<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1998.
REGISTRATION NO. 333-50681
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AURORA FOODS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 2045 TO BE APPLIED FOR
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
456 MONTGOMERY STREET, SUITE 2200
SAN FRANCISCO, CALIFORNIA 94104
(415) 982-3019
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
IAN R. WILSON
CHIEF EXECUTIVE OFFICER
AURORA FOODS INC.
456 MONTGOMERY STREET, SUITE 2200
SAN FRANCISCO, CALIFORNIA 94104
(415) 982-3019
(Name, address, including ZIP Code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
NANCY YOUNG, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ.
Richards & O'Neil, LLP Sullivan & Cromwell
885 Third Avenue 125 Broad Street
New York, New York 10022-4873 New York, New York 10004
(212) 207-1200 (212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE PER OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(1)(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share.. 16,675,000 $23.00 $383,525,000 $113,140
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
(2) The shares of Common Stock are not being registered for the purpose of sales
outside the United States.
(3) A registration fee of $79,650 was paid upon the initial filing of this
Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 10, 1998
14,500,000 SHARES
[LOGO]
AURORA FOODS INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
--------------------------
Of the 14,500,000 shares of Common Stock offered, 12,325,000 shares are
being offered hereby in the United States and 2,175,000 shares are being offered
in the concurrent international offering outside the United States. The initial
public offering price and the aggregate underwriting discount per share of
Common Stock will be identical for both Equity Offerings. See "Underwriting".
Of the 14,500,000 shares of Common Stock offered, 12,946,363 shares of
Common Stock are being sold by the Company and 1,553,637 shares of Common Stock
are being sold by the Selling Stockholder. See "Principal Stockholders and
Selling Stockholder". The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholder.
Prior to the Equity Offerings, there has not been any public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $20.00 and $23.00 per share. For factors to be
considered in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREIN FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange, and application has been made to list
the Common Stock on the Pacific Exchange, under the symbol "AOR".
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) COMPANY (2) STOCKHOLDER
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total(3)............................ $ $ $ $
</TABLE>
- --------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting expenses estimated at $4,646,000, payable by the Company.
(3) The Selling Stockholder has granted to the U.S. Underwriters an option for
30 days to purchase up to an additional 1,848,750 shares at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. Additionally, the Selling Stockholder has
granted the International Underwriters a similar option with respect to an
additional 326,250 shares of Common Stock as part of the concurrent
International Offering. If such options are exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company and proceeds to the Selling Stockholder will be $ ,
$ , $ and $ , respectively. See "Underwriting".
--------------------------
The shares are offered severally by the U. S. Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates for the
shares will be ready for delivery in New York, New York on or about
, 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
SBC WARBURG DILLON READ INC.
CHASE SECURITIES INC.
--------------------------
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE EQUITY OFFERINGS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF
THE COMMON STOCK INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE EQUITY OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
DUNCAN HINES-Registered Trademark-, LOG CABIN-Registered Trademark-, MRS.
BUTTERWORTH'S-Registered Trademark-, AUNT JEMIMA-Registered Trademark-, COUNTRY
KITCHEN-Registered Trademark-, WIGWAM-Registered Trademark-, VAN DE
KAMP'S-Registered Trademark-, MRS. PAUL'S-Registered Trademark-, and
CELESTE-Registered Trademark- are registered trademarks of the Company. The Aunt
Jemima trademark is licensed from The Quaker Oats Company ("Quaker Oats"). This
Prospectus also includes trademarks of companies other than the Company.
<PAGE>
A photograph appears on the front inside cover depicting the following
products of the Company: Mama Celeste Fresh-Baked Rising Crust Pizza; Celeste
Pizza-for-One; Van de Kamp's Garlic & Herb Crunchy Baked Fish Fillets; Mrs.
Paul's Grilled Salmon; Mrs. Paul's Batter Dipped Fish Fillets; Van de Kamp's
Value Pack 44 Breaded Fish Sticks; Mrs. Butterworth's Pancake and Waffle Mix;
Mrs. Butterworth's Original Syrup; Mrs. Butterworth's Reduced Calorie Syrup;
Aunt Jemima Homestyle Waffles; Log Cabin Sugar Free Syrup; Log Cabin Syrup;
Duncan Hines Chewy Fudge Brownie Mix; Duncan Hines Moist Deluxe Cake Mix; and
Duncan Hines Homestyle Frosting.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS
PROSPECTUS, THE "COMPANY" REFERS TO AURORA FOODS INC., A DELAWARE CORPORATION
INCORPORATED PRIOR TO THE EQUITY OFFERINGS, AND ITS PREDECESSORS. EXCEPT AS
OTHERWISE INDICATED, ALL REFERENCES TO CATEGORY AND SEGMENT SALES AND SHARE
PERCENTAGES AND POSITIONS ARE BASED ON U.S. RETAIL SUPERMARKET SALES DOLLARS FOR
THE 52-WEEK PERIOD IN THE CASE OF SYRUPS, ENDED APRIL 8, 1998, AND IN THE CASE
OF BAKING MIXES, ENDED APRIL 11, 1998, AS GATHERED AND PUBLISHED BY A.C. NIELSEN
COMPANY ("NIELSEN") AND, IN THE CASE OF FROZEN CONVENIENCE FOODS, ENDED APRIL
19, 1998, AS GATHERED AND PUBLISHED BY INFORMATION RESOURCES INCORPORATED
("IRI").
THE COMPANY
The Company is a leading producer and marketer of premium branded food
products including DUNCAN HINES baking mixes, LOG CABIN and MRS. BUTTERWORTH'S
syrup, VAN DE KAMP'S and MRS. PAUL'S frozen seafood, AUNT JEMIMA frozen
breakfast products and CELESTE frozen pizza. The Company's brands are among the
most widely recognized food brands in the United States, have leading market
positions and participate in some of the fastest growing categories in the
supermarket. LOG CABIN and MRS. BUTTERWORTH'S have a leading 34.0% share of the
syrup category, VAN DE KAMP'S and MRS. PAUL'S have a leading 28.1% share of the
frozen seafood category, DUNCAN HINES is the #2 cake mix with a 36.3% share and
CELESTE is the #2 brand of frozen pizza in the Northeast. In 1997, dollar sales
of frozen pizza, frozen seafood and frozen waffles grew at annual rates of 8.5%,
9.5% and 7.8%, respectively. For the year ended December 31, 1997, the Company's
pro forma net sales were $874.2 million and the Company's pro forma Adjusted
EBITDA was $154.6 million (see Note 1 to the "Unaudited Pro Forma Statement of
Operations for the three months ended March 28, 1992").
The Company was formed by Dartford Partnership L.L.C. ("Dartford"), Fenway
Partners, Inc. and McCown De Leeuw & Co., Inc. ("MDC") to serve as a platform
upon which to build a leading branded grocery products company through both
strategic acquisitions and internal growth. The Company has been built through
six separate acquisitions over the last three years. The Company seeks to
acquire well-recognized brands which have become non-core businesses to their
corporate parents, but which retain strong brand equities and long-term growth
potential. The Company's objective is to revitalize the brands it acquires and
renew their growth by providing them with the strategic direction, dedicated
management and marketing focus they lacked under prior owners.
Under the direction of CEO Ian R. Wilson and Dartford, each of the brands
owned by the Company for more than one year has experienced significant growth.
The following table sets forth (i) the growth rates of the brands for the twelve
months prior to the date of acquisition, and (ii) the annual growth rate as
measured eighteen months after the date of acquisition, in each case based on
dollar sales data provided by IRI and Nielsen.
<TABLE>
<CAPTION>
DATE GROWTH PRIOR
OF TO GROWTH
BRAND PRIOR OWNER ACQUISITION ACQUISITION AFTER ACQUISITION
- --------------------- ----------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
VAN DE KAMP'S Pillsbury Sept. 1995 -2.5% +5.0%
MRS. PAUL'S Campbell Soup May 1996 -9.2 +7.1
AUNT JEMIMA Quaker Oats July 1996 -8.9 +10.5
CELESTE Quaker Oats July 1996 -16.8 +8.6
MRS. BUTTERWORTH'S Unilever Dec. 1996 0.0 +3.1
LOG CABIN Kraft July 1997 -6.0 n/a
DUNCAN HINES Procter & Gamble Jan. 1998 -5.0 n/a
</TABLE>
The Company has renewed the growth of its brands by providing them with
experienced management, refocusing marketing support, reformulating and
repackaging outdated products, developing and launching new products and
expanding distribution. The Company has also realized significant cost savings
by consolidating and improving the efficiency of its manufacturing operations,
outsourcing the production of certain products and eliminating redundant
administrative functions. The Company believes that the growth exhibited by the
brands it acquired in 1995 and 1996, combined with expected growth from its most
recent acquisitions and additional cost savings opportunities, have positioned
it to achieve superior long-term sales and earnings growth.
3
<PAGE>
BUSINESS STRATEGY
The Company's objective is to continue to generate sales and earnings growth
by (i) sustaining the growth of the brands it acquired in 1995 and 1996, (ii)
achieving similar results for its recently acquired brands, and (iii) continuing
to acquire brands with strong equities and long-term growth potential. The
Company's strategy is to revitalize its brands, reduce costs and continue to
make strategic acquisitions.
REVITALIZE BRANDS. To revitalize the brands it has acquired and stimulate
growth, the Company (i) provides experienced management, (ii) refocuses
marketing support, (iii) reformulates and repackages outdated products, (iv)
develops and launches new products, and (v) expands distribution of its
products.
PROVIDE EXPERIENCED MANAGEMENT. The Company has assembled a dedicated
sales, marketing and administrative infrastructure by recruiting experienced
managers from a wide variety of food and consumer products companies. The
Company believes that it significantly improves the performance of its
brands by taking them out of large organizations where they have not been a
priority and providing them with experienced, dedicated management.
REFOCUS MARKETING SUPPORT. The Company refocuses and broadens marketing
support for its brands by rationalizing product lines, refreshing
advertising campaigns and adjusting the mix of its marketing programs. The
Company increases media advertising and consumer promotional events
(coupons) and generally reduces price discounting.
REFORMULATE AND REPACKAGE PRODUCTS. To reinvigorate its brands, the Company
reformulates and repackages outdated products. For example, the Company has
reformulated MRS. BUTTERWORTH'S Lite syrup and certain AUNT JEMIMA frozen
breakfast products, resulting in significant increases in unit volumes for
both product lines.
DEVELOP AND LAUNCH NEW PRODUCTS. The Company has successfully developed and
launched more than 25 new products. New product successes include grilled
and premium fish fillets marketed under both the VAN DE KAMP'S and MRS.
PAUL'S brands and MAMA CELESTE Fresh Baked Rising Crust pizza.
EXPAND DISTRIBUTION. The Company expands distribution of its products by
(i) improving the selection of its products on the shelf, (ii) increasing
penetration in established markets, (iii) broadening the geographic
distribution of its products, and (iv) improving its presence in selected
channels of distribution including club stores and foodservice.
REDUCE COSTS. The Company has reduced costs of the acquired businesses by
approximately $49.9 million since their respective acquisitions. To achieve
these cost reductions, the Company has (i) consolidated the manufacture of MRS.
PAUL'S frozen seafood products into the Van de Kamp's facilities, (ii)
outsourced the production of syrup, (iii) reduced fixed costs and improved the
efficiency of its manufacturing facilities, and (iv) eliminated redundant
administrative functions of the acquired businesses. The Company believes that
there are further opportunities to reduce costs, which include outsourcing the
production of baking mixes and further consolidating its brokerage and
administrative functions. No assurances can be given, however, that these cost
reductions can be realized.
MAKE STRATEGIC ACQUISITIONS. The Company has a proven track record of
successfully acquiring and integrating food businesses. The Company's
acquisition strategy is to acquire established, well-recognized food brands that
can leverage off of the infrastructure it has developed. The Company will
continue to look for opportunities where strong but non-core brands would
benefit from the renewed focus and experienced management it brings to its
acquisitions. Management believes that these opportunities will continue to
arise as a result of large food companies continuing their recent trend of
divesting non-core businesses.
4
<PAGE>
OWNERSHIP
Upon completion of the Equity Offerings, Fenway Partners Capital Fund, L.P.
and certain of its affiliates (collectively, "Fenway") will beneficially own
24.8%, affiliates of MDC will beneficially own 24.4%, Dartford will beneficially
own 10.9%, and divisional management will beneficially own 5.1% of the
outstanding shares of Common Stock. See "Principal Stockholders and Selling
Stockholder".
CONFLICTS OF INTEREST. MDC, Fenway and their professional staffs are not
restricted from acquiring or managing other companies in the food business,
including companies that may be competitive with the Company. In addition,
certain directors of the Company affiliated with Fenway or MDC also serve as
officers or directors of other portfolio companies of Fenway or MDC.
MANAGEMENT INCENTIVE PLANS
Certain officers and other employees of the Company are participants in
incentive plans sponsored by MBW Investors LLC and VDK Foods LLC whereby they
were given an opportunity to participate in the appreciation in value of Aurora
Foods Holdings Inc. ("Aurora") or VDK Holdings, Inc. ("VDK"). Amounts due under
the Aurora Plan (as defined) and the VDK Plan (as defined) will become fully
vested as a result of the completion of the Equity Offerings and the final value
of all classes of Management Units (as defined) will be determined prior to the
closing of the Equity Offerings based on the initial public offering price of
the Common Stock. The sponsors of such plans will satisfy the amounts due by
distributing to the plans a fixed number of shares of Common Stock of the
Company, currently estimated at 7,806,345 shares in the aggregate. There are 87
employees that are participants in such plans. After giving effect to the
completion of the Equity Offerings and after aggregating the shares to be
distributed under such plans with those shares already owned by such employees,
employees of the Company will own 16.0% of the outstanding shares of Common
Stock of the Company. For the quarter ended March 1998, Aurora and VDK recorded
$60.0 million and $69.0 million, respectively, of non-cash incentive plan
expense relating to those plans based on estimated valuations of each company.
No additional incentive plan expense will be recorded under the plans after the
completion of the Equity Offerings. See "Management--Aurora Incentive Plan" and
"--VDK Incentive Plan".
After giving effect to pro forma adjustments based on the completion of the
Equity Offerings (at an assumed initial public offering price of $21.50 per
share (the midpoint of the range of initial offering prices set forth on the
cover of this Prospectus)) and the Refinancings, for the quarter ended March 28,
1998, pro forma as adjusted net loss per share of $1.48 included $1.58 net loss
per share related to the incentive plan expense.
All employees of the Company are eligible to participate in the Company's
1998 Incentive Plan (as defined). See "Management--Executive Compensation" and
"--1998 Long Term Incentive Plan".
5
<PAGE>
THE EQUITY OFFERINGS
The offering of 12,325,000 shares of Common Stock initially being offered in
the United States (the "U.S. Equity Offering") and the concurrent offering of
2,175,000 shares of Common Stock initially being offered outside the United
States (the "International Equity Offering") are collectively referred to in
this Prospectus as the "Equity Offerings". The underwriters for the U.S. Equity
Offering (the "U.S. Underwriters") and the underwriters for the International
Equity Offering (the "International Underwriters") are collectively referred to
in this Prospectus as the "Underwriters". The closing of the U.S. Equity
Offering is conditioned upon the closing of the International Equity Offering
and vice versa.
<TABLE>
<S> <C>
Common Stock offered by the
Company:
U.S. Equity Offering.......... 11,004,409 shares
International Equity
Offering.................... 1,941,954 shares
Total....................... 12,946,363 shares
Common Stock offered by the
Selling Stockholder:
U.S. Equity Offering.......... 1,320,591 shares
International Equity
Offering.................... 233,046 shares
Total....................... 1,553,637 shares
Common Stock to be outstanding
after the Equity Offerings...... 67,000,000 shares (1)
Use of Proceeds by the
Company (2)..................... To redeem $35 million principal amount of the 12% Senior
Subordinated Notes due 2005 issued by VDK (the "VDK
Notes") and pay the associated $3.5 million redemption
premium, to repay approximately $218.5 million of
indebtedness under the VDK Senior Bank Facilities (as
defined) and Aurora Senior Bank Facilities (defined
below), and to pay the fees and expenses incurred in
connection with the Equity Offerings. The Company will not
receive any proceeds from the sale of shares by the
Selling Stockholder. See "Use of Proceeds".
Proposed New York Stock
Exchange ("NYSE") and Pacific
Exchange Symbol................. AOR
</TABLE>
- ------------------------
(1) Does not include 2,000,000 shares of Common Stock issuable upon exercise of
stock options which have been granted, contingent upon closing of the Equity
Offerings, at the initial public offering price, to certain employees of the
Company. In addition, the Company has reserved 1,500,000 shares of Common
Stock for issuance in connection with options that may be granted under the
1998 Incentive Plan.
(2) The net proceeds from the Refinancings (as defined) will be used to repay
the remaining $65.0 million principal amount of outstanding VDK Notes and
pay the associated $11.0 million redemption premium, to repay approximately
$416.3 million of indebtedness under the Aurora Senior Bank Facilities, and
to pay the fees and expenses incurred in connection with the Refinancings.
In the event that the Notes Offering (as defined) is not consummated, the
Company intends to increase the amount borrowed under the Senior Credit
Facilities. See "Refinancings".
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, matters set forth under the caption
"Risk Factors" before purchasing shares of the Common Stock offered by this
Prospectus.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical and unaudited pro forma
financial data of the Company for the periods ended and as of the dates
indicated. Pro forma as adjusted net loss per share for the three months ended
March 31, 1998 of $1.48 per share included $1.58 net loss per share related to
the non-cash incentive plan expense. This expense relates to incentive plans
(the Aurora Plan and the VDK Plan) for which the final value will be determined
and all rights will vest as a result of the completion of the Equity Offerings.
Therefore, no additional incentive plan expense will be recorded under the plans
after the completion of the Equity Offerings.
The summary historical statement of operations data for the year ended
December 27, 1997 and the summary historical balance sheet data as of December
27, 1997 are derived from audited financial statements of the Company included
elsewhere in this Prospectus. The summary historical statement of operations
data for the three months ended March 28, 1998 and the summary historical
balance sheet data as of March 28, 1998 are derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus which, in the
opinion of management, include all normal recurring adjustments. The summary
unaudited pro forma and pro forma as adjusted statement of operations data
reflect adjustments, where appropriate, to the historical financial data of the
Company to give effect to (i) the acquisition of the LOG CABIN business, the
DUNCAN HINES business and VDK, (ii) the Desserts Sale (as defined), (iii) the
Equity Offerings and (iv) the Refinancings, as if each occurred on January 1,
1997. The summary unaudited pro forma and pro forma as adjusted balance sheet
data reflect adjustments, where appropriate, to the historical financial data
for the Company to give effect to (i) the acquisition of VDK, (ii) the Desserts
Sale, (iii) the Equity Offerings and (iv) the Refinancings as if each had
occurred on March 28, 1998. This information should be read in conjunction with
the Company's unaudited pro forma and historical financial statements, and
related notes thereto, each appearing elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 27, 1997 March 28, 1998
------------------------------------- ------------------------------------
(in thousands, except per share Pro Forma Pro Forma
data) Actual Pro Forma As Adjusted Actual Pro Forma As Adjusted
--------- ------------ ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 143,020 $ 874,231 $ 874,231 $ 89,385 $ 240,337 $ 240,337
Cost of goods sold.................. 45,729 373,101 373,101 37,734 95,111 95,111
--------- ------------ ------------ --------- ----------- ------------
Gross profit...................... 97,291 501,130 501,130 51,651 145,226 145,226
--------- ------------ ------------ --------- ----------- ------------
Brokerage, distribution and
marketing expenses:
Brokerage and distribution........ 17,096 88,188 88,188 9,355 23,544 23,544
Trade promotions.................. 26,075 172,487 172,487 15,568 57,737 57,737
Consumer marketing................ 15,142 65,717 65,717 7,997 21,057 21,057
--------- ------------ ------------ --------- ----------- ------------
Total brokerage, distribution and
marketing expenses................ 58,313 326,392 326,392 32,920 102,338 102,338
Amortization of goodwill and other
intangibles....................... 5,938 33,424 33,424 4,597 8,356 8,356
Selling, general and administrative
expenses.......................... 5,229 34,427 34,427 2,346 7,084 7,084
Incentive plan expense.............. 2,300 2,300 2,300 60,000 129,000 125,257(1)
Transition expenses................. 2,113 3,405 3,405 1,926 1,926 1,926
--------- ------------ ------------ --------- ----------- ------------
Total operating expenses............ 73,893 399,948 399,948 101,789 248,704 244,961
--------- ------------ ------------ --------- ----------- ------------
Operating income (loss)........... 23,398 101,182 101,182 (50,138) (103,478) (99,735)
Interest income..................... (151) (515) (515) (223) (253) (253)
Interest expense.................... 18,393 84,502 58,025 12,837 21,126 14,506
Amortization of deferred financing
expense........................... 3,059 4,575 1,491 513 1,144 373
Other bank and financing expenses... 83 304 304 51 95 95
--------- ------------ ------------ --------- ----------- ------------
Income (loss) before income
taxes........................... 2,014 12,316 41,877 (63,316) (125,590) (114,456)
Income tax expense (benefit)........ 779 4,865 16,541 (360) (21,393) (15,382)
--------- ------------ ------------ --------- ----------- ------------
Net income (loss) before
extraordinary item.............. $ 1,235 $ 7,451 $ 25,336 $ (62,956) $(104,197) $ (99,074)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Extraordinary loss on early
extinguishment of debt............ -- (1,876)
--------- ---------
Net income (loss)................... $ 1,235 $ (64,832)
--------- ---------
--------- ---------
</TABLE>
7
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<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 27, 1997 March 28, 1998
------------------------------------- ------------------------------------
(in thousands, except per share Pro Forma Pro Forma
data) Actual Pro Forma As Adjusted Actual Pro Forma As Adjusted
--------- ------------ ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Basic and diluted earnings (loss)
per share before extraordinary
item.............................. $ 0.04(7) $ (2.17 (7)
Extraordinary item per share........ -- (0.06 (7)
--------- ---------
Basic and diluted earnings (loss)
per share......................... $ 0.04(7) $ (2.23 (7)
--------- ---------
--------- ---------
Weighted average number of shares
outstanding....................... 29,055(7) 29,055(7)
--------- ---------
--------- ---------
Pro forma basic and diluted earnings
(loss) per share(2)............... $ 0.14(7) $ (1.93)(7)
------------ -----------
------------ -----------
Pro forma weighted average number of
shares outstanding(2)............. 54,054(7) 54,054(7)
------------ -----------
------------ -----------
Pro forma as adjusted basic and
diluted earnings per share(3)..... $ 0.38 $ (1.48)
------------ ------------
------------ ------------
Pro forma as adjusted weighted
average number of shares
outstanding(3).................... 67,000 67,000
------------ ------------
------------ ------------
OPERATING AND OTHER DATA:
Adjusted EBITDA(4)................ $ 34,877 $ 154,617 $ 154,617(5) $ 17,587 $ 39,080 $ 39,080(5)
Depreciation and amortization..... 10,057 52,094 49,010 6,140 12,618 11,847
Capital expenditures.............. 2,411 13,471 13,471 1,511 4,253 4,253
BALANCE SHEET DATA (END OF PERIOD):
Working capital (excluding current
portion of long-term debt)...... $ 6,524 $ 29,164 $ 54,548 $ 54,548
Total assets...................... 372,739 869,551 1,412,092 1,414,108
Long-term debt (including current
portion)........................ 279,919 652,377 937,136(6) 702,377
Stockholders' equity.............. 65,223 154,029 337,498 591,022
</TABLE>
(1) Pro forma as adjusted incentive plan expense represents the expense incurred
under the VDK Plan and the Aurora Plan, which are described elsewhere in the
Prospectus, based on an initial public offering price per share of $21.50
(the midpoint of the range of initial public offering prices set forth on
the cover page of this Prospectus). See "Management--VDK Incentive Plan" and
"Management--Aurora Incentive Plan".
(2) Pro forma basic and diluted earnings per share and the pro forma weighted
average number of shares outstanding gives effect to the acquisitions as
described in the notes to the Unaudited Pro Forma Financial Information.
(3) Pro forma as adjusted basic and diluted earnings per share and the pro forma
as adjusted weighted average number of shares outstanding gives effect to
the acquisitions and the Equity Offerings as described in the notes to the
Unaudited Pro Forma Financial Information.
(4) Adjusted EBITDA is defined as net income (loss) before interest expense,
taxes, depreciation, amortization, extraordinary items, incentive plan
expense (see (1) above) and transition expenses and is presented because it
is commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and to determine a company's
ability to service and incur debt. Adjusted EBITDA should not be considered
in isolation from or as a substitute for net income, cash flows from
operating activities or other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles or
as a measure of profitability or liquidity.
(5) Adjusted EBITDA of $154.6 million and $39.1 million for the year ended
December 27, 1997 and for the three months ended March 28, 1998,
respectively, would increase to $172.8 million and $40.8 million if cost
savings of $18.2 million and $1.7 million, respectively, were included. Cost
savings primarily reflect savings pursuant to long term contract
manufacturing agreements the Company has entered into for its syrup and
baking mix products and the elimination of manufacturing and administrative
expenses allocated from prior owners. Cost savings represent an estimate and
there can be no assurance the cost savings will be realized. Actual results
could differ materially from those presented.
(6) Includes $15.0 million of revolving debt outstanding under the VDK Senior
Bank Facilities.
(7) Aurora Foods Inc., which was formed shortly before the Equity Offerings, is
the successor to Aurora. As such, Aurora Foods Inc. will assume the
historical financial statements of Aurora as its historical financial
statements. Therefore, the capital structure of Aurora Foods Inc. must be
applied to the historical capital structure and per share information of
Aurora. Upon formation and immediately prior to the Equity Offerings, Aurora
Foods Inc. is expected to have 54,053,637 shares of Common Stock
outstanding, assuming an initial public offering price of $21.50 (the
midpoint of the range of initial public offering prices set forth on the
cover page of this Prospectus). Based on these outstanding shares and prior
capital transactions of Aurora, outstanding shares as of previous dates have
been revised to be on an Aurora Foods Inc. capital structure basis. Earnings
per share data as of previous dates have been recomputed based on the
revised outstanding share amounts.
8
<PAGE>
RISK FACTORS
Investors should carefully consider the following risk factors, in addition
to the other information contained in this Prospectus, before purchasing the
Common Stock offered hereby.
IMPLEMENTATION OF BUSINESS STRATEGY; LIMITED OPERATING HISTORY; STRATEGIC
ACQUISITIONS
The Company intends to pursue a business strategy of increasing sales and
earnings through revitalizing its brands and achieving operational cost savings.
No assurance can be given that the Company will be successful in implementing
this strategy. See "Business--Competition" and "Business". Van de Kamp's, Inc.
was incorporated in July 1995 and Aurora Foods was incorporated in December
1996. Accordingly, investors have a limited operating history upon which to base
an evaluation of the Company's performance and an investment in the Company.
Moreover, certain of the financial statements included herein represent the
operations of the various Acquired Businesses by persons other than the
Company's management and may not be comparable with current operations or
indicative of future performance.
The Company also intends to pursue a business strategy of growth through
strategic acquisitions. The Company cannot predict whether it will be successful
in pursuing any acquisition opportunities or whether any acquisitions will be
successful. The Company continually evaluates potential strategic acquisitions;
however, the Company has no binding commitment to acquire any business or other
material assets. The Company's acquisition strategy involves numerous risks
including integration of the operations, systems, and management of acquired
businesses and the diversion of management's attention from other business
concerns. Depending on the nature, size, and timing of future acquisitions, the
Company may be required to raise additional financing. There can be no assurance
that the Credit Agreement, to be entered into by and between the Company and
Chase Manhattan Bank (the "Senior Credit Facilities"), the indenture (the "New
Indenture") related to the Company's proposed Series E Senior Subordinated Notes
due 2008 (the "New Notes"), the indenture (the "VDK Indenture") related to the
VDK Notes, and the indentures (the "Aurora Indentures" and together with the New
Notes Indenture and the VDK Indenture, the "Indentures") related to the 9 7/8%
Series B Senior Subordinated Notes due 2007 ("Aurora Series B Notes") and the
9 7/8% Series D Senior Subordinated Notes due 2007 ("Aurora Series D Notes") and
the VDK Notes, Aurora Series B Notes, Aurora Series D Notes, and the New Notes
(collectively the "Senior Subordinated Notes") or any other loan agreement to
which the Company may become a party will permit such additional financing or
that any additional financing will be available on terms acceptable to the
Company.
RESTRICTIVE DEBT COVENANTS
The Senior Credit Facilities and each of the Indentures contain (or in the
case of the New Notes Indenture will contain) a number of significant negative
covenants. Under the Indentures, the negative covenants (i) limit the amount of
indebtedness the Company may incur; (ii) limit the Company's ability to make
certain payments; (iii) restrict distributions from the Company's subsidiaries;
(iv) place limitations on sales of assets by the Company and its subsidiaries;
(v) limit transactions with affiliates of the Company; (vi) limit the sale of
the capital stock of the Company's subsidiaries; (vii) limit the lines of
businesses the Company may engage in; and (viii) limit the Company's ability to
merge or consolidate or transfer all or substantially all of the assets of the
Company. The Senior Credit Facilities also contain other restrictive covenants
which require the Company to maintain specified financial ratios and satisfy
financial condition tests including a minimum interest coverage ratio, a maximum
leverage ratio, a minimum fixed charge ratio and a maximum level of capital
expenditures. In addition, under the terms of the Aurora Indentures and the VDK
Indenture, consummation of the Merger (which must occur prior to or concurrently
with the closing of the Equity Offerings) requires certain customary approvals.
Each of these negative covenants could affect the Company's ability to
implement its business strategy. The breach of any of these covenants or
restrictions could result in a default under the Senior Credit Facilities or the
Indentures, which would permit the senior lenders or the holders of the Senior
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<PAGE>
Subordinated Notes, as the case may be, to declare all amounts borrowed
thereunder to be due and payable, together with accrued and unpaid interest. If
the Company were unable to repay its indebtedness to its senior lenders, such
lenders could proceed against the collateral securing such indebtedness which
collateral represents substantially all of the assets of the Company. See
"Description of Indebtedness".
GENERAL RISKS OF FOOD INDUSTRY; COMPETITION
The Company is subject to the general risks of the food industry, and
particularly to the risk that a competitor gains a technological advantage such
as technology that flash freezes fish that is better tasting and has a higher
quality; evolving consumer preferences such as the current trend toward ethnic
foods; lack of attractiveness of a particular food product line after its
novelty has worn off; nutritional and health-related concerns; federal, state,
and local food processing controls; consumer product liability claims; the risk
of product tampering; mislabeling; and the availability and expense of
insurance. See "Business".
The food products business 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 than the
Company. There can be no assurance that the Company can compete successfully
with such other companies. Competitive pressures or other factors could cause
the Company's products to lose market share or result in significant price
erosion, which could have a material adverse effect on the Company. See
"Business".
PRODUCT LIABILITY; PRODUCT RECALLS
The Company may be subject to significant liability should the consumption
of any of its products cause injury, illness, or death and may be required to
recall certain of its products in the event of contamination, mislabeling or
damage to its products. There can be no assurance that product liability claims
will not be asserted against the Company or that the Company will not be
obligated to recall its products. A product liability judgment against the
Company or a product recall could have a material adverse effect on the
Company's business, financial condition, and results of operations.
GOVERNMENTAL REGULATION
The Company's operations are subject to extensive regulation by the United
States Food and Drug Administration ("FDA"), the United States Department of
Agriculture (the "USDA") and other state and local authorities regarding the
processing, packaging, storage, distribution, advertising, and labeling of the
Company's products, and environmental compliance. The material regulations to
which the Company is subject include regulations promulgated under the Federal
Food, Drug and Cosmetic Act, the Nutrition Labeling and Education Act, the
Federal Trade Commission Act and the Occupational Safety and Health Act, each as
amended. The Company seeks to comply with applicable regulations by a
combination of employing internal personnel to ensure quality assurance
compliance (for example, assuring that food packages contain only ingredients as
specified on the package labeling) and contracting with third-party laboratories
that conduct analyses of products for the nutritional labeling requirements (for
example, determining the percent or amount of specific ingredients and other
components of a food product). The Company's principal officers monitor
regulatory compliance within their functional areas and report to the president
of their division. The Company's manufacturing facilities and products are
subject to periodic inspection by federal, state, and local authorities. There
can be no assurance, however, that the Company is in compliance with such laws
and regulations or that it will be able to comply with any future laws and
regulations. Failure by the Company to comply with applicable laws and
regulations could subject the Company to civil remedies, including fines,
injunctions, recalls, or
10
<PAGE>
seizures, as well as potential criminal sanctions, which could have a material
adverse effect on the Company. See "Business--Certain Legal and Regulatory
Matters" and "--Environmental".
TRADEMARKS
The Company believes that its trademarks and other proprietary rights are
important to its success and its competitive position. There can be no assurance
that the actions taken by the Company to establish and protect its trademarks
and other proprietary rights will be adequate to prevent imitation of its
products by others or to prevent others from seeking to block sales of the
Company's products as violative of the trademarks and proprietary rights of
others. Moreover, no assurance can be given that others will not assert rights
in, or ownership of, trademarks and other proprietary rights of the Company or
that the Company will be able to successfully resolve such conflicts. See
"Business--Trademarks".
DEPENDENCE ON RAW MATERIALS
The Company's primary raw materials are fish (primarily pollock), flour,
sugar, corn syrup, liquid sucrose, maple sugar, flavorings, cheeses, meat, eggs,
milk, and vegetable oil. The Company purchases fish from various North Pacific
suppliers and its other raw materials from the U.S. commodity market. While all
such materials are currently available from numerous independent suppliers,
commodity raw materials are subject to increases in price attributable to, among
other things, changes in crop size and federal and state agricultural programs.
Such increases could have a material adverse effect on the performance of the
Company. For example, if the federal government increases import or excise taxes
on imported sugar, domestic sugar suppliers could raise their prices. Such
increased prices could materially adversely affect the Company's profitability
for its products that use sugar, such as DUNCAN HINES baking mixes. See
"Business--Raw Materials".
CONTROL BY PRINCIPAL STOCKHOLDERS; CONSENT RIGHTS; AND ALLOCATION OF CORPORATE
OPPORTUNITIES
Upon completion of the Equity Offerings, Fenway will indirectly or directly
beneficially own approximately 24.8%, affiliates of MDC will beneficially own
24.4%, and the parties to the Securityholders Agreement dated April 8, 1998 (the
"Securityholders Agreement") by and among New LLC, MBW Investors LLC, VDK Foods
LLC, Fenway, MDC, Dartford, the California Public Employees Retirement System
("CALPERS"), UBS Capital LLC ("UBS"), an affiliate of Tiger Oats Limited ("Tiger
Oats"), Sunapee Securities, Inc. and Squam Lake Investors II, L.P.,
(collectively, "Sunapee"), certain divisional management and other parties
thereto (the "Stockholders") will beneficially own, in the aggregate, 78.4% of
the outstanding shares of Common Stock. Pursuant to the Securityholders
Agreement, the Stockholders have agreed that until the occurrence of certain
events, the initial Board of Directors will consist of three directors
designated by Fenway, three directors designated by MDC, two directors
designated by Dartford, one director designated by UBS, and one director
designated by Tiger Oats. In addition, for a period not to exceed 30 months
after the closing of the Equity Offerings, the affirmative consent of Fenway and
MDC is required for certain actions which could otherwise be approved by a
majority of the directors including certain acquisitions or divestitures by the
Company and the removal or termination of Ian R. Wilson or the employment or
termination of his successor as Chief Executive Officer of the Company. The
interests of Fenway and/or MDC in respect of such matters may be different from,
or conflict with, those of the Company and with other stockholders of the
Company. By reason of these consent rights and the fact that if Fenway and MDC
vote together, they have the right to designate a majority of the directors,
Fenway and MDC will be able to practically determine the outcome of significant
matters affecting the management and business affairs of the Company. See
"Principal Stockholders and Selling Stockholder--Securityholders Agreement" and
"Certain Relationships and Related Transactions".
In addition, certain directors of the Company affiliated with Fenway or MDC
also serve as officers or directors of other portfolio companies of Fenway or
MDC. Service as a director of the Company and as a director or officer of
another company (other than a subsidiary of the Company) could create or appear
11
<PAGE>
to create conflicts of interest when the director is faced with decisions that
could have different implications for the Company and such other company. A
conflict of interest could also exist with respect to allocation of the time and
attention of persons who are officers of both the Company and one or more other
companies. MDC, Fenway and their professional staffs are not restricted from
acquiring or managing other companies in the food business, including companies
that may be competitive with the Company. For example, Fenway controls Delimex
Holdings, Inc., a leading manufacturer and distributor of Mexican and other
ethnic frozen food. Each of Dartford, and its partners (Messrs. Ian R. Wilson,
James B. Ardrey, and Ray Chung, and Ms. M. Laurie Cummings) are restricted from
acquiring or managing companies other than the Company and Windy Hill for
certain periods of time. If Dartford's management services agreement with Windy
Hill is terminated, Dartford may acquire or manage another company in place of
Windy Hill. During the period that Messrs. Wilson, Ardrey, and Chung and Ms.
Cummings are subject to non-compete covenants in their employment agreements,
they are not permitted to manage or acquire any additional company in the
business of offering food products (other than beverages) for human consumption.
See "Management--Employment Agreements", "Principal Stockholders and Selling
Stockholder--Securityholders Agreement" and "Certain Relationships and Related
Transactions".
INTEREST RATE SWAP AGREEMENTS
The Company in the ordinary course of business enters into interest rate
swap agreements with major financial institutions in order to reduce the impact
of changes in interest rates on its floating rate long term debt. The Company's
principal risk under these agreements is that the financial institution
defaults. In such case, the Company would not receive a swap payment from the
financial institution that otherwise would have resulted in a reduction in net
interest expense. Management believes that any potential loss in future earnings
and cash flows attributable to its interest rate swap agreements would not be
material.
DILUTION
Persons purchasing shares of Common Stock in the Equity Offerings will incur
immediate and substantial dilution in the net tangible book value of
approximately $28.70 per share. See "Dilution".
NO DIVIDENDS
The Company has never paid dividends on the Common Stock and does not
anticipate paying such dividends in the foreseeable future. See "Dividend
Policy".
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of the Equity Offerings, the Company will have outstanding
67,000,000 shares of Common Stock. Of these shares, the 14,500,000 shares of
Common Stock sold in the Equity Offerings (16,675,000 shares if the
Underwriters' over-allotment option are exercised in full) will be freely
transferable without restriction under the Securities Act of 1933 (the
"Securities Act"), unless purchased by an "affiliate" of the Company within the
meaning of Rule 144 promulgated under the Securities Act ("Rule 144"). The
remaining 52,500,000 outstanding shares of Common Stock are "restricted
securities" under Rule 144. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
and lock-up agreements under which the holder of such shares has agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the closing of the Equity Offerings, without the prior written consent of the
representatives of the Underwriters. Of the 52,500,000 shares of "restricted
securities", there are currently no shares of Common Stock eligible for sale and
beginning on April 8, 1999, all of such shares of Common Stock will be eligible
for sale based on current Securities and Exchange Commission ("Commission")
rules generally limiting the manner-of-sale, volume, and timing of such sales.
The direct and indirect members of New LLC will hold approximately 52,500,000
shares of Common Stock immediately after the Equity Offerings, have certain
12
<PAGE>
registration rights with respect to them, and have agreed to certain
restrictions on the sale of any shares of Common Stock. See "Certain
Relationships and Related Transactions", "Background", "Shares Eligible for
Future Sale", "Underwriting", and "Principal Stockholders and Selling
Stockholder--Securityholders Agreement".
The Company plans to register on Form S-8 up to 3,500,000 shares of Common
Stock issuable to its employees pursuant to the 1998 Incentive Plan.
Future sales of substantial amounts of Common Stock, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock prevailing from time to time and could impair the ability of the Company
to raise additional capital in the future through the sale of its equity
securities. See "Shares Eligible for Future Sale" and "Underwriting".
NO PRIOR PUBLIC MARKET
Prior to the Equity Offerings, there has been no public market for the
Common Stock and there can be no assurance that an active public market will
develop or be sustained after the Equity Offerings or that the initial public
offering price corresponds to the price at which the Common Stock will trade in
the public market subsequent to the Equity Offerings. The initial public
offering price for the Common Stock will be determined by negotiations among the
Company, the Selling Stockholder and the representatives of the Underwriters
based upon the consideration of certain factors set forth herein under
"Underwriting". Subsequent to the Equity Offerings, prices for the Common Stock
will be determined by the market and may be influenced by a number of factors
including the depth and liquidity of the market for the Common Stock, investor
perceptions of the Company and other food products companies and general
economic and other conditions.
PREFERRED STOCK
The Certificate of Incorporation allows the Company to issue preferred stock
without stockholder approval. Such issuances could make it more difficult for a
third party to acquire the Company. See "Description of Capital Stock".
REFINANCINGS
NOTES OFFERING
Concurrently with the Equity Offerings, the Company is offering $200 million
aggregate principal amount of its Series E Senior Subordinated Notes due 2008
(the "Notes Offering"). The closings of the Equity Offerings and the Notes
Offering are not contingent upon each other. The indenture for the New Notes
will contain certain covenants, including, but not limited to, covenants that
will limit (i) the incurrence of additional indebtedness by the Company and its
subsidiaries, (ii) the payment of dividends on, and reedemption of, capital
stock of the Company and the redemption of certain subordinated obligations of
the Company, (iii) investments, (iv) sales of assets and subsidiary stock, (v)
transactions with affiliates, (vi) consolidations, mergers and transfers of all
or substantially all the assets of the Company and (vii) distributions by
subsidiaries.
In the event the Notes Offering is not consummated, the Company intends to
increase the amounts borrowed under the Senior Credit Facilities to $500
million.
REFINANCING OF SENIOR BANK FACILITIES
The outstanding indebtedness of approximately $184.8 million under the
Second Amended and Restated Credit and Guarantee Agreement, dated as of July 9,
1996, among VDK, Van de Kamp's, Inc., the banks and other financial institutions
parties thereto and the Chase Manhattan Bank, NA, as agent, as amended (the "VDK
Senior Bank Facilities") will be repaid in full with the proceeds of the Equity
Offerings. In addition, the outstanding indebtedness of approximately $416.3
million under the Aurora Senior Bank Facilities will be repaid in full with the
proceeds of the Refinancings and a portion of the
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<PAGE>
proceeds of the Equity Offerings. In the event the Notes Offering is not
consummated, the Company intends to increase the amounts borrowed under the
Senior Credit Facilities to $500 million.
Concurrently with the closing of the Equity Offerings, the Company will
enter into the Senior Credit Facilities. The repayment of the VDK Senior Bank
Facilities and the Aurora Senior Bank Facilities, the entering into of the
Senior Credit Facilities, and the Notes Offering are hereinafter referred to as
the "Refinancings". The Company plans to borrow under the Senior Credit
Facilities to redeem $65 million principal amount of the VDK Notes and to pay
the related redemption premium of $11.0 million after the closing of the Equity
Offerings.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Equity Offerings
(after deducting the underwriting discounts and estimated offering expenses),
based on an assumed initial public offering price of $21.50 per share, the
midpoint of the estimated offering range set forth on the cover page of this
Prospectus, are estimated to be approximately $257.0 million. The net proceeds
will be used to redeem $35.0 million principal amount of the VDK Notes and pay
the associated redemption premium of $3.5 million pursuant to the VDK Indenture.
For a description of the VDK Notes, see "Description of Indebtedness--Senior
Subordinated Notes--The VDK Notes". Any portion of the net proceeds not so
utilized will be used to repay indebtedness of $33.7 million under the Second
Amended and Restated Credit Agreement, dated as of January 16, 1998, by and
among Aurora Foods, Aurora, the lenders listed therein, The Chase Manhattan
Bank, The National Westminister Bank PLC, and Swiss Bank Corporation (the
"Aurora Senior Bank Facilities") and $184.8 million under the VDK Senior Bank
Facilities. The indebtedness under the Aurora Senior Bank Facilities, which was
incurred in connection with the acquisitions of the MRS. BUTTERWORTH'S business,
the LOG CABIN business and the DUNCAN HINES business, bears interest at a
weighted average rate of 8.38% and has maturity dates ranging from December 31,
2004 through June 30, 2006. The indebtedness under the VDK Senior Bank
Facilities was incurred in connection with the acquisitions of the VAN DE KAMP'S
business, the MRS. PAUL'S business, the AUNT JEMIMA business, and the CELESTE
business, bears interest at a weighted average rate of 8.55% and has maturity
dates ranging from September 19, 2001 through September 30, 2003. The Company
will not receive any of the proceeds from the sale of shares of Common Stock by
the Selling Stockholder.
DIVIDEND POLICY
The Company intends to retain future earnings for use in the Company's
business and does not anticipate declaring or paying any cash or stock dividends
on shares of its Common Stock in the foreseeable future. Further, any
determination to declare and pay dividends will be made by the Board of
Directors of the Company in light of the Company's earnings, financial
condition, capital requirements, and contractual agreements, and other factors
deemed relevant by the Board of Directors at that time. In addition, the Senior
Credit Facilities and the Indentures contain certain restrictive covenants,
including covenants that directly or indirectly restrict or prohibit the
Company's ability to pay dividends and make other distributions. See "Risk
Factors--Restrictive Debt Covenants" and "Description of Indebtedness".
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, 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 or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These statements appear under the captions
"Prospectus Summary", "Risk Factors", "Unaudited Pro Forma Financial Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Business" and elsewhere in this Prospectus. 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; the continued success of management's strategy; integration of
acquired businesses into the Company; terms and deployment of capital; changes
in, or the failure or inability to comply with, governmental rules and
regulations, including, without limitation, FDA and environmental rules and
regulations, and other factors referenced in the Prospectus. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements.
15
<PAGE>
BACKGROUND
Aurora Foods Inc. ("Aurora Foods"), a wholly-owned subsidiary of Aurora, was
incorporated in Delaware in December 1996 for the purpose of acquiring the MRS.
BUTTERWORTH'S syrup business from Conopco, Inc. (the "Predecessor"), a
subsidiary of Unilever United States, Inc. ("Unilever"). Aurora Foods then
acquired the LOG CABIN syrup business from Kraft Foods, Inc. ("Kraft") in July
1997 and the DUNCAN HINES baking mix business from The Procter & Gamble Company
("P&G") in January 1998.
Van de Kamp's, Inc., a wholly-owned subsidiary of VDK, was incorporated in
Delaware in July 1995 for the purpose of acquiring the VAN DE KAMP'S frozen
seafood business from the Pillsbury Company ("Pillsbury") in September 1995. Van
de Kamp's, Inc. then acquired the MRS. PAUL'S frozen seafood business from the
Campbell Soup Company ("Campbell Soup") in May 1996 and AUNT JEMIMA frozen
breakfast and CELESTE frozen pizza businesses from Quaker Oats in July 1996.
Each of the acquisitions consummated by Aurora Foods and Van de Kamp's, Inc.,
collectively are referred to as the "Acquired Businesses".
On April 8, 1998, MBW Investors LLC and VDK Foods LLC formed Aurora/VDK LLC
("New LLC"). MBW Investors LLC contributed all of the capital stock of Aurora
and VDK Foods LLC contributed all of the capital stock of VDK to New LLC (the
"Contribution Transaction"). In return for those contributions, MBW Investors
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 Foods 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. Each of UBS and Tiger Oats have
agreed to receive their $9.7 million portion of their priority distribution in
shares of Common Stock of the Company. Just prior to the Equity Offerings, the
Company will be incorporated, and New LLC will contribute all of the issued and
outstanding stock of Aurora and VDK to it.
New LLC is a majority-owned subsidiary of MBW Investors LLC. New LLC and the
Company will account for the contribution of the ownership of Aurora at MBW
Investors LLC's historical cost and the contribution of the ownership of VDK
will be accounted for as an acquisition using the purchase method of accounting
at New LLC's cost.
Unless the context otherwise requires, discussion of the business of the
Company gives effect to acquisitions made by Aurora or VDK and to the merger of
Aurora, Aurora Foods, VDK, and Van de Kamp's, Inc. with and into the Company,
concurrently with the closing of the Equity Offerings (the "Merger"). All
references to the Company's historical financial statements are to the
historical financial statements of Aurora, to which the Company will be the
successor upon formation and after the Merger. The consummation of the Merger is
a condition to, and will close concurrently with, the closing of the Equity
Offerings.
New LLC will sell 1,553,637 shares of Common Stock in the Equity Offerings
and as soon as practicable after the closing of the Equity Offerings, New LLC
will be dissolved.
The Company's principal executive offices are located at 456 Montgomery
Street, Suite 2200, San Francisco, California 94104, and the telephone number is
415-982-3019.
16
<PAGE>
DILUTION
As of March 28, 1998, the Company had a pro forma deficit in net tangible
book value of $736.1 million or approximately $13.62(3) per share of Common
Stock after giving effect to the Company's acquisitions of VDK and the DUNCAN
HINES business, and the Desserts Sale. Pro forma net tangible book value per
share is determined by dividing the pro forma tangible net worth of the Company
(tangible assets less total liabilities) by the total number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of the shares
of Common Stock offered hereby at an assumed initial public offering price of
$21.50 per share (the midpoint of the range of the initial public offering
prices set forth on the cover page of this Prospectus) and the deduction of the
estimated underwriting discounts and offering expenses payable by the Company in
connection therewith, but without taking into account any other changes in such
pro forma net tangible book value after March 28, 1998, the pro forma as
adjusted deficit in net tangible book value of the Company as of March 28, 1998,
as adjusted, would have been approximately $482.6 million or $7.20 per share.
This represents an immediate increase in net tangible book value per share to
the existing stockholder of $6.42 per share and an immediate dilution of $28.70
per share to new investors purchasing shares at the assumed initial public
offering price.
The following table illustrates the per share dilution in pro forma net
tangible book value to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $ 21.50
Pro forma deficit in net tangible book value per
share before giving effect to the Equity Offerings $ (13.62 (3)
Increase per share attributable to new investors..... 6.42
---------
Pro forma as adjusted deficit in net tangible book value
per share after giving effect to the Equity
Offerings.............................................. (7.20)
---------
Dilution per share to new investors...................... $ 28.70
---------
---------
</TABLE>
The following table summarizes as of March 28, 1998, after giving effect to
the sale of the shares of Common Stock offered hereby, the number of shares of
Common Stock purchased from the Company, the total consideration paid therefor
and the average price per share paid by the existing stockholder and by the new
investors purchasing shares of Common Stock in the Equity Offerings before
deduction of the estimated underwriting discounts and commissions and offering
expenses payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Existing stockholder... 54,053,637(3) 80.7% $ 401,660(1) 59.1% $ 7.43(3)
New investors.......... 12,946,363 19.3% 278,347(2) 40.9 21.50
---------- ----------- -------------- -----------
Total............ 67,000,000 100.0% $ 680,007 100.0% $ 10.15
---------- ----------- -------------- -----------
---------- ----------- -------------- -----------
</TABLE>
- ------------------------
(1) Reflects aggregate capital contributions received from MBW Investors LLC and
the value of the equivalent equity securities exchanged in the acquisition
of VDK.
(2) Assuming an initial public offering price of $21.50 per share of Common
Stock (the midpoint of the range of initial public offering prices set forth
on the cover page of this Prospectus).
(3) Aurora Foods Inc., which was formed shortly before the Equity Offerings, is
the successor to Aurora. As such, Aurora Foods Inc. will assume the
historical financial statements of Aurora as its historical financial
statements. Therefore, the capital structure of Aurora Foods Inc. must be
applied to the historical capital structure and per share information of
Aurora. Upon formation and immediately prior to the Equity Offerings, Aurora
Foods Inc. is expected to have 54,053,637 shares of Common Stock
outstanding, assuming an initial public offering price of $21.50 (the
midpoint of the range of initial public offering prices set forth on the
cover page of this Prospectus). Based on these outstanding shares and prior
capital transactions of Aurora, outstanding shares as of previous dates have
been revised to be on an Aurora Foods Inc. capital structure basis. Earnings
per share data as of previous dates have been recomputed based on the
revised outstanding share amounts.
17
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of March 28, 1998 ("Actual"), the unaudited pro forma capitalization of the
Company after giving effect to the VDK acquisition and the Desserts Sale (as
defined) ("Pro Forma"), and the unaudited pro forma as adjusted capitalization
of the Company, after giving further effect to the Equity Offerings and
Refinancings and the application of the net proceeds therefrom ("Pro Forma As
Adjusted"). This table should be read in conjunction with the historical
financial statements of the Company, the unaudited pro forma financial
statements, the financial statements of the Acquired Businesses and the
Predecessor, and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 28, 1998
---------------------------------------------------------
ACTUAL PRO FORMA PRO FORMA AS ADJUSTED
--------- ------------ --------------------------------
ONLY FOR
THE EQUITY FURTHER FOR
OFFERINGS THE REFINANCINGS
(IN MILLIONS)
<S> <C> <C> <C> <C>
Long-term debt (including current maturities):
Senior Credit Facilities............................. $ -- $ -- $ -- $ 300.0(1)
Aurora Senior Bank Facilities........................ 450.0 450.0 416.3(2) --(2)
VDK Senior Bank Facilities........................... -- 184.8 --(2) --(2)
12% Senior Subordinated Notes due 2005............... -- 100.0 65.0 (2)
9 7/8% Series B Senior Subordinated Notes due 2007... 100.0 100.0 100.0 100.0
9 7/8% Series D Senior Subordinated Notes due 2007... 102.4 102.4 102.4 102.4
New Notes(1)......................................... -- -- -- 200.0
--------- ------------ ------------- -----------------
Total long-term debt............................. 652.4 937.2 683.7 702.4
--------- ------------ ------------- -----------------
Stockholders' equity:
Preferred stock (no shares issued and outstanding)... -- -- -- --
Common stock......................................... 0.3(3) 0.5(3) 0.7(2) 0.7(2)
Paid-in capital...................................... 217.9 401.3 656.6(2) 656.6(2)
Promissory notes..................................... (0.6) (0.7) (0.7) (0.7)
Accumulated deficit.................................. (63.6) (63.6) (65.6)(2) (65.6)(2)
--------- ------------ ------------- -----------------
Total stockholders' equity......................... 154.0 337.5 591.0 591.0
--------- ------------ ------------- -----------------
Total capitalization............................. $ 806.4 $ 1,274.7 $ 1,274.7 $ 1,293.4
--------- ------------ ------------- -----------------
--------- ------------ ------------- -----------------
</TABLE>
- ------------------------
(1) The Senior Credit Facilities provides for borrowings of up to $400.0
million. See "Description of Indebtedness". In the event the Note Offering
is not consummated, the Company expects to increase the Senior Credit
Facilities to $500 million.
(2) Pro Forma As Adjusted gives effect to the net proceeds to the Company from
the Equity Offerings and the Refinancings and other pro forma adjustments
(see Notes to Unaudited Pro Forma Balance Sheet as of March 28, 1998).
(3) Aurora Foods Inc., which was formed shortly before the Equity Offerings, is
the successor to Aurora. As such, Aurora Foods Inc. will assume the
historical financial statements of Aurora as its historical financial
statements. Therefore, the capital structure of Aurora Foods Inc. must be
applied to the historical capital structure and per share information of
Aurora. Upon formation and immediately prior to the Equity Offerings, Aurora
Foods Inc. is expected to have 54,053,637 shares of Common Stock
outstanding, assuming an initial public offering price of $21.50 (the
midpoint of the initial public offering prices set forth on the cover page
of this Prospectus). Based on these outstanding shares and prior capital
transactions of Aurora, outstanding shares as of previous dates have been
revised to be on an Aurora Foods Inc. capital structure basis. Earnings per
share data as of previous dates have been recomputed based on the revised
outstanding share amounts.
18
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements of the Company are
based on the audited and unaudited historical financial statements of (i) the
Company, (ii) the LOG CABIN business, acquired by the Company on July 1, 1997,
(iii) the DUNCAN HINES business, acquired by the Company on January 16, 1998,
and (iv) VDK, acquired by the Company on April 8, 1998. These audited and
unaudited historical financial statements are included elsewhere in this
Prospectus, except for the DUNCAN HINES stub period January 1, 1998 through
January 15, 1998, and the VDK business for the three months ended March 28,
1998, which are not included herein.
The unaudited pro forma statements of operations has been prepared to give
effect to (i) the acquisition of the LOG CABIN business, (ii) the acquisition of
the DUNCAN HINES business, (iii) the acquisition of VDK, (iv) the Desserts Sale
(as defined), (v) the Equity Offerings, and (vi) the Refinancings as if each had
occurred on January 1, 1997. The unaudited pro forma balance sheet has been
prepared to give effect to (i) the acquisition of VDK, (ii) the Desserts Sale,
(iii) the Equity Offerings, and (iv) the Refinancings as though each had
occurred as of March 28, 1998.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The unaudited pro
forma financial statements and accompanying notes should be read in conjunction
with the historical financial statements of (i) the Company, (ii) the DUNCAN
HINES business, (iii) the LOG CABIN business and (iv) VDK and other financial
information pertaining to the Company, including "The Company",
"Capitalization", and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein. The unaudited
pro forma financial statements are not indicative of either future results of
operations or the results that might have occurred if the foregoing transactions
had been consummated on the indicated dates.
19
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 27, 1997
<TABLE>
<CAPTION>
DUNCAN HINES
LOG CABIN TWELVE MONTHS
COMPANY SIX ENDED VDK
YEAR MONTHS DECEMBER 31, PRO PRO FORMA
ENDED ENDED 1997 FORMA ADJUSTMENTS
DECEMBER 27, JUNE 28, SEE SEE FOR COMPANY
(in thousands, except per share data) 1997 1997 TABLE 1 TABLE 2 ACQUISITIONS PRO FORMA
- ------------------------------------- -------------- ----------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 143,020 $ 51,222 $ 233,150 $ 413,523 $ 33,316(a) $ 874,231
Cost of goods sold................... 45,729 18,067 160,577 162,248 (13,520)(b) 373,101(h)
-------------- ----------- -------------- ---------- ------------ -----------
Gross profit....................... 97,291 33,155 72,573 251,275 46,836 501,130
-------------- ----------- -------------- ---------- ------------ -----------
Brokerage, distribution and marketing
expenses:
Brokerage and distribution......... 17,096 3,239 -- 39,110 28,743(c) 88,188
Trade promotions................... 26,075 9,457 -- 111,146 25,809(a) 172,487
Consumer marketing................. 15,142 597 16,450 30,544 2,984(a) 65,717
-------------- ----------- -------------- ---------- ------------ -----------
Total brokerage, distribution and
marketing expenses............... 58,313 13,293 16,450 180,800 57,536 326,392
Amortization of goodwill and other
intangibles........................ 5,938 675 -- 12,374 14,437(d) 33,424
Selling, general and administrative
expenses........................... 5,229 3,637 7,995 17,566 -- 34,427(e)(h)
Allocated selling expense............ -- -- 4,215 -- (4,215)(c) --
Incentive plan expense............... 2,300 -- -- -- -- 2,300
Transition expenses.................. 2,113 -- -- 1,292 -- 3,405
-------------- ----------- -------------- ---------- ------------ -----------
Total operating expenses........... 73,893 17,605 28,660 212,032 67,758 399,948
-------------- ----------- -------------- ---------- ------------ -----------
Operating income................... 23,398 15,550 43,913 39,243 (20,922) 101,182
Interest income...................... (151) -- -- (364) -- (515)
Interest expense..................... 18,393 -- -- 29,672 36,437(f) 84,502
Amortization of deferred financing
expense............................ 3,059 -- -- 1,900 (384)(f) 4,575
Other bank and financing expenses.... 83 -- -- 221 -- 304
-------------- ----------- -------------- ---------- ------------ -----------
Income before income taxes......... 2,014 15,550 43,913 7,814 (56,975) 12,316
Income tax expense................... 779 6,376 -- 3,087 (5,377)(g) 4,865
-------------- ----------- -------------- ---------- ------------ -----------
Net income......................... $ 1,235 $ 9,174 $ 43,913 $ 4,727 $ (51,598) $ 7,451
-------------- ----------- -------------- ---------- ------------ -----------
-------------- ----------- -------------- ---------- ------------ -----------
Adjusted EBITDA......................
Basic and diluted earnings per
share.............................. $ 0.04(2)
--------------
--------------
Weighted average number of shares
outstanding........................ 29,055(2)
--------------
--------------
Pro forma basic and diluted earnings
per share $ 0.14(2)
-----------
-----------
Pro forma weighted average number of
shares outstanding................. 54,054(2)
-----------
-----------
Pro forma as adjusted basic and
diluted earnings per share
Pro forma as adjusted weighted
average number of shares
outstanding
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR EQUITY COMPANY
OFFERINGS PRO FORMA
AND AS
(in thousands, except per share data) REFINANCINGS ADJUSTED
- ------------------------------------- ------------- -----------
<S> <C> <C>
Net sales............................ $ -- $ 874,231
Cost of goods sold................... -- 373,101
------------- -----------
Gross profit....................... -- 501,130
------------- -----------
Brokerage, distribution and marketing
expenses:
Brokerage and distribution......... -- 88,188
Trade promotions................... -- 172,487
Consumer marketing................. -- 65,717
------------- -----------
Total brokerage, distribution and
marketing expenses............... -- 326,392
Amortization of goodwill and other
intangibles........................ -- 33,424
Selling, general and administrative
expenses........................... -- 34,427
Allocated selling expense............ -- --
Incentive plan expense............... -- 2,300
Transition expenses.................. -- 3,405
------------- -----------
Total operating expenses........... -- 399,948
------------- -----------
Operating income................... -- 101,182
Interest income...................... -- (515)
Interest expense..................... (26,477)(i) 58,025
Amortization of deferred financing
expense............................ (3,084)(i) 1,491
Other bank and financing expenses.... -- 304
------------- -----------
Income before income taxes......... 29,561 41,877
Income tax expense................... 11,676(j) 16,541
------------- -----------
Net income......................... $ 17,885 $ 25,336
------------- -----------
------------- -----------
Adjusted EBITDA...................... $ 154,617(1)
-----------
-----------
Basic and diluted earnings per
share..............................
Weighted average number of shares
outstanding........................
Pro forma basic and diluted earnings
per share
Pro forma weighted average number of
shares outstanding.................
Pro forma as adjusted basic and
diluted earnings per share $ 0.38
-----------
-----------
Pro forma as adjusted weighted
average number of shares
outstanding 67,000
-----------
-----------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Statement of Operations
- ------------------------------
(1) Adjusted EBITDA is defined as net income before interest expense, taxes,
depreciation, amortization, extraordinary items, incentive plan expense and
transition expenses and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. Adjusted EBITDA should not be considered in isolation from or as
a substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity. Adjusted EBITDA does not include any of the cost savings
disclosed in the Notes to the Unaudited Pro Forma Statement of Operations.
(2) Aurora Foods Inc., which will be formed shortly before the Equity Offerings,
is the successor to Aurora. As such, Aurora Foods Inc. will assume the
historical financial statements of Aurora as its historical financial
statements. Therefore, the capital structure of Aurora Foods Inc. must be
applied to the historical capital structure and per share information of
Aurora. Upon formation and immediately prior to the Equity Offerings, Aurora
Foods Inc. is expected to have 54,053,637 shares of Common Stock
outstanding, assuming an initial public offering price of $21.50 (the
midpoint of the range of initial public offering prices set forth on the
cover page of this Prospectus). Based on these outstanding shares and prior
capital transactions of Aurora, outstanding shares as of previous dates have
been revised to be on an Aurora Foods Inc. capital structure basis. Earnings
per share data as of previous dates have been recomputed based on the
revised outstanding share amounts.
20
<PAGE>
TABLE 1
The following table derives the statement of direct revenues, direct
expenses, and allocated selling expense of the DUNCAN HINES business for the
twelve months ended December 31, 1997, by deducting data for the six months
ended December 31, 1996, from the year ended June 30, 1997, and adding data for
the six months ended December 31, 1997. The DUNCAN HINES business was acquired
from P&G in January 1998. The historical statements of direct revenues and
direct expenses for the year ended June 30, 1997 and the six months ended
December 31, 1996 and 1997 are derived from the financial statements of the
DUNCAN HINES business included elsewhere in this Prospectus. The basis of
presentation of the statements of direct revenues and direct expenses is
disclosed in Note 1 to the DUNCAN HINES financial statements included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, TWELVE MONTHS
YEAR ENDED ------------------------ ENDED
(in thousands) JUNE 30, 1997 1996 1997 DECEMBER 31, 1997
- -------------------------------------------------------- -------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Direct revenues:
Gross revenues.......................................... $ 253,548 $ 146,124 $ 154,519 $ 261,943
Less: trade spending.................................. (19,646) (9,659) (15,822) (25,809)
Less: coupon expense.................................. (2,900) (2,110) (2,194) (2,984)
-------------- ----------- ----------- ----------
Net direct revenues................................. 231,002 134,355 136,503 233,150
Cost of products sold:
Product costs......................................... 144,261 80,361 85,139 149,039
Delivery costs........................................ 11,787 6,647 6,398 11,538
-------------- ----------- ----------- ----------
Total costs of products sold........................ 156,048 87,008 91,537 160,577
-------------- ----------- ----------- ----------
Gross margin............................................ 74,954 47,347 44,966 72,573
Direct marketing:
Consumer promotional expense.......................... 3,376 1,226 1,184 3,334
Advertising expense................................... 9,957 5,576 6,549 10,930
Other marketing expenses.............................. 2,520 1,453 1,119 2,186
-------------- ----------- ----------- ----------
Total direct marketing expense...................... 15,853 8,255 8,852 16,450
Direct selling, administrative and other................ 10,041 6,177 4,131 7,995
Allocated selling expense............................... 4,750 3,297 2,762 4,215
-------------- ----------- ----------- ----------
Excess of direct revenues over direct expenses.......... $ 44,310 $ 29,618 $ 29,221 $ 43,913
-------------- ----------- ----------- ----------
-------------- ----------- ----------- ----------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Statement of Operations
21
<PAGE>
TABLE 2
On May 1, 1998, the Company completed the sale of the frozen desserts
product line of VDK (the "Desserts Sale") to Mrs. Smith's Bakeries, Inc., a
subsidiary of Flowers, Inc. The Company received approximately $28.0 million
from the sale of certain assets of the frozen desserts product line. The Company
plans to close the Chambersburg, Pennsylvania facility where the frozen desserts
were manufactured and to eliminate certain corporate management and
administrative positions related to the desserts business. Machinery and
equipment related to the production of certain frozen seafood and vegetable
products, which is currently relocated at the Chambersburg facility, will be
relocated to the Company's Erie, Pennsylvania, and Jackson, Tennessee
manufacturing facilities. The impact of the Desserts Sale on the Company's
annual results of operations is not expected to be material and management
believes the Desserts Sale will not materially impact future results. The net
proceeds from the Desserts Sale were used to repay $25.0 million in indebtedness
under the VDK Senior Bank Facilities. Because VDK was acquired by the Company
shortly before the Desserts Sale, the Company will not recognize any gain or
loss as a result of the sale.
The following table sets forth the statements of operations for VDK for the
periods ended as indicated. The audited statements of operations for the year
ended June 30, 1997 and the unaudited statement of operations for the six months
ended December 31, 1996 and 1997 are derived from the VDK financial statements
included elsewhere in this Prospectus. The pro forma statement of operations is
based on the audited and unaudited historical financial statements of VDK
adjusted to reflect the Desserts Sale as if it occurred on January 1, 1997. This
table derives the statement of operations for VDK for the twelve months ended
December 31, 1997, by deducting data for the six months ended December 31, 1996,
from the year ended June 30, 1997, and adding data for the six months ended
December 31, 1997.
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS ENDED ADJUSTMENTS
DECEMBER 31, TWELVE FOR
YEAR ENDED ------------------------ MONTHS ENDED DESSERTS
(in thousands) JUNE 30, 1997 1996 1997 DECEMBER 31, 1997 SALE PRO FORMA
-------------- ----------- ----------- ------------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 435,476 $ 193,046 $ 199,329 $ 441,759 $ (28,236)(k) $ 413,523
Cost of goods sold......... 180,941 83,581 79,575 176,935 (14,687)(k) 162,248
-------------- ----------- ----------- ---------- ------------- -----------
Gross profit............. 254,535 109,465 119,754 264,824 (13,549)(k) 251,275
-------------- ----------- ----------- ---------- ------------- -----------
Brokerage, distribution and
marketing expenses:
Brokerage and
distribution............. 45,352 22,824 19,764 42,292 (3,182)(k) 39,110
Trade promotions......... 108,925 47,045 58,340 120,220 (9,074)(k) 111,146
Consumer marketing....... 29,524 10,040 12,443 31,927 (1,383)(k) 30,544
-------------- ----------- ----------- ---------- ------------- -----------
Total brokerage,
distribution and
marketing expenses....... 183,801 79,909 90,547 194,439 (13,639) 180,800
Amortization of goodwill
and other intangibles.... 13,142 6,760 6,792 13,174 (800)(l) 12,374
Selling, general and
administrative
expenses................. 14,270 6,081 9,377 17,566 -- 17,566
Transition expenses........ 2,885 1,593 -- 1,292 -- 1,292
-------------- ----------- ----------- ---------- ------------- -----------
Total operating expenses... 214,098 94,343 106,716 226,471 (14,439) 212,032
-------------- ----------- ----------- ---------- ------------- -----------
Operating income......... 40,437 15,122 13,038 38,353 890 39,243
Interest income............ (965) (632) (31) (364) -- (364)
Interest expense........... 32,499 16,603 15,839 31,735 (2,063)(m) 29,672
Amortization of deferred
financing expense........ 2,108 1,047 1,080 2,141 (241)(n) 1,900
Other bank and financing
expenses................. 265 132 88 221 -- 221
-------------- ----------- ----------- ---------- ------------- -----------
Income (loss) before
income tax............. 6,530 (2,028) (3,938) 4,620 3,194 7,814
Income tax expense
benefit.................. 2,377 (811) (1,439) 1,749 1,338 3,087
-------------- ----------- ----------- ---------- ------------- -----------
Net income (loss)........ $ 4,153 $ (1,217) $ (2,499) $ 2,871 $ 1,856 $ 4,727
-------------- ----------- ----------- ---------- ------------- -----------
-------------- ----------- ----------- ---------- ------------- -----------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Statement of Operations
22
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 28, 1998
<TABLE>
<CAPTION>
COMPANY
THREE DUNCAN HINES
MONTHS STUB PRO FORMA
ENDED PERIOD VDK PRO FORMA ADJUSTMENTS
(in thousands, except per MARCH 28, JANUARY PRO FORMA ADJUSTMENTS COMPANY FOR EQUITY OFFERINGS
share data) 1998 1-15, 1998 SEE TABLE 1 FOR ACQUISITIONS PRO FORMA AND REFINANCINGS
- ------------------------------ ----------- ------------- ---------------- ---------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 89,385 $ 4,951 $ 145,267 $ 734(o) $ 240,337 $ --
Cost of goods sold............ 37,734 3,322 54,371 (316)(p) 95,111(u) --
----------- ------------- ---------------- ---------------- ----------- --------
Gross profit................ 51,651 1,629 90,896 1,050 145,226 --
----------- ------------- ---------------- ---------------- ----------- --------
Brokerage, distribution and
marketing expenses:
Brokerage and distribution.. 9,355 -- 13,542 647(q) 23,544 --
Trade promotions............ 15,568 -- 41,621 548(o) 57,737 --
Consumer marketing.......... 7,997 333 12,638 89(o) 21,057 --
----------- ------------- ---------------- ---------------- ----------- --------
Total brokerage, distribution
and marketing expenses...... 32,920 333 67,801 1,284 102,338 --
Amortization of goodwill and
other intangibles........... 4,597 -- 3,202 557(r) 8,356 --
Selling, general and
administrative expenses..... 2,346 144 4,594 -- (e) 7,084(u) --
Incentive plan expense........ 60,000 -- 69,000 -- 129,000 (3,743)(v,w)
Transition expenses........... 1,926 -- -- -- 1,926 --
----------- ------------- ---------------- ---------------- ----------- --------
Total operating expenses...... 101,789 477 144,597 1,841 248,704 (3,743)
----------- ------------- ---------------- ---------------- ----------- --------
Operating loss.............. (50,138) 1,152 (53,701) (791) (103,478) 3,743
Interest income............... (223) -- (30) (253) --
Interest expense.............. 12,837 -- 7,279 1,010(s) 21,126 (6,620) (x)
Amortization of deferred
financing expense........... 513 -- 472 159(s) 1,144 (771) (x)
Other bank and financing
expenses.................... 51 -- 44 -- 95 --
----------- ------------- ---------------- ---------------- ----------- --------
Loss before income tax...... (63,316) 1,152 (61,466) (1,960) (125,590) 11,134
Income tax (benefit).......... (360) -- (19,464) (1,569)(t) (21,393) 6,011(y)
----------- ------------- ---------------- ---------------- ----------- --------
Net (loss) income before
extraordinary item........ $ (62,956) $ 1,152 $ (42,002) $ (391) $(104,197) $ 5,123
----------- ------------- ---------------- ---------------- ----------- --------
----------- ------------- ---------------- ---------------- ----------- --------
Adjusted EBITDA
Basic and diluted loss per
share before extraordinary
item........................ $ (2.17)(2)
-----------
-----------
Weighted average number of
shares outstanding.......... 29,055(2)
-----------
-----------
Pro forma basic and diluted
loss per share.............. $ (1.93)(2)
-----------
-----------
Pro forma weighted average
number of shares
outstanding................. 54,054(2)
-----------
-----------
Pro forma as adjusted basic
and diluted loss per share..
Pro forma as adjusted weighted
average number of shares
outstanding.................
<CAPTION>
COMPANY
(in thousands, except per PRO FORMA
share data) AS ADJUSTED
- ------------------------------ -------------
<S> <C>
Net sales..................... $ 240,337
Cost of goods sold............ 95,111
-------------
Gross profit................ 145,226
-------------
Brokerage, distribution and
marketing expenses:
Brokerage and distribution.. 23,544
Trade promotions............ 57,737
Consumer marketing.......... 21,057
-------------
Total brokerage, distribution
and marketing expenses...... 102,338
Amortization of goodwill and
other intangibles........... 8,356
Selling, general and
administrative expenses..... 7,084
Incentive plan expense........ 125,257
Transition expenses........... 1,926
-------------
Total operating expenses...... 244,961
-------------
Operating loss.............. (99,735)
Interest income............... (253)
Interest expense.............. 14,506
Amortization of deferred
financing expense........... 373
Other bank and financing
expenses.................... 95
-------------
Loss before income tax...... (114,456)
Income tax (benefit).......... (15,382)
-------------
Net (loss) income before
extraordinary item........ $ (99,074)
-------------
-------------
Adjusted EBITDA $ 39,080(1)
-------------
-------------
Basic and diluted loss per
share before extraordinary
item........................
