the Company and the Grantee pursuant to which an Incentive Award shall
be made under the Plan.
(n) INCENTIVE STOCK OPTION. A stock option which is intended to
qualify as an Incentive Stock Option under Section 422 of the Code and which
shall be granted by the Committee to a Grantee under the Plan.
(o) INVOLUNTARY TERMINATION. The termination of a Grantee's
employment by the Company other than for death, Disability, Retirement,
Terminated for Cause, Termination for Good Reason, or in the event of a Change
of Control (as defined in SECTION 3.7(a) below).
-2-
<PAGE>
(p) NON-QUALIFIED STOCK OPTION. A stock option granted by the
Committee to a Grantee under the Plan, which shall not qualify as an Incentive
Stock Option.
(q) OPTION. A Non-Qualified Stock Option or Incentive Stock Option
granted by the Committee to a Grantee under the Plan.
(r) PARENT. Any corporation (whether now or hereafter existing) which
constitutes a "parent" of the Company, as defined in Section 424(e) of the Code.
(s) PLAN. The Aurora Foods Inc. 1998 Long Term Incentive Plan, as
hereinafter amended from time to time.
(t) RETIREMENT. The termination of employment by the Company, Parent
or Subsidiary constituting retirement as determined by the Committee.
(u) SECTION 162(m) PARTICIPANT. Any Employee designated by the
Committee as an Employee whose compensation for the fiscal year in which the
Employee is so designated or a future fiscal year may be subject to the limit on
deductible compensation imposed by Section 162(m) of the Code.
(v) SUBSIDIARY. Any corporation (whether now or hereafter existing)
which constitutes a "subsidiary" of the Company, as defined in Section 424(f) of
the Code.
(w) TERMINATED FOR CAUSE. An Employee may be terminated for cause.
For purposes of this Plan, "Cause" shall mean (A) proven dishonesty of the
Employee detrimental to the best interests of the Company or any of its
subsidiaries or conviction of the Employee of a crime which constitutes a
felony, (B) any material act or omission by the Employee during the term of his
or her employment involving willful malfeasance or gross negligence in the
performance of his or her duties under the terms of his or her employment, (C)
repeated failure of the Employee to follow the reasonable instructions of the
Board of Directors of the Company (the "Board") (other than inattention or
neglect resulting from illness or disability of the Employee) which inattention
and neglect does not cease within 15 days after written notice thereof
specifying the details of such conduct is given by the Board to the Employee or
(D) material breach by the Employee of any material provision of his or her
employment agreement (or consulting or advisory contract), in the event one
exists (provided, however, that if such breach is curable and is remedied to the
reasonable satisfaction of the Board within 15 days after written notice thereof
specifying the details of such breach is given by the Board to the Executive,
such breach shall not fall within the definition of "Cause" for purposes of this
Subsection (D)). During the term of his or her employment, the Employee shall be
entitled to only one such notice and right to cure for any single act or event.
(x) TERMINATION FOR GOOD REASON. The resignation of an Employee shall
be deemed to be a Termination for Good Reason if Employee's resignation is
-3-
<PAGE>
within two years of a Change of Control as defined in SECTION 3.7, caused by and
within 90 days of the following: (i) the Employee is moved to a new work
location that is more than 50 miles from the Employee's principal work location
prior to such Change of Control; (ii) the amount of the base annual salary of
the Employee and the bonus opportunities of the Employee is reduced; (iii) the
Employee's, title, duties and responsibilities are materially diminished; (iv)
the Employee's reasonable, documented business expenses are not reimbursed in a
manner consistent with the Company's reimbursement practice prior to a Change of
Control; or (v) without limiting the generality or effect of the foregoing, the
Company fails to comply with any of its material obligations hereunder.