Weighted average number of
shares outstanding..........
Pro forma basic and diluted
loss per share..............
Pro forma weighted average
number of shares
outstanding.................
Pro forma as adjusted basic
and diluted loss per share.. $ (1.48)
-------------
-------------
Pro forma as adjusted weighted
average number of shares
outstanding................. 67,000
-------------
-------------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Statement of Operations
- ------------------------------
(1) Adjusted EBITDA is defined as net income before interest expense, taxes,
depreciation, amortization, extraordinary items, incentive plan expense and
transition expenses and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. Adjusted EBITDA should not be considered in isolation from or as
a substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity. Adjusted EBITDA does not include any of the cost savings
disclosed in the Notes to the Unaudited Pro Forma Statement of Operations.
(2) Aurora Foods Inc., which will be formed shortly before the Equity Offerings,
is the successor to Aurora. As such, Aurora Foods Inc. will assume the
historical financial statements of Aurora as its historical financial
statements. Therefore, the capital structure of Aurora Foods Inc. must be
applied to the historical capital structure and per share information of
Aurora. Upon formation and immediately prior to the Equity Offerings, Aurora
Foods Inc. is expected to have 54,053,637 shares of Common Stock
outstanding, assuming an initial public offering price of $21.50 (the
midpoint of the range of initial public offering prices set forth on the
cover page of this Prospectus). Based on these outstanding shares and prior
capital transactions of Aurora, outstanding shares as of previous dates have
been revised to be on an Aurora Foods Inc. capital structure basis. Earning
per share data as of previous dates have been recomputed based on the
revised outstanding share amounts.
23
<PAGE>
TABLE 1
The following table sets forth the unaudited statement of operations for the
three months ended March 31, 1998, derived from the VDK financial statements not
included herein. The unaudited statement of operations has been adjusted to
reflect the Desserts Sale as if it occurred as of January 1, 1998.
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ADJUSTMENTS
ENDED FOR SALE OF
(in thousands) MARCH 31, 1998 DESSERTS PRO FORMA
- ----------------------------------------------------------- --------------- ------------ ---------------
<S> <C> <C> <C>
Net sales.................................................. $ 148,959 $ (3,692)(z) $ 145,267
Cost of goods sold......................................... 56,202 (1,831)(z) 54,371
--------------- ------------ ---------------
Gross profit............................................. 92,757 (1,861) 90,896
--------------- ------------ ---------------
--------------- ------------ ---------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution................................. 14,001 (459)(z) 13,542
Trade promotions........................................... 43,194 (1,573)(z) 41,621
Consumer marketing......................................... 12,705 (67)(z) 12,638
--------------- ------------ ---------------
Total brokerage, distribution and marketing expenses....... 69,900 (2,099) 67,801
Amortization of goodwill and other intangibles............. 3,402 (200) aa) 3,202
Selling, general and administrative expenses............... 4,594 -- 4,594
Incentive plan expense..................................... 69,000 -- 69,000
--------------- ------------ ---------------
Total operating expenses................................... 146,896 (2,299) 144,597
--------------- ------------ ---------------
Operating income......................................... (54,139) 438 (53,701)
Interest income............................................ (30) -- (30)
Interest expense........................................... 7,795 (516) bb) 7,279
Amortization of deferred financing expense................. 532 (60) cc) 472
Other bank and financing expenses.......................... 44 -- 44
--------------- ------------ ---------------
Loss before income tax................................... (62,480) 1,014 (61,466)
Income tax benefit......................................... (19,865) 401 (19,464)
--------------- ------------ ---------------
Net loss................................................. $ (42,615) $ 613 $ (42,002)
--------------- ------------ ---------------
--------------- ------------ ---------------
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Pro Forma Adjustments for the Acquisitions for the Year Ended December 27, 1997
(a) Adjustments to net sales reflect the following:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Reclassification of trade spending expense, netted against sales by P&G, to trade
promotions................................................................................. $ 25,809
Reclassification of cash discounts, netted against sales by P&G, to brokerage and
distribution............................................................................... 4,523
Reclassification of coupon expense, netted against sales by P&G, to consumer marketing....... 2,984
--------------
$ 33,316
--------------
--------------
</TABLE>
(b) Adjustments to cost of goods sold reflect the following:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Adjustments to convert LOG CABIN cost of goods sold from a Last-in, First-out Inventory basis
for the six month period ended June 30, 1997, prior to July 1, 1997 acquisition by the
Company, to the First-in, First-out basis to be consistent with the inventory accounting
policy of the Company...................................................................... $ 9
Reclassification of warehousing and shipping expense, included in cost of goods sold by P&G,
to brokerage and distribution.............................................................. (3,800)
Reclassification of delivery expense, included in cost of goods sold by P&G, to brokerage and
distribution............................................................................... (11,538)
Depreciation(1).............................................................................. 1,809
--------------
$ (13,520)
--------------
--------------
</TABLE>
- ------------------------
(1) Represents adjustment to reflect pro forma depreciation expense based
on acquired machinery and equipment at fair market value and estimated
remaining useful lives.
The Company entered into a co-pack agreement with the Red Wing Company,
Inc. ("Red Wing") on June 9, 1997, pursuant to which Red Wing contract
manufactures MRS. BUTTERWORTH'S syrup until November 19, 2002. In addition,
on November 19, 1997, the Company entered into a second co-pack agreement,
pursuant to which Red Wing also contract manufactures LOG CABIN syrup until
November 19, 2002. The Company commenced transferring production of LOG
CABIN syrup from Kraft to Red Wing in February 1998 and expects to complete
the transition by June 1998.
The Company has entered into and expects in the future to enter into
co-pack agreements whereby third parties will contract manufacture the
DUNCAN HINES cake mix, frosting, brownies and specialty products.
The Company anticipates lower conversion costs pursuant to such co-pack
agreements. As a result, the Company anticipates lower costs than those
incurred by the prior owners in the annual amount of $12.4 million. The
adjustment related to the anticipated cost savings from the co-pack
agreements is not reflected in the pro forma statement of operations as it
is not viewed as being directly related to the acquisitions.
(c) Adjustments reflects (i) reclassifications of selling expenses of $4.2
million recorded to allocated selling expense, by P&G, to brokerage and
distribution by Company, and (ii) selling expenses related to brokerage
expense based on the contractual rates which the Company will be charged
under its existing contracts with its broker network for the sale of Duncan
Hines products, incremental to the amount in (i) above plus (iii) brokerage
expense at the contractual rates which the Company will be charged under its
existing contracts with its broker network for the sale of LOG CABIN syrup
products, and (iv) the reclassification of cash discounts of $4.5 million,
warehousing and shipping expense of $3.8 million and delivery expense of
$11.5 million from (a) and (b) above. The Company anticipates a cost
reduction in the amount of $0.7 million due to the new contractual
25
<PAGE>
brokerage rates. In addition, the Company anticipates lower annual
warehousing and distribution costs of $3.8 million going forward. The
warehousing and distribution cost savings relate to allocations made by the
prior owner of the DUNCAN HINES business. However, as these anticipated cost
reductions are not viewed as being directly related to the acquisitions, the
pro forma cost savings are not included in the pro forma statement of
operations.
(d) Reflects goodwill and intangible amortization expense as a result of the
acquisitions. Goodwill will be amortized on a straight-line basis over a
forty year period and other intangibles will be amortized over periods
ranging from five to forty years.
(e) The Company has completed a thorough analysis of anticipated costs going
forward. Based on this analysis, the Company developed a detailed annual
operating budget which reflected approximately $33.1 million in factually
supportable selling, general and administrative costs, which is
approximately $1.3 million lower than the combined amounts previously
incurred to operate the business. A substantial portion of these savings is
attributable to a lower headcount relative to the headcount included in the
historical allocations from prior owners. These direct and indirect
allocations included multiple layers of management which the Company
believes it will not need to replicate. The table below reflects cost
reductions resulting from the new personnel infrastructure of the Company.
However, as these potential adjustments are not viewed as directly related
to the acquisitions, the pro forma cost savings are not included in the
unaudited pro forma statement of operations.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Selling, general and administrative expenses:
1997 pro forma expenses...................................................................... $ 34,427
--------------
Company's anticipated expenses:
Executive and finance...................................................................... 16,021
Division management and marketing.......................................................... 9,641
Sales...................................................................................... 7,458
--------------
Total Company pro forma expense.............................................................. 33,120
--------------
Difference................................................................................... $ (1,307)
--------------
--------------
</TABLE>
(f) The adjustment to interest expense reflects the effect of the additional
financing incurred in connection with the acquisition of the DUNCAN HINES
business and the fair value adjustment to the VDK Notes. The adjustment to
the amortization of deferred financing costs reflects the effect of the
additional financing incurred in connection with the acquisition of the
DUNCAN HINES business, net of the write-off of Aurora's pre-DUNCAN HINES
indebtedness and the related costs thereof.
(g) Reflects an adjustment to the income tax provision to reflect an effective
rate of 39.5% based upon the Company's effective rate for the year ended
December 27, 1997.
(h) Pro forma depreciation expense for the Company included in cost of goods
sold for the year ended December 27, 1997 is $13.8 million. Pro forma
depreciation expense for the Company included in selling, general and
administrative is $0.3 million.
26
<PAGE>
Pro Forma Adjustments for the Equity Offerings and Refinancings for the Year
Ended December 27, 1997
(i) Pro forma as adjusted interest expense has been calculated based upon pro
forma debt levels and the applicable interest rates after giving effect to
the Equity Offerings and the Refinancings and the application of the net
proceeds to the Company therefrom. The table below presents pro forma as
adjusted interest expense, noted with the respective interest rates or fee,
and pro forma as adjusted debt amortization of deferred financing costs:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Interest expense:
Aurora Series B Notes ($100.0 million at 9.875%)............................................. $ 9,875
Aurora Series D Notes ($100.0 million at 9.875%)............................................. 9,875
New Notes ($200.0 million estimated at 8.625%)............................................... 17,250
Senior Credit Facilities ($300.0 million estimated at 6.950%)................................ 20,850
Commitment fee on unused senior revolving facility ($100.0 million at 0.375%)................ 375
--------------
Cash interest expense...................................................................... 58,225
Less: bond premium amortization.............................................................. (200)
--------------
Pro forma as adjusted interest expense................................................... $ 58,025
--------------
--------------
Pro forma amortization of deferred financing costs........................................... $ 1,491
--------------
--------------
</TABLE>
(j) Reflects an adjustment to the income tax provision at an effective rate of
39.5%, based upon the Company's effective rate for the year ended December
27, 1997.
Pro Forma Adjustments for the Desserts Sale for the Year Ended December 27, 1997
(k) Reflects the elimination of sales and operating expenses of the business
sold in the Desserts Sale.
(l) Reflects the impact on amortization expense of the write-off of goodwill
and intangibles related to the Desserts Sale.
(m) Reflects the reduction in interest expense related to the repayment of VDK
Senior Bank Facilities with the net proceeds from the Desserts Sale ($25.0
million at an interest rate of 8.25%).
(n) Reflects the elimination of a portion of amortization of deferred financing
costs related to the repayment of $25.0 million of VDK Senior Bank
Facilities term debt with the net proceeds from the Desserts Sale.
27
<PAGE>
Pro Forma Adjustments for the Acquisitions for the Three Months Ended March 28,
1998
(o) Adjustments to net sales reflect the following:
<TABLE>
<CAPTION>
For the period January 1- January 15, 1998 (in thousands)
- ----------------------------------------------------------------------------------------
<S> <C>
Reclassification of trade spending expense, netted against sales by P&G, to trade
promotions............................................................................. $ 548
Reclassification of cash discounts, netted against sales by P&G, to brokerage and
distribution........................................................................... 97
Reclassification of coupon expense, netted against sales by P&G, to consumer
marketing.............................................................................. 89
-----
$ 734
-----
-----
</TABLE>
(p) Adjustments to cost of goods sold reflect the following:
<TABLE>
<CAPTION>
For the period January 1- January 15, 1998 (in thousands)
- ----------------------------------------------------------------------------------------
<S> <C>
Reclassification of warehousing and shipping expense, included in cost of goods sold by
P&G, to brokerage and distribution..................................................... $ (158)
Reclassification of delivery expense, included in cost of goods sold by P&G, to
brokerage and distribution............................................................. (233)
Depreciation(1)......................................................................... 75
-------
$ (316)
-------
-------
</TABLE>
- ------------------------
(1) Represents adjustment to reflect pro forma depreciation expense based on
acquired machinery and equipment at fair market value and estimated
remaining useful lives.
The Company anticipates lower conversion costs pursuant to its co-pack
agreements of $1.7 million for the quarter. The adjustment related to the
anticipated cost savings from the co-pack agreements is not reflected in the
pro forma statement of operations as it is not viewed as being directly
related to the acquisitions.
(q) Adjustment reflects (i) brokerage expense for the January 1- January 15,
1998 period at the contractual rates which the Company will be charged under
its existing contracts with its broker network for the sale of DUNCAN HINES
products, and (ii) the reclassification of cash discounts of $0.1 million,
warehousing and shipping expense of $0.2 million and delivery expense of
$0.2 million from (o) and (p) above.
(r) Reflects goodwill and intangible amortization expense as a result of the
acquisitions. Goodwill will be amortized on a straight-line basis over a
forty year period and other intangibles will be amortized over periods
ranging from five to forty years.
(s) The adjustment to interest expense reflects the effect of the additional
financing incurred in connection with the acquisition of the DUNCAN HINES
business and the fair value adjustment to the VDK Notes. The adjustment to
the amortization of deferred financing costs reflects the effect of the
additional financing incurred in connection with the acquisition of the
DUNCAN HINES business for the period January 1- January 15, 1998, net of the
write-off of Aurora's pre-DUNCAN HINES indebtedness and the related costs
thereof.
(t) Reflects an adjustment to the income tax provision to reflect an effective
rate of 39.5%, after taking into consideration the non-deductible portion of
incentive plan expense of $69.1 million.
(u) Pro forma depreciation expense for the Company included in cost of goods
sold for the three months ended March 28, 1998 is $2.9 million. Pro forma
depreciation expense for the Company included in selling, general and
administrative is $0.2 million.
28
<PAGE>
Pro Forma Adjustments for the Equity Offerings and the Refinancings for the
Three Months Ended March 28, 1998
(v) Reflects an adjustment to incentive plan expense under the VDK Plan and the
Aurora Plan, which are described elsewhere in the Prospectus, based on the
value of the Company at the Equity Offerings. This expense assumes an
initial public offering price per share of $21.50 (the midpoint of the range
of initial public offering prices set forth on the cover page of this
Prospectus) and based on acceleration of vesting due to the Equity
Offerings. See "Management--VDK Incentive Plan" and "Management--Aurora
Incentive Plan." Note that all pro forma adjustments for incentive plan
expense have been recorded to the three month period ended March 28, 1998.
(w) Reflects an adjustment to incentive plan expense for tax gross-up payments
due under the VDK Plan (see (h) in Unaudited Pro Forma Balance Sheet). See
"Management--VDK Compensation Plan".
(x) Pro forma as adjusted interest expense for the quarter has been calculated
based upon pro forma as adjusted debt levels and the applicable interest
rates after giving effect to the Equity Offerings and the Refinancings and
the application of the net proceeds to the Company therefrom. The table
below presents pro forma as adjusted interest expense and pro forma as
adjusted debt amortization of deferred financing costs:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS) MARCH 28, 1998
---------------------
<S> <C>
Interest expense:
Aurora Series B Notes................................................................. $ 2,469
Aurora Series D Notes................................................................. 2,469
New Notes............................................................................. 4,312
Senior Credit Facilities.............................................................. 5,213
Commitment fee on unused senior debt.................................................. 93
--------
Cash interest expense............................................................... 14,556
Less: bond premium amortization....................................................... (50)
--------
Pro forma as adjusted interest expense............................................ $ 14,506
--------
--------
Pro forma amortization of deferred financing costs.................................... $ 373
--------
--------
</TABLE>
(y) Reflects an adjustment to the income tax provision at an effective rate of
39.5%, after taking into consideration the $75.5 million non-deductible
portion of incentive plan expense.
Pro Forma Adjustments for the Desserts Sale for the Three Months Ended March 28,
1998
(z) Reflects the elimination of sales and operating expenses of the business
sold in the Desserts Sale.
(aa) Reflects the impact on amortization expense of the write-off of goodwill
and intangibles related to the Desserts Sale.
(bb) Reflects the reduction in interest expense related to the repayment of VDK
Senior Bank Facilities with the net proceeds from the Desserts Sale ($25.0
million at an interest rate of 8.25%).
(cc) Reflects the elimination of a portion of amortization of deferred financing
costs related to the repayment of $25.0 million of VDK Senior Bank
Facilities term debt with the net proceeds from the Desserts Sale.
29
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 28, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
VDK PRO FORMA FOR EQUITY
PRO FORMA ADJUSTMENTS OFFERINGS COMPANY
SEE FOR COMPANY AND PRO FORMA
(in thousands) COMPANY TABLE 1 ACQUISITIONS PRO FORMA REFINANCINGS AS ADJUSTED(1)
- ----------------------------------- ---------- ---------- ------------ ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.......... $ 23,330 $ 53 $ -- $ 23,383 $ -- (f) $ 23,383
Accounts receivable, net........... 22,847 43,350 -- 66,197 -- 66,197
Inventories........................ 24,851 33,825 -- 58,676 -- 58,676
Prepaid expenses and other
assets........................... 4,973 1,459 -- 6,432 -- 6,432
Current deferred tax assets........ 8,537 12,397 (13,116)(d) 7,818 -- 7,818
---------- ---------- ------------ ---------------- ------------- -----------------
Total current assets........... 84,538 91,084 (13,116) 162,506 162,506
Property, plant and equipment,
net.............................. 45,031 86,359 -- 131,390(3) -- 131,390(2)
Goodwill and other intangible
assets, net...................... 717,956 306,548 49,103(a) 1,073,607 -- 1,073,607
Non-current deferred tax assets.... -- 7,171 18,269(d) 25,440 (894)(g) 24,546
Other assets....................... 22,026 15,415 (18,292)(c) 19,149 2,910(h) 22,059
---------- ---------- ------------ ---------------- ------------- -----------------
Total assets................... $ 869,551 $ 506,577 $ 35,964 $ 1,412,092 $ 2,016 $ 1,414,108
---------- ---------- ------------ ---------------- ------------- -----------------
---------- ---------- ------------ ---------------- ------------- -----------------
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current portion of long term debt.. $ 9,000 $ 16,978 $ -- $ 25,978 $ (15,978)(f) $ 10,000
Accounts payable and accrued
liabilities...................... 55,374 47,784 4,800(b) 107,958 -- 107,958
Senior secured revolving debt
facility......................... -- 15,000 -- 15,000 (15,000)(f) --
---------- ---------- ------------ ---------------- ------------- -----------------
Total current liabilities...... 64,374 79,762 4,800 148,936 (30,978) 117,958
Senior term facility............... 441,000 152,781 -- 593,781 (303,781)(f) 290,000
Senior subordinated notes.......... 202,377 100,000 -- 302,377 100,000(f) 402,377
Other liabilities.................. -- 15,000 14,500(c) 29,500 (16,749)(i) 12,751
Deferred tax liabilities........... 7,771 -- (7,771)(d) -- -- --
---------- ---------- ------------ ---------------- ------------- -----------------
Total liabilities.............. 715,522 347,543 11,529 1,074,594 (251,508) 823,086
---------- ---------- ------------ ---------------- ------------- -----------------
Total stockholders' equity:
Common stock....................... 291(3) -- 250 )(3 541(3) 129(j) 670
Paid-in capital.................... 217,900 198,635 (15,309)(e) 401,226 255,377(j) 656,603
Promissory notes................... (565) (107) -- (672) -- (672)
Retained earnings.................. (63,597) (39,494) 39,494(e) (63,597) (1,982)(k) (65,579)
---------- ---------- ------------ ---------------- ------------- -----------------
Stockholders' equity........... 154,029 159,034 24,435 337,498 253,524 591,022
---------- ---------- ------------ ---------------- ------------- -----------------
Total liabilities and
stockholders' equity......... $ 869,551 $ 506,577 $ 35,964 $ 1,412,092 $ 2,016 $ 1,414,108
---------- ---------- ------------ ---------------- ------------- -----------------
---------- ---------- ------------ ---------------- ------------- -----------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Balance Sheet
- ------------------------------
(1) Assuming an initial public offering price of $21.50 per share of Common
Stock (the midpoint of the range of initial public offering prices set forth
on the cover page of this Prospectus).
(2) Pro forma and pro forma as adjusted capital expenditures for the three
months ended March 28, 1998 totaled $4,253,000.
(3) Aurora Foods Inc., which was formed shortly before the Equity Offerings, is
the successor to Aurora. As such, Aurora Foods Inc. will assume the
historical financial statements of Aurora as its historical financial
statements. Therefore, the capital structure of Aurora Foods Inc. must be
applied to the historical capital structure and per share information of
Aurora. Upon formation and immediately prior to the Equity Offerings, Aurora
Foods Inc. is expected to have 54,053,637 shares of Common Stock
outstanding, assuming an initial public offering price of $21.50 (the
midpoint of the range of initial public offering prices set forth on the
cover page of this Prospectus). Based on these outstanding shares and prior
capital transactions of Aurora, outstanding shares as of previous dates have
been revised to be on an Aurora Foods Inc. capital structure basis. Earnings
per share data as of previous dates have been recomputed based on the
revised outstanding share amounts.
30
<PAGE>
TABLE 1
The following table sets forth the unaudited balance sheet as of March 31,
1998, derived from the VDK financial statements included elsewhere in this
Prospectus. The unaudited pro forma balance sheet has been adjusted to reflect
the Desserts Sale as if it occurred as of March 31, 1998.
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C> <C>
PRO FORMA
ADJUSTMENTS VDK PRO FORMA
VDK AS OF FOR DESSERTS AS OF
MARCH 31, 1998 SALE MARCH 31, 1998
--------------- -------------- ---------------
ASSETS:
Cash and cash equivalents................. $ 53 $ -- $ 53
Accounts receivable, net.................. 43,350 -- 43,350
Inventories............................... 35,825 (2,000)(l) 33,825
Prepaid expenses.......................... 1,459 -- 1,459
Current deferred tax assets............... 11,989 408(m) 12,397
--------------- -------------- ---------------
Total current assets.................. 92,676 (1,592) 91,084
Property, plant and equipment, net........ 88,240 (1,881)(n) 86,359
Goodwill and other intangible
assets, net............................. 322,550 (16,002)(o) 306,548
Non-current deferred tax assets........... 7,171 -- 7,171
Other assets.............................. 16,434 (1,019)(m) 15,415
--------------- -------------- ---------------
Total assets.......................... $ 527,071 $ (20,494) $ 506,577
--------------- -------------- ---------------
--------------- -------------- ---------------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current portion of long term debt......... $ 16,978 $ -- $ 16,978
Accounts payable and accrued
liabilities............................. 45,184 2,600(p) 47,784
Senior secured revolving debt facility.... 15,000 -- 15,000
--------------- -------------- ---------------
Total current liabilities............. 77,162 2,600 79,762
Senior term facility...................... 177,781 (25,000)(q) 152,781
Senior subordinated notes................. 100,000 -- 100,000
Other liabilities......................... 15,000 -- 15,000
--------------- -------------- ---------------
Total liabilities..................... 369,943 (22,400) 347,543
--------------- -------------- ---------------
Stockholder's equity:
Common stock.............................. -- -- --
Paid-in capital........................... 198,635 -- 198,635
Promissory notes.......................... (107) -- (107)
Retained earnings......................... (41,400) 1,906(m) 39,494
--------------- -------------- ---------------
Total stockholder's equity............ 157,128 1,906 159,034
--------------- -------------- ---------------
Total liabilities and stockholder's
equity.............................. $ 527,071 $ (20,494) $ 506,577
--------------- -------------- ---------------
--------------- -------------- ---------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Balance Sheet
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 28, 1998
Pro Forma Adjustments for the acquisition of VDK.
(a) Reflects the excess of cost over the fair market value of the net assets
purchased in connection with the VDK acquisition. Goodwill will be amortized
on a straight-line basis over a forty year period and other intangibles will
be amortized over periods ranging from five to forty years. The Company will
evaluate the net realizable value of intangible assets on an ongoing basis
relying on a number of factors, including operating results and future
undiscounted cash flows.
(b) Reflects an accrual for acquisition costs related to the acquisition of VDK.
(c) Reflects the adjustment to record the VDK Notes and the VDK Senior Bank
Facilities at fair value.
(d) Reflects the reclassification of non-current deferred tax assets originating
from net operating loss carryforwards of $13.1 million, plus the tax benefit
from the adjustment to record the VDK Notes and the VDK Senior Bank
Facilities to fair value of $8.0 million and $4.9 million, respectively,
(see (c) above).
(e) Represents the equity adjustments associated with the acquisition of VDK.
Pro Forma Adjustments for the Equity Offerings and Refinancings
(f) Reflects the assumed proceeds to the Company from the Equity Offerings and
the Refinancings and the application of proceeds therefrom as follows:
<TABLE>
<CAPTION>
(in
millions)
------------
<S> <C>
Gross proceeds to the Company from the Equity Offerings................. $ 278.3
Uses:
Repayment of Aurora Senior Bank Facilities............................ 33.7
Repayment of VDK Senior Bank Facilities............................... 184.8
Repayment of principal on VDK Notes................................... 35.0
Redemption premium on VDK Notes....................................... 3.5
Underwriting discounts, fees and expenses............................. 21.3
------------
Remaining Cash........................................................ $ --
------------
Gross proceeds to the Company from the Refinancings..................... 500.0
Uses:
Repayment of principal on VDK Notes................................... 65.0
Redemption premium on VDK Notes....................................... 11.0
Repayment of Aurora Senior Bank Facilities............................ 416.3
Fees and expenses..................................................... 7.7
------------
Remaining cash........................................................ $ --
------------
------------
</TABLE>
(g) Reflects a $2.8 million adjustment reducing the tax benefit from the
deductible portion of incentive plan expense, partially offset by the tax
benefit of $1.9 million for the write-off of deferred financing costs
related to the repayment of Aurora Senior Bank Facilities.
(h) Reflects deferred financing costs related to the new Senior Credit
Facilities of $7.7 million partially offset by the write-off of deferred
financing costs of $4.8 million related to the repayment of Aurora Senior
Bank Facilities.
(i) Reflects (i) the payment of the $14.5 million of premiums on the VDK Notes
redemption and (ii) an adjustment of $2.2 million to the liability recorded
in connection with the incentive plan expense.
(j) Reflects the assumed gross proceeds of the Equity Offerings of $278.3
million, net of underwriting discounts, fees and expenses of $21.3 million,
partially offset by the adjustment to incentive plan expense of $1.5
million.
(k) Reflects the impact on retained earnings of the write-off of deferred
financing costs, net of tax, of $2.9 million related to the repayment of the
Aurora Senior Bank Facilities, partially offset by the adjustment to
incentive plan expense, net of tax, of $1.0 million.
32
<PAGE>
Pro Forma Adjustments for the Desserts Sale
(l) Reflects the finished goods inventory included in the Desserts Sale.
(m) Reflects excess of liabilities over VDK assets associated with the Desserts
Sale.
(n) Reflects the book value of the machinery and equipment included in the
Desserts Sale.
(o) Reflects the write-off of the allocated goodwill and intangibles from the
Desserts Sale.
(p) Reflects costs related to the Desserts Sale to be paid subsequent to the
closing date of such sale.
(q) Reflects repayment of VDK Senior Bank Facilities from the proceeds of the
Desserts Sale.
33
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
THE COMPANY
The following table sets forth selected historical financial and operating
information of the Predecessor and the Company for the periods ended and as of
the dates indicated. Statement of operations data for the years ended December
1994, 1995, and 1996 represents the operations of the MRS. BUTTERWORTH'S
business by the Predecessor while such data for the year ended December 27, 1997
includes the operations of the MRS. BUTTERWORTH'S business by the Company and
commencing July 1, 1997, the operations of the acquired LOG CABIN business, and
does not include the operations of VDK or the DUNCAN HINES business which were
acquired in 1998. Statement of operations data for the three months ended March
29, 1997 includes the operations of the MRS. BUTTERWORTH'S business by the
Company. Statement of Operations data for the three months ended March 28, 1998
includes the operations of the MRS. BUTTERWORTH'S and LOG CABIN businesses and
commencing January 16, 1998, the operations of the acquired DUNCAN HINES
business. The selected historical statements of operations data for the years
ended December 31, 1994, 1995, and 1996 are derived from the audited financial
statements of the Predecessor included elsewhere in this Prospectus for 1995 and
1996 and not included herein for 1994. The selected historical statement of
operations data and the historical balance sheet data for the year ended as of
December 27, 1997 are derived from the audited financial statements of the
Company included elsewhere in this Prospectus. The selected historical statement
of operations data for the three months ended March 29, 1997 and March 28, 1998
and the historical balance sheet data as of March 28, 1998 are derived from the
unaudited financial statements of the Company included elsewhere in this
Prospectus and which, in the opinion of management, include all normal recurring
adjustments. This table should be read in conjunction with the Predecessor's and
the Company's historical consolidated financial statements, the Company's
unaudited pro forma financial statements and related notes appearing elsewhere
in this Prospectus and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
(in thousands) 1994 1995 1996
--------- --------- ------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales......................................................................... $ 96,729 $ 91,302 $ 89,541
Cost of goods sold................................................................ 29,930 27,743 28,955
--------- --------- ------------
Gross profit.................................................................... 66,799 63,559 60,586
--------- --------- ------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution...................................................... 8,662 7,583 8,140
Trade promotions................................................................ 21,911 19,380 17,672
Consumer marketing.............................................................. 15,297 13,291 10,835
--------- --------- ------------
Total brokerage, distribution and marketing expenses.............................. 45,870 40,254 36,647
Amortization of goodwill and other intangibles.................................... -- -- --
Selling, general and administrative expenses...................................... 6,829 6,120 6,753
Incentive plan expense............................................................ -- -- --
Transition expenses............................................................... -- -- --
--------- --------- ------------
Total operating expenses.......................................................... 52,699 46,374 43,400
--------- --------- ------------
Operating income................................................................ 14,100 17,185 17,186
Interest income................................................................... -- -- --
Interest expense.................................................................. -- -- --
Amortization of deferred financing expense........................................ -- -- --
Other bank and financing expenses................................................. -- -- --
--------- --------- ------------
Income (loss) before income taxes and extraordinary item........................ 14,100 17,185 17,186
Income tax expense (benefit)...................................................... 5,429 6,616 6,616
--------- --------- ------------
Income (loss) before extraordinary item......................................... 8,671 10,569 10,570
Extraordinary loss on early extinguishment of debt, net of tax of $1,184........ -- -- --
--------- --------- ------------
Net income (loss)............................................................... $ 8,671 $ 10,569 $ 10,570
--------- --------- ------------
--------- --------- ------------
Basic and diluted earnings (loss) per share before extraordinary item.............
Extraordinary item per share......................................................
Basic and diluted earnings (loss) per share.......................................
Weighted average number of shares outstanding.....................................
OPERATING AND OTHER DATA:
Adjusted EBITDA(1)................................................................ $ 14,315 $ 17,496 $ 17,463
Adjusted EBITDA margin(2)......................................................... 14.8% 19.2% 19.5%
Depreciation and amortization..................................................... $ 215 $ 311 $ 277
Capital expenditures..............................................................
BALANCE SHEET DATA (END OF PERIOD):
Working capital (excluding current portion of long-term debt).....................
Total assets......................................................................
Long-term debt (including current portion)........................................
Stockholder's equity..............................................................
<CAPTION>
COMPANY
---------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 27, ----------------
(in thousands) 1997 MARCH 29, 1997
--------------- ----------------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales......................................................................... $ 143,020 $ 21,253
Cost of goods sold................................................................ 45,729 7,167
--------------- ----------------
Gross profit.................................................................... 97,291 14,086
--------------- ----------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution...................................................... 17,096 2,279
Trade promotions................................................................ 26,075 3,643
Consumer marketing.............................................................. 15,142 1,331
--------------- ----------------
Total brokerage, distribution and marketing expenses.............................. 58,313 7,253
Amortization of goodwill and other intangibles.................................... 5,938 828
Selling, general and administrative expenses...................................... 5,229 1,053
Incentive plan expense............................................................ 2,300 --
Transition expenses............................................................... 2,113 126
--------------- ----------------
Total operating expenses.......................................................... 73,893 9,260
--------------- ----------------
Operating income................................................................ 23,398 4,826
Interest income................................................................... (151) (32)
Interest expense.................................................................. 18,393 2,654
Amortization of deferred financing expense........................................ 3,059 2,313
Other bank and financing expenses................................................. 83 9
--------------- ----------------
Income (loss) before income taxes and extraordinary item........................ 2,014 (118)
Income tax expense (benefit)...................................................... 779 (47)
--------------- ----------------
Income (loss) before extraordinary item......................................... 1,235 (71)
Extraordinary loss on early extinguishment of debt, net of tax of $1,184........ -- --
--------------- ----------------
Net income (loss)............................................................... $ 1,235 $ (71)
--------------- ----------------
--------------- ----------------
Basic and diluted earnings (loss) per share before extraordinary item............. $ 0.04(3) $ -- (3)
Extraordinary item per share...................................................... -- --
--------------- ----------------
Basic and diluted earnings (loss) per share....................................... 0.04(3) -- (3)
--------------- ----------------
--------------- ----------------
Weighted average number of shares outstanding..................................... 29,055(3) 29,055(3)
--------------- ----------------
--------------- ----------------
OPERATING AND OTHER DATA:
Adjusted EBITDA(1)................................................................ $ 34,796 $ 5,936
Adjusted EBITDA margin(2)......................................................... 24.3% 27.9%
Depreciation and amortization..................................................... $ 9,976 $ 3,274
Capital expenditures.............................................................. 2,411 96
BALANCE SHEET DATA (END OF PERIOD):
Working capital (excluding current portion of long-term debt)..................... $ 6,524 $ 10,709
Total assets...................................................................... 372,739 140,942
Long-term debt (including current portion)........................................ 279,919 100,000
Stockholder's equity.............................................................. 65,223 33,089
<CAPTION>
(in thousands) MARCH 28, 1998
----------------
STATEMENTS OF OPERATIONS DATA:
Net sales......................................................................... $ 89,385
Cost of goods sold................................................................ 37,734
----------------
Gross profit.................................................................... 51,651
----------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution...................................................... 9,355
Trade promotions................................................................ 15,568
Consumer marketing.............................................................. 7,997
----------------
Total brokerage, distribution and marketing expenses.............................. 32,920
Amortization of goodwill and other intangibles.................................... 4,597
Selling, general and administrative expenses...................................... 2,346
Incentive plan expense............................................................ 60,000
Transition expenses............................................................... 1,926
----------------
Total operating expenses.......................................................... 101,789
----------------
Operating income................................................................ (50,138)
Interest income................................................................... (223)
Interest expense.................................................................. 12,837
Amortization of deferred financing expense........................................ 513
Other bank and financing expenses................................................. 51
----------------
Income (loss) before income taxes and extraordinary item........................ (63,316)
Income tax expense (benefit)...................................................... (360)
----------------
Income (loss) before extraordinary item......................................... (62,956)
Extraordinary loss on early extinguishment of debt, net of tax of $1,184........ 1,876
----------------
Net income (loss)............................................................... $ (64,832)
----------------
----------------
Basic and diluted earnings (loss) per share before extraordinary item............. $ (2.17)(3)
Extraordinary item per share...................................................... (0.06)(3)
----------------
Basic and diluted earnings (loss) per share....................................... (2.23)(3)
----------------
----------------
Weighted average number of shares outstanding..................................... 29,055(3)
----------------
----------------
OPERATING AND OTHER DATA:
Adjusted EBITDA(1)................................................................ $ 17,587
Adjusted EBITDA margin(2)......................................................... 19.7%
Depreciation and amortization..................................................... $ 6,140
Capital expenditures.............................................................. 1,511
BALANCE SHEET DATA (END OF PERIOD):
Working capital (excluding current portion of long-term debt)..................... $ 29,164
Total assets...................................................................... 869,551
Long-term debt (including current portion)........................................ 652,377
Stockholder's equity.............................................................. 154,029
</TABLE>
- ------------------------
(1) Adjusted EBITDA is defined as net income before interest expense, taxes,
depreciation, amortization, extraordinary items, incentive plan expense and
transition expenses and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. Adjusted EBITDA should not be considered in isolation from or as
a substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(2) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
sales.
(3) Aurora Foods Inc., which was formed shortly before the Equity Offerings, is
the successor to Aurora. As such, Aurora Foods Inc. will assume the
historical financial statements of Aurora as its historical financial
statements. Therefore, the capital structure of Aurora Foods Inc. must be
applied to the historical capital structure and per share information of
Aurora. Upon formation and immediately prior to the Equity Offerings, Aurora
Foods Inc. is expected to have 54,053,637 shares of Common Stock
outstanding, assuming an initial public offering price of $21.50 (the
midpoint of the range of the initial public offering prices set forth on the
cover page of this Prospectus). Based on these outstanding shares and prior
capital transactions of Aurora, outstanding shares as of previous dates have
been revised to be on an Aurora Foods Inc. capital structure basis. Earnings
per share data as of previous dates have been recomputed based on the
revised outstanding share amounts.
34
<PAGE>
VDK
The following table sets forth selected historical financial and operating
information of the Predecessor to VDK and VDK for the periods ended and as of
the dates indicated. VDK commenced operations in September 1995, concurrent with
the acquisition of the VAN DE KAMP's business from Pillsbury. Commencing May
1996, the VDK statement of operations data includes the operations of the MRS.
PAUL'S business and commencing July 1996, it includes the operations of the AUNT
JEMIMA and CELESTE businesses. The selected historical statements of operations
data for the years ended June 30, 1993, 1994 and 1995 and for the operating
period July 1, 1995 through September 18, 1995 are derived from the audited
financial statements of the Predecessor to VDK included elsewhere in this
Prospectus for 1995 and the operating period July 1, 1995 through September 18,
1995 and from audited financial statements not included herein for 1993 and
1994. The selected historical statements of operations data for the operating
period September 19, 1995 through June 29, 1996 and for the year ended June 30,
1997 and the historical balance sheet data at June 29, 1996 and June 30, 1997
are derived from the audited financial statements of VDK included elsewhere in
this Prospectus. The selected historical statements of operations data and the
historical balance sheet data for the nine months ended and as of March 31, 1997
and 1998 are derived from the unaudited financial statements of VDK included
elsewhere in this Prospectus and which, in the opinion of management, include
all normal, recurring adjustments. This table should be read in conjunction with
VDK's historical financial statements appearing elsewhere in this Prospectus and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
PREDECESSOR TO VDK
---------------------------------------------- VDK
-----------------------------
FOR THE YEARS ENDED JULY 1, 1995 OPERATING PERIOD YEAR ENDED
JUNE 30, THROUGH SEPTEMBER 19, JUNE 30,
------------------------------- SEPTEMBER 18, 1995 THROUGH -----------
(in thousands) 1993 1994 1995 1995 JUNE 29, 1996 1997
--------- --------- --------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................. $ 159,004 $ 153,314 $ 149,359 $ 20,545 $ 143,296 $ 435,476
Cost of goods sold......................... 77,387 67,881 66,111 10,978 60,367 180,941
--------- --------- --------- ------------- ---------------- -----------
Gross profit............................. 81,617 85,433 83,248 9,567 82,929 254,535
--------- --------- --------- ------------- ---------------- -----------
Brokerage, distribution and marketing
expenses:
Brokerage and distribution............... 11,695 11,671 11,376 1,616 15,901 45,352
Trade promotions......................... 33,964 33,304 34,530 3,699 32,517 108,925
Consumer marketing....................... 6,586 9,852 8,260 1,919 11,336 29,524
--------- --------- --------- ------------- ---------------- -----------
Total brokerage, distribution and marketing
expenses................................. 52,245 54,827 54,166 7,234 59,754 183,801
Amortization of goodwill and other
intangibles.............................. 3,305 3,305 3,305 689 4,223 13,142
Selling, general and administrative
expenses................................. 9,518 8,682 9,789 1,370 5,267 14,270
Incentive plan expense..................... -- -- -- -- -- --
Transition expenses........................ -- -- -- -- 1,337 2,885
--------- --------- --------- ------------- ---------------- -----------
Total operating expenses................... 65,068 66,814 67,260 9,293 70,581 214,098
--------- --------- --------- ------------- ---------------- -----------
Operating income......................... 16,549 18,619 15,988 274 12,348 40,437
Interest income............................ -- -- -- -- (135) (965)
Interest expense........................... -- -- -- -- 12,469 32,499
Amortization of deferred financing
expense.................................. -- -- -- -- 607 2,108
Other bank and financing expenses.......... -- -- -- -- 79 265
--------- --------- --------- ------------- ---------------- -----------
Income (loss) before income taxes........ 16,549 18,619 15,988 274 (672) 6,530
Income tax expense (benefit)............... 7,841 8,769 7,716 396 (233) 2,377
--------- --------- --------- ------------- ---------------- -----------
Net income (loss) before cumulative
effect of accounting change............ 8,708 9,850 8,272 (122) (439) 4,153
Cumulative effect of accounting change, net
of income taxes.......................... 222 -- -- -- -- --
--------- --------- --------- ------------- ---------------- -----------
Net income (loss).......................... $ 8,486 $ 9,850 $ 8,272 $ (122) $ (439) $ 4,153
--------- --------- --------- ------------- ---------------- -----------
--------- --------- --------- ------------- ---------------- -----------
Basic and diluted earnings (loss) per
share.................................... $ (4) $ 42
---------------- -----------
---------------- -----------
Weighted average number of shares
outstanding.............................. 0.1 0.1
---------------- -----------
---------------- -----------
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------------
(in thousands) 1997 1998
----------------- ---------
(UNAUDITED)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................. $ 344,113 $ 348,288
Cost of goods sold......................... 143,522 135,777
----------------- ---------
Gross profit............................. 200,591 212,511
----------------- ---------
Brokerage, distribution and marketing
expenses:
Brokerage and distribution............... 37,005 33,765
Trade promotions......................... 83,908 101,534
Consumer marketing....................... 23,897 25,151
----------------- ---------
Total brokerage, distribution and marketing
expenses................................. 144,810 160,450
Amortization of goodwill and other
intangibles.............................. 9,982 10,194
Selling, general and administrative
expenses................................. 9,825 13,968
Incentive plan expense..................... -- 69,000
Transition expenses........................ 2,073 --
----------------- ---------
Total operating expenses................... 166,690 253,612
----------------- ---------
Operating income......................... 33,901 (41,101)
Interest income............................ (939) (60)
Interest expense........................... 24,762 23,634
Amortization of deferred financing
expense.................................. 1,573 1,612
Other bank and financing expenses.......... 215 131
----------------- ---------
Income (loss) before income taxes........ 8,290 (66,418)
Income tax expense (benefit)............... 3,316 (21,304)
----------------- ---------
Net income (loss) before cumulative
effect of accounting change............ 4,974 (45,114)
Cumulative effect of accounting change, net
of income taxes.......................... -- --
----------------- ---------
Net income (loss).......................... $ 4,974 $ (45,114)
----------------- ---------
----------------- ---------
Basic and diluted earnings (loss) per
share.................................... $ 50 $ (451)
----------------- ---------
----------------- ---------
Weighted average number of shares
outstanding.............................. 0.1 0.1
----------------- ---------
----------------- ---------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR TO VDK
---------------------------------------------- VDK
-----------------------------
FOR THE YEARS ENDED JULY 1, 1995 OPERATING PERIOD YEAR ENDED
JUNE 30, THROUGH SEPTEMBER 19, JUNE 30,
------------------------------- SEPTEMBER 18, 1995 THROUGH -----------
(in thousands) 1993 1994 1995 1995 JUNE 29, 1996 1997
--------- --------- --------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING AND OTHER DATA:
Adjusted EBITDA(1)......................... $ 22,620 $ 24,826 $ 22,309 $ 1,616 $ 20,588 $ 64,231
Adjusted EBITDA margin(2).................. 14.2% 16.2% 14.9% 7.9% 14.4% 14.8%
Depreciation and amortization.............. $ 6,071 $ 6,207 $ 6,321 $ 1,342 $ 7,454 $ 22,317
Capital expenditures....................... 1,403 2,075 1,884 -- 2,204 14,379
BALANCE SHEET DATA (END OF PERIOD):
Working capital (excluding current portion
of long-term debt)....................... $ 25,019 $ 37,921
Total assets............................... 305,499 509,591
Long term debt (including current
portion)................................. 188,750 312,856
Stockholder's equity....................... 83,676 147,921
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------------
(in thousands) 1997 1998
----------------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING AND OTHER DATA:
Adjusted EBITDA(1)......................... $ 51,897 $ 43,699
Adjusted EBITDA margin(2).................. 15.1% 12.6%
Depreciation and amortization.............. $ 16,772 $ 17,483
Capital expenditures....................... 12,717 7,524
BALANCE SHEET DATA (END OF PERIOD):
Working capital (excluding current portion
of long-term debt)....................... $ 37,958 $ 47,492
Total assets............................... 521,406 527,071
Long term debt (including current
portion)................................. 321,856 309,759
Stockholder's equity....................... 148,742 157,128
</TABLE>
- ------------------------
(1) Adjusted EBITDA is defined as net income (loss) before interest expense,
taxes, depreciation, amortization, extraordinary items, incentive plan
expense, and transition expenses and is presented because it is commonly
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance and to determine a company's ability to
service and incur debt. Adjusted EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from operating
activities or other consolidated income or cash flow statement data prepared
in accordance with generally accepted accounting principles or as a measure
of profitability or liquidity.
(2) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
sales.
36
<PAGE>
DUNCAN HINES
The following table sets forth selected historical financial data of the
DUNCAN HINES business for the periods ended as indicated. The Company acquired
the DUNCAN HINES business in January 1998. All statement of direct revenues,
direct expenses, and allocated selling expense, operating and other data
presented below represent the DUNCAN HINES business while under the management
of P&G. The selected historical statements of direct revenues and direct
expenses for the years ended June 30, 1995, 1996 and 1997 are derived from the
audited financial statements of the DUNCAN HINES business included elsewhere in
this Prospectus. The selected historical statements of direct revenues, direct
expenses, and allocated selling expense for the six months ended December 31,
1996 and 1997 are derived from the unaudited financial statements of the DUNCAN
HINES business included elsewhere in this Prospectus and which, in the opinion
of management, include all normal, recurring adjustments. Certain amounts have
been reclassified to conform to the Company's presentation. This table should be
read in conjunction with the DUNCAN HINES business historical financial
statements and related notes thereto included elsewhere in this Prospectus and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
(in thousands) 1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENTS OF DIRECT REVENUES, DIRECT EXPENSES, AND ALLOCATED SELLING
EXPENSE:
Net sales(1).......................................................... $ 286,167 $ 282,525 $ 257,932 $ 148,652 $ 157,191
Cost of goods sold.................................................... 153,015 153,791 144,261 80,361 85,139
--------- --------- --------- --------- ---------
Gross profit........................................................ 133,152 128,734 113,671 68,291 72,052
--------- --------- --------- --------- ---------
Brokerage, distribution and marketing expenses:
Brokerage and distribution(1)....................................... 25,560 24,565 20,921 12,472 11,832
Trade promotions.................................................... 14,775 16,357 19,646 9,659 15,822
Consumer marketing.................................................. 25,407 26,411 18,753 10,365 11,046
--------- --------- --------- --------- ---------
Total brokerage, distribution and marketing expenses.............. 65,742 67,333 59,320 32,496 38,700
Selling, general and administrative expenses.......................... 9,962 10,791 10,041 6,177 4,131
--------- --------- --------- --------- ---------
Total expenses.................................................... 75,704 78,124 69,361 38,673 42,831
--------- --------- --------- --------- ---------
Excess of Direct Revenues over Direct Expenses and Allocated Selling
Expense........................................................... $ 57,448 $ 50,610 $ 44,310 $ 29,618 $ 29,221
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OPERATING AND OTHER DATA:
EBITDA(2)............................................................. $ 61,048 $ 54,310 $ 48,110 $ 31,518 $ 31,171
EBITDA margin(3)...................................................... 21.3% 19.2% 18.7% 21.2% 19.8%
Depreciation and amortization (unaudited)............................. $ 3,600 $ 3,700 $ 3,800 $ 1,900 $ 1,950
</TABLE>
- ------------------------
(1) Cash discounts of $4,864, $4,804, $4,384, $2,528, and $2,672 for the years
ended June 30, 1995, 1996, and 1997 and the six-month periods ended December
31, 1996 and 1997, respectively, have been reclassified from net sales to
brokerage and distribution expenses to provide consistency with the
Company's presentation and accounting policy. Allocated selling expense of
$6,429, $6,373, $4,750, $3,297 and $2,762 for the years ended June 30, 1995,
1996 and 1997 and the six-month periods ended December 31, 1997 and 1996
have been included in brokerage and distribution to be consistent with the
Company's presentation and accounting policy.
(2) EBITDA is defined as the excess of direct revenues over direct expenses
before interest expense, taxes, depreciation, amortization, and
extraordinary items and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(3) EBITDA margin is computed as EBITDA as a percentage of net sales.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY AND PREDECESSOR
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 of the Company and the Predecessor included in the
financial statements and notes to the financial statements. Unless otherwise
noted, fiscal years in this discussion refer to the Company's fiscal year ended
December 27 or December 31, as the case may be.
STATEMENTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
which the items in the Statements of Operations bear to net sales. Certain
amounts from prior years have been reclassified to conform to the Company's
current year presentation. The Statements of Operations columns for the years
ended December 31, 1995 and 1996 are that of the Predecessor.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
PREDECESSOR
---------------------------------------------- COMPANY
-----------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------- YEAR ENDED
DECEMBER 27, MARCH 29,
1995 1996 1997 1997
---------------------- ---------------------- ----------------------- ----------------------
% OF % OF % OF % OF
(in thousands) AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES NET SALES
--------- ----------- --------- ----------- ---------- ----------- -----------
AMOUNT
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net sales........................ $ 93,382(1) 100.0% $ 91,581(1) 100.0% $ 143,020 100.0% $ 21,253 100.0%
Cost of goods sold............... 27,743 29.7 28,955 31.6 45,729 32.0 7,167 33.7
--------- ----- --------- ----- ---------- ----- --------- -----
Gross profit................... 65,639 70.3 62,626 68.4 97,291 68.0 14,086 66.3
--------- ----- --------- ----- ---------- ----- --------- -----
Brokerage, distribution and
marketing expenses:
Brokerage and distribution..... 9,663(1) 10.3 10,180(1) 11.1 17,096 12.0 2,279 10.7
Trade promotions............... 19,380 20.8 17,672 19.3 26,075 18.2 3,643 17.1
Consumer marketing............. 13,291 14.2 10,835 11.8 15,142 10.6 1,331 6.3
--------- ----- --------- ----- ---------- ----- --------- -----
Total brokerage, distribution and
marketing expenses............. 42,334 45.3 38,687 42.2 58,313 40.8 7,253 34.1
Amortization of goodwill and
other intangibles.............. -- -- -- -- 5,938 4.1 828 3.9
Selling, general and
administrative expenses........ 6,120 6.6 6,753 7.4 5,229 3.6 1,053 5.0
Incentive plan expense........... -- -- -- -- 2,300 1.6 -- --
Transition expenses.............. -- -- -- -- 2,113 1.5 126 0.6
--------- ----- --------- ----- ---------- ----- --------- -----
Total operating expenses......... 48,454 51.9 45,440 49.6 73,893 51.6 9,260 43.6
--------- ----- --------- ----- ---------- ----- --------- -----
Operating income (loss)........ 17,185 18.4 17,186 18.8 23,398 16.4 4,826 22.7
Interest income.................. -- -- -- -- (151) (0.1) (32) (0.1)
Interest expense................. -- -- -- -- 18,393 12.9 2,654 12.5
Amortization of deferred
financing expense.............. -- -- -- -- 3,059 2.1 2,313 10.9
Other bank and financing
expenses....................... -- -- -- -- 83 0.1 9 --
--------- ----- --------- ----- ---------- ----- --------- -----
Income (loss) before income
taxes and extraordinary
item......................... 17,185 18.4 17,186 18.8 2,014 1.4 (118) (0.6)
Income tax expense (benefit)..... 6,616 7.1 6,616 7.2 779 0.5 (47) (0.2)
--------- ----- --------- ----- ---------- ----- --------- -----
Income (loss) before
extraordinary item............. 10,569 11.3 10,570 11.6 1,235 0.9 (71) (0.4)
Extraordinary loss on early
extinguishment of debt, net of
tax of $1,184.................. -- -- -- -- -- -- -- --
--------- ----- --------- ----- ---------- ----- --------- -----
Net income (loss)................ $ 10,569 11.3% $ 10,570 11.6% $ 1,235 0.9% $ (71) (0.4)%
--------- ----- --------- ----- ---------- ----- --------- -----
--------- ----- --------- ----- ---------- ----- --------- -----
<CAPTION>
MARCH 28,
1998
----------------------
% OF
(in thousands) AMOUNT NET SALES
--------- -----------
<S> <C> <C>
STATEMENTS OF OPERATIONS:
Net sales........................ $ 89,385 100.0%
Cost of goods sold............... 37,734 42.2
--------- -----
Gross profit................... 51,651 57.8
--------- -----
Brokerage, distribution and
marketing expenses:
Brokerage and distribution..... 9,355 10.5
Trade promotions............... 15,568 17.4
Consumer marketing............. 7,997 8.9
--------- -----
Total brokerage, distribution and
marketing expenses............. 32,920 36.8
Amortization of goodwill and
other intangibles.............. 4,597 5.2
Selling, general and
administrative expenses........ 2,346 2.6
Incentive plan expense........... 60,000 67.1
Transition expenses.............. 1,926 2.2
--------- -----
Total operating expenses......... 101,789 113.9
--------- -----
Operating income (loss)........ (50,138) (56.1)
Interest income.................. (223) (0.3)
Interest expense................. 12,837 14.4
Amortization of deferred
financing expense.............. 513 0.5
Other bank and financing
expenses....................... 51 0.1
--------- -----
Income (loss) before income
taxes and extraordinary
item......................... (63,316) (70.8)
Income tax expense (benefit)..... (360) (0.4)
--------- -----
Income (loss) before
extraordinary item............. (62,956) (70.4 )
Extraordinary loss on early
extinguishment of debt, net of
tax of $1,184.................. 1,876 2.1
--------- -----
Net income (loss)................ $ (64,832) (72.5)%
--------- -----
--------- -----
</TABLE>
- ------------------------
(1) Cash discounts of the Predecessor of $2,080 and $2,040 for the years ended
December 31, 1995 and 1996, respectively, have been reclassified from net
sales to brokerage and distribution expense to provide consistency with the
Company's presentation and accounting policy, and to facilitate comparison
between periods.
38
<PAGE>
THREE MONTHS ENDED MARCH 28, 1998 COMPARED TO THREE MONTHS ENDED MARCH 29, 1997
NET SALES. Net sales for the three months ended March 28, 1998 were $89.4
million, which was an increase of $68.1 million compared to sales in the prior
year's quarter of $21.3 million. The increase was the result of the acquisitions
of LOG CABIN and DUNCAN HINES, which provided $25.9 and $42.7 million in net
sales, respectively. Net dollar sales for MRS. BUTTERWORTH'S branded products
were down slightly for the three months ended March 28, 1998 at $20.8 million.
However, sales volume increased 4.5% for the three months ended March 28, 1998.
Syrup net sales of $44.8 million increased $26.2 million, of which $25.9
million was attributable to the LOG CABIN acquisition. Net sales for MRS.
BUTTERWORTH'S syrup products increased $0.3 million compared to the 1997 period
while MRS. BUTTERWORTH'S syrup case volume increased by 10.8% from 788,000
standard cases in the 1997 period to 874,000 standard cases in 1998. The growth
in MRS. BUTTERWORTH'S syrup volume was attributable to increased sales of lower
revenue per case products sold to the club store and foodservice markets.
MRS. BUTTERWORTH'S pancake mix sales were $1.9 million overall in the 1998
period compared to $2.7 million in the 1997 period. The decrease was due to a
decline in the overall pancake mix category and a retail inventory build up
during the first quarter of 1997 in anticipation of a consumer event that
occurred in the second quarter of 1997.
Net sales for the Company's DUNCAN HINES baking mix products were $42.7
million for the three months ended March 28, 1998 and included results of
operations from January 16, 1998, the date of acquisition. Including results for
the stub period (January 1 to January 15), sales would have been $47.8 million,
which was a decrease of 10.1% from the prior year period. Sales of DUNCAN HINES
products were negatively impacted in January and February by a case load into
retail channels initiated by P&G in the latter part of 1997 which resulted in
volume increases in December 1997 relative to December 1996 for cake mix and
ready-to-spread frosting of 118.3% and 129.5%, respectively. Monthly sales
volumes since February have returned to prior year levels.
GROSS PROFIT. Gross profit as a percentage of net sales was 57.8% for the
three months ended March 28, 1998 as compared to 66.3% for the corresponding
1997 period. The gross margin was affected by the inclusion of sales of DUNCAN
HINES baking mix products, which have lower gross margins than syrup and pancake
mix products. The syrup and pancake mix products had a gross margin of 67.2% in
the current quarter, a 0.9% increase compared to the 1997 period. The
improvement was attributable to lower manufacturing expense resulting from the
Company's long-term contract manufacturing agreements and lower corn syrup
costs.
BROKERAGE, DISTRIBUTION AND MARKETING EXPENSES. Brokerage, distribution and
marketing expenses for the three months ended March 28, 1998 were 36.8% as a
percentage of net sales compared to 34.1% in the 1997 period. The increase was
primarily the result of the implementation of new advertising programs for all
of the Company's brands where none existed during the prior year period.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles of $4.6 million was attributable to the acquisitions of
the MRS. BUTTERWORTH'S business on December 31, 1996, LOG CABIN on July 1, 1997
and DUNCAN HINES on January 16, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $2.3 million were 2.6% as a percentage of net sales,
as compared to 5.0% for the same period in 1997. The favorable variance
represents the efficiencies realized from the increased size of the Company.
INCENTIVE PLAN EXPENSE. For the three months ended March 28, 1998, the
Company recorded non-cash incentive plan expense of $60.0 million based on the
estimated current valuation of the Company and in accordance with the Aurora
Plan contained in the Amended and Restated Limited Liability Company Agreement
of MBW Investors LLC. The previous estimated valuation of the Company
39
<PAGE>
for the year ended December 27, 1997 resulted in recording $2.3 million of
incentive plan expense. The current estimated valuation of the Company has
increased significantly and has resulted in significant incentive plan expense.
In addition, most rights under the Aurora Plan are fully vested. The expense has
been recorded as a liability of MBW Investors LLC as the sponsor of the Aurora
Plan. However, because the Aurora Plan is for the benefit of employees of the
Company, expense recognized under the Aurora Plan has been pushed down to the
Company, and has been recorded by the Company as incentive plan expense and as
additional paid-in capital from its parent. See "Management--Aurora Incentive
Plan."
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. The increase for the 1998 period of $1.8 million as
compared to 1997 was due to the LOG CABIN and DUNCAN HINES acquisitions. The
1997 period included transition expenses for the MRS. BUTTERWORTH'S business
only.
OPERATING (LOSS) INCOME. Operating loss for the three months ended March
28, 1998 was $50.1 million as compared to operating income of $4.8 million for
the prior year period. Excluding the effect of the recognition of non-cash
incentive plan expense of $60.0 million, operating profit was $9.9 million,
which was an increase of $5.0 million compared to the same period in 1997. The
operating income margin, excluding (i) incentive plan expense, (ii) higher
goodwill amortization (5.2% versus 3.9% as a percentage of net sales in 1997),
and (iii) higher transition related expenses (2.2% versus 0.6% as a percentage
of net sales) associated with the acquisitions of LOG CABIN and DUNCAN HINES,
would have been 18.5%, as compared to 22.7% in the prior year's quarter). The
margin decrease was due to lower gross margins and incremental marketing costs
for advertising associated with reestablishing media programs for the MRS.
BUTTERWORTH'S and LOG CABIN syrup brands and ongoing media support for the
DUNCAN HINES brand.
INTEREST EXPENSE AND AMORTIZATION OF DEFERRED FINANCING EXPENSE. The
aggregate of net interest expense and amortization of deferred financing expense
was $13.1 million in the three months ended March 28, 1998. The increased
expenses were related to the financing of the acquisitions of LOG CABIN and
DUNCAN HINES.
INCOME TAX BENEFIT. The effective tax rate was lower than the statutory
rate due to the effect of non-deductible incentive plan expense.
NET LOSS. Net loss was $64.8 million for the three months ended March 28,
1998. Excluding the effect of non-cash incentive plan expense, the net loss of
$4.8 million was greater than the net loss incurred in the same period in 1997
due to higher interest expense and amortization of deferred financing expense.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 28, 1998, and the year ended December 27,
1997 cash provided by operations was $14.4 million and $23.0 million,
respectively. Net income (loss) plus non-cash charges provided $2.8 million and
$14.3 million, respectively, of operating cash flow. A decrease in net working
capital generated an additional $11.5 million in cash from operations for the
three months ended March 28, 1998. The decrease in net working capital was
primarily the result of the timing of working capital commitments associated
with the Company's transition agreements with prior owners of the LOG CABIN and
DUNCAN HINES businesses. The transition agreements resulted in minimal working
capital commitments for the Company during the transition period due to a
monthly settlement procedure by which the Company remitted payments subsequent
to the receipt of finished goods. At March 28, 1998 current assets, excluding
cash and current deferred tax assets, increased $30.0 million as compared to
December 27, 1997 and current liabilities, excluding current maturities of
senior secured term debt, increased $31.5 million as compared to December 27,
1997. The increase in both current assets and current liabilities was the result
of three factors: (1) inclusion of all items of working capital
40
<PAGE>
related to the LOG CABIN business, which had previously been accounted for on
the prior owner's books through the transition period and recorded on the
Company's books as a monthly net cash settlement, (2) addition of inventory
balances of DUNCAN HINES products which were assumed in March 1998 as part of
the transition process from P&G, and (3) receivable balance due from P&G to
cover reimbursable costs incurred in connection with the relocation of
manufacturing equipment from P&G to the Company's contract manufacturers'
production facilities.
Net cash used in investing activities was $449.4 million and $229.2 million
for the three months ended March 28, 1998 and the year ended December 27, 1997,
respectively. In addition to the acquisition of DUNCAN HINES, the Company spent
$1.5 million on capital expenditures and $0.1 million on furniture and fixtures
during the three months ended March 28, 1998. In addition to the acquisition of
LOG CABIN, the Company spent $2.4 million on capital expenditures and $0.8
million on software to establish a management information computer system for
the Company during the year ended December 27, 1997. The capital expenditures
were incurred to relocate and install acquired manufacturing equipment at the
Company's contract manufacturers' production facilities. In addition, the
Company disposed of surplus production equipment and received proceeds of $0.3
million from the dispositions. The Company expects to spend approximately $10.7
million on capital expenditures in 1998 for the Aurora Division and anticipates
that these expenditures will be funded from internal cash flow. The Company has
no commitments for any other material capital expenditures for the current
operations for the Aurora Division.
During the three months ended March 28, 1998, and the year ended December
27, 1998 financing activities provided cash of $453.6 million and $202.2
million, respectively. To finance the acquisition of DUNCAN HINES and related
expenses, the Company incurred an early extinguishment of its existing senior
secured term debt and senior secured revolving debt facility, which totaled
$76.5 million. The Company borrowed $450 million of senior secured bank debt
under the Aurora Senior Bank Facilities. During 1997, the Company received
$202.5 million from issuances of senior subordinated notes and $90.0 million
from borrowings under the senior secured term debt and a senior secured
revolving debt facilities under the Aurora Senior Bank Facilities. In addition,
the Company received a capital contribution from MBW Investors LLC in the amount
of $28.5 million. The proceeds from the notes and debt facilities were used to
repay senior secured debt and a senior subordinated note, together totaling
$95.0 million, existing from the acquisition of MRS. BUTTERWORTH'S on December
31, 1996, and to fund the $222.0 million acquisition of LOG CABIN on July 1,
1997. The Company's Senior Credit Facilities will have a final maturity date of
June 30, 2005, and will amortize in quarterly payments of $5.0 million,
beginning December 31, 1998, through June 30, 2000, increasing thereafter to
$7.5 million per quarter through June 30, 2002, increasing thereafter to $10.0
million per quarter through June 30, 2004 and increasing to $12.5 million per
quarter thereafter until the final maturity date. The Company's Aurora Series B
Notes, Aurora Series D Notes, and the New Notes have maturity dates in 2007 and
2008 with semi-annual interest payments totalling $37.0 million annually. If the
Notes Offering is not consummated, the Company expects to increase its Senior
Credit Facilities to $500 million.
At March 28, 1998, the Company had $23.3 million of cash and cash
equivalents and an unused commitment of $75.0 million on its revolving debt
facility. The Company's primary sources of liquidity are cash flows from
operations and available borrowings under the $75.0 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.
INFLATION
The Company does not believe that inflation has had a material impact on its
financial position or results of operations during the years ended December
1995, 1996, and 1997.
41
<PAGE>
YEAR 2000
The Company is aware of the risks associated with the Year 2000 issue
relative to computerized information systems of the Company and others. In
connection with the Company's recent formation and subsequent acquisitions, it
has modified and/or replaced all of its key computer information systems.
Accordingly, management believes that the Company's key computerized information
systems are Year 2000 compliant. Therefore, the Company, prospectively, does not
expect to incur any material remediation costs for Year 2000 solutions of its
existing information systems. The Company continues to assess the Year 2000
issue relative to its key vendors and other third parties having significant
relationships with the Company. Although no assurance can be given with respect
to vendors' and other third parties' computerized information systems being Year
2000 compliant, the Company believes other independent providers of similar
goods and services can be secured without any material adverse effect on the
future operating results and cash flows of the Company.
OTHER INFORMATION
On January 16, 1998, during the Company's quarter ended March 28, 1998, the
Company acquired all the assets of the DUNCAN HINES business from P&G for
approximately $445.0 million. The Company financed the acquisition of the DUNCAN
HINES business and related costs with a capital contribution by MBW Investors
LLC of $93.6 million and with additional senior secured bank borrowings totaling
approximately $373.5 million. The additional senior secured bank borrowings were
incurred under the Aurora Senior Bank Facility.
The Contribution Transaction occurred on April 8, 1998. On April 16, 1998,
Aurora Maryland was incorporated to facilitate the Equity Offerings. Just prior
to the Equity Offerings, the Company will be incorporated, New LLC will
contribute all of the issued and outstanding stock of Aurora and VDK to it, and
Aurora Maryland will be merged with and into the Company. New LLC is a majority
owned subsidiary of MBW Investors LLC. New LLC and the Company will account for
the contribution of the ownership of Aurora at MBW Investors LLC's historical
cost and the contribution of the ownership of VDK will be accounted for as an
acquisition using the purchase method of accounting at New LLC's cost.
The Company expects to spend $23.0 million on capital expenditures in 1998
for both the Aurora Division and the VDK Division. The Company has no
commitments for any other material capital expenditures for its current
operations. Capital expenditures include the expansion of production capacity
for frozen breakfast products and routine maintenance and cost saving projects.
In addition, the Company anticipates one time expenditures of approximately $5.0
million in excess of relocation costs for which it will be reimbursed by P&G to
relocate and install DUNCAN HINES machinery and equipment into the Company's
contract manufacturers, and expenditures of approximately $5.0 million to
relocate and install syrup machinery and equipment into Red Wing manufacturing
facilities.
In conjunction with the closing of the Equity Offerings, the Company will
refinance its Aurora Senior Bank Facilities and VDK Senior Bank Facilities. The
new Senior Credit Facilities will consist of $225.0 million of senior secured
term loans and $175.0 million under a senior secured revolving credit facility.
In addition, the Company has outstanding $200.0 million of Senior Subordinated
Notes under the Aurora Indentures and expects to issue $200.0 million of Senior
Subordinated Notes under the New Notes Indenture (see "Description of
Indebtedness"). The Senior Credit Facilities and each of the Indentures contain
a number of significant negative covenants. Under the Indentures, the negative
covenants (i) limit the amount of indebtedness the Company may incur; (ii) limit
the Company's ability to make certain payments; (iii) restrict distributions
from the Company's subsidiaries; (iv) place limitations on sales of assets by
the Company and its subsidiaries; (v) limit transactions with affiliates of the
Company; (vi) limit the sale of the capital stock of the Company's subsidiaries;
(vii) limit the lines of businesses the Company may engage in; and (viii) limit
the Company's ability to merge or consolidate or transfer all or substantially
all of the assets of the Company. The Senior Credit Facilities also contain
other restrictive
42
<PAGE>
covenants which require the Company to maintain specified financial ratios and
satisfy financial condition tests including a minimum interest coverage ratio, a
maximum leverage ratio, a minimum fixed charge ratio and a maximum level of
capital expenditure amounts.
YEAR ENDED DECEMBER 27, 1997 FOR THE COMPANY COMPARED TO THE YEAR ENDED DECEMBER
31, 1996 FOR THE PREDECESSOR
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 on July 1, 1997, which added $50.4 million in net sales. Net dollar
sales for all of MRS. BUTTERWORTH'S branded products increased 1.1% to $92.6
million for the year ended December 27, 1997 from $91.6 million for the 1996
period, while case volume increased 5.1% to 4.1 million 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 acquisition,
which added $50.4 million in sales during 1997. MRS. BUTTERWORTH'S syrup dollar
sales increased $1.7 million, or 2.1%, to $82.8 million in 1997. MRS.
BUTTERWORTH'S syrup case volume increased 7.6% to 3.5 million cases in 1997 from
3.3 million cases in 1996. The percentage increase in MRS. BUTTERWORTH'S 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
price 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 Original brand and
foodservice and club store sales. The volume increase was partially offset by a
decrease in sales of MRS. BUTTERWORTH'S Country Best Recipe and MRS.
BUTTERWORTH'S Lite brands. MRS. BUTTERWORTH'S Lite has been reformulated and was
introduced in December 1997.
MRS. BUTTERWORTH'S 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%
to 0.6 million cases. The overall pancake mix category was down approximately 4%
in 1997 from the prior year.
The Company's pro forma 1997 net sales after giving effect to the
acquisition of LOG CABIN were $194.2 million, which was $1.8 million less than
the combined sales of MRS. BUTTERWORTH'S and LOG CABIN of $196.0 million for the
year ended December 31, 1996. The decline in sales was attributable to softness
in the LOG CABIN business.
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 by the Predecessor 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 as a percentage of net
sales in 1997 as a result of the value pricing strategy as well as a reduction
in high redemption value coupons compared to 1996.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles of $5.9 million in 1997 was attributable to amortization
of goodwill associated with the acquisitions of MRS. BUTTERWORTH'S on December
31, 1996 and LOG CABIN 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 during the Predecessor's
ownership period.
43
<PAGE>
INCENTIVE PLAN EXPENSE. Incentive plan expense was recorded under the
Aurora Plan based on the estimated valuation of the Company. See Note 15 to the
Company's 1997 financial statements included elsewhere in this Prospectus.
TRANSITION EXPENSES. Transition expenses of $2.1 million in 1997 consist of
one-time costs incurred to establish the Company's operations and integrate the
acquired businesses of MRS. BUTTERWORTH'S and LOG CABIN, 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% of net sales), incentive compensation expense (1.6% of net
sales) and transition expenses (1.5% of net sales), 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 as a
percentage of net sales were lower than the prior year. Overall, operating
income increased $6.2 million, or 36.1%, to $23.4 million as compared to $17.2
million in 1996.
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.
INCOME TAX PROVISION. 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 and amortization of deferred financing expense incurred during
1997.
YEAR ENDED DECEMBER 31, 1996 FOR THE PREDECESSOR COMPARED TO YEAR ENDED DECEMBER
31, 1995 FOR THE PREDECESSOR
NET SALES. Net sales declined 1.9% to $91.6 million for the year ended
December 31, 1996 as compared to $93.4 million for the year ended December 31,
1995. Sales volume increased 2.6% to 3.9 million cases in 1996 from 3.8 million
cases in 1995.
Syrup sales decreased $1.8 million to $81.1 million in 1996 from $82.9
million in 1995. Syrup volume increased 3.1% to 3.3 million cases in 1996 from
3.2 million cases in 1995. In May 1996, the Predecessor adopted a value pricing
strategy to position its MRS. BUTTERWORTH'S brand as the best value among the
three national syrup brands. This value pricing strategy benefited the brand
through higher volumes and savings on consumer marketing expenses, but resulted
in a net decrease in syrup dollar sales in 1996.
MRS. BUTTERWORTH'S pancake mix sales remained constant at $10.5 million in
1996, the same as in 1995. Pancake mix volume was flat at 0.6 million cases in
1996, which was the same volume achieved in 1995.
GROSS PROFIT. Gross profit was 68.4% in 1996, as compared to 70.3% in 1995.
The decrease in the gross profit margin was primarily due to lower list prices
related to the Predecessor's value pricing strategy.
BROKERAGE, DISTRIBUTION AND MARKETING EXPENSES. Brokerage, distribution and
marketing expenses for 1996 were 42.2% as a percentage of net sales as compared
to 45.3% for 1995. The favorable variance was the result of lower trade
promotion and consumer marketing expenses attributable to the Predecessor's
value pricing strategy.
44
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $6.8 million for 1996 were $0.7 million more than
expenses of $6.1 million in 1995.
OPERATING INCOME. Operating income as a percentage of net sales improved to
18.8% for the year ended December 31, 1996 as compared to 18.4% for the year
ended December 31, 1995. The operating margin improvement was primarily the
result of a reduction in consumer marketing expense as a percentage of net sales
to 11.8% in 1996 from 14.2% in 1995 due to a reduction in costly buy-one-
get-one-free promotions.
INTEREST EXPENSE AND AMORTIZATION OF DEFERRED FINANCING EXPENSE. The
Predecessor did not allocate interest expense or amortization of deferred
financing expense to MRS. BUTTERWORTH'S.
INCOME TAX PROVISION. The provision for income taxes of $6.6 million in
1996 represented an effective tax rate of 38.5%, the same rate as in 1995.
NET INCOME. Net income was $10.6 million in 1995 and 1996 due to the
factors discussed above.
45
<PAGE>
VDK
The following discussion and analysis of VDK's financial condition and
statements of operations should be read in conjunction with the historical
financial information included in the financial statements. Unless otherwise
noted, years (1997, 1996, etc.) in this discussion refer to VDK's fiscal years
ended June 30 or June 29, as applicable.
STATEMENTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
which the items in the Statements of Operations bear to net sales. Certain
amounts from prior years have been reclassified to conform with VDK's current
year presentation. The Statement of Operations column for the period July 1,
1995 through June 29, 1996 combines VDK's operating period September 19, 1995
through June 29, 1996, including the operations of the acquired MRS. PAUL'S
business for the period May 6, 1996 through June 29, 1996, and the operations by
Pillsbury of VDK from July 1, 1995 through September 18, 1995.
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED MARCH 31,
----------------------------------------- -------------------------------------------
JUNE 29, 1996 JUNE 30, 1997 1997 1998
------------------- ------------------- ------------------- ---------------------
(UNAUDITED)
% OF % OF % OF % OF
STATEMENTS OF OPERATIONS: AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
-------- --------- -------- --------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $163,841 100.0% $435,476 100.0% $344,113 100.0% $348,288 100.0%
Cost of goods sold...................... 71,345 43.5 180,941 41.6 143,522 41.7 135,777 39.0
-------- --------- -------- --------- -------- --------- -------- -----------
Gross profit............................ 92,496 56.5 254,535 58.4 200,591 58.3 212,511 61.0
-------- --------- -------- --------- -------- --------- -------- -----------
Brokerage, distribution and marketing
expenses:
Brokerage and distribution............ 17,517 10.7 45,352 10.4 37,005 10.8 33,765 9.7
Trade promotions...................... 36,216 22.1 108,925 25.0 83,908 24.4 101,534 29.2
Consumer marketing.................... 13,255 8.1 29,524 6.8 23,897 6.9 25,151 7.2
-------- --------- -------- --------- -------- --------- -------- -----------
Total brokerage, distribution and
marketing expenses.................... 66,988 40.9 183,801 42.2 144,810 42.1 160,450 46.1
Amortization of goodwill and other
intangibles........................... 4,912 3.0 13,142 3.0 9,982 2.9 10,194 2.9
General and administrative expenses..... 6,637 4.1 14,270 3.3 9,825 2.8 13,968 4.0
Incentive plan expense.................. -- -- -- -- -- -- 69,000 19.8
Transition expenses..................... 1,337 0.8 2,885 0.7 2,073 0.6 -- --
-------- --------- -------- --------- -------- --------- -------- -----------
Total operating expenses................ 79,874 48.8 214,098 49.2 166,690 48.4 253,612 72.8
-------- --------- -------- --------- -------- --------- -------- -----------
Operating income (loss)................. 12,622 7.7 40,437 9.3 33,901 9.9 (41,101) (11.8)
Interest income......................... (135) (0.1) (965) (0.2) (939) (0.3) (60) --
Interest expense........................ 12,469 7.6 32,499 7.5 24,762 7.2 23,634 6.8
Amortization of deferred financing
expense............................... 607 0.4 2,108 0.5 1,573 0.5 1,612 0.5
Other bank and financing expenses....... 79 -- 265 0.1 215 0.1 131 --
-------- --------- -------- --------- -------- --------- -------- -----------
Income (loss) before income tax expense
(benefit)............................. (398) (0.2) 6,530 1.5 8,290 2.4 (66,418) (19.1)
Income tax expense (benefit)............ 163 0.1 2,377 0.5 3,316 1.0 (21,304) (6.1)
-------- --------- -------- --------- -------- --------- -------- -----------
Net income (loss)....................... $ (561) (0.3)% $ 4,153 1.0% $ 4,974 1.4% $(45,114) (13.0)%
-------- --------- -------- --------- -------- --------- -------- -----------
-------- --------- -------- --------- -------- --------- -------- -----------
</TABLE>
46
<PAGE>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO
NINE MONTHS ENDED MARCH 31, 1997
NET SALES. Net sales for the nine month period were $348.3 million, which
was 1.2% higher than net sales during the prior nine month period of $344.1
million. Excluding the impact in both years of (i) sales of the desserts product
line, which was divested on May 1, 1998, and (ii) sales of whipped topping
product lines, which was divested in February 1997, sales increased $11.7
million, or 3.7%. AUNT JEMIMA sales increased by $5.0 million, or 8.4%, as a
result of increased trade promotion spending and consumer marketing support.
CELESTE pizza sales increased by $5.9 million, or 10.6%, due to the introduction
of MAMA CELESTE Fresh Baked Rising Crust Pizza and increased sales of CELESTE
Pizza For One products. Frozen seafood sales decreased 0.8% versus the same
period last year primarily because the current period included two fewer weeks
of high volume Lenten season sales than the prior year period (Lent began on
February 25 in 1998 compared to February 12 in 1997), which affected the
Company's sales as well as overall seafood category volume. Foodservice sales
increased $2.2 million, or 9.1%, versus 1997 due to higher frozen breakfast
volumes and a price increase of approximately 3.0% taken in July 1997.
GROSS PROFIT. Gross profit increased from 58.3% as a percentage of net
sales to 61.0%. The increase reflected favorable packaging and raw material
costs, improved manufacturing and distribution efficiencies, and the impact of
the divestiture of the less profitable whipped topping product line in February
1997.
BROKERAGE, DISTRIBUTION AND MARKETING EXPENSES. Brokerage, distribution and
marketing expenses increased from 42.1% as a percentage of net sales in 1997 to
46.1% in the current period. Lower brokerage and distribution expenses were
offset by higher trade promotion and consumer marketing expenses.
Brokerage and distribution expenses declined as a percentage of net sales
compared to last year as a result of operational efficiencies within VDK's
distribution system and favorable freight rates. Trade promotion spending
increased to support the introduction of new products in the frozen seafood and
frozen pizza product lines and in response to competitive activity in the frozen
seafood and breakfast categories. Management believes that certain of the
Company's trade spending programs in the current period were not sufficiently
productive and has implemented programs to improve the efficiency of the
Company's trade spending. Increased coupon support and new media programs for
VDK's frozen pizza and frozen breakfast product lines resulted in higher
consumer marketing spending versus 1997.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and intangibles was unchanged as a percentage of net sales versus the same
period in the prior year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $4.1 million to 4.0% as a percentage of net sales versus 2.8% in the
prior year. The increase reflected higher staffing levels required to support
the acquired business and the incremental cost of a foodservice sales
organization. In the prior year period, Quaker Oats managed the VDK foodservice
sales function for a fee of $1.3 million, which was classified as a selling and
distribution expense.
INCENTIVE PLAN EXPENSE. For the nine months ended March 31, 1998, VDK
recorded non-cash incentive plan expense of $69.0 million based on the estimated
current valuation of VDK and in accordance with the VDK Plan. In addition, most
rights under the VDK Plan are vested. Included in incentive plan expense was a
tax gross up amount of $15.0 million, which relates to certain distributions as
provided for in the VDK Plan. Valuations prior to the 1998 nine month period did
not result in incentive plan expense under the VDK Plan. The expense has been
recorded as a liability of VDK Foods LLC as the sponsor of the VDK Plan.
However, because the VDK Plan is for the benefit of key personnel of VDK,
expense recognized under the VDK Plan has been pushed down to VDK, and has been
recorded by VDK as incentive plan expense and as additional paid in capital from
its parent. See "Management--
47
<PAGE>
VDK Incentive Plan". In addition, the tax benefit related to the tax gross up
element of incentive plan expense had been recorded to income tax expense and as
a deferred tax asset. The Company will receive the tax benefit associated with
the tax gross up amount, and the Company expects that the tax benefit will
approximate the amount of the tax gross up payments. The tax gross up amount has
been recorded as incentive plan expense and as an other liability. See
"Management--VDK Incentive Plan."
OPERATING (LOSS) INCOME. Operating loss for the nine month period was $41.1
million as compared to operating income of $33.9 million for the prior nine
month period. Excluding the effect of the recognition of non-cash incentive plan
expense of $69.0 million, operating profit was $27.9 million, which was $6.0
million lower than the prior year period. VDK's operating income margin,
excluding the effect of incentive plan expense, was 8.0% as a percentage of net
sales in 1998 as compared to 9.9% during the same period in 1997. The decrease
in VDK's operating income, excluding the effect of incentive plan expense, was
primarily due to increased promotional spending in support of VDK's new product
offerings and in response to competitive activity and higher general and
administrative expenses.
INTEREST EXPENSE (INCOME). Interest expense decreased $1.2 million versus
the same period in the prior year due to scheduled repayments of VDK's Senior
Bank Facility. The decrease in interest expense was partially offset by
additional borrowings versus last year on the VDK Senior Bank Facility. Interest
income decreased $0.9 million in the current nine month period. In the prior
nine month period, VDK earned interest income on an escrow account which held a
$20.0 million senior secured convertible loan which was repaid in February 1997.
INCOME TAX (BENEFIT) EXPENSE. VDK's combined effective federal and state
tax rate for the current period was approximately 32.1%. The rate was lower than
the rate experienced in the same period last year because a portion of incentive
plan expense was not deductible, which generated a greater book loss than tax
loss and commensurate lower income tax benefit benefit for tax purposes.
NET INCOME (LOSS). VDK incurred a net loss of $45.1 million as compared to
net income of $5.0 million for the same period last year. Excluding the effect
of non-cash incentive plan expense, the net income of $1.3 million was lower
than the net income in the 1997 period due to lower operating income.
YEAR ENDED JUNE 30, 1997 COMPARED TO THE YEAR ENDED JUNE 29, 1996
NET SALES. Net sales for the year increased $271.6 million over the prior
year to $435.5 million. MRS. PAUL'S seafood, which was acquired from Campbell
Soup on May 6, 1996, generated $85.8 million in the first full year of
ownership. CELESTE/AUNT JEMIMA, which was acquired from Quaker Oats on July 9,
1996, added $184.1 million in sales following the acquisition. VAN DE KAMP'S
seafood sales increased $10.5 million, or 8.7% versus the prior year, largely
due to the successful introduction of flavored baked and grilled fillet
products. Desserts sales decreased $1.0 million versus 1996 due to lower whipped
topping sales volume resulting from the divestiture of the whipped topping
product line in February 1997. Excluding the impact of whipped topping sales in
both years, desserts sales grew $5.7 million, or 26.4%, due to increased
promotional efforts and new product introductions.
Compared to 1996 pro forma sales of $401.5 million, sales increased $34.0
million, or 8.5%. MRS. PAUL'S sales increased by $4.7 million, or 5.8%, due to
new product introductions which were supported by advertising and increased
promotional activity. CELESTE pizza sales increased by $4.1 million, or 6%,
behind focused promotional programs and more effective trade spending. AUNT
JEMIMA sales increased by $11.6 million, or 16.7%, due to increased consumer
marketing and trade promotion spending. Foodservice sales increased $4.1
million, or 15.8% versus the prior year, due to a focused selling effort on
frozen breakfast products.
GROSS PROFIT. Gross profit increased from 56.5% as a percentage of net
sales in 1996 to 58.4% in 1997. The improvement was caused primarily by lower
seafood manufacturing costs stemming from the integration of MRS. PAUL'S seafood
production in the Erie, Pennsylvania facility and the effect of the sale of the
lower margin private label whipped topping product line in February 1997.
48
<PAGE>
BROKERAGE, DISTRIBUTION AND MARKETING EXPENSES. Brokerage, distribution and
marketing expenses increased from 40.9% as a percentage of net sales in the
prior year to 42.2% in 1997. The increase was due to an increase in trade
promotion expense, which was partially offset by lower selling and distribution
expense and lower consumer marketing expense.
The increase in trade promotion spending was caused by (i) higher spending
levels to support new product introductions under the VAN DE KAMP'S and MRS.
PAUL'S brands, and (ii) the inclusion in 1997 of the CELESTE pizza business
which has a higher rate of trade spending than the seafood product lines.
Brokerage and distribution expenses declined from 10.7% as a percentage of net
sales in 1996 to 10.4% as a percentage of sales in 1997 due to the development
of a lower cost distribution network than the prior owner and distribution
efficiencies resulting from the MRS. PAUL'S and CELESTE/AUNT JEMIMA
acquisitions. Consumer marketing decreased as a percentage of net sales because
the spending rate was lower for the CELESTE pizza and AUNT JEMIMA breakfast
products than for VDK's other product lines. The lower CELESTE/AUNT JEMIMA
spending rate was partially offset by increased consumer spending to support the
introduction of new seafood and dessert products during 1997.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and intangibles increased $8.2 million from 1996 to 1997 due to the increase in
intangibles resulting from the acquisitions of VAN DE KAMP'S in the first
quarter of 1996, MRS. PAUL'S in the fourth quarter of 1996, and CELESTE/ AUNT
JEMIMA in the first quarter of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $7.6 million from 1996 to 1997 due to management of the businesses
acquired during calendar 1996. However, general and administrative expenses
decreased from 1996 to 1997 from 4.1% as a percentage of net sales to 3.3%
during this period due to delays in reaching full staffing levels following the
MRS. PAUL'S and CELESTE/AUNT JEMIMA acquisitions, and lower overhead spending
associated with VDK's organizational structure as compared to amounts allocated
to the business during the Pillsbury ownership period.
TRANSITION EXPENSES. Transition expenses of $2.9 million in 1997 and $1.3
million in 1996 consist of what management believes to be one-time costs
incurred to establish operations and integrate acquired businesses, including
relocation expenses, recruiting fees, sales training, broker conversions and
orientations, computer systems conversion, and other unique transitional
expenses. The increase in transition related costs was mainly attributable to
the CELESTE/AUNT JEMIMA acquisition and additional MRS. PAUL'S costs not
incurred in 1996.
INTEREST EXPENSE. Interest expense increased versus the prior year due to
additional debt incurred to complete the acquisition of CELESTE/AUNT JEMIMA and
the inclusion of a full year of interest and debt resulting from the
acquisitions of the VAN DE KAMP'S and MRS. PAUL'S businesses.
INCOME BEFORE INCOME TAXES. Income before income taxes increased $6.9
million due to the increased size, and therefore operating income of VDK, as
well as the operating improvements described previously.
PROVISION FOR INCOME TAXES. VDK's combined effective federal and state tax
rate for 1997 was 36.4%. This rate was lower than the rate experienced by
Pillsbury, primarily because VDK's amortization of goodwill is deductible for
income tax purposes.
NET INCOME. Net income of $4.2 million in 1997 was higher than the $0.6
million loss experienced in 1996. The increase in size of VDK resulting from the
acquisitions, combined with improvements in the gross profit margin, contributed
to the increase in net income.
49
<PAGE>
DUNCAN HINES
The following discussion and analysis of DUNCAN HINES financial condition
and results of operations should be read in conjunction with the historical
financial information included in the financial statements. The Company acquired
the DUNCAN HINES business from P&G in January 1998. Accordingly, all of the
information presented below represents the operations of the DUNCAN HINES
business by P&G. Unless otherwise noted, years (1997, 1996, etc.) in this
discussion refer to DUNCAN HINES fiscal years ended years June 30.
STATEMENTS OF DIRECT REVENUES, DIRECT EXPENSES, AND ALLOCATED SELLING EXPENSE
The following table sets forth for the periods indicated the percentage
which the items in the statements of direct revenues, direct expenses, and
allocated selling expense bear to net sales. Certain amounts from prior periods
have been reclassified to conform to the Company's presentation. The basis of
presentation of the statements of direct revenues, direct expenses, and
allocated selling expense is disclosed in Note 1 to the financial statements
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------------------------------- ----------------------
(IN THOUSANDS) 1995 1996 1997 1996
- -------------------------------- ---------------------- ---------------------- ---------------------- ----------------------
% OF % OF % OF % OF
NET NET NET NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF DIRECT
REVENUES, DIRECT EXPENSES, AND
ALLOCATED SELLING EXPENSE:
Net sales(1).................... $ 286,167 100.0% $ 282,525 100.0% $ 257,932 100.0% $ 148,652 100.0%
Cost of
goods sold.................... 153,015 53.5 153,791 54.4 144,261 55.9 80,361 54.1
--------- ----- --------- ----- --------- ----- --------- -----
Gross profit.................. 133,152 46.5 128,734 45.6 113,671 44.1 68,291 45.9
--------- ----- --------- ----- --------- ----- --------- -----
Brokerage, distribution and
marketing expenses:
Brokerage and
distribution(1)............. 25,560 8.9 24,565 8.7 20,921 8.1 12,472 8.4
Trade promotions.............. 14,775 5.1 16,357 5.8 19,646 7.6 9,659 6.5
Consumer marketing............ 25,407 8.9 26,411 9.4 18,753 7.3 10,365 7.0
--------- ----- --------- ----- --------- ----- --------- -----
Total brokerage, distribution
and marketing expenses........ 65,742 22.9 67,333 23.9 59,320 23.0 32,496 21.9
Selling, general and
administrative expenses....... 9,962 3.5 10,791 3.8 10,041 3.9 6,177 4.1
--------- ----- --------- ----- --------- ----- --------- -----
Total operating expenses.... 75,704 26.4 78,124 27.7 69,361 26.9 38,673 26.0
--------- ----- --------- ----- --------- ----- --------- -----
Excess of direct revenues,
over direct expenses and
allocated selling
expense................... $ 57,448 20.1% $ 50,610 17.9% $ 44,310 17.2% $ 29,618 19.9%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
<CAPTION>
(IN THOUSANDS) 1997
- -------------------------------- ----------------------
% OF
NET
AMOUNT SALES
--------- -----------
<S> <C> <C>
STATEMENTS OF DIRECT
REVENUES, DIRECT EXPENSES, AND
ALLOCATED SELLING EXPENSE:
Net sales(1).................... $ 157,191 100.0%
Cost of
goods sold.................... 85,139 54.2
--------- -----
Gross profit.................. 72,052 45.8
--------- -----
Brokerage, distribution and
marketing expenses:
Brokerage and
distribution(1)............. 11,832 7.5
Trade promotions.............. 15,822 10.1
Consumer marketing............ 11,046 7.0
--------- -----
Total brokerage, distribution
and marketing expenses........ 38,700 24.6
Selling, general and
administrative expenses....... 4,131 2.6
--------- -----
Total operating expenses.... 42,831 27.2
--------- -----
Excess of direct revenues,
over direct expenses and
allocated selling
expense................... $ 29,221 18.6%
--------- -----
--------- -----
</TABLE>
- ------------------------
(1) Cash discounts of $4,864, $4,804, $4,384, $2,528, and $2,672 for the years
ended June 30, 1995, 1996, and 1997 and the six-month periods ended December
31, 1996 and 1997, respectively, have been reclassified from net sales to
brokerage and distribution expenses to provide consistency with the
Company's presentation and accounting policy.
50
<PAGE>
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
NET SALES. Net sales for the six months ended December 31, 1997 of $157.2
million were 5.7% higher than net sales of $148.7 million for the same six month
period in 1996. During 1997, P&G instituted in some markets a modified everyday
low pricing strategy ("EDLP"). In 1994, P&G converted its entire portfolio of
products to an EDLP strategy, including the DUNCAN HINES business. The EDLP
strategy had a detrimental effect on volumes as the baking mix category responds
well to promotion and merchandising activity in contrast to an EDLP strategy. As
trade activity was increased in certain markets during the six months ended
December 31, 1997, the brand responded as characteristic in the category, and
sales increased for the first time in over two years.
GROSS PROFIT. Gross profit as a percentage of net sales in 1997 of 45.8%
was flat as compared to the gross profit margin of 45.9% in 1996.
BROKERAGE, DISTRIBUTION AND MARKETING EXPENSE. Brokerage, distribution and
marketing expenses were $6.2 million higher during the six month period in 1997
versus the comparable period in 1996. As a percentage of net sales, brokerage,
distribution and marketing expenses were 24.6% in 1997, or 2.7% higher than
1996. The increase was attributable to higher trade promotions, which were $6.2
million above the prior year period. As a percentage of net sales, trade
promotions in 1997 increased to 10.1% from 6.5% in 1996. The increase in trade
promotion was attributable to the modified EDLP strategy undertaken in certain
markets. Brokerage and distribution expenses were 1.1% lower than the prior year
while consumer marketing expenses were flat as compared to 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4.1 million in 1997 or $2.1 million lower than
expenses of $6.2 million in 1996.
EXCESS OF DIRECT REVENUES, DIRECT EXPENSES, AND ALLOCATED SELLING
EXPENSE. Excess of direct revenues, over direct expenses, and allocated selling
expense was $29.2 million for the six months ended December 31, 1997, as
compared to $29.6 million for the same six month period in 1996. The decrease of
$0.4 million was due to higher trade promotions and was partially mitigated by
lower selling, general and administrative expenses and increased gross profit.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
NET SALES. Net sales of $257.9 million in 1997 decreased 8.7% from net
sales of $282.5 million in 1996. The decrease in net sales was the result of
volume declines caused by the suspension of the variety strategy implemented by
P&G in 1994 and the reduction in corporate resources allocated to the DUNCAN
HINES business by P&G. The variety strategy was initiated to meet trade and
consumer demand for increased product variety. P&G introduced 50 new flavors,
which brought initial strong volume and a peak in sales in fiscal 1995. However,
the increase in sales proved unsustainable as a significant number of flavors
failed to generate repeat purchases and often cannibalized and crowded out the
brand's more popular product offerings. P&G suspended the variety strategy
during 1997.
The volume declines were also the result of a reduction in corporate
resources devoted to the business. P&G had shifted its sales efforts to other
more strategic and core brands. In addition, the EDLP strategy had a negative
effect on volumes as competitors within the baking mix category continued to
actively promote and merchandise while the DUNCAN HINES brand was left out of
the promotional cycle.
GROSS PROFIT. Gross profit as a percentage of net sales was 44.1%, which
was lower than the gross profit margin of 45.6% in 1996. The decrease of 1.5
percentage points was due to higher flour and sugar costs experienced in the
1997 period and lower absorption of fixed manufacturing costs resulting from the
lower sales levels.
51
<PAGE>
BROKERAGE, DISTRIBUTION AND MARKETING EXPENSES. Brokerage, distribution and
marketing expenses were $8.0 million lower in 1997 as compared to 1996. As a
percentage of net sales, brokerage, distribution and marketing expenses were
23.0% in 1997 or 0.9 percentage points lower than 1996. The decrease in expenses
was attributable to lower brokerage and distribution, and consumer marketing
expenses. Consumer marketing expenses decreased $7.7 million, or 29%, as
allocations of corporate marketing resources were reduced. Trade promotions
increased to 7.6% as a percentage of sales from 5.8% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $10.0 million in 1997 or $0.8 million lower than
expenses of $10.8 million in 1996.
EXCESS OF DIRECT REVENUES, OVER DIRECT EXPENSES, AND ALLOCATED SELLING
EXPENSE. Excess of direct revenues over direct expenses, and allocated selling
expense in 1997 of $44.3 million was $6.3 million lower than the prior year
amount of $50.6 million. The decrease was due to lower sales and a decline in
the gross profit margin.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
NET SALES. Net sales in 1996 of $282.5 million were 1.3% below net sales of
$286.2 million in 1995. The sales decline in 1996 was the first indication that
the variety strategy, which generated record sales in 1995, was causing a
deterioration in sales volumes of core DUNCAN HINES products. The new flavors
were not generating repeat purchases and the unproductive flavors introduced in
1994 remained on the retailers' shelves and crowded out the brand's higher
turnover product offerings.
GROSS PROFIT. Gross profit as a percentage of net sales was 45.6% in 1996,
which was lower than the gross profit margin of 46.5% in 1995. The decrease of
0.9 percentage points was primarily due to higher flour and sugar costs.
BROKERAGE, DISTRIBUTION AND MARKETING EXPENSES. Brokerage, distribution and
marketing expenses were $67.3 million or 2.4% higher than the prior year. As a
percentage of net sales, brokerage, distribution and marketing expenses were
23.9% in 1996, or 1.0 percentage points higher than in 1995. Trade promotions
and consumer marketing expenses were 10.7% and 4.0%, respectively, higher than
such expenses in 1995. The increase in marketing expenses was due to the
requisite marketing support of the variety strategy and the introduction of the
multiple new flavor product offerings. The increase in marketing expenses was
somewhat offset by a 3.9% decrease in brokerage and distribution expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $10.8 million in 1996 or $0.8 million higher than
expenses of $10.0 million in 1995.
EXCESS OF DIRECT REVENUES, OVER DIRECT EXPENSES, AND ALLOCATED SELLING
EXPENSE. Excess of direct revenues over direct expenses in 1996 of $50.6
million was $6.8 million lower than the prior year amount of $57.5 million. The
decrease was due to lower sales and gross profit margin and higher marketing
expenses.
52
<PAGE>
BUSINESS
The Company is a leading producer and marketer of premium branded food
products including DUNCAN HINES baking mixes, LOG CABIN and MRS. BUTTERWORTH'S
syrup, VAN DE KAMP'S and MRS. PAUL'S frozen seafood, AUNT JEMIMA frozen
breakfast products and CELESTE frozen pizza. The Company's brands are among the
most widely recognized food brands in the United States, have leading market
positions and participate in some of the fastest growing categories in the
supermarket. LOG CABIN and MRS. BUTTERWORTH'S have a leading 34.0% share of the
syrup category, VAN DE KAMP'S and MRS. PAUL'S have a leading 28.2% share of the
frozen seafood category, DUNCAN HINES is the #2 cake mix with a 35.8% share and
CELESTE is the #2 brand of frozen pizza in the Northeast. In 1997, dollar sales
of frozen pizza, frozen seafood and frozen waffles grew at annual rates of 8.5%,
9.5% and 7.8%, respectively. For the year ended December 27, 1997, the Company's
pro forma net sales were $874.2 million and the Company's pro forma as adjusted
EBITDA was $154.6 million.
The Company was formed by Dartford, Fenway and MDC to serve as a platform
upon which to build a leading branded grocery products company through both
strategic acquisitions and internal growth. The Company has been built through
six separate acquisitions over the last three years. The Company seeks to
acquire well-recognized brands which have become non-core businesses to their
corporate parents, but which retain strong brand equities and long-term growth
potential. The Company's objective is to revitalize the brands it acquires and
renew their growth by providing them with the strategic direction, dedicated
management and marketing focus they lacked under prior owners.
Under the direction of CEO Ian R. Wilson and Dartford, each of the brands
owned by the Company for more than one year has experienced significant growth.
The following table sets forth (i) the growth rates of the brands for the twelve
months prior to the date of acquisition, and (ii) the annual growth rate as
measured eighteen months after the date of acquisition, in each case based on
dollar sales data provided by IRI and Nielsen.
<TABLE>
<CAPTION>
DATE
OF GROWTH PRIOR GROWTH
BRAND PRIOR OWNER ACQUISITION TO ACQUISITION AFTER ACQUISITION
- --------------------- ------------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C>
VAN DE KAMP'S Pillsbury Sept. 1995 -2.5% +5.0%
MRS. PAUL'S Campbell Soup May 1996 -9.2 +7.1
AUNT JEMIMA Quaker Oats July 1996 -8.9 +10.5
CELESTE Quaker Oats July 1996 -16.8 +8.6
MRS. BUTTERWORTH'S Unilever Dec. 1996 0.0 +3.1
LOG CABIN Kraft July 1997 -6.0 n/a
DUNCAN HINES Procter & Gamble Jan. 1998 -5.0 n/a
</TABLE>
The Company has renewed the growth of its brands by providing them with
experienced management, refocusing marketing support, reformulating and
repackaging outdated products, developing and launching new products and
expanding distribution. The Company has also realized significant cost savings
by consolidating and improving the efficiency of its manufacturing operations,
outsourcing the production of certain products and eliminating redundant
administrative functions. The Company believes that the growth exhibited by the
brands it acquired in 1995 and 1996, combined with expected growth from its most
recent acquisitions and additional cost savings opportunities, has positioned it
to achieve superior long-term sales and earnings growth.
BUSINESS STRATEGY
The Company's objective is to continue to generate sales and earnings growth
by (i) sustaining the growth of the brands it acquired in 1995 and 1996, (ii)
achieving similar results for its recently acquired brands, and (iii) continuing
to acquire brands with strong equities and long-term growth potential. The
Company's strategy is to revitalize its brands, reduce costs and continue to
make strategic acquisitions.
53
<PAGE>
REVITALIZE BRANDS. To revitalize the brands it has acquired and stimulate
growth, the Company (i) provides experienced management, (ii) refocuses
marketing support, (iii) reformulates and repackages outdated products, (iv)
develops and launches new products, and (v) expands distribution of its
products.
PROVIDE EXPERIENCED MANAGEMENT. The Company has assembled a dedicated
sales, marketing and administrative infrastructure by recruiting experienced
managers from a wide variety of food and consumer products companies. The
Company believes that it significantly improves the performance of its
brands by taking them out of large organizations where they have not been a
priority and providing them with experienced, dedicated management.
REFOCUS MARKETING SUPPORT. The Company refocuses and broadens marketing
support for its brands by rationalizing product lines, refreshing
advertising campaigns and adjusting the mix of its marketing programs. The
Company increases media advertising and consumer promotional events
(coupons) and generally reduces price discounting. The Company has increased
media advertising in order to increase brand awareness and introduce new or
reformulated products. Focused consumer promotional support, including
point-of-sale and in-store coupons and cross promotions with other food
products, has also been increased to generate trial and repeat purchases of
the Company's products. In many circumstances, trade spending levels have
been reduced while the quality of the merchandising support for the
Company's brands has improved.
REFORMULATE AND REPACKAGE PRODUCTS. To reinvigorate its brands, the Company
reformulates and repackages outdated products. For example, the Company has
reformulated MRS. BUTTERWORTH'S Lite syrup and certain AUNT JEMIMA frozen
breakfast products, resulting in significant increases in unit volumes for
both product lines. The Company has recently launched reformulated DUNCAN
HINES brownie mixes and plans to introduce reformulated LOG CABIN Lite syrup
in the second half of 1998. The Company has also redesigned the packaging of
its AUNT JEMIMA and MRS. PAUL'S product lines and plans to introduce new
packaging for CELESTE Pizza for One and LOG CABIN syrup in the summer of
1998.
DEVELOP AND LAUNCH NEW PRODUCTS. The Company has successfully developed and
launched more than 25 new products. New product successes include grilled
and premium fish fillets marketed under both the VAN DE KAMP'S and MRS.
PAUL'S brands and MAMA CELESTE Fresh Baked Rising Crust pizza. The Company
has developed and is preparing to launch additional new products for its
frozen breakfast, frozen seafood and syrup product lines.
EXPAND DISTRIBUTION. The Company expands distribution of its products by
(i) improving the selection of its products on the shelf, (ii) increasing
penetration in established markets, (iii) broadening the geographic
distribution of its products, and (iv) improving its presence in selected
channels of distribution including club stores and foodservice.
REDUCE COSTS. The Company has reduced costs of the acquired businesses by
approximately $49.9 million since their respective acquisitions. To achieve
these cost reductions, the Company has (i) consolidated the manufacture of MRS.
PAUL'S frozen seafood products into the Van de Kamp's, Inc.'s facilities, (ii)
outsourced the production of syrup, (iii) reduced fixed costs and improved the
efficiency of its manufacturing facilities, and (iv) eliminated redundant
administrative functions of the acquired businesses. The Company believes that
there are further opportunities to reduce costs, which include outsourcing the
production of baking mixes and further consolidating its brokerage and
administrative functions. No assurances can be given, however, that these cost
reductions can be realized.
MAKE STRATEGIC ACQUISITIONS. The Company has a proven track record of
successfully acquiring and integrating food businesses. The Company's
acquisition strategy is to acquire established, well-recognized food brands that
can leverage off of the infrastructure it has developed. The Company will
54
<PAGE>
continue to look for opportunities where strong but non-core brands would
benefit from the renewed focus and experienced management it brings to its
acquisitions. Management believes that these opportunities will continue to
arise as a result of large food companies continuing their recent trend of
divesting non-core businesses.
INDUSTRY
The U.S. food industry is relatively stable with growth based on modest
price and population increases. Over the last ten years, there has been industry
consolidation and 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 convenience food
categories of the food industry. The Company is becoming increasingly
competitive in the foodservice markets which offer further opportunities.
PRODUCTS AND MARKETS
The Company manufactures and markets popular branded food products that are
leaders within their respective markets. The Company groups its brands into two
general categories: dry grocery products and frozen convenience food products.
The dry grocery category includes DUNCAN HINES brand baking mix products and
MRS. BUTTERWORTH'S and LOG CABIN brand syrup products. The frozen convenience
food category includes VAN DE KAMP'S and MRS. PAUL'S brand frozen seafood
products, AUNT JEMIMA brand frozen breakfast products, and CELESTE brand frozen
pizza products. The following table sets forth aggregate pro forma net sales and
related information for each of the brands within these two categories for the
periods indicated.(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 27,
1997
------------------------
<S> <C> <C>
AMOUNT % TOTAL
----------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
DRY GROCERY
DUNCAN HINES baking mixes............................ $ 266.5 30.5%
LOG CABIN and MRS. BUTTERWORTH'S syrups.............. 194.2 22.2
----------- -----
TOTAL DRY GROCERY.................................. 460.7 52.7
----------- -----
FROZEN CONVENIENCE
VAN DE KAMP'S and MRS. PAUL'S frozen seafood......... 218.0 25.0
AUNT JEMIMA frozen breakfast......................... 85.6 9.8
CELESTE frozen pizza................................. 78.0 8.9
Foodservice.......................................... 31.9 3.6
----------- -----
TOTAL FROZEN CONVENIENCE........................... 413.5 47.3
----------- -----
AGGREGATE PRO FORMA NET SALES............................ $ 874.2 100.0%
----------- -----
----------- -----
</TABLE>
- ------------------------
(1) Aggregate pro forma net sales include sales of the Company as well as sales
of the prior owners for each of the periods shown.
55
<PAGE>
DUNCAN HINES BAKING MIXES (30.5% of 1997 Aggregate Pro Forma Net Sales)
For over 40 years, the DUNCAN HINES brand has represented excellence in
baking mixes. The DUNCAN HINES product line consists of cake mix,
ready-to-spread ("RTS") frosting, brownie mix, muffin mix, and cookie and other
specialty mixes. The DUNCAN HINES trademark is among the most recognized in the
U.S. with 92% unaided brand awareness and 100% all commodity volume ("ACV")
distribution for DUNCAN HINES cake mix. DUNCAN HINES baking mixes enjoy consumer
satisfaction ratings which are superior to those of its principal competitors,
BETTY CROCKER and PILLSBURY. Consumer test results show the DUNCAN HINES brand
appeals to the consumer who wants to bake a "quality, good as homemade" product.
The Company's products compete in the $1.3 billion baking mix category,
which has grown at a compound annual rate of 3.7% over the last four years. Four
products (layer cake, frosting, brownies, and muffin mixes) account for
approximately 85% of the U.S. baking mix sales volume. The remaining 15% is
comprised of several smaller items including specialty cake, dessert bar, and
cookie mixes. Management believes there will be stable growth at historic rates
in the baking mix category as consumers continue to purchase baking mix products
which they perceive to be an easy, convenient, "quality" alternative to scratch
baking.
The following table indicates that the baking mix category is led by three
brands, DUNCAN HINES, BETTY CROCKER, and PILLSBURY, with the remainder in
regional brands and private label.
<TABLE>
<CAPTION>
Share
------------------------------------------------------------
$ Sales DUNCAN BETTY Regional/
Segment (mm) HINES CROCKER PILLSBURY Private Label
- -------------------------------- ----------- ------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Cake mix........................ $ 315.0 36.3% 36.4% 22.1% 5.2%
Frosting........................ 244.7 18.9 49.4 26.0 5.7
Brownie mix..................... 198.8 16.4 47.2 26.2 10.2
Muffin mix...................... 145.0 12.8 34.5 24.9 27.8
Cookie mix...................... 37.2 27.9 68.8 1.0 2.3
</TABLE>
The DUNCAN HINES brand has been built on the strength of its cake mix.
Introduced in 1956, DUNCAN HINES has the #1 and #2 selling stock keeping units
("SKU's") in the cake mix segment (yellow and devil's food cake mixes). Cake
mixes accounted for approximately 55% of DUNCAN HINES total sales for the year
ended December 27, 1997.
To complement its cake mixes, DUNCAN HINES offers RTS frostings. DUNCAN
HINES frostings have received consumer satisfaction scores that are among the
highest in its segment relative to its competitors. Popular DUNCAN HINES
frostings include homestyle vanilla and chocolate flavors.
DUNCAN HINES offers two tiers of brownie mixes, plain and premium. DUNCAN
HINES brownie mixes have received the highest overall consumer satisfaction
ratings relative to its competitors and ranked highest among consumers in key
product attributes such as "tastes as good as homemade," "rich and fudgey," and
"chewy." To capitalize on such key attributes, the Company has recently launched
a new, improved, "thicker, moister" reformulated brownie mix. DUNCAN HINES
brownies compete primarily in the premium tier of brownie mixes and include
product offerings such as Double Fudge and Milk Chocolate Chunk.
Other DUNCAN HINES products include muffin, cookie, and fruit bar mixes.
Similar to its other products, DUNCAN HINES muffin mixes enjoy superior consumer
satisfaction ratings.
Management believes that sales of DUNCAN HINES products have suffered over
the last several years as a result of two strategies pursued by its prior owner.
First, DUNCAN HINES products were sold on an every day low price basis that was
inconsistent with category dynamics. Industry studies show that over 50% of
consumers make their purchase decision regarding baking mixes on impulse in the
supermarket
56
<PAGE>
aisle. Every day low pricing placed DUNCAN HINES at a disadvantage because it
was unable to promote its products as frequently as its competitors. Second, a
variety strategy was launched in 1994 which involved the introduction of more
than 50 new flavors such as key lime cake mix and grape bubble gum frosting.
This initiative was not successful, as the new flavors failed to generate repeat
purchases and caused core SKU's to be crowded off the retail shelf. The variety
strategy was discontinued in 1997.
The Company plans to stimulate sales of DUNCAN HINES products by
reestablishing a high-low pricing and merchandising strategy, co-promoting the
brand's products and increasing consumer promotions to stimulate trial
purchases. Management has recently restored a high-low pricing strategy to its
baking mix products by increasing the list price on DUNCAN HINES cake mix and
frosting products, which will provide the Company with funds to more than double
the frequency of its quality merchandising events--the number of times its
products are featured or displayed by a retailer. While DUNCAN HINES cake mix is
the cornerstone of the trademark with a 36.3% share, other DUNCAN HINES products
have a weighted average share of approximately 15%. Management intends to
increase sales of DUNCAN HINES brownie mixes and RTS frosting by co-promoting
DUNCAN HINES RTS frosting with its cake mixes and highlighting the "new news" of
the reformulated brownie mix through couponing and television advertising.
Management intends to continue to build DUNCAN HINES brand equity by maintaining
the brand's media advertising expenditures.
LOG CABIN AND MRS. BUTTERWORTH'S SYRUPS (22.2% of 1997 Aggregate Pro Forma Net
Sales)
MRS. BUTTERWORTH'S and LOG CABIN syrup products together have a leading 34%
share of the syrup category. MRS BUTTERWORTH'S Original and LOG CABIN 24 ounce
bottles are the #1 and #2 selling SKU's, respectively, in the syrup category.
Different consumer perceptions of these two brands offer unique opportunities
for consumer targeting. MRS. BUTTERWORTH'S distinctive, grandmother-shaped
bottle represents a fun image to the family with children. The strong heritage
of LOG CABIN, which dates back to 1888, represents an authentic, rich maple
brand targeted more to traditional "warm, cozy" breakfast occasions. The Company
also sells LOG CABIN'S COUNTRY KITCHEN, a value priced syrup, to target the
economy segment. Introduced in 1954, COUNTRY KITCHEN has the highest share in
the economy segment. The Company's products are also sold to the club store
channel. The Company sells foodservice products under the LOG CABIN, LOG CABIN
Lite, and WIGWAM labels and under private label arrangements to the restaurant
and institutional channels. MRS. BUTTERWORTH'S, LOG CABIN, and COUNTRY KITCHEN
are offered in regular and lite versions. The Company also sells pancake mixes
under the MRS. BUTTERWORTH'S brand, which accounted for less than 1% of the
Company's 1997 aggregate pro forma net sales.
The U.S. retail syrup category is $469.3 million and has grown at a compound
annual rate of approximately 2% over the last three years. The category is
comprised of three segments: regular (approximately 60% of sales), lite
(approximately 27% of sales), and pure maple/diet/specialty (approximately 13%
of sales). Regular syrup is a full-calorie corn syrup based product. Lite syrup
is also a corn syrup based product, but has only half the calories of regular
syrup. Pure maple, diet, and other specialty syrups are all non-corn syrup based
products which occupy market niches that are not currently offered by any of the
major national syrup manufacturers. The Company competes in the regular and lite
segments and plans to launch a LOG CABIN sugar-free diet syrup to capitalize on
the strength of the LOG CABIN brand equity.
57
<PAGE>
The Company is the leader in both the regular and lite segments of the syrup
category as indicated in the table below:
<TABLE>
<CAPTION>
Share
-------------------------------------------------------------------------------------------------------
$ Regional/
Sales MRS. COUNTRY Total AUNT HUNGRY Private
Segment (mm) BUTTERWORTH'S LOG CABIN KITCHEN Company JEMIMA JACK Label
- ---------------- --------- ----------------- ----------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Regular......... $ 279.5 17.0% 16.0% 4.6% 37.6% 13.8% 6.4% 42.2%
Lite............ 126.1 15.9 15.5 4.6 36.0 31.9 8.4 23.7
Specialty/ Pure
Maple......... 63.7 -- -- -- -- -- -- 100.0
---------
Total........... $ 469.3 15.0% 13.7% 5.3% 34.0% 18.1% 6.1% 41.8%
-- --
-- --
--------- --- --- --- --- -----
--------- --- --- --- --- -----
</TABLE>
As non-core brands to their prior owners, both the MRS. BUTTERWORTH'S and
LOG CABIN brands lacked sufficient marketing and brand management resources,
resulting in share erosion. To revitalize the LOG CABIN brand, management
recently introduced a new television advertising campaign featuring the slogan,
"In the heart of every home, there's a little Log Cabin". New packaging has been
developed which replicates a log cabin and will be introduced in the second half
of 1998. To compete against AUNT JEMIMA Lite, the Company introduced a new,
reformulated MRS. BUTTERWORTH'S Lite product in December 1997. The Company also
plans to reformulate its LOG CABIN Lite product.
VAN DE KAMP'S AND MRS. PAUL'S FROZEN SEAFOOD (25.0% of 1997 Aggregate Pro Forma
Net Sales)
Marketed under the VAN DE KAMP'S and MRS. PAUL'S brands, the Company
manufactures and markets a variety of frozen seafood products including 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 is stronger in the West and Central U.S. while MRS. PAUL'S is stronger in
the Northeast and Southeast) and brand positioning (VAN DE KAMP'S targets
families with children while MRS. PAUL'S targets adults). The VAN DE KAMP'S
trademark dates back over 40 years and is recognized as a fun, "contemporary"
image that appeals to families with children. The MRS. PAUL'S 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 which target the adult consumer.
The $869.0 million frozen seafood category has two segments: fin and
non-fin. Fin products are fish whereas non-fin products are other seafood such
as shrimp and clams. The frozen seafood category has experienced a compound
annual growth rate of 6.7% over the last three years due to the introduction of
new premium and healthy fillet products and increased advertising support by the
Company and GORTON'S. VAN DE KAMP'S introduced a 97% fat-free product under its
"Crisp and Healthy" label in 1992 and is the only major retail competitor to
offer a line of "healthy" breaded fish products. The Company has introduced over
the last two years 14 different premium and grilled products under the VAN DE
KAMP'S and MRS. PAUL'S brands including salmon with creamy dill sauce, teriyaki
tuna, and grilled lemon pepper and garlic herb fillets. The Company also offers
a variety of specialty seafood products including shrimp, fried clams, and
deviled crab cakes.
As the table below indicates, the Company has a leading 28.1% share of the
frozen seafood category. GORTON'S has the number two position with a 20.7%
share, and the remainder of the category is comprised of a multitude of other
regional brands and private label. According to IRI, the #1 and #2
58
<PAGE>
selling frozen seafood SKU's are VAN DE KAMP'S 44 Breaded Fish Sticks and VAN DE
KAMP'S Battered Fillets, respectively.
<TABLE>
<CAPTION>
Share
-------------------------------------------------------------------------
$
Sales VAN DE Total Other/
Segment (mm) KAMP'S MRS. PAUL'S Company GORTON'S Private Label
- ----------- --------- ----------- ----------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Fin........ $ 557.5 25.0% 15.2% 40.2% 30.5% 29.3%
Non-fin.... 311.5 2.4 4.0 6.4 3.1 90.5
---------
Total...... $ 869.0 16.9% 11.2% 28.1% 20.7% 51.2%
--------- --- --- --- --- ---
--------- --- --- --- --- ---
GRILLED
FIN(1)... $ 68.1 11.7% 29.4% 41.1% 42.8% 16.1%
</TABLE>
- ------------------------
(1) Included in fin segment.
The Company has revitalized both the VAN DE KAMP'S and MRS. PAUL'S brands by
introducing new products and increasing marketing support for the brands. For
example, annual sales of VAN DE KAMP'S frozen seafood have increased from $112.8
million at acquisition (year ended June 1995) to $132.8 million in year ended
1997. The Company continuously builds VAN DE KAMP'S and MRS. PAUL'S brand equity
through television and print advertising and consumer promotions.
Cross-promoting is used to focus on the target consumer. For example, VAN DE
KAMP'S products are cross-promoted with KRAFT macaroni and cheese to target
children. Another example of cross-promoting is including in-pack samples of
HEINZ cocktail sauce with VAN DE KAMP'S fish sticks.
As the category leader in frozen seafood, the Company has begun a program of
rationalizing SKU's between its two brands on a market-by-market basis. The
program involves eliminating redundant and slower-moving SKU's and replacing
them with new product offerings. Management believes that while this program
will slow the sales growth of the Company's frozen seafood business, it should
result in a more profitable mix of business for the Company and its retail
customers. See "Business--Marketing, Sales and Distribution".
AUNT JEMIMA FROZEN BREAKFAST PRODUCTS (9.8% of 1997 Aggregate Pro Forma Net
Sales)
AUNT JEMIMA was established as a brand over 100 years ago. AUNT JEMIMA
frozen breakfast products are offered in three segments: waffles, pancakes
(including frozen pancake batter), and french toast. AUNT JEMIMA is the only
national brand represented across all three segments of the frozen syrup carrier
segment. AUNT JEMIMA'S 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's frozen breakfast products compete in the frozen syrup carrier
segment of the $1.3 billion frozen breakfast foods category. The frozen
breakfast foods category has three segments: frozen syrup carriers
(approximately 51% of total sales), breakfast entrees (approximately 28% of
total sales), and frozen bagels (approximately 21% of total sales). The frozen
syrup carrier segment consists of waffles (approximately 85% of total frozen
syrup carrier sales), pancakes (approximately 9% of total frozen syrup carrier
sales), and french toast (approximately 6% of total frozen syrup carrier sales).
The frozen syrup carrier segment has grown faster than any other frozen
breakfast product offering over the last ten years due to consumers' demand for
quick, convenient, and nutritious foods. Annual per capita consumption of frozen
syrup carriers has grown at a 7.5% compound average growth rate over the last
three years.
59
<PAGE>
As the table below indicates, AUNT JEMIMA is the number three brand in the
frozen syrup carrier category. AUNT JEMIMA is strongest in the Northeast and
holds the number one national share in french toast.
<TABLE>
<CAPTION>
Share
$ ------------------------------------------------------
Size AUNT HUNGRY Regional/
Segment (mm) JEMIMA EGGO JACK Private Label
- --------------------------------- --------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Waffles.......................... $ 577.1 9.2% 64.4% 16.4% 10.0%
Pancakes and Pancake Batter...... 68.4 21.6 8.9 50.1 19.4
French Toast..................... 42.8 51.8 -- -- 48.2
--------- --- --- --- ---
Total............................ $ 688.3 13.1% 54.9% 19.9% 12.1%
--------- --- --- --- ---
--------- --- --- --- ---
</TABLE>
The Company has increased sales of AUNT JEMIMA by expanding distribution and
introducing AUNT JEMIMA to children through a series of print and television ads
on the NICKELODEON television network. Annual sales of AUNT JEMIMA products have
increased from $70.6 million in 1996 to $85.6 million in 1997. Management plans
to increase further AUNT JEMIMA sales through a series of focused marketing
initiatives. At the start of 1998, management redesigned AUNT JEMIMA's
packaging, changing the color from white, which had a very low visual impact in
the freezer case, to red, which has a strong visual impact. Management plans to
or is in the process of (i) expanding distribution of current items, (ii)
launching a reformulated "more homemade taste" pancake product, (iii)
introducing new products in core markets that have proven successful in the
category such as mini pancakes and french toast sticks, and (iv) expanding its
foodservice and private label business.
CELESTE FROZEN PIZZA (8.9% of 1997 Aggregate Pro Forma Net Sales)
For over 36 years CELESTE frozen pizza has been a prominent regional brand
in the Northeast. CELESTE frozen pizzas are offered in small and large sizes and
a rising crust pizza is offered under the MAMA CELESTE label. CELESTE'S small
pizzas (marketed as CELESTE Pizza for One) and large pizzas are economy priced
while the MAMA CELESTE Fresh Baked Rising Crust pizza is premium priced.
Introduced in November 1997, MAMA CELESTE Fresh Baked Rising Crust pizza has
performed well in consumer testing and has achieved an 8.5% share in CELESTE
markets (as defined) for the 12 weeks ended April 19, 1998.
Frozen pizza is a $2.0 billion category which has grown at a compound annual
rate of 10.8% over the last two years. The category is comprised of three
segments: large (46.5% total sales), small (33.7% total sales), and a new
entrant, rising crust (19.8% of total sales). Rising crust pizzas have been a
very successful line extension and have been the primary driver of growth within
the frozen pizza category. Rising crust pizzas rise as they bake in the
consumers' oven and offer a pizza comparable in quality to a restaurant or home
delivered pizza.
CELESTE is the number one brand in unit sales in the markets in which it
competes. As indicated in the table below, CELESTE is the number three brand in
dollar sales in the markets in which it competes and the number eight brand
nationally. CELESTE products are primarily sold in the Northeast, Florida, and
California. In the markets in which it competes, CELESTE Pizza for One is the
leading brand of small pizzas. The frozen pizza category is highly fragmented
with numerous regional brands such as CELESTE.
<TABLE>
<CAPTION>
$ Share
Size ----------------------------------------------------------
(mm) CELESTE TOMBSTONE DI GIORNO All other
--------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
National.............. $ 2,078 3.9% 17.1% 11.6% 67.4%
CELESTE markets....... 671 10.6 15.4 11.6 62.9
</TABLE>
60
<PAGE>
Sales of CELESTE frozen pizza products have increased from $67.8 million in
1996 to $78.0 million in 1997. Management believes the CELESTE brand is in a
solid position to further grow sales in its core markets due to its strong brand
image. Management intends to expand distribution of its MAMA CELESTE Fresh Baked
Rising Crust pizza and its Pizza For One by offering more items in existing
accounts and increasing its geographic distribution. Management is also in the
process of redesigning its Pizza For One packaging to update and contemporize
its brand image.
FOODSERVICE (3.6% of 1997 Aggregate Pro Forma Net Sales)
The Company's foodservice product line consist primarily of AUNT JEMIMA
frozen breakfast products.
Sales of frozen syrup carrier products in the foodservice channel are
growing rapidly due to increased consumption of breakfasts away from home.
Customers in this area include schools, colleges, businesses, and fast food
chains. Management believes that significant opportunities exist for sales
growth of frozen syrup carrier products as well as other frozen product lines.
Management also believes the growth in the syrup carrier segment will drive
foodservice opportunities for MRS. BUTTERWORTH'S and LOG CABIN syrup products.
MARKETING, SALES, AND DISTRIBUTION
Management believes that a focused, consistent marketing strategy is
critical to the successful merchandising and growth of the Company's brands.
Television and print advertising is considered to be a key component to its
marketing strategy. The Company's television and print advertising acts both as
a builder of brand equity by emphasizing the heritage and characteristics of its
product offerings and as a promoter of "new news" for new products within the
brand segments. Consumer promotions include targeted couponing to generate trial
usage and increase purchase frequency. The Company's trade promotions focus on
obtaining retail display support, achieving key price points, and securing
retail shelf space.
The leading positions of the Company's brands has enabled it to practice
category management and enter into alliances and co-marketing arrangements with
leading manufacturers of complementary food products. As the category leader in
syrups and frozen seafood, the Company can practice category management, which
is a cooperative effort between the category leader and the retailer aimed at
increasing shelf space profitability for the retail store by rationalizing
product offerings in the category. The category leader generally benefits from
category management because its products are usually featured more prominently
and accorded more shelf space and it can maximize distribution efficiencies.
Successful examples of co-marketing are coupon events for the VAN DE KAMP'S
frozen seafood products with Kraft macaroni and cheese (the most frequently
purchased item in the grocery store) and in-pack samples of Heinz cocktail
sauce.
The Company sells its dry grocery and frozen food products through two
separate sales forces: broker networks and distribution systems. The dry grocery
division has a sales force of 13 people which manages approximately 63
independent food brokers and 40 foodservice brokers. Dry grocery products are
shipped either directly to the customer or to one of five independent,
regionally located warehouses, which provides national coverage. The frozen
convenience food division has a sales force of 16 people which manages
approximately 57 independent frozen food brokers and 49 independent food service
brokers. Frozen food products are shipped either directly to the customer or to
one of four independent, regionally located warehouses, which provides national
coverage. The Company's customers include most of the major supermarkets and
chains in the U.S. None of the Company's customers or group of customers account
for more than 10% of the Company's sales.
61
<PAGE>
RAW MATERIALS
The Company purchases its raw materials, all of which are widely available,
from numerous independent suppliers throughout the year. The principal raw
material of VAN DE KAMP'S and MRS. PAUL'S brand fish products is Alaskan
pollock.
The Company procures its annual Alaskan pollock fillet requirements from
various North Pacific suppliers. The key fishing season is in January through
April with a second season in September through October. In late May or early
June, the Company contracts to purchase pollock fillet requirements for the
following 10 to 12 months. This enables the Company to project reasonably
accurately its production costs for the fall and Lent seasonal peaks in frozen
seafood sales. The Company does not purchase the frozen fillets until delivery
to ports in the United States, which occurs in stages as needed, over the course
of 10 to 12 months. This arrangement minimizes the investment required in
inventory.
The Company's other primary raw materials are flour, sugar, corn syrup,
liquid sucrose, maple sugar, flavorings, cheeses, meat, eggs, milk, and
vegetable oil, which are generally sourced from the U.S. commodity market. The
Company also utilizes significant quantities of glass, plastic, and cardboard
for its packaging requirements. Supplies of raw materials and packaging
requirements are readily available from a number of sources. Purchases are based
on price and quality. Major purchases are made through a bidding process.
COMPETITION
The food products business 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.
SEASONALITY
The Company does not experience any material effects of seasonality in its
business. There are no material backlogs.
RESEARCH AND DEVELOPMENT
The Company maintains its primary research and development departments for
its Aurora Division in Columbus, Ohio and for its VDK 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.
PRODUCTION AND FACILITIES
The Company owns and operates two manufacturing facilities for its frozen
food products described in the following table. The Company also owns a
manufacturing facility and the real estate underlying such facility located in
Chambersburg, Pennsylvania, comprising approximately 180,000 square feet, where
the Company manufactured certain frozen desserts products lines which it sold on
May 1, 1998. The Company plans to sell the Chambersburg, Pennsylvania
manufacturing facility and real estate. The Company's headquarters are leased by
Dartford pursuant to a lease that expires February 2002. See "Certain
Relationships and Related Transactions". The VDK Division's corporate
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offices lease will expire in September 2000, subject to one five-year renewal
option. The Aurora Division's corporate offices lease will expire in May 2002.
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 302,000 Owned
Pizza and Grilled Fish
Erie, PA.................... Frozen Seafood 116,000 Owned
St. Louis, MO............... VDK Division Corporate 12,000 Leased
Offices
Columbus, OH................ Aurora Division Corporate 10,500 Leased
Offices
San Francisco, CA........... Company Headquarters 7,000 Leased
</TABLE>
BAKING MIXES
DUNCAN HINES products are contract manufactured and distributed by P&G
pursuant to a co-pack agreement for the following periods: until July 16, 1998
for specialty mixes, until October 16, 1998 for frosting, and until April 16,
1999 for cake mixes. The Company entered into and expects to enter into
long-term co-pack agreements for its DUNCAN HINES cake mixes and frosting and
specialty mixes with contract manufacturers and will transition the DUNCAN HINES
manufacturing assets from P&G's Jackson, Tennessee plant to production
facilities owned or leased by such contract manufacturers. The terms of the
long-term co-pack agreements are five years with an automatic one-year renewal.
SYRUPS
The Company's syrup products are produced by contract manufacturers at four
manufacturing facilities pursuant to syrup co-pack agreements with terms of five
years and automatic renewal for one year unless cancelled by the other party.
All of the Company's syrup production equipment, including batching, filling,
and case-packing equipment, is or will be located at one of the contract
manufacturers.
FROZEN CONVENIENCE FOODS
The Company manufactures its VAN DE KAMP'S and MRS. PAUL'S frozen seafood
products at its Erie, Pennsylvania and Jackson, Tennessee facilities. The Erie
plant currently operates at 59% of capacity (based on 3 shifts, 5 days a week).
Annual capacity of the plant is approximately 9.2 million cases. Certain
specialty seafood items such as shrimp and clams are contract manufactured by
third parties. The Company produces AUNT JEMIMA and CELESTE products at its
Jackson facility. The plant currently operates at a weighted average of
approximately 70% of capacity (based on 3 shifts, 5 days a week).
TRADEMARKS
The Company's principal trademarks are DUNCAN HINES, LOG CABIN, MRS.
BUTTERWORTH'S, VAN DE KAMP'S, MRS. PAUL'S, CELESTE, and MAMA CELESTE. The
Company licenses the AUNT JEMIMA trademark pursuant to a perpetual,
royalty-free, license agreement which 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 trademark. Quaker
Oats can only withhold approval if such proposed use violates such 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. See "Risk Factors--Trademarks".
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EMPLOYEES
As of June 1, 1998, the Company had a total of approximately 1,225
employees, none of whom are represented by unions. Management of the Company
believes it has good relations with its employees.
CERTAIN LEGAL AND REGULATORY MATTERS
LITIGATION
The Company, in the ordinary course of business, is involved in various
legal proceedings. The Company does not believe the outcome of these proceedings
will have a material adverse effect on the Company's financial position or
results of operation.
PUBLIC HEALTH
The Company is subject to the Federal Food, Drug and Cosmetic Act and
regulations promulgated thereunder by the FDA. This comprehensive regulatory
program governs, among other things, the manufacturing, composition and
ingredients, labeling, packaging and safety of food. For example, the FDA
regulates manufacturing practices for foods through its current "good
manufacturing practices" regulations and specifies the "recipes", called
standards of identity, for certain foods. In addition, the Nutrition Labeling
and Education Act of 1990, as amended, prescribes the format and content of
certain information required to appear on the labels of food products. The
Company is subject to regulation by certain other governmental agencies,
including the USDA.
The operations and the products of the Company are also subject to state and
local regulation through such measures as licensing of plants, enforcement by
state health agencies of various state standards and inspection of the
facilities. Enforcement actions for violations of federal, state, and local
regulations may include seizure and condemnation of violative products, cease
and desist orders, injunctions and/or monetary penalties. Management believes
that the Company's facilities and practices are sufficient to maintain
compliance with applicable government regulations, although there can be no
assurances in this regard.
FEDERAL TRADE COMMISSION
The Company is subject to certain regulations by the Federal Trade
Commission ("FTC"). Advertising of the Company's products is subject to
regulation by the FTC pursuant to the Federal Trade Commission Act and the
regulations promulgated thereunder.
EMPLOYEE SAFETY REGULATIONS
The Company is subject to certain health and safety regulations including
regulations issued pursuant to the Occupational Safety and Health Act. These
regulations require the Company to comply with certain manufacturing, health,
and safety standards to protect its employees from accidents.
ENVIRONMENTAL
The past and present business operations of, and ownership and operation of
real property by, the Company are subject to extensive and changing federal,
state, local, and foreign environmental laws and regulations pertaining to the
discharge of materials into the environment and the handling and disposition of
wastes (including solid and hazardous wastes) or otherwise relating to
protection of the environment. Compliance with such laws and regulations is not
expected to have a material impact on the Company's capital expenditures,
earnings, or competitive position. No assurance can be given, however, that
additional environmental issues relating to presently known matters or
identified sites or to other matters or sites will not require additional,
currently unanticipated investigation, assessment, or expenditures.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning the directors and
executive officers of the Company each of whom has served in the capacities
indicated below since its incorporation on June , 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------- --- -----------------------------------------
<S> <C> <C>
Ian R. Wilson............................ 68 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....................... 34 Chief Financial Officer and Secretary
Thomas O. Ellinwood...................... 44 President, VDK Division
Thomas J. Ferraro........................ 50 President, Aurora Division
Anthony A. Bevilacqua.................... 43 Executive Vice President--Sales and
Marketing, VDK Division
C. Gary Willett.......................... 42 Executive Vice President, Aurora 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>
Each director will hold office until the next annual meeting of stockholders
or until his or her successor has been elected and qualified. See "Principal
Stockholders and Selling Stockholder-- Securityholders Agreement" for a
discussion of the election of directors. Executive officers of the Company are
appointed by, and serve at the pleasure of, the Board of Directors. A brief
biography of each director and executive officer follows:
IAN R. WILSON--CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. Mr.
Wilson has served as Chairman of Aurora Foods Inc. since December 1996 and
Chairman of Van de Kamp's, Inc. since September 1995. Mr. Wilson is the Managing
Partner of Dartford Partnership L.L.C., a private partnership focused on the
food and beverage industries. From 1989 through 1995, Mr. Wilson was Chairman
and Chief Executive Officer of Windmill Holdings Corporation, 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., 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 membership on
the boards of Novell, Inc., Revlon, Inc., Crown Zellerbach Corporation, and
Castle & Cooke, Inc. Mr. Wilson currently serves as Chairman of Windy Hill Pet
Food Company, Inc.
JAMES B. ARDREY--VICE CHAIRMAN AND DIRECTOR. Mr. Ardrey has served as
Executive Vice President and Director of Aurora Foods Inc. since December 1996
and Executive Vice President and Director of Van de Kamp's, Inc. since September
1995. Mr. Ardrey is a partner of Dartford Partnership L.L.C. From
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1993 to 1995, Mr. Ardrey was a consultant to Windmill Holdings Corporation,
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. Mr. Ardrey currently serves as Executive Vice
President of Windy Hill Pet Food Company, Inc.
RAY CHUNG--EXECUTIVE VICE PRESIDENT. Mr. Chung has served as Executive Vice
President and Director of Aurora Foods Inc. since December 1996 and Executive
Vice President of Van de Kamp's, Inc. and Director of VDK Holdings, Inc. since
September 1995. Mr. Chung is a founding partner of Dartford Partnership L.L.C.
Mr. Chung has previously served as a Director, Executive Vice President and
Chief Financial Officer of Windmill Holdings Corporation from 1989 to 1995 and
as a Director, Executive Vice President and Chief Financial Officer of Wyndham
Foods, Inc. from 1985 to 1990. From May 1984 to September 1985, Mr. Chung served
as Vice President--Finance for the Kendall Company (Colgate-Palmolive). Between
1981 and 1984, Mr. Chung served as Vice President--Finance for Riviana Foods,
Inc. Mr. Chung currently serves as Executive Vice President and Director of
Windy Hill Pet Food Company, Inc.
M. LAURIE CUMMINGS--CHIEF FINANCIAL OFFICER AND SECRETARY. Ms. Cummings has
served as Vice President and Secretary of Aurora Foods Inc. since December 1996
and Vice President and Secretary of Van de Kamp's, Inc. since September 1995.
Ms. Cummings has been a partner in Dartford Partnership L.L.C. since 1994. Ms.
Cummings was Vice President, Controller and Treasurer of Windmill Holdings
Corporation from 1989 to 1995. Between 1987 and 1990, Ms. Cummings was the
Controller and Assistant Treasurer of Wyndham Foods, Inc. Ms. Cummings currently
serves as Vice President and Secretary of Windy Hill Pet Food Company, Inc.
THOMAS O. ELLINWOOD--PRESIDENT OF THE VDK DIVISION. Mr. Ellinwood has been
with Van de Kamp's, Inc. since 1995. Mr. Ellinwood has been responsible for the
management of VAN DE KAMP'S since Pet Incorporated acquired VAN DE KAMP'S 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 Incorporated from March 1992 until Van de Kamp's,
Inc. bought the VAN DE KAMP'S business in 1995. Between 1990 and 1992, Mr.
Ellinwood held the position of Vice President, Marketing. 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 OF THE AURORA DIVISION. Prior to joining
Aurora Foods Inc. in 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, from 1991 to 1994, Vice President of
Sales for the Niche Grocery division of Borden, Inc. 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, VDK
DIVISION. Mr. Bevilacqua joined Van de Kamp's, Inc. in February 1998 and is
responsible for the development, direction and implementation of Van de Kamp's,
Inc. go-to-market strategy across all aspects of the Company's customer and
consumer value strategy. Prior to joining Van de Kamp's, Inc., 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 responsibilities 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.
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C. GARY WILLETT--EXECUTIVE VICE PRESIDENT, AURORA DIVISION. Mr. Willett
joined Aurora Foods Inc. 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.
CLIVE A. APSEY--DIRECTOR. Mr. Apsey has served as a director of Van de
Kamp's, Inc. since September 1995. Mr. Apsey has been an Executive Director of
Tiger Oats Ltd. since 1987 and currently serves as Executive Chairman of the
International Division of Tiger Oats Ltd. Tiger Oats Ltd. is a major public food
company in Southern Africa. Mr. Apsey's past and present service as a director
includes membership on the boards of the following companies: Tiger Milling &
Feeds Ltd., Tiger Foods Ltd., Tiger Oats, Langeberg Foods, Ltd., Langeberg
Holdings Ltd., Beacon Sweets and Chocolates (Pty) Ltd. and Durban Confectionery
Works (Pty) Ltd.
CHARLES AYRES--DIRECTOR. Mr. Ayres has served as a director of Aurora Foods
Inc. since December 1996. Mr. Ayres is a managing director of McCown De Leeuw &
Co., Inc. Mr. Ayres has been associated with McCown De Leeuw & Co. since 1991.
Prior to joining McCown De Leeuw & Co., 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 Nimbus CD International, Inc. and The
Brown Schools, Inc.
DAVID E. DE LEEUW--DIRECTOR. Mr. De Leeuw has served as a director of
Aurora Foods Inc. since December 1996. Mr. De Leeuw is a managing director of
McCown De Leeuw & Co., Inc. Prior to founding McCown De Leeuw & Co. 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 Vans, Inc.,
Nimbus CD International, Inc., AmeriComm Holdings, Inc., Outsourcing Solutions
Inc. and American Residential Investment Trust.
CHARLES J. DELANEY--DIRECTOR. Mr. Delaney has served as a director of Van
de Kamp's, Inc. since September 1995. Mr. Delaney has been President of UBS
Capital LLC since January 1993 and Managing Director in charge of the Leveraged
Finance Group of the Corporate Banking Division of Union Bank of Switzerland
since May 1989. Mr. Delaney is also a director of Cinnabon International, Inc.
and Peoples Telephone Company, Inc.
RICHARD C. DRESDALE--DIRECTOR. Mr. Dresdale has served as a director of
Aurora Foods Inc. since December 1996. Mr. Dresdale has been a Managing Director
of Fenway Partners, Inc. since the firm's founding in 1994. Fenway is a New
York-based private equity firm for institutional investors with a 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. and
Delimex Holdings, Inc. Mr. Dresdale is also a director of Remington Arms
Company, Inc., a designer, manufacturer and seller of sporting goods products
for the hunting, shooting sports and fishing markets.
ANDREA GEISSER--DIRECTOR. Mr. Geisser has served as a director of Van de
Kamp's, Inc. since September 1995. Mr. Geisser has been a Managing Director of
Fenway Partners, Inc. 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
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Investment Corporation, the largest Canadian leveraged buyout company, and prior
to that started the U.S. operations of IFINT, a European investment company,
where he was a Senior Vice President and Director. Mr. Geisser serves as a
director of a number of Fenway's portfolio companies, including Decorative
Concepts, Inc., Delimex Holdings, Inc., Iron Age Corporation and Valley
Recreation Products, Inc.
PETER LAMM--DIRECTOR. Mr. Lamm has served as a director of Van de Kamp's,
Inc. since September 1995 and as a director of Aurora Foods Inc. since December
1996. Mr. Lamm has been President of Fenway Partners, Inc. since the firm's
founding in 1994. Prior to founding Fenway with Messrs. Dresdale and Geisser,
Mr. Lamm was employed by BCC 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 National School Supply Company.
TYLER T. ZACHEM--DIRECTOR. Mr. Zachem has served as a director of Aurora
Foods Inc. since December 1996. Mr. Zachem is a managing director of McCown De
Leeuw & Co., Inc. Mr. Zachem has been associated with McCown De Leeuw & Co.
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 is no family relationship between any of the executive officers or
directors of the Company.
ELECTION AND COMMITTEES OF THE BOARD OF DIRECTORS
The election of directors is effectively governed by the terms of the
Securityholders Agreement. See "Principal Stockholders and Selling
Stockholder--Securityholders Agreement".
The Board of Directors of the Company has a compensation committee which
determines the compensation of executive officers, including bonuses, and
administers the Company's 1998 Incentive Plan. The compensation committee
consists of Messrs. Lamm, Ayres, and Dresdale. The Chairman of the Board is an
EX-OFFICIO member of the compensation committee. The Board of Directors of the
Company intends to appoint an Audit Committee within three months of the closing
of the Equity Offerings comprised solely of independent directors with the
Chairman of the Board as an EX-OFFICIO member. The Audit Committee's functions
will include recommending to the Board of Directors the engagement of the
Company's independent public accountants and reviewing with such accountants the
plans for, and the result and scope of, their auditing engagement.
EXECUTIVE COMPENSATION
The Company paid Dartford a fee of $768,000 in 1997 for serving in the role
of the Company's executive office. Upon the closing of the Equity Offerings, Mr.
Ian R. Wilson will serve as Chief Executive Officer, Mr. James B. Ardrey will
serve as Vice Chairman, Mr. Ray Chung will serve as Executive Vice President,
and Ms. M. Laurie Cummings will serve as Chief Financial Officer and Secretary
of the Company pursuant to employment agreements. Messrs. Thomas J. Ferraro and
Thomas O. Ellinwood serve as President of the Aurora Division and VDK Division,
respectively, pursuant to employment agreements. In 1997, Mr. Ferraro earned
$175,000 in salary, $143,000 in bonus, and $6,000 in the form of Company
contributions on his behalf to profit sharing and savings plans and other
related benefits. In 1997, Mr. Ellinwood earned $225,000 in salary, $112,500 in
bonus, and $19,375 in contributions made by the VDK on his behalf to profit
sharing and savings plans. Messrs. Ferraro and Ellinwood were each recently
granted, contingent upon closing of the Equity Offerings, 175,000 options for
shares of Common Stock of the Company under the 1998 Incentive Plan at an
exercise price equal to the initial public
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offering price in the Equity Offerings. See "Management--Employment Agreements"
and "Certain Relationships and Related Transactions".
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 which
becomes effective upon the closing of the Equity Offerings. 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 the second anniversary of the closing of the
Equity Offerings or the first anniversary of employing a Chief Executive Officer
other than Mr. Ian R. 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.
Mr. James B. Ardrey serves as the Vice Chairman of the Company pursuant to
an employment agreement which becomes effective upon the closing of the Equity
Offerings. 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 the second anniversary of
the closing of the Equity Offerings or the first anniversary of employing a
Chief Executive Officer other than Mr. Ian R. 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 which becomes effective upon the closing of the
Equity Offerings. 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 the second
anniversary of the closing of the Equity Offerings or the first anniversary of
employing a Chief Executive Officer other than Mr. Ian R. 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 which becomes effective upon
the closing of the Equity Offerings. 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 the second anniversary of the closing of the Equity Offerings or the first
anniversary of employing a Chief Executive Officer other than Mr. Ian R. 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 Aurora Division
pursuant to an employment agreement, dated as of December 31, 1996, as amended
(the "Ferraro Employment Agreement"). He receives a base salary of $275,000 per
year 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
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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 VDK 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 $275,000 (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
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.
AURORA INCENTIVE PLAN
The Amended and Restated Limited Liability Company Agreement of MBW
Investors 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 Aurora and/or affiliated with Aurora, were given an opportunity
to benefit from appreciation in the value of Aurora. 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 Aurora. 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 will be determined based on the valuation of the Common
Stock held indirectly by MBW Investors LLC, and upon the closing of the Equity
Offerings all unvested Management Units will become fully vested. The aggregate
value of all Management Units is expected to be $60.8 million (assuming an
initial public offering price of $21.50 per share). Through December 27, 1997,
Aurora 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 $58.5 million was recorded in the first and second quarters of 1998.
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The incentive plan expense has been recorded as a liability of MBW Investors 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. After the closing of the Equity Offerings, no
additional compensation expense will be recorded under the Aurora Plan.
MBW Investors LLC will satisfy its liability under the Aurora Plan by
distributing 4,192,932.2 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. See "Certain
Relationships and Related Transactions".
Pursuant to the Aurora Plan, Dartford, Thomas J. Ferraro, and C. Gary
Willett are entitled to receive 2,725,406.0, 433,218.1, and 270,761.3 shares of
Common Stock, respectively, effective on the closing of the Equity Offerings in
respect of the Aurora Plan. In addition, 56 other employees are entitled to
receive an aggregate of 763,546.9 shares pursuant to the Aurora Plan.
VDK INCENTIVE PLAN
VDK Foods 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 will be determined based on the valuation of the shares
of the Company held indirectly by VDK Foods LLC, and upon the closing of the
Equity Offerings all unvested VDK Management Units will become fully vested. The
aggregate value of all VDK Management Units is expected to be $66.7 million
(assuming an initial public offering price of $21.50). 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
has been recorded as a liability of VDK Foods 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 has been pushed down to the Company as
incentive plan expense and as additional paid-in capital from its parent. After
the closing of the Equity Offerings, no additional incentive plan expense will
be recorded under the VDK Plan.
VDK Foods 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
Foods LLC, based on the valuation of the VDK Management Units at the initial
public offering price of the Company's Common Stock. See "Certain Relationships
and Related Transactions".
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 $12.8
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"),
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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 the first
anniversary of the closing of the Equity Offerings 3,613,412.5 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 Foods LLC, as a contribution, a number of shares of
the Company's Common Stock owned by VDK Foods 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 Foods LLC. VDK
Foods 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 2,287,921.5, 244,847.6, and 92,048.0 shares
of Common Stock, respectively, under the VDK Plans no later than the first
anniversary of the closing of the Equity Offerings. In addition, 27 employees
are entitled to receive an aggregate of 988,595.4 shares pursuant to the VDK
Plans no later than the first anniversary of the closing of the Equity
Offerings.