1.3. ADMINISTRATION
--------------
(a) COMMITTEE POWERS. The Plan shall be administered by the
Committee, which shall have full power and authority to: (i) designate
Grantees; (ii) determine the Incentive Awards to be granted to a Grantee and
whether such Incentive Awards are to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code; (iii) subject to SECTION 1.4
of the Plan, determine the Common Stock (or securities convertible into Common
Stock) to be covered by Incentive Awards and in connection therewith, to reserve
shares of Common Stock as needed in order to cover grants of Incentive Awards;
(iv) determine the terms and conditions of any Incentive Award; provided
--------
however, that the terms and conditions of Incentive Awards intended to qualify
- - -------
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code shall include, but not limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m)(4)(C) of the Code;
(v) determine whether, to what extent, and under what circumstances Incentive
Awards may be settled or exercised in cash, Common Stock, other securities, or
other property, or cancelled, substituted, forfeited or suspended, and the
method or methods by which Incentive Awards may be settled, exercised,
cancelled, substituted, forfeited or suspended; (vi) interpret and administer
the Plan and any instrument or agreement relating to, or Incentive Award made
under, the Plan; (vii) establish, amend, suspend or waive such rules and
guidelines as the Committee shall deem necessary or appropriate for
administration of the Plan; (viii) appoint such agents as it shall deem
appropriate for the administration of the Plan; provided however, that the
-------- -------
Committee shall not delegate any of the power or authority set forth in (i)
through (vii) above; and (ix) make any other determination and take any other
action that it deems necessary or desirable for such administration. No member
of the Committee shall vote or act upon any matter relating solely to himself.
All designations, determinations, interpretations and other decisions with
respect to the Plan or any Incentive Award shall be within the sole discretion
of the Committee and shall be final, conclusive and binding upon all persons,
including the Company, Parent or Subsidiary, any Grantee, any holder or
beneficiary of any Incentive Award, any owner of an equity interest in the
Company and any Employee.
(b) NO LIABILITY. No member of the Committee shall be liable for any
action or determination made in good faith by the Committee with respect to this
Plan or any Incentive Award under this Plan, and, to the fullest extent
permitted by the Company's Articles
-4-
<PAGE>
of Incorporation and Bylaws, the Company shall indemnify each member of the
Committee.
(c) MEETINGS. The Committee shall designate a chairman from among its
members, who shall preside at all of its meetings, and shall designate a
secretary, without regard to whether that person is a member of the Committee,
who shall keep the minutes of the proceedings and all records, documents, and
data pertaining to its administration of the Plan. Meetings shall be held at
such times and places as shall be determined by the Committee. The Committee may
take any action otherwise proper under the Plan by the affirmative vote, taken
with or without a meeting, of a majority of its members.
1.4. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
------------------------------------------
(a) COMMON STOCK AUTHORIZED. Subject to adjustment under SECTION 3.5,
the aggregate number of shares of Common Stock available for granting Incentive
Awards under the Plan shall be equal to 3,500,000 shares of Common Stock. If any
Incentive Award shall expire or terminate for any reason, without being
exercised or paid, shares of Common Stock subject to such Incentive Award shall
again be available for grant in connection with grants of subsequent Incentive
Awards, subject to the limitations of SECTION 1.7.
(b) COMMON STOCK AVAILABLE. The Common Stock available for issuance
or transfer under the Plan shall be made available from such shares reserved
under the Plan, from such shares now or hereafter held by the Company or from
such shares to be purchased or acquired by the Company. The Common Stock
available for issuance or transfer under the Plan, if applicable, shall be made
available from shares now or hereafter held by the Company or from such shares
to be purchased or acquired by the Company. No fractional shares shall be issued
under the Plan; payment for fractional shares shall be made in cash.
(c) INCENTIVE AWARD ADJUSTMENTS. Subject to the limitations set forth
in SECTIONS 1.7, 3.6 and 4.8, the Committee may make any adjustment in the
exercise price or the number of shares subject to any Incentive Award, or any
other terms of any Incentive Award. Such adjustment shall be made by amending,
substituting or canceling and re-granting such Incentive Award with the
inclusion of terms and conditions that may differ from the terms and conditions
of the original Incentive Award. If such action is effected by amendment, the
effective date of such amendment shall be the date of the original grant.
-5-
<PAGE>
1.5. PARTICIPATION
-------------
(a) ELIGIBILITY. The Committee shall from time to time designate
those Employees, if any, to be granted Incentive Awards under the Plan, the type
of awards granted, the number of shares, options, rights or units, as the case
may be, which shall be granted to each such Employee and any other terms or
conditions relating to the awards as it may deem appropriate, consistent with
the provisions of the Plan. An Employee who has been granted an Incentive Award
may, if otherwise eligible, be granted additional Incentive Awards at any time.
(b) NO NON-EMPLOYEE BOARD PARTICIPATION. In no event may any member
of the Board who is not an Employee be granted an Incentive Award under the
Plan.
1.6. INCENTIVE AWARDS
----------------
The forms of Incentive Awards under this Plan are Non-Qualified Stock
Options and Incentive Stock Options as described in SECTION 2.