1998 LONG-TERM INCENTIVE PLAN
Prior to the Equity Offerings, the Board of Directors adopted the 1998
Incentive Plan and the sole stockholder approved such plan. The Company plans to
register with the Securities and Exchange Commission the shares issuable
pursuant to the 1998 Incentive Plan.
The following summary of the 1998 Incentive Plan is qualified in its
entirety by reference to the complete text of the 1998 Incentive Plan, which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. Capitalized terms not separately defined below have the meanings set forth
in the 1998 Incentive Plan.
The purpose of the 1998 Incentive Plan is to foster and promote the
long-term financial success and interests of the Company and materially increase
the value of equity interests in the Company by: (a) encouraging the long-term
commitment of selected key employees, (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. Under the 1998 Incentive Plan, the
Compensation Committee has the authority to grant to key employees and
consultants of the Company the following types of awards: (i) stock options in
the form of incentive stock options qualified under Section 422 of the Code
("Incentive Options"), or nonqualified stock options ("Nonqualified Options," or
collectively with the Incentive Options "Options"), or both; (ii) stock
appreciation rights ("SARs"); (iii) restricted stock (the "Restricted Stock");
(iv) performance-based awards; and (v) supplemental payments dedicated to
payment of any federal income taxes that may be payable in conjunction with the
1998 Incentive Plan (collectively referred to as "Incentive Awards"). All
employees of the Company are eligible to participate in the 1998 Incentive Plan.
3,500,000 shares of Common Stock have been reserved for grants of Incentive
Awards under the 1998 Incentive Plan.
The 1998 Incentive Plan is administered by the Company's Compensation
Committee which must consist of at least two members of the Board of Directors,
each of whom is a nonemployee director. The 1998 Incentive Plan provides that
the Compensation Committee may make adjustments to the number of shares and to
the exercise price of all or any Incentive Awards. The Compensation Committee's
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determinations and interpretations under the 1998 Incentive Plan are final,
binding and conclusive on all participants and need not be uniform and may be
made by the compensation committee selectively among persons who receive, or are
eligible to receive, grants and awards under the 1998 Incentive Plan.
The Compensation Committee may limit an optionee's right to exercise all or
any portion of an Option until one or more dates subsequent to the date of
grant. The Compensation Committee also has the right, exercisable in its sole
discretion, to accelerate the date on which all or any portion of an Option may
be exercised. The 1998 Incentive Plan also provides that, under certain
circumstances, if any employee is terminated within two years after a "Change of
Control", each Option or SAR then outstanding shall immediately become vested
and be immediately exercisable in full, all restrictions and conditions of all
Restricted Stock then outstanding shall be deemed satisfied and the restriction
period to have expired, and all Performance Shares (as defined below) and
Performance Units (as defined below) shall vest, and be deemed earned in full
and properly paid. In the event of a change in control, however, the
Compensation Committee may, after notice to the Grantee, require the Grantee to
"cash out" his rights by transferring them to the Company in exchange for their
equivalent "cash value".
If an employee's employment by the Company is terminated for any reason
whatsoever other than death, disability, retirement, involuntary termination or
termination for good reason, any Incentive Award outstanding at the time and all
rights thereunder shall wholly and completely terminate, and unless otherwise
established by the Compensation Committee, no further vesting shall occur and
the Grantee shall be entitled to exercise his rights (if any) 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 his
rights (if any) with respect to 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 in connection with a change in
control, an Incentive Award may be only exercised as provided in an individual's
incentive agreement, or as determined by the Compensation Committee.
OPTIONS
No Incentive Option may be granted with an exercise price per share less
than the fair market value of the Common Stock at the date of grant.
Nonqualified Options may be granted at any exercise price. The exercise price of
an Option may be paid in cash, by an equivalent method acceptable to the
Compensation Committee, or, at the Compensation Committee's discretion, by
delivery of already owned shares of Common Stock having a fair market value
equal to the exercise price, or, at the Compensation Committee's discretion, by
delivery of a combination of cash and already owned shares of Common Stock.
However, if the optionee 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.
An eligible employee (a "Grantee") may receive more than one Incentive
Option, but the maximum aggregate fair market value of the Common Stock
(determined when the Incentive Option is granted) with respect to which
Incentive Options are exercisable by such employee in any calendar year cannot
exceed $100,000. In addition, no Incentive Option may be granted to an employee
owning directly or indirectly stock possessing more than 10% of the total
combined voting power of all classes of capital stock of the Company (a
"Ten-Percent Stockholder"), unless the exercise price is not less than 110% of
the fair market value of the shares subject to such Incentive Option on the date
of grant. Awards of Nonqualified Options are not subject to these special
limitations.
Except as otherwise provided by the Compensation Committee, awards under the
1998 Incentive Plan are not transferable other than as designated by the Grantee
by will or by the laws of descent and distribution. The expiration date of an
Incentive Option is determined by the Compensation Committee at the time of the
grant, but in no event may an Incentive Option be exercisable after the
expiration of 10
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years from the date of grant of the Incentive Option (five years in the case of
an Incentive Option granted to a Ten-Percent Stockholder).
STOCK APPRECIATION RIGHTS
SARs may be granted under the 1998 Incentive Plan in conjunction with all or
part of an Option, or separately. The exercise price of the SAR generally will
not be less than the fair market value of the Common Stock on the date of the
grant. An SAR granted in conjunction with an option will be exercisable only
when the underlying Option is exercisable and once an SAR has been exercised,
the related portion of the Option underlying the SAR will terminate. Upon the
exercise of an SAR, the Company will pay to the Grantee in cash, Common Stock,
or a combination thereof (the method of payment to be at the discretion of the
Compensation Committee), an amount equal to the excess of the fair market value
of the Common Stock on the exercise date over the exercise price, multiplied by
the number of SARs being exercised.
The Compensation Committee, either at the time of grant or at the time of
exercise of any Nonqualified Option or SAR, may provide for a supplemental
payment (a "Supplemental Payment") by the Company to the Grantee with respect to
the exercise of any Nonqualified Option or SAR, in an amount specified by the
Compensation Committee, but which shall not exceed the amount necessary to pay
the federal income tax payable with respect to both the exercise of the
Nonqualified Option and/or SAR and the receipt of the Supplemental Payment,
based on the assumption that the stockholder is taxed at the maximum effective
federal income tax rate on such amounts. The Compensation Committee shall have
the discretion to grant Supplemental Payments that are payable in cash, Common
Stock, or a combination of both, as determined by the Compensation Committee at
the time of payment.
RESTRICTED STOCK
Restricted Stock awards may be granted under the 1998 Incentive Plan, and
the provisions attendant to a grant of Restricted Stock may vary among
participants. In making an award of Restricted Stock, the Compensation Committee
will determine the periods during which the Restricted Stock is subject to
forfeiture. During the restriction period, as set forth in the grant of the
Restricted Stock, the Grantee may not sell, transfer, pledge or assign the
Restricted Stock, but will be entitled to vote the Restricted Stock.
The Compensation Committee, at the time of vesting of Restricted Stock, may
provide for a Supplemental Payment by the Company to the Grantee in an amount
specified by the Compensation Committee that shall not exceed the amount
necessary to pay the federal income tax payable with respect to both the vesting
of the Restricted Stock and receipt of the Supplemental Payment, based on the
assumption that the employee is taxed at the maximum effective federal income
tax rate on such amount.
PERFORMANCE UNITS
The Compensation Committee may grant Incentive Awards representing a
contingent right to receive cash ("Performance Units") or shares of Common Stock
("Performance Shares") at the end of a performance period. The Compensation
Committee may grant Performance Units and Performance Shares in such a manner
that more than one performance period is in progress concurrently. For each
performance period, the Compensation Committee shall establish the number of
Performance Units or Performance Shares and the contingent value of any
Performance Units or Performance Shares, which may vary depending on the degree
to which performance objectives established by the Compensation Committee are
met. The Compensation Committee may modify the performance measures and
objectives as it deems appropriate.
The basis for payment of Performance Units or Performance Shares for a given
performance period shall be the achievement of those financial and nonfinancial
performance objectives determined by the
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Compensation Committee at the beginning of the performance period. If minimum
performance is not achieved for a performance period, no payment shall be made
and all contingent rights shall cease. If minimum performance is achieved or
exceeded, the value of a Performance Unit or Performance Share shall be based on
the degree to which actual performance exceeded the pre-established minimum
performance standards, as determined by the Compensation Committee. The amount
of payment shall be determined by multiplying the number of Performance Units or
Performance Shares granted at the beginning of the performance period by the
final Performance Unit or Performance Share value. Payments shall be made, in
the discretion of the Compensation Committee, solely in cash or Common Stock, or
a combination of cash and Common Stock, following the close of the applicable
performance period.
The Compensation Committee, at the date of payment with respect to such
Performance Units or Performance Shares, may provide for a Supplemental Payment
by the Company to the Grantee in an amount specified by the Compensation
Committee, which shall not exceed the amount necessary to pay the federal income
tax payable with respect to the amount of payment made with respect to such
Performance Units or Performance Shares and receipt of the Supplemental Payment,
based on the assumption that the Grantee is taxed at the maximum effective
federal income tax rate on such amount.
SECTION 162(M) LIMITATIONS
In general, under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), compensation expense deductions of publicly-held
corporations may be limited to the extent total compensation (including base
salary, annual bonus, stock option exercises and non-qualified benefits paid)
for certain executive officers exceeds $1.0 million in any one year. However,
under Section 162(m), the deduction limit does not apply to certain
"performance-based compensation" established by an independent compensation
committee which is adequately disclosed to, and approved by, stockholders. Under
a Section 162(m) transition rule for compensation plans of corporations which
are privately held and which become publicly held in an initial public offering,
the individual compensation plan will not be subject to Section 162(m) until the
"Transition Date" which is defined as the earliest of (i) the expiration of the
compensation plan, (ii) the material modification of the compensation plan;
(iii) the issuance of all Common Stock and other compensation that has been
allocated under the compensation plan; or (iv) the first meeting of stockholders
at which directors are to be elected that occurs after December 31, 2001. After
the Transition Date, compensation paid under the compensation plan, will not
qualify as "performance-based compensation" for purposes of Section 162(m)
unless such compensation is based upon preestablished objective performance
goals, the material terms of which are disclosed to and approved by the
stockholders of the Company.
The Company has attempted to structure its executive compensation plan and
its 1998 Incentive Plan in such a manner that, after the Transition Date,
subject to obtaining stockholder approval of the compensation, the remuneration
attributable to such plans which meet the other requirements of Code Section
162(m) will not be subject to the $1.0 million limitation. The Company has not,
however, requested a ruling from the IRS or an opinion of counsel regarding this
issue.
DIRECTOR 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.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has appointed Messrs. Lamm, Ayres, and Dresdale as
members of its Compensation Committee. The Chairman of the Board is an EX
OFFICIO member of the Compensation Committee. Mr. Wilson is the Chairman of the
Board and Chief Executive Officer of the Company.
Mr. Wilson is also the Chairman of the Board of Directors and Chief
Executive Officer of Windy Hill Pet Food Company, Inc. ("Windy Hill") and
managing director of Dartford. Mr. Ardrey, Vice Chairman of the Company, is also
an Executive Vice President of Windy Hill and a partner of Dartford. Pursuant to
an agreement, dated September 19, 1995 and terminated on the effective date of
the Registration Statement of which this Prospectus forms a part, Dartford
provided management oversight on financial and operational matters to the
Company with respect to Van de Kamp's, Inc. Dartford received $631,000, and
$1,800,000 for 1996 and 1997, respectively, under such agreement. Further,
pursuant to an agreement with the Company, dated December 31, 1996 and
terminated on the effective date of the Registration Statement of which this
Prospectus forms a part, Dartford provided management oversight to the Company
with respect to Aurora Foods. Dartford received $768,000 for 1997 under such
agreement.
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
the MRS. BUTTERWORTH'S business, the LOG CABIN business, and the DUNCAN HINES
business. Also, from September 1995 through July 9, 1996, the Company paid
Dartford $1,950,000 in fees for services rendered in connection with
acquisitions by the Company and related financings of VDK's acquisitions.
Pursuant to an agreement with Windy Hill, dated as of September 5, 1995, the
Company paid $198,000 in 1996 and 1997 for computer support services. Dartford
and its partners own 14.2% of Windy Hill. Also, Dartford earned $1,500,000 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 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 the second
anniversary of the closing of the Equity Offerings and the date that Mr. Wilson
is no longer Chairman or Chief Executive Officer of the Company. See "Certain
Relationships and Related Transactions".
Mr. Ayres is a general partner of MDC. Pursuant to an agreement, dated
December 31, 1996 and terminated on the effective date of the Registration
Statement of which this Prospectus forms a part, MDC Management Company III,
L.P., 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 received $293,000 for 1997 under such agreement. From
December 31, 1996 through January 16, 1998 the Company paid MDC $5,700,000 in
fees for services rendered in connection with the acquisitions of the MRS.
BUTTERWORTH'S business, the LOG CABIN business, and the DUNCAN HINES business.
Also, MDC earned $1,500,000 in fees in connection with the Contribution
Transaction.
Messrs. Dresdale 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 MRS. BUTTERWORTH'S
business, the LOG CABIN business, and the DUNCAN HINES business. Also, from
September 1995 through July 9, 1996, the Company paid Fenway $1,474,000 in fees
for services rendered in connection with acquisitions by the Company and related
financings of VDK's acquisitions. Fenway earned $1,500,000 in fees in connection
with the Contribution Transaction.
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PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (i) immediately prior to the
consummation of the Equity Offerings and (ii) as adjusted to reflect the sale of
the shares of Common Stock pursuant to the Equity Offerings 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 after the Equity Offerings, (b) each director and
executive officer of the Company, (c) all directors and executive officers of
the Company as a group, and (d) the Selling Stockholder participating in the
Equity Offerings. 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>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO EQUITY OWNED AFTER EQUITY
OFFERINGS(1) NUMBER OF OFFERINGS(1)(2)
NAME AND ------------------------- SHARES -------------------------
ADDRESS OF OWNER NUMBER PERCENT OFFERED(2) NUMBER PERCENT
- ---------------------------------- ------------ ----------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Aurora/VDK LLC(3)................. 54,053,636.8 100.0% (1,553,636.8) 52,500,000.0 78.4%
VDK Foods LLC(3).................. 23,865,896.9 44.2% 23,865,896.9 35.6%
Fenway Partners Capital Fund,
L.P.(4)......................... 16,602,504.2 30.7% 16,602,504.2 24.8%
McCown De Leeuw & Co.
entities(5)(6).................. 16,358,870.0 30.3% 16,358,870.0 24.4%
California Public Employees
Retirement System(6)............ 3,747,583.2 6.9% 3,747,583.2 5.6%
Dartford Partnership L.L.C.(7).... 7,334,050.5 13.6% 7,334,050.5 10.9%
Tiger Oats Limited(8)............. 4,221,177.1 7.8% 4,221,177.1 6.3%
UBS Capital LLC(9)................ 4,221,177.1 7.8% 4,221,177.1 6.3%
OFFICERS AND DIRECTORS:
Ian R. Wilson(7).................. 7,334,050.5 13.6% 7,334,050.5 10.9%
James B. Ardrey(7)................ 7,334,050.5 13.6% 7,334,050.5 10.9%
Ray Chung(7)...................... 7,334,050.5 13.6% 7,334,050.5 10.9%
M. Laurie Cummings(7)............. 7,334,050.5 13.6% 7,334,050.5 10.9%
Thomas J. Ferraro(10)............. 492,376.4 * 492,376.4 *
Thomas O. Ellinwood(11)........... 280,875.6 * 280,875.6 *
Clive A. Apsey(8)................. 4,221,177.1 7.8% 4,221,177.1 6.3%
Charles Ayres(5).................. 16,358,870.0 30.3% 16,358,870.0 24.4%
David E. De Leeuw(5).............. 16,358,870.0 30.3% 16,358,870.0 24.4%
Charles J. Delaney(9)............. 4,221,177.1 7.8% 4,221,177.1 6.3%
Richard C. Dresdale(4)............ 16,602,504.2 30.7% 16,602,504.2 24.8%
Andrea Geisser(4)................. 16,602,504.2 30.7% 16,602,504.2 24.8%
Peter Lamm(4)..................... 16,602,504.2 30.7% 16,602,504.2 24.8%
Tyler T. Zachem(5)................ 16,358,870.0 30.3% 16,358,870.0 24.4%
All directors and executive
officers of the Company as a
group (14 persons).............. 49,511,030.9 91.6% 49,511,030.9 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 immediately prior to the Equity Offerings, Aurora/VDK LLC, MBW
Investors LLC, and VDK Foods LLC were dissolved and 52,500,000 shares of
Common Stock were distributed to the members of VDK Foods LLC and MBW
Investors LLC and were valued based upon the initial public offering price
of the Common Stock. It is currently expected that VDK Foods LLC will not
dissolve until some time after the Equity Offerings and not later than the
one year anniversary thereof.
(2) In accordance with the Amended and Restated Limited Liability Company
Agreement of Aurora/ VDK LLC, the Amended and Restated Limited Liability
Company Agreement of VDK Foods LLC, and the Amended and Restated Limited
Liability Company Agreement of MBW Investors LLC, proceeds from the sale of
these shares will be used to pay a priority distribution in the aggregate
amount of
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$31,399,037, as follows: (i) Fenway -- $22,164,807, (ii) the MDC entities --
$6,264,111, (iii) California Public Employee Retirement System --
$1,861,455, (iv) Dartford -- $438,642, and (v) other members of VDK Foods
LLC and MBW Investors LLC -- $670,022 in the aggregate. In the event the
Underwriters exercise the over-allotment option, Aurora/VDK LLC will own
50,325,000, or 75.1%, of the shares outstanding.
(3) Immediately prior to the closing of the Equity Offerings, Aurora/VDK LLC
will be the sole stockholder of the Company. As soon as practicable after
such closing, Aurora/VDK LLC will be dissolved and its shares of Common
Stock will be distributed to MBW Investors LLC and VDK Foods LLC, its sole
members. MBW Investors LLC will also be dissolved soon after the dissolution
of Aurora/VDK LLC and its shares of Common Stock will be distributed to its
members including McCown De Leeuw & Co., Fenway Partners Capital Fund, L.P.,
Dartford Partnership L.L.C., CALPERS, Sunapee, and certain divisional
management. Each of these beneficial owners is party to the Securityholders
Agreement. See "--Securityholders Agreement". The address of Aurora/VDK LLC
and VDK Foods LLC is c/o Dartford Partnership L.L.C., 456 Montgomery Street,
Suite 2200, San Francisco, CA 94104.
(4) Includes 16,296,750.2, 183,452.4 and 122,301.6 shares of Common Stock owned
directly or indirectly by Fenway Partners Capital Fund, L.P. (the "Fenway
Fund"), FPIP, LLC and FPIP Trust, LLC, respectively (assuming the
liquidation of Aurora/VDK LLC, MBW Investors LLC and VDK Foods LLC). Does
not include shares of Common Stock to be directly owned by VDK Foods LLC
upon the dissolution of Aurora/VDK LLC in respect of which Fenway does not
have an economic interest and as to which Fenway disclaims beneficial
ownership. In the event the Underwriters exercise the overallotment option,
Fenway will beneficially own, directly or indirectly, 15,737,829.6, or
23.5%, of the shares of Common Stock outstanding. The Fenway Fund holds a
majority of the voting interests of VDK Foods LLC, and as such may be deemed
to have the power to vote or dispose of the shares of Common Stock held
directly by VDK Foods LLC. FPIP, LLC and FPIP Trust, LLC are entities formed
by the investment professionals of Fenway Partners, Inc. to make
co-investments alongside the Fenway Fund. The managing member of each of
FPIP, LLC, and FPIP Trust, LLC is Fenway Partners, Inc. 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
Partners, Inc., 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.
(5) Includes 6,029,927.6 shares of Common Stock owned by McCown De Leeuw & Co.
III, L.P., an investment partnership whose general partner is MDC Management
Company III, L.P. ("MDC III"), 428,081.1 shares of Common Stock owned by
McCown De Leeuw & Co. III (Europe), L.P., an investment partnership whose
general partner is MDC III, 100,322.9 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"), 130,435.3 shares
of Common Stock owned by Gamma Fund LLC, a California limited liability
company, 5,709,299.9 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"), 91,875.9 shares of Common Stock owned by Delta
Fund LLC, a California limited liability company and 121,344.1 shares of
Common Stock owned by McCown De Leeuw & Co. IV Associates, L.P. In addition,
includes shares of Common Stock held by California Public Employees
Retirement System 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 California Public Employees Retirement System. In the event the
Underwriters exercise the overallotment option, the MDC entities will
beneficially own 15,506,883.2, or 23.1% of the shares of Common Stock
outstanding, including shares held by California Public Employees Retirement
System. 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
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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.
(6) Under an irrevocable proxy, California Public Employees Retirement System
has granted McCown De Leeuw & Co. III, L.P. the right to vote all of the
shares of Common Stock it holds. Includes shares of Common Stock to be
distributed upon the dissolution of MBW Investors LLC. The address of
California Public Employees Retirement System is Lincoln Plaza, 400 P
Street, Sacramento, CA 95814. In the event the Underwriters exercise the
over-allotment option, California Public Employees Retirement System will
beneficially own 3,552,405.4, or 5.3%, of the shares of Common Stock
outstanding.
(7) Includes 3,947,122.4 shares of Common Stock owned by Dartford to be
distributed upon the dissolution of MBW Investors LLC, 1,099,004.6 shares of
Common Stock held directly by VDK Foods LLC, and 2,287,921.5 shares of
Common Stock to be distributed to Dartford under the VDK Plan no later than
the first anniversary of the closing of the Equity Offerings. Also includes
152,945.6 shares of Common Stock transferred to a trust for the benefit of
certain family members of Ian R. Wilson, an aggregate of 120,136.5 shares of
Common Stock transferred to trusts for the benefit of certain family members
of Ray Chung, and 39,009.1 shares of Common Stock transferred to 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. Each of Messrs. Wilson, Ardrey, and
Chung and Ms. Cummings has no direct ownership of any shares of the
Company's Common Stock and disclaim beneficial ownership of any such shares.
Does not include shares of Common Stock to be directly owned by VDK Foods
LLC upon the dissolution of Aurora/VDK LLC in respect of which Dartford does
not have an economic interest. Dartford is a member manager of VDK Foods
LLC, together with UBS, 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.
(8) Includes 453,510.8 shares of Common Stock which will be distributed to Tiger
Oats in connection with the Equity Offerings and 3,767,666.3 shares held
directly by VDK Foods LLC. In the event the Underwriters exercise the
over-allotment option, Tiger Oats will beneficially own 4,001,334.1, or 6.0%
of the shares of Common Stock outstanding. Tiger Oats's shares are held by
Gloriande (Luxembourg) SarL, a corporation organized under the laws of
Luxembourg ("Gloriande"), 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 to be directly owned
by VDK Foods LLC upon the dissolution of Aurora/VDK LLC in respect of which
Tiger Oats does not have an economic interest. Gloriande is a member manager
of VDK Foods 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 Common
Stock to be distributed just prior to the dissolution of Aurora/ VDK LLC to
VDK Foods 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.
(9) Includes 453,510.8 shares of Common Stock which will be distributed to UBS
in connection with the Equity Offerings and 3,767,666.3 shares held directly
by VDK Foods LLC. In the event the Underwriters exercise the over-allotment
option, UBS will beneficially own 4,001,334.1, or 6.0%, of the shares of
Common Stock outstanding. UBS is a member manager of VDK Foods 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 to be
distributed upon the dissolution of Aurora/VDK LLC to VDK Foods 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 to
be directly owned by VDK Foods LLC upon the dissolution of Aurora/VDK 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 are publicly held. Mr. Charles J. Delaney, a
director of the
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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.
(10) Includes 129,965.4 shares of Common Stock to be distributed to Mr. Ferraro
under the Aurora Plan. Mr. Ferraro disclaims beneficial ownership as to
129,965.4 of such shares, which were transferred to a trust for the benefit
of certain of his family members.
(11) Includes 244,847.6 shares of Common Stock to be distributed to Mr.
Ellinwood under the VDK Plan no later than the first anniversary of the
closing of the Equity Offerings. Mr. Ellinwood disclaims beneficial
ownership as to any such shares.
The following charts illustrate the organization and ownership of the
Company immediately preceding the Equity Offerings and immediately after
consummation of the Equity Offerings. See "Principal Stockholders and Selling
Stockholders".
IMMEDIATELY PRIOR TO EQUITY OFFERINGS
The first chart illustrates the ownership of the Company immediately prior
to the Equity Offerings as follows. The Company owns all of the issued and
outstanding shares of stock of Aurora Foods Holdings Inc. and VDK Holdings,
Inc., which in turn own all of the issued and outstanding shares of stock of
Aurora Foods Inc. and Van de Kamp's, Inc., respectively. The issuer is a
wholly-owned subsidiary of Aurora/VDK LLC, the voting interests of which are
55.5% owned by MBW Investors LLC and 44.5% owned by VDK Foods LLC. The following
investors own the interests of MBW Investors LLC: MDC, Fenway, CALPERS,
Dartford, Management, and Sunapee. The following investors own the interests of
VDK Foods LLC: Fenway, Tiger Oats Ltd., UBS, Dartford, and Management.
IMMEDIATELY AFTER EQUITY OFFERINGS
The second chart illustrates the ownership of the Company immediately after
the offerings. The Company has no subsidiaries. The following investors own all
of the issued and outstanding stock of the Company: the public (through the
acquisition of shares of Common Stock issued in the Equity Offerings), MDC,
Fenway, CALPERS, Dartford, Management, Sunapee, and VDK Foods LLC (the interests
of which are owned by Fenway, Tiger Oats Ltd., UBS, Dartford, and Management).
- ------------------------
* Certain management of Aurora Foods Inc.
** Certain management of Van de Kamp's, Inc.
SECURITYHOLDERS AGREEMENT
In connection with the formation of New LLC and the Contribution, New LLC,
MBW Investors LLC, VDK Foods LLC and substantially all of the members (based on
percentage interests) of MBW Investors LLC and VDK Foods LLC entered into the
Securityholders Agreement, which sets forth certain rights and obligations of
the Stockholders and New LLC and its subsidiaries, including the Company. The
following discussion summarizes the terms of the Securityholders Agreement that
the Company believes are material to holders of Common Stock. This summary is
qualified in its entirety by reference to the full text of the Securityholders
Agreement, which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
The Securityholders Agreement provides that the Board of Directors of the
Company shall initially consist of ten members, of which Fenway will designate
three (each a "Fenway Designee" and collectively, the "Fenway Designees"), MDC
will designate three (each an "MDC Designee" and collectively, the "MDC
Designees"), Dartford will designate two (each a "Dartford Designee" and
collectively, the "Dartford Designees"), UBS will designate one (the "UBS
Designee") and Tiger Oats will designate one (the "Tiger Designee"). For so long
as Ian R. Wilson is Chairman and Chief Executive Officer of the Company, Mr.
Wilson will be one of the Dartford Designees. Upon the election of an
independent director to the Board who is mutually acceptable to two of the three
of Fenway, MDC, and Dartford, the number of directors on the Board will be
increased to 11. Upon the election of a second independent director to the
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Board who is mutually acceptable to two of the three of Fenway, MDC, and
Dartford, the UBS Designee will resign from the Board and thereafter UBS will
not be entitled to have any designee elected to the Board. Upon the appointment
of a new Chief Executive Officer other than Ian R. Wilson to the Board, the
Tiger Designee will resign from the Board and thereafter Tiger Oats will not be
entitled to have any designee elected to the Board.
The number of Fenway Designees or MDC Designees will (i) decrease to two if
the number of shares of Common Stock beneficially owned by Fenway or MDC, as the
case may be, is less than 50% of the total number of shares of Common Stock
beneficially owned by MDC on the closing of the Equity Offerings (excluding any
shares held under a proxy), (ii) decrease to one if the number of shares of
Common Stock beneficially owned by Fenway or MDC, as the case may be, is less
than 5% of the total number of shares of Common Stock outstanding at the closing
of the Equity Offerings, and (iii) decrease to zero if the number of shares of
Common Stock beneficially owned by Fenway or MDC, as the case may be, is equal
to zero. The number of Dartford Designees will (i) decrease to one if the number
of shares of Common Stock beneficially owned by Dartford is less than 5% of the
total number of shares of Common Stock outstanding at the closing of the Equity
Offerings and (ii) decrease to zero if the number of shares of Common Stock
beneficially owned by Dartford is equal to zero.
Until the earlier of (i) the date that is 30 months after the closing of the
Equity Offerings or (ii) with respect to either Fenway or MDC, such time as it
shall not beneficially own a number of shares of Common Stock equal to at least
50% of the shares of Common Stock beneficially owned by MDC (excluding any
shares held under a proxy) at the closing of the Equity Offerings (the "Consent
Period"), the affirmative consent of Fenway and MDC is required for the
following actions: (a) issuance by the Company or any subsidiary of additional
equity, including by way of a public offering, or the approval or adoption of
any option or equity incentive plan or any material non-equity incentive plan;
(b) merger, consolidation, recapitalization, liquidation or other reorganization
with respect to the Company or any subsidiary, or any sale of any business
representing at least 50% of the pre-transaction consolidated revenues, assets,
or EBITDA of the Company for the most recently completed four fiscal quarters;
(c) acquisition of stock or assets by the Company or a subsidiary where the
revenues, assets or EBITDA of the business to be acquired represents more than
50% of the pre-transaction consolidated revenues, assets or EBITDA of the
Company for the most recently completed four fiscal quarters; and (d) removal or
termination of Ian R. Wilson as Chief Executive Officer or the hiring or
termination of any subsequent Chief Executive Officer.
The Securityholders Agreement prohibits the Stockholders from transferring
their shares of Common Stock prior to the second anniversary of the Equity
Offerings without the consent of MDC and Fenway except transfers (i) to
permitted transferees (including certain family members, affiliates and in the
case of a partnership or limited liability company, to their respective partners
in such partnership or members of such limited liability company), (ii) pursuant
to the demand and piggyback registration rights described below and (iii) by
UBS, CALPERS, Tiger Oats, and Sunapee pursuant to Rule 144 after the first
anniversary of the closing of the Equity Offerings. After the second anniversary
of the closing of the Equity Offerings, each Stockholder has the right to sell
its shares of Common Stock privately or under Rule 144 to the extent permitted
by applicable law but subject to certain lock-up periods relating to any
underwritten equity offerings by the Company.
The Securityholders Agreement provides for the following demand registration
rights ("Demand Rights"): (a) prior to the second anniversary of the closing of
the Equity Offerings, MDC and Fenway, acting together, will have demand
registration rights with respect to their Registrable Securities (as defined
below) in the Company; (b) from and after the second anniversary of the closing
of the Equity Offerings, MDC, Fenway and Dartford will each have four demand
registration rights with respect to their Registrable Securities in the Company;
(c) after the resignation or removal of the UBS Designee from the Board of the
Company and prior to the second anniversary of the closing of the Equity
Offerings, each of UBS and CALPERS will have one individual right to request a
demand registration with respect to its
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Registrable Securities in the Company; (d) after the resignation or removal of
the Tiger Designee from the Board of the Company and prior to the second
anniversary of the closing of the Equity Offerings, Tiger Oats will have one
individual right to request a demand registration with respect to its
Registrable Securities in the Company; and (e) from and after the second
anniversary of the closing of the Equity Offerings, each of UBS and CALPERS will
have individual rights to request a demand registration (two for UBS and one for
CALPERS) with respect to their Registrable Securities in the Company. The
Company shall not be required to effect more than two demand registrations on
behalf of Stockholders prior to the second anniversary of the closing of the
Equity Offerings without the approval of the Board. The Company's obligations to
effect a registration will include an obligation to use its best efforts to
cause such shares to be so registered, subject to the following: (i) no demand
registration may be required unless the gross proceeds of the offering to which
such registration statement applies are reasonably expected to exceed $25
million, (ii) no registration may be required within 180 days immediately
following the effective date of a registration statement for an underwritten
public offering of securities of the Company (other than a registration on Form
S-4 pursuant to Rule 145 or related solely to employee benefit plans), and (iii)
the Board can postpone a demand registration for not more than 120 days if, in
the good faith judgment of the Board, the registration would be detrimental to
the Company or its stockholders. There can only be one such postponement with
respect to any demanding Stockholder in any nine-month period. The Company's
obligations to effect demand registrations terminates on the date ten years
after the closing of the Equity Offerings.
Pursuant to the Securityholders Agreement, upon certain proposed
registrations of equity securities by the Company for sale to the public
(whether for the account of the Company or any Stockholder, and including
without limitation upon the exercise of a demand registration right), parties to
the Securityholders Agreement who hold Registrable Securities will have the
right to cause the Company to use its reasonable efforts to include in such
registration statement all Registrable Securities which they request the Company
to include ("Piggyback Rights"). No Stockholder will have Piggyback Rights on a
registration of equity securities by the Company relating to the acquisition or
merger by the Company or its Subsidiaries of or with any other business or
solely relating to employee benefit plans or in the Equity Offerings.
"Registrable Securities" that a Stockholder may elect to include in a
registration by exercise of Demand Rights or Piggyback Rights are any shares of
Common Stock in the Company that have been received as a result of holding an
interest in MBW Investors LLC or VDK Foods LLC (except that, with respect to
shares of Common Stock held by stockholders who are employees of the Company
other than Messrs. Wilson, Chung, and Ardrey and Ms. Cummings, Registrable
Securities are any shares of Common Stock received as a result of holding an
interest in MBW Investors LLC or VDK Foods LLC held by such stockholders so long
as they remain employees of the Company) and that are not then eligible to be
sold without restriction pursuant to Rule 144(k), provided that the limitation
regarding Rule 144(k) shall not be applicable to holdings of more than 2% of the
outstanding Common Stock of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an agreement, dated September 19, 1995 and terminated on the
effective date of the Registration Statement of which this Prospectus forms a
part, Dartford, a beneficial owner of the Company, provided management oversight
on financial and operational matters to the Company with respect to Van de
Kamp's, Inc. Dartford received $631,000, and $1,800,000 for 1996 and 1997,
respectively, under such agreement.
Pursuant to an agreement with the Company, dated December 31, 1996 and
terminated on the effective date of the Registration Statement of which this
Prospectus forms a part, Dartford, a beneficial owner of the Company, provided
management oversight to the Company with respect to Aurora Foods. Dartford
received $768,000 for 1997 under such agreement.
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Pursuant to an agreement, dated December 31, 1996 and terminated on the
effective date of the Registration Statement of which this Prospectus forms a
part, MDC Management Company III, L.P., 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 received $293,000 for 1997, 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 the
MRS. BUTTERWORTH'S business, the LOG CABIN business, and the DUNCAN HINES
business: $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 of the Aurora Division) and $75,000 to Mr.
Willett (Executive Vice President of the Aurora Division); $5,700,000 to MDC,
whose general partners and principal include Messrs. De Leeuw, Ayres and Zachem
(all directors of the Company); and $1,500,000 was paid to Fenway, whose
partners include Messrs. Lamm, Dresdale, and Geisser (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 MRS. BUTTERWORTH'S, LOG CABIN and, DUNCAN HINES,
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, Inc., MRS. PAUL'S, and the Quaker Oats frozen business, respectively.
Pursuant to an agreement with Windy Hill, dated as of September 5, 1995, the
Company paid $198,000 in 1996 and 1997 for computer support services. Dartford
(of which Mr. Wilson is the managing partner) and its partners own 14.2% of
Windy Hill. Mr. Wilson is the Chairman of the Board and Chief Executive Officer
of the Company and Windy Hill.
Each of Fenway, MDC, 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 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. 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 the second
anniversary of the closing of the Equity Offerings and the date that Mr. Wilson
is no longer Chief Executive Officer of the Company.
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The Company and the Stockholders have entered into the Securityholders
Agreement which provides for certain rights, including registration rights of
the Stockholders. See "Principal Stockholders and Selling
Stockholder--Securityholders Agreement".
On September 19, 1995, Mr. Thomas O. Ellinwood, the President of the VDK
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 Foods LLC. The promissory note
matures September 30, 1998 with required annual payments. Interest is due and
payable quarterly at the rate of 8.5% per annum. The balance outstanding of his
promissory note as of fiscal year end June 30, 1996 was $125,000, $83,333 as of
June 30, 1997, and $41,666 as of March 31, 1998.
On December 31, 1996 and January 16, 1998, Mr. Thomas J. Ferraro, the
President of the Aurora 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 Investors 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 balance
outstanding on his promissory note as of fiscal year end December 27, 1997 was
$40,000 and as of March 31, 1998 was $171,000.
Pursuant to the Aurora Plan, Dartford, Thomas J. Ferraro, and C. Gary
Willett are entitled to receive 2,725,406.0, 433,218.1, and 270,761.3 shares of
Common Stock effective on the closing of the Equity Offerings. See
"Management--Aurora Incentive Plan".
Pursuant to the VDK Plans, Dartford, Thomas O. Ellinwood, and Anthony A.
Bevilacqua are entitled to receive 2,287,921.5, 244,847.6, and 92,048.0 shares
of Common Stock, respectively, no later than the first anniversary of the
closing of the Equity Offerings. See "Management--VDK Incentive Plan".
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Certificate of Incorporation and By-Laws is a summary and is
qualified in its entirety by the provisions of the Certificate of Incorporation
and By-Laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
Upon completion of the Equity Offerings, the authorized capital stock of the
Company will consist of (i) 250,000,000 shares of Common Stock, par value $0.01
per share, of which 67,000,000 shares will be outstanding, and (ii) 25,000,000
shares of Preferred Stock, par value $0.01 per share, of which no shares will be
outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted on by the stockholders of the Company and do not have cumulative voting
rights and the rights of holders of Common Stock are identical in all respects.
Pursuant to the Securityholders Agreement, the affirmative consent of Fenway and
MDC is required for certain actions by the Company which could otherwise be
approved by a majority of the directors including acquisitions of a certain size
by the Company and the removal or termination of Ian R. Wilson as Chief
Executive Officer of the Company or of his successor. In addition, Fenway, MDC,
Dartford, UBS, and Tiger Oats and the Company have agreed to elect a certain
number of directors designated by each of them, including the initial Board of
Directors, subject to certain conditions. See "Principal Stockholders and
Selling Stockholder--Securityholders Agreement" and "Certain Relationships and
Related Transactions".
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared, from time to time by the Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution, or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of the Company's
liabilities and the liquidation preference, if any, of any outstanding Preferred
Stock. Holders of shares of Common Stock have no preemptive, subscription,
redemption, or conversion rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and the shares offered by the Company and the Selling
Stockholder in the Equity Offerings will be, when issued and paid for as
provided herein, validly issued, fully paid and non-assessable. The rights,
preferences, and privileges of holders of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
At present, there is no established trading market for the Common Stock. The
Common Stock has been approved for listing, subject to notice of issuance, on
the New York Stock Exchange, and application has been made to list the Common
Stock on the Pacific Exchange, under the symbol "AOR".
PREFERRED STOCK
The Board of Directors is authorized to issue from time to time shares of
Preferred Stock in one or more series, and to fix the rights, designations,
powers, preferences, qualifications, limitations and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series, all without stockholder approval. The ability
of the Board of Directors to issue Preferred Stock could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring or making a proposal to acquire, the Company or the
majority of the outstanding stock of the Company. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of Preferred Stock that may be issued in the future. See "Risk Factors--
Preferred Stock".
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SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company has elected in the Certificate of Incorporation to not be
subject to the provisions of section 203 ("Section 203") of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or, in certain cases, within
three years prior, did own) 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
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DESCRIPTION OF INDEBTEDNESS
SENIOR CREDIT FACILITIES
The description set forth below is qualified in its entirety by reference to
certain agreements setting forth the principal terms and conditions of the
Company's Senior Credit Facilities, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. Capitalized terms
used herein and not otherwise defined have the meanings set forth in the Senior
Credit Facilities.
Just prior to the Equity Offerings, the Company entered into a Credit
Agreement with The Chase Manhattan Bank ("Chase") and various lenders providing
for senior secured credit facilities. In connection with such financing, Chase
acts as Administrative Agent, Chase Securities Inc. acted as Arranging Agent,
National Westminster Bank PLC acts as Syndication Agent and Swiss Bank
Corporation acts as Documentation Agent. The Senior Credit Facilities provide as
follows:
The Senior Credit Facilities consist of (i) a senior secured Term Facility
in a principal amount of $225.0 million and (ii) a senior secured Revolving
Facility providing for revolving loans to the Company and the issuance of
letters of credit for the account of the Company, in an aggregate principal and
stated amount at any time not to exceed $175.0 million.
Loans and letters of credit under the Revolving Facility will be available
at any time through the final maturity date on June 30, 2005. The Term Facility
will have a final maturity date of June 30, 2005, and will amortize in quarterly
payments of $5.0 million per quarter beginning December 31, 1998 through June
30, 2000, increasing thereafter to $7.5 million per quarter through June 30,
2002, increasing thereafter to $10.0 million per quarter through June 30, 2004,
increasing to $12.5 million per quarter thereafter until the final maturity
date.
The Company is required to make mandatory prepayments on the Senior Credit
Facilities under certain circumstances, including upon certain asset sales,
issuance of debt securities or issuance of equity securities to persons. The
Company will also be required under certain circumstances to make prepayments on
the Senior Credit Facilities and permanently reduce commitments under the
Revolving Facility in an amount equal to a specified percentage of the Company's
annual trailing Consolidated Excess Cash Flow commencing with the fiscal year
ending in December 31, 1998 and thereafter and upon receipt of cash proceeds
from property and casualty insurance or condemnation awards. At the Company's
option, subject to certain requirements, loans may be prepaid, and revolving
credit commitments or letters of credit may be permanently reduced, in whole or
in part at any time without premium or penalty.
At the Company's option the interest rate per annum applicable to loans
under the Senior Credit Facilities will be either the rate (grossed-up for
maximum statutory reserve requirements for eurocurrency liabilities) at which
eurodollar deposits for one, two, three or six months (as selected by the
Company) are offered to Chase in the interbank eurodollar market in the
approximate amount of Chase's share of the relevant Loan (the "Adjusted
Eurodollar Rate") plus a margin ranging from 2.25% to 0.875% (the "Applicable
Eurodollar Rate Margin") or the Base Rate plus a margin ranging from 1.25% to
0.00%. The margin is based upon the Company's ratio of consolidated total debt
to consolidated EBITDA. The Base Rate is the higher of (i) the rate of interest
publicly announced by Chase as its prime rate in effect at its principal office
in New York City, (ii) the federal funds effective rate plus 0.50% and (iii) the
secondary market rate for certificates of deposit (grossed up for maximum
statutory reserve requirements) plus 1.00%.
The Company pays a per annum fee ranging from 0.50% to 0.30% on the undrawn
portion of the commitments in respect of the Revolving Facility and a per annum
fee on the face amount of all outstanding letters of credit equal to the
Applicable Eurodollar Rate Margin then in effect with respect to loans under the
Revolving Facility bearing interest based upon the Eurodollar Rate. The per
annum fee is also based upon the Company's ratio of consolidated total debt to
consolidated EBITDA.
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<PAGE>
The Senior Credit Facilities contain a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into leases,
guarantees, investments or acquisitions, engage in mergers or consolidations,
make capital expenditures, or engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities. In addition, under
the Senior Credit Facilities, the Company is required to comply with specified
ratios and tests, including minimum interest coverage, minimum fixed charge
coverage and maximum leverage ratios and a limitation on capital expenditures.
An event of default under the Senior Credit Facilities will occur (i) if the
Company fails to make payments under the Senior Credit Facilities or, in certain
circumstances, under other outstanding indebtedness; (ii) if the Company
breaches the financial covenants contained in the Senior Credit Facilities;
(iii) if the Company breaches the warranties contained in the Senior Credit
Facilities; (iv) in the event of the bankruptcy, insolvency or reorganization of
the Company; (v) if any judgment or attachment involving, in an individual case
an amount in excess of $ or, in the aggregate in excess of $ , shall
be entered against the Company and shall remain undischarged on unstayed for a
period of days; (vi) if any judgment or decree of dissolution is entered
against the Company; (vii) if there occurs certain specified ERISA events;
(viii) if the Company undergoes a "change in control" as described below; (ix)
if the Company breaches certain transitional agreements; (x) if there is a
failure to comply with the subordination provisions contained in the Senior
Credit Facilities; or (xi) under certain other circumstances customary for a
transaction of this type. An Event of Default under the Indentures will occur if
any of the above occur and an amount in excess of $ million is accelerated
under the terms of the Senior Credit Facilities and such default is not cured or
rescinded within a day period. As noted above, an event of default under the
Senior Credit Facilities will occur if there is a change in control in the
Company.
A change in control will be deemed to have occured if (a) MDC and certain of
its affiliates ("the MDC Entities"), Dartford and Fenway together shall own,
directly or indirectly, in the aggregate, a lesser percentage of the combined
voting power of the Company's voting securities than any other holder, including
a "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act") which includes such holder, of such
voting securities; (b) a majority of the members of the board of directors of
the Company shall not have been directors as of the Closing Date or nominated
for election or elected to the board of directors with the affirmative vote of
the MDC Entities and/or Dartford and/or Fenway; or (c) any person (other than
the MDC Entities, Dartford and Fenway), including a "group" (within the meaning
of Sections 13(d) and 14(d)(2) of the Exchange Act) which includes such person,
shall purchase or otherwise acquire, directly or indirectly, beneficial
ownership of securities of the Company and, as a result of such purchase or
acquisition, any person (together with its associates and affiliates) shall
directly or indirectly beneficially own in the aggregate securities representing
more than 35% of the combined voting power of the Company's voting securities.
The Senior Credit Facilities also contain provisions that prohibit any
modification of the Indentures in any manner adverse to the banks, financial
institutions and other entities under the Senior Credit Facilities and that
limit the Company's ability to refinance the New Notes or the Aurora Notes
without the consent of such Lenders.
SENIOR SUBORDINATED NOTES
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the New Notes, VDK Notes, Aurora Series B
Notes, the Aurora Series D Notes.
THE NEW NOTES
Concurrently with the Closing of the Equity Offerings, the Company expects
to issue its Series E Senior Subordinated Notes due 2008 (the "New Notes") under
an Indenture (the "New Indenture")
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between the Company and Wilmington Trust Company, as Trustee (the "Trustee").
The terms and conditions of the New Notes include those to be stated in the New
Indenture and those made part of the New Indenture by reference to the Trust
Indenture Act of 1939, as in effect on the date of the New Indenture. The New
Indenture is expected to contain a number of significant negative covenants.
Under the New Indenture, the negative covenants will (i) limit the amount of
indebtedness the Company may incur; (ii) limit the Company's ability to make
certain payments; (iii) restrict distributions from the Company's subsidiaries;
(iv) place limitations on sales of assets by the Company and its subsidiaries;
(v) limit transactions with affiliates of the Company; (vi) limit the sale of
the capital stock of the Company's subsidiaries; (vii) limit the lines of
businesses the Company may engage in; and (viii) limit the Company's ability to
merge or consolidate or transfer all or substantially all of the assets of the
Company.
The New Notes will be unsecured senior subordinated obligations of the
Company, limited to $200.0 million aggregate principal amount, and will mature
in 2008.
THE VDK NOTES
The VDK Notes were issued under an Indenture, dated as of September 15, 1995
(the "VDK Indenture"), between the Company and Harris Trust and Savings Bank, as
Trustee (the "VDK Trustee"). The terms and conditions of the VDK Notes include
those stated in the VDK Indenture and those made part of the VDK Indenture by
reference to the Trust Indenture Act of 1939. Capitalized terms used in this
"The VDK Notes" section and not otherwise defined have the meanings set forth in
the VDK Indenture.
The VDK Notes are unsecured senior subordinated obligations of the Company,
limited to $100.0 million aggregate principal amount, and will mature on
September 15, 2005. Each VDK Note bears interest at the rate of 12% per annum,
payable semiannually on March 15 and September 15 of each year which commenced
March 15, 1996 to holders of record at the close of business on the February 28
or August 31 immediately preceding the interest payment date.
OPTIONAL REDEMPTION. Except as set forth below, the VDK Notes are not
redeemable at the option of the Company prior to September 15, 2000. On and
after such date, the VDK Notes will be redeemable, at the Company's option, in
whole or in part, at any time upon not less than 30 nor more than 60 days prior
notice mailed by first-class mail to the registered address of each holder of
the VDK Notes to be redeemed, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
If redeemed during the 12 month period commencing on September 15 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ---------------------------------------- ---------------------
<S> <C>
2000.................................... 106%
2001.................................... 104%
2002.................................... 102%
2003 and thereafter..................... 100%
</TABLE>
In addition, at any time and from time to time prior to September 15, 1998,
the Company may redeem up to $35.0 million of the aggregate principal amount of
the VDK Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market at the time of such redemption, at a redemption
price (expressed as a percentage of principal amount) of 110%, plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date); PROVIDED, HOWEVER, that at least $65.0 million of the
aggregate principal amount of the VDK Notes remain outstanding after each such
redemption. The Equity Offerings constitute a Public Equity Offering under the
VDK Indenture and
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the Company plans to redeem $35.0 million of principal of the VDK Notes pursuant
to the Optional Redemption provisions of the VDK Indenture.
At any time on or prior to September 15, 2000, the VDK Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a Change
of Control upon not less than 30 days or no more than 60 days prior notice (but
in no event more than 90 days after the occurence of such Change of Control)
mailed by first-class mail to each holder's registered address, at a redemption
price equal to 100% of the principal amount thereof plus the Applicable Premium
as of, and accrued and unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
RANKING. The payment of the principal of, premium (if any), and interest
on, the VDK Notes is subordinated in right of payment, as set forth in the VDK
Indenture, to the payment when due of all Senior Indebtedness of the Company. As
of March 31, 1998 on a pro forma adjusted basis, the outstanding senior
indebtedness of the Company would have been $300.0 million (exclusive of unused
commitment). Although the VDK Indenture contains limitations on the amount of
additional Indebtedness that the Company may Incur, under certain circumstances
the amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness.
Only Indebtedness of the Company that is Senior Indebtedness ranks senior to
the VDK Notes in accordance with the provisions of the VDK Indenture. The VDK
Notes in all respects rank PARI PASSU with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in any respect to Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness.
CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each holder
of the VDK Notes will have the right to require the Company to repurchase all or
any part of such holder's VDK Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
CERTAIN COVENANTS. The VDK Indenture imposes certain affirmative covenants
and other requirements on the Company, including mandatory reporting of
financial and other information to the VDK Trustee.
The VDK Indenture also contains certain negative covenants that include,
among other things: (i) limitations on the amount of Indebtedness the Company
and its Subsidiaries may Incur, (ii) limitations on certain payments the Company
and its Subsidiaries may make, (iii) limitations on restrictions on
distributions from Subsidiaries, (iv) limitations on sales of assets by the
Company and its Subsidiaries, (v) limitations on Affiliate Transactions, (vi)
limitations on the sale of Subsidiary Capital Stock, (vii) limitations on the
lines of business the Company may engage in, and (vii) limitations on the
Company's ability to merge or consolidate or transfer all or substantially all
of the assets of the Company.
EVENT OF DEFAULTS. An event of default under the VDK Indenture includes
among other things, (i) a default in any payment of interest on any VDK Note
when due, continued for 30 days, (ii) a default in the payment of principal of
any VDK Note when due at its Stated Maturity, upon optional redemption, upon
required repurchase, upon declaration or otherwise, (iii) the failure by the
Company to comply with its obligations with respect to merger, consolidations,
and transfers of all or substantially all of the assets of the Company under
"--Certain Covenants" above, (iv) the failure by the Company to comply for 30
days after notice with any of its obligations under the change of control
provisions contained in the VDK Indenture or under covenants described under
"Certain Covenants" above (in each case, other than a failure to purchase VDK
Notes which shall constitute an event of default under clause (ii) above), (v)
the failure by the Company to comply for 60 days after notice with its other
agreements contained in the VDK Indenture, (vi) Indebtedness of the Company or
any Subsidiary is not paid within any applicable grace
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period after final maturity or is accelerated by the holders thereof because of
a default and the total amount of such Indebtedness unpaid or accelerated
exceeds $5 million and such default shall not have been cured or such
acceleration rescinded within a 10-day period, (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or a subsidiary, (viii)
any judgment or decree for the payment of money in excess of $5 million (to the
extent not covered by insurance) is rendered against the Company or a Subsidiary
and such judgment or decree shall remain undischarged or unstayed for a period
of 60 days after such judgment becomes final and nonappealable, or (ix) the
failure of any Security Guarantee to be in full force and effect (except as
contemplated by the terms thereof) or the denial or disaffirmation by any
Security Guarantor of its obligations under the VDK Indenture or any Security
Guarantee if such default continues for 10 days. However, a default under
clauses (iv) and (v) will not constitute an Event of Default until the VDK
Trustee or the holders of at least 25% in principal amount of the outstanding
VDK Notes notify the Company of the default and the Company does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
If an Event of Default occurs and is continuing, the VDK Trustee or the
holders of at least 25% in principal amount of the outstanding VDK Notes by
notice to the Company may declare the principal of and accrued and unpaid
interest on all the VDK Notes to be due and payable. Upon such a declaration,
such principal and accrued and unpaid interest shall be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company occurs and is continuing, the
principal of and accrued and unpaid interest on all the VDK Notes will become
and be immediately due and payable without any declaration or other act on the
part of the VDK Trustee or any holders. Under certain circumstances, the holders
of a majority in principal amount of the outstanding VDK Notes may rescind any
such acceleration with respect to the VDK Notes and its consequences.
THE AURORA NOTES
In addition to the VDK Notes the Company has outstanding: (i) the 9 7/8%
Series B Senior Subordinated Notes due 2007 (the "Aurora Series B Notes") issued
under an Indenture, dated as of February 10, 1997 (the "Series B Indenture")
between the Company and Wilmington Trust Company, as Trustee (the "Trustee"), in
connection with the MRS. BUTTERWORTH'S acquisition and (ii) the 9 7/8% Series D
Senior Subordinated Notes due 2007 (the "Aurora Series D Notes", together with
the Aurora Series B Notes, the "Aurora Notes") issued under an Indenture dated
as of July 1, 1997 (the "Series D Indenture", together with the Series B
Indenture, the "Aurora Indentures") between the Company and the Trustee in
connection with the LOG CABIN acquisition. The terms and conditions of the
Aurora Notes include those stated in each of the Aurora Indentures and those
made part of the Aurora Indentures by reference to the Trust Indenture Act of
1939 as in effect on the date of each of the Aurora Indentures. Capitalized
terms used in this "The Aurora Notes" section and not otherwise defined have the
meanings set forth in the Aurora Indentures.
The Aurora Notes are unsecured senior subordinated obligations of the
Company, limited to $200.0 million aggregate principal amount, and will mature
on February 15, 2007. Each Note bears interest at the rate of 9 7/8% per annum
from the date of issuance, or from the most recent date to which interest has
been paid or provided for, payable semi-annually on February 15 and August 15 of
each year which commenced February 15, 1998 to holders of record at the close of
business on the February 1 or August 1 immediately preceding the interest
payment date.
OPTIONAL REDEMPTION. Except as set forth below, the Aurora Notes are not
redeemable at the option of the Company prior to February 15, 2002. On and after
such date, the Aurora Notes will be redeemable, at the Company's option, in
whole or in part, at any time upon not less than 30 nor more than 60 days prior
notice mailed by first-class mail to the registered address of each holder of
Aurora Notes to be redeemed, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
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If redeemed during the 12-month period commencing on February 15 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ---------------------------------------- ------------------
<S> <C>
2002.................................... 104.9375%
2003.................................... 103.2917%
2004.................................... 101.6458%
2005 and thereafter..................... 100.0000%
</TABLE>
In addition, at any time and from time to time prior to February 15, 2000,
the Company may redeem up to $35.0 million of the aggregate principal amount of
the Aurora Series B Notes and up to $35.0 million of the aggregate principal
amount of the Aurora Series D Notes with the cash proceeds of one or more Equity
Offerings received by, or invested in, the Company at a redemption price
(expressed as a percentage of principal amount) of 109.875%, plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date); PROVIDED, HOWEVER, that at least $65.0 million of the
aggregate principal amount of each of the Aurora Series B Notes and Aurora
Series D Notes remain outstanding after each such redemption.
At any time on or prior to February 15, 2002, each of the Aurora Series B
Notes and Aurora Series D Notes may also be redeemed as a whole at the option of
the Company upon the occurrence of a Change of Control upon not less than 30
days or no more than 60 days prior notice (but in no event more than 90 days
after the occurance of such Change of Control) mailed by first-class mail to
each holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest, if any, to, the date of redemption (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
RANKING. The payment of Indebtedness evidenced by, and all other
obligations in respect of, the Aurora Notes is subordinated in right of payment,
as set forth in the Aurora Indentures, to the prior payment in full in cash or
Cash Equivalents when due of all Senior Indebtedness of the Company. The Aurora
Indentures provide that in the event of an Asset Disposition by the Company, the
proceeds of the Asset Disposition will be applied to repurchase the Aurora
Series B Notes prior to any repurchase of the Aurora Series D Notes. Although
the Aurora Indentures contain limitations on the amount of additional
Indebtedness that the Company may incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may be Senior Indebtedness.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Aurora Notes in accordance with the provisions of the Aurora
Indentures. The Aurora Notes will in all respects rank PARI PASSU with all other
Senior Subordinated Indebtedness of the Company. The Company has agreed in the
Aurora Indentures that it will not Incur, directly or indirectly, any
indebtedness, that is subordinate or junior in ranking in any respect to Senior
Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness, or
is expressly subordinated in right of payment to Senior Subordinated
Indebtedness.
CHANGE OF CONTROL. Upon the occurrence of a Change of Control each holder
of the Aurora Notes will have the right to require the Company to repurchase all
or any part of such holder's Aurora Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
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CERTAIN COVENANTS. The Aurora Indentures impose certain affirmative
covenants and other requirements on the Company, including the reporting of
financial and other information to the Trustee.
The Aurora Indentures also contain certain negative covenants that include,
among others things: (i) limitations on the amount of Indebtedness the Company
and its Subsidiaries may incur, (ii) limitations on certain payments the Company
and its Subsidiaries may make, (iii) limitations on restrictions on
distributions from Subsidiaries, (iv) limitations on sales of assets by the
Company and its Subsidiaries, (v) limitations on Affiliate Transactions, (vi)
limitations on the sale of Subsidiary Capital Stock, (vii) limitations on the
lines of business the Company and its Subsidiaries may engage in, and (viii)
limitations on the Company's ability to merge or consolidate or transfer all or
substantially all of the assets of the Company.
EVENTS OF DEFAULT. An Event of Default under the Aurora Indentures includes
among other things (i) a default in any payment of interest on any Note when
due, continued for 30 days, (ii) a default in the payment of principal of any
Note when due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise, (iii) the failure by the Company to
comply with its obligations with respect to mergers, consolidations, and
transfers of all or substantially all of the assets of the Company under
"--Certain Covenants" above, (iv) the failure by the Company to comply for 30
days after notice with any of its obligations under the Change of Control
provisions contained in the Aurora Indentures or under covenants described under
"Certain Covenants" above (in each case, other than a failure to purchase Aurora
Notes which shall constitute an Event of Default under clause (ii) above), (v)
the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Aurora Indentures, (vi) Indebtedness of the Company
or any Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $5 million and
such default shall not have been cured or such acceleration rescinded within a
10-day period, (vii) certain events of bankruptcy, insolvency or reorganization
of the Company or a Significant Subsidiary, (viii) any judgment or decree for
the payment of money in excess of $5 million (to the extent not covered by
insurance) is rendered against the Company or a Significant Subsidiary and such
judgment or decree shall remain undischarged or unstayed for a period of 60 days
after such judgment becomes final and non-appealable, or (ix) the failure of any
Security Guarantee to be in full force and effect (except as contemplated by the
terms thereof) or the denial or disaffirmation by any Security Guarantor of its
obligations under the Aurora Indentures or any Security Guarantee if such
default continues for 10 days. However, a default under clauses (iv) and (v)
will not constitute an Event of Default under the Series B Indenture or the
Series D Indenture until the Trustee or the holders of at least 25% in principal
amount of the outstanding Aurora Series B Notes or Aurora Series D Notes, as the
case may be, notify the Company of the default and the Company does not cure
such default within the time specified in clauses (iv) and (v) hereof after
receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Aurora Series B Notes or
Aurora Series D Notes, as the case may be, may declare by notice to the Company
the principal of and accrued and unpaid interest on all the Aurora Series B
Notes or Aurora Series D Notes, as the case may be, to be due and payable. Upon
such a declaration, such principal and accrued and unpaid interest shall be due
and payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and accrued and unpaid interest on all the Aurora
Notes will become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Aurora Series B Notes or Aurora Series D Notes, as the case may be, may rescind
any such acceleration with respect to the Aurora Notes and its consequences.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Equity Offerings, there has been no market for the Common
Stock. The sale, or availability for sale of substantial amounts of Common Stock
in the public market subsequent to the Equity Offering could adversely affect
the prevailing market price of the shares of Common stock and could impair the
Company's ability to raise additional capital through the sale of equity
securities.
Upon completion of the Equity Offerings, the Company will have 67,000,000
shares of Common Stock outstanding. Of these shares, the 14,500,000 shares sold
in the Equity Offerings will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by
"affiliates" of the Company, as that term is defined under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 described below.
The remaining 52,500,000 shares of Common Stock are deemed "restricted
securities" under Rule 144. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
and lock-up agreements under which the holder of such shares has agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the closing date of the Equity Offerings (the "Lock-up Period") without the
prior written consent of the representatives of the Underwriters. Because of
these restrictions, on the date of this Prospectus, no shares other than those
offered hereby will be eligible for sale. Upon expiration of the Lock-up Period,
all of the Restricted Shares will become available for sale in the public
market, subject to Rule 144 and Rule 701 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after the Equity Offerings, a person (or persons whose shares
are aggregated who has beneficially owned "restricted" shares for at least one
year, including a person who may be deemed an affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock (670,000 shares after giving effect to the Equity Offerings) or the
average weekly trading volume of the Common Stock as reported through the New
York Stock Exchange during the four calendar weeks preceding such sale. Sales
under Rule 144 of the Securities Act are subject to certain restrictions
relating to manner of sale, notice, and the availability of current public
information about the Company.
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than affiliates beginning 90 days after the date of this Prospectus, subject
only to manner of sale provisions of Rule 144, and by affiliates, beginning 90
days after the date of this Prospectus, subject to all provisions of Rule 144
except its minimum holding period. The Company intends to register on a
registration statement on Form S-8 shortly after the date of this Prospectus,
for a total of 3,500,000 shares of Common Stock reserved for issuance under the
1998 Incentive Plan. See "Management--1998 Incentive Plan."
94
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The material federal income tax consequences to Non-U.S. Holders expected to
result from the purchase, ownership and sale or other taxable disposition of the
Common Stock, under currently applicable law, are summarized below. A "Non-U.S.
Holder" is a person or entity purchasing Common Stock in the offering that, for
U.S. federal income tax purposes, is a non-resident alien individual, a foreign
corporation, a foreign estate or trust or a foreign partnership as such terms
are defined in the Internal Revenue Code of 1986, as amended (the "Code").
This summary is based upon the current provisions of the Code, applicable
Treasury Regulations and judicial and administrative decisions and rulings.
There can be no assurance that the Internal Revenue Service (the "IRS") will not
take a contrary view, and no ruling from the IRS has been or will be sought.
Future legislative, judicial or administrative changes or interpretations could
alter or modify the statements set forth herein, and any such changes or
interpretations could be retroactive and could affect the tax consequences to
Non-U.S. Holders.
The following summary is for general information only and does not purport
to deal with all aspects of federal income taxation that may affect particular
Non-U.S. Holders in light of their individual circumstances and is not intended
for (a) stockholders other than Non-U.S. Holders, (b) Non-U.S. Holders who will
not hold the Common Stock as capital assets or (c) Non-U.S. Holders who are
otherwise subject to special treatment under the Code (including insurance
companies, tax-exempt entities, financial institutions, broker-dealers and
persons who would hold the Common Stock as part of a straddle, hedge or
conversion transaction). In addition, the summary does not consider the effect
of any applicable state, local or foreign tax laws on Non-U.S. Holders. EACH
PROSPECTIVE NON-U.S. HOLDER OF COMMON STOCK SHOULD CONSULT HIS OWN TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL AND FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
DIVIDENDS ON COMMON STOCK
Dividends paid to a Non-U.S. Holder of Common Stock that are not effectively
connected with the conduct by the Non-U.S. Holder of a trade or business within
the United States will generally be subject to withholding of United States
federal income tax at the rate of 30% of the gross amount of the dividends
unless the rate is reduced by an applicable income tax treaty. Except to the
extent that an applicable tax treaty otherwise provides, a Non-U.S. Holder will
be taxed in the same manner as United States citizens, resident aliens and
domestic corporations on dividends paid (or deemed paid) that are effectively
connected with the conduct of a trade or business in the United States by the
Non-U.S. Holder. If such Non-U.S. Holder is a foreign corporation, it may also
be subject to a United States branch profits tax on such effectively connected
income, with certain adjustments at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. However, a Non-U.S. Holder may
claim exemption from withholding under the effectively connected income
exception by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively connected with the Conduct of Business in the United States) or a
successor form with the Company or its paying agent.
Under the currently applicable Treasury Regulations, dividends paid to an
address in a country other than the United States are presumed to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary) and, under the current interpretation
of Treasury Regulations, for purposes of determining the applicability of a
reduced rate of withholding under an income tax treaty. However, under certain
recently finalized Treasury Regulations (the "New Withholding Regulations") a
Non-U.S. Holder of Common Stock who wishes to claim the
95
<PAGE>
benefit of an applicable treaty rate would be required to satisfy certain
certification and other requirements. In addition, under the New Withholding
Regulations, in the case of Common Stock held by a foreign partnership, the
certification requirement would generally be applied to the partners of the
partnership and the partnership may be required to provide certain information,
including a United States taxpayer identification number. The New Withholding
Regulations also provide look-through rules for tiered partnerships. The New
Withholding Regulations are generally effective for payments made after December
31, 1999, subject to certain transition rules. Non-U.S. Holders are encouraged
to consult with their own tax advisors with respect to the application of the
New Withholding Regulations.
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient and the amount, if any, of the tax
withheld. A similar report is sent to the holder. Pursuant to income tax
treaties or certain other agreements, the IRS may make its reports available to
tax authorities in the recipient's country of residence.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax or withholding on gain recognized upon the sale or other disposition
of Common Stock unless (i) the gain is effectively connected with the conduct of
a trade or business within the United States by the Non-U.S. Holder, or (ii) in
the case of a Non-U.S. Holder who is a non-resident alien individual and holds
the Common Stock as a capital asset, such holder is present in the United States
for 183 or more days in the taxable year and certain other conditions are met,
or (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of the
United States federal income tax law applicable to certain United States
expatriates. If a Non-U.S. Holder falls under clause (i) above, the holder will
be taxed on the net gain derived from the sale at regular graduated United
States federal income tax rates (the branch profits tax also may apply if the
Non-U.S. Holder is a corporation). If a Non-U.S. Holder falls under clause (ii)
above, the holder generally will be subject to a 30% tax on the gain derived
from the sale, which gain may be offset by U.S. capital losses recognized within
the same taxable year of such sale. The foregoing discussion in this paragraph
is based on the Company's conclusion that it is not presently, and has not been
for the past five years, a United States real property holding corporation
("USRPHC") subject to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Different consequences would apply to certain Non-U.S. Holders if
the Company were to become a USRPHC subject to FIRPTA.
FEDERAL ESTATE TAXES
An individual Non-U.S. Holder who owns, or is treated as owning, Common
Stock at the time of his or her death or has made certain lifetime transfers of
an interest in Common Stock will be required to include the value of such Common
Stock in his gross estate for United States federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting requirements and backup withholding tax will not apply
to any payment of the proceeds of the sale of Common Stock effected outside the
United States by a foreign office of a "broker" (as defined in applicable
Treasury Regulations), unless such broker is (i) a United States person, (ii) a
foreign person that derives 50% or more of its gross income for certain periods
from activities that are effectively connected with the conduct of a trade or
business in the United States, (iii) a controlled foreign corporation for United
States federal income tax purposes or (iv) effective for payments after December
31, 1999, a foreign partnership (a) more than 50% of the income or capital
interests of which are owned by U.S. persons or (b) that is engaged in a United
States trade or business. Payment of the proceeds of any such sale effected
outside the United States by a foreign office of any broker that is described in
(i), (ii), (iii) or (iv) of the preceding sentence will not be subject to backup
96
<PAGE>
withholding tax but will be subject to information reporting requirements unless
such broker has documentary evidence in its records that the beneficial owner is
a Non-U.S. Holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption. Payment of the proceeds of any such sale to
or through the United States office of a broker is subject to information
reporting and backup withholding requirements, unless the beneficial owner of
the Common Stock either (a) provides a Form W-8 (or a suitable substitute form)
signed under penalties of perjury that includes its name and address and
certifies as to its Non-U.S. Holder status in compliance with applicable law and
regulations, or (b) otherwise establishes an exemption. Effective for payments
after December 31, 1999 (and subject to certain transition rules), the New
Withholding Regulations unify certain certification procedures and forms and the
reliance standards relating to information reporting and backup withholding.
If paid to an address outside the United States, dividends on Common Stock
held by a Non-U.S. Holder will generally not be subject to backup withholding,
provided that the payor does not have actual knowledge that the holder is a
United States person. However, under the New Withholding Regulations (which are
effective for dividends paid after December 31, 1999), dividend payments may be
subject to backup withholding imposed at a rate of 31% unless applicable
certification requirements are satisfied. See the discussion above with respect
to rules applicable to foreign partnerships under the New Withholding
Regulations.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PROSPECTIVE
NON-U.S. HOLDER OF COMMON STOCK SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT
TO THE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF COMMON
STOCK.
97
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments thereto) under the Securities Act with
respect to the securities offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
Upon completion of the Equity Offerings, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports and other information with the Commission. The Registration
Statement, the exhibits and schedules forming a part thereof and the reports and
other information filed by the Company with the Commission in accordance with
the Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Commission maintains a World Wide Web site on the
Internet at http:// www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Copies of such material will also be available for
inspection at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. Where any document or part thereof is incorporated by
reference, the Company will provide without charge a copy of any and all of the
information that has been incorporated by reference herein (but not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that is
incorporated herein) by contacting the Secretary's Office of the Company located
at 456 Montgomery Street, Suite 2200, San Francisco, California 94104.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Richards & O'Neil, LLP, New York, New York and for the
Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The financial statements of the Company as of December 27, 1997 and December
31, 1996 and for the year ended December 27, 1997 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of the MRS. BUTTERWORTH'S Business as of December
31, 1996 and for each of the two years in the period ended December 31, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of VDK as of June 30, 1997 and June 29, 1996 and
for the period September 19, 1995 through June 29, 1996 and for the year ended
June 30, 1997 included in this Prospectus have been so included in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
98
<PAGE>
The statements of equipment and goodwill as of June 30, 1997 and 1996 and
the statements of direct revenues and direct expenses of the DUNCAN HINES
Business of The Procter & Gamble Company for each of the three years in the
period ended June 30, 1997, included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The statements of assets to be acquired of the LOG CABIN Business, a
component of Kraft Foods, Inc. as of December 28, 1996 and December 30, 1995 and
the statements of operations for the years ended December 31, 1996, December 31,
1995 and December 31, 1994, included in this Prospectus, have been so included
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The combined statements of income of Van de Kamp's and Frozen Dessert
Product Lines of Pet Incorporated for the operating period July 1, 1995 through
September 18, 1995 and the year ended June 30, 1995, included in this
Prospectus, have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
99
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AURORA FOODS HOLDINGS INC.
Report of Independent Accountants...................................................................... F-3
Consolidated Balance Sheets as of December 31, 1996, December 27, 1997 and March 28, 1998
(unaudited)........................................................................................... F-4
Consolidated Statements of Operations for the year ended December 27, 1997 and for the three months
ended March 29, 1997 and March 28, 1998 (unaudited)................................................... F-5
Consolidated Statements of Changes in Stockholder's Equity for the year ended December 27, 1997 and for
the three months ended March 28, 1998 (unaudited)..................................................... F-6
Consolidated Statements of Cash Flows for the year ended December 27, 1997 and for the three months
ended March 29, 1997 and March 28, 1998 (unaudited)................................................... F-7
Notes to Consolidated Financial Statements............................................................. F-8
PREDECESSOR BUSINESS TO AURORA FOODS HOLDINGS INC.
MRS. BUTTERWORTH'S BUSINESS, A COMPONENT OF CONOPCO, INC.
Report of Independent Accountants...................................................................... F-23
Statement of Assets to be Acquired as of December 31, 1996............................................. F-24
Statements of Operations for the years ended December 31, 1995 and 1996................................ F-25
Notes of Financial Statements.......................................................................... F-26
ACQUIRED BUSINESSES
VDK HOLDINGS, INC.
Report of Independent Accountants...................................................................... F-30
Consolidated Balance Sheet as of June 29, 1996, June 30, 1997 and March 31, 1998 (unaudited)........... F-31
Consolidated Statements of Operations for the operating period September 19, 1995 through June 29,
1996, for the year ended June 30, 1997 and for the nine months ended March 31, 1997 and 1998
(unaudited)........................................................................................... F-32
Consolidated Statements of Changes in Stockholder's Equity for the period September 19,1995 through
June 29, 1996, for the year ended June 30, 1997 and for the nine months ended March 31, 1998
(unaudited)........................................................................................... F-33
Consolidated Statements of Cash Flows for the operating period September 19, 1995 through June 29,
1996, for the year ended June 30, 1997 and for the nine months ended March 31, 1997 and 1998
(unaudited)........................................................................................... F-34
Notes to Consolidated Financial Statements............................................................. F-35
DUNCAN HINES BUSINESS OF THE PROCTER & GAMBLE COMPANY
Independent Auditors' Report........................................................................... F-49
Statements of Equipment and Goodwill as of June 30, 1996 and 1997, and December 31, 1997 (unaudited)... F-50
Statements of Direct Revenues and Direct Expenses for the years ended June 30, 1997, 1996, and 1995 and
for the six months ended December 31, 1997 and 1996 (unaudited)....................................... F-51
Notes to Financial Statements.......................................................................... F-52
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
LOG CABIN SYRUP BUSINESS, A COMPONENT OF KRAFT FOODS, INC.