1.7. MAXIMUM INDIVIDUAL RIGHTS
-------------------------
No grantee may receive during any fiscal year of the Company Incentive
Awards covering an aggregate of more than two hundred thousand (200,000) shares
of Common Stock. To the extent required by Section 162(m) of the Code, shares
subject to Options which are canceled continue to be counted against the maximum
number of shares an individual may receive and if, after grant of an Option, the
price of shares subject to such Option is reduced, the transaction will be
treated as a cancellation of the Option and a grant of a new Option and both the
Option deemed to be canceled and the Option deemed to be granted will be counted
against the maximum number of shares an individual may receive.
SECTION 2. STOCK OPTIONS
2.1. GRANT OF OPTIONS
----------------
The Committee is authorized to grant Options to Grantees in accordance
with the terms and conditions required pursuant to this Plan and with such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine.
-6-
<PAGE>
2.2. OPTION TERMS
------------
(a) EXERCISE PRICE. The exercise price per share of Common Stock
under each Option shall be determined by the Committee; provided however, that,
-------- -------
in the case of an Option intended to qualify as an Incentive Stock Option or as
performance-based compensation as described in Section 162(m)(4)(C) of the Code,
such exercise price shall not be less than 100% of the Fair Market Value per
share of such stock on the date the Option is granted, as determined by the
Committee (110% in the case of an Incentive Stock Option granted to a Ten-
Percent Stockholder). For purposes of this SECTION 2.2, Ten-Percent Stockholder
shall mean an individual owning more than 10% of the total combined voting power
of all classes of stock of the Company, Parent or Subsidiary.
(b) TERM. The Committee shall fix the term of each Option which, in
the case of an Incentive Stock Option, shall be not more than ten years from the
date of grant. In the event no term is fixed, such term shall be ten years from
the date of grant. The term shall be five years in the case of an Incentive
Stock Option granted to a Ten-Percent Stockholder.
(c) EXERCISE. The Committee shall determine the time or times at
which an Option may be exercised in whole or in part. The Committee may
accelerate the exercisability of any Option or a portion thereof at any time.
2.3. OPTION EXERCISES
----------------
(a) METHOD OF EXERCISE. To purchase shares under any Option granted
under the Plan, Grantees must give notice in writing to the Company of their
intention to purchase and specify the number of shares of Common Stock as to
which they intend to exercise their Option. Upon the date or dates specified for
the completion of the purchase of the shares, the purchase price will be payable
in full. The purchase price may be paid in cash or an equivalent acceptable to
the Committee. At the discretion of the Committee, the exercise price per share
of Common Stock may be paid by the assignment and delivery to the Company of
shares of Common Stock owned by the Grantee or a combination of cash and such
shares equal in value to the exercise price. However, if the Grantee acquired
the stock to be surrendered directly or indirectly from the Company, he must
have owned the stock to be surrendered for at least six months prior to
tendering such stock for the exercise of an Option. Any shares so assigned and
delivered to the Company in payment or partial payment of the purchase price
shall be valued at the Fair Market Value on the exercise date. In addition, at
the request of the Grantee and to the extent permitted by applicable law, the
Company in its discretion may selectively approve a "cashless exercise"
arrangement with a brokerage firm under which such brokerage firm, on behalf of
the Grantee, shall pay to the Company the exercise price of the Options being
exercised, and the Company, pursuant to an irrevocable notice from the Grantee,
shall promptly deliver the shares being purchased to such firm.
(b) In the case of Incentive Stock Options, the terms and conditions
of such
-7-
<PAGE>
grants shall be subject to and comply with Section 422 of the Code and any rules
or regulations promulgated thereunder, including the requirement that the
aggregate Fair Market Value (determined as of date the date of grant) of the
Common Stock with respect to which Incentive Stock Options granted under this
Plan and all other option plans of the Company, the Parent and Subsidiary become
exercisable by a Grantee during any calendar year shall not exceed $100,000. To
the extent that the limitation set forth in the preceding sentence is exceeded
for any reason (including the acceleration of the time for exercise of an
Option), the Options with respect to such excess amount shall be treated as Non-
Qualified Stock Options.
(c) PROCEEDS. The proceeds received by the Company from the sale of
shares of Common Stock pursuant to Options exercised under the Plan will be used
for general purposes of the Company.
SECTION 3. PROVISIONS RELATING TO PLAN PARTICIPATION
3.1. PLAN CONDITIONS
---------------
(a) INCENTIVE AWARD AGREEMENT. Each Grantee to whom an Incentive
Award is granted under the Plan shall be required to enter into an Incentive
Award Agreement with the Company in a form provided by the Committee, which
shall contain certain specific terms, as determined by the Committee, with
respect to the Incentive Award and shall include provisions that the Grantee (i)
shall not disclose any trade or secret data or any other confidential
information of the Company acquired during employment by the Company or a
Subsidiary, or after the termination of employment or Retirement, (ii) shall
abide by all the terms and conditions of the Plan and such other terms and
conditions as may be imposed by the Committee, and (iii) shall not interfere
with the employment of any other Company employee. An Incentive Award may
include a noncompetition agreement with respect to the Grantee and/or such other
terms and conditions, including, without limitation, rights of repurchase or
first refusal, not inconsistent with the Plan, as shall be determined from time
to time by the Committee. Incentive Award Agreements evidencing Incentive Awards
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the Code.
(b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan, Incentive Award
Agreement or any instrument executed pursuant to the Plan shall create any
employment rights (including without limitation, rights to continued employment)
in any Grantee or affect the right of the Company to terminate the employment of
any Grantee at any time for any reason.
(c) SECURITIES REQUIREMENTS. No shares of Common Stock will be
issued or transferred pursuant to an Incentive Award unless and until all then-
applicable requirements imposed by federal and state securities and other laws,
rules and regulations and
-8-
<PAGE>
by any regulatory agencies having jurisdiction and by any stock market or
exchange upon which the Common Stock may be listed, have been fully met. As a
condition precedent to the issuance of shares pursuant to the grant or exercise
of an Incentive Award, the Company may require the Grantee to take any
reasonable action to meet such requirements. The Company shall not be obligated
to take any affirmative action in order to cause the issuance or transfer of
shares pursuant to an Incentive Award to comply with any law or regulation
described in the second preceding sentence.
3.2. TRANSFERABILITY
---------------
(a) NON-TRANSFERABLE AWARD. Unless otherwise provided in an
Incentive Award Agreement, no Incentive Award and no right under the Plan,
contingent or otherwise, shall be (i) assignable, saleable, or otherwise
transferable by a Grantee except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order, or (ii)
subject to any encumbrance, pledge or charge of any nature. No transfer by will
or by the laws of descent and distribution shall be effective to bind the
Company unless the Committee shall have been furnished with a copy of the
deceased Grantee's will or such other evidence as the Committee may deem
necessary to establish the validity of the transfer. Any attempted transfer in
violation of this SECTION 3.2 shall be void and ineffective for all purposes.
(b) ABILITY TO EXERCISE RIGHTS. Only the Grantee or his guardian (if
the Grantee becomes Disabled), or in the event of his death, his legal
representative or beneficiary, may exercise Options, receive cash payments and
deliveries of shares, or otherwise exercise rights under the Plan. The executor
or administrator of the Grantee's estate, or the person or persons to whom the
Grantee's rights under any Incentive Award will pass by will or the laws of
descent and distribution, shall be deemed to be the Grantee's beneficiary or
beneficiaries of the rights of the Grantee hereunder and shall be entitled to
exercise such rights as are provided hereunder.
3.3. RIGHTS AS A STOCKHOLDER
-----------------------
Except as otherwise provided in any Incentive Award Agreement, a
Grantee of an Incentive Award or a transferee of such Grantee shall have no
rights as a stockholder with respect to any shares of Common Stock until such
person becomes a holder of record of such Common Stock. Except as otherwise
provided in SECTION 3.5, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities, or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued.
-9-
<PAGE>
3.4. LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
--------------------------------------------------
Prior to issuance and/or delivery of shares of Common Stock, the
Company shall consult with representatives of the Company, as appropriate,
regarding compliance with laws, rules and regulations that apply to such shares.
If necessary, the Company shall postpone the issuance and/or delivery of the
affected shares of Common Stock upon any exercise of an Incentive Award until
completion of such stock exchange listing, registration, or other qualification
of such shares under any state and/or federal law, rule or regulation as the
Company may consider appropriate, and may require any Grantee to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of the shares in compliance with
applicable laws, rules and regulations. The Company shall not be obligated to
take any affirmative action in order to cause the issuance or transfer of shares
pursuant to an Incentive Award to comply with any law, rule or regulation
described in the immediately preceding sentence.
3.5. CHANGE IN STOCK AND ADJUSTMENTS
-------------------------------
(a) CHANGES IN CAPITALIZATION. In the event the outstanding shares
of the Common Stock, as constituted from time to time, shall be changed as a
result of a change in capitalization of the Company or a combination, merger, or
reorganization of the Company into or with any other corporation or any other
transaction with similar effects, then, for all purposes, references herein to
Common Stock shall mean and include all securities or other property (other than
cash) that holders of Common Stock are entitled to receive in respect of Common
Stock by reason of each successive aforementioned event, which securities or
other property (other than cash) shall be treated in the same manner and shall
be subject to the same restrictions as the underlying Common Stock.