Report of Independent Accountants...................................................................... F-54
Statements of Assets to be Acquired as of December 28, 1996 and December 30, 1995...................... F-55
Statements of Operations for the years ended December 28, 1996, December 31, 1995 and December 31,
1994.................................................................................................. F-56
Notes to Financial Statements.......................................................................... F-57
Statement of Operations for the six months ended June 28, 1997 (unaudited) and June 29, 1996
(unaudited)........................................................................................... F-62
PREDECESSOR BUSINESS TO VDK HOLDINGS, INC.
VAN DE KAMP'S AND FROZEN DESSERT PRODUCT LINES OF PET INCORPORATED
Report of Independent Accountants...................................................................... F-63
Combined Statements of Income for the operating period July 1, 1995 through September 18, 1995 and for
the year ended June 30, 1995.......................................................................... F-64
Notes to Combined Statements of Income................................................................. F-65
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Aurora Foods Holdings Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statement of operations, of changes in stockholder's equity and of
cash flows present fairly, in all material respects, the financial position of
Aurora Foods Holdings Inc. and its subsidiary (the Company) at December 27, 1997
and December 31, 1996 (commencement of operations), and the results of their
operations and their cash flows for the year ended 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.
Price Waterhouse LLP
San Francisco, California
March 18, 1998
F-3
<PAGE>
AURORA FOODS HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMENCEMENT
OF OPERATIONS
DECEMBER 27, DECEMBER 31,
1997 1996
MARCH 28, -------------- ----------------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 23,330 $ 4,717 $ 8,666
Accounts receivable (net of $234 and $140
allowance, respectively).................. 12,271 12,362 --
Accounts receivable--other (Note 4)......... 10,576 1,474 480
Inventories (Note 5)........................ 24,851 6,902 1,182
Prepaid expenses and other assets........... 4,973 1,955 9
Current deferred tax assets (Note 11)....... 8,537 2,966 --
----------- -------------- ----------------
Total current assets...................... 84,538 30,376 10,337
Property, plant and equipment, net (Note 6)... 45,031 14,075 5,206
Goodwill and other intangible assets, net
(Note 7).................................... 717,956 315,241 111,358
Other assets.................................. 22,026 13,047 3,995
----------- -------------- ----------------
Total assets.............................. $ 869,551 $ 372,739 $ 130,896
----------- -------------- ----------------
----------- -------------- ----------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long term debt (Note
9)........................................ $ 9,000 $ 4,375 $ --
Accounts payable............................ 26,267 6,443 --
Accrued liabilities (Note 8)................ 29,107 17,409 2,736
----------- -------------- ----------------
Total current liabilities................. 64,374 28,227 2,736
Non-current deferred tax liabilities (Note
11)......................................... 7,771 3,745 --
Senior secured revolving debt facility (Note
9).......................................... -- 37,500 30,000
Senior secured term debt (Note 9)............. 441,000 35,625 15,000
Senior subordinated notes (Note 9)............ 202,377 202,419 50,000
----------- -------------- ----------------
Total liabilities......................... 715,522 307,516 97,736
----------- -------------- ----------------
Stockholder's equity:
Common stock, $0.01 par value; 3,000 shares
authorized; 1,000 shares issued and
outstanding............................... -- -- --
Paid-in capital............................. 218,191 64,203 33,270
Promissory notes (Note 14).................. (565) (215) (110)
(Accumulated deficit) retained earnings..... (63,597) 1,235 --
----------- -------------- ----------------
Total stockholder's equity................ 154,029 65,223 33,160
----------- -------------- ----------------
Commitments and contingencies (Notes 12 and
16)
Total liabilities and stockholder's
equity.................................. $ 869,551 $ 372,739 $ 130,896
----------- -------------- ----------------
----------- -------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AURORA FOODS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------ YEAR ENDED
MARCH 28, MARCH 29, DECEMBER 27,
1998 1997 1997
----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales........................................... $ 89,385 $ 21,253 $ 143,020
Cost of goods sold.................................. 37,734 7,167 45,729
----------- ----------- --------------
Gross profit...................................... 51,651 14,086 97,291
----------- ----------- --------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution........................ 9,355 2,279 17,096
Trade promotions.................................. 15,568 3,643 26,075
Consumer marketing................................ 7,997 1,331 15,142
----------- ----------- --------------
Total brokerage, distribution and marketing
expenses.......................................... 32,920 7,253 58,313
Amortization of goodwill and other intangibles...... 4,597 828 5,938
Selling, general and administrative expenses........ 2,346 1,053 5,229
Incentive plan expense (Note 15).................... 60,000 -- 2,300
Transition expenses (Note 10)....................... 1,926 126 2,113
----------- ----------- --------------
Total operating expenses............................ 101,789 9,260 73,893
----------- ----------- --------------
Operating (loss) income......................... (50,138) 4,826 23,398
Interest income..................................... (223) (32) (151)
Interest expense.................................... 12,837 2,654 18,393
Amortization of deferred financing expense.......... 513 2,313 3,059
Other bank and financing expenses................... 51 9 83
----------- ----------- --------------
(Loss) income before income taxes............... (63,316) (118) 2,014
Income tax (benefit) expense (Note 11).............. (360) (47) 779
----------- ----------- --------------
Net (loss) income before extraordinary item..... (62,956) (71) 1,235
Extraordinary loss on early extinguishment of debt,
net of tax of $1,184.............................. 1,876 -- --
----------- ----------- --------------
Net (loss) income................................... $ (64,832) $ (71) $ 1,235
----------- ----------- --------------
----------- ----------- --------------
Basic and diluted (loss) earnings per share before
extraordinary item................................ $ (63) $ -- $ 1
Extraordinary item per share........................ (2) -- --
----------- ----------- --------------
Basic and diluted (loss) earnings per share......... $ (65) $ -- $ 1
----------- ----------- --------------
----------- ----------- --------------
Weighted average number of shares outstanding....... 1 1 1
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AURORA FOODS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK PAID-IN PROMISSORY (ACCUMULATED
SHARES CAPITAL NOTES DEFICIT) TOTAL
----------- ----------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996....................... 1,000 $ 33,270 $ (110) $ -- $ 33,160
Capital contribution......... -- 28,633 (125) -- 28,508
Payments on officer
promissory notes (Note
14)........................ -- -- 20 -- 20
Incentive plan expense
(Note 15).................. -- 2,300 -- -- 2,300
Net income................... -- -- -- 1,235 1,235
----- ----------- ------------- -------------- ---------
Balance at December 27,
1997....................... 1,000 64,203 (215) 1,235 65,223
Capital contribution
(unaudited)................ -- 93,988 (366) -- 93,622
Payments on officer
promissory notes (Note 14)
(unaudited)................ -- -- 16 -- 16
Incentive plan expense
(unaudited)................ -- 60,000 -- -- 60,000
Net loss (unaudited)......... -- -- -- (64,832) (64,832)
----- ----------- ------------- -------------- ---------
Balance at March 28, 1998
(unaudited)................ 1,000 $ 218,191 $ (565) $ (63,597) $ 154,029
----- ----------- ------------- -------------- ---------
----- ----------- ------------- -------------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AURORA FOODS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------ YEAR ENDED
MARCH 28, MARCH 29, DECEMBER 27,
1998 1997 1997
----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................. $ (64,832) $ (71) $ 1,235
Early extinguishment of debt, net of tax.......... 1,876 -- --
Adjustments to reconcile net (loss) income to cash
provided by (used in) operating activities:
Depreciation and amortization................... 6,140 3,274 10,057
Deferred income taxes........................... (360) (177) 779
Incentive plan expense (Note 15)................ 60,000 -- 2,300
Change in assets and liabilities, net of effects
of businesses acquired:
Decrease (increase) in accounts receivable.... 91 (5,510) (12,362)
Decrease (increase) in accounts
receivable--other............................. 898 (3,183) (994)
(Increase) decrease in inventories............ (17,949) 18 2,975
Increase in prepaid expenses and other
assets........................................ (3,018) (9) (1,946)
Increase in accounts payable.................. 19,824 -- 6,443
Increase in accrued liabilities............... 11,698 5,117 14,624
----------- ----------- --------------
Net cash provided by (used in) operating
activities.......................................... 14,368 (541) 23,111
----------- ----------- --------------
Cash flows from investing activities:
Additions to property, plant and equipment........ (1,511) (96) (2,411)
Asset dispositions................................ 330 -- --
Additions to other non-current assets............. (90) (49) (925)
Payment for acquisition of businesses (Note 3).... (448,121) -- (225,930)
----------- ----------- --------------
Net cash used in investing activities............... (449,392) (145) (229,266)
----------- ----------- --------------
Cash flows from financing activities:
Proceeds from senior secured revolving and term
debt (Note 9)..................................... 450,000 -- 90,000
Proceeds from senior subordinated notes (Note
9)................................................ -- 100,000 202,500
Repayment of borrowings........................... (77,500) (95,000) (107,500)
Capital contributions, net of officer promissory
notes............................................. 93,638 -- 28,500
Debt issuance costs............................... (12,501) (4,951) (11,294)
----------- ----------- --------------
Net cash provided by financing activities........... 453,637 49 202,206
----------- ----------- --------------
Increase (decrease) in cash and cash equivalents.... 18,613 (637) (3,949)
Cash and cash equivalents, beginning of period...... 4,717 8,666 8,666
----------- ----------- --------------
Cash and cash equivalents, end of period............ $ 23,330 $ 8,029 $ 4,717
----------- ----------- --------------
----------- ----------- --------------
Supplemental Cash Flow Disclosure:
Cash paid for interest............................ $ 11,154 $ 1,211 $ 10,091
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--THE COMPANY
ORGANIZATION
Aurora Foods Holdings Inc. ("Holdings" and together with its subsidiary the
"Company"), a Delaware corporation, is a privately held food company. Holdings
owns 100% of its direct subsidiary, Aurora Foods Inc. ("Foods"), also a Delaware
corporation. Holdings is wholly-owned by MBW Investors LLC ("MBW LLC"), a
Delaware limited liability company. The Company commenced operations on December
31, 1996, when it acquired the Mrs. Butterworth's syrup and pancake business
("MBW") (Note 3) from Conopco, Inc., a subsidiary of Unilever United States,
Inc. ("Conopco" or the "Predecessor"). On July 1, 1997, the Company acquired
substantially all the assets of the Log Cabin syrup business ("LC") from Kraft
Foods, Inc. ("Kraft") (Note 3). Foods holds all of the Company's operations and
debt. Holdings has no assets other than its investment in Foods. See Subsequent
Events (Note 17).
OPERATIONS
The Company produces and markets syrup and pancake mix products that are
sold across the United States. The products are manufactured under temporary
co-packing agreements with Conopco and Kraft and under long-term co-packing
agreements with third parties. The Company's manufacturing equipment has been or
will be installed at certain facilities of these third parties. The principal
trademarks under which the products are sold are Mrs.
Butterworth's-Registered Trademark- and Log Cabin-Registered Trademark-.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Holdings and
its subsidiary. All significant intercompany transactions and balances have been
eliminated. 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 the last Saturday of December.
Accordingly, the results of operations reflect activity for the period from
December 31, 1996 (commencement of operations) through December 27, 1997. The
balance sheet as of December 31, 1996 reflects the acquisition of the business
from Conopco as of that date but prior to the commencement of operations.
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 contract manufacturers' raw materials, packaging, labor and
manufacturing overhead.
F-8
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 fifteen
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.
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 27,
1997.
OTHER ASSETS
Other assets consist of deferred loan acquisition costs, systems software,
and other miscellaneous assets. Deferred loan acquisition costs of the senior
subordinated notes and senior secured term debt are being amortized using the
interest method over the terms of the respective notes and debt. Aggregate
amortization of deferred loan acquisition costs and other assets charged against
income in the year ended December 27, 1997 was $3.1 million.
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 27, 1997.The fair market value of the senior
subordinated notes at December 27, 1997, based on quoted market prices, was
$210.5 million.
CONCENTRATION OF CREDIT RISK
The Company sells its products to supermarkets and other retail channels.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company
F-9
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maintains reserves for potential credit losses and had no significant
concentration of credit risk at December 27, 1997.
INCOME TAXES
The Company records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". This method of accounting for income taxes uses an asset and liability
approach which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
ADVERTISING
Costs related to advertising the Company's products are expensed as
incurred, or expensed ratably over the fiscal year in relation to revenues
depending on the nature of such costs. Advertising expense for the year ended
December 27, 1997 was $4.1 million.
UNAUDITED INTERIM INFORMATION
The interim financial data as of March 28, 1998, and for the three months
ended March 28, 1998 and March 29, 1997 is unaudited; however, in the opinion of
the Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and operating results for the interim periods.
NOTE 3--BUSINESS ACQUISITIONS
MRS. BUTTERWORTH'S
At the close of business on December 31, 1996, the Company acquired
substantially all the assets of Mrs. Butterworth's syrup and pancake business
from Conopco.The Company manufactures its 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 purchase agreement
contains customary representations, warranties and covenants by each of Conopco
and the Company. The acquisition was accounted for by using the purchase method
of accounting.
The acquisition was financed by (i) a net capital contribution from MBW LLC
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.
F-10
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
The cost to acquire MBW has been allocated to tangible and intangible assets
acquired as follows:
<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 the LC
syrup business from Kraft.The Company manufactures the products under co-packing
agreements with Kraft and a third party.
The Company acquired the inventories, certain manufacturing equipment and
intangible assets of LC for a purchase price of $222.0 million.The purchase
agreement contains customary representations, warranties and covenants by each
of Kraft and the Company.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.
The acquisition was financed by (i) a capital contribution from MBW LLC 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 an additional senior subordinated note
offering.
The cost to acquire LC has been allocated to tangible and intangible assets
acquired, as follows:
<TABLE>
<S> <C>
Cash paid to acquire assets...................................................... $ 221,995
Other acquisition costs.......................................................... 3,636
---------
225,631
Costs assigned to tangible assets................................................ (16,163)
---------
Cost attributable to intangible assets........................................... $ 209,468
---------
---------
</TABLE>
Had the acquisition of LC taken place on January 1, 1997, the unaudited pro
forma net sales and net income for the year ended December 27, 1997 would have
been $194.2 million and $7.0 million, respectively.
F-11
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 4--ACCOUNTS RECEIVABLE--OTHER
Accounts receivable--other consist of the following:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
--------------- -----------------
<S> <C> <C>
Conopco..................................................... $ 111 $ 480
Kraft....................................................... 1,057 --
Other....................................................... 306 --
------- -----
$ 1,474 $ 480
------- -----
------- -----
</TABLE>
The balances due as of December 27, 1997 from Conopco and Kraft were
comprised of accounts receivable collected by them on behalf of the Company.The
balance due as of December 31, 1996 from Conopco was a purchase price settlement
adjustment owed to the Company.
NOTE 5--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Raw materials............................................... $ 270 $ 523
Finished goods.............................................. 6,632 659
------- -------
$ 6,902 $ 1,182
------- -------
------- -------
</TABLE>
NOTE 6--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Machinery and equipment..................................... $ 14,357 $ 5,206
Furniture and fixtures...................................... 416 --
Computer equipment.......................................... 313 --
--------------- -------
15,086 5,206
Less accumulated depreciation........................... (1,011) --
--------------- -------
$ 14,075 $ 5,206
--------------- -------
--------------- -------
</TABLE>
F-12
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 7--GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
Goodwill.................................................... $ 216,485 $ 64,518
Trademarks.................................................. 99,600 44,500
Other intangibles........................................... 5,040 2,340
-------------- --------------
321,125 111,358
Less accumulated amortization........................... (5,884) --
-------------- --------------
$ 315,241 $ 111,358
-------------- --------------
-------------- --------------
</TABLE>
NOTE 8--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Accrued interest............................................ $ 8,383 $ --
Accrued trade promotions and consumer marketing............. 5,092 --
Other....................................................... 3,934 2,736
--------------- -------
$ 17,409 $ 2,736
--------------- -------
--------------- -------
</TABLE>
F-13
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 9--LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
-------------- ---------------
<S> <C> <C>
SENIOR SECURED DEBT
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 secured revolving debt; interest rate of 9.50% at
December 31, 1996; principal due in quarterly installments
through December 15, 2001; floating interest rate at the
prime rate plus 1.25% or, alternatively, the one, three,
or sixth month Eurodollar rate plus 2.50% payable
quarterly or at the termination of the Eurodollar contract
interest period........................................... -- 30,000
Senior secured term debt; interest rate of 10.0% at December
31, 1996; principal due in quarterly installments through
December 15, 2002; floating interest rate at the prime
rate plus 1.75% or, alternatively, the one, three, or six
month Eurodollar rate plus 3.00% payable quarterly or at
the termination of the Eurodollar contract interest
period.................................................... -- 15,000
</TABLE>
F-14
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 9--LONG TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
-------------- ---------------
<S> <C> <C>
SENIOR SUBORDINATED NOTES
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 --
Senior subordinated notes issued July 1, 1997 at par value
of $100,000 plus premium of $2,500; net of unamortized
premium of $2,419 at December 27, 1997; coupon interest
rate of 9.875% with interest payable each August 15 and
February 15; matures on February 15, 2007................. 100,000 --
Senior subordinated note; interest rate of 12.75% at
December 31, 1996; floating interest rate at the prime
rate plus (i) 4.50% through June 29, 1997, (ii) 5.50% for
the period June 30, 1997 through September 29, 1997, and
(iii) 6.00% for the period September 30, 1997 through
maturity; matures on December 31, 2006.................... -- 50,000
-------------- ---------------
277,500 95,000
Add: unamortized premium on senior subordinated notes....... 2,419 --
Less: current portion of long term debt..................... (4,375) --
-------------- ---------------
Long term debt.............................................. $ 275,544 $ 95,000
-------------- ---------------
-------------- ---------------
</TABLE>
Annual principal payments for the next five years and thereafter consist of
the following:
<TABLE>
<S> <C>
1998............................................................. $ 4,375
1999............................................................. 4,875
2000............................................................. 5,750
2001............................................................. 6,750
2002............................................................. 7,750
Thereafter....................................................... 248,000
---------
$ 277,500
---------
---------
</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 proceeds from
the senior secured term debt, a draw of $30.0 million from the senior secured
revolving debt facility, the $50.0 million senior subordinated note and capital
contributed from MBW LLC were used to acquire MBW from Conopco, pay fees and
expenses and fund working capital.
F-15
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 9--LONG TERM DEBT (CONTINUED)
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 MBW LLC, the Company
consummated the LC acquisition, paid fees and expenses and provided for the
working capital requirements related to the acquisition.
The $60.0 million senior secured revolving debt facility is subject to
limitations based on letters of credit. At December 27, 1997, the Company had
unused borrowing availability of $22.5 million. The Agreement requires a
commitment fee of 0.5% per annum payable quarterly on the unused portions of the
revolving debt facility.
The Agreement includes restrictive covenants, which limit additional
borrowing, cash dividends, and capital expenditures while also requiring the
Company to maintain certain financial ratios. The Company was in compliance with
these covenants at December 27, 1997.
SENIOR SUBORDINATED NOTES
On February 10, 1997, the Company issued $100.0 million of senior
subordinated notes (the "Old Notes"). The proceeds from the Old Notes were
primarily used to retire the $45.0 million of senior secured debt and the $50.0
million senior subordinated note incurred to finance the MBW acquisition. On
July 1, 1997, the Company issued $100.0 million of senior subordinated notes
(the "New Notes"). The New Notes were issued at a premium in the amount of $2.5
million. The unamortized balance of the premium on the New Notes at December 27,
1997 was $2.4 million. The proceeds from the New Notes were primarily used to
fund the acquisition of LC. (Together, the Old Notes and New 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.
The indenture includes 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 27, 1997.
NOTE 10--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 year ended December 27, 1997 were approximately $2.1
million.
F-16
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 11--INCOME TAXES
The Company files a consolidated federal income tax return. State income tax
returns are filed by the Company and Foods on a separate company basis or on a
combined basis depending on the particular rules in each state.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 27,
1997
---------------
<S> <C>
The provision for income taxes is summarized as follows:
Current tax expense:
Federal............................................................. $ --
State............................................................... --
-------
Total current provision..................................................... --
-------
Deferred tax expense:
Federal............................................................. 656
State............................................................... 123
-------
Total deferred provision.................................................... 779
-------
Total provision for income taxes............................................ $ 779
-------
-------
Deferred tax assets (liabilities) consist of the following:
Deferred tax assets--current:
Loss carryforwards.................................................. $ 1,230
Coupon reserves..................................................... 844
Inventory........................................................... 325
Accrued expenses.................................................... 320
Other............................................................... 247
-------
Total deferred tax assets--current.......................................... 2,966
-------
Deferred tax assets--non-current:
Incentive plan expense.............................................. 873
Goodwill............................................................ 228
Depreciation........................................................ 20
-------
Total deferred tax assets--non-current...................................... 1,121
-------
Deferred tax liabilities--non-current:
Goodwill............................................................ (4,465)
Depreciation........................................................ (401)
-------
Total deferred tax liabilities--non-current................................. (4,866)
-------
Net deferred tax liability.................................................. $ (779)
-------
-------
Net deferred tax assets current............................................. $ 2,966
Net deferred tax liabilities--non-current................................... (3,745)
-------
Net deferred tax liabilities................................................ $ (779)
-------
-------
</TABLE>
F-17
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 11--INCOME TAXES (CONTINUED)
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 27, 1997, the Company generated a federal net operating loss of
approximately $3.1 million. These losses can be used to offset future taxable
income through the year 2017. The Company is a loss corporation as defined in
section 382 of the Internal Revenue Code. Therefore, if certain substantial
changes of the Company's ownership should occur, there could be significant
annual limitations of the amount of net operating loss carryforwards which can
be utilized.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 27,
1997
-----------------
<S> <C>
Provision for income taxes at U.S. statutory rate........................... $ 685
Increase in tax resulting from:
Nondeductible expenses.................................................... 13
State taxes, net of federal benefit....................................... 81
-----
$ 779
-----
-----
</TABLE>
NOTE 12--LEASES
The Company leases certain facilities, machinery and equipment under
operating lease agreements with varying terms and conditions. The leases are
noncancellable operating leases which expire on various dates through 2002.
Future annual minimum lease payments under these leases are summarized as
follows:
<TABLE>
<CAPTION>
MINIMUM
LEASE
YEARS ENDING DECEMBER 27, PAYMENTS
- ------------------------------------------------------------------------------- ---------------
<S> <C>
1998........................................................................... $ 115
1999........................................................................... 114
2000........................................................................... 124
2001........................................................................... 137
2002........................................................................... 59
Thereafter..................................................................... --
-----
$ 549
-----
-----
</TABLE>
Rent expense was $0.1 million for the year ended December 27, 1997.
F-18
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 13--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, employee contributions
up to 6% of total compensation are matched 50% 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 fiscal year ending
December 27, 1997 were $0.1 million.
NOTE 14--RELATED PARTY TRANSACTIONS
Aurora Foods Inc. maintains business relationships and engages in certain
transactions as described below.
The Company entered into a Management Services Agreement with Dartford
Partnership, L.L.C. ("Dartford") pursuant to which Dartford provides management
oversight on financial and operational matters. The Company paid fees to
Dartford, a member of MBW LLC, in connection with this agreement totaling $768
in fiscal 1997. The annual management fee was $600 prior to the acquisition of
LC and $935 after the acquisition of LC.
The Company entered into an Advisory Services Agreement with McCown De Leeuw
& Co. III, L.P. ("MDC") pursuant to which MDC provides certain advisory
functions. The Company paid fees to MDC, a member of MBW LLC, in connection with
this agreement totaling $293 in fiscal 1997. The annual advisory fee was $250
prior to the acquisition of LC and $336 after the acquisition of LC.
In connection with the acquisitions of MBW and LC, 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 consummated in 1997. The
aggregate amount paid to certain members of MBW LLC was $4.7 million and was
funded by the proceeds of the financings. Of this amount, $1.3 million was paid
to Dartford, whose partners include Mr. Ian R. Wilson, Mr. Ray Chung, Mr. James
B. Ardrey and Ms. M. Laurie Cummings (all are directors and/or executive
officers of the Company); $259 in total was paid to Mr. Thomas J. Ferraro
(director and President of the Company) and Mr. C. Gary Willett (Executive Vice
President of the Company); $2.7 million was paid to 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); and $481 was paid to Fenway Partners
Capital Fund, L.P., whose partners include Mr. Peter Lamm and Mr. Richard C.
Dresdale (both directors of the Company). The fee amounts were negotiated among
the equity investors.
On December 31, 1996, Mr. Thomas J. Ferraro, the President of the Company,
and Mr. C. Gary Willett, Executive Vice President of the Company and on July 1,
1997, Mr. Alan Mintz, Vice President Sales, and Mr. Dirk C. Grizzle, Chief
Financial Officer of the Company, executed promissory notes in favor of the
Company in exchange for monies borrowed to assist in the capitalization of their
limited liability company interests held in MBW LLC. The promissory notes mature
December 31, 1999 for Mr. Ferraro and Mr. Willett, and June 30, 2000 for Mr.
Mintz and Mr. Grizzle. Interest is due and payable
F-19
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 14--RELATED PARTY TRANSACTIONS (CONTINUED)
quarterly at the rate of 8.0% per annum and there are required annual principal
payments. The aggregate balances outstanding as of December 27, 1997 on the
promissory notes were $215. The outstanding balances are as follows:
<TABLE>
<S> <C>
Mr. Ferraro.......................................................................... $ 40
Mr. Willett.......................................................................... 50
Mr. Mintz............................................................................ 50
Mr. Grizzle.......................................................................... 75
---------
$ 215
---------
---------
</TABLE>
NOTE 15--INCENTIVE PLAN EXPENSE
The Amended and Restated Limited Liability Company Agreement (the "LLC
Agreement") of MBW LLC contains a management compensation arrangement (the
"Management Plan") as a means by which certain key employees and other
specifically designated persons ("Key Personnel") of the Company, and/or
affiliated with the Company, may be given an opportunity to benefit from
appreciation in the value of the Company. Under the Management Plan, Key
Personnel are 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 Company. The Management Units are subject to vesting
requirements based on terms of employment or other factors.
Upon a change of control or initial public offering ("IPO") of the Company's
stock, all Management Units will vest immediately, except for certain Management
Units issued after December 31, 1997 (see Note 17--Subsequent Events--Incentive
Plan Amendment), which will remain subject to normal vesting requirements under
the Management Plan. The holders of vested Management Units will be entitled to
certain payments or distributions based on the amounts paid or distributed to
the investors in MBW LLC. In general, there will be no payments to holders of
vested Management Units until the MBW LLC investors have received a designated
return on their investments. The type of payment will be cash or non-cash
consideration, depending on the type of triggering event and the type of
distribution received by MBW LLC and in any event, will be funded by MBW LLC.
The total amount due under the Management Plan, if any, is subject to the
vesting factors discussed above. Based on management and the Board of Directors'
assessment of the current valuation of the Company, compensation expense for the
year ended December 27, 1997 totaled $2.3 million. Should the Company appreciate
further in value, compensation expense to be recognized in future periods under
the Management Plan could be significant (see Note 17--Subsequent
Events--Incentive Plan Expense). The fiscal 1997 compensation expense has been
recorded as a liability of MBW LLC as the sponsor of the Management Plan.
However, because the Management Plan is for the benefit of Key Personnel of the
Company, expense recognized under the Management Plan has been pushed down to
the Company, and has been recorded by the Company as expense and as additional
paid in capital from its parent.
F-20
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 16--COMMITMENTS AND CONTINGENCIES
The Company is subject to litigation in the ordinary course of business. In
the opinion of management, the ultimate outcome of any existing litigation would
not have a material adverse effect on the Company's financial condition or
results of operations.
The Company has entered into manufacturing contracts, which require minimum
annual production orders. The minimum annual production orders for all contracts
through the year 2003 are 3.3 million cases of product. This volume represents
substantially less than the Company's current production requirements.
NOTE 17--SUBSEQUENT EVENTS
ACQUISITION
On January 16, 1998, subsequent to the Company's fiscal year end, the
Company acquired all the assets of the Duncan Hines Business from the Procter &
Gamble Company ("P&G"). The assets acquired by the Company include (i) DUNCAN
HINES-REGISTERED TRADEMARK- and associated trademarks, (ii) substantially all of
the equipment for the manufacture of Duncan Hines products currently located in
P&G's Jackson, Tennessee facility, (iii) proprietary formulations for Duncan
Hines products, (iv) other product specifications and customer lists and (v)
rights under certain contracts, licenses, purchase orders and other arrangements
and permits. The Company intends to use the acquired assets in its operations of
the Duncan Hines Business. The purchase price of approximately $445.0 million
was based on an arm's length negotiation between the Company and P&G.
To finance the acquisition of the Duncan Hines Business and related costs,
the Company incurred an early extinguishment of its existing senior secured term
debt and senior secured revolving debt facility, borrowed $450.0 million of
senior secured bank debt under a Second Amended and Restated Credit Agreement,
and received a capital contribution from MBW LLC of $93.8 million. As a result
of the early extinguishment, the Company will record an extraordinary charge of
$1.8 million, net of income taxes of $1.2 million, for the write-off of deferred
loan acquisition costs in 1998.
The cost to acquire the Duncan Hines Business has been allocated to tangible
and intangible assets acquired as follows:
<TABLE>
<S> <C>
Cash paid to acquire assets...................................................... $ 445,000
Other acquisition costs.......................................................... 3,121
---------
448,121
Costs assigned to tangible assets................................................ (40,953)
---------
Costs attributable to intangible assets.......................................... $ 407,168
---------
---------
</TABLE>
F-21
<PAGE>
AURORA FOODS HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 17--SUBSEQUENT EVENTS (CONTINUED)
The following unaudited pro forma combined results of operations of the
Company and the Duncan Hines Business, together with the other acquisitions made
by the Company for the year ended December 27, 1997, gives pro forma effect to
the acquisitions as though the acquisitions occurred as of January 1, 1997
(dollars in thousands):
<TABLE>
<S> <C>
Net sales........................................................................ $ 460,294
---------
---------
Net income....................................................................... $ 4,260
---------
---------
</TABLE>
The foregoing unaudited pro forma results of operations reflect one year's
amortization of the goodwill and other intangibles resulting from the
acquisition of the assets of the Duncan Hines Business. The allocation of
purchase price has not been finalized; however, any changes are not expected to
be material.
INTEREST RATE SWAP AGREEMENT
The Company entered into an interest rate swap agreement (the "Swap") on
March 17, 1998, in order to reduce the impact of changes in interest rates on
its floating rate long term debt. The notional principal amount covered under
the Swap is $150.0 million and the term is three years. The effective current
swap rate is 5.81%. The applicable rate is set quarterly with the first reset
date on June 17, 1998. Amounts to be paid or received, if any, under the Swap
will be recognized as an increase or decrease, respectively, in interest
expense. The counterparty to the Company's Swap is a major financial
institution.
Under the Swap, the Company will make payments to the counterparty if the
three-month LIBOR rate is less than the swap rate and receive payments from the
counterparty if the three month LIBOR rate exceeds the swap rate. The payments
will be calculated based upon the notional principal amount. At the time the
Swap was entered into, the three-month LIBOR rate was 5.69%.
Risks associated with the Swap include those associated with changes in the
market value and interest rates. Management considers the potential loss in
future earnings and cash flows attributable to the Swap to not be material.
INCENTIVE PLAN AMENDMENT
In May 1998, the Company's Board of Directors approved an amendment to the
Management Plan. This amendment accelerated the vesting of all Management Units
issued after December 31, 1997 in the event of an initial public offering of the
Company's Common Stock. As a result, all of the outstanding Management Units are
fully vested in the event of an initial public offering of the Company's Common
Stock.
INCENTIVE PLAN EXPENSE
In the quarter ended March 28, 1998, the Company recognized a pre-tax charge
of $60.0 million for incentive plan expense under the Management Plan.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of CONOPCO, Inc.
We have audited the accompanying statement of assets to be acquired as of
December 31, 1996 and the statements of operations for the years ended December
31, 1996 and 1995 of Mrs. Butterworth's Business, a component of CONOPCO, Inc.
(the "Business"). These financial statements are the responsibility of CONOPCO,
Inc.'s management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements were prepared to present the assets to be
acquired and 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 and are not intended to be a complete presentation of the
Business's financial position and cash flows.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets to be acquired of the Business as of December
31, 1996 and the results of its operations for the years ended December 31, 1996
and 1995, pursuant to the purchase agreement referred to in Note 1, in
conformity with generally accepted accounting principles.
Price Waterhouse LLP
San Francisco, California
March 14, 1997
F-23
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
STATEMENT OF ASSETS TO BE ACQUIRED
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Inventories........................................................................ $ 829
Machinery and equipment, net of accumulated depreciation of $1,791................. 2,774
---------
Total assets................................................................... $ 3,603
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-24
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
<S> <C> <C>
1996 1995
------------- ---------------
Net sales..................................................... $ 89,541 $ 91,302
------------- ---------------
Costs and expenses:
Cost of products sold....................................... 28,955 27,743
Brokerage and distribution.................................. 8,140 7,583
Trade promotions............................................ 17,672 19,380
Consumer marketing.......................................... 10,835 13,291
Selling, general and administrative......................... 6,753 6,120
------------- ---------------
Total costs and expenses.................................... 72,355 74,117
------------- ---------------
Net sales less direct and allocated expenses before taxes..... 17,186 17,185
Provision for income taxes.................................. 6,616 6,616
------------- ---------------
Net sales less direct and allocated expenses.................. $ 10,570 $ 10,569
------------- ---------------
------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-25
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
NOTES TO FINANCIAL STATEMENTS
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 periods covered by the financial statements, the Business
operations were conducted and accounted for as a part of the Company. These
financial statements have 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) are included in the Statement of Assets to be Acquired. The Statement
of Assets to be Acquired is as of the close of business on December 31, 1996,
immediately prior to the sale.
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
F-26
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS (CONTINUED)
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 Statements 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.
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.
F-27
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Also, as
discussed in Note 1, these financial statements include 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 include significant allocations from other
Company organizations involving functions and services (such as finance and
accounting, management informations 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
and $3,026 in allocated costs for the years ended December 31, 1996 and 1995,
respectively. Selling, general and administrative expenses include $6,753 and
$6,120 of allocated costs for the years ended December 31, 1996 and 1995,
respectively.
F-28
<PAGE>
MRS. BUTTERWORTH'S BUSINESS
(A COMPONENT OF CONOPCO, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
4. PROVISION FOR INCOME TAXES
Taxes computed at the U.S. statutory rates are summarized below:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
AMOUNT % AMOUNT %
----------- --- ----------- ---
Federal..................................... $ 5,843 34.0 $ 5,843 34.0
State (net of federal tax benefit).......... 773 4.5 773 4.5
----------- --- ----------- ---
Provision for income taxes.................. $ 6,616 38.5 $ 6,616 38.5
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
5. INVENTORIES
<TABLE>
<CAPTION>
1996
-----
<S> <C>
Raw materials, packaging and supplies................................ $ 301
Finished products.................................................... 631
-----
932
Adjustment to LIFO basis............................................. (103)
-----
$ 829
-----
-----
</TABLE>
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 and $311 in
1995.
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.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of VDK Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholder's equity and of
cash flows present fairly, in all material respects, the financial position of
VDK Holdings, Inc. and its subsidiary (the Company) at June 30, 1997, and June
29, 1996, and the results of their operations and their cash flows for the year
ended June 30, 1997 and the period September 19, 1995 through June 29, 1996 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
San Francisco, California
September 23, 1997
F-30
<PAGE>
VDK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 29,
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................ $ 53 $ 308 $ 4,040
Accounts receivable (net of $420, $416 and $190
allowance, respectively)............................... 43,350 33,011 16,250
Accounts receivable--other (Note 5)...................... -- 9 506
Inventories (Note 6)..................................... 35,825 33,535 30,202
Prepaid expenses......................................... 1,459 1,208 724
Current deferred tax assets (Note 12).................... 11,989 8,260 3,373
----------- --------- ---------
Total current assets................................... 92,676 76,331 55,095
Property, plant and equipment, net (Note 7)................ 88,240 86,394 35,943
Non-current deferred tax assets............................ 7,171 -- --
Goodwill and other intangible assets, net (Note 8)......... 322,550 331,013 203,736
Other assets............................................... 16,434 15,853 10,725
----------- --------- ---------
Total assets........................................... $ 527,071 $ 509,591 $ 305,499
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long term debt (Note 10).............. $ 16,978 $ 13,097 $ 5,000
Senior secured revolving debt facility................... 15,000 5,000 --
Accounts payable......................................... 13,577 13,791 14,144
Accrued liabilities (Note 9)............................. 31,607 24,619 15,789
Current deferred tax liabilities (Note 12)............... -- -- 143
----------- --------- ---------
Total current liabilities.............................. 77,162 56,507 35,076
Non-current deferred tax liabilities (Note 12)............. -- 10,404 2,997
Other liabilities (Note 16)................................ 15,000 -- --
Senior secured term debt (Note 10)......................... 177,781 194,759 83,750
Senior subordinated notes (Note 10)........................ 100,000 100,000 100,000
----------- --------- ---------
Total liabilities...................................... 369,943 361,670 221,823
----------- --------- ---------
Stockholder's equity:
Common stock, $1.00 par value; 3,000 shares authorized;
100 shares issued and outstanding...................... -- -- --
Paid-in capital.......................................... 198,635 144,420 84,420
Promissory notes (Note 15)............................... (107) (213) (305)
(Accumulated deficit) retained earnings (Note 16)........ (41,400) 3,714 (439)
----------- --------- ---------
Total stockholder's equity............................. 157,128 147,921 83,676
----------- --------- ---------
Commitments and contingencies (Notes 6, 7, 13 and 17)
Total liabilities and stockholder's equity............. $ 527,071 $ 509,591 $ 305,499
----------- --------- ---------
----------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
VDK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OPERATING PERIOD
MARCH 31, YEAR ENDED SEPTEMBER 19,
-------------------- JUNE 30, 1995 THROUGH
1998 1997 1997 JUNE 29, 1996
--------- --------- ----------- -----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net sales.............................. $ 348,288 $ 344,113 $ 435,476 $ 143,296
Cost of goods sold..................... 135,777 143,522 180,941 60,367
--------- --------- ----------- -----------------
Gross profit....................... 212,511 200,591 254,535 82,929
--------- --------- ----------- -----------------
Brokerage, distribution and marketing
expenses:
Brokerage and distribution......... 33,765 37,005 45,352 15,901
Trade promotions................... 101,534 83,908 108,925 32,517
Consumer marketing................. 25,151 23,897 29,524 11,336
--------- --------- ----------- -----------------
Total brokerage, distribution and
marketing expenses................... 160,450 144,810 183,801 59,754
Amortization of goodwill and other
intangibles.......................... 10,194 9,982 13,142 4,223
Selling, general and administrative
expenses............................. 13,968 9,825 14,270 5,267
Incentive plan expense (Note 16)....... 69,000 -- -- --
Transition expenses (Note 11).......... -- 2,073 2,885 1,337
--------- --------- ----------- -----------------
Total operating expenses............... 253,612 166,690 214,098 70,581
--------- --------- ----------- -----------------
Operating (loss) income............ (41,101) 33,901 40,437 12,348
Interest income........................ (60) (939) (965) (135)
Interest expense....................... 23,634 24,762 32,499 12,469
Amortization of deferred financing
expense.............................. 1,612 1,573 2,108 607
Other bank and financing expenses...... 131 215 265 79
--------- --------- ----------- -----------------
(Loss) income before income
taxes............................ (66,418) 8,290 6,530 (672)
Income tax (benefit) expense........... (21,304) 3,316 2,377 (233)
--------- --------- ----------- -----------------
Net (loss) income.................. $ (45,114) $ 4,974 $ 4,153 $ (439)
--------- --------- ----------- -----------------
--------- --------- ----------- -----------------
Basic and diluted (loss) earnings per
share................................ $ (451) $ 50 $ 42 $ (4)
--------- --------- ----------- -----------------
--------- --------- ----------- -----------------
Weighted average number of shares
outstanding.......................... 0.1 0.1 0.1 0.1
--------- --------- ----------- -----------------
--------- --------- ----------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
VDK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK PAID-IN PROMISSORY (ACCUMULATED
SHARES CAPITAL NOTES DEFICIT) TOTAL
------------- ----------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at September 19,
1995........................ 100 $ 69,420 $ (500) $ -- $ 68,920
Capital contribution.......... -- 15,000 -- -- 15,000
Officer payments on promissory
notes (Note 15)............. -- -- 195 -- 195
Net loss...................... -- -- -- (439) (439)
--- ----------- ------------- -------------- ---------
Balance at June 29, 1996...... 100 84,420 (305) (439) 83,676
Capital contribution.......... -- 60,000 -- -- 60,000
Officer payments on promissory
notes (Note 15)............. -- -- 92 -- 92
Net income.................... -- -- -- 4,153 4,153
--- ----------- ------------- -------------- ---------
Balance at June 30, 1997...... 100 144,420 (213) 3,714 147,921
Capital contribution
(unaudited)................. -- 215 -- -- 215
Payments on officer promissory
notes (Note 15)
(unaudited)................. -- -- 106 -- 106
Incentive plan expense
(unaudited)................. -- 54,000 -- -- 54,000
Net loss (unaudited).......... -- -- -- (45,114) (45,114)
--- ----------- ------------- -------------- ---------
Balance at March 31, 1998
(unaudited)................. 100 $ 198,635 $ (107) $ (41,400) $ 157,128
--- ----------- ------------- -------------- ---------
--- ----------- ------------- -------------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
VDK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OPERATING PERIOD
MARCH 31, YEAR ENDED SEPTEMBER 19, 1995
-------------------- JUNE 30, THROUGH JUNE 29,
1998 1997 1997 1996
--------- --------- ----------- --------------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net (loss) income............................ $ (45,114) $ 4,974 $ 4,153 $ (439)
Adjustments to reconcile net (loss) income to
cash provided by operating activities:
Depreciation and amortization.............. 17,483 16,772 22,317 7,454
Deferred income taxes...................... (21,304) 1,808 2,377 (233)
Incentive plan expense..................... 69,000 -- -- --
Change in assets and liabilities, net of
effects of businesses acquired:
Increase in accounts receivable.......... (10,330) (27,950) (16,264) (16,756)
(Increase) decrease in inventories....... (2,290) (2,748) 402 (4,980)
(Increase) in prepaid expenses........... (251) (256) (484) (139)
(Decrease) increase in accounts
payable................................ (214) 2,273 (353) 14,144
Increase in accrued liabilities.......... 6,988 10,895 6,396 13,366
Increase in income taxes payable......... -- 1,456 -- --
Increase in other assets................. (1,296) (484) (984) --
--------- --------- ----------- --------
Net cash provided by operating activities...... 12,672 6,740 17,560 12,417
--------- --------- ----------- --------
Cash flows from investing activities:
Additions to property, plant and equipment... (7,524) (12,717) (14,379) (2,204)
Additions to other non-current assets........ (2,627) (1,267) (1,453) (316)
Proceeds from sale of assets................. -- 6,192 6,192 --
Payment for acquisition of businesses (Note
3)......................................... -- (190,222) (190,226) (268,035)
--------- --------- ----------- --------
Net cash used in investing activities.......... (10,151) (198,014) (199,866) (270,555)
--------- --------- ----------- --------
Cash flows from financing activities:
Proceeds from senior secured revolving and
term debt.................................. 31,000 188,000 188,000 97,150
Proceeds from senior subordinated notes...... -- -- -- 100,000
Repayment of borrowings...................... (34,097) (54,894) (63,894) (8,400)
Capital contributions, net of officer
promissory notes (Note 17)................. 321 60,092 60,092 84,115
Debt issuance costs.......................... -- (5,631) (5,624) (10,687)
--------- --------- ----------- --------
Net cash (used in) provided by financing
activities................................... (2,776) 187,567 178,574 262,178
--------- --------- ----------- --------
(Decrease) increase in cash and cash
equivalents.................................. (255) (3,707) (3,732) 4,040
Cash and cash equivalents, beginning of
period....................................... 308 4,040 4,040 --
--------- --------- ----------- --------
Cash and cash equivalents, end of period....... $ 53 $ 333 $ 308 $ 4,040
--------- --------- ----------- --------
--------- --------- ----------- --------
Supplemental Cash Flow Disclosure:
Cash paid for interest....................... $ 11,096 $ 11,229 $ 32,805 $ 7,738
--------- --------- ----------- --------
--------- --------- ----------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--THE COMPANY
ORGANIZATION
VDK Holdings, Inc. ("Holdings" and together with its subsidiary the
"Company"), a Delaware corporation, is a privately held frozen food company.
Holdings owns 100% of its direct subsidiary, Van de Kamp's, Inc. ("VDK, Inc."),
also a Delaware corporation. Holdings is wholly owned by VDK Foods LLC ("VDK
LLC"), a Delaware limited liability company. The Company commenced operations on
September 19, 1995, when it acquired the frozen seafood and frozen dessert
businesses of The Pillsbury Company and PET Incorporated. On May 6, 1996, the
Company acquired substantially all the assets of the Mrs. Paul's frozen food
business from Campbell Soup Company ("CSC") (Note 3). On July 9, 1996,
substantially all of the assets of the frozen food division of The Quaker Oats
Company ("Quaker") were purchased by the Company (Note 3). VDK Inc. holds all of
the Company's operations and debt. Holdings has no assets other than its
investment in VDK Inc..
OPERATIONS
The Company produces and markets frozen seafood, frozen dessert products,
frozen vegetables, frozen pizza and frozen breakfast products which are sold
across the United States. The products are manufactured out of three
manufacturing facilities in Erie and Chambersburg, Pennsylvania and in Jackson,
Tennessee. The principal trademarks under which the products are sold are Van de
Kamp's-Registered Trademark-, Pet-Ritz-Registered Trademark-, Oronoque
Orchards-Registered Trademark-, Mrs. Paul's-Registered Trademark-,
Celeste-Registered Trademark-, and Aunt Jemima-Registered Trademark-.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Holdings and
its subsidiary. All significant intercompany transactions and balances have been
eliminated. The policies utilized by the Company in the preparation of the
financial statements conform to generally accepted accounting principles and
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual amounts could differ from these
estimates and assumptions. The Company uses the accrual basis of accounting in
the preparation of its financial statements.
FISCAL YEAR
The Company's fiscal year ended June 30, 1997. The Company's prior fiscal
year ended on the last Saturday of June. Accordingly, the results of operations
reflect activity for the year ended June 30, 1997 and the period from September
19, 1995 (commencement of operations) through June 29, 1996. The Company has
presented balance sheets as of June 30, 1997 and June 29, 1996. The Company's
cash flows reflect activity for the year ended June 30, 1997 and the period from
September 19, 1995 to June 29, 1996. Certain prior year amounts have been
reclassified to conform with the current year's presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with a
maturity of three months or less to be cash equivalents.
F-35
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in first-out (FIFO) method. Inventories include the
cost of raw materials, packaging, labor and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the individual assets ranging from five to thirty
years (primarily machinery and equipment with useful lives of 10-15 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. Amortization of goodwill and other
intangible assets charged against income during the year ended June 30, 1997 was
$12,301 and for the period ended June 29, 1996 was $4,152.
IMPAIRMENT OF LONG-LIVED ASSETS
Upon commencement of operations, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS 121 requires the Company to review long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The assessment of impairment is based on the estimated undiscounted
future cash flows from operating activities compared with the carrying value of
the assets. If the undiscounted future cash flows of an asset are less than the
carrying value, a write-down would be recorded, measured by the amount of the
difference between the carrying value of the asset and the fair value of the
asset. Management believes that there has been no impairment at June 30, 1997.
OTHER ASSETS
Other assets consist of deferred loan acquisition costs, systems development
costs, and other miscellaneous assets. Deferred loan acquisition costs of the
senior subordinated notes are being amortized using the interest method over the
term of the respective notes. Deferred loan acquisition costs of the senior
secured debt are being amortized using the straight-line method over the terms
of the related debt tranches. Aggregate amortization of deferred loan
acquisition costs and other assets charged against income in the year ended June
30, 1997 was $2,949 and in the period ended June 29, 1996 was $678.
F-36
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the
fair value of financial instruments approximates book value at June 30, 1997,
based on terms currently available to the Company in financial markets.
CONCENTRATION OF CREDIT RISK
The Company sells its products to supermarkets and other retail channels.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains reserves for potential credit
losses and had no significant concentration of credit risk at June 30, 1997.
INCOME TAXES
The Company records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes". This method of accounting for income taxes uses an asset and liability
approach which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
UNAUDITED INTERIM INFORMATION
The interim financial data as of December 31, 1997, and for the six months
ended December 31, 1997 and 1996 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and operating results for the interim periods.
NOTE 3--BUSINESS ACQUISITIONS
VAN DE KAMP'S AND FROZEN DESSERT PRODUCT LINES
On September 19, 1995 (commencement of operations), the Company acquired the
assets of the frozen seafood business (which operated as Van de Kamp's) and the
frozen dessert product lines (together, the "Businesses") from The Pillsbury
Company and PET Incorporated (collectively, the "Sellers"). The Company
manufactures frozen seafood products out of its Erie, Pennsylvania production
facility and its frozen dessert product line is produced out of its
Chambersburg, Pennsylvania manufacturing facility.
The Company acquired the inventories, property, plant and equipment and
intangible assets of the Businesses for a purchase price of $190.0 million. The
Company paid The Pillsbury Company $2.0 million, a contractually agreed upon
amount, to retain all of the current liabilities of the Businesses. The purchase
agreement contains customary representations, warranties and covenants by each
of the Sellers and the Company. The acquisition was accounted for by using the
purchase method of accounting and the allocation of the purchase price has been
finalized.
The acquisition was financed by (i) an equity capital contribution from VDK
LLC of approximately $70.0 million, (ii) the proceeds from the issuance of
$100.0 million of senior subordinated notes (Note
F-37
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
10), and (iii) the borrowing by the Company of $30.0 million and $2.0 million of
senior secured tranche A debt and senior secured revolving debt, respectively,
under the senior secured bank facilities (Note 10).
The cost to acquire the Businesses has been allocated to tangible and
intangible assets acquired as follows:
<TABLE>
<S> <C>
Cash paid to acquire Businesses.................................................. $ 190,000
Cash paid for disposition of current liabilities................................. 2,000
Other acquisition costs.......................................................... 2,543
---------
194,543
Costs assigned to tangible assets................................................ (50,407)
---------
Cost attributable to intangible assets........................................... $ 144,136
---------
---------
</TABLE>
MRS. PAUL'S
On May 6, 1996, the Company acquired substantially all the assets of the
Mrs. Paul's frozen food business from CSC. Mrs. Paul's frozen food business
includes frozen seafood and frozen vegetable products which are manufactured at
both of the Company's Pennsylvania production facilities.
The Company acquired the inventories, certain manufacturing equipment and
intangible assets from CSC. The manufacturing equipment was removed from a CSC
facility with certain production lines installed in each of the Company's Erie
and Chambersburg production plants. The purchase price was $73.2 million which
included a contractually agreed upon payment related to inventories. The
purchase agreement contains customary representations, warranties and covenants
by each of CSC and the Company. The acquisition was accounted for by using the
purchase method of accounting and the allocation of the purchase price has been
finalized.
The acquisition was financed by (i) an equity capital contribution from VDK
LLC of $15.0 million, and (ii) the borrowing by the Company of $20.0 million and
$40.0 million of senior secured tranche A debt and senior secured tranche B
debt, respectively, under the senior secured bank facilities (Note 10).
The cost to acquire Mrs. Paul's has been allocated to tangible and
intangible assets acquired, as follows:
<TABLE>
<S> <C>
Cash paid to acquire Businesses................................... $ 73,203
Cash paid for disposition of current liabilities.................. 3,326
---------
Other acquisition costs........................................... 76,529
Costs assigned to tangible assets................................. (11,716)
---------
Cost attributable to intangible assets............................ $ 64,813
---------
---------
</TABLE>
QUAKER FROZEN FOOD BUSINESS
On July 9, 1996, substantially all of the assets of the frozen food division
of Quaker were purchased by the Company for $185.8 million. The Company
purchased the Celeste-Registered Trademark- trademark and was granted
F-38
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
an exclusive perpetual, transferable, royalty-free license of the Aunt
Jemima-Registered Trademark- trademark for use in the frozen breakfast products
business. Also included in the acquisition were inventories and the
manufacturing facility located in Jackson, Tennessee, where the Company produces
both product lines. The purchase agreement contains customary representations,
warranties and covenants by each of Quaker and the Company. The acquisition was
accounted for by using the purchase method of accounting and the allocation of
the purchase price has been finalized.
The acquisition was financed by (i) an equity capital contribution from VDK
LLC of $60.0 million, and (ii) the borrowing by the Company of $45.0 million,
$40.0 million and $50.0 million of senior secured tranche A debt, senior secured
tranche B debt and senior secured tranche C debt, respectively, under the senior
secured bank facilities (Note 10).
The cost to acquire the Quaker Frozen Food Business has been allocated to
tangible and intangible assets acquired as follows:
<TABLE>
<S> <C>
Cash paid to acquire assets...................................... $ 185,800
Other acquisition costs.......................................... 3,492
---------
189,292
Costs assigned to tangible assets................................ (49,356)
---------
Cost attributable to intangible assets........................... $ 139,936
---------
---------
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined financial information reflects the
historical net sales and income before income taxes of the Company as if all
acquisitions had occurred on July 1, 1995. Had the acquisitions described in
this Note 3 taken place July 1, 1995, the unaudited pro forma net sales and
income before income taxes for the year ended June 30, 1997 would not have been
significantly different from those reflected in the Statement of Operations. For
the period ended June 29, 1996 the pro forma net sales were $401,522 and the
income before income taxes was $11,651.
NOTE 4--SALE OF ASSETS
On February 3, 1997, the Company sold substantially all of the assets of its
whipped topping product line, which was part of the frozen desserts business,
including inventory, certain manufacturing equipment, and intangible assets for
approximately $6.2 million in cash. The impact of the sale on current results
was not material, and the sale will not significantly impact future results. The
net proceeds from the sale, $5.5 million, were used to repay a portion of the
Company's senior secured term debt.
F-39
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 5--ACCOUNTS RECEIVABLE--OTHER
Accounts Receivable--Other consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1997 1996
----------- -----------
<S> <C> <C>
The Pillsbury Company.................................. $ -- $ 320
Miscellaneous.......................................... 9 186
----------- -----------
$ 9 $ 506
----------- -----------
----------- -----------
</TABLE>
The balance due from The Pillsbury Company was comprised of accounts
receivable collected by them on behalf of the Company.
NOTE 6--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials.......................................... $ 12,556 $ 6,856
Packaging supplies..................................... 3,178 2,022
Finished goods......................................... 17,801 21,324
----------- -----------
$ 33,535 $ 30,202
----------- -----------
----------- -----------
</TABLE>
At June 30, 1997 and June 29, 1996, the Company had commitments to purchase
raw materials aggregating approximately $7.0 million and $3.2 million,
respectively.
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1997 1996
----------- -----------
<S> <C> <C>
Land................................................... $ 2,342 $ 700
Machinery and equipment................................ 73,514 31,105
Buildings and improvements............................. 18,637 5,155
Construction-in-progress............................... 1,241 1,607
----------- -----------
95,734 38,567
Less accumulated depreciation........................ (9,340) (2,624)
----------- -----------
$ 86,394 $ 35,943
----------- -----------
----------- -----------
</TABLE>
At June 30, 1997 and June 29, 1996, the Company had commitments for facility
construction and related machinery and equipment purchases aggregating
approximately $2.3 million and $0.5 million, respectively.
F-40
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 8--GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1997 1996
--------- ---------
<S> <C> <C>
Goodwill.............................................. $ 163,599 $ 103,553
Trademarks............................................ 151,600 84,200
Other intangibles..................................... 32,105 20,135
--------- ---------
347,304 207,888
Less accumulated amortization....................... (16,291) (4,152)
--------- ---------
$ 331,013 $ 203,736
--------- ---------
--------- ---------
</TABLE>
NOTE 9--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1997 1996
--------- ---------
<S> <C> <C>
Interest.............................................. $ 4,425 $ 4,732
Trade promotion accruals.............................. 12,478 4,781
Other................................................. 7,716 6,276
--------- ---------
$ 24,619 $ 15,789
--------- ---------
--------- ---------
</TABLE>
F-41
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 10--LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 29,
1997 1996
--------- ---------
<S> <C> <C>
SENIOR SECURED DEBT
Senior secured tranche A debt--interest rate of 8.3% at June 30, 1997;
principal due in semi-annual installments through September 19,
2001; floating interest rate at the prime rate plus 1.5%, or
alternatively, the one, three or six month Euro dollar rate plus
2.5% payable quarterly or at the termination of the Euro dollar
contract interest period............................................ $ 83,192 $ 48,750
Senior secured tranche B debt--interest rate of 8.8% at June 30, 1997;
principal due in semi-annual installments through April 30, 2003;
floating interest rate at the prime rate plus 2.0% or,
alternatively, the one, three or six month Euro dollar rate plus
3.0% payable quarterly or at the termination of the Euro dollar
contract interest period............................................ 76,640 40,000
Senior secured tranche C debt--interest rate of 9.0% at June 30, 1997;
principal due in semi-annual installments through September 30,
2003; floating interest rate at the prime rate plus 2.25% or,
alternatively, the one, three or six month Euro dollar rate plus
3.25% payable quarterly or at the termination of the Euro dollar
contract interest period............................................ 48,024 --
Revolving credit facility--interest rate of 10.0% at June 30, 1997;
principal due September 19, 2001; floating interest rate at the
prime rate plus 1.50% or, alternatively, the one, three, or six
month Euro dollar rate plus 2.50% payable quarterly or at the
termination of the Euro dollar contract period...................... 5,000 --
SENIOR SUBORDINATED NOTES
Senior subordinated notes issued September 15, 1995 at par value of
$100,000,000; coupon interest rate of 12.0% with interest payable
each March 15 and September 15; matures on September 15, 2005....... 100,000 100,000
--------- ---------
312,856 188,750
Less: current portion of long term debt (13,097) (5,000)
current portion of revolving credit facility........................ (5,000) --
--------- ---------
Long term debt........................................................ $ 294,759 $ 183,750
--------- ---------
--------- ---------
</TABLE>
Annual principal payments for the next five years and thereafter consist of
the following:
<TABLE>
<S> <C>
1998............................................. $ 18,097
1999............................................. 16,978
2000............................................. 22,071
2001............................................. 24,497
2002............................................. 33,227
Thereafter....................................... 197,986
---------
$ 312,856
---------
---------
</TABLE>
F-42
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 10--LONG TERM DEBT (CONTINUED)
SENIOR SECURED DEBT
On September 19, 1995, the Company entered into the VDK Holdings, Inc.
Credit and Guarantee Agreement (the "Agreement") with several banks for $30.0
million of senior secured term and revolving debt. The proceeds from the debt
were used to acquire the Businesses, pay fees and expenses and fund working
capital. The debt is guaranteed by the Company and its subsidiary. The Agreement
contains optional prepayment provisions with no premium. Substantially all
assets of the Company are pledged as collateral for the debt.
In conjunction with the Mrs. Paul's acquisition, the Company amended the
Agreement, dated as of May 6, 1996, to provide for additional borrowings of
$20.0 million under senior secured tranche A debt and $40.0 million of senior
secured tranche B debt. Proceeds from the additional borrowings were used to
acquire the Mrs. Paul's business, pay fees and expenses and to provide the
working capital requirements related to the Mrs. Paul's acquisition.
In conjunction with the acquisition of the Quaker Frozen Food Business, the
Company amended the Agreement, dated as of July 9, 1996 to provide for
additional borrowings of $45.0 million under senior secured tranche A debt, an
increase of $40.0 million to the senior secured tranche B debt and an increase
of $50.0 million to the senior secured tranche C debt. Proceeds from the
additional borrowings were used to acquire the business from Quaker, pay fees
and expenses and to provide the working capital requirements related to the
Celeste/Aunt Jemima acquisition.
The Agreement includes $25.0 million of available borrowing under a
revolving debt facility, subject to limitations based on letters of credit. At
June 30, 1997, the Company had unused borrowing availability of $19.6 million
after adjustment for previously issued letters of credit and an outstanding
balance of $5.0 million. The interest rate on the outstanding balance was 10.0%.
The Agreement requires a commitment fee of 0.5% per annum payable quarterly on
the unused portions of the revolving debt facility.
The Agreement includes restrictive covenants which limit additional
borrowing, cash dividends, and capital expenditures while also requiring the
Company to maintain certain financial ratios. The Company was in compliance with
these covenants at June 30, 1997.
SENIOR SUBORDINATED NOTES
On September 19, 1995, the Company issued $100.0 million of senior
subordinated notes (the "Notes") registered under the Securities Act of 1933.
The proceeds were used to fund the acquisition of the Businesses. The Notes may
be redeemed at any time prior to September 15, 2000. The prepayment redemption
price would be equal to 100% of the principal plus a premium equal to the
greater of (i) 1% of the principal amount or (ii) the excess of (a) present
value at time of redemption plus required interest payments due on the Notes
through September 15, 2000 over (b) principal amount of Notes. The indenture
includes restrictive covenants which limit additional borrowing, cash dividends,
the sale of assets, mergers and the sale of stock. The Company was in compliance
with these covenants at June 30, 1997.
F-43
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 10--LONG TERM DEBT (CONTINUED)
INTEREST RATE COLLAR AGREEMENTS
The Company uses interest rate collar agreements (the "Agreements") to
reduce the impact of changes in interest rates on its floating rate term debt.
Premiums paid for such Agreements are being amortized to interest expense over
the terms of the Agreements. Unamortized premiums are included in Other assets
in the balance sheet. Amounts to be paid or received, if any, under the
Agreements are recognized as an increase or decrease, respectively, in interest
expense. The counterparty to the Company's Agreements is a major financial
institution.
At June 30, 1997, the Company was party to two Agreements. On August 22,
1996, the Company entered into a three year interest rate collar agreement with
a notional principal amount of $70.0 million, a cap rate of 7.5% (plus the
applicable margin) and a floor rate of 5.5% (plus the applicable margin). On
November 26, 1996, the Company entered into a three year interest rate collar
agreement with a notional principal amount of $50.0 million, a cap of 6.5% (plus
the applicable margin) and a floor rate of 5.75% (plus the applicable margin).
The aggregate premiums paid for the two Agreements was $0.1 million.
Under the Agreements, the Company would receive payments from the
counterparty if the three-month LIBOR rate exceeds the cap rates and make
payments to the counterparties if the three-month LIBOR rate falls below the
floor rates. The payments would be calculated based upon the respective notional
principal amount. During fiscal 1997 the Company made payments aggregating $0.1
million under the Agreements. At June 30, 1997, the three-month LIBOR rate was
5.94%.
Risk associated with the Agreements include those associated with changes in
market value and interest rates. At June 30, 1997, the fair value of the
Company's interest rate collars was immaterial and management considers the
potential loss in future earnings and cash flows attributable to such collars to
be immaterial.
NOTE 11--TRANSITION EXPENSES
Transition related costs consist of what management believes are one-time
costs incurred to establish the Company's operations, including expenditures to
regain distribution of products that had been discontinued during the transition
of the acquired Businesses, relocation expenses, recruiting fees, sales
training, computer systems training and other one-time transitional expenses.
Transition related costs for the year ended June 30, 1997 and the period ended
June 29, 1996 were approximately $2.9 million and $1.3 million, respectively.
F-44
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 12--INCOME TAXES
The Company files a consolidated federal income tax return. State income tax
returns are filed by the Company and VDK Inc. on a separate company basis or on
a combined basis depending on the particular rules in each state.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 29,
1997 1996
----------- ---------------
<S> <C> <C>
The provision (benefit) for income taxes is summarized as
follows:
Current tax expense:
Federal...................................................... $ -- $ --
State........................................................ -- --
----------- -------
Total current provision........................................ -- --
----------- -------
Deferred tax expense:
Federal...................................................... 1,989 (196)
State........................................................ 388 (37)
----------- -------
Total deferred provision....................................... 2,377 (233)
----------- -------
Total provision (benefit) for income taxes..................... $ 2,377 $ (233)
----------- -------
----------- -------
Deferred tax assets (liabilities) consist of the following:
Deferred tax assets--current:
Loss carryforwards........................................... $ 5,679 $ 1,697
Promotion reserves........................................... 1,658 1,305
Other........................................................ 923 371
----------- -------
Total deferred tax assets--current......................... 8,260 3,373
----------- -------
Deferred tax liabilities--current:
Inventory reserves........................................... -- (130)
Deferred state taxes......................................... -- (13)
----------- -------
Total deferred tax liabilities--current.................... -- (143)
----------- -------
Deferred tax liabilities--non-current:
Goodwill..................................................... (7,043) (1,961)
Depreciation................................................. (3,361) (1,036)
----------- -------
Total deferred tax liabilities--non-current................ (10,404) (2,997)
----------- -------
Total deferred tax liabilities........................... (10,404) (3,140)
----------- -------
Net deferred tax asset (liability)....................... $ (2,144) $ 233
----------- -------
----------- -------
</TABLE>
The Company has not recorded a valuation allowance for its deferred tax
assets. Management believes the deferred tax assets are more likely than not to
be realized.
At June 30, 1997, the Company has federal net operating loss carryforwards
of approximately $14.2 million. These losses can be used to offset future
taxable income through the year 2011. The Company is
F-45
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 12--INCOME TAXES (CONTINUED)
a loss corporation as defined in section 382 of the Internal Revenue Code.
Therefore, if certain substantial changes of the Company's ownership should
occur, there could be significant annual limitations of the amount of net
operating loss carryforwards which can be utilized.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 29,
1997 1996
------------- ---------------
<S> <C> <C>
Provision for income taxes at U.S. statutory rate.............. $ 2,220 $ (229)
Increase (decrease) in tax resulting from:
Nondeductible expenses......................................... 36 20
State taxes, net of federal benefit............................ 121 (24)
------------- ------
$ 2,377 $ (233)
------------- ------
------------- ------
</TABLE>
NOTE 13--LEASES
The Company leases certain facilities, machinery and equipment under
operating lease agreements with varying terms and conditions. The leases are
noncancellable operating leases which expire on various dates through 2002.
Future annual minimum lease payments under these leases are summarized as
follows:
<TABLE>
<CAPTION>
MINIMUM
LEASE
YEARS ENDING JUNE 30, PAYMENTS
- ----------------------------------------------- -------------
<S> <C>
1998........................................... $ 753
1999........................................... 758
2000........................................... 728
2001........................................... 574
2002........................................... 143
Thereafter..................................... --
-------------
$ 2,956
-------------
-------------
</TABLE>
Rent expense was $0.5 million for the year ended June 30, 1997 and $0.2
million for the period ended June 29, 1996.
NOTE 14--SAVINGS AND BENEFIT PLANS
The Company offers a retirement savings plan to its nonunion employees in
the form of 401(k) and profit sharing plans. Under the 401(k) plan, employee
contributions up to 3% of total compensation are matched by the Company, with
vesting occurring ratably over a five year period. Profit sharing contributions
of 2% of compensation are made on behalf of all nonunion employees on an annual
basis. Profit sharing contributions also vest ratably over a five year period.
The Company's contributions to the
F-46
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 14--SAVINGS AND BENEFIT PLANS (CONTINUED)
401(k) plan for the year ended June 30, 1997 and the period ended June 29, 1996
were $0.6 million and $0.1 million, respectively. The Company's contributions to
the profit sharing plan for the year ended June 30, 1997 and the period ended
June 29, 1996 were $0.5 million and $0.1 million, respectively.
The Company also has a defined benefit retirement plan for unionized
employees in the Chambersburg plant. Benefits are based on years of credited
service and average compensation or stated amounts for each year of service. Net
pension expense for the defined benefit retirement plan totaled $0.1 million and
$0 for the year ended June 30, 1997 and the period ended June 29, 1996,
respectively. The funding policy is consistent with the requirements of federal
law and regulations.
NOTE 15--RELATED PARTY TRANSACTIONS
The Company has a Management Services Agreement with Dartford Partnership,
LLC ("Dartford") to provide consulting services and management oversight on
financial and operational matters. The Company paid fees totaling $1.8 million
to Dartford, a member of VDK LLC, during the year ended June 30, 1997 and $0.6
million during the period ended June 29, 1996. The annual management fee was
$0.7 million prior to the acquisition of Mrs. Paul's and $1.2 million prior to
the acquisition of the Quaker Frozen Food Business. The charge is included in
general and administrative expenses in the Statement of Operations.
The Company paid certain members of VDK LLC fees totaling $2.1 million
during the year ended June 30, 1997 and $2.0 million during the period ended
June 29, 1996. The fees were paid for services provided in identifying,
negotiating and consummating the Company's acquisitions. The fees were included
in the costs of the acquisitions.
On September 19, 1995, Mr. Thomas O. Ellinwood, the President of the
Company, and Mr. Thomas J. Youngerman, Mr. Olafur Gudmundsson and Ms. C. Renee
Sloan, Vice Presidents of the Company, executed promissory notes in favor of the
Company in exchange for monies borrowed to assist in the capitalization of their
limited liability company interests held with VDK LLC. The promissory notes
mature September 30, 1998 with required annual payments. Interest is due and
payable quarterly at the rate of 8.5% per annum. The aggregate balance
outstanding on the promissory notes was $213.3 and $305.0 at June 30, 1997 and
June 29, 1996, respectively. The net outstanding balance has been recorded as a
reduction to paid-in capital and is reflected as such on the Statement of
Changes in Stockholder's Equity.
NOTE 16--INCENTIVE PLAN EXPENSE
VDK LLC has implemented a Management Compensation Plan ("the Plan") as a
means by which Key Personnel (defined as employees and other specific designated
persons) of the Company, and/or affiliated with the Company, may be given an
opportunity to benefit from the appreciation in the value of the Company. The
Amended and Restated Limited Liability Company Agreement of VDK LLC, dated as of
September 19, 1995, was amended and restated as of May 22, 1997 to approve and
adopt the Plan. The effective date of the Plan is as of September 19, 1995.
Under the Plan, Key Personnel are issued various types of management
compensation units (the "Units") in the Plan as a means to participate in the
valuation of the Company, as determined based on certain formulae in the Plan
document. The Units are subject to forfeiture based on the failure to meet
F-47
<PAGE>
VDK HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 16--INCENTIVE PLAN EXPENSE (CONTINUED)
vesting requirements, specified earnings targets, and/or rates of return targets
for certain investors in VDK LLC. Pursuant to the Plan document, the Units will
have special valuation and payment provisions upon a change of control or
initial public offering of the Company's stock (an "IPO").
Upon a change of control or IPO, the Units will be valued and amounts will
be paid to Unit holders according to various factors, such as the type of
triggering event and the amount of proceeds paid to the VDK LLC's investors. In
general, there will be no payment on the Units until the VDK LLC's investors
have received a designated return on their investments. The payment to Unit
holders may be cash and/or non-cash securities, depending on the triggering
event and the type of distribution received by VDK LLC's investors. In addition,
the Plan will gross-up payments to the Unit holders in certain events relating
to (i) any excise tax due under federal income tax rules, and (ii) any tax on
the Units in excess of capital gains tax rates.
The total amount due under the Plan, if any, is subject to the rates of
return and forfeiture factors discussed above. Based on management and the Board
of Director's assessment of the current valuation of the Company, there is no
basis to record an accrual for incentive expense at this time. Should the
Company appreciate further in value, incentive expense to be recognized in
future periods could be significant. To the extent any amounts are deemed
accruable under the Plan in the future, such amounts will be a liability of VDK
LLC as the sponsor of the Plan. However, because the Plan is for the benefit of
Key Personnel of the Company, any expense to be recognized under the Plan will
be pushed down to the Company, and will be recorded by the Company as expense
and as additional paid in capital from its parent over the applicable vesting
periods. See Note 18--Subsequent Events.
NOTE 17--COMMITMENTS AND CONTINGENCIES
The Company is subject to litigation in the ordinary course of business. In
the opinion of management, the ultimate outcome of any existing litigation would
not have a material adverse effect on the Company's financial position or
results of operations.
NOTE 18--SUBSEQUENT EVENTS--(UNAUDITED)
SALE OF COMPANY
On April 8, 1998, VDK LLC sold all of the outstanding common stock of the
Company to Aurora/VDK LLC, a newly formed limited liability company, in exchange
for an interest in Aurora/VDK LLC. Following the sale transaction, Aurora/VDK
LLC is owned 44.5% by VDK LLC and 55.5% by MBW Investors LLC.
INCENTIVE PLAN EXPENSE
In the quarter ended March 31, 1998, the Company recognized a pre-tax charge
of $69.0 million for incentive plan expense under the Plan.
F-48
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Management of
The Procter & Gamble Company:
We have audited the accompanying statements of equipment and goodwill as of
June 30, 1997 and 1996 and statements of direct revenues, direct expenses, and
allocated selling expense of the Duncan Hines Business of The Procter & Gamble
Company ("Procter & Gamble") for the years ended June 30, 1997, 1996, and 1995
(collectively, the "statements"). These statements are the responsibility of
Procter & Gamble's management. Our responsibility is to express an opinion on
these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements referred to above are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements referred to above. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements referred to above. We believe that our audits provide a
reasonable basis for our opinion.
The assets and operations covered by the statements referred to above are a
part of The Procter & Gamble Company and have no separate legal status. As
described in Notes 1 and 2 to the statements, the statements referred to above
have been prepared from Procter & Gamble's consolidated financial records and
allocations of certain costs and expenses have been made. These allocations are
not necessarily indicative of the costs and expenses that would have been
incurred by the Duncan Hines Business on a stand-alone basis.
In our opinion, the statements referred to above present fairly, in all
material respects, the equipment and goodwill as of June 30, 1997 and 1996 and
the direct revenues, direct expenses, and allocated selling expense of the
Duncan Hines Business of The Procter & Gamble Company for the years ended June
30, 1997, 1996, and 1995 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
June 9, 1998
Cincinnati, Ohio
F-49
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
STATEMENTS OF EQUIPMENT AND GOODWILL
AS OF DECEMBER 31, 1997 AND JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
(IN THOUSANDS) 1997 1997 1996
-------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
EQUIPMENT--NET............................................................ $ 18,065 $ 19,349 $ 20,502
GOODWILL.................................................................. 3,914 3,914 3,914
-------------- --------- ---------
TOTAL..................................................................... $ 21,979 $ 23,263 $ 24,416
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
See accompanying notes to the financial statements.