(b) CHANGES IN LAW OR CIRCUMSTANCE. In the event of any change in
applicable laws or any change in circumstances which results in or would result
in any dilution of the rights granted under the Plan, or which otherwise
warrants equitable adjustment because it interferes with the intended operation
of the Plan, then if the Committee shall, in its sole discretion, determine that
such change equitably requires an adjustment in the number or kind of shares of
stock or other securities or property theretofore subject, or which may become
subject, to issuance or transfer under the Plan or in the terms and conditions
of outstanding Incentive Awards, such adjustment shall be made in accordance
with such determination. Such adjustments may include without limitation
changes with respect to (i) the aggregate number of shares that may be issued
under the Plan, (ii) the number of shares subject to Incentive Awards and (iii)
the price per share for outstanding Incentive Awards. The Committee shall give
notice to each Grantee, and upon notice such adjustment shall be effective and
binding for all purposes of the Plan.
(c) PROVISIONS APPLICABLE TO SECTION 162(m) PARTICIPANTS. With
respect to any Incentive Award granted to any Section 162(m) Participant that is
intended
-10-
<PAGE>
to qualify as performance-based compensation under Section 162(m)(4)(C), no
adjustment or action described in this SECTION 3.5 or in any other provision of
the Plan shall be authorized to the extent that such adjustment or action would
cause such Incentive Award to fail to so qualify under Section 162(m)(4)(C) or
any successor provision thereto. Furthermore, no such adjustment or action shall
be authorized to the extent such adjustment or action would result in short-
swing profits liability under Section 16 of the Exchange Act or violate the
exemptive conditions of Rule 16b-3 of the Exchange Act unless the Committee
determines that the Option or other award is not to comply with such exemptive
conditions.
3.6. TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT
-----------------------------------------------------------
(a) TERMINATION OF EMPLOYMENT. If an Employee's employment with the
Company, Parent or Subsidiary is terminated for any reason whatsoever other than
death, Disability, Retirement, Involuntary Termination or Termination for Good
Reason, any Incentive Award granted pursuant to the Plan outstanding at the time
and all rights thereunder shall wholly and completely terminate, and unless
otherwise established by the Committee, no further vesting shall occur and the
Employee shall be entitled to exercise his or her rights with respect to the
portion of the Incentive Award vested as of the date of termination for a period
of 30 calendar days after such termination date; provided however, that if an
-------- -------
Employee is Terminated for Cause, such Employee's right to exercise the vested
portion of his or her Incentive Award shall terminate as of the date of
termination of employment. In the event of termination for death, Disability,
Retirement, or Change of Control, an Incentive Award may only be exercised as
determined by the Committee and provided in the Incentive Award Agreement.
However, the following shall be used as a general guideline.
(b) RETIREMENT. Unless otherwise approved by the Committee, upon
Retirement of an Employee:
(i) any nonvested portion of any outstanding Incentive Award
shall continue to vest after Retirement; and
(ii) any vested Incentive Award shall expire on the earlier of
(A) the expiration date set forth in the Incentive Award Agreement with respect
to such Incentive Awards; or (B) the expiration of 6 months after the date of
Retirement.
(c) DISABILITY OR DEATH. Unless otherwise approved by the Committee,
upon termination of employment from the Company, Parent or Subsidiary as a
result of Disability or death:
(i) any nonvested portion of any outstanding Incentive Award
shall continue to vest after Disability or death; and
(ii) any vested Incentive Award shall expire upon the earlier
of
-11-
<PAGE>
(A) the expiration date set forth in the Incentive Award Agreement with respect
to such Incentive Awards; or (B) the first anniversary of such termination of
such employment as a result of Disability or death.
(d) INVOLUNTARY TERMINATION. Unless otherwise approved by the
Committee, upon termination of employment from the Company, Parent or Subsidiary
as a result of Involuntary Termination (not Change of Control):
(i) any nonvested portion or any outstanding Incentive Award
shall vest on a pro-rated basis based upon the number of months the terminated
Employee has been employed within the applicable term; and
(ii) any vested Incentive Award shall expire upon the earlier
of (A) the expiration date set forth in the Incentive Award Agreement with
respect to such Incentive Awards or (B) the expiration of 30 days after the date
of Termination.