F-50
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
STATEMENTS OF DIRECT REVENUES, DIRECT EXPENSES, AND ALLOCATED
SELLING EXPENSE FOR THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995, AND FOR
THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
------------------------ -------------------------------------
1997 1996 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
DIRECT REVENUES:
Gross revenues................................ $ 154,519 $ 146,124 $ 253,548 $ 277,721 $ 281,303
Less:
Trade spending.............................. (15,822) (9,659) (19,646) (16,357) (14,775)
Coupon expense.............................. (2,194) (2,110) (2,900) (3,378) (5,388)
----------- ----------- ----------- ----------- -----------
Net direct revenues....................... 136,503 134,355 231,002 257,986 261,140
----------- ----------- ----------- ----------- -----------
COSTS OF PRODUCTS SOLD:
Product costs................................. 85,139 80,361 144,261 153,791 153,015
Delivery costs................................ 6,398 6,647 11,787 13,388 14,267
----------- ----------- ----------- ----------- -----------
Total costs of products sold.............. 91,537 87,008 156,048 167,179 167,282
----------- ----------- ----------- ----------- -----------
GROSS MARGIN.................................... 44,966 47,347 74,954 90,807 93,858
----------- ----------- ----------- ----------- -----------
DIRECT MARKETING:
Consumer promotional expense.................. 1,184 1,226 3,376 5,186 4,498
Advertising expense........................... 6,549 5,576 9,957 13,798 12,276
Other marketing expenses...................... 1,119 1,453 2,520 4,049 3,245
----------- ----------- ----------- ----------- -----------
Total direct marketing expenses........... 8,852 8,255 15,853 23,033 20,019
----------- ----------- ----------- ----------- -----------
DIRECT SELLING, ADMINISTRATIVE AND OTHER........ 4,131 6,177 10,041 10,791 9,962
ALLOCATED SELLING EXPENSE....................... 2,762 3,297 4,750 6,373 6,429
----------- ----------- ----------- ----------- -----------
EXCESS OF DIRECT REVENUES OVER DIRECT EXPENSES
AND ALLOCATED SELLING EXPENSE................. $ 29,221 $ 29,618 $ 44,310 $ 50,610 $ 57,448
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the financial statements.
F-51
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION
On January 16, 1998, The Procter & Gamble Company (Procter & Gamble) sold
certain assets and the related business of the Duncan Hines brand ("Duncan Hines
Business"). The Duncan Hines Business produces baking goods which are
manufactured at Procter & Gamble's Jackson, TN. plant, which also produces other
food products for Procter & Gamble that are unrelated to the Duncan Hines
Business. The accompanying statements present the equipment and goodwill that
Procter & Gamble sold as of December 31, 1997 and June 30, 1997 and 1996 and
direct revenues, costs of products sold, direct marketing expenses, direct
selling, administrative and other expenses, and allocated selling expense for
the years ended June 30, 1997, 1996, and 1995, the six-month periods ended
December 31, 1997 and 1996 for the Duncan Hines Business. Results of operations
for interim periods are not necessarily indicative of results to be expected for
an entire year.
Procter & Gamble did not account for the Duncan Hines Business as a separate
entity. Accordingly, the information included in the accompanying statements of
direct revenues, direct expenses, and allocated selling expense has been
obtained from Procter & Gamble's consolidated financial records. The statements
of direct revenues, direct expenses, and allocated selling expense include
allocations of certain Procter & Gamble selling, administrative, and other
expenses, as discussed in Note 2. Procter & Gamble management believes the
allocations are reasonable; however, these allocated expenses are not
necessarily indicative of expenses that would have been incurred by the Duncan
Hines Business on a stand-alone basis, since certain administrative and other
expenses are provided to the Duncan Hines Business that are not included in the
accompanying statements as discussed in Note 2.
In addition, the statements of direct revenues, direct expenses, and
allocated selling expense include allocations of certain Jackson Plant costs, as
discussed in Note 2. Procter & Gamble management believes these allocations are
reasonable; however, these allocated costs may not necessarily be indicative of
costs that would have been incurred by the Duncan Hines Business on a
stand-alone basis, since these allocated costs are based on the structure of the
Jackson Plant operations and related activities, as managed and operated by
Procter & Gamble.
Equipment and goodwill and direct revenues, direct expenses, and allocated
selling expense are presented in the accompanying statements in accordance with
generally accepted accounting principles. The unaudited information for the
six-month periods ended December 31, 1997 and 1996 contain all adjustments,
consisting only of normal recurring accruals, necessary for a consistent
presentation of the direct revenues and direct expenses for the six-month
periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION--Revenue from the sale of products is recognized at the
time the products are shipped.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying disclosures. Although these estimates are based on management's
best knowledge of current events and actions Procter & Gamble may undertake in
the future, actual results ultimately may differ from the estimates.
F-52
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT--Equipment cost and the related accumulated depreciation were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 JUNE 30, JUNE 30,
(UNAUDITED) 1997 1996
-------------- --------- ---------
<S> <C> <C> <C>
Equipment cost............................................................ $ 51,604 $ 51,793 $ 50,038
Accumulated depreciation.................................................. 33,539 32,444 29,536
-------------- --------- ---------
Net book value............................................................ $ 18,065 $ 19,349 $ 20,502
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which primarily range from 4 to 19 years.
GOODWILL--Goodwill represents the cost of acquisition in excess of tangible
assets and identifiable intangible assets received. Since the goodwill was
acquired prior to November 1970 it is not being amortized.
COUPON EXPENSE--Coupon expense represents deductions from direct revenues
for coupons related to Duncan Hines products. The expense is based on expected
redemption rates of issued coupons based on historical data.
COSTS OF PRODUCTS SOLD--Inventories are valued at cost, which is not in
excess of current market. Cost is primarily determined by the average cost
method. The cost of products sold include allocations of costs to the Duncan
Hines Business activities, including warehousing, utilities, insurance, and
employee costs. These plant costs are allocated between the Duncan Hines
Business and other food products that are produced at the Jackson Plant based
primarily on number of employees, usage, and square footage.
DIRECT MARKETING--Direct marketing represents specifically identified
promotional, advertising, and other marketing expenses related to the Duncan
Hines Business.
DIRECT SELLING, ADMINISTRATIVE & OTHER--Certain selling, administrative and
other direct expenses are specifically identifiable and others are allocated to
the Duncan Hines Business based primarily on an estimate of actual time and
effort spent, number of employees, and square footage. Such allocated expenses
represent those charges that are attributable to the Duncan Hines Business and
include Procter & Gamble's Food and Beverage Sector and the Duncan Hines
Category related expenses such as human resources, public affairs, research and
development, finance and accounting, selling, and other general administrative
expenses. Certain administrative and other expenses are allocated to the Duncan
Hines Business by Procter & Gamble that are not directly attributable or
specifically identifiable to the Business and, therefore, are excluded from
direct selling, administrative, and other expenses in the accompanying
statements. Such expenses primarily include Procter & Gamble's Corporate and
North American Region related expenses such as human resources, executive
compensation, management systems, finance and accounting, research and
development, and general corporate expenses.
ALLOCATED SELLING EXPENSE--Selling expense is not specifically identifiable
to the Duncan Hines Business. Such expense is allocated to the Duncan Hines
Business based on the volume in relation to the total volume of the Duncan Hines
Business in relation to the total volume of the North American Region of Procter
& Gamble.
UNAUDITED INTERIM INFORMATION The interim financial data as of December 31,
1997, and for the six months ended December 31, 1997 and 1996 is unaudited;
however, in the opinion of the Company,
F-53
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the interim data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods.
3. SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents supplemental financial information:
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
------------------------ -------------------------------
(IN THOUSANDS) 1997 1996 1997 1996 1995
----------- ----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Depreciation and Amortization(1) $ 1,777 $ 1,863 $ 3,818 $ 3,689 $ 3,598
Cash Flows:
Capital Expenditures(1)..................................... 1,500 1,500 4,600 4,500 3,800
Changes in Inventory........................................ 1,313 (1,098) (3,162) 355 1,149
</TABLE>
- ------------------------------
(1) The amounts for Depreciation and Amortization and Capital Expenditures
include allocations of certain Jackson Plant costs, in addition to those
costs related to Equipment - Net presented in the accompanying statements of
equipment and goodwill. Amounts for Depreciation and Amortization are
included in Product costs in the accompanying statements of direct revenues,
direct expenses, and allocated selling expense. These amounts are not
necessarily indicative of the costs and expenses that would have been
incurred by the Duncan Hines Business on a stand-alone basis.
* * * * * *
F-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Kraft Foods, Inc.
We have audited the accompanying statements of assets to be acquired of the
Log Cabin Syrup Business (the "Business"), a component of Kraft Foods, Inc. as
of December 28, 1996 and December 30, 1995, and the statements of operations of
the Business for the years ended December 28, 1996, December 30, 1995 and
December 31, 1994. These financial statements are the responsibility of Kraft
Foods, Inc.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements were prepared to present assets to be
acquired and the results of operations of the Business pursuant to the asset
purchase agreement between Kraft Foods, Inc. and MBW Foods, Inc. as described in
Note 1 and are not intended to be a complete presentation of the Business's
financial position and cash flows.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets to be acquired of the Business as of
December 28, 1996 and December 30, 1995 and the results of its operations for
the years ended December 28, 1996, December 30, 1995 and December 31, 1994, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
August 20, 1997
F-55
<PAGE>
LOG CABIN SYRUP BUSINESS
(A COMPONENT OF KRAFT FOODS)
STATEMENTS OF ASSETS TO BE ACQUIRED
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Inventories....................................................................... $ 6,717 $ 6,661
Machinery and equipment, net of accumulated depreciation of $2,415 and $2,099,
respectively.................................................................... 8,238 8,976
-------------- --------------
Total assets................................................................ $ 14,955 $ 15,637
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-56
<PAGE>
LOG CABIN SYRUP BUSINESS
(A COMPONENT OF KRAFT FOODS, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 28, 1996,
DECEMBER 30, 1995 AND
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Net sales.................................................... $ 104,466 $ 106,330 $ 115,894
Costs and expenses:
Cost of products sold...................................... 36,237 35,804 35,254
Freight and distribution................................... 7,099 7,620 7,553
Trade promotions........................................... 21,355 23,239 20,898
Consumer marketing......................................... 3,994 5,478 7,940
Selling, general and administrative........................ 7,388 7,738 7,863
Amortization of goodwill................................... 1,350 1,350 1,350
--------------- --------------- ---------------
Total costs and expenses................................. 77,423 81,229 80,858
--------------- --------------- ---------------
Net sales less direct and allocated expenses before
taxes.................................................... 27,043 25,101 35,036
Provision for income taxes................................... 11,229 10,461 14,391
--------------- --------------- ---------------
Net sales less direct and allocated expenses................. $ 15,814 $ 14,640 $ 20,645
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-57
<PAGE>
LOG CABIN SYRUP BUSINESS
(A COMPONENT OF KRAFT FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
On May 7, 1997, Kraft Foods, Inc. ("Kraft" or the "Company"), entered into
an Asset Purchase Agreement (the "Agreement") with MBW Foods Inc. (the "Buyer").
The Agreement provides for the sale of certain assets of Kraft pertaining to its
Log Cabin Syrup Business (the "Business"). Under the terms of the Agreement,
Kraft Foods, Inc. sold to the Buyer certain assets (inventory and machinery and
equipment) used in the Business, as defined in the Agreement, and retained the
manufacturing plants, employees and certain liabilities, as defined in the
Agreement, of the Business. The sale was consummated on July 1, 1997.
The Business's products, which are distributed on an international basis,
consist of retail and foodservice syrup products. A significant portion of the
Business's net sales are with major retailers. The accompanying financial
statements represent the results of operations and assets to be acquired of the
Business in the United States and Canada, including export sales, but
specifically excluding the Business in Mexico and the manufacture and sale of
syrups under the Kraft brand name pursuant to a distribution agreement with
Alliant Foodservice, a former indirect wholly-owned subsidiary of Kraft.
Throughout the periods covered by the financial statements, the Business's
operations were conducted and accounted for as part of the Company. These
financial statements have been carved out from the Company's historical
accounting records.
The manufacturing and distribution operations of the Business are conducted
at sites where other Company manufacturing and distribution operations not
included in the Business are present. In addition, certain nonmanufacturing
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) are included in the statements of assets to be
acquired.
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 Kraft 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 since only certain assets of the
Business were sold, statements of financial position and cash flows could not be
prepared.
Net sales in the accompanying statements of operations represent net sales
directly attributable to the Business. Costs and expenses in the accompanying
statements 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 usage or sales. The results of operations include
expense allocations for (1) selling costs for sales and customer service
functions and services performed on behalf of the Business by the centralized
sales group within the Company, (2) fixed manufacturing and distribution costs
of the facilities that produce and store the products of the Business, (3)
research and development expense, (4) administrative costs of the marketing
division responsible for the Business, including finance and accounting, and (5)
certain Kraft marketing and corporate expenses attributable to the Business,
including human resources,
F-58
<PAGE>
LOG CABIN SYRUP BUSINESS
(A COMPONENT OF KRAFT FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
1. DESCRIPTION OF BUSINESS (CONTINUED)
systems, legal, and risk management (see Notes 2 and 4 for a description of the
allocation methodologies employed). Kraft 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.
The statements of operations of the Business exclude allocations of certain
expenses, primarily related to certain Kraft general corporate expenses.
Expenses not allocated include, but are not limited to, general overhead costs
related to corporate accounting, human resources, legal, systems, and risk
management.
Total cost of products sold includes $2,398, $2,401, and $2,091 in allocated
costs for the years ended December 28, 1996, December 30, 1995 and December 31,
1994, respectively. Freight and distribution expenses include $2,369, $2,597 and
$2,801 of allocated costs for the years ended December 28, 1996, December 30,
1995 and December 31, 1994, respectively. Selling, general and administrative
expenses include $7,388, $7,738 and $7,863 of allocated costs for the years
ended December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
All of the allocations and estimates in the statements 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 the future operating results of the
Business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL PERIODS
The Business's fiscal year consists of 52 or 53 weeks, ending on the last
Saturday in December. The year ended December 31, 1994 consisted of 53 weeks.
Each of the years ended December 30, 1995 and December 28, 1996 consisted of 52
weeks.
INCOME RECOGNITION
Sales and related cost of products sold are included in income and expense,
respectively, when products are shipped to the customer.
INVENTORIES
Finished goods inventories are directly attributable to the Business. Raw
materials, packaging and supplies have been allocated to the Business on the
basis of usage during the preceding year. Inventories are priced at the lower of
cost or market with cost determined on a last-in, first-out (LIFO) basis.
Certain distribution and fixed costs have been included in inventory in
accordance with the Uniform Capitalization Rules under the Tax Reform Act of
1986 ("UNICAP") rules.
F-59
<PAGE>
LOG CABIN SYRUP BUSINESS
(A COMPONENT OF KRAFT FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MACHINERY AND EQUIPMENT
Machinery and equipment in the accompanying statements of assets to be
acquired (the "M&E") is stated at historical cost, net of accumulated
depreciation directly related to that machinery and equipment. Alterations and
major overhauls which extend the lives or increase the capacity of the M&E are
capitalized. The amounts for property disposals are removed from the 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 is calculated using the straight-line method over the useful
lives of the M&E. Depreciation expense provided in costs and expenses in the
accompanying statements of operations for the M&E is directly attributable to
the Business. Depreciation expense provided in costs and expenses in the
accompanying statements of operations for the shared facilities is allocated to
the Business based on usage or occupancy of the Business compared to total usage
or occupancy.
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 common supplies,
and sales of the Business compared to total Kraft sales.
FREIGHT AND DISTRIBUTION
Freight and distribution expenses consisting of direct outbound freight and
direct and allocated costs related to the warehousing of products of the
Business are included in cost of products sold.
TRADE PROMOTIONS
Trade promotions are directly attributable to the Business and represent
promotional incentives offered to retailers, including both performance and
non-performance trade deals.
CONSUMER MARKETING
Consumer marketing is directly attributable to the Business and consists
primarily of advertising and coupons. Advertising and promotional costs are
generally expensed as incurred. Production costs are expensed on the initial use
of the advertisement or the initial drop of the coupons. Advertising expense was
$361, $23 and $1,594 for the years ended December 28, 1996, December 30, 1995
and December 31, 1994, respectively.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative consists solely of allocated selling,
administrative and research and development expenses. The Business has allocated
these expenses based on various measures relevant to the expense being
allocated.
F-60
<PAGE>
LOG CABIN SYRUP BUSINESS
(A COMPONENT OF KRAFT FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AMORTIZATION OF GOODWILL
Goodwill consists of an estimate of goodwill allocable to the Business
arising from Philip Morris's acquisition of General Foods, Inc. in 1985.
Goodwill is amortized over 40 years using the straight-line method.
INCOME TAXES
The taxable income of the Business was included in the tax returns of Philip
Morris. As such, separate income tax returns were not prepared or filed for the
Business. The provisions for income taxes included in the accompanying
statements of operations have been determined on a separate company basis. No
deferred income taxes have been attributed to the Business.
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 service and
interest costs allocated to the Business relative to the aforementioned plans
are based on pensionable earnings of employees directly attributable or
allocated to the Business.
OTHER POSTRETIREMENT BENEFITS
The Company provides certain health care and life insurance benefits
(postretirement 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 postretirement costs allocated to the Business are based
on headcount of employees directly attributable or allocated to the Business.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Also, as
discussed in Note 1, these financial statements include 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
the future results of the Business.
F-61
<PAGE>
LOG CABIN SYRUP BUSINESS
(A COMPONENT OF KRAFT FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
3. PROVISION FOR INCOME TAXES
The provisions for income taxes for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal........................................................................ $ 9,242 $ 8,610 $ 11,844
State.......................................................................... 1,987 1,851 2,547
--------- --------- ---------
Provision for income taxes..................................................... $ 11,229 $ 10,461 $ 14,391
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Business's effective income tax rate differed from the U.S. federal
statutory rate for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal........................................................................ 35.0% 35.0% 35.0%
State (net of federal tax benefit)............................................. 4.8 4.8 4.7
Goodwill amortization.......................................................... 1.7 1.9 1.4
--------- --------- ---------
Provision for income taxes..................................................... 41.5% 41.7% 41.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Raw materials, packaging and supplies......................................................... $ 2,846 $ 2,455
Finished products............................................................................. 4,186 5,223
--------- ---------
7,032 7,678
Adjustment to LIFO basis...................................................................... (315) 1,017
--------- ---------
$ 6,717 $ 6,661
--------- ---------
--------- ---------
</TABLE>
The Company's application of LIFO is not attributable to individual product
lines. Accordingly, the results of applying LIFO have been allocated to the
Business based on sales of the Business compared to total sales of Kraft.
Management believes such allocations are reasonable, but may not necessarily
reflect the costs that would have been incurred if LIFO had been applied on a
business specific basis.
5. 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 Kraft.
6. CASH FLOW INFORMATION
The Business had capital expenditures of $500, $1,200 and $800, for the
years ended December 28, 1996, December 30, 1995 and December 31, 1994.
F-62
<PAGE>
LOG CABIN SYRUP BUSINESS
(A COMPONENT OF KRAFT FOODS, INC.)
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
<S> <C> <C>
JUNE 28, JUNE 29,
1997 1996
--------- ---------
Net Sales.................................................................................. $ 51,222 $ 51,509
Costs and Expenses
Cost of products sold.................................................................... 18,067 16,269
Brokerage and distribution............................................................... 3,239 3,589
Trade promotions......................................................................... 9,457 10,452
Consumer marketing....................................................................... 597 3,789
Selling, general and administrative...................................................... 3,637 3,802
Amortization of goodwill................................................................. 675 675
--------- ---------
Total costs and expenses................................................................... 35,672 38,576
--------- ---------
Net sales less direct and allocated expenses before taxes.................................. 15,550 12,933
Provision for income taxes................................................................. 6,376 5,303
--------- ---------
Net sales less direct and allocated expenses............................................... $ 9,174 $ 7,630
--------- ---------
--------- ---------
</TABLE>
F-63
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of
Pet Incorporated
In our opinion, the accompanying combined statements of income of Van de
Kamp's frozen seafoods business and frozen dessert product lines (the
Businesses), comprising businesses of Pet Incorporated (the Company), present
fairly, in all material respects, results of operations of the Businesses for
the period July 1, 1995 through September 18, 1995 and for the year ended June
30, 1995 in conformity with generally accepted accounting principles. These
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether these statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall presentation of these statements. We believe that our
audits of these statements provide a reasonable basis for the opinion expressed
above.
As explained in Note 1, Van de Kamp's, Inc. acquired the assets of the
Businesses from The Pillsbury Company and Pet Incorporated on September 19,
1995.
Price Waterhouse LLP
San Francisco, California
July 22, 1996
F-64
<PAGE>
VAN DE KAMP'S AND FROZEN DESSERT
PRODUCT LINES OF PET INCORPORATED
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 1, 1995 FOR THE YEAR
THROUGH ENDED
SEPTEMBER 18, 1995 JUNE 30, 1995
-------------------- --------------
<S> <C> <C>
Net sales................................................................... $ 20,545 $ 149,359
Cost of goods sold.......................................................... 10,978 66,111
-------- --------------
Gross profit.............................................................. 9,567 83,248
-------- --------------
Selling distribution and marketing expenses:
Selling and distribution.................................................. 1,616 11,376
Trade promotions.......................................................... 3,699 34,530
Consumer marketing........................................................ 1,919 8,260
-------- --------------
Total selling, distribution and marketing expenses...................... 7,234 54,166
Amortization of goodwill.................................................... 689 3,305
General and administrative expenses......................................... 1,370 9,789
-------- --------------
Total operating expenses................................................ 9,293 67,260
-------- --------------
Income from operations before income taxes.............................. 274 15,988
Provision for income taxes.................................................. 396 7,716
-------- --------------
Net income (loss)....................................................... $ (122) $ 8,272
-------- --------------
-------- --------------
</TABLE>
F-65
<PAGE>
VAN DE KAMP'S AND FROZEN DESSERT
PRODUCT LINES OF PET INCORPORATED
NOTES TO THE COMBINED STATEMENTS OF INCOME
1. THE ENTITY
The Van de Kamp's frozen seafoods business (VDK) and certain frozen dessert
product lines (Desserts, together with VDK referred to as the "Businesses"),
were owned by Pet Incorporated (Pet) which had operated as a stand alone entity
from April 1, 1991 through February 8, 1995, upon which date Pet was acquired as
a wholly-owned subsidiary of The Pillsbury Company (Pillsbury), an indirect
wholly-owned subsidiary of Grand Metropolitan PLC, a company incorporated in
England. In accordance with the Asset Purchase Agreement dated as of July 7,
1995 (the Agreement), Pillsbury and Pet agreed to sell and transfer certain
assets of the Businesses to Van de Kamp's, Inc. VDK produces and markets branded
frozen seafood in the United States. The Desserts businesses represent frozen
dessert lines consisting of Pet-Ritz brand cream pies and cobblers, Oronoque
Orchards brand pie crusts and private label whipped toppings. Assets acquired by
Van de Kamp's, Inc. on September 19, 1995 were limited to inventories, property,
plant and equipment, and the intangible assets of the Businesses. No other
assets were acquired and no liabilities of the Businesses were assumed.
The historical net sales of the Businesses represented approximately 10% of
Pet's consolidated net sales in recent years. Of the Businesses' net sales for
the period July 1, 1995 through September 18,1995 and the year ended June 30,
1995 approximately 67.7% and 75.6%, respectively, relate to VDK, with the
remainder relating to Desserts.
2. BASIS OF PRESENTATION
The combined statements of income of the Businesses were derived from the
accounting records of Pillsbury and Pet and have been presented on a Pet
historical cost basis. Purchase accounting adjustments reflecting the Pillsbury
basis after February 8, 1995, in conjunction with the acquisition of Pet, were
not pushed down to the asset balances of the Businesses and are not reflected in
the related financial information presented herein.
The combined statements of income include revenue and expenses directly
attributable to the manufacture and sale of the Businesses' products as well as
the allocation of general and administrative expenses (see Note 3). However,
Pillsbury and Pet maintained all debt and notes payable on a consolidated basis
to fund and manage all product lines and businesses; debt and related interest
expense were not allocated to individual product lines. Accordingly, no interest
expense for these Businesses is included in the combined statements of income
presented herein.
Full financial statements, including complete historical balance sheets and
statements of cash flows, of the Businesses have not been presented. Neither
Pillsbury nor Pet operated these product lines as separate divisions or business
entities. Accordingly, it is not practicable to separate other components of
assets, liabilities or cash flows related specifically to these product lines.
The financial information in these statements is not necessarily indicative of
results that would have occurred if the Businesses had been a separate stand
alone entity during the periods presented or of future results of the
Businesses.
F-66
<PAGE>
VAN DE KAMP'S AND FROZEN DESSERT
PRODUCT LINES OF PET INCORPORATED
NOTES TO THE COMBINED STATEMENTS OF INCOME (CONTINUED)
3. SUMMARY OF ACCOUNTING POLICIES
Revenue recognition--Revenue from the sale of the Businesses' products is
recognized upon shipment to the customer. Costs and related expenses to
manufacture the Businesses' products are recorded as costs of goods sold when
the related revenue is recognized.
Allocation of general and administrative expenses--Prior to the acquisition
by Pillsbury, Pet provided various general and administrative services to the
Businesses including quality control, quality assurance, engineering, cost
accounting, labor relations, product development, computer processing systems,
treasury, legal, employee benefits, human resources, insurance and corporate
facilities and management. These expenses were allocated to all of Pet's product
lines, including the Businesses, based primarily on budgeted sales. Upon
conversion to Pillsbury's systems as of May 1, 1995, similar costs for the
months of May and June of 1995 and during the period ended September 18, 1995
were allocated from Pillsbury on a consistent basis.
Warehousing costs--Warehousing costs, including internal and external costs,
of $1,176 and $4,248 for the period July 1, 1995 through September 18, 1995 and
the year ended June 30, 1995, respectively, are reflected in cost of goods sold.
Selling, distribution and marketing expenses--Pet aggregates its selling,
distribution and marketing expenses into three categories. Selling and
distribution expenses include costs of the outside brokerage network and
outbound freight. Trade promotions represent promotional incentives offered to
retailers. Consumer marketing expense is comprised of costs for advertising and
coupon placements and related processing.
Property, plant and equipment--Property, plant and equipment are stated at
cost and depreciation is computed using the straight line method at annual rates
of 2% to 20%. Expenditures for improvements which substantially extend the
useful life or increase the capacity of assets, including interest during the
construction period, are capitalized. Capital expenditures for the Businesses
were $0 and $1,884 for the period July 1, 1995 to September 18, 1995 and the
year ended June 30, 1995, respectively. Ordinary repairs and maintenance are
expensed as incurred. When property, plant and equipment are sold or retired,
cost and accumulated depreciation are removed from the accounts and gains and
losses are recorded in income. Depreciation expense for the Businesses was $653
and $3,016 for the period July 1, 1995 through September 18, 1995 and the year
ended June 30, 1995, respectively.
Goodwill--Goodwill consists of the excess of cost over the fair market value
of net tangible assets acquired. Goodwill is being amortized on a straight-line
basis over 40 years.
4. PROVISION FOR INCOME TAXES
The Businesses have been included in the combined federal and certain state
tax returns of Pet through February 8, 1995 and included with those of Pillsbury
through September 18, 1995. The provision for income taxes included in these
statements has been calculated based upon statutory rates applied to pre-tax
income adjusted for goodwill amortization and may not necessarily be indicative
of the Businesses' tax expense on a stand alone basis.
F-67
<PAGE>
VAN DE KAMP'S AND FROZEN DESSERT
PRODUCT LINES OF PET INCORPORATED
NOTES TO THE COMBINED STATEMENTS OF INCOME (CONTINUED)
4. PROVISION FOR INCOME TAXES (CONTINUED)
The items which gave rise to differences between the income taxes provided
in the statement of income and income taxes computed at the U.S. statutory rate
are summarized below (in thousands):
<TABLE>
<CAPTION>
JULY 1, 1995
THROUGH
SEPTEMBER 18, 1995 1995
---------------------- --------------------
AMOUNT % AMOUNT %
<S> <C> <C> <C> <C>
Income tax expense computed at statutory rate..... $ 96 35.0 $ 5,595 35.0
State income taxes, net of federal income tax
benefit.......................................... 14 5.0 799 5.0
Goodwill amortization............................. 286 4.4 1,322 8.3
----- --- --------- ---
Provision for federal taxes..................... $ 396 44.4 $ 7,716 48.3
----- --- --------- ---
----- --- --------- ---
</TABLE>
F-68
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom Goldman,
Sachs & Co., BT Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Credit Suisse First Boston Corporation, SBC Warburg
Dillon Read Inc., and Chase Securities Inc. are acting as representatives, has
severally agreed to purchase from the Company and the Selling Stockholder the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- -------------------------------------------------------- ------------------
<S> <C>
Goldman, Sachs & Co.....................................
BT Alex. Brown Incorporated.............................
Donaldson, Lufkin & Jenrette Securities Corporation.....
Credit Suisse First Boston Corporation..................
SBC Warburg Dillon Read Inc.............................
Chase Securities Inc....................................
------------------
Total............................................. 12,325,000
------------------
------------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain brokers and dealers. After the shares of Common Stock are released
for sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company and the Selling Stockholder have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the international offering (the "International Underwriters") providing for the
concurrent offer and sale of 2,175,000 shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two equity
offerings are identical. The closing of the offering made hereby is a condition
to the closing of the International Offering, and vice versa. The
representatives of the International Underwriters are Goldman Sachs
International, BT Alex. Brown International, Donaldson, Lufkin & Jenrette
International, Credit Suisse First Boston (Europe) Limited, Swiss Bank
Corporation acting through its division, SBC Warburg Dillon Read, and Chase
Manhattan International Limited.
U-1
<PAGE>
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two equity offerings, each
of the U.S. Underwriters named herein has agreed that, as part of the
distribution of the shares offered hereby and subject to certain exceptions, it
will offer, sell or deliver the shares of Common Stock, directly or indirectly,
only in the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction (the "United States") and to U.S. persons, which term shall mean,
for purposes of this paragraph: (a) any individual who is a resident of the
United States or (b) any corporation, partnership or other entity organized in
or under the laws of the United States or any political subdivision thereof and
whose office most directly involved with the purchase is located in the United
States. Each of the International Underwriters has agreed pursuant to the
Agreement Between that, as a part of the distribution of the shares offered as
part of the international offering, and subject to certain exceptions, it will
(i) not, directly or indirectly, offer, sell or deliver shares of Common Stock
(a) in the United States or to any U.S. persons or (b) to any person who it
believes intends to reoffer, resell or deliver the shares in the United States
or to any U.S. persons, and (ii) cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
In connection with the Equity Offerings, the Underwriters may purchase and
sell the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the Equity Offerings.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock; and
short positions created by the Underwriters involve the sale by the Underwriters
of a greater number of shares of Common Stock than they are required to purchase
from the Company and the Selling Stockholder in the Equity Offerings. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the Common Stock sold in the Equity Offerings
may be reclaimed by the Underwriters if such Common Stock is repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
These transactions may be effected on the New York Stock Exchange, in the
over-the-counter market or otherwise.
The Selling Stockholder has granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 1,848,750 additional shares of Common Stock solely to cover
over-allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 12,325,000shares of Common Stock offered. The Selling
Stockholder has granted the International Underwriters a similar option
exercisable up to an aggregate of additional shares of Common Stock.
The Company and the Selling Stockholder have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, they will not offer, sell,
contract to sell or file a registration statement (other than, in the case of
the Company, a registration statement on Form S-8 with respect to an employee
benefit plan) with respect to or otherwise dispose of, directly or indirectly,
any Common Stock, or any securities of the Company (other than pursuant to
employee stock option and incentive plans and agreements, upon conversion of
convertible securities or grants of options to directors outstanding as of the
date of the Underwriting Agreement) which are substantially similar to the
Common Stock or any other securities
U-2
<PAGE>
which are exercisable or exchangeable for, convertible into or whose exercise or
settlement price is derived from the price of Common Stock or any such
securities substantially similar to the Common Stock, without the prior written
consent of the representatives of the Underwriters.
Prior to the Equity Offerings, there has been no public market for the
shares of Common Stock. The initial public offering price has been negotiated
among the Company, the Selling Stockholder and the representatives of the U.S.
Underwriters and the International Underwriters. Among the factors considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, were the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to the market valuation of companies in related businesses.
The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange, and application has been made to list
the Common Stock on the Pacific Exchange, under the symbol "AOR". In order to
meet one of the requirements for listing the Common Stock on the New York Stock
Exchange, the U.S. Underwriters have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial holders.
In addition to acting as a U.S. Underwriter in connection with the Equity
Offerings, Chase Securities Inc. ("CSI") and its affiliates have certain other
relationships with the Company. Chase is agent bank and a lender under the
Aurora Senior Bank Facilities and the VDK Senior Bank Facilities and will
receive its proportionate share of any repayment by the Company of amounts
outstanding under such facilities from the proceeds of the Equity Offerings.
Chase has agreed to provide VDK with a $101 million senior subordinated credit
facility and Chase will be the Administrative Agent and CSI will be the
Arranging Agent under the Company's Senior Credit Facilities. See
"Indebtedness--Senior Credit Facilities" and "Senior Subordinated Facility
Commitment". Affiliates of CSI are limited partners of McCown De Leeuw & Co.
III, L.P., McCown DeLeeuw & Co. IV, L.P. and Fenway Partners Capital Fund, L.P.
As a result of the proposed bank debt repayments described above, this
offering is being conducted in accordance with Rule 2720 of the National
Association of Securities Dealers, Inc. (the "NASD"), which provides that, among
other things, when more than 10% of the proceeds of a public offering of
securities are to be paid to an NASD member participating in such offering or to
an affiliate of such member, the initial public offering price can be no higher
than that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Goldman, Sachs & Co. has served
in such role and has recommended a price in compliance with the requirements of
Rule 2720. Goldman, Sachs & Co. will receive compensation from the Company in
the amount of $10,000 for serving in such role. In connection with the offering,
Goldman, Sachs & Co. in its role as qualified independent underwriter has
performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. In addition, the Underwriters may not confirm sales to
any discretionary account without the prior specific written approval of the
customer.
The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the shares of Common Stock, including shares initially sold
in the International Equity Offering, to persons located in the United States.
U-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Refinancings.......................... 13
Use of Proceeds....................... 15
Dividend Policy....................... 15
Forward-Looking Statements............ 15
Background............................ 16
Dilution.............................. 17
Capitalization........................ 18
Unaudited Pro Forma Financial
Information......................... 19
Selected Historical Financial Data.... 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 38
Business.............................. 53
Management............................ 65
Principal Stockholders and Selling
Stockholder......................... 77
Certain Relationships and Related
Transactions........................ 83
Description of Capital Stock.......... 85
Description of Indebtedness........... 87
Shares Eligible for Future Sale....... 94
Certain United States Federal Tax
Consequences to Non-United States
Holders of Common Stock............. 95
Additional Information................ 98
Validity of Shares.................... 98
Experts............................... 98
Index to Financial Statements......... F-1
Underwriting.......................... U-1
</TABLE>
--------------------------
THROUGH AND INCLUDING ,1998 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
14,500,000 SHARES
AURORA FOODS INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
--------------------------
[LOGO]
--------------------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
SBC WARBURG DILLON READ INC.
CHASE SECURITIES INC.
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth those expenses to be incurred by the Company in
connection with the issuance and distribution of the Common Stock being
registered. All amounts shown except Securities and Exchange Commission filing
fee are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee........ $ 113,140
NASD filing fee...................................... 27,500
NYSE listing fee..................................... 121,350
Printing and engraving fees.......................... 500,000
Pacific Exchange listing fee......................... 10,000
Accountants' fees and expenses....................... 750,000
Legal fees and expenses.............................. 2,000,000
Road show............................................ 750,000
Blue sky expenses.................................... 10,000
Registrant's and transfer agent's fee................ 100,000
Miscellaneous expenses............................... 264,010
-----------
Total.............................................. $4,646,000
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation organized thereunder, such as the registrant,
the power to indemnify its directors and officers against liabilities for
certain of their acts. Section 102(b)(7) of the DGCL permits a provision in the
certificate of incorporation of each corporation organized thereunder, such as
the registrant, eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions)or (iv) for any transaction from which a director derived an
improper personal benefit. Article Eighth of the Company's Certificate of
Incorporation has eliminated the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL.
Article VI of the Company's By-Laws provides, among other things that the
Company shall indemnify, in the manner and to the fullest extent permitted by
applicable law, officers and directors of the Company (or the estate of such
person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the Company, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was or
has agreed to be a director, officer, employee, or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees and expenses),
judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred (and not otherwise recovered) by such person in connection
with the investigation, preparation to defend or defense of such action, suit,
claim or proceeding. To the extent and in the manner provided by applicable law,
any such expenses may be paid by the Company in advance of the final disposition
of such action, suit or proceeding even if such director or officer is alleged
to have not met the applicable standard of conduct required under Article VI or
is alleged to have committed conduct so that, if true, such director or officer
would not be entitled to indemnification under Article VI, upon receipt of an
undertaking, which need not be secured, by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Company as authorized in
II-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS (CONTINUED)
Article VI, PROVIDED, HOWEVER, that the foregoing shall not require the Company
to indemnify or advance expenses to any person in connection with any action,
suit, proceeding, claim or counterclaim initiated by or on behalf of such
person. Unless otherwise permitted by applicable law, the indemnification
provided for in Article VI shall be made only as authorized in the specific case
upon a determination, made in the manner provided by applicable law, that
indemnification of such director, officer, employee or agent is proper in the
circumstances. The By-Laws also allow the Company, to the fullest extent
permitted by applicable law, to purchase and maintain insurance for any such
person indemnified by Article VI.
The foregoing statements are subject to the detailed provisions of Section
102(b)(7) of the DGCL, Article Eighth of the Certificate of Incorporation of the
Company and Article VI of the By-Laws of the Company, as applicable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement among Aurora Foods Inc., Aurora/VDK LLC, Goldman, Sachs & Co., BT Alex. Brown
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston
Corporation, SBC Warburg Dillon Read Inc. and Chase Securities Inc.*
2.1 Merger Agreement between Aurora Foods Inc. and A Foods Inc.*
2.2 Merger Agreement among Aurora Foods Holdings Inc., Aurora Foods Inc., VDK Holdings, Inc., Van de Kamp's,
Inc. and A Foods Inc.*
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 Aurora Foods Inc.'s Form 8-K
filed on January 30, 1998).**
2.4 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 Aurora Foods Inc.'s Form S-4 filed on August 21, 1997
(the "Aurora S-4").**
2.5 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 Form 10-Q for the quarter ended
March 31, 1997).**
2.6 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 Form 10-Q for the quarter ended March 31,
1997).**
2.7 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 the Aurora S-4).**
2.8 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).**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
II-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.9 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).**
2.10 Asset Purchase and Sales Agreement, dated as of January 17, 1996, between Shellfish Acquisition Company,
LLC ("Shellfish") and Campbell Soup Company ("Campbell") (the text of which and Exhibits to which are
Incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March
30, 1996 and a list of the contents of the schedules of which is incorporated by reference to Exhibit
2.1 to Van de Kamp's, Inc.'s Form 8-K dated May 6, 1996).**
2.11 Asset Purchase Agreement, dated as of January 17, 1996, between Van de Kamp's, Inc. and Shellfish.
(Incorporated by reference to Exhibit 2.2 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March
30, 1996).**
2.12 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").**
2.13 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 Foods Inc., as amended to date, to be filed with the Secretary of State
of the State of Delaware.
3.2 Amended and Restated By-laws of Aurora Foods Inc.*
4.1 Specimen Certificate of the Common Stock.*
4.2 Securityholders Agreement, dated as of April 8, 1998, among the parties listed on Schedule A attached
thereto.**
4.3 Second Amended and Restated Limited Liability Company Agreement of VDK Foods LLC, as amended.*
4.4 Second Amended and Restated Limited Liability Company Agreement of MBW Investors LLC, dated as of April
8, 1998.
4.5 Indenture, dated as of February 10, 1997, by and between Aurora Foods Inc. and Wilmington Trust Company
(the "Series B Indenture"). (Incorporated by reference to Exhibit 4.1 to the Aurora S-4).**
4.6 Specimen Certificate of 9 7/8% Series B Senior Subordinated Note due 2007 (included in Exhibit 4.2
hereto). (Incorporated by reference to Exhibit 4.3 to the Aurora S-4).**
4.7 Form of Note Guarantee to be issued by future subsidiaries of Aurora Foods Inc. pursuant to the Series B
Indenture (included in Exhibit 4.1 hereto). (Incorporated by reference to Exhibit 4.4 to the Aurora
S-4).**
4.8 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).**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
II-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.9 Specimen Certificate of 9 7/8% Series D Senior Subordinated Note, due 2007 (included in Exhibit 4.5
hereto).**
4.10 Form of Note Guarantee to be issued by future subsidiaries of Aurora Foods Inc. pursuant to the Series D
Indenture (included in Exhibit 4.6 hereto). (Incorporated by reference to Exhibit 4.8 to the Aurora
S-4).**
4.11 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).**
4.12 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).**
4.13 Indenture, by and between Aurora Foods Inc. and Wilmington Trust Company (the "New Indenture").*
4.14 Specimen Certificate of the Series E Senior Subordinated Note Due 2008.*
4.15 Form of Note Guarantee to be issued by future subsidiaries of Aurora Foods Inc. pursuant to the New
Indenture.*
5.1 Opinion of Richards & O'Neil, LLP regarding the validity of the Common Stock.*
10.1 VDK Holdings, Inc. Incentive Compensation Plan.*
10.2 1998 Incentive Plan.*
10.3 Purchase Agreement, between Aurora Foods Inc. and Chase Securities, Inc.*
10.4 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).**
10.5 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).**
10.6 Purchase Agreement, dated September 14, 1995, between Van de Kamp's, Inc. and Chemical Securities Inc.
(Incorporated by reference to Exhibit 10.30 to the Van de Kamp's S-4).**
10.7 Employment Agreement between Ian R. Wilson and Aurora Foods Inc.*
10.8 Employment Agreement between James B. Ardrey and Aurora Foods Inc.*
10.9 Employment Agreement between Ray Chung and Aurora Foods Inc.*
10.10 Employment Agreement between M. Laurie Cummings and Aurora Foods Inc.*
10.11 Amendment No. 1 to Ferraro Employment Agreement, dated as of January 1, 1998, between Aurora Foods Inc.
and Thomas S. Ferraro.**
10.12 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).**
10.13 Amendment No. 1 to Willett Employment Agreement, dated as of January 1, 1998, between C. Gary Willett
and Aurora Foods Inc.**
10.14 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).**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
II-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.15 Amendment No. 1 to Ellinwood Amended and Restated Employment Agreement, dated as of January 1, 1998,
between Thomas 0. Ellinwood and Van de Kamp's, Inc.**
10.16 Amended and Restated Employment Agreement, dated as of March 11, 1997, by and between Thomas 0.
Ellinwood and Van de Kamp's, Inc.**
10.17 Employment Agreement, dated as of February 16, 1998, by and between Van de Kamp's, Inc. and Anthony A.
Bevilacqua.**
10.18 Security Agreement, dated as of September 19, 1995, made by Van de Kamp's, Inc., in favor of Chemical
Bank (Incorporated by reference to Exhibit 10.20 to the Van de Kamp's S-4).**
10.19 Second Amended and Restated Credit Agreement, dated as of January 16, 1998, by and among Aurora Foods
Inc., as Borrower, Aurora Foods Holdings Inc., as Guarantor, 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 (Incorporated by reference to Exhibit 10.4 to Form 10-K,
filed on March 27, 1998 (the "Aurora 10-K")).**
10.20 Third Amended and Restated Credit Agreement by and among Aurora Foods Inc., as Borrower, the Lenders
listed therein, The Chase Manhattan Bank as Administrative Agent, Chase Securities Inc. as Arranging
Agent, National Westminster Bank PLC as Syndication Agent and Swiss Bank Corporation as Documentation
Agent.*
10.21 Second Amendment to Guarantee and Collateral Agreement, dated July 9, 1996, between Van de Kamp's, Inc.
and VDK Holdings, Inc. in favor of The Chase Manhattan Bank, NA, as agent for the several banks and
other financial institutions (Incorporated by reference to Exhibit 10.23 of the Van de Kamp's, Inc. Form
10-K filed on September 27, 1996 (the "1996 Van de Kamp's 10-K").**
10.22 First Amendment to Guarantee and Collateral Agreement, dated May 6, 1996 between Van de Kamp's, Inc. and
VDK Holdings, Inc. in favor of Chemical Bank, as agent for the several banks and other financial
institutions from time to time parties to the Amended and Restated Credit and Guarantee Agreement.
(Incorporated by reference to Exhibit 10.20 to the 1996 Van de Kamp's 10-K.)**
10.23 Guarantee and Collateral Agreement, dated September 19, 1995, among VDK Holdings, Inc., Van de Kamp's,
Inc., the subsidiary grantors named therein and Chemical Bank as agent (Incorporated by reference to
Exhibit 10.19 to the 1996 Van de Kamp's S-4).**
10.24 Third Amendment to the Second Amended and Restated Credit and Guarantee Agreement, dated as of September
25, 1997, among VDK Holdings, Inc., Van de Kamp's, Inc., the banks, and other financial institutions
named as parties thereto and The Chase Manhattan Bank, NA, as agent (Incorporated by reference to
Exhibit 10.32 to Van de Kamp's Inc.'s Form 10-K filed on September 29, 1997 (the "1997 Van de Kamp's
10-K").**
10.25 Second Amendment to the Second Amended and Restated Credit and Guarantee Agreement, dated as of March
27, 1997, among VDK Holdings, Inc., Van de Kamp's, Inc., the banks, and other financial institutions
named as parties thereto and The Chase Manhattan Bank, NA, as agent (Incorporated by reference to
Exhibit 10.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 31, 1997).**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
II-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.26 First Amendment, dated as of August 28, 1996, to the Second Amended and Restated Credit and Guarantee
Agreement among VDK Holdings, Inc., Van de Kamp's, Inc., the banks and other financial institutions
named as parties thereto and the Chase Manhattan Bank, NA, as agent (Incorporated by reference to
Exhibit 10.22 to the 1996 Van de Kamp's 10-K).**
10.27 Second Amended and Restated Credit and Guarantee Agreement, dated as of July 9, 1996 among VDK Holdings,
Inc., Van de Kamp's, Inc., the banks and other financial institutions named as parties thereto and The
Chase Manhattan Bank, NA, as agent (Incorporated by reference to Exhibit 10.21 to the 1996 Van de Kamp's
10-K).**
10.28 Cash Collateral Agreement, dated July 9, 1996, between VDK Holdings, Inc. and The Chase Manhattan Bank,
NA, as agent (Incorporated by reference to Exhibit 10.29 to the 1996 Van de Kamp's 10-K).**
10.29 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 Aurora Foods Inc. Incorporated by reference to Exhibit 10.16 to the Aurora
10-K).**
10.30 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 Aurora Foods
Inc. Incorporated by reference to Exhibit 10.18 to the Aurora 10-K).
10.31 Transitional Supply Agreement, dated November 26, 1997, by and between Aurora Foods, Inc. and The
Procter & Gamble Distributing Company. (Confidential treatment for a portion of this document has been
requested by Aurora Foods Inc. Incorporated by reference to Exhibit 10.20 to the Aurora 10-K).**
10.32 Form of Expense Agreement between Aurora Foods Inc. and Dartford Partnership L.L.C.
10.33 Form of Advisory Agreement between Aurora/VDK LLC and Dartford Partnership L.L.C.
10.34 Form of Advisory Agreement between Aurora/VDK LLC and MDC Management Company III, L.P.
10.35 Form of Advisory Agreement between Fenway Partners, Inc. and Aurora/VDK LLC.
10.36 Agreement, dated March 31, 1994, between Van de Kamp's, Seafood and Ore-Ida Foods, Inc. (Incorporated by
reference to Exhibit 10.29 to the Van de Kamp's S-4).**
10.37 Flavor Supply Agreement, dated as of December 31, 1996, by and between Quest International Flavors &
Food Ingredients Company and MBW Foods Inc. (Incorporated by reference to Exhibit 10.8 to the Aurora
S-4).**
10.38 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).**
10.39 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).**
10.40 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 (the "Van de Kamp's 8-K")).**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
II-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.41 Patent License Agreement, dated July 9, 1996, between Quaker Oats and Van de Kamp's, Inc. (Incorporated
by reference to Exhibit K to Exhibit 2.1 to the Van de Kamp's 8-K).**
10.42 Management Services Agreement, dated September 19, 1995 between Van de Kamp's, Inc. and Dartford
Partnership L.L.C. (Incorporated by reference to Exhibit 10.25 to the Van de Kamp's S-4).
10.43 Management Services Agreement, dated December 31, 1996 between MBW Foods Inc. and Dartford Partnership
L.L.C. (Incorporated by reference to Exhibit 10.1 to Aurora Foods Inc.'s Form S-4 Filed on April 7,
1997).
10.44 Management Services Agreement, dated December 31, 1996 between MBW Foods Inc. and McCown De Leeuw & Co.,
Inc. (Incorporated by reference to Exhibit 10.2 to Aurora Foods Inc.'s Form S-4 filed on April 7, 1997).
10.45 Computer Services Agreement, dated September 5, 1995 between Windy Hill Pet Food Company, Inc. and the
Van de Kamp's, Inc. (Incorporated by reference to Exhibit 10.26 to the Van de Kamp's S-4).
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Price Waterhouse LLP.
23.4 Consent of Deloitte & Touche LLP.
23.5 Consent of Coopers & Lybrand LLP.
23.6 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that:
II-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 17. UNDERTAKINGS (CONTINUED)
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco, California, on June 10,
1998.
<TABLE>
<S> <C> <C>
AURORA FOODS INC.
BY: /S/ IAN R. WILSON
-----------------------------------------
Ian R. Wilson
Chairman of the Board and
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
/s/ IAN R. WILSON Chief Executive Officer
- ------------------------------ (Principal Executive June 10, 1998
Ian R. Wilson Officer)
/s/ JAMES B. ARDREY Vice Chairman and Director
- ------------------------------ June 10, 1998
James B. Ardrey
Chief Financial Officer
/s/ M. LAURIE CUMMINGS and Secretary
- ------------------------------ (Principal Financial June 10, 1998
M. Laurie Cummings Officer and Principal
Accounting Officer)
/s/ CLIVE APSEY Director
- ------------------------------ June 10, 1998
Clive Apsey
/s/ CHARLES AYRES Director
- ------------------------------ June 10, 1998
Charles Ayres
/s/ DAVID E. DE LEEUW Director
- ------------------------------ June 10, 1998
David E. De Leeuw
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ CHARLES J. DELANEY Director
- ------------------------------ June 10, 1998
Charles J. Delaney
/s/ RICHARD C. DRESDALE Director
- ------------------------------ June 10, 1998
Richard C. Dresdale
/s/ ANDREA GEISSER Director
- ------------------------------ June 10, 1998
Andrea Geisser
/s/ PETER LAMM Director
- ------------------------------ June 10, 1998
Peter Lamm
/s/ TYLER T. ZACHEM Director
- ------------------------------ June 10, 1998
Tyler T. Zachem
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Underwriting Agreement among Aurora Foods Inc., Aurora/VDK LLC, Goldman, Sachs & Co., BT
Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse
First Boston Corporation, SBC Warburg Dillon Read Inc. and Chase Securities Inc.*............
2.1 Merger Agreement between Aurora Foods Inc. and A Foods Inc.*.................................
2.2 Merger Agreement among Aurora Foods Holdings Inc., Aurora Foods Inc., VDK Holdings, Inc., Van
de Kamp's, Inc. and A Foods Inc.*............................................................
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 Aurora Foods
Inc.'s Form 8-K filed on January 30, 1998).**................................................
2.4 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 Aurora Foods Inc.'s Form S-4
filed on August 21, 1997 (the "Aurora S-4").**...............................................
2.5 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 Form 10-Q for
the quarter ended March 31, 1997).**.........................................................
2.6 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 Form 10-Q for the
quarter ended March 31, 1997).**.............................................................
2.7 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 the Aurora S-4).**............................................
2.8 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).**.........................
2.9 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).**.......................................................................
2.10 Asset Purchase and Sales Agreement, dated as of January 17, 1996, between Shellfish
Acquisition Company, LLC ("Shellfish") and Campbell Soup Company ("Campbell") (the text of
which and Exhibits to which are Incorporated by reference to Exhibit 2.1 to Van de Kamp's,
Inc.'s Form 10-Q for the quarter ended March 30, 1996 and a list of the contents of the
schedules of which is incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s Form
8-K dated May 6, 1996).**....................................................................
2.11 Asset Purchase Agreement, dated as of January 17, 1996, between Van de Kamp's, Inc. and
Shellfish. (Incorporated by reference to Exhibit 2.2 to Van de Kamp's, Inc.'s Form 10-Q for
the quarter ended March 30, 1996).**.........................................................
2.12 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").**...........................................................................
2.13 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 Foods Inc., as amended to date, to be filed with the
Secretary of State of the State of Delaware..................................................
3.2 Amended and Restated By-laws of Aurora Foods Inc.*...........................................
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
4.1 Specimen Certificate of the Common Stock.*...................................................
4.2 Securityholders Agreement, dated as of April 8, 1998, among the parties listed on Schedule A
attached thereto.**..........................................................................
4.3 Second Amended and Restated Limited Liability Company Agreement of VDK Foods LLC, as
amended.*....................................................................................
4.4 Second Amended and Restated Limited Liability Company Agreement of MBW Investors LLC, dated
as of April 8, 1998..........................................................................
4.5 Indenture, dated as of February 10, 1997, by and between Aurora Foods Inc. and Wilmington
Trust Company (the "Series B Indenture"). (Incorporated by reference to Exhibit 4.1 to the
Aurora S-4).**...............................................................................
4.6 Specimen Certificate of 9 7/8% Series B Senior Subordinated Note due 2007 (included in
Exhibit 4.2 hereto). (Incorporated by reference to Exhibit 4.3 to the Aurora S-4).**.........
4.7 Form of Note Guarantee to be issued by future subsidiaries of Aurora Foods Inc. pursuant to
the Series B Indenture (included in Exhibit 4.1 hereto). (Incorporated by reference to
Exhibit 4.4 to the Aurora S-4).**............................................................
4.8 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).**......................................................................................
4.9 Specimen Certificate of 9 7/8% Series D Senior Subordinated Note, due 2007 (included in
Exhibit 4.5 hereto).**.......................................................................
4.10 Form of Note Guarantee to be issued by future subsidiaries of Aurora Foods Inc. pursuant to
the Series D Indenture (included in Exhibit 4.6 hereto). (Incorporated by reference to
Exhibit 4.8 to the Aurora S-4).**............................................................
4.11 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).**..........
4.12 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).**.......................
4.13 Indenture, by and between Aurora Foods Inc. and Wilmington Trust Company (the "New
Indenture").*................................................................................
4.14 Specimen Certificate of the Series E Senior Subordinated Note Due 2008.*.....................
4.15 Form of Note Guarantee to be issued by future subsidiaries of Aurora Foods Inc. pursuant to
the New Indenture.*..........................................................................
5.1 Opinion of Richards & O'Neil, LLP regarding the validity of the Common Stock.*...............
10.1 VDK Holdings, Inc. Incentive Compensation Plan.*.............................................
10.2 1998 Incentive Plan.*........................................................................
10.3 Purchase Agreement, between Aurora Foods Inc. and Chase Securities, Inc.*....................
10.4 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).**...........................................................................
10.5 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).**..............
10.6 Purchase Agreement, dated September 14, 1995, between Van de Kamp's, Inc. and Chemical
Securities Inc. (Incorporated by reference to Exhibit 10.30 to the Van de Kamp's S-4).**.....
10.7 Employment Agreement between Ian R. Wilson and Aurora Foods Inc.*............................
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.8 Employment Agreement between James B. Ardrey and Aurora Foods Inc.*..........................
10.9 Employment Agreement between Ray Chung and Aurora Foods Inc.*................................
10.10 Employment Agreement between M. Laurie Cummings and Aurora Foods Inc.*.......................
10.11 Amendment No. 1 to Ferraro Employment Agreement, dated as of January 1, 1998, between Aurora
Foods Inc. and Thomas S. Ferraro.**..........................................................
10.12 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).**...........
10.13 Amendment No. 1 to Willett Employment Agreement, dated as of January 1, 1998, between C. Gary
Willett and Aurora Foods Inc.**..............................................................
10.14 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).**...............
10.15 Amendment No. 1 to Ellinwood Amended and Restated Employment Agreement, dated as of January
1, 1998, between Thomas 0. Ellinwood and Van de Kamp's, Inc.**...............................
10.16 Amended and Restated Employment Agreement, dated as of March 11, 1997, by and between Thomas
0. Ellinwood and Van de Kamp's, Inc.**.......................................................
10.17 Employment Agreement, dated as of February 16, 1998, by and between Van de Kamp's, Inc. and
Anthony A. Bevilacqua.**.....................................................................
10.18 Security Agreement, dated as of September 19, 1995, made by Van de Kamp's, Inc., in favor of
Chemical Bank (Incorporated by reference to Exhibit 10.20 to the Van de Kamp's S-4).**.......
10.19 Second Amended and Restated Credit Agreement, dated as of January 16, 1998, by and among
Aurora Foods Inc., as Borrower, Aurora Foods Holdings Inc., as Guarantor, 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 (Incorporated by
reference to Exhibit 10.4 to Form 10-K, filed on March 27, 1998 (the "Aurora 10-K")).**......
10.20 Third Amended and Restated Credit Agreement by and among Aurora Foods Inc., as Borrower, the
Lenders listed therein, The Chase Manhattan Bank as Administrative Agent, Chase Securities
Inc. as Arranging Agent, National Westminster Bank PLC as Syndication Agent and Swiss Bank
Corporation as Documentation Agent.*.........................................................
10.21 Second Amendment to Guarantee and Collateral Agreement, dated July 9, 1996, between Van de
Kamp's, Inc. and VDK Holdings, Inc. in favor of The Chase Manhattan Bank, NA, as agent for
the several banks and other financial institutions (Incorporated by reference to Exhibit
10.23 of the Van de Kamp's, Inc. Form 10-K filed on September 27, 1996 (the "1996 Van de
Kamp's 10-K").**.............................................................................
10.22 First Amendment to Guarantee and Collateral Agreement, dated May 6, 1996 between Van de
Kamp's, Inc. and VDK Holdings, Inc. in favor of Chemical Bank, as agent for the several banks
and other financial institutions from time to time parties to the Amended and Restated Credit
and Guarantee Agreement. (Incorporated by reference to Exhibit 10.20 to the 1996 Van de
Kamp's 10-K.)**..............................................................................
10.23 Guarantee and Collateral Agreement, dated September 19, 1995, among VDK Holdings, Inc., Van
de Kamp's, Inc., the subsidiary grantors named therein and Chemical Bank as agent
(Incorporated by reference to Exhibit 10.19 to the 1996 Van de Kamp's S-4).**................
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.24 Third Amendment to the Second Amended and Restated Credit and Guarantee Agreement, dated as
of September 25, 1997, among VDK Holdings, Inc., Van de Kamp's, Inc., the banks, and other
financial institutions named as parties thereto and The Chase Manhattan Bank, NA, as agent
(Incorporated by reference to Exhibit 10.32 to Van de Kamp's Inc.'s Form 10-K filed on
September 29, 1997 (the "1997 Van de Kamp's 10-K").**........................................
10.25 Second Amendment to the Second Amended and Restated Credit and Guarantee Agreement, dated as
of March 27, 1997, among VDK Holdings, Inc., Van de Kamp's, Inc., the banks, and other
financial institutions named as parties thereto and The Chase Manhattan Bank, NA, as agent
(Incorporated by reference to Exhibit 10.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter
ended March 31, 1997).**.....................................................................
10.26 First Amendment, dated as of August 28, 1996, to the Second Amended and Restated Credit and
Guarantee Agreement among VDK Holdings, Inc., Van de Kamp's, Inc., the banks and other
financial institutions named as parties thereto and the Chase Manhattan Bank, NA, as agent
(Incorporated by reference to Exhibit 10.22 to the 1996 Van de Kamp's 10-K).**...............
10.27 Second Amended and Restated Credit and Guarantee Agreement, dated as of July 9, 1996 among
VDK Holdings, Inc., Van de Kamp's, Inc., the banks and other financial institutions named as
parties thereto and The Chase Manhattan Bank, NA, as agent (Incorporated by reference to
Exhibit 10.21 to the 1996 Van de Kamp's 10-K).**.............................................
10.28 Cash Collateral Agreement, dated July 9, 1996, between VDK Holdings, Inc. and The Chase
Manhattan Bank, NA, as agent (Incorporated by reference to Exhibit 10.29 to the 1996 Van de
Kamp's 10-K).**..............................................................................
10.29 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 Aurora Foods Inc. Incorporated by reference to
Exhibit 10.16 to the Aurora 10-K).**.........................................................
10.30 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 Aurora Foods Inc. Incorporated by reference to Exhibit 10.18 to the Aurora 10-K). ........
10.31 Transitional Supply Agreement, dated November 26, 1997, by and between Aurora Foods, Inc. and
The Procter & Gamble Distributing Company. (Confidential treatment for a portion of this
document has been requested by Aurora Foods Inc. Incorporated by reference to Exhibit 10.20
to the Aurora 10-K).**.......................................................................
10.32 Form of Expense Agreement between Aurora Foods Inc. and Dartford Partnership L.L.C. .........
10.33 Form of Advisory Agreement between Aurora/VDK LLC and Dartford Partnership L.L.C. ...........
10.34 Form of Advisory Agreement between Aurora/VDK LLC and MDC Management Company III, L.P. ......
10.35 Form of Advisory Agreement between Fenway Partners, Inc. and Aurora/VDK LLC. ................
10.36 Agreement, dated March 31, 1994, between Van de Kamp's, Seafood and Ore-Ida Foods, Inc.
(Incorporated by reference to Exhibit 10.29 to the Van de Kamp's S-4).**.....................
10.37 Flavor Supply Agreement, dated as of December 31, 1996, by and between Quest International
Flavors & Food Ingredients Company and MBW Foods Inc. (Incorporated by reference to Exhibit
10.8 to the Aurora S-4).**...................................................................
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.38 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).**......................................................................................
10.39 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).**......................................................................................
10.40 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 (the "Van de Kamp's 8-K")).**............
10.41 Patent License Agreement, dated July 9, 1996, between Quaker Oats and Van de Kamp's, Inc.
(Incorporated by reference to Exhibit K to Exhibit 2.1 to the Van de Kamp's 8-K).**..........
10.42 Management Services Agreement, dated September 19, 1995 between Van de Kamp's, Inc. and
Dartford Partnership L.L.C. (Incorporated by reference to Exhibit 10.25 to the Van de Kamp's
S-4). .......................................................................................
10.43 Management Services Agreement, dated December 31, 1996 between MBW Foods Inc. and Dartford
Partnership L.L.C. (Incorporated by reference to Exhibit 10.1 to Aurora Foods Inc.'s Form S-4
Filed on April 7, 1997). ....................................................................
10.44 Management Services Agreement, dated December 31, 1996 between MBW Foods Inc. and McCown De
Leeuw & Co., Inc. (Incorporated by reference to Exhibit 10.2 to Aurora Foods Inc.'s Form S-4
filed on April 7, 1997). ....................................................................
10.45 Computer Services Agreement, dated September 5, 1995 between Windy Hill Pet Food Company,
Inc. and the Van de Kamp's, Inc. (Incorporated by reference to Exhibit 10.26 to the Van de
Kamp's S-4). ................................................................................
23.1 Consent of Price Waterhouse LLP. ............................................................
23.2 Consent of Price Waterhouse LLP. ............................................................
23.3 Consent of Price Waterhouse LLP. ............................................................
23.4 Consent of Deloitte & Touche LLP. ...........................................................
23.5 Consent of Coopers & Lybrand LLP. ...........................................................
23.6 Consent of Price Waterhouse LLP. ............................................................
27.1 Financial Data Schedule.**...................................................................
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed with the Commission.
<PAGE>
Exhibit 4.4
EXECUTION VERSION
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT OF
MBW INVESTORS LLC
This Second Amended and Restated Limited Liability Company Agreement of MBW
Investors LLC (the "COMPANY") is made as of April 8, 1998, among the Members of
the Company, and the Persons who become Members of the Company in accordance
with the provisions hereof, and whose names are set forth as Members on
SCHEDULE A hereto.
WHEREAS, Dartford Partnership L.L.C. and James B. Ardrey have heretofore
formed a limited liability company pursuant to the Delaware Limited Liability
Company Act, 6 Del. C. Section 18-101, ET SEQ., as amended from time to time
(the "DELAWARE ACT"), by filing a Certificate of Formation of the Company with
the office of the Secretary of State of the State of Delaware on December 20,
1996, and entering into a Limited Liability Company Agreement of the Company,
dated as of December 20, 1996, which was amended and restated as of December 31,
1996 and further amended as of January 16, 1998 (the "ORIGINAL LIMITED LIABILITY
COMPANY AGREEMENT"); and
WHEREAS, the Members desire to continue the Company as a limited liability
company under the Delaware Act and to amend and restate the Original Limited
Liability Company Agreement in its entirety.
NOW THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members, intending to be
legally bound hereby, amend and restate the Original Limited Liability Company
Agreement in its entirety and agree as follows:
ARTICLE I
DEFINED TERMS
Section 1.1 DEFINITIONS. Unless the context otherwise requires the terms
defined in this Article I shall, for the purposes of this Agreement, have the
meanings herein specified.
"ADDITIONAL MEMBERS" has the meaning set forth in Section 12.1 hereof.
"ADDITIONAL B UNITS" has the meaning given such term in Section 8.3 hereof.
"ADDITIONAL UNITS" has the meaning set forth in Section 12.1 hereof.
<PAGE>
"ADMISSION EVENT" means the:
(a) execution of this Agreement or any other writing evidencing
intent to become a Member; and
(b) the making of a Capital Contribution.
"AFFILIATE" means with respect to a specified Person, any Person that
directly or indirectly controls, is controlled by, or is under common control
with the specified Person. As used in this definition, the term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"AGREEMENT" means this Second Amended and Restated Limited Liability
Company Agreement, as amended, modified, supplemented or restated from time to
time.
"ASSIGNEE" means any Person who is an assignee of a Member's interest in
the Company, or part thereof, and who does not become a Member pursuant to
Section 13.3 hereof.
"AURORA FOODS" means Aurora Foods Inc., a Delaware corporation formerly
known as MBW Foods Inc., and any successor thereto.
"AURORA HOLDINGS" means Aurora Foods Holdings Inc., a Delaware corporation
formerly known as MBW Holdings Inc., and any successor thereto.
"AVAILABLE CASH" means all cash (including the net proceeds from capital
transactions and sale of assets not in the ordinary course of business) held and
owned by the Company less any reserve for the working capital and other
foreseeable future needs of the Company, as determined by the Board in its sole
discretion.
"BOARD" has the meaning set forth in Section 6.1.
"CAPITAL ACCOUNT" means, for each Member, the sum of Capital Contributions
made by such Member pursuant to Section 4.1 hereof and such adjustments made
pursuant to Section 4.3 hereof.
"CAPITAL CONTRIBUTION" means, with respect to any Member, the aggregate
amount of money and the value of any property (other than money) contributed to
the Company pursuant to Section 4.1 hereof with respect to the Units held by
such Member. In the case of a Member who acquires an interest in the Company by
virtue of an assignment in accordance with the terms of this Agreement, "Capital
Contribution" has the meaning set forth in Section 4.3(b) hereof.
-2-
<PAGE>
"CAUSE" means (i) the failure or inability to cure or remedy, within 20
days after written notice from the Board, any willful misconduct in the course
of rendering services for or on behalf of the Company; (ii) the commission of
any fraudulent act in the course of rendering services for or on behalf of the
Company; or (iii) the conviction of a felony by any court having competent
jurisdiction.
"CERTIFICATE" means the Certificate of Formation and any and all amendments
thereto and restatements thereof filed on behalf of the Company with the office
of the Secretary of State of the State of Delaware pursuant to the Delaware Act.
"CLASS A HOLDER" means any Person listed on SCHEDULE A hereto as a holder
of Class A Units.
"CLASS A UNITS" means the outstanding Class A Units, each of which shall
have the rights, powers and preferences set forth in Section 4.6 hereof.
"CLASS B HOLDER" means any Person listed on SCHEDULE A hereto as a holder
of Class B Units.
"CLASS B UNITS" means the outstanding Class B Units, each of which shall
have the rights, powers and preferences set forth in Section 4.6 hereof.
"CLASS C HOLDER" means any Person listed on SCHEDULE A hereto as a holder
of Class C Units.
"CLASS C UNITS" means the outstanding Class C Units, each of which shall
have the rights, powers and preferences set forth in Section 4.6 hereof.
"CLASS D HOLDER" means any Person listed on SCHEDULE A hereto as a holder
of Class D Units.
"CLASS D UNITS" means the outstanding Class D Units, each of which shall
have the rights, powers and preferences set forth in Section 4.6 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding federal tax statute enacted after the date of this
Agreement. A reference to a specific section (Section ) of the Code refers not
only to such specific section but also to any corresponding provision of any
federal tax statute enacted after the date of this Agreement, as such specific
section or corresponding provision is in effect on the date of application of
the provisions of this Agreement containing such reference.
-3-
<PAGE>
"COMPANY" means MBW Investors LLC, the limited liability company heretofore
formed and continued under and pursuant to the Delaware Act and this Agreement.
"CONTRIBUTION" means the contribution to New LLC as of the date of this
Agreement (i) by the Company of all of the outstanding shares of capital stock
of Aurora Holdings, and (ii) by VDK Foods LLC of all of the outstanding shares
of capital stock of VDK Holdings, in each case pursuant to the Contribution
Documents.
"CONTRIBUTION DOCUMENTS" means the Contribution Agreement, dated as of
April 8, 1998, between the Company and VDK Foods LLC, and any and all documents,
agreements, certificates or other instruments required to be executed and
delivered by or on behalf of the Company in connection with the Contribution.
"COVERED PERSON" means a Member, a Member Manager, an Officer, any
Affiliate of a Member, Member Manager or Officer, any officers, directors,
shareholders, partners, employees, representatives or agents of a Member, a
Member Manager, an Officer or their respective Affiliates, or any employee or
agent of the Company or its Affiliates.
"DARTFORD" means Dartford Partnership L.L.C., a Delaware limited liability
company.
"DELAWARE ACT" means the Delaware Limited Liability Company Act, 6 Del.C.
Section 18-101, ET SEQ., as amended from time to time.
"DEPRECIATION" means, for each Tax Year or other period, an amount equal to
the depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such Tax Year or other period; provided, however, that
if the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Tax Year or other period,
Depreciation shall be an amount that bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization or other
cost recovery deduction with respect to such asset for such Tax Year or other
period bears to such beginning adjusted tax basis; and provided further, that if
the federal income tax depreciation, amortization or other cost recovery
deduction for such Tax Year or other period is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Member Managers.
"DUNCAN HINES ACQUISITION" means the acquisition of the Duncan Hines
business by Aurora Foods pursuant to the Asset Sale and Purchase Agreement,
dated November 25, 1997, by and among The Procter & Gamble Company, certain
affiliates thereof, and Aurora Foods, as assignee of the Company and Aurora
Holdings.
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"FAIR ASSET VALUE" means the amount for which any asset could be sold in an
arm's length transaction by one who desires to sell, but is not under any urgent
requirement to sell, to a buyer who desires to buy, but is under no urgent
necessity to buy, when both have a reasonable knowledge of the facts, all as
determined by the Board. In determining such Fair Asset Value, furniture,
fixtures and equipment shall be valued at cost less depreciation and the
reasonably foreseeable prospects (including all tax liabilities and, in
particular, tax liabilities upon the sale or other disposition of Company
assets) of the business of the Company shall be taken into account. Securities
which are listed on a national securities exchange shall be valued at the
average last sales price during the immediately preceding 15 days on which such
securities are traded on such exchange or, with respect to any of such dates on
which no sales occurred, at the mean between the high "bid" and low "asked"
prices at the close of business on such date.
"FISCAL YEAR" means (i) the calendar year or (ii) any portion of the period
described in clause (i) of this sentence for which the Company is required to
allocate Profits, Losses and other items of Company income, gain, loss or
deduction pursuant to Article VIII hereof.
"FENWAY" means Fenway Partners Capital Fund, L.P., a Delaware limited
partnership.
"GROSS ASSET VALUE" means, with respect to any asset, such asset's adjusted
basis for federal income tax purposes, except as follows:
(a) the initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset,
as agreed to by the contributing Member and the Board;
(b) the Gross Asset Value of all Company assets shall be adjusted to
equal their respective Fair Asset Values, as of the following times:
(i) the acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a DE MINIMIS Capital
Contribution; (ii) the distribution by the Company to a Member of more than
a DE MINIMIS amount of Company assets as consideration for an interest in
the Company; and (iii) the liquidation of the Company within the meaning of
Treasury Regulation Section 1.704-1(b)(2)(ii)(g); provided, however, that
adjustments pursuant to clause (i) and clause (ii) of this sentence shall
be made only if the Board reasonably determines that such adjustments are
necessary or appropriate to reflect the relative economic interests of the
Members in the Company; and
(c) the Gross Asset Value of any Company asset distributed to any
Member shall be the Fair Asset Value of such asset on the date of
distribution, as determined by the distributee Member and the Board.
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If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraph (a) or paragraph (b) above, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
"LIQUIDATING TRUSTEE" has the meaning set forth in Section 15.3 hereof.
"MAJORITY VOTE" means the written approval of, or the affirmative vote by,
Members holding a majority of the Voting Units held by Members.
"MANAGEMENT SERVICES AGREEMENT" means the Management Services Agreement,
dated as of December 31, 1996, between Dartford and Aurora Foods, as amended,
modified and supplemented from time to time.
"MCCOWN DE LEEUW" means, collectively, McCown De Leeuw & Co. III, L.P., a
California limited partnership, McCown De Leeuw & Co. III (Europe), L.P., a
Bermuda limited partnership, McCown De Leeuw & Co. III (Asia), L.P., a Bermuda
limited partnership, Gamma Fund LLC, a California limited liability company,
McCown De Leeuw & Co. IV, L.P., a California limited partnership, and Delta Fund
LLC, a California limited liability company.
"MDC PERMITTED TRANSFEREE" means with respect to McCown De Leeuw, any
partnership with the same controlling general partner as McCown De Leeuw and any
of the partners of McCown De Leeuw which receive Units upon a distribution to
any such partners by McCown De Leeuw.
"MEMBER" means any Person named as a member of the Company on SCHEDULE A
hereto and includes any Person admitted as an Additional Member or a Substitute
Member pursuant to the provisions of this Agreement, and "Members" means two or
more of such Persons when acting in their capacities as members of the Company.
Except as otherwise provided herein, the Members shall constitute one class or
group of members.