(e) CONTINUATION. Subject to the express provisions of the Plan and
the terms of any applicable Incentive Award Agreement, the Committee, in its
discretion, may provide for the continuation of any Incentive Award for such
period and upon such terms and conditions as are determined by the Committee in
the event that a Grantee ceases to be an employee.
3.7. CHANGES OF CONTROL
------------------
(a) CHANGES OF CONTROL. In the event of Involuntary Termination or
Termination for Good Reason within two years after a Change of Control, all
Options then outstanding shall become vested and immediately exercisable,
notwithstanding any provision therein for the exercise in installments.
For the purposes of this SECTION 3.7, a "Change of Control" shall mean
a change of control of a nature that would be required to be reported in
response to item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act as such Schedule, Regulation and Act were in effect on the date of
adoption of this Plan by the Board, assuming that such Schedule, Regulation and
Act applied to the Company, provided that such change of control shall be deemed
to have occurred at such time as:
(i) any "person" (as that term is used in SECTION 13(d) and
14(d)(2) of the Exchange Act) (other than the Company or an affiliate of the
Company) becomes, directly or indirectly, the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of securities representing 30% or more of the
combined voting power for election of members of the Board of the then
outstanding voting securities of the Company or any successor of the Company;
(ii) during any period of 2 consecutive years or less,
-12-
<PAGE>
individuals who at the beginning of such period constituted the Board of the
Company cease, for any reason, to constitute at least a majority of the Board,
unless the election or nomination for election of each new member of the Board
was approved by a vote of at least two-thirds of the members of the Board then
still in office who were members of the Board at the beginning of the period;
(iii) the equity holders of the Company approve any merger or
consolidation to which the Company is a party as a result of which the persons
who were equity holders of the Company immediately prior to the effective date
of the merger or consolidation (and excluding, however, any shares held by any
party to such merger or consolidation and their affiliates) shall have
beneficial ownership of less than 50% of the combined voting power for election
of members of the Board (or equivalent) of the surviving entity following the
effective date of such merger or consolidation; or
(iv) the equity holders of the Company approve any merger or
consolidation as a result of which the equity interests in the Company shall be
changed, converted or exchanged (other than a merger with a wholly owned
subsidiary of the Company) or any liquidation of the Company or any sale or
other disposition of 50% or more of the assets or earnings power of the Company;
provided however, that no Change of Control shall be deemed to have occurred if,
- - -------- -------
prior to such time as a Change of Control would otherwise be deemed to have
occurred, the Board determines otherwise.
Notwithstanding the foregoing (A) the merger or consolidation of
Aurora Foods Holdings, Inc., Aurora Foods, Inc., a wholly owned subsidiary of
Aurora Foods Holdings, Inc., VDK Holdings, Inc., and Van de Kamp's, Inc., a
wholly owned subsidiary of VDK Holdings, Inc., with and into the Company, (B)
the Public Offering of the Common Stock of the Company, and (C) the liquidation
or dissolution of Aurora/VDK LLC, MBW Investors LLC or VDK LLC shall not
constitute a Change of Control for purposes of this Plan.
(b) RIGHT OF CASH-OUT. If approved by the Board prior to or within 30
days after such time as a Change of Control shall be deemed to have occurred,
the Board shall have the right for a 45 day period immediately following the
date that the Change of Control is deemed to have occurred to require all, but
not less than all, Grantees to transfer and deliver to the Company all Incentive
Awards previously granted to Grantees in exchange for an amount equal to the
"cash value" (defined below) of the Incentive Awards. Such right shall be
exercised by written notice to all Grantees. For purposes of this SECTION
3.7(b), the cash value of an Incentive Award shall equal the sum of (i) all cash
to which the Grantee would be entitled upon settlement or exercise of such
Incentive Award and (ii) the excess of the "market value" (defined below) per
share over the option price, if any, multiplied by the number of shares subject
to such Incentive Award. For purposes of the preceding sentence, "market value"
per share shall mean the higher of (i) the average of the Fair Market Value per
share on each of the five trading days immediately following the date a Change
of Control is deemed to have occurred or (ii) the highest price, if any, offered
in connection with a Change of Control. The amount payable to each Grantee by
the Company pursuant to this SECTION 3.7(b) shall
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<PAGE>
be in cash or by certified check and shall be reduced by any taxes required to
be withheld.
3.8. AMENDMENTS TO INCENTIVE AWARDS
------------------------------
The Committee may waive any conditions or rights with respect to, or
amend, alter, suspend, discontinue, or terminate, any unexercised Incentive
Award theretofore granted, prospectively or retroactively, with the consent of
any relevant Grantee, subject to the limitations of SECTION 1.7.