"MEMBER MANAGERS" means the Members designated in Section 6.1 hereof as the
member managers of the Company and shall include successors appointed pursuant
to the provisions of this Agreement. A Member Manager shall not be deemed to be
a "manager" within the meaning of the Delaware Act.
"NEW LLC" means Aurora/VDK LLC, a Delaware limited liability company, into
which the Company has agreed to contribute, pursuant to the Contribution
Agreement, all of the outstanding capital stock of Aurora Holdings in exchange
for certain interests in Aurora/VDK LLC, and any surviving entity of a
reorganization (including an incorporation of Aurora/VDK LLC), merger or
consolidation of Aurora/VDK LLC or any successor thereto.
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"NEW LLC ENTITIES" means, collectively, New LLC and any direct or indirect
Subsidiary of New LLC and any successor thereto. The New LLC Entities as of the
effective date of the Contribution are New LLC, Aurora Holdings, Aurora Foods,
VDK Holdings and Van de Kamp's.
"NON-DARTFORD/NON-FENWAY GROUP" means the holders of Class A Units on the
date of this Agreement and their direct or indirect Transferees other than
Dartford, any direct or indirect Permitted Transferee of Dartford, Fenway, and
any direct or indirect Permitted Transferee of Fenway.
"NON-PUBLIC SHAREHOLDERS" of the Public Company means the stockholders of
the Public Company other than any stockholders who acquired their equity
securities of the Public Company pursuant to a registration statement filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
"OFFICERS" means officers of the Company appointed by the Board pursuant to
Article VI hereof.
"ORIGINAL B UNITS" has the meaning given such term in Section 8.3 hereof.
"OTHER SUBSIDIARY" means any Subsidiary of the Company, other than any New
LLC Entity that would qualify as a Subsidiary of the Company.
"OUTSTANDING C UNITS PERCENTAGE" means the percentage (with 1.0 equal to
100%) obtained by dividing (X) the number of C Units that are outstanding as of
the time a calculation of the Outstanding C Units Percentage is required to be
made by (Y) 1,300.
"OUTSTANDING D UNITS PERCENTAGE" means the percentage (with 1.0 equal to
100%) obtained by dividing (X) the number of Vested Class D Units outstanding
pursuant to Section 4.6(d) by (Y) the aggregate number of outstanding Class D
Units.
"PERMITTED TRANSFEREES" means the Persons to whom Transfers are permitted
to be made under Section 13.2.
"PERSON" includes any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company,
or other legal entity or organization.
"PROFITS" and "LOSSES" means, for each Tax Year, an amount equal to the
Company's taxable income or loss for such Tax Year, determined in accordance
with Section 703(a) of the Code (but including in taxable income or loss, for
this purpose, all items of income, gain,
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loss or deduction required to be stated separately pursuant to Section 703(a)(1)
of the Code), with the following adjustments:
(a) any income of the Company exempt from federal income tax and not
otherwise taken into account in computing Profits or Losses pursuant to
this definition shall be added to such taxable income or loss;
(b) any expenditures of the Company described in Section 705(a)(2)(B)
of the Code (or treated as expenditures described in Section 705(a)(2)(B)
of the Code pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i))
and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be subtracted from such taxable income or
loss;
(c) in the event the Gross Asset Value of any Company asset is
adjusted in accordance with Paragraph (b) or Paragraph (c) of the
definition of "Gross Asset Value" above, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such
asset for purposes of computing Profits or Losses;
(d) gain or loss resulting from any disposition of any asset of the
Company with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
asset disposed of, notwithstanding that the adjusted tax basis of such
asset differs from its Gross Asset Value; and
(e) in lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Tax Year or other
period, computed in accordance with the definition of "Depreciation" above.
"PROPORTIONATE PERCENTAGE" means, (i) with respect to each Member that
elects to exercise its rights under Section 12.2 hereof, a percentage (expressed
as a decimal fraction rounded to the nearest one-hundredth) obtained by dividing
(X) the number of all Voting Units owned by such electing Member by (Y) the
aggregate number of Voting Units owned by all Members and (ii) with respect to
Section 14.1 hereof, a percentage (expressed as a decimal fraction rounded to
the nearest one-hundredth) obtained by dividing (X) the number of all Class A
Units proposed to be sold by McCown De Leeuw pursuant to the Transfer giving
rise to the Tag-Along Period under Section 14.1 hereof by (Y) the aggregate
number of Class A Units owned by McCown De Leeuw.
"PUBLIC COMPANY" means the Company, any New LLC Entity, or any Other
Subsidiary, or any successor thereto, in each case which intends to effect a
Public Offering.
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"PUBLIC OFFERING" means (i) the sale to the public by the Public Company
for its own account of equity securities issued by such Public Company, and/or
(ii) the sale to the public by the Non-Public Shareholders pursuant to a
Secondary Sale of equity securities issued by the Public Company and held by the
Non-Public Shareholders, in either case pursuant to a registration statement
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
"SECONDARY SALE" means any sale by one or more Non-Public Shareholders of
equity securities issued by the Public Company and held by such Non-Public
Shareholders (but not originally issued by the Public Company pursuant to a
Public Offering), whether such sale is pursuant to a registered public offering
under the Securities Act of 1933, as amended, an exemption from the registration
requirements thereof, or otherwise.
"SECURITYHOLDERS AGREEMENT" means the Securityholders Agreement, dated as
of the date hereof, by and among New LLC, the Company, certain Members of the
Company, VDK Foods LLC, and certain members of VDK Foods LLC.
"SUBSIDIARY" with respect to any company means any corporation more than
50% of whose stock or equity securities (measured by virtue of voting rights) in
the aggregate is owned by such company, by one or more Subsidiaries of such
company, or by such company and one or more Subsidiaries of such company.
"SUBSTITUTE MEMBER" means a Person who is admitted to the Company as a
Member pursuant to Section 13.3 hereof, and who is named as a Member on SCHEDULE
A to this Agreement.
"TAX LIABILITY DISTRIBUTIONS" shall have the meaning given such term in
Section 8.2 hereof.
"TAX MATTERS MEMBER" has the meaning set forth in Section 10.1 hereof.
"TAX YEAR" means the 12 month period ending on the last Saturday in
December.
"TRANSACTION" has the meaning set forth in Section 6.12 hereof.
"TRANSFER" means (i) as a noun, any transaction (or the consummation of a
transaction) which has resulted in a change in the ownership of any Unit,
including without limitation, any voluntary or involuntary sale, assignment,
transfer, pledge, hypothecation, encumbrance, disposal, loan, gift, attachment
or levy of, by or with respect to the Member which owns such Unit which has
resulted in a transfer of the voting rights or the rights to distribution with
respect to such Unit, and (ii) as a verb, to make any transaction described in
(i).
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"TREASURY REGULATIONS" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"UNIT" means any one of the Class A Units, Class B Units, Class C Units or
Class D Units. Each Unit represents a limited liability company interest in the
Company, with the respective rights, powers and preferences as provided in this
Agreement. All issued Units are held by the Members as set forth on the
SCHEDULE A hereto. If Additional Units are issued as provided in Article XII,
the total number of Units outstanding shall be automatically increased by the
number of Additional Units issued. Upon their issuance, all Units shall be
owned by the Members holding such Units.
"UNRECOUPED CAPITAL CONTRIBUTION" means as to any Member or Assignee the
amount of such Member's or Assignee's Capital Contribution with respect to Class
A Units held by such Member or Assignee minus the aggregate of all distributions
previously made to such Member or Assignee pursuant to Section 8.3(ii) hereof.
"VAN DE KAMP'S" means Van de Kamp's, Inc., a Delaware corporation, and any
successor thereto.
"VDK FOODS LLC" means VDK Foods LLC, a Delaware limited liability company,
and any successor thereto.
"VDK HOLDINGS" means VDK Holdings, Inc., a Delaware corporation, and any
successor thereto.
"VESTED CLASS D UNITS" means those Class D Units that have vested in
accordance with SCHEDULE C hereto.
"VOTING UNITS" means, collectively, the Class A Units and the Class B
Units which shall vote together as a single class.
Section 1.2 HEADINGS. The headings and subheadings in this Agreement are
included for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
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ARTICLE II
CONTINUATION AND TERM
Section 2.1 CONTINUATION.
(a) The Members hereby agree to continue the Company as a limited
liability company under and pursuant to the provisions of the Delaware Act and
agree that the rights, duties and liabilities of the Members and the Member
Managers shall be as provided in the Delaware Act, except as otherwise provided
herein.
(b) Any Person listed on SCHEDULE A hereto that performs an Admission
Event, and any Person listed on SCHEDULE A hereto whose authorized
representative performs an Admission Event, shall be deemed to have evidenced
its intent to become a Member, to have complied with the conditions for becoming
a Member as set forth in this Agreement, and to have requested that the records
of the Company reflect such admission as a Member, and when the records of the
Company are amended to reflect the admission of such Person as a Member, such
Person shall be admitted to the Company as a Member.
(c) The name and mailing address of each Member shall be listed on the
Schedules hereto. The Member Managers shall update any Schedule from time to
time as necessary to accurately reflect the information therein. Any amendment
or revision to a Schedule made in accordance with this Agreement shall not be
deemed an amendment to this Agreement. Any reference in this Agreement to a
Schedule shall be deemed to be a reference to such Schedule as amended and in
effect from time to time.
Section 2.2 NAME. The name of the Company heretofore formed and continued
hereby is MBW Investors LLC. The business of the Company may also be conducted
under any other name or names designated by the Board from time to time.
Section 2.3 TERM. The term of the Company commenced on the date the
Certificate was filed in the office of the Secretary of State of the State of
Delaware and shall continue until December 31, 2021, unless dissolved before
such date in accordance with the provisions of this Agreement. The existence of
the Company as a separate legal entity shall continue until the cancellation of
the Certificate.
Section 2.4 REGISTERED AGENT AND OFFICE. The Company's registered agent
and office in the State of Delaware shall be The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. At any time, the Board may designate another registered agent
and/or registered office.
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Section 2.5 PRINCIPAL PLACE OF BUSINESS. The principal place of business
of the Company shall be at 456 Montgomery Street, Suite 2200, San Francisco,
California 94104. Upon 10 days' notice to the Members, the Board may change the
location of the Company's principal place of business.
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
Section 3.1 PURPOSE. The purpose of the Company is to acquire, hold for
investment, sell and dispose of the stock and other securities, directly or
indirectly, of any Subsidiary, and to engage in all activities necessary,
advisable or incidental thereto, including without limitation engaging in (or
causing or permitting any of its Subsidiaries to engage in) any of the
transactions identified in Sections 3.2 or 6.12 hereof.
Section 3.2 POWERS OF THE COMPANY.
(a) Subject to the provisions of Section 3.3, the Company shall have the
power and authority to take any and all actions necessary, appropriate, proper,
advisable, incidental or convenient to or for the furtherance of the purpose set
forth in Section 3.1, including, but not limited to, the power:
(i) to conduct its business, carry on its operations and have and
exercise the powers granted to a limited liability company by the Delaware
Act in any state, territory, district or possession of the United States,
or in any foreign country that may be necessary, convenient or incidental
to the accomplishment of the purpose of the Company;
(ii) to acquire by purchase, lease, contribution of property or
otherwise, own, hold, operate, maintain, finance, improve, lease, sell,
convey, mortgage, transfer or dispose of any real or personal property that
may be necessary, convenient or incidental to the accomplishment of the
purpose of the Company;
(iii) to enter into, perform and carry out contracts of any kind
convenient to or incidental to the accomplishment of the purpose of the
Company;
(iv) to lend money for its proper purpose, to invest and reinvest its
funds, to take and hold real and personal property for the payment of funds
so loaned or invested;
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(v) to appoint employees and agents of the Company, and define their
duties and fix their compensation;
(vi) to indemnify any Person in accordance with the Delaware Act;
(vii) to cease its activities and cancel its Certificate;
(viii) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any other
action with respect to any lease, contract or security agreement in respect
of any assets of the Company; and
(ix) to guaranty the obligations of any Person and to secure any of
the same by a mortgage, pledge or other lien on the assets of the Company.
(b) The Member Managers and Officers, or any of them, are hereby expressly
authorized to enter into and perform on behalf of the Company the Contribution
Documents and the Securityholders Agreement, but such authorization shall not be
deemed a restriction on the power of the Member Managers to authorize the
Officers to enter into other documents not inconsistent with such Contribution
Documents or Securityholders Agreement on behalf of the Company to the extent
permitted by this Agreement. The Company, Member Managers and the Officers on
behalf of the Company, are expressly authorized to enter into and perform the
Contribution Documents and Securityholders Agreement and are authorized and
directed to take any and all actions contemplated thereby, and to the extent the
Company, Member Managers and the Officers have previously entered into and
performed such agreements not inconsistent with such Contribution Documents or
Securityholders Agreement, such actions are ratified, without any further act,
vote or approval of any Member notwithstanding any other provision of this
Agreement, the Delaware Act or other applicable law.
Section 3.3. LIMITATIONS ON ACTIONS. Anything in this Agreement to the
contrary notwithstanding, the Company shall not hold any investment, incur any
indebtedness or otherwise take any action that would cause any Member of the
Company to realize "unrelated business taxable income" as such term is defined
in Section 512 of the Code.
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ARTICLE IV
CAPITAL CONTRIBUTIONS, UNITS,
CAPITAL ACCOUNTS AND ADVANCES
Section 4.1 CAPITAL CONTRIBUTIONS.
(a) Each Member has contributed to the capital of the Company the amount
of cash set forth opposite the Member's name on SCHEDULE A hereto, and the
Company has issued to each Member the number of Units set forth opposite the
Member's name on SCHEDULE A hereto; PROVIDED, that with respect to the Class D
Holders, the number of Class D Units issued to each Class D Holder and the
respective capital contributions relating thereto shall be maintained on the
books and records of the Company and not set forth on SCHEDULE A hereto.
(b) No Member shall be required to make any additional capital
contribution to the Company.
Section 4.2 STATUS OF CAPITAL CONTRIBUTIONS.
(a) Except as otherwise provided in this Agreement, the amount of a
Member's Capital Contributions may be returned to it, in whole or in part, at
any time, but only with the consent of all Members.
(b) No Member shall receive any interest, salary or drawing with respect
to its Capital Contributions or its Capital Account or for services rendered on
behalf of the Company or otherwise in its capacity as a Member, except as
otherwise specifically provided in this Agreement.
(c) Except as otherwise provided herein and by applicable state law, the
Members shall be liable only to make their Capital Contributions pursuant to
Section 4.1 hereof, and no Member or Assignee shall be required to lend any
funds to the Company or, after a Member's Capital Contributions has been fully
paid pursuant to Section 4.1 hereof, to make any additional capital
contributions to the Company. No Member shall have any personal liability for
the repayment of any Capital Contribution of any other Member or Assignee.
Section 4.3 CAPITAL ACCOUNTS.
(a) An individual Capital Account shall be established and maintained for
each Member. The Capital Account of each Member shall be maintained in
accordance with the rules of Section 704(b) of the Code and the Treasury
Regulations (including Section 1.704-1(b)(2)(iv) thereof) thereunder.
Adjustments shall be made to the Capital Accounts for all distributions and
allocations as required by the rules of Section 704(b) of the Code and the
Treasury Regulations
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thereunder. In general, a Member's Capital Account shall be increased by
(i) the amount of money and the Gross Asset Value of property (net of
liabilities secured by such contributed property that the Company is considered
to assume or to take subject to under Section 752 of the Code) contributed to
the Company by the Member and (ii) allocations to the Member of Profits and
decreased by (i) the amount of money distributed to the Member by the Company,
(ii) the Gross Asset Value of property distributed to the Member by the Company
(net of liabilities secured by such distributed property that such Member is
considered to assume or take subject to under Section 752 of the Code), and
(iii) allocations to the Member of Losses. In the event the Gross Asset Value
of Company assets is adjusted under Article I of this Agreement, the Capital
Accounts of the Members shall be adjusted to reflect the aggregate net
adjustment as if the Company recognized Profits or Losses equal to the amount of
such aggregate net adjustment and such Profits or Losses were allocated to the
Members pursuant to Sections 8.7 and 8.8 of this Agreement. The foregoing
provisions relating to the maintenance of Capital Accounts are intended to
comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be applied in
a manner consistent with such Regulations.
(b) The original Capital Account established for any Member or Assignee
who acquires an interest in the Company by virtue of a Transfer or an assignment
that does not cause a termination of the Company within the meaning of Code
Section 708(b)(1)(B) and that is in accordance with the terms of this Agreement
shall be in the same amount as, and shall replace, the Capital Account of the
transferor or assignor of such interest, and, for purposes of this Agreement,
such Member or Assignee shall be deemed to have made the Capital Contributions
made by the transferor or assignor of such interest (or made by such
transferor's or assignor's predecessor in interest) and have received the
distributions and been allocated the allocations received by or allocated to the
transferor or assignor of such interest (or received by or allocated to such
transferor's or assignor's predecessor in interest). If the Company has a Code
Section 754 election in effect, the Capital Account will not be adjusted to
reflect any adjustment under Code Section 743. To the extent such Member or
Assignee acquires less than the entire interest in the Company of the transferor
or assignor of the interest so acquired by such Member or Assignee, the original
Capital Account of such Member or Assignee and its Capital Contributions shall
be in proportion to the interest it acquires, and the Capital Account of the
transferor or assignor who retains a partial interest in the Company, and the
amount of its Capital Contributions, shall be reduced in proportion to the
interest it retains. If a Transfer or assignment of an interest in the Company
causes a termination of the Company within the meaning of Code Section
708(b)(1)(B), the income tax consequences of the distribution of the property
and of the deemed immediate contribution of the property to the new limited
liability company (which for all other purposes continues to be the Company)
shall be governed by the relevant provisions of Subchapter K of Chapter 1 of the
Code and the Regulations promulgated thereunder, and the initial Capital
Accounts of the Members and the Assignee in the new limited liability company
shall be determined in accordance with the rules of Treasury Regulations Section
1.704-1(b)(2)(iv)(d), (e), (f), (g) and (h) under Code Section 704 and
thereafter in accordance with this Section 4.3.
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Section 4.4. NEGATIVE CAPITAL ACCOUNTS. At no time during the term of the
Company or upon dissolution and liquidation thereof shall a Member with a
negative balance in his Capital Account have any obligation to the Company or
the other Members to restore such negative balance.
Section 4.5 ADVANCES. If any Member shall advance any funds to the
Company in excess of its Capital Contributions, the amount of such advance shall
neither increase its Capital Account nor entitle it to any increase in its share
of the distributions of the Company. The amount of any such advance shall be a
debt obligation of the Company to such Member and shall be repaid to it by the
Company with interest at a rate equal to the lesser of (i) such rate as the
Board agrees and (ii) the maximum rate permitted by applicable law, and upon
such other terms and conditions as shall be mutually determined by such Member
and the Board. Any such advance shall be payable and collectible only out of
Company assets, and the other Members shall not be personally obligated to repay
any part thereof. No Person who makes any nonrecourse loan to the Company shall
have or acquire, as a result of making such loan, any direct or indirect
interest in the profits, capital or property of the Company, other than as a
creditor.
Section 4.6 UNITS.
(a) DISTRIBUTIONS. Distributions on Units shall be made in accordance
with Article VIII hereof.
(b) VOTING. Except as otherwise provided in this Agreement, (i) the
Members who are Class A Holders shall be entitled to vote on each matter on
which the Members shall be entitled to vote at the rate of one vote for each
Class A Unit held by such Member; (ii) the Members who are Class B Holders shall
be entitled to vote on each matter on which the Members shall be entitled to
vote at the rate of one vote for each Class B Unit held by such Member;
(iii) except as set forth in Section 15.2(b), the Members who are Class C
Holders shall not be entitled to vote their Class C Units on any matter brought
before the Members for a vote; and (iv) the Members who are Class D Holders
shall not be entitled to vote their Class D Units on any matter brought before
Members for a vote.
(c) CLASS C UNITS. The Class C Units shall be subject to repurchase by
the Company in accordance with the provisions set forth on SCHEDULE B hereto.
Any Class C Units that have not been issued or that have been repurchased shall
not be outstanding for purposes of determining the Outstanding C Units
Percentage. Class C Units that are repurchased may not be reissued.
(d) CLASS D UNITS. The Class D Units shall be subject to repurchase by
the Company in accordance with the provisions set forth on SCHEDULE C hereto.
Any Class D Units that have not been issued or that have been repurchased shall
not be outstanding for purposes
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of determining clause (y) of the Outstanding D Units Percentage. Class D Units
that are repurchased may be reissued (subject to Section 12.1(a) hereof).
ARTICLE V
MEMBERS
Section 5.1 POWERS OF MEMBERS. The Members shall have the power to
exercise any and all rights or powers granted to the Members pursuant to the
express terms of this Agreement but subject to the terms and provisions of the
Securityholders Agreement. The Members shall agree to take any and all actions
required by, or approved in accordance with, the Securityholders Agreement.
Except as expressly provided in this Agreement, Members shall have no power as
Members to bind the Company.
Section 5.2 REIMBURSEMENTS. The Company shall reimburse the Members for
all reasonable and necessary out-of-pocket expenses incurred by the Members on
behalf of the Company. The Board's sole determination of which expenses may be
reimbursed to a Member and the amount of such expenses shall be conclusive.
Such reimbursement shall be treated as an expense of the Company that shall be
deducted in computing the Profits and shall not be deemed to constitute a
distributive share of Profits or a distribution or return of capital to any
Member.
Section 5.3 PARTITION. Each Member waives any and all rights that it may
have to maintain an action for partition of the Company's property.
Section 5.4 RESIGNATIONS. Other than any resignation by a Member approved
by a Majority Vote of the Members and any resignation described in Section 13.3,
a Member may not resign from the Company.
ARTICLE VI
BOARD OF MEMBER MANAGERS AND OFFICERS OF THE COMPANY
Section 6.1 DESIGNATION OF BOARD OF MEMBER MANAGERS. The management of
the Company's business shall be vested, to the extent provided in this
Article VI, in a Board of Member Managers of the Company (the "BOARD"),
consisting of three Member Managers who in the aggregate hold at least 20% of
the total interests in the Company. Each Member Manager must be a Member. The
Members hereby designate Dartford, Fenway and McCown De Leeuw to serve as the
initial Member Managers on the Board, and such Member Managers hereby accept and
agree to be bound by the terms and conditions of this Agreement. A Member
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Manager that is not an individual shall act through any one of its authorized
representatives. Dartford designates Ian R. Wilson, Ray Chung and James B.
Ardrey as its initial authorized representatives. Fenway designates Peter Lamm
and Richard Dresdale as its initial authorized representatives. McCown De Leeuw
designates David De Leeuw, Charles Ayres and Tyler Zachem as its initial
authorized representatives. By written notice to all other Member Managers, a
Member Manager may remove and replace any of its authorized representatives from
such position or designate additional persons as authorized representatives of
such Member Manager. Each Member Manager and its designees agrees to act in
accordance with the Securityholders Agreement.
Section 6.2 ELECTION; RESIGNATION; REMOVAL.
(a) Each Member Manager shall serve from the effective date of its
designation until the effective date of its resignation or removal. In the event
any Member Manager ceases to be a Member Manager of the Company whether by
resignation or removal as provided in this Agreement or otherwise, a successor
Member Manager shall be elected by a Majority Vote. The Members agree to vote
for the Member Managers designated in accordance with Section 6.1 hereof. Such
successor Member Manager shall execute an instrument reasonably satisfactory to
the Members accepting and agreeing to the terms and conditions of this
Agreement.
(b) A Member Manager may resign from its position as a Member Manager at
any time upon not less than 10 days' prior written notice to all of the Members.
(c) No initial Member Manager specified in Section 6.1 hereof shall be
removed unless such initial Member Manager or successor Member Manager consents
to such removal; PROVIDED, that (i) Fenway shall automatically be removed as a
Member Manager if Fenway and its Permitted Transferees no longer hold 10% of the
outstanding Voting Units, and (ii) Dartford shall automatically be removed as a
Member Manager if the Management Services Agreement has been terminated in
accordance with its terms AND Dartford and its Permitted Transferees no longer
hold any Units. Any other Member Manager may be removed for Cause by a Majority
Vote. Any removal of a Member Manager shall become effective on such date as
may be specified by the Members voting in favor thereof. Should a Member
Manager that is removed continue to be a Member, such Member shall continue to
participate in the Company as a Member and shall share in the Profits, Losses
and Available Cash in the same ratios, as provided in Article VIII hereof.
Section 6.3 OFFICERS. The Board may appoint agents and employees of the
Company who are designated as officers of the Company. The officers of the
Company shall include a Chairman, one or more Executive Vice Presidents, a
Secretary and such other officers with such titles as may be approved by the
Board. Ian R. Wilson shall be Chairman until his resignation or removal. James
B. Ardrey and Ray Chung shall each be an Executive Vice
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President until his resignation or removal. Charles Ayres and Tyler Zachem
shall each be a Vice President until his resignation or removal. M. Laurie
Cummings shall be a Vice President and the Secretary until her resignation or
removal. Craigh Leonard and Jonathan M. Peterson shall each be an Assistant
Secretary until his resignation or removal. The Board may remove any officer so
appointed at any time, with or without Cause, in its absolute discretion. The
Chairman and other officers shall be agents of the Company, authorized to
execute and deliver documents and take other actions on behalf of the Company,
subject to the direction of the Board, and to have such other duties as may be
approved by the Board; PROVIDED, that the delegation of any such power and
authority to the Chairman and other officers shall not limit in any respect the
power and authority of the Member Managers to take such actions (or any other
action) on behalf of the Company as provided in this Agreement. The Secretary
shall record the actions of the Board, certify this Agreement and any related
document or instrument, certify resolutions of the Board, incumbency and other
matters of the Company, and have such other ministerial duties as may be
specified by the Board from time to time.
Section 6.4 BOARD ACTION. Unless otherwise specified in this Agreement,
the Board shall act by majority vote with each Member Manager on the Board
having the following number of votes: McCown De Leeuw: two; Fenway: one; and
Dartford: one; PROVIDED, that (i) so long as McCown De Leeuw holds more than 50%
of the voting control of the then outstanding Voting Units, McCown De Leeuw
shall have the right, by taking such action as would be required under the
Delaware General Corporation Law for a majority shareholder to act without a
meeting, to increase its number of votes to the number of votes that would
constitute a majority of the total votes on the Board. Any authorized
representative of any Member Manager on the Board shall be permitted to cast all
of the votes of such Member Manager. The Board shall act in accordance with the
terms and provisions of the Securityholders Agreement.
Section 6.5 MEETINGS. The Board may hold regular meetings without call or
notice at such places and at such times as the Board may from time to time
determine, provided reasonable notice of the first regular meeting following any
such determination is given to Member Managers absent at the meeting fixing
regular meetings. When called by the Chairman or by Member Managers holding a
majority of votes of the Board, the Board may hold special meetings at such
places and times as are designated in the call of the meeting, upon at least
seven days' notice given by the Secretary or an Assistant Secretary, or by the
officer or Member Manager calling the meeting.
Section 6.6 QUORUM. At any meeting of the Board, the presence of three
Member Managers by at least one of their authorized representatives shall
constitute a quorum. Any meeting may be adjourned from time to time by a
majority of votes, whether or not a quorum is present, and the meeting may be
held as adjourned upon reasonable notice.
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Section 6.7 ACTION BY CONSENT. Any action of the Board may be taken
without a meeting if (i) the Member Managers holding not less than the minimum
number of votes that would be required to approve and adopt such action at a
meeting consent to the action in writing, signed by an authorized representative
of each such Member Manager, (ii) notice of the actions to be approved by such
Member Managers is given to all Member Managers in advance and copies of the
written consents are so delivered to all Member Managers promptly thereafter,
and (iii) the written consents are filed with the records of the meetings of the
Board. Such actions by consent shall be treated for all purposes as actions
taken at a meeting.
Section 6.8 TELEPHONIC MEETINGS. Member Managers, through their
respective authorized representatives, may participate in a meeting of the Board
by means of a conference telephone or similar communications equipment provided
all Member Managers participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
Section 6.9 MEMBER MANAGERS AS AGENTS. The Member Managers, to the extent
of the powers set forth herein, are agents of the Company for the purpose of the
Company's business, and the actions of the Member Managers taken in accordance
with such powers shall bind the Company.
Section 6.10 POWERS OF THE BOARD; POWERS OF OFFICERS.
(a) The Board's powers on behalf and in respect of the Company, subject to
the provisions of this Agreement requiring the approval of the Members, shall be
all powers and privileges permitted to be exercised by members that manage the
Company under the Delaware Act, including, without limitation, Section 18-402 of
the Delaware Act; provided, nothing herein shall supersede, limit or otherwise
invalidate any action, authorization or resolution of the Members set forth in
this Agreement including, but not limited to those referred to in
Section 3.2(b).
(b) The Board may delegate any of its powers to the Officers of the
Company, or any one of them, except to the extent that this Agreement requires
the Board to take an action by voting.
(c) The Board hereby delegates to the Officers of the Company the
respective powers delegated to officers of a corporation under the Delaware
General Corporation Law, subject to the powers of a board of directors of a
corporation under such Delaware law; PROVIDED, that the Board reserves the right
to rescind the delegation of any such powers at any time in the sole discretion
of the Board. Notwithstanding the foregoing, all decisions as to the hiring and
terminating the employment of and the compensation of any officer who reports
directly to the Chairman or Chief Executive Officer of the Company shall be
subject to the approval of the Board.
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Section 6.11 REIMBURSEMENT. The Company shall reimburse each Member
Manager for all reasonable and necessary out-of-pocket expenses incurred by such
Member Manager on behalf of the Company according to such terms as shall be
approved by the Board. The Board's sole determination of which expenses may be
reimbursed to a Member Manager and the amount of such expenses shall be
conclusive. Such reimbursement shall be treated as an expense of the Company
that shall be deducted in computing Profits and shall not be deemed to
constitute a distributive share of Profits or a distribution or return of
capital to the Member Manager.
Section 6.12 REQUIRED APPROVALS BY THE BOARD.
(a) Any action or transaction by any of the New LLC Entities that requires
a consent or approval pursuant to the Securityholders Agreement shall be deemed
to have been approved by the Board if the required approval or consent pursuant
to the Securityholders Agreement has been obtained and shall not require any
further approval by the Board. The Board shall cause any vote, approval or
consent by the Company required by the Securityholders Agreement to be effected.
The Board shall not take any action or enter into any transaction inconsistent
with the Securityholders Agreement.
(b) Except for transactions between or among the Company and one or more of
its Other Subsidiaries, or between or among the Company's Other Subsidiaries
themselves, without the approval of the Board, the Company shall neither take
nor permit any of its Other Subsidiaries to take any of the following actions
(each event hereinafter described being hereafter referred to as a
"TRANSACTION") without the approval of the Board:
(i) any sale, Transfer, assignment or other disposition by the
Company of any interest in an Other Subsidiary of the Company, or by any
Other Subsidiary of the Company of any interest in another Other Subsidiary
of the Company;
(ii) any consolidation or merger of the Company with or into any other
limited liability company or other business entity (as defined in Section
18-209(a) of the Delaware Act), or any liquidation, dissolution or
winding-up of the Company;
(iii) (A) any consolidation or merger of any Other Subsidiary of
the Company with or into any business entity (as defined in Section
18-209(a) of the Delaware Act), (B) any sale by any Other Subsidiary of the
Company of all or substantially all of its assets, or (C) any liquidation,
dissolution or winding-up of any Other Subsidiary of the Company;
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(iv) any issuance of any equity securities of any Other Subsidiary of
the Company, or any securities convertible into shares of preferred stock
or common stock of any Other Subsidiary of the Company;
(v) any acquisition by the Company or any Other Subsidiary of the
Company of any stock or assets of another entity or of capital assets, in a
single transaction or a series of related transactions in any 12-month
period, for an aggregate purchase price in excess of $5,000,000;
(vi) any incurrence by the Company or any Other Subsidiary of the
Company of funded debt in a principal amount in excess of $2,500,000;
(vii) any removal of Mr. Ian R. Wilson as the Chairman of the
Company or any Other Subsidiary of the Company and the hiring or removal of
any successor Chairman or any Chief Executive Officer, President or
Executive Vice President of the Company or any Other Subsidiary;
(viii) any election by Aurora Foods not to extend, or the
termination by Aurora Foods of, the Management Services Agreement.
(ix) any approval of the annual budget for any of the Other
Subsidiaries; and
(x) any selection of the firm of independent public accountants that
will audit the financial statements of the Company or its Other
Subsidiaries.
Section 6.13 BOARD OF DIRECTORS OF SUBSIDIARIES OF THE COMPANY.
(a) The Board of Member Managers of New LLC and the Boards of Directors of
the other New LLC Entities shall be determined in accordance with the terms and
conditions of the Securityholders Agreement. The Board will take such actions
as are necessary to cause the election of such Board of Member Managers and
Boards of Directors in accordance with the Securityholders Agreement.
(b) Each Member Manager agrees to take such action as a Member Manager as
may be necessary to cause a stockholder of any Other Subsidiary to elect the
following persons as members of the Board of Directors of such Other Subsidiary:
(A) three persons designated by McCown De Leeuw, (B) two persons designated by
Fenway; PROVIDED, that (1) the number of persons Fenway may designate shall be
reduced to one if Fenway and its Permitted Transferees no longer hold at least
15% of the outstanding Voting Units and (2) the number of persons Fenway may
designate shall be reduced to zero if Fenway and its Permitted Transferees no
longer hold at least 10% of the outstanding Voting Units, and (C) three persons
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designated by Dartford; PROVIDED, that the number of persons Dartford may
designate shall be reduced to zero if Dartford and its Permitted Transferees no
longer hold any Units. Notwithstanding the foregoing:
(i) so long as McCown De Leeuw holds more than 50% of the voting
control of the then outstanding Voting Units, McCown De Leeuw shall have
the right, by taking such action as would be required under the Delaware
General Corporation Law (including without limitation Section 228 of the
Delaware General Corporation Law) for a majority shareholder to act without
a meeting, to designate a number of additional persons for election as
members of the Board of Directors of such Other Subsidiary which, when
added to the three persons previously designated by McCown De Leeuw, would
constitute a majority of members of the Board of Directors of such Other
Subsidiary, and
(ii) unless otherwise directed by all of the Member Managers or as
required to comply with clause (B) or clause (C) of Section 6.13(b) or
subclause (i) above, the number of directors on the Board of Directors of
any Other Subsidiary shall not be less than eight.
(c) In the event McCown De Leeuw exercises its rights under this
Section 6.13, the Member Managers agree to take such actions as may be necessary
to cause the election of the additional persons designated by McCown De Leeuw as
directors of any Other Subsidiary and to amend the By-Laws of such entity in
connection therewith.
ARTICLE VII
AMENDMENTS AND MEETINGS
Section 7.1 AMENDMENTS. Except as expressly provided in this Agreement,
any amendment to this Agreement (including the Schedules hereto) shall be
adopted and be effective as an amendment hereto if it is approved by the
affirmative vote of Members holding 96% of the outstanding Voting Units. In
addition to the foregoing requirement:
(i) no amendment of this Section 7.1 or of Article VIII hereof (or
the definitions used therein) shall be effective without the written
approval of Members holding a majority of any class of Units that would be
adversely affected by such proposed amendment;
(ii) no amendment of Section 4.6(b) hereof or this Section 7.1(ii)
shall be effective without the written approval of Members holding a
majority of the Class A Units and Class B Units, respectively;
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(iii) no amendment of Section 4.6(c) hereof, SCHEDULE B hereto,
the third sentence of Section 12.1(a) hereof, Section 15.2(b) hereof or
this Section 7.1(iii) shall be effective without the prior written approval
of Members holding a majority of the Class C Units;
(iv) no amendment of SCHEDULE D hereto or this Section 7.1(iv) shall
be effective without the prior written approval of Dartford;
(v) no amendment of Section 6.1 or 6.2 regarding the initial Member
Managers or this Section 7.1(v) shall be made without the unanimous written
consent of such initial Member Managers; and
(vi) no amendment of Section 4.6(d), SCHEDULE C hereto or this
Section 7.1(vi) shall be effective without the prior written approval of
Members holding a majority of the Class D Units.
Notwithstanding the foregoing, the officers of the Company may amend SCHEDULE A
hereto to reflect new Members or Substitute Members duly admitted in accordance
with this Agreement, with such amendment to be effective upon the filing of such
amendment with the books and records of the Company.
Section 7.2 MEETINGS OF THE MEMBERS.
(a) Meetings of the Members may be called by the Board and shall be called
by the Board upon the written request of the Chairman or of Members holding 20%
of the outstanding Voting Units. The call shall state the location of the
meeting and the nature of the business to be transacted. Notice of any such
meeting shall be given to all Members not less than 14 days nor more than 50
days prior to the date of such meeting. Members may vote in person or by proxy
at such meeting. Whenever a vote, consent or approval of Members is permitted
or required under this Agreement, such vote, consent or approval may be given at
a meeting of Members or may be given in accordance with the procedure prescribed
in Section 7.2(e) hereof. Except as otherwise expressly provided in this
Agreement, a vote by Members holding a majority of the Voting Units shall be
required to constitute the act of the Members.
(b) For the purpose of determining the Members entitled to vote on, or to
vote at, any meeting of the Members or any adjournment thereof, the Board or the
Members requesting such meeting may fix, in advance, a date as the record date
for any such determination. Such date shall be not more than 50 days nor less
than 14 days before any such meeting.
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(c) Each Member may authorize any Person to act for it by proxy on all
matters in which a Member is entitled to participate, including waiving notice
of any meeting, or voting or participating at a meeting. Every proxy must be
signed by the Member or its attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the Member executing
it.
(d) Each meeting of Members shall be conducted by the Board or Members
requesting such meeting or by such other Person that the Board or Members
requesting such meeting may designate.
(e) Except as otherwise provided in this Agreement, any action of the
Members may be taken without a meeting if
(i) the Members holding not less than the minimum number of Voting
Units that would be required to approve and adopt such action at a meeting
consent to the action in writing,
(ii) written notice (delivered in person or by facsimile) of the
actions to be approved by such Members is given to all Members, and
(iii) the written consents are filed with the records of the
meeting of the Members. Such actions by consent shall be treated for all
purposes as actions taken at a meeting.
ARTICLE VIII
DISTRIBUTIONS AND ALLOCATIONS
Section 8.1 GENERAL DISTRIBUTION RULES. Except as provided in Section 8.2
hereof and except with respect to Available Cash up to $8,500,000 which shall be
distributed when received, the Company shall distribute Available Cash pursuant
to the terms hereunder to the Members at such times as shall be determined by
the Board. For purposes of this Article VIII, the term "Member" shall include
an Assignee of a Member and their successors and assigns.
Section 8.2 TAX LIABILITY DISTRIBUTIONS. The Board shall make cash
distributions on or prior to April 15th of each Year to the Members in amounts
intended to enable the Members (or any Person whose tax liability is determined
by reference to the income of a Member) to discharge their United States
federal, state and local income tax liabilities arising from the allocations
made pursuant to this Article VIII with respect to the Company's operations in
the preceding year (a "TAX LIABILITY DISTRIBUTION"). The amount of any such Tax
Liability
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Distribution shall be equal to 50% of the amount of income and gain allocated to
each Member pursuant to this Article VIII; PROVIDED, HOWEVER, if any
distributions are made with respect to the year for which the Tax Liability
Distribution is being determined pursuant to Sections 8.3(iii) through 8.3(viii)
hereof, such distributions shall reduce, by the amount of the distribution under
the relevant Section, the amount of the Tax Liability Distribution resulting
from the allocation of income and gain to such corresponding Section.
Section 8.3 OTHER DISTRIBUTIONS. Distributions other than Tax Liability
Distributions, including without limitation distributions of Available Cash but
not including distributions upon liquidation pursuant to Section 8.4 hereof,
shall be made to the Members as follows:
(i) First, an amount shall be distributed to the
Non-Dartford/Non-Fenway Group, which amount, when added to all prior
distributions made to the Non-Dartford/Non-Fenway Group under Section 8.2
hereof (relating to an allocation of income to the Members in respect of
the distribution made pursuant to this Section 8.3(i)) and this Section
8.3(i) equals $8,500,000 with such distribution to be allocated among such
Persons in proportion to the Class A Units held by them on the date of this
Agreement.
(ii) Next, an amount shall be distributed to the Class A Holders,
which amount, when added to all prior distributions made to such Members
with respect to the Class A Units under this Section 8.3(ii), shall be up
to the aggregate Capital Contributions of all Class A Holders at the time
such distribution is made. Such distribution shall be allocated among the
Class A Holders in proportion to their Capital Contributions.
(iii) Next, an amount shall be distributed to the Class B Holders
holding Class B Units outstanding as of January 1, 1998 ("ORIGINAL B
UNITS"), which amount, when added to all prior distributions made to such
Members with respect to the Original B Units under Section 8.2 and this
Section 8.3(iii), shall be up to the product of (A) $1,000 multiplied by
(B) the number of outstanding Original B Units held by such Class B
Holders. Such distribution shall be allocated among such Class B Holders
in proportion to their respective Original B Units.
(iv) Next, an amount equal to $19,546,500 shall be distributed as
follows: (A) an amount shall be distributed to each Class A Holder and
each Class B Holder holding Original Class B Units, which amount, when
added to all prior distributions made to such Member under Section 8.2 with
respect to such Class A Units and Original B Units (other than those prior
distributions already taken into account in clause (iii) above) and this
Section 8.3(iv) shall produce a return of 10% simple interest per annum on
(i) in the case of a Class A Holder,
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the Unrecouped Capital Contribution of such Class A Holder outstanding from
time to time from December 31, 1996 and (ii) in the case of Class B Holders
holding Original B Units, the portion of the amount payable pursuant to
Section 8.3(iii) which remains undistributed from time to time from
December 31, 1996; (B) if any portion of the $19,546,500 distributable
under this clause (iv) remains undistributed after all distributions
required under subclause (A) above have been made, an amount shall be
distributed to the Class C Holders and the Class D Holders holding Vested
Class D Units in accordance with the principles set forth in Section
8.3(vii) below except that the references to "this Section 8.3(vii)"
therein shall for purposes of this Section 8.3(iv) be references to this
Section 8.3(iv) and any references to Section 8.3(vi) therein shall be
deleted; and (C) if any portion of the $19,546,500 distributable under this
clause (iv) remains undistributed after all distributions required under
subclauses (A) and (B) above have been made, an amount shall be distributed
to the Class A Holders, the Class B Holders holding Original B Units, the
Class C Holders, and the Class D Holders in accordance with the principles
set forth in Section 8.3(viii) below except that with respect to any
distribution to be made to Class A Holders and Class B Holders in
accordance with the principles set forth in such Section 8.3(viii), such
distribution shall be allocated among the Class A Holders and the Class B
Holders in accordance with their respective holdings of Class A Units and
Original B Units. To the extent the amount of any proposed distribution
under subclause (A) or (B) above is not sufficient to provide a full
distribution of the amount required to be distributed to each Member
entitled to receive a distribution with respect thereto, the amount of such
distribution shall be allocated, in the case of subclause (A), between the
Class A Holders as a group and the Class B Holders holding Original B Units
as a group, and in the case of subclause (B), between the Class C Holders
as a group and the Class D Holders holding Vested Class D Units as a group,
based on the respective amounts which each such group would have received
had the total distribution been made.
(v) Next, an amount shall be distributed to the Class B Holders with
respect to all Class B Units other than Original B Units ("ADDITIONAL B
UNITS"), which amount, when added to all prior distributions made to such
Members with respect to such Additional B Units under Section 8.2 and this
Section 8.3(v), shall be up to the product of (A) $1,300 multiplied by (B)
the number of outstanding Additional B Units held by such Class B Holders.
Such distribution shall be allocated among the Class B Holders holding
Additional B Units in proportion to their respective Additional B Units.
(vi) Next, an amount shall be distributed to each Class A Holder and
each Class B Holder, which amount, when added to all prior distributions
made to such Member under Section 8.2 with respect to Class A Units or
Class B
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Units, respectively (other than those prior distributions already taken
into account in clauses (iii) or (v) above), under Section 8.3(iv)(A) above
and under this Section 8.3(vi) shall produce a return of 10% simple
interest per annum and no more on (i) in the case of a Class A Holder, the
Unrecouped Capital Contributions of such Class A Holder outstanding from
time to time from December 31, 1996 and (ii) in the case of the Class B
Holders, the portion of the amount payable pursuant to Section 8.3(iii) and
Section 8.3(v) which remains undistributed from time to time from
December 31, 1996. To the extent the amount of any proposed distribution
under this Section 8.3(vi) is not sufficient to provide a full distribution
of the amount required to be distributed to each Class A Holder and Class B
Holder by this Section 8.3(vi), the amount of such distribution shall be
allocated between the Class A Holders as a group and the Class B Holders as
a group based on the respective amounts which each group would have
received had the total distribution been made.
(vii) Next, an amount shall be distributed to the Class C Holders
and the Class D Holders as follows: (A) an amount shall be distributed to
the Class C Holders, which amount, when added to all prior distributions
made to such Members with respect to the Class C Units under Section 8.2,
Section 8.3(iv)(B) and this Section 8.3(vii), shall be up to the
Outstanding C Units Percentage multiplied by 16.25% of all prior
distributions made pursuant to Section 8.3(iv)(A) and Section 8.3(vi)
above, with such distribution to be allocated among the Class C Holders in
proportion to the Class C Units then held by each of them, and (B) an
amount shall be distributed to the Class D Holders holding Vested Class D
Units, which amount, when added to all prior distributions made to such
Members with respect to the Vested Class D Units under Section 8.2, Section
8.3(iv)(B) and this Section 8.3(vii), shall be up to the Outstanding D
Units Percentage multiplied by 8.75% of all prior distributions made
pursuant to Section 8.3(iv)(A) and Section 8.3(vi) above, with such
distribution to be allocated among the Class D Holders in proportion to the
Vested Class D Units then held by each of them. To the extent the amount
of any proposed distribution under this Section 8.3(vii) is not sufficient
to provide a full distribution of the amount required to be distributed to
each Class C Holder and each Class D Holder holding Vested Class D Units by
this Section 8.3(vii), the amount of such distribution shall be allocated
between the Class C Holders as a group and the Class D Holders holding
Vested Class D Units as a group based on the respective amounts which each
group would have received had the total distribution been made.
(viii) Next, any balance shall be distributed to the Class A
Holders, the Class B Holders, the Class C Holders and the Class D Holders
as follows: (A) 80% of such balance shall be distributed to the Class A
Holders and the Class
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B Holders, with such distribution to be allocated among the Class A Holders
and Class B Holders in accordance with their respective holdings of Class A
Units and Class B Units as if the Class A Units and Class B Units were
Units of a single class; PROVIDED, that the portion of such 80% of such
balance to be distributed to each Class A Holder and Class B Holder shall
be the amount necessary so that all distributions to Class A Holders and
Class B Holders under this Section 8.3(viii), when added to all
distributions under clauses (iv) and (vi) of this Section 8.3, are
proportionate to the number of Class A Units outstanding (with respect to
the Class A Holders) and the number of Class B Units outstanding (with
respect to the Class B Holders); (B) 13% of such balance (such amount the
"13% BALANCE") shall be distributed among the Class C Holders and the Class
A and Class B Holders as follows: (X) an amount equal to the Outstanding C
Units Percentage multiplied by the 13% Balance shall be distributed to the
Class C Holders to be allocated among the Class C Holders in proportion to
the Class C Units then held by each of them and (Y) the portion, if any, of
the 13% Balance remaining on hand after the distribution described in
subclause 8.3(viii)(B)(x) above shall be distributed to the Class A and
Class B Holders as a group to be allocated among such Class A and Class B
Holders in proportion to which their respective holdings of Class A Units
and Class B Units as if the Class A Units and Class B Units were Units of a
single class; and (C) 7% of such balance (such amount the "7% BALANCE")
shall be distributed among the Company on account of the Class D Units and
the Class A, Class B and Class C Holders as follows: (X) an amount equal
to the Outstanding D Units Percentage multiplied by the 7% Balance shall be
distributed to the Class D Holders holding Vested Class D Units to be
allocated among such Class D Holders in proportion to the Vested Class D
Units then held by each of them and (Y) the portion, if any, of the 7%
Balance remaining on hand after the distribution described in subclause
8.3(viii)(C)(x) above shall be distributed to the Class A Holders, the
Class B Holders and the Class C Holders to be allocated among such Holders
in proportion to the aggregate amounts distributed to each of them pursuant
to Sections 8.3(viii)(A) and (B) hereof.
Notwithstanding the foregoing, with respect to any amount stated to be
distributable to holders of Additional B Units pursuant to Section 8.3(v),
8.3(vi) or 8.3(viii) hereof, such amount shall not be distributed as so stated
and shall instead be distributed as follows: (A) 24.3% of such amount shall be
distributed to the Non-Dartford/Non-Fenway Group, with such distribution to be
allocated among such Persons in proportion to the Class A Units held by them on
the date of this Agreement; and (B) 75.7% of such amount shall be distributed to
the Class B Holders holding Additional B Units, with such distribution to be
allocated among such Persons in proportion to their respective Additional B
Units.
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Notwithstanding the foregoing, in the event that distributions have been
made under Sections 8.3(ii)-(vii) above and are then eligible to be made under
Section 8.3(viii), and the Outstanding D Units Percentage is increased from the
percentage in effect at the time distributions were previously made under
Section 8.3(vii) above, additional distributions shall be made under
Section 8.3(vii) above to those Class D Holders holding Vested Class D Units to
the extent their holdings of such Units increased the Outstanding D Units
Percentage, respectively, before any further distributions under
Section 8.3(viii) are made.
Section 8.4 DISTRIBUTION OF PROCEEDS UPON LIQUIDATION. Upon liquidation
of the Company, any distributions shall be made in accordance with the terms and
conditions of Article XV hereof and shall be made by the end of the taxable year
in which the liquidation occurs, or, if later, within ninety (90) days after the
liquidation.
Section 8.5 TAX WITHHOLDING. All amounts withheld pursuant to the Code or
any provision of any state or local tax law with respect to any payment,
distribution or allocation to the Company or the Members shall be treated as
amounts distributed to the Members pursuant to this Article VIII for all
purposes of this Agreement. The Board is authorized to withhold from
distributions, or with respect to allocations, to the Members and to pay over to
any federal, state or local government any amounts required to be so withheld
pursuant to the Code or any provision of any other federal, state or local law
and shall allocate such amounts to those Members or with respect to which such
amounts were withheld.
Section 8.6 LIMITATIONS ON DISTRIBUTION. Notwithstanding any provision to
the contrary contained in this Agreement, the Company shall not make a
distribution to any Member on account of its interest in the Company if such
distribution would violate Section 18-607 of the Delaware Act or other
applicable law.
Section 8.7 ALLOCATION OF PROFITS. Profits of the Company for any Tax
Year shall be allocated in the following order and priority:
(i) First, among the Members in accordance with and in an amount
equal to the cumulative Losses allocated among the Members pursuant to
Section 8.8(ii) hereof for all prior periods and not previously taken into
account under this clause.
(ii) Next, among the Members in accordance with and in an amount equal
to the cumulative Losses allocated among the Members pursuant to
Section 8.8(i) hereof for all prior periods and not previously taken into
account under this clause.
(iii) Next, among the Persons who are members of the
Non-Dartford/Non-Fenway Group, in proportion to, and in an amount equal to
the
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excess, if any, of (A) the cumulative cash distributions that have
previously been made to such Persons under Section 8.3(i) and that each
such Person would have received under such Section for the then current Tax
Year of the Company had an amount of cash at least equal to such Profits
been available for such distribution under such Section over (B) the
cumulative allocations previously made to such Persons pursuant to this
Section 8.7(iii).
(iv) Next, among the Class B Holders in proportion to, and in an
amount equal to the excess, if any, of (A) the cumulative cash
distributions under Section 8.3(iii) that have previously been made to the
Class B Holders and that each Class B Holder would have received under such
Section for the then current Tax Year of the Company had an amount of cash
at least equal to such Profits been available for such distribution under
such Section over (B) the cumulative allocations previously made to the
Class B Holders pursuant to this Section 8.7(iv).
(v) Next, among the Class A Holders, the Class B Holders, the Class C
Holders and the Class D Holders holding Vested Class D Units in proportion
to, and in an amount equal to the excess, if any, of (A) the cumulative
cash distributions under Section 8.3(iv) hereof that have previously been
made to the Class A Holders, the Class B Holders, the Class C Holders and
such Class D Holders and that each Class A Holder, Class B Holder, and
Class C Holder and each such Class D Holder would have received under
Section 8.3(iv) hereof for the then current Tax Year of the Company had an
amount of cash at least equal to such Profits been available for such
distribution under such Section over (B) the cumulative allocations
previously made to the Class A Holders, the Class B Holders and the Class C
Holders and such Class D Holders pursuant to this Section 8.7(v).
(vi) Next, among the Class B Holders in proportion to, and in an
amount equal to the excess, if any, of (A) the cumulative cash
distributions under that Section 8.3(v) hereof that have previously been
made to the Class B Holders and Class B Holder would have received under
such section for the then current Tax Year of the Company had an amount of
cash at least equal to such Profits been available for such distributions
under such Section over (B) the cumulative allocations previously made to
the Class B Holders pursuant to this Section 8.7(vi).
(vii) Next, among the Class A Holders and the Class B Holders in
proportion to, and in an amount equal to the excess, if any, of (A) the
cumulative cash distributions under Section 8.3(vi) hereof that have
previously been made to the Class A Holders and Class B Holders and that
each Class A Holder and Class
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B Holder would have received under Section 8.3(vi) hereof for the then
current Tax Year had an amount of cash at least equal to such Profits been
available for such distribution under such Section over (B) the cumulative
allocations previously made to the Class A Holders and Class B Holders
pursuant to this Section 8.7(vii).
(viii) Next, among the Class C Holders and Class D Holders holding
Vested Class D Units in proportion to, and in an amount equal to the
excess, if any, of (A) the cumulative cash distributions under
Section 8.3(vii) that have previously been made to the Class C Holders and
such Class D Holders and that each Class C Holder and each such Class D
Holder would have received under Section 8.3(vii) hereof for the current
Tax Year of the Company had an amount of cash at least equal to such
Profits been available for distribution under such Section over (B) the
cumulative allocations previously made to the Class C Holders and such
Class D Holders pursuant to this Section 8.7(viii).
(ix) Next, among the Members in proportion to and in an amount equal
to the excess, if any, of (A) the cumulative cash distributions under
Section 8.3(viii) hereof that have previously been made to such Members and
that such Member would have received under Section 8.3(viii) hereof for the
then current Tax Year had an amount of cash at least equal to such Profits
been available for such distribution under such Section over (B) the
cumulative allocations previously made to the Members pursuant to this
Section 8.7(ix).
Notwithstanding the foregoing, profits that would be allocated to the
Additional B Units pursuant to SECTIONS 8.7(vi), 8.7(vii) OR 8.7 (ix) shall be
allocated to the Additional B Units and the Non-Dartford/Non-Fenway Group in the
amounts and proportions of the distributions required under SECTIONS 8.3(v),
8.3(vi) OR 8.3(viii) as adjusted by SECTION 8.3 hereof. For purposes of
determining Profits allocations under this Section 8.7, amounts actually
distributed under the relevant paragraph of Section 8.3 shall be increased by
the amount of the reduction under such paragraph that was made to reflect the
Section 8.2 distribution referred to therein.
Section 8.8 ALLOCATION OF LOSSES. Losses of the Company for any Tax Year
shall be allocated in the following order and priority:
(i) First, to offset any Profits previously allocated under
Section 8.7 in the inverse order and priority in which such Profits were
allocated; and
(ii) Next, in the following order (a) to the Class A Holders to the
extent of their Capital Contributions and (b) to the Class A Holders and
the Class
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B Holders in accordance with their respective PRO RATA portion of Class A
Units and Class B Units taken together for this purpose as a single class
of Units.
Section 8.9. SPECIAL ALLOCATIONS. The following special allocations shall
be made in the following order:
(i) QUALIFIED INCOME OFFSET. Notwithstanding the foregoing, in the
event that any Member receives any adjustments, allocations or
distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of
the Treasury Regulations, items of Company income and gain (including gross
income) shall be specially allocated to each such Member in a manner and
amount sufficient to eliminate, to the extent required by such Regulations,
the negative balance in the Capital Account of the Member described in
Section 1.704-1(b)(2)(ii)(d)(3) of the Treasury Regulations as quickly as
possible.
(ii) GROSS INCOME ALLOCATION. In the event any Member has a deficit
Capital Account at the end of any Tax Year, each such Member shall be
specially allocated items of Company income and gain in the amount of such
deficit Capital Account as quickly as possible, provided that an allocation
pursuant to this Section 8.9(ii) shall be made only if and to the extent
that such Member would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Article VIII have been
made as if Section 8.9(i) and (ii) were not in this Agreement.
Section 8.10 ALLOCATION RULES.
(a) In the event Members are admitted to the Company pursuant to this
Agreement on different dates, the Profits (or Losses) allocated to the Members
for each Tax Year during which Members are so admitted shall be allocated among
the Members in proportion to the respective Units that each holds from time to
time during such Tax Year in accordance with Section 706 of the Code, using any
convention permitted by law and selected by the Board.
(b) For purposes of determining the Profits, Losses or any other items
allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly or other basis, as determined by the Board using
any method that is permissible under Section 706 of the Code and the Treasury
Regulations thereunder.
(c) Except as otherwise provided in this Agreement, all types of Company
income, gain, loss, deduction and any other allocations not otherwise provided
for shall be divided among the Members in the same proportions as they share
Profits and Losses for the Tax Year in question.
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Section 8.11 TAX ALLOCATIONS OF SECTION 704(C) OF THE CODE.
(a) In accordance with Section 704(c) of the Code and the Treasury
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for income tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its initial Gross Asset Value (computed in accordance with
Section 1.1 hereof).
(b) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to Paragraph (b) of the definition of "Gross Asset Value" contained in
Section 1.1 hereof, subsequent allocations of income, gain, loss and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such asset for federal income tax purposes and its Gross Asset
Value in the same manner as under Section 704(c) of the Code and the Treasury
Regulations thereunder.
(c) Any elections or other decisions relating to allocations solely for
tax purposes under this Article VIII, including the selection of any allocation
method permitted under proposed Treasury Regulation Section 1.704-1(c), shall be
made by the Board in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 8.11 are
solely for purposes of federal, state and local taxes and shall not affect, or
in any way be taken into account in computing, any Member's Capital Account or
share of Profits, Losses, other items or distributions pursuant to any provision
of this Agreement.
(d) The Members are aware of the income tax consequences of the
allocations made by this Article VIII and hereby agree to be bound by the
provisions of this Article VIII in reporting their shares of Company income and
loss for income tax purposes.
ARTICLE IX
BOOKS AND RECORDS
Section 9.1 BOOKS, RECORDS AND FINANCIAL STATEMENTS.
(a) At all times during the continuance of the Company, the Company shall
maintain, at its principal place of business, separate books of account for the
Company that shall show a true and accurate record of all costs and expenses
incurred, all charges made, all credits made and received and all income derived
in connection with the operation of the Company business in accordance with
generally accepted accounting principles consistently applied, and, to the
extent inconsistent therewith, in accordance with this Agreement. Such books of
account, together with a copy of this Agreement and of the Certificate, shall at
all times be maintained
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at the principal place of business of the Company and shall be open to
inspection and examination at reasonable times by each Member and its duly
authorized representative for any purpose reasonably related to such Member's
interest in the Company. The books of account and the records of the Company
shall be examined by and reported upon as of the end of each Fiscal Year by a
firm of independent certified public accountants selected by the Board. Any
Member shall have the right to have a private audit of the Company books and
records conducted at reasonable times and after reasonable advance notice to the
Company for any purpose reasonably related to such Member's interest in the
Company, but any such private audit shall be at the expense of the Member
desiring it, and it shall not be paid for out of Company funds.
(b) The Board shall prepare and maintain, or cause to be prepared and
maintained, the books of account of the Company and the following documents
shall be transmitted by the Board to each Member holding 5% or more of the
outstanding Voting Units at the times hereinafter set forth:
(i) as soon as available and in any event within 95 days after the
end of each Fiscal Year of the Company, a balance sheet of the Company as
of the end of such Fiscal Year and the related statements of income and
cash flows of the Company for such Fiscal Year, all reported on by such
independent public accountants of nationally recognized standing as the
Board shall select;
(ii) as soon as available and in any event within 50 days after the
end of each of the first three quarters of each Fiscal Year of the Company,
a balance sheet of the Company as of the end of such quarter and the
related statements of income and cash flows of the Company for such
quarter; and
(iii) such other financial reports of the Company or any
Subsidiary that the Company or any Subsidiary is required to deliver to its
senior lender, within 5 days after such financial reports are required to
be delivered to such senior lender.
(c) All information contained in any statement or other document
distributed to any Member pursuant to Section 9.1(b) hereof shall be deemed
accurate, binding and conclusive with respect to such Member unless written
objection is made thereto by such Member to the Company within 20 business days
after the receipt of such statement or other document by such Member.
Section 9.2 ACCOUNTING METHOD. The books and records of the Company shall
be kept on the accrual method of accounting applied in a consistent manner and
shall reflect all Company transactions and be appropriate and adequate for the
Company's business.
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Section 9.3 ANNUAL AUDIT. As soon as practical after the end of each
Fiscal Year, but not later than 90 days after such end, the financial statements
of the Company shall be audited by the independent certified public accountants
referred to in Section 9.1(a) hereof, and such financial statements shall be
accompanied by a report of such accountants containing their opinion. The cost
of such audits will be an expense of the Company. A copy of the audited
financial statements and the accountants' report will be furnished to each
Member within 10 business days after their receipt by the Member Manager.
ARTICLE X
TAX
Section 10.1 TAX MATTERS MEMBER.
(a) Dartford is hereby designated as the initial "Tax Matters Member" of
the Company and as the "Tax Matters Partner" for purposes of Section 6231(a)(7)
of the Code and shall have the power to manage and control, on behalf of the
Company, any administrative proceeding at the Company level with the Internal
Revenue Service relating to the determination of any item of Company income,
gain, loss, deduction or credit for federal income tax purposes. The Tax
Matters Member shall not take any action or make any decision that materially
affects the Company or the Members (including without limitation with respect to
income, loss, deduction or credit of the Company) without the prior written
consent of Members by Majority Vote.
(b) The Tax Matters Member shall, within 10 days of the receipt of any
notice from the Internal Revenue Service in any administrative proceeding at the
Company level relating to the determination of any Company item of income, gain,
loss, deduction or credit, mail a copy of such notice to each Member.
(c) The Members may at any time hereafter designate a new Tax Matters
Member by a Majority Vote; provided, however, that only a Member may be
designated as the Tax Matters Member of the Company.
Section 10.2 RIGHT TO MAKE SECTION 754 ELECTION. The Board may, in its
sole discretion, make or revoke, on behalf of the Company, an election in
accordance with Section 754 of the Code, so as to adjust the tax basis of
Company property in the case of a distribution of property within the meaning of
Section 734 of the Code, and in the case of a transfer of a Company interest
within the meaning of Section 743 of the Code. Each of the Members shall, upon
request of the Board, supply the information necessary to give effect to such an
election.
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ARTICLE XI
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 11.1 LIABILITY. Except as otherwise provided by the Delaware Act,
the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and no Covered Person shall be obligated personally
for any such debt, obligation or liability of the Company solely by reason of
being a Covered Person.
Section 11.2 EXCULPATION.
(a) No Covered Person shall be liable to the Company or any other Covered
Person for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the
Company and in a manner reasonably believed to be within the scope of authority
conferred on such Covered Person by this Agreement or the Securityholders
Agreement, except that a Covered Person shall be liable for any such loss,
damage or claim incurred by reason of such Covered Person's gross negligence or
willful misconduct.
(b) A Covered Person shall be fully protected in relying in good faith
upon the records of the Company and upon such information, opinions, reports or
statements presented to the Company by any Person as to matters the Covered
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Company, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, Profits, Losses or any other facts
pertinent to the existence and amount of assets from which distributions to
Members might properly be paid.
Section 11.3 FIDUCIARY DUTY.
(a) To the extent that, at law or in equity, a Covered Person has duties
(including fiduciary duties) and liabilities relating thereto to the Company or
to any other Covered Person, a Covered Person acting under this Agreement or the
Securityholders Agreement shall not be liable to the Company or to any other
Covered Person for its good faith reliance on the provisions of this Agreement
or the Securityholders Agreement. The provisions of this Agreement or the
Securityholders Agreement, to the extent that they restrict the duties and
liabilities of a Covered Person otherwise existing at law or in equity, are
agreed by the parties hereto to replace such other duties and liabilities of
such Covered Person.
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(b) Unless otherwise expressly provided herein,
(i) whenever a conflict of interest exists or arises between Covered
Persons, or
(ii) whenever this Agreement, the Securityholders Agreement or any
other agreement contemplated herein or therein provides that a Covered
Person shall act in a manner that is, or provides terms that are, fair and
reasonable to the Company or any Member, the Covered Person shall resolve
such conflict of interest, taking such action or providing such terms,
considering in each case the relative interest of each party (including its
own interest) to such conflict, agreement, transaction or situation and the
benefits and burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted accounting
practices or principles; PROVIDED that the Board shall vote on the adequacy
of any such resolution of conflict of interest by the Covered Person,
making such adjustments to such resolution as the Board in its sole
discretion sees fit; and PROVIDED FURTHER that if such Covered Person is a
Member Manager, such Covered Person shall not vote with the Board on the
adequacy of such resolution. In the absence of bad faith by the Covered
Person, the resolution, action or term so made, taken or provided by the
Covered Person shall not constitute a breach of this Agreement, the
Securityholders Agreement or any other agreement contemplated herein or of
any duty or obligation of the Covered Person at law or in equity or
otherwise.
(c) Whenever in this Agreement or the Securityholders Agreement a Covered
Person is permitted or required to make a decision
(i) in its "discretion" or under a grant of similar authority or
latitude, the Covered Person shall be entitled to consider such interests
and factors as it desires, including its own interests, and shall have no
duty or obligation to give any consideration to any interest of or factors
affecting the Company or any other Person, or
(ii) in its "good faith" or under another express standard, the
Covered Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Agreement, the
Securityholders Agreement or other applicable law.
Section 11.4 INDEMNIFICATION. To the fullest extent permitted by
applicable law, a Covered Person shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Covered Person by reason
of any act or omission performed or omitted by such Covered Person in good faith
on behalf of the Company and in a manner
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reasonably believed to be within the scope of authority conferred on such
Covered Person by this Agreement and the Securityholders Agreement, except that
no Covered Person shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by such Covered Person by reason of gross negligence or
willful misconduct with respect to such acts or omissions; PROVIDED, HOWEVER,
that any indemnity under this Section 11.4 shall be provided out of and to the
extent of Company assets only, and no Covered Person shall have any personal
liability on account thereof.
Section 11.5 EXPENSES. To the fullest extent permitted by applicable law,
expenses (including legal fees) incurred by a Covered Person in defending any
claim, demand, action, suit or proceeding shall, from time to time, be advanced
by the Company prior to the final disposition of such claim, demand, action,
suit or proceeding including any claim, demand, action, suit or proceeding with
respect to which such Covered Person is alleged to have not met the applicable
standard of conduct or is alleged to have committed conduct so that, if true,
such Covered Person would not be entitled to indemnification under this
Agreement or the Securityholders Agreement, upon receipt by the Company of an
undertaking by or on behalf of the Covered Person to repay such amount if it
shall be determined that the Covered Person is not entitled to be indemnified as
authorized in Section 11.4 hereof.
Section 11.6 OUTSIDE BUSINESSES. Except as may be provided in other
agreements entered into by such Person and the Company and/or its Subsidiaries,
any Member, Member Manager, Officer or Affiliate thereof may engage in or
possess an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Company or any of its Subsidiaries, and the Company, the Members, the Member
Managers and the Officers shall have no rights by virtue of this Agreement in
and to such independent ventures or the income or Profits derived therefrom, and
the pursuit of any such venture, even if competitive with the business of the
Company, shall not be deemed wrongful or improper. Except as may be provided in
other agreements entered into by such Person and the Company and/or its
Subsidiaries, no Member, Member Manager, Officer or Affiliate thereof shall be
obligated to present any particular investment opportunity to the Company even
if such opportunity is of a character that, if presented to the Company, could
be taken by the Company, and any Member, Member Manager, Officer or Affiliate
thereof shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular investment
opportunity.
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ARTICLE XII
ADDITIONAL MEMBERS AND UNITS
Section 12.1 ADDITIONAL UNITS.
(a) If approved by a Majority Vote, the Company is authorized to raise
additional capital by offering and selling, or causing to be offered and sold,
additional limited liability company interests in the Company ("ADDITIONAL
UNITS") to any Person in such amounts and on such terms as the Board may
determine. With respect to any issuance of Class D Units, or reissuance of
Class D Units that are forfeited in accordance with SCHEDULE C hereto, the
approval of a Majority Vote of Members shall not be required with respect
thereto; PROVIDED, that (i) any issuance of Class D Units to Thomas J. Ferraro,
C. Gary Willett and the direct reports of Thomas J. Ferraro and any other person
that reports to the Chairman or the Chief Executive Officer of Aurora Foods and
that person's direct reports shall be in such amounts as the Chairman of the
Company recommends to the Board subject to the approval of the Board, and
(ii) any issuance of Class D Units to any other person shall be in such amounts
as the President of Aurora Foods and the Chairman of the Company disclose to the
Board after consultation with each other. Notwithstanding the foregoing, the
Company is not authorized to issue any additional Class C Units unless all of
the Class C Holders consent to such issuance in advance thereof. Each Person
who subscribes for any of the Additional Units shall be admitted as an
additional member of the Company (each, an "ADDITIONAL MEMBER" and collectively,
the "ADDITIONAL MEMBERS") at the time such Person (i) executes this Agreement
and the Securityholders Agreement or a counterpart of this Agreement and the
Securityholders Agreement and (ii) is named as a Member on the Schedules hereto.
The legal fees and expenses associated with such admission may be borne by the
Company.
(b) If Additional Units are issued pursuant to this Article XII such
Additional Units will be treated for all purposes of this Agreement as Units as
of the date of issuance.
Section 12.2 PREEMPTIVE RIGHTS. In the event that the Company at any
time shall propose to issue additional Class A Units or units of any other class
of limited liability company interests (other than Class C Units or Class D
Units), or any securities convertible into, or exchangeable for, or any rights,
warrants or options to purchase, any limited liability company interests in the
Company, each Class A Holder and Class B Holder shall have the right to purchase
up to such Holder's Proportionate Percentage of such Additional Units or such
securities being issued. To the extent any such proposed issuance would result
in McCown De Leeuw and its Permitted Transferees not holding in excess of 50% of
the outstanding Voting Units, each such Holder who elects to purchase a full
Proportionate Percentage of such Additional Units or securities shall also be
entitled to elect to purchase additional amounts of such Additional Units or
securities up to the amount of such Holder's recalculated Proportionate
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Percentage of the number of Additional Units which the Holders purchasing less
than their full Proportionate Percentages did not purchase.
Section 12.3 ALLOCATIONS. Additional Units shall not be entitled to any
retroactive allocation of the Company's income, gains, losses, deductions,
credits or other items; provided that, subject to the restrictions of Section
706(d) of the Code, Additional Units shall be entitled to their respective share
of the Company's income, gains, losses, deductions, credits and other items
arising under contracts entered into before the effective date of the issuance
of any Additional Units to the extent that such income, gains, losses,
deductions, credits and other items arise after such effective date. To the
extent consistent with Section 706(d) of the Code and Treasury Regulations
promulgated thereunder, the Company's books may be closed at the time Additional
Units are issued (as though the Company's Tax Year had ended) or the Company may
credit to the Additional Units pro rata allocations of the Company' income,
gains, losses, deductions, credits and items for that portion of the Company's
Tax Year after the effective date of the issuance of the Additional Units.
ARTICLE XIII
ASSIGNABILITY AND SUBSTITUTE MEMBERS
Section 13.1 RESTRICTIONS ON TRANSFER.
(a) No Member shall sell or otherwise Transfer any of its Units (whether
now held or hereafter acquired), except in accordance with the terms of this
Agreement and the Securityholders Agreement. Any attempted Transfer of any of a
Member's Units in violation of the terms of this Agreement will be null, void
and of no effect and the proposed transferee shall not be recognized by the
Company as the owner or holder of the Units attempted to be Transferred or any
rights pertaining thereto (including, without limitation, voting rights and
rights to allocations and distributions).
(b) Except as otherwise provided in this Agreement, no Transfer of (i) a
Class A Unit by a Class A Holder, (ii) a Class B Unit by a Class B Holder,
(iii) a Class C Unit by a Class C Holder, or (iv) a Class D Unit by a Class D
Holder may be made without the consent of the Board, which may be withheld in
its sole discretion.
(c) As a condition precedent to the effectiveness of any Transfer of Units
to any Person (other than the Company or a Person that is already a Member and
has executed this Agreement), the transferee shall execute a counterpart of this
Agreement and deliver it to the Company. As a condition precedent to the
effectiveness of any Transfer of Units by a Member or Person who is a signatory
to the Securityholders Agreement (other than to the Company or a Person who is
already a signatory to the Securityholders Agreement), the transferee shall
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execute a counterpart of the Securityholders Agreement and deliver it to the
Company and New LLC.
Section 13.2. PERMITTED TRANSFERS. The rights and obligations under
Section 13.1 of this Agreement will not apply to a Transfer:
(a) to a Member's ancestors or descendants or spouse or to a trust,
partnership, custodianship or other fiduciary account for his or for their
benefit;
(b) if the Member is a partnership or limited liability company, to the
respective partners in such partnership or Affiliates of such partners or
members of such limited liability company;
(c) to an Affiliate of the Member, PROVIDED, that such Affiliate is not
being used as a device to avoid the restrictions on Transfer provided in this
Agreement;
(d) by McCown De Leeuw to an MDC Permitted Transferee, or by an MDC
Permitted Transferee to another MDC Permitted Transferee, PROVIDED, that such
MDC Permitted Transferee is not being used as a device to avoid the restrictions
on Transfer provided in this Agreement; or
(e) a Transfer pursuant to Article XIV of this Agreement.
Notwithstanding the foregoing, no Transfer shall be made to a Permitted
Transferee unless such Transfer is permitted under the terms of the
Securityholders Agreement.