3.9. EXCHANGE OF INCENTIVE AWARDS
----------------------------
The Committee may, in its discretion, permit Grantees under the Plan
to surrender outstanding Incentive Awards in order to exercise or realize the
rights under other Incentive Awards, or in exchange for the grant of new
Incentive Awards or require holders of Incentive Awards to surrender outstanding
Incentive Awards as a condition precedent to the grant of new Incentive Awards.
3.10. FINANCING
---------
The Company may extend and maintain, or arrange for the extension and
maintenance of, financing to any Grantee (including a Grantee who is a Director
of the Company) to purchase shares pursuant to exercise of an Incentive Award on
such terms as may be approved by the Committee in its sole discretion. In
considering the terms for extension or maintenance of credit by the Company, the
Committee shall, among other factors, consider the cost to the Company of any
financing extended by the Company.
SECTION 4. MISCELLANEOUS
4.1. EFFECTIVE DATE AND GRANT PERIOD
-------------------------------
This Plan shall become effective as of the date of Board approval (the
"Effective Date"). Unless sooner terminated by the Board, the Plan shall
terminate on June 24, 2008, unless extended. After the termination of the Plan,
no Incentive Awards may be granted under the Plan, but previously granted awards
shall remain outstanding in accordance with their applicable terms and
conditions.
-14-
<PAGE>
4.2. FUNDING
-------
No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets in a manner that would provide any Grantee any rights
that are greater than those of a general creditor of the Company, nor shall the
Company maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund if such
action would provide any Grantee with any rights that are greater than those of
a general creditor of the Company. Grantees shall have no rights under the Plan
other than as unsecured general creditors of the Company except that insofar as
they may have become entitled to payment of additional compensation by
performance of services, they shall have the same rights as other employees
under applicable law. However, the Company may establish a "Rabbi Trust" for
purposes of securing the payment pursuant to a Change of Control.
4.3. WITHHOLDING TAXES
-----------------
The Company shall have the right to (i) make deductions from any
settlement of an Incentive Award made under the Plan, including the delivery of
shares, or require shares or cash or both be withheld from any Incentive Award,
in each case in an amount sufficient to satisfy withholding of any federal,
state or local taxes required by law, or (ii) take such other action as may be
necessary or appropriate to satisfy any such withholding obligations. The
Committee may determine the manner in which such tax withholding may be
satisfied, and may permit shares of Common Stock (rounded up to the next whole
number) to be used to satisfy required tax withholding based on the Fair Market
Value of any such shares of Common Stock, as of the delivery of shares or
payment of cash in satisfaction of the applicable Incentive Award.
4.4. CONFLICTS WITH PLAN
-------------------
In the event of any inconsistency or conflict between the terms of the
Plan and an Incentive Award Agreement, the terms of the Plan shall govern.
4.5. NO GUARANTEE OF TAX CONSEQUENCES
--------------------------------
Neither the Company nor the Committee makes any commitment or
guarantee that any federal, state or local tax treatment will apply or be
available to any person participating or eligible to participate hereunder.
-15-
<PAGE>
4.6. SEVERABILITY
------------
In the event that any provision of this Plan shall be held illegal,
invalid or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provision of the Plan, and the
Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision had never been included herein.
4.7. GENDER, TENSE AND HEADINGS
--------------------------
Whenever the context requires such, words of the masculine gender used
herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Section headings as used herein are inserted solely
for convenience and reference and constitute no part of the Plan.
4.8. AMENDMENT AND TERMINATION
-------------------------
The Plan may be amended or terminated at any time by the Board by the
affirmative vote of a majority of the members in office. The Plan, however,
shall not be amended, without prior written consent of each affected Grantee if
such amendment or termination of the Plan would adversely affect any material
vested benefits or rights of such person.
-16-
<PAGE>
4.9. SECTION 280G PAYMENTS
---------------------
In the event that the aggregate present value of the payments to a
Grantee under the Plan, and any other plan, program, or arrangement maintained
by the Company constitutes an "excess parachute payment" (within the meaning of
Code Section 280G(b)(1)) and the excise tax on such payment would cause the net
parachute payments (after taking into account federal, state and local income
and excise taxes) to which the Grantee otherwise would be entitled to be less
than what the Grantee would have netted (after taking into account federal,
state and local income taxes) had the present value of his total parachute
payments equaled $1.00 less than three times his "base amount" (within the
meaning of Code Section 280G(b)(3)(A)), the Grantee's total "parachute payments"
(within the meaning of Code Section 280G(b)(2)(A) shall be reduced (by the
minimum possible amount) so that their aggregate present value equals $1.00 less
than three times such base amount. For purposes of this calculation, it shall
be assumed that the Grantee's tax rate will be the maximum marginal federal,
state and local income tax rate on earned income, with such maximum federal rate
to be computed with regard to Code Section 1(g), if applicable. In the event
that the Grantee and the Company are unable to agree as to the amount of the
reduction described above, if any, the Grantee shall select a law firm or
accounting firm from among those regularly consulted (during the twelve-month
period immediately prior to the change of control that resulted in the
characterization of the payments as parachute payments) by the Company regarding
federal income tax or employee benefit matters and such law firm or accounting
firm shall determine the amount of such reduction and such determination shall
be final and binding upon the Grantee and the Company.
-17-
<PAGE>
4.10. GOVERNING LAW
-------------
The Plan shall be construed in accordance with the laws of the State
of New York, except as superseded by federal law, and in accordance with
applicable provisions of the Code and regulations or other authority issued
thereunder by the appropriate governmental authority.
4.11. LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-
------------------------------------------------------------
BASED COMPENSATION
- - ------------------
Notwithstanding any other provision of this Plan, this Plan, and any
Incentive Award granted to any individual who is then subject to Section 16 of
the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act (including
any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan, and Incentive Awards granted hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of this Plan, any Option, which is granted
to a Section 162(m) Participant and is intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.
IN WITNESS WHEREOF, this Plan has been executed this 9th day of
October, 1998, to be effective as of July 1, 1998.
AURORA FOODS INC.
By:______________________________
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<PAGE>
Exhibit 12.1
Aurora Foods Inc.
Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
---------------------------
December 31, December 27,
1998 1997
------------ ------------
<S> <C> <C>
(Loss) income before income taxes $ (21,860) $ 2,014
Fixed charges:
Interest expense 65,081 18,393
Amortization of deferred financing expense 1,872 3,059
Interest portion of rentals 347 33
------------ ------------
Earnings available for fixed charges $ 45,440 $ 23,499
============ ============
Fixed charges:
Interest expense 65,081 18,393
Amortization of deferred financing expense 1,872 3,059
Interest portion of rentals 347 33
------------ ------------
Fixed charges $ 67,300 $ 21,485
============ ============
Ratio of earnings to fixed charges 0.68 1.09
============ ============
</TABLE>
(1) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges. Fixed
charges consist of interest expense, whether expensed or capitalized,
including amortization of deferred financing expense and the portion (one-
third) of rental expense that management believes is representative of the
interest component of rent expense.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-58215) of Aurora Foods Inc. of our report dated
February 5, 1999 appearing on page 39 of this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 12, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-58215) of Aurora Foods Inc. of our report dated
March 14, 1997 appearing on page 62 of this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from balance
sheets and statements of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-27-1997
<PERIOD-START> DEC-28-1997 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-27-1997
<CASH> 354 4,717
<SECURITIES> 0 0
<RECEIVABLES> 87,209 13,976
<ALLOWANCES> 670 140
<INVENTORY> 76,674 6,902
<CURRENT-ASSETS> 181,335 30,376
<PP&E> 163,865 15,086
<DEPRECIATION> 10,698 1,011
<TOTAL-ASSETS> 1,433,882 372,739
<CURRENT-LIABILITIES> 214,764 28,227
<BONDS> 402,242 202,419
647,327 63,697
0 0
<COMMON> 670 291
<OTHER-SE> (44,142) 1,235
<TOTAL-LIABILITY-AND-EQUITY> 1,433,882 372,739
<SALES> 789,193 143,020
<TOTAL-REVENUES> 789,193 143,020
<CGS> 317,547 45,729
<TOTAL-COSTS> 622,400 104,042
<OTHER-EXPENSES> 122,902 18,431
<LOSS-PROVISION> 670 140
<INTEREST-EXPENSE> 65,081 18,393
<INCOME-PRETAX> (21,860) 2,014
<INCOME-TAX> 14,306 779
<INCOME-CONTINUING> (36,166) 1,235
<DISCONTINUED> 0 0
<EXTRAORDINARY> 9,211 0
<CHANGES> 0 0
<NET-INCOME> (45,377) 1,235
<EPS-PRIMARY> (0.85) 0.04
<EPS-DILUTED> (0.85) 0.04
</TABLE>