Section 13.3 SUBSTITUTE MEMBERS. Any Transfer of Units pursuant to this
Article XIII or XIV including, but not limited to a Transfer made pursuant to
Section 14.1 hereof, shall, nevertheless, not entitle the transferee to become a
Substitute Member or to be entitled to exercise or receive any of the rights,
powers or benefits of a Member other than the right to share in such profits and
losses, to receive distribution or distributions and to receive such allocation
of income, gain, loss, deduction or credit or similar item to which the
transferor Member would otherwise be entitled, to the extent assigned, unless
the transferor Member designates, in a written instrument delivered to the other
Members, its transferee to become a Substitute Member and the non-transferring
Members holding a majority of the capital and Profits interests of the Company
in their sole and absolute discretion, consent to the admission of such
transferee as a Member; and provided further, that such transferee shall not
become a Substitute Member without having first executed an instrument
reasonably satisfactory to the other Members accepting and agreeing to the terms
and conditions of this Agreement and the Securityholders Agreement, including a
counterpart signature page to this Agreement and the Securityholders Agreement,
and without having paid to the Company a fee sufficient to cover all reasonable
expenses of the Company in connection with such transferee's admission as a
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Substitute Member. If a Member Transfers all of its interest in the Company and
the transferee of such interest is entitled to become a Substitute Member
pursuant to this Section 13.3, such transferee shall be admitted to the Company
effective immediately prior to the effective date of the Transfer, and,
immediately following such admission, the transferor Member shall automatically
resign as a Member of the Company. In such event, the Company shall not
dissolve if the business of the Company is continued without dissolution in
accordance with Section 15.2(e) hereof.
Section 13.4 RECOGNITION OF ASSIGNMENT BY COMPANY. No Transfer or
assignment, or any part thereof, that is in violation of this Article XIII shall
be valid or effective, and neither the Company nor the Members shall recognize
the same for the purpose of making distributions pursuant to Article VIII hereof
with respect to such assigned interest or part thereof. Neither the Company nor
the nonassigning Members shall incur any liability as a result of refusing to
make any such distributions to the assignee of any such invalid assignment.
Section 13.5 EFFECTIVE DATE OF TRANSFER. Any valid Transfer of a Member's
interest in the Company, or part thereof, pursuant to the provisions of this
Article XIII shall be effective as of the close of business on the last day of
the calendar month in which such Transfer occurs. The Company shall, from the
effective date of such assignment, thereafter pay all further distributions on
account of the Company interest (or part thereof) so assigned, to the transferee
of such interest, or part thereof. As between any Member and its transferee,
Profits and Losses for the Fiscal Year of the Company in which such Transfer
occurs shall be apportioned for federal income tax purposes in accordance with
any convention permitted under Section 706(d) of the Code and selected by the
Member Manager.
Section 13.6 INDEMNIFICATION. In the case of Transfer or assignment or
attempted Transfer or assignment of an interest in the Company that has not
received the consents required by this Article XIII, the parties engaging or
attempting to engage in such Transfer or assignment shall be liable to indemnify
and hold harmless the Company and the other Members from all costs, liabilities
and damages that any of such indemnified Persons may incur (including, without
limitation, incremental tax liability and lawyers' fees and expenses) as a
result of such Transfer or assignment or attempted Transfer or assignment and
efforts to enforce the indemnity granted hereby.
ARTICLE XIV
TAG-ALONG OPTION AND COME-ALONG OBLIGATION
Section 14.1. TAG-ALONG OPTION. To the extent certain Transfers of Units
are subject to the tag-along provisions in the Securityholders Agreement, this
Section 14.1 shall have
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no force and effect. To the extent certain Transfers of Units are not subject
to the tag-along provisions in the Securityholders Agreement, and subject to
Section 13.1(c) hereof, in the event that McCown De Leeuw intends to
voluntarily Transfer to another Person (other than to a Permitted Transferee or
pursuant to a Public Offering) (such Person being the "PURCHASER") any of its
Class A Units, then McCown De Leeuw shall deliver to the Company and each other
Member a written notice (the "TAG NOTICE") stating that it intends to make such
a Transfer and setting forth the terms and conditions of such proposed Transfer.
During the 30-day period (the "TAG-ALONG PERIOD") from and after the delivery of
such notice to the Company and such other Members, each Member shall have the
right to elect to sell to the Purchaser, and the Purchaser shall have the
obligation to purchase from such Member, (i) such Member's Proportionate
Percentage of the Class A Units being proposed to be sold pursuant to the notice
on the terms and conditions set forth in the Tag Notice; and (ii) any Class B
Units such Member elects to sell to the Purchaser up to such Member's
Proportionate Percentage of the Class B Units at the fair market value of such
Class B Units as interpolated based upon the price of the Class A Units set
forth in the Tag Notice. In addition, if the proposed Transfer will result in a
Change of Control (as defined in SCHEDULE B to this Agreement), each Member
shall have the right to elect to sell to the Purchaser, and the Purchaser shall
have the obligation to purchase from such Member, any Class C Units and Class D
Units such Member elects to sell to the Purchaser up to such Member's
Proportionate Percentage of the Class C Units or Class D Units, as the case may
be, at the fair market value of such Class C or D Units, as the case may be, as
interpolated based on the price of the Class A Units set forth in the Tag
Notice, provided that the aggregate price for all such Class C and Class D Units
which Members shall have a right to sell pursuant to this Section 14.1 shall not
exceed that percentage of the value that the Purchaser would have paid for all
Class A and B Units which would have been sold pursuant to this Section 14.1 but
for the provisions of this sentence as (X) the fair market value of all Class C
and D Units bears to (Y) the fair market value of all Units of all classes, in
each case as interpolated based on the value of the Class A Units as set forth
in the Tag Notice. In the event that the value of the Class C and D Units that
Members wish to sell exceeds the value that is permitted to be sold pursuant to
the preceding sentence, then any such limitation shall be shared by the Members
wishing to sell such Class C and D Units based upon the relative values of the
respective Class C and D Units they wish to sell.
Section 14.2. COME-ALONG OBLIGATION. So long as the Securityholders
Agreement is in effect, certain Transfers of Units shall be subject to the
drag-along provisions thereof and this Section 14.2 shall have no force and
effect. In the event the Securityholders Agreement is no longer in effect, and
if any Person or group of Persons makes an offer to purchase all outstanding
Units of the Company from all Members (a "TENDER OFFER"), then the Members
(other than any Members who are Affiliates of the Person making the Tender
Offer) who hold 50% or more of the total number of Voting Units held by Members
who are not Affiliates of the Persons making the Tender Offer (the "APPROVING
MEMBERS") may require all other Members ("MINORITY MEMBERS") to sell their Units
pursuant to the Tender Offer. To exercise this right, the Approving Members
must deliver a written notice to the Minority
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Members describing the terms and conditions of the Tender Offer. If such an
exercise has been made by the Approving Members, then each Minority Member shall
be obligated to sell all of its Units pursuant to the Tender Offer. Any amounts
to be received by Members or Assignees in connection with a Transfer of Units
under this Section 14.2 shall be allocated in accordance with Section 15.5
hereof.
ARTICLE XV
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 15.1 NO DISSOLUTION. The Company shall not be dissolved by the
admission of Additional Members or Substitute Members in accordance with the
terms of this Agreement.
Section 15.2 EVENTS CAUSING DISSOLUTION. The Company shall be dissolved
and its affairs shall be wound up upon the occurrence of any of the following
events:
(a) the expiration of the term of the Company, as provided in Section 2.3
hereof;
(b) the written consent of Members holding at least 96% of the outstanding
Voting Units and at least 51% of the Class C Units;
(c) the sale of all or substantially all of the assets of the Company
(other than pursuant to the Contribution) and the expiration of any indemnity
period or escrow or the payment of any deferred payment relating to such sale;
(d) immediately prior to the effectiveness of a Public Offering;
(e) the death, insanity, bankruptcy, retirement, resignation, expulsion or
dissolution of any Member or the occurrence of any other event under the
Delaware Act that terminates the continued membership of a Member in the Company
(other than a resignation described in Sections 5.4 or 13.3 hereof, which
resignation shall not cause the Company to be dissolved and the business of the
Company shall continue without dissolution) unless, within 90 days after the
occurrence of such an event, the remaining Members holding a majority of capital
and Profits interests of the Company agree in writing to continue the business
of the Company and to the appointment, if necessary or desired, effective as of
the date of such event, of one or more Additional Members; or
(f) the entry of a decree of judicial dissolution under Section 18-802 of
the Delaware Act.
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Except as provided in Section 15.2(e), the death, insanity, bankruptcy,
retirement, resignation, expulsion or dissolution of a Member shall not cause
the Company to be dissolved and upon the occurrence of such an event the Company
shall be continued without dissolution.
Section 15.3 NOTICE OF DISSOLUTION. Upon the dissolution of the Company,
the Person or Persons approved by a Majority Vote to carry out the winding up of
the Company (the "LIQUIDATING TRUSTEE") shall promptly notify the Members of
such dissolution.
Section 15.4 LIQUIDATION. Upon dissolution of the Company, the
Liquidating Trustee shall immediately commence to wind up the Company's affairs;
PROVIDED, HOWEVER, that a reasonable time shall be allowed for the orderly
liquidation of the assets of the Company and the satisfaction of liabilities to
creditors so as to enable the Members to minimize the normal losses attendant
upon a liquidation. The Members shall continue to share Profits and Losses
during liquidation in the same proportions, as specified in Article VIII hereof,
as before liquidation. Each Member shall be furnished with a statement prepared
by the Company's certified public accountants that shall set forth the assets
and liabilities of the Company as of the date of dissolution.
(a) The proceeds of any liquidation (or of any transaction that is deemed
to be a liquidation under Section 15.5 hereof) shall be distributed, as
realized, in the following order and priority:
(i) first, to creditors of the Company, including Members who are
creditors, to the extent otherwise permitted by law, in satisfaction of the
liabilities of the Company (whether by payment or the making of reasonable
provision for payment thereof), other than liabilities for distributions to
Members; and
(ii) second, to the Members pursuant to Section 8.3 hereof after
giving effect to all contributions, distributions and allocations for all
periods.
(b) If the Liquidating Trustee shall determine that it is not feasible to
liquidate all of the assets of the Company, then the Liquidating Trustee shall
cause the Fair Asset Value of the assets not so liquidated to be determined.
Any unrealized appreciation or depreciation with respect to such assets shall be
allocated among the Members in accordance with Article VIII as though the
property were sold for its Fair Asset Value and distribution of any such assets
in kind to a Member shall be considered a distribution of an amount equal to the
assets' Fair Asset Value. Such assets, as so appraised, shall be retained or
distributed by the Liquidating Trustee as follows:
(i) The Liquidating Trustee shall retain assets having a Fair Asset
Value equal to the amount by which the net proceeds of liquidated assets
are sufficient to satisfy the requirements of paragraph (a)(i) of this
Section 15.4. The
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foregoing notwithstanding, the Liquidating Trustee shall, to the fullest
extent permitted by law, have the right to distribute property subject to
liens at the value of the Company's equity therein.
(ii) The remaining assets (including mortgages and other receivables)
shall be distributed to the Members in such proportions as shall be equal
to the respective amounts to which each Member is entitled pursuant to
Section 15.4(a) hereof giving full effect in the calculation thereof to any
previous distributions made pursuant to this Section 15.4. If, in the sole
and absolute judgment of the Liquidating Trustee, it shall not be feasible
to distribute to each Member an aliquot share of each asset, the
Liquidating Trustee may allocate and distribute specific assets to one or
more Members as tenants-in-common as the Liquidating Trustee shall
determine to be fair and equitable.
(c) No Member shall have the right to demand or receive property other
than cash upon dissolution and termination of the Company.
Section 15.5 SALE TRANSACTIONS. Any sale of all or substantially all of
the Voting Units in a transaction or series of related transactions, including
without limitation pursuant to a Tender Offer, shall be deemed to be a
liquidation of the Company, and any amounts to be received by Members of
Assignees upon the consummation of any such transaction shall be distributed, as
realized, in accordance with Section 15.4(a) hereof.
Section 15.6 TERMINATION. The Company and this Agreement shall terminate
when all of the assets of the Company, after payment of or due provision for all
debts, liabilities and obligations of the Company, shall have been distributed
to the Members in the manner provided for in this Article XV (including without
limitation after the sale of Units pursuant to a Tender Offer in accordance with
Section 14.2 hereof), and the Certificate shall have been canceled in the manner
required by the Delaware Act.
Section 15.7 CLAIMS OF THE MEMBERS. The Members and Assignees shall look
solely to the Company's assets for the return of their Capital Contributions,
and if the assets of the Company remaining after payment of or due provision for
all debts, liabilities and obligations of the Company are insufficient to return
such Capital Contributions, the Members and Assignees shall have no recourse
against any other Member or the Member Managers or Officers.
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<PAGE>
ARTICLE XVI
[Intentionally Omitted]
ARTICLE XVII
REGISTRATION RIGHTS
Section 17.1 REGISTRATION RIGHTS. In the event any New LLC Entity (or
any successor entity into which any New LLC Entity merges or consolidates)
intends to effect a Public Offering, the Class A Holders, the Class B Holders,
the Class C Holders and the Class D Holders shall have such registration rights
with respect to the securities of the Public Company distributed to such Holders
as set forth in the Securityholders Agreement. In the event the Company or any
Other Subsidiary intends to effect a Public Offering of its equity securities
for its own account or for the account of its stockholders in either case
pursuant to a registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, the Class A Holders, the Class B Holders,
the Class C Holders and the Class D Holders shall have such registration rights
set forth on SCHEDULE E hereto.
ARTICLE XVIII
MISCELLANEOUS
Section 18.1 NOTICES. All notices provided for in this Agreement shall be
in writing, duly signed by the party giving such notice, and shall be delivered
in person or by an acknowledged overnight delivery service, telecopied or mailed
by registered or certified mail, as follows:
(a) if given to the Company, in care of the President at the Company's
mailing address set forth in Section 2.5 hereof with a copy to the Chairman and
the Chief Executive Officer at such address as each such officer shall designate
to the Company;
(b) if given to the Member Managers, at their mailing addresses set forth
on SCHEDULE A attached hereto; or
(c) if given to any Member at the address set forth opposite its name on
SCHEDULE A attached hereto, or at such other address as such Member may
hereafter designate by written notice to the Company.
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<PAGE>
All such notices shall be deemed to have been given when received.
Section 18.2 FAILURE TO PURSUE REMEDIES. The failure of any party to seek
redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
Section 18.3 CUMULATIVE REMEDIES. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
Section 18.4 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of all of the parties and, to the extent permitted by this
Agreement, their successors, legal representatives and assigns.
Section 18.5 INTERPRETATION. Throughout this Agreement, nouns, pronouns
and verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable. All references herein to "Articles," "Sections"
and paragraphs shall refer to corresponding provisions of this Agreement unless
otherwise indicated.
Section 18.6 SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
Section 18.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts with the same effect as if all parties hereto had signed the
same document. All counterparts shall be construed together and shall
constitute one instrument.
Section 18.8 INTEGRATION. This Agreement, together with SCHEDULES A, B,
C, D and E hereto and the Securityholders Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
Section 18.9 GOVERNING LAW. This Agreement, together with SCHEDULES A, B,
C, D and E and the rights of the parties hereunder shall be interpreted in
accordance with the laws of the State of Delaware, and all rights and remedies
shall be governed by such laws without regard to principles of conflict of laws.
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<PAGE>
Section 18.10 INCONSISTENCY. In the event of an inconsistency between the
provisions contained in this Agreement, on the one hand, and in the
Securityholders Agreement, on the other hand, the provisions contained in the
Securityholders Agreement will govern.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above stated.
MEMBERS:
DARTFORD PARTNERSHIP L.L.C.
By: /s/ James B. Ardrey
-------------------------------
Name: James B. Ardrey
Title: Member
BAIN SECURITIES, INC.
By:
-------------------------------
Name:
Title:
SQUAM LAKE INVESTORS II, L.P.
By:
-------------------------------
Name:
Title:
FENWAY PARTNERS CAPITAL FUND, L.P.
By: Fenway Partners, L.P.,
its general partner
By: Fenway Partners Management, Inc.,
its general partner
By: /s/ Richard C. Dresdale
-------------------------------
Name: Richard C. Dresdale
Title: Authorized Person
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<PAGE>
MCCOWN DE LEEUW & CO. III, L.P.
By: MDC Management Company III, L.P., its
general partner
By: /s/ Charles Ayres
-------------------------------
Name: Charles Ayres
Title: General Partner
MCCOWN DE LEEUW & CO. III (EUROPE), L.P.
By: MDC Management Company III, L.P., its
general partner
By: /s/ Charles Ayres
-------------------------------
Name: Charles Ayres
Title: General Partner
MCCOWN DE LEEUW & CO. III (Asia), L.P.
By: MDC Management Company IIIA, L.P., its
general partner
By: /s/ Charles Ayres
-------------------------------
Name: Charles Ayres
Title: General Partner
GAMMA FUND LLC
By: /s/ Charles Ayres
-------------------------------
Name: Charles Ayres
Title: General Partner
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<PAGE>
MCCOWN DE LEEUW & CO. IV, L.P.
By: MDC Management Company IV, L.P., its
general partner
By: /s/ Charles Ayres
-------------------------------
Name: Charles Ayres
Title: General Partner
DELTA FUND LLC
By: /s/ Charles Ayres
-------------------------------
Name: Charles Ayres
Title: Authorized Person
CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM
By: /s/ David E.J. Maxwell
-------------------------------
Name: David E.J. Maxwell
Title: Principal Investment Officer
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----------------------------------------
THOMAS J. FERRARO
----------------------------------------
C. GARY WILLETT
----------------------------------------
ALAN MINTZ
----------------------------------------
DIRK GRIZZLE
----------------------------------------
ROBERT KRASKA
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<PAGE>
SCHEDULE A
MBW INVESTORS LLC
CAPITAL NUMBER
NAME AND MAILING ADDRESS CONTRIBUTIONS OF UNITS
A. CLASS A UNITS
McCown De Leeuw & Co. III, L.P. $36,060,025 34,655.765
c/o McCown De Leeuw & Co.
3000 Sand Hill Road
Building 3, Suite 290
Menlo Park, CA 94025
McCown De Leeuw & Co. $2,560,000 2,460.308
(Europe) III, L.P.
c/o McCown De Leeuw & Co.
3000 Sand Hill Road
Building 3, Suite 290
Menlo Park, CA 94025
McCown De Leeuw & Co. III $599,950 576.585
(Asia), L.P.
c/o McCown De Leeuw & Co.
3000 Sand Hill Road
Building 3, Suite 290
Menlo Park, CA 94025
Gamma Fund LLC $780,025 749.65
c/o McCown De Leeuw & Co.
3000 Sand Hill Road
Building 3, Suite 290
Menlo Park, CA 94025
McCown De Leeuw & Co. IV, L.P. $43,000,000 33,076.923
c/o McCown De Leeuw & Co.
3000 Sand Hill Road
Building 3, Suite 290
Menlo Park, CA 94025
Delta Fund LLC $1,250,000 961.538
c/o McCown De Leeuw & Co.
3000 Sand Hill Road
Building 3, Suite 290
Menlo Park, CA 94025
<PAGE>
CAPITAL NUMBER
NAME AND MAILING ADDRESS CONTRIBUTIONS OF UNITS
California Public Employees $25,000,000 21,538.461
Retirement System
Fenway Partners Capital Fund, L.P. $41,250,000 35,480.909(1)
152 West 57th Street
New York, NY 10019
Dartford Partnership L.L.C. $635,385 635.385
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
The Ian and Susan Wilson 1998 $80,000 80.0
Irrevocable Trust
Ray and Eileen Chung Children's $100,000 100.0
Trust f/b/o Melissa Ann Chung
Ray and Eileen Chung Children's $100,000 100.0
Trust f/b/o Jessica Michelle Chung
Scott W. Seaton, Trustee f/b/o $11,538.50 11.5385
Caitlin E. Ardrey
Scott W. Seaton, Trustee f/b/o $11,538.50 11.5385
Ian B. Ardrey
R. Holt Ardrey, Trustee f/b/o $15,384.50 15.3845
Blake Ardrey
R. Holt Ardrey, Trustee f/b/o $15,384.50 15.3845
Scott Ardrey
Wendy R. Ardrey, Trustee f/b/o $15,384.50 15.3845
Ann Richardson
Elizabeth D. Ardrey $15,384.50 15.3845
Bain Securities, Inc. $1,200,000 1,029.231
Two Copley Place
Boston, MA 02116
- --------------------------
(1) FPIP, LLC is the Assignee of 602.6459958 of the Class A Units with a
Capital Contribution therefor of $763,258.98. FPIP Trust, LLC is the
Assignee of 463.5222192 of these Class A Units with a Capital
Contribution therefor of $591,372.20.
-2-
<PAGE>
CAPITAL NUMBER
NAME AND MAILING ADDRESS CONTRIBUTIONS OF UNITS
Squam Lake Investors II, L.P. $1,200,000 1,029.231
Two Copley Place
Boston, MA 02116
Thomas J. Ferraro $382,000 340.0
438 Delegate Drive
Worthington, OH 43235
C. Gary Willett $150,700 139.0
1001 Elcliff Drive
Westerville, OH 43081
Dirk Grizzle $389,200 334.0
George Jamiel $397,000 340.0
Alan Mintz $200,100 177.0
Steve Garver $220,000 190.0
Ed Yuhas $120,200 104.0
Tom Pfeiffer $30,000 30.0
Clay Dockery $44,500 40.0
Stephen Pletsch $26,500 25.0
Larry King $39,500 35.0
Mike Minichello $115,000 100.0
Trish O'Carroll-Paul $6,500 5.0
John Fortman $31,200 24.0
Jeff Carpenter $13,000 10.0
Ron Patterson $39,000 30.0
George Macino $39,000 30.0
Kathy Weibel $10,400 8.0
Jacquie Simmons $6,500 5.0
Catherine Kauffman $20,800 16.0
Dan Lauderback $59,800 46.0
-3-
<PAGE>
CAPITAL NUMBER
NAME AND MAILING ADDRESS CONTRIBUTIONS OF UNITS
Barb Kelley $6,500 5.0
Steve Cole $6,500 5.0
Steve Bruns $13,000 10.0
Dave Frey $19,500 15.0
Bob Kraska $80,600 62.0
Wayne Spencer $19,500 15.0
Pam Martin $6,500 5.0
Randall Alford $52,000 40.0
Mike Rosensteel $52,000 40.0
Tammy Fancelli $6,500 5.0
Tim Price $13,000 10.0
Jennifer MacKanos $6,500 5.0
Suzanne Hughes $6,500 5.0
Matthew Smith $24,700 19.0
Jeff Achauer $6,500 5.0
B. CLASS B UNITS
Dartford Partnership L.L.C. $1,000 7,173.077
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
C. CLASS C UNITS
Dartford Partnership L.L.C. $1,000 1,300.0
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
D. CLASS D UNITS (ON FILE AT MBW
INVESTORS LLC)
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<PAGE>
SCHEDULE B
TO THE AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF MBW INVESTORS LLC
CLASS C UNITS
(a) DEFINED TERMS. For purposes of this SCHEDULE B (which includes
SCHEDULE B-1), capitalized terms used herein but not otherwise defined in the
Agreement shall have the meanings set forth in (i) paragraph (f) of this
SCHEDULE B or (ii) if not defined in such paragraph (f), in the Second Amended
and Restated Limited Liability Company Agreement of MBW Investors LLC.
(b) [DELETED]
(c) [DELETED]
(d) [DELETED]
(e) PUBLIC OFFERING. In the event the Public Company intends to
consummate a Public Offering:
(i) [DELETED]
(ii) the Class C Units shall be valued as if all of the equity
securities of the Public Company (including those to be sold pursuant to
the Public Offering) were sold at the price per share at which the equity
securities of the Public Company are to be sold pursuant to the Public
Offering (which price shall be before underwriter's discounts and before
expenses) and the aggregate gross proceeds from such hypothetical sale were
distributed pursuant to this Agreement in accordance with Article VIII
thereof;
(iii) immediately prior to the effectiveness of the Public
Offering, the Company shall distribute or cause the distribution to the
Class C Holder(s) the aggregate number of shares of capital stock of the
Public Company equal in value to the value of the Class C Units as
determined in accordance with clause (ii) above; and
(iv) if the Public Company is a New LLC Entity, each Class C Holder
shall be entitled to the registration rights set forth in the
Securityholders Agreement with respect to such Class C Holder. If the
Public Company is not
<PAGE>
a New LLC Entity, each Class C Holder shall have the registration rights
set forth in SCHEDULE E to this Agreement.
(f) DEFINITIONS. [DELETED]
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<PAGE>
SCHEDULE C
TO THE AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF MBW INVESTORS LLC
CLASS D UNITS
(a) DEFINED TERMS. For purposes of this SCHEDULE C capitalized terms used
herein but not otherwise defined in the Agreement shall have the meanings set
forth in (i) paragraph (f) of this SCHEDULE C or (ii) if not defined in such
paragraph (f), in the Amended and Restated Limited Liability Company Agreement
of MBW Investors LLC.
(b) VESTING. Subject to the remaining provisions of this Schedule C, a
Class D Holder shall become vested in Class D Units as follows:
(i) Thomas J. Ferraro and C. Gary Willett shall each be vested in 50%
of the Class D Units issued to him on the date of this Agreement. On each
of December 31, 1997 and December 31, 1998, respectively, unless earlier
terminated by the Operating Company in accordance with the terms of his
Employment Agreement with the Operating Company, Messrs. Ferraro and
Willett shall each be vested in an additional 25% of the Class D Units
issued to him on the date of this Agreement.
(ii) For any Class D Units issued to a Class D Holder (other than
Thomas J. Ferraro and C. Gary Willett) on the date of this Agreement or on
or before March 31, 1997, such Class D Holder shall become vested in the
following portion of such Class D Units on the following dates:
DATE OF VESTING PERCENTAGE THAT VESTS
--------------- ---------------------
December 31, 1997 25%
December 31, 1998 25%
December 31, 1999 25%
December 31, 2000 25%
(iii) For any Class D Units issued to a Class D Holder after March 31,
1997, such Class Holder shall become vested in such Class D Units on the
following dates:
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DATE OF VESTING PERCENTAGE THAT VESTS
--------------- ---------------------
first anniversary of date of issuance 25%
second anniversary of date of issuance 25%
third anniversary of date of issuance 25%
fourth anniversary of date of issuance 25%
(iv) On the effective date of a Change of Control (as defined below),
all outstanding Class D Units that have not vested prior to the effective
date of such Change of Control shall become Vested Class D Units as of the
effectiveness of such Change of Control.
Notwithstanding the foregoing, a Class D Holder and his Permitted Transferees
shall not become vested in Class D Units on the future dates specified above in
clauses (i), (ii) and (iii) unless such Class D Holder has remained in the
continuous employ of the Company (or any Subsidiary) from the date of issuance
of such Class D Units up to and including the date such portion of such Class D
Units may become vested in accordance with this Schedule C.
(c) FORFEITURE; REPURCHASE. Class D Units held by a Class D Holder or his
Permitted Transferees shall be subject to forfeiture to the Company or
repurchase by the Company as provided below:
(i) In the event a Class D Holder's employment by the Company and/or a
Subsidiary of the Company terminates because of discharge or termination by
the Company or its Subsidiary with Cause (as defined below), then (A) all
unvested Class D Units held by such Class D Holder or his Permitted
Transferees at the time of such termination shall be automatically
forfeited to the Company without the payment of any consideration to the
Class D Holder or his Permitted Transferees by the Company, and (B) all
Vested Class D Units held by such Class D Holder or his Permitted
Transferees at the time of such termination shall be subject to repurchase
by the Company at a repurchase price equal to the lesser of (X) $1.00 per
Vested Class D Unit being repurchased and (Y) the fair market value thereof
as determined by the Board in good faith.
(ii) In the event a Class D Holder's employment by the Company and/or
a Subsidiary of the Company terminates because of death or Permanent
Disability (as defined below) of the Class D Holder, then (A) all unvested
Class D Units held by such Class D Holder or his Permitted Transferees at
the time of such termination shall be automatically forfeited to the
Company without the payment of any consideration to the Class D Holder or
his Permitted Transferees (or his estate) by the Company and (B) such Class
D Holder or his Permitted Transferees
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(or his estate) shall continue to hold all Vested Class D Units held at the
time of such termination.
(iii) In the event a Class D Holder's employment by the Company and/or
a Subsidiary of the Company terminates (1) because of discharge or
termination by the Company or its Subsidiary without Cause or (2) with
respect to any Class D Holder which is a party to a written employment
agreement with the Company or a Subsidiary of the Company which provides
such Holder with an express right to terminate such agreement for material
breach by the Company or such Subsidiary, because of termination by the
Class D Holder of such employment for such material breach, then (A) all
unvested Class D Units held by such Class D Holder or his Permitted
Transferees at the time of such termination shall be automatically
forfeited to the Company without the payment of any consideration to the
Class D Holder or his Permitted Transferees by the Company; (B) up to 50%
of the Vested Class D Units held by such Class D Holder or his Permitted
Transferees at the time of such termination shall be subject to repurchase
by the Company at a purchase price equal to the fair market value thereof
(without discount for lack of marketability and minority interest) at the
date of repurchase as determined by the Board in good faith; and (C) the
remaining 50% of the Vested Class D Units held by such Class D Holder or
his Permitted Transferees shall continue to be held and not be subject to
repurchase by the Company.
(iv) In the event a Class D Holder's employment by the Company and/or
a Subsidiary of the Company terminates because of resignation by the Class
D Holder from the Company or its Subsidiary (other than in connection with
a termination by such Class D Holder referenced in subclause (2) of clause
(iii) above), then (A) all unvested Class D Units held by such Class D
Holder or his Permitted Transferees at the time of such termination shall
be automatically forfeited to the Company without the payment of any
consideration to the Class D Holder or his Permitted Transferees by the
Company, and (B) up to 100% of the Vested Class D Units held by such Class
D Holder or his Permitted Transferees at the time of such termination shall
be subject to repurchase by the Company at a repurchase price equal to the
fair market value thereof (without discount for lack of marketability and
minority interest) at the date of repurchase as determined by the Board in
good faith.
(d) PROCEDURES. To exercise any right to repurchase Class D Units
pursuant to this Schedule C, the Company shall deliver a written notice (an
"Election Notice") to the Class D Holder whose Class D Units are being
repurchased within 45 days following the event giving rise to such right. The
Election Notice shall state (i) the number of Class D Units being repurchased
and (ii) the repurchase price therefor. Such repurchase shall be consummated
within 60 days following delivery by the Company of such Election Notice. At
the closing of
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any such purchase, (A) such Class D Holder shall deliver any documentation
reasonably requested by the Company and necessary to Transfer such Class D Units
to the Company and (B) the Company shall deliver in cash or otherwise in
immediately available funds to such Class D Holder the purchase price being paid
by the Company for such Class D Units.
(e) PUBLIC OFFERING. In the event the Public Company intends to
consummate a Public Offering:
(i) subject to clause (vi) below, immediately prior to the effective
date of the Public Offering, all outstanding Class D Units that have not
vested prior to such effective date shall become Vested Class D Units;
(ii) subject to clause (vi) below, the Company's right to repurchase
Vested Class D Units in accordance with this Schedule C shall terminate and
be of no further force and effect, as of the effective date of such Public
Offering;
(iii) the Vested Class D Units shall be valued as if all of the
equity securities of the Public Company (including those to be sold
pursuant to the Public Offering) were sold at the price per share at which
the equity securities of the Public Company are to be sold pursuant to the
Public Offering (which price shall be before underwriter's discounts and
before expenses) and the aggregate gross proceeds from such hypothetical
sale were distributed pursuant to this Agreement in accordance with
Article VIII thereof;
(iv) subject to clause (vi) below, immediately prior to or
simultaneously with the closing of the Public Offering, the Company shall
distribute or cause the distribution to the Class D Holder(s) the aggregate
number of shares of capital stock of the Public Company equal in value to
the value of the Vested Class D Units as determined in accordance with
clause (iii) above;
(v) if the Public Company is a New LLC Entity, each Class D Holder
that executes and delivers a counterpart signature page agreeing to be
bound by the Securityholders Agreement shall have piggyback registration
rights (other than with respect to "Unvested Shares" as defined below) to
the extent set forth in the Securityholders Agreement. Any Class D Holder
that does not execute and deliver such a counterpart signature page shall
not be entitled to any piggyback registration rights under the
Securityholders Agreement. If the Public Company is not a New LLC Entity,
each Class D Holder shall have the registration rights (other than with
respect to Unvested Shares) as are set forth on SCHEDULE E to this
Agreement; and
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<PAGE>
(vi) with respect to shares of capital stock of the Public Company
distributed to Class D Holders on account of Class D Units issued after
December 31, 1997 to Class D Holders who were not issued other Class D
Units on or before December 31, 1997 but that had not vested prior to the
effective date of the Public Offering ("RESTRICTED CLASS D UNITS"), the
following provisions shall apply:
(A) Shares of capital stock of the Public Company distributed to
Class D Holders on account of Restricted Class D Units
shall, as of the effective date of the Public Offering, be
"Unvested Shares" for purposes of this clause (vi).
(B) Unvested Shares shall vest and become "Vested Shares" for
purposes of this clause (vi) on the same dates and in the
same percentages that the underlying Restricted Class D
Units would have become Vested Class D Units pursuant to
clause (iii) of paragraph (b) above if no Public Offering
had occurred; PROVIDED, that the Board at its option shall
have the right to accelerate the vesting of such Unvested
Shares. For example, assume a Class D Holder that was not
previously issued Class D Units was issued 8 Class D Units
on January 1, 1998, and the effective date of the Public
Offering was January 2, 1999. All of such Class D Holder's
8 Class D Units would be Vested Class D Units immediately
prior to the effective date of the Public Offering, but 6 of
those 8 Units would be Restricted Class D Units. If 100
shares of capital stock were issued to the Class D Holder on
account of the 8 Class D Units, 75 of such shares would be
Unvested Shares distributed on account of the 6 Restricted
Class D Units. 25 of those 75 Unvested Shares will become
Vested Shares on each of January 1, 2000, January 1, 2001,
and January 1, 2002, respectively.
(C) Unvested Shares shall be subject to forfeiture or repurchase
on the same terms as set forth in paragraph (c) above.
Unvested Shares shall be treated as unvested Class D Units
are treated under such paragraph (c). The Public Company
shall be treated as the Company is treated under such
paragraph (c). Vested Shares shall no longer be subject to
forfeiture to the Public Company or repurchase by the Public
Company.
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<PAGE>
With respect to any grant of Class D Units after December 31, 1997 to a Class D
Holder who was issued other Class D Units on or before such date, (A) a
percentage of the Class D Units granted after December 31, 1997 shall be Vested
Class D Units as of the date of grant thereof, with such percentage to be equal
to the percentage of Class D Units issued to such Class D Holder prior to
December 31, 1997 that are Vested Class D Units as of the date of grant of Class
D Units after December 31, 1997; and (B) the remaining Class D Units granted
after December 31, 1997 shall become Vested Class D Units at the same time and
in the same proportions as the Class D Units issued to such Class D Holder prior
to December 31, 1997 but that are not Vested Class D Units as of the date of
grant of Class D Units after December 31, 1997.
(f) DEFINITIONS.
"CAUSE" means (i) embezzlement, theft or other misappropriation of any
property of the Company or any Affiliate, (ii) gross or willful misconduct
resulting in substantial loss to the Company or any Affiliate or substantial
damage to the reputation of the Company or any Affiliate, (iii) any act
involving moral turpitude which results in a conviction for a felony involving
moral turpitude, fraud or misrepresentation, (iv) gross neglect of his assigned
duties to the Company or any Affiliate, (v) gross breach of his fiduciary
obligations to the Company or any Affiliate, or (vi) any chemical dependence
which materially affects the performance of his duties and responsibilities to
the Company or any Affiliate; PROVIDED that in the case of the misconduct set
forth in clauses (iv) and (vi) above, such misconduct shall continue for a
period of 30 days following written notice thereof by the Company to the Holder.
"CHANGE OF CONTROL" means a transaction or series of related transactions
(other than by the Company or any Subsidiary thereof with any other Subsidiary
of the Company) to effect any of the following:
(i) a sale, redemption, exchange or other disposition of shares
(including by way of merger or consolidation) of the Common Stock of the
Aurora Foods (or any successor thereto), par value $.01 per share, or
options or warrants to acquire such Common Stock, after which Aurora
Holdings holds directly of indirectly 50% or less of the then outstanding
shares of such Common Stock;
(ii) a sale, redemption, exchange or other disposition of shares
(including by way of merger or consolidation) of the Common Stock of Aurora
Holdings (or any successor thereto), par value $.01 per share, or options
or warrants to acquire such Common Stock, after which the Company holds
directly or indirectly 50% or less of the then outstanding shares of such
Common Stock;
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<PAGE>
(iii) a sale, redemption, exchange or other disposition of Class A
Units (including by way of merger or consolidation), or options or warrants
to acquire Class A Units, after which the Class A Holders holding Class A
Units on the date of this Agreement hold 50% or less of the number of
outstanding Class A Units on the date of this Agreement;
(iv) a sale of all or substantially all of the assets of the Company,
Aurora Holdings or Aurora Foods; or
(v) a liquidation, dissolution, or other winding up of the affairs of
the Company, whether voluntary or involuntary.
Notwithstanding the foregoing, the transactions contemplated under the
Contribution Documents shall not constitute a Change of Control for purposes of
this Schedule C.
"PERMANENT DISABILITY" means, as a result of physical or mental illness or
incapacity, the Holder has been unable to perform his duties to the Company
and/or a Subsidiary of the Company for a period of four consecutive months or
for an aggregate of more than six months in any 12-month period.
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<PAGE>
SCHEDULE E
TO THE AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF MBW INVESTORS LLC
REGISTRATION RIGHTS
1. REGISTRATION RIGHTS. The Company will perform and comply, and cause
each of its Subsidiaries to perform and comply, with such of the following
provisions as are applicable to it. Each holder of Units will perform and
comply with such of the following provisions as are applicable to such holder.
Unless this Schedule E otherwise requires, the term the "COMPANY" shall include
Subsidiaries of the Company, as applicable. Capitalized terms used herein but
not otherwise defined herein shall have the meanings given such terms in the
Amended and Restated Limited Liability Company Agreement of MBW Investors LLC,
dated as of December 31, 1996 (the "LLC Agreement").
1.1. DEMAND AND PIGGYBACK REGISTRATION RIGHTS.
1.1.1. REGISTRATION ON REQUEST. Any one or more of the
following (such Persons being the "INITIATING INVESTOR HOLDERS").
(i) one or more holders of Voting Units representing at
least fifty percent (50%) of the total amount of Voting Units
then outstanding, or
(ii) after the second anniversary of the closing of an
initial Public Offering of the Company, if Fenway has not
exercised its right in clause (iii) below, Fenway, or
(iii) after December 31, 2001, if the Company has not
previously closed an initial Public Offering, Fenway,
may, by notice to the Company specifying the intended method or methods of
disposition, request that the Company effect the registration under the
Securities Act of 1933, as amended (the "Securities Act"), for a Public Offering
of all or a specified part of the Units held by such Initiating Investor Holders
(the "REGISTRABLE INVESTOR SECURITIES"). Promptly after receipt of such notice,
the Company will give notice of such requested registration to all other holders
of Units (other than, in the case of the initial Public Offering, of the
Company, the Class D Units) (such Units, collectively with the Registrable
Investor Securities, the "REGISTRABLE SECURITIES"). The Company will then use
its commercially reasonable efforts to effect the registration under the
Securities Act of the Registrable Investor Securities which the Company has been
requested to register by such Initiating Investor Holders together with all
other Registrable Securities which
<PAGE>
the issuer has been requested to register pursuant to Section 1.1.2 by other
holders of Registrable Securities by notice delivered to the Company within
twenty (20) days after the giving of such notice by the Company (which request
shall specify the intended method of disposition of such Registrable
Securities), all to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Securities which the Company has been so requested to register; PROVIDED,
HOWEVER, that the Company shall not be obligated to take any action to effect
any such registration pursuant to this Section 1.1.1:
(a) If the Company has previously effected four
(4) registrations of Registrable Securities under this
Section 1.1.1; PROVIDED, HOWEVER, that no registrations of
Registrable Securities which either (i) shall not have
become and remained effective in accordance with the
provisions of this Section 1, or (ii) shall not have enabled
the Initiating Investor Holders and the holders of
Registrable Securities joining therein to include in such
registration at least 90% of the Registrable Securities
which they desired to include, shall be included in the
calculation of the numbers of registrations contemplated by
this clause (a);
(b) Within 180 days immediately following the
effective date of any registration statement pertaining to
an underwritten public offering of securities of the Company
for its own account (other than a registration on Form S-4
pursuant to Rule 145 of the Securities Act (a "RULE 145
TRANSACTION"), or a registration relating solely to employee
benefit plans);
(c) (i) On Form S-3 (or any successor form), if
the Company has previously effected two or more
registrations of Registrable Securities under this
Section 1.1.1 on Form S-3 (or any such successor forms) or
(ii) on any form other than Form S-3 (or any successor
form), if the Company has previously effected two or more
registrations of Registrable Securities under this
Section 1.1.1 on any such other forms; PROVIDED, HOWEVER,
that no registrations of Registrable Securities which shall
not have become and remained effective in accordance with
the provisions of this Section 1, and no registrations of
Registrable Securities pursuant to which the Initiating
Investor Holders and all other holders of Registrable
Securities joining therein are not able to include at least
90% of the Registrable Securities which they desired to
include, shall be included in the calculation of numbers of
registrations contemplated by this clause (c);
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(d) If the Company shall have furnished to the
Initiating Investor Holders and such other holders of
Registrable Securities which the Company has been requested
to register pursuant to this Section 1.1.1 a certificate,
signed by the President of the Company, stating that in the
good faith judgment of the Board it would be detrimental to
the Company and its shareholders for such Registration
Statement to be filed at the date filing would have been
required, in which case the Company shall have an additional
period of not more than 270 days within which to file such
Registration Statement; PROVIDED, HOWEVER, that the Company
shall not so postpone a registration pursuant to this clause
(d) more than once in any twelve month period;
(e) If the Registration under this Section 1.1.1
covers less than ten percent (10%) of the Registrable
Securities then outstanding and the proposed aggregate
offering price to the public of the Registrable Securities
to be included in the registration by all holders is less
than $5,000,000; or
(f) After the fifth (5th) anniversary of the
closing of the initial Public Offering of the Company's
Common Stock, if the Company's Common Stock shall have been
listed for trading on a national or regional stock exchange
or on NASDAQ National Market, at all times during the
preceding twelve (12) consecutive months.
1.1.2. PIGGYBACK REGISTRATION.
(a) GENERAL. If the Company at any time proposes
to register any of its securities under the Securities Act,
for its own account or for the account of any holder of its
securities, for a Public Offering, the Company will each
such time give notice to all holders of Registrable
Securities of its intention to do so. Any such holder may,
by written response delivered to the Company within twenty
(20) days after the effectiveness of such notice, request
that all or a specified part of the Registrable Securities
held by such holder be included in such registration. Such
response shall also specify the intended method of
disposition of such Registrable Securities. The Company
thereupon will use its commercially reasonable efforts to
cause to be included in such registration under the
Securities Act all Registrable Securities which the Company
has been so requested to register by such
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holders of Registrable Securities, to the extent required to
permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities
so to be registered. No registration of Registrable
Securities effected under this Section 1.1.2 shall relieve
the Company of any of its obligations to effect
registrations of Registrable Securities pursuant to
Section 1.1.1 hereof.
(b) EXCLUDED TRANSACTIONS. The Company shall not
be obligated to effect any registration of Registrable
Securities under this Section 1.1.2 incidental to the
registration of any of its securities in connection with:
(i) Any Public Offering relating to the
acquisition or merger after the date hereof
by the Company or any of its Subsidiaries of
or with any other business.
(ii) Any Public Offering relating to employee
benefit plans or dividend reinvestment plans.
1.1.3. PAYMENT OF EXPENSES. The Company shall pay all
expenses of holders of Registrable Securities incurred in connection
with each registration of Registrable Securities requested pursuant to
this Section 1.1, other than underwriting discount and commission, if
any, and applicable transfer taxes, if any.
1.1.4. ADDITIONAL PROCEDURES.
(a) REGISTRATIONS PURSUANT TO SECTION 1.1.1. In
the case of a registration pursuant to Section 1.1.1 hereof,
whenever holders holding a majority of Units (the "INVESTOR
MAJORITY HOLDERS") shall request that such registration
shall be effected pursuant to an underwritten offering, the
Company shall include such information in the written
notices to holders of Registrable Securities referred to in
Section 1.1.1. In such event, the right of any holder of
Registrable Securities to have securities owned by such
holder included in such registration pursuant to
Section 1.1.1 shall be conditioned upon such holder's
participation in such underwriting and the inclusion of such
holders' Registrable Securities in the underwriting (unless
otherwise mutually agreed upon by the Investor Majority
Holders and such holder) to the
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extent provided herein. If requested by such underwriters,
the Company together with the holders of Registrable
Securities proposing to distribute their securities through
such underwriting will enter into an underwriting agreement
with such underwriters for such offering containing such
representations and warranties by the Company and such other
terms and provisions as are customarily contained in
underwriting agreements with respect to secondary
distributions, including, without limitation, customary
indemnity and contribution provisions.
(b) REGISTRATIONS PURSUANT TO SECTION 1.1.2.
Holders of Registrable Securities participating in any
Public Offering pursuant to Section 1.1.2 shall take all
such actions and execute all such documents and instruments
that are reasonably requested by the Company to effect the
sale of their Registrable Securities in such Public
Offering, including, without limitation, being parties to
the underwriting agreement entered into by the Company and
any other selling shareholders in connection therewith and
being liable in respect of the representations and
warranties by, and the other agreements (including customary
selling stockholder indemnifications and "lock-up"
agreements) on the part of, the Company and any other
selling shareholders to and for the benefit of the
underwriters in such underwriting agreement; PROVIDED,
HOWEVER, that (i) with respect to individual
representations, warranties and agreements of sellers of
Registrable Securities in such Public Offering, the
aggregate amount of such liability shall not exceed the
lesser of (A) such holder's pro rata portion of any such
liability, in accordance with such holder's portion of the
total number of Registrable Securities included in the
offering or (B) such holder's net proceeds from such
offering.
1.2. CERTAIN OTHER PROVISIONS.
1.2.1. UNDERWRITER'S CUTBACK. Notwithstanding any contrary
provision of this Section 1, if, in connection with any registration
of Registrable Securities, the underwriter determines that marketing
factors (including, without limitation, an adverse effect on the per
share offering price) require a limitation of the number of shares to
be underwritten, the underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting or may
exclude Registrable Securities entirely from such registration and
underwriting, subject to the terms of this paragraph. The Company
shall so advise all holders of the Company's securities that would
otherwise be registered and underwritten
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pursuant hereto, and the number of shares of such securities,
including Registrable Securities, that may be included in the
registration and underwriting (and thereby sold by Persons other than
the Company) shall be allocated so that the number of Registrable
Securities that may be included shall be allocated among the holders
of Registrable Securities thereof in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held
by each such holder at the time of filing the Registration Statement.
No securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such
registration. If any holder of Registrable Securities disapproves of
the terms of the underwriting, it may elect to withdraw therefrom by
written notice to the Company and the underwriter. The Registrable
Securities so withdrawn shall also be withdrawn from registration.
1.2.2. OTHER ACTIONS. If and in each case when the Company
is required to use its commercially reasonable efforts to effect a
registration of any Registrable Securities as provided in this
Section 1, the Company shall take appropriate and customary actions in
furtherance thereof, including, without limitation: (i) filing with
the Securities and Exchange Commission (the "COMMISSION") a
registration statement and using reasonable efforts to cause such
registration statement to become effective, (ii) preparing and filing
with the Commission such amendments and supplements to such
registration statements as may be required to comply with the
Securities Act and to keep such registration statement effective for a
period not to exceed 180 days from the date of effectiveness or such
earlier time as the Registrable Securities covered by such
registration statement have been disposed of in accordance with the
intended method of distribution therefor or the expiration of the time
when a prospectus relating to such registration is required to be
delivered under the Securities Act, (iii) use its commercially
reasonable efforts to register or qualify such Registrable Securities
under the state securities or "blue sky" laws of such jurisdictions as
the sellers shall reasonably request; PROVIDED, HOWEVER, that the
Company shall not be obligated to file any general consent to services
of process or to qualify as a foreign corporation in any jurisdiction
in which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it would not
otherwise be so subject; and (iv) otherwise cooperate reasonably with,
and take such customary actions as may reasonably be requested by the
holders of Registrable Securities in connection with such
registration.
1.2.3. LOCK-UP. For a period of the lesser of (i) 180 days
from the effective date of any registration statement filed by the
Company, or (ii) the shortest period applicable to any Affiliate (as
defined in the Securities Act) of the Company who is a selling
shareholder pursuant to such registration statement, each holder of
Registrable Securities of the Public Company shall refrain from
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directly or indirectly selling such securities except pursuant to such
registration statement.
1.2.4. BLACK-OUT. Upon receipt of any notice from the
Company of the happening of any event of which any prospectus included
in such registration statement, as then in effect, includes an untrue
statement of material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, each holder of Registrable Securities will forthwith
discontinue such holder's disposition of Registrable Securities
pursuant to the registration statement until such holder receives
copies of a supplemental or amended prospectus from the Company and,
if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holders'
possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
1.2.5. SELECTION OF UNDERWRITERS AND COUNSEL. The
underwriters and legal counsel to be retained in connection with any
Public Offering shall be selected by the Board.
1.3. INDEMNIFICATION AND CONTRIBUTION.
1.3.1. INDEMNITIES OF THE COMPANY. In the event of any
registration of any Registrable Securities or other securities of the
Company or any of its Subsidiaries under the Securities Act pursuant
to this Section 1 or otherwise, and in connection with any
registration statement or any other disclosure document produced by or
on behalf of the Company including, without limitation, reports
required or other documents filed under the Exchange Act, and other
documents pursuant to which securities of the Company are sold
(whether or not for the account of the Company), the Company will, and
hereby does, and will cause its Subsidiaries, jointly and severally
to, indemnify and hold harmless each seller of Registrable Securities,
any other holder of securities who is or might be deemed to be a
controlling Person of the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, their respective
direct and indirect partners, advisory board members, directors,
officers and shareholders, and each other Person, if any, who controls
any such seller or any such holder within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person
being referred to herein as a "COVERED PERSON"), against any losses,
claims, damages or liabilities, joint or several, to which such
Covered Person may be or become subject under the Securities Act, the
Exchange Act, state securities or blue sky laws, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings
-7-
<PAGE>
in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained
or incorporated by reference in any registration statement under the
Securities Act, any preliminary prospectus or final prospectus
included therein, or any related summary prospectus, or any amendment
or supplement thereto, or any document incorporated by reference
therein, (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by the Company of any federal, state or common law rule or
regulation applicable to the Company, and will reimburse such Covered
Person for any legal or any other expenses incurred by it in
connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; PROVIDED, HOWEVER, that
neither the Company nor any of its Subsidiaries shall be liable to any
Covered Person in any such case to the extent that any such loss,
claim, damage, liability, action or proceeding arises out of or is
based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement, incorporated document or other such
disclosure document in reliance upon and in conformity with written
information furnished to the Company through an instrument duly
executed by such Covered Person specifically stating that it is for
use in the preparation thereof. The indemnities of the Company and of
its Subsidiaries contained in this Section 1.3.1 shall remain in full
force and effect regardless of any investigation made by or on behalf
of such Covered Person and shall survive any transfer of securities.
1.3.2. INDEMNITIES TO THE COMPANY. The Company may
require, as a condition to including any securities in any
registration statement filed pursuant to this Section 1, that the
Company shall have received an undertaking satisfactory to it from the
prospective seller of such securities, to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company
who shall sign such registration statement and each other Person
(other than such seller), if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being referred to herein as a "COVERED
PERSON") with respect to any statement in or omission from such
registration statement, any preliminary prospectus or final prospectus
included therein, or any amendment or supplement thereto, or any other
disclosure document (including, without limitation, reports and other
documents filed under the Exchange Act) or any document incorporated
therein, if such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company
through an instrument executed by such seller, specifically stating
that it is for use in the preparation of such registration statement,
incorporated document, or other
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<PAGE>
disclosure document. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling Person and shall
survive any transfer of securities.
1.3.3. INDEMNIFICATION PROCEDURES. Promptly after receipt
by a Covered Person of notice of the commencement of any action or
proceeding involving a claim of the type referred to in the foregoing
provisions of this Section 1.3, such Covered Person will, if a claim
in respect thereof is to be made by such Covered Person against any
indemnifying party, give written notice to each such indemnifying
party of the commencement of such action; PROVIDED, HOWEVER, that the
failure of any Covered Person to give notice to such indemnifying
party as provided herein shall not relieve any indemnifying party of
its obligations under the foregoing provisions of this Section 1.3,
except and solely to the extent that such indemnifying party is
actually prejudiced by such failure to give notice. In case any such
action is brought against a Covered Person, each indemnifying party
will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the
extent that it may wish, with counsel reasonably satisfactory to such
Covered Person (who shall not, except with the consent of the Covered
Person, be counsel to such an indemnifying party), and after notice
from an indemnifying party to such Covered Person of its election so
to assume the defense thereof, such indemnifying party will not be
liable to such Covered Person for any legal or other expenses
subsequently incurred by the latter in connection with the defense
thereof; PROVIDED, HOWEVER, that (i) if the Covered Person reasonably
determines that there may be a conflict between the positions of such
indemnifying party and the Covered Person in conducting the defense of
such action or if the Covered Person reasonably concludes that
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them, then counsel for the Covered Person shall conduct the defense to
the extent reasonably determined by such counsel to be necessary to
protect the interests of the Covered Person and such indemnifying
party shall employ separate counsel for its own defense, (ii) the
indemnifying party shall bear the legal expenses incurred in
connection with the conduct of, and the participation in, the defense
as referred to in clauses (i) and (ii) above. If, within a reasonable
time after receipt of the notice, such indemnifying party shall not
have elected to assume the defense of the action, such indemnifying
party shall be responsible for any legal or other expenses incurred by
such Covered Person in connection with the defense of the action,
suit, investigation, inquiry or proceeding. No indemnifying party
will consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Covered Person of a release from all
liabilities in respect to such claim or litigation.
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<PAGE>
1.3.4. CONTRIBUTION. If the indemnification provided for
in Sections 1.3.1 or 1.3.2 hereof is unavailable to a party that would
have been a Covered Person under any such Section in respect of any
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to therein, then each party that would have
been an indemnifying party thereunder shall, in lieu of indemnifying
such Covered Person, contribute to the amount paid or payable by such
Covered Person as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of such
indemnifying party on the one hand and such Covered Person on the
other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof). The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such
indemnifying party or such Covered Person and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would
not be just or equitable if contribution pursuant to this
Section 1.3.4 were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the preceding sentence. The amount paid
or payable by a contributing party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 1.3.4 shall include any legal or
other expenses reasonably incurred by such Covered Person in
connection with investigating or defending any such action or claim.
No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
1.3.5. LIMITATION ON LIABILITY OF HOLDERS OF REGISTRABLE
SECURITIES. The liability of each holder of Registrable Securities in
respect of any indemnification or contribution obligation of such
holder arising under this Section 1.3 shall not in any event exceed an
amount equal to the net proceeds to such holder (after deduction of
all underwriters' discounts and commissions and all other expenses
paid by such holder in connection with the registration in question)
from the disposition of the Registrable Securities disposed of by such
holder pursuant to such registration.
1.4. SURVIVAL.
1.4.1. SURVIVAL. The registration rights set forth in this
Section 1 shall survive the dissolution of MBW Investors LLC pursuant to Section
15.2(d) of the LLC Agreement and shall remain binding on the Subsidiaries of MBW
Investors LLC.
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<PAGE>
Exhibit 10.32
EXPENSE AGREEMENT
THIS EXPENSE AGREEMENT is made as of the ____ day of June, 1998, by and
between DARTFORD PARTNERSHIP L.L.C. ("DARTFORD"), a Delaware limited liability
company, and AURORA FOODS INC., a Delaware corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Company and Dartford desire to set forth their understanding
with respect to the reimbursement by the Company of certain amounts that may be
incurred, paid or payable by Dartford with respect to corporate headquarters
expenses.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. TERM. The Company hereby agrees to pay to Dartford during the period
(the "TERM") beginning on the date hereof (the "EFFECTIVE DATE") and, subject to
Section 3 hereof, ending on the Termination Date (as defined below), the amounts
set forth herein, as reimbursement for certain expenses incurred or to be
incurred by Dartford in providing corporate headquarters space for the Company
and in operating the Company's corporate headquarters office. "TERMINATION
DATE" shall mean the earlier to occur of (i) the second anniversary of the
Effective Date or (ii) the date on which Ian R. Wilson is no longer employed by
the Company as its Chief Executive Officer. Notwithstanding the foregoing, in
the event Ian R. Wilson is no longer employed by the Company as its Chief
Executive Officer but the Company requests that Dartford provide, and Dartford
agrees to provide, certain administrative or managerial services to the Company,
the Company and Dartford agree to negotiate the terms under which Dartford will
provide such services, with such terms to be mutually acceptable to the Company
and Dartford.
2. PAYMENTS TO DARTFORD. Subject to the terms and conditions hereof,
during the Term the Company shall pay to Dartford the amount of Eight Hundred
Thousand Dollars ($800,000) per annum, payable in advance in quarterly
installments on the first day of each calendar quarter (January 1, April 1,
July 1 and October 1) in the amount of Two Hundred Thousand Dollars ($200,000)
per quarterly installment or PRO RATA amount for any period shorter than a
calendar quarter, with such installments to be paid by wire transfer in
immediately available funds to such bank account or person as Dartford may
direct the Company from time to time. The amounts payable to Dartford under
this Agreement are fixed and will not be increased or decreased in the event
that the actual expenses incurred by Dartford in operating the Company's
headquarters office are greater than or less than $800,000 per annum, as the
case may be.
<PAGE>
3. EARLY TERMINATION. Prior to the expiration of the Term hereunder, the
Company shall have the right to terminate this Agreement by 30 days prior
written notice to Dartford; PROVIDED, that in the event of any such termination
by the Company, the Company shall pay to Dartford an amount (the "EARLY
TERMINATION AMOUNT") equal to the aggregate amount that would have been paid to
Dartford under Section 2 hereof for the remainder of the Term as if no early
termination by the Company had been made. The Early Termination Amount shall be
payable in full by the Company to Dartford on the effective date of any such
early termination by the Company.
4. NOTICES. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly given if
delivered by overnight courier or by hand or if mailed first class, certified
mail, return receipt requested, postage and registry fees prepaid and addressed
as follows:
If to Dartford:
Dartford Partnership L.L.C.
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
Attention: IAN R. WILSON
If to the Company:
Aurora Foods Inc.
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
Attention: CHIEF EXECUTIVE OFFICER
Addresses may be changed by a notice in writing in accordance with the
provisions of this Section 4.
5. MISCELLANEOUS. This Agreement shall be construed and enforced in
accordance with, and shall be governed by the laws of the State of New York,
without giving effect to the conflict of laws principles thereof. This
Agreement embodies the entire agreement and understanding between the parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof including, without limitation, the Management Services
Agreement dated December 31, 1996 between Aurora Foods Inc. (f/k/a MBW Foods,
Inc.) and Dartford and the Amended and Restated Management Services Agreement
dated July 9, 1996 between Van de Kamp's, Inc. and Dartford, both of which
agreements have been terminated as of the Effective Date. This Agreement may
not be modified or amended, and no term or provision hereof may be waived or
discharged, except in a writing signed by the party against which such
modification, amendment, waiver or
2
<PAGE>
discharge is sought to be enforced. This Agreement cannot be assigned
(including without limitation by merger or otherwise by operation of law) by
either party hereto. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. This
Agreement may be executed in several counterparts of original or facsimile
signature, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
DARTFORD PARTNERSHIP L.L.C.
By:
-------------------------------
Name:
Title:
AURORA FOODS INC.
By:
-------------------------------
Name:
Title:
3
<PAGE>
Exhibit 10.33
ADVISORY AGREEMENT
This ADVISORY AGREEMENT is made as of the 8th day of April, 1998, by and
between AURORA/VDK LLC, a Delaware limited liability company ("AURORA/VDK LLC"),
and DARTFORD PARTNERSHIP L.L.C., a Delaware limited liability company (the
"ADVISOR"). For purposes of this Agreement, the "COMPANY" shall mean Aurora/VDK
LLC, any successor thereto by reason of merger, transfer of substantially all of
its assets and liabilities or otherwise, and each of their direct and indirect
subsidiaries.
W I T N E S E T H:
WHEREAS, MBW Investors LLC ("MBW LLC"), a Delaware limited liability
company, and VDK Foods LLC ("VDK LLC"), a Delaware limited liability company,
have formed Aurora/VDK LLC (the "CONTRIBUTION") pursuant to a Contribution
Agreement dated as of April 8, 1998 between MBW LLC and VDK LLC; and
WHEREAS, subject to the terms and conditions of this Agreement, the Company
desires to retain the Advisor, and the Advisor desires to be retained by the
Company, and the parties hereto desire to terminate the Amended and Restated
Management Services Agreement dated July 9, 1996 between the Advisor and Van de
Kamp's, Inc. and the Management Services Agreement dated December 31, 1996
between the Advisor and MBW Foods Inc. (n/k/a Aurora Foods Inc.).
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. TERMS OF AGREEMENT AND DUTIES.
(a) ENGAGEMENT. The Company hereby retains the Advisor to provide
advisory services to the Company on a non-exclusive basis for a period (the
"TERM") beginning on the date hereof and ending on the earlier of (x) the second
anniversary of the closing of the initial public offering of Aurora Foods Inc.
("AFI"), a successor entity to Aurora/VDK LLC to be formed pursuant to a
contemplated reorganization of the Company and (y) the date on which the
employment of Ian R. Wilson as Chief Executive Officer of AFI pursuant to a
written Employment Agreement between AFI and such person(s) has terminated;
PROVIDED; that the Advisor may terminate this Agreement on not less than 60 days
prior written notice to the Company. In the event of any termination of this
Agreement (including upon expiration of the Term), (i) any accrued and unpaid
obligations of the Company owed under Sections 2 or 3 hereof, and (ii) the
Company's obligations under Section 4 hereof shall survive to the maximum extent
permitted by law.
<PAGE>
(b) DUTIES. During the Term, the Advisor will render such services
(the "SERVICES") as the Company may reasonably request from time to time in
connection with actual and potential acquisitions by the Company or any of its
direct or indirect subsidiaries and the financing thereof.
2. COMPENSATION OF ADVISOR.
In the event that during the Term the Company or any direct or
indirect subsidiary thereof either (i) consummates an acquisition of the stock
or assets of another entity (including without limitation by merger or
consolidation), enters into a joint venture with another entity, or effects any
similar investment or business combination (each, an "ACQUISITION"), or
(ii) initiates any discussions or negotiations or undertakes a review of a
possible Acquisition that is ultimately consummated within one year following
termination of the Term, then in either case the Company shall pay to the
Advisor on the closing date of such Acquisition, in consideration of Services
rendered with respect thereto, a transaction fee (a "TRANSACTION FEE") in an
amount equal to one-third-of-one percent (0.333%) of the Acquisition Price (as
defined below), by wire transfer of immediately available funds to an account
specified by the Advisor to the Company.
"ACQUISITION PRICE" means the sum of (A) the cash purchase price
actually received, PLUS (B) the fair market value of any equity securities
issued to or retained by the seller in connection with the Acquisition, PLUS
(C) the face value of any promissory note or other debt instrument issued to the
seller in connection with such Acquisition less any discounts thereto, PLUS
(D) the amount of any liabilities assumed by the Company or a direct or indirect
subsidiary thereof in connection with such Acquisition plus (E) the fair market
value of any other property paid as consideration in connection with the
Acquisition, including installment or deferred payments, if any, in which case
the Transaction Fee with respect to such installment or deferred payments shall
be paid after giving effect to the present value thereof. If such installment
or deferred payments are conditioned upon the achievement of certain
contingencies (other than the passage of time) such fees shall be payable in
respect of such installment or deferred payments as, when and if received by the
seller.
3. CONTRIBUTION FEE. In connection with Services rendered with respect
to the Contribution, the Company hereby agrees to pay the Advisor a fee in the
amount of $1,500,000, together with reimbursement of any unreimbursed or unpaid
expenses incurred by the Advisor in connection with the Contribution, with such
fee and expenses to be payable by the Company on the earlier of (x) the closing
of an initial public offering of common stock by the Company (or any successor
to the Company by merger, consolidation or reorganization of the Company, by
incorporation or otherwise), or (y) September 30, 1998.
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<PAGE>
4. EXPENSES; INDEMNIFICATION.
(a) EXPENSES. Whether or not any of the transactions contemplated by
this Agreement or any other agreement shall be consummated, the Company agrees
to pay on demand all expenses incurred by the Advisor or any of its affiliates
in connection with this Agreement and such other transactions and all operations
hereunder, including but not limited to (i) the fees and disbursements of: (A)
counsel to the Advisor, (B) accountant to the Advisor, and (C) any other
consultants or advisors retained by the Advisor or either of the parties
identified in clauses (A) and (B) arising in connection therewith, and (ii) any
out-of-pocket expenses incurred by the Advisor in connection with the provision
of services hereunder or the attendance at any meeting of the board of directors
(or any committee thereof) of the Company or any of its affiliates.
(b) INDEMNITY AND LIABILITY. In consideration of the execution and
delivery of this Agreement by the Advisor, the Company hereby agrees to
indemnify and hold the Advisor and each of its members, partners, shareholders,
affiliates, directors, officers, fiduciaries, employees and agents and each of
the members, partners, shareholders, affiliates, directors, officers,
fiduciaries, employees and agents of each of the foregoing (collectively, the
"INDEMNITEES") free and harmless from and against any and all actual or
threatened claims, actions, causes of action, suits, losses, liabilities and
damages, and expenses in connection therewith, including without limitation
reasonable attorneys' fees and disbursements and other litigation costs
(collectively, the "INDEMNIFIED LIABILITIES"), incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to the execution,
delivery, performance, enforcement or existence of this Agreement or the
transactions contemplated hereby (including but not limited to any
indemnification obligations assumed or incurred by any Indemnitee to or on
behalf of the Company, or any of its accountants or other representatives,
agents or affiliates) except for any such Indemnified Liabilities arising
directly from such Indemnitees's gross negligence or willful misconduct, and if
and to the extent that the foregoing undertaking may be unenforceable for any
reason, the Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. None of the Indemnitees shall be liable to
the Company or any of its affiliates for any act or omission suffered or taken
by such Indemnitee as a result of, or arising out of, or relating to the
execution, delivery, performance, enforcement or existence of this Agreement or
the transactions contemplated hereby that does not constitute gross negligence
or willful misconduct.
5. ASSIGNMENT, ETC. Except as provided below, neither party shall have
the right to assign this Agreement. The Advisor acknowledges that its services
under this Agreement are unique. Accordingly, any purported assignment by the
Advisor (other than as provided below) shall be void. Notwithstanding the
foregoing, the Advisor may assign all or part of its rights and obligations
hereunder to any affiliate of the Advisor which provides services similar to
those called for by this Agreement, in which event the Advisor shall be
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<PAGE>
released of all of its rights, other than the rights in Section 4 hereof, and
obligations hereunder.
6. AMENDMENTS AND WAIVERS. No amendment or waiver of any term, provision
or condition of this Agreement shall be effective, unless in writing and
executed by each of the Advisor and the Company. No waiver on any one occasion
shall extend to or effect or be construed as a waiver of any right or remedy on
any future occasion. No course of dealing of any person nor any delay or
omission in exercising any right or remedy shall constitute an amendment of this
Agreement or a waiver of any right or remedy of any party hereto.
7. GOVERNING LAW; JURISDICTION.
(a) CHOICE OF LAW. This Agreement shall be governed by and construed
in accordance with the domestic substantive laws of the State of New York
without giving effect to any choice or conflict of law provision or rule that
would cause the application of the domestic substantive law of any other
jurisdiction.
(b) CONSENT TO JURISDICTION. Each of the parties agrees that all
actions, suits or proceedings arising out of or based upon this Agreement or the
subject matter hereof shall be brought and maintained exclusively in the federal
and state courts of the State of New York located in the Borough of Manhattan in
New York City. Each of the parties hereto by execution hereof (i) hereby
irrevocably submits to the jurisdiction of the above-named courts for the
purpose of any action, suit or proceeding arising out of or based upon this
Agreement or the subject matter hereof and (ii) hereby waives to the extent not
prohibited by applicable law, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that it
is immune from extraterritorial injunctive relief or other injunctive relief,
that its property is exempt or immune from attachment or execution, that any
such action, suit or proceeding may not be brought or maintained in one of the
above-named courts, that any such action, suit or proceeding brought or
maintained in one of the above-named courts should be dismissed on grounds of
FORUM NON CONVENIENS, should be transferred to any court other than one of the
above-named courts, should be stayed by virtue of the pendency of any other
action, suit or proceeding in any court other than one of the above-named
courts, or that this Agreement or the subject matter hereof may not be enforced
in or by any of the above-named courts. Each of the parties hereto hereby
consents to service of process in any such suit, action or proceeding in any
manner permitted by the laws of the State of New York, agrees that service of
process by registered or certified mail, return receipt requested, at the
address specified in or pursuant to Section 9 is reasonably calculated to give
actual notice and waives and agrees not to assert by way of motion, as a defense
or otherwise, in any such action, suit or proceeding any claim that service of
process made in accordance with Section 9 does not constitute good and
sufficient service of process. The
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<PAGE>
provisions of this Section 7(b) shall not restrict the ability of any party to
enforce in any court any judgment obtained in one of the above-named courts.
(c) WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT, OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, CAUSE OF ACTION, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE.
Each of the parties hereto acknowledges that it has been informed by each other
party that the provisions of this Section 7(c) constitute a material inducement
upon which such party is relying and will rely in entering into this Agreement
and the transactions contemplated hereby. Any of the parties hereto may file an
original counterpart or a copy of this Agreement with any court as written
evidence of the consent of each of the parties hereto to the waiver of its right
to trial by jury.
8. SEVERABILITY. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then such
unenforceable provision shall be deemed eliminated from this Agreement for the
purpose of such proceedings to the extent necessary to permit the remaining
provisions to be enforced. To the full extent, however, that the provisions of
any applicable law may be waived, they are hereby waived to the end that this
Agreement be deemed to be a valid and binding agreement enforceable in
accordance with its terms, and in the event that any provision hereof shall be
found to be invalid or unenforceable, such provision shall be construed by
limiting it so as to be valid and enforceable to the maximum extent consistent
with and possible under applicable law.
9. NOTICES. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly given if (a)
delivered by hand, (b) sent (i) by overnight courier or (ii) by registered or
certified mail, return receipt requested, postage and registry fees prepaid, or
(c) sent by facsimile with a confirmation receipt, in each case addressed as
follows:
If to the Advisor:
Dartford Partnership L.L.C.
456 Montgomery Street, Suite 2200
San Francisco, California 94104
Attention: Ian R. Wilson
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<PAGE>
If to the Company:
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
Attention: Chief Executive Officer
with a copy to:
Fenway Partners, Inc.
152 West 57th Street
New York, NY 10019
Attention: Richard C. Dresdale
with a copy to:
McCown De Leeuw & Co., Inc.
101 East 52nd Street, 31st Floor
New York, NY 10022
Attention: Charles Ayres
Addresses may be changed by a notice in writing in accordance with the
provisions of this Section 9.
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof, including without
limitation (i) the Management Services Agreement dated December 31, 1996 between
the Advisor and MBW Foods Inc. (n/k/a Aurora Foods Inc.), and, (ii) the Amended
and Restated Management Services Agreement dated as of July 9, 1996 between Van
de Kamp's, Inc. and Advisor, and (iii) the New Compensation Agreement, dated as
of April 8, 1998, by and among the Company, the Advisor and certain other
parties signatory thereto.
11. COUNTERPARTS. This Agreement may be executed in one or more original
or facsimile counterparts, all of which together shall constitute one and the
same instrument.
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<PAGE>
12. SUCCESSORS. This Agreement shall be binding on the successors and
assigns of any party hereto (including without limitation AFI or any other
successor to the Company by reason of the merger, consolidation, or
reorganization (by incorporation or otherwise) of the Company).
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<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of this 8th day of April, 1998.
AURORA/VDK LLC
By:
------------------------------
Name:
Title:
VDK HOLDINGS, INC.
By:
------------------------------
Name:
Title:
AURORA FOODS HOLDINGS, INC.
By:
------------------------------
Name:
Title:
VAN DE KAMP'S, INC.
By:
------------------------------
Name:
Title:
AURORA FOODS INC.
By:
------------------------------
Name:
Title:
DARTFORD PARTNERSHIP L.L.C.
By:
------------------------------
Name:
Title:
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<PAGE>
Exhibit 10.34
ADVISORY AGREEMENT
This ADVISORY AGREEMENT is made as of the 8th day of April, 1998, by and
between AURORA/VDK LLC, a Delaware limited liability company ("AURORA/VDK LLC"),
and MDC MANAGEMENT COMPANY III, L.P., a California limited partnership (the
"ADVISOR"). For purposes of this Agreement, the "COMPANY" shall mean Aurora/VDK
LLC, any successor thereto by reason of merger, transfer of substantially all of
its assets and liabilities or otherwise, and each of their direct and indirect
subsidiaries.
W I T N E S E T H:
WHEREAS, MBW Investors LLC ("MBW LLC"), a Delaware limited liability
company, and VDK Foods LLC ("VDK LLC"), a Delaware limited liability company,
have formed Aurora/VDK LLC (the "CONTRIBUTION") pursuant to a Contribution
Agreement dated as of April 8, 1998 between MBW LLC and VDK LLC; and
WHEREAS, subject to the terms and conditions of this Agreement, the Company
desires to retain the Advisor, and the Advisor desires to be retained by the
Company, and the parties hereto desire to terminate the Advisory Services
Agreement dated December 31, 1996 between the Advisor and MBW Foods Inc. (n/k/a
Aurora Foods Inc.).
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. TERMS OF AGREEMENT AND DUTIES.
(a) ENGAGEMENT. The Company hereby retains the Advisor to provide
advisory services to the Company on a non-exclusive basis for a period (the
"TERM") beginning on the date hereof and ending on the later of (x) the second
anniversary of the closing of the initial public offering (the "IPO") of Aurora
Foods Inc. ("AFI"), a successor entity to Aurora/VDK LLC to be formed pursuant
to a contemplated reorganization of the Company and (y) the date on which MDC
(as such term is defined in the Securityholders Agreement dated as of April 8,
1998 (the "SECURITYHOLDERS AGREEMENT")) beneficially owns less than 50% of the
number of shares of common stock of the Public Company (as defined in the
Securityholders Agreement) beneficially owned by MDC as of the closing of the
IPO; PROVIDED; that the Advisor may terminate this Agreement on not less than 60
days prior written notice to the Company. In the event of any termination of
this Agreement (including upon expiration of the Term), (i) any accrued and
unpaid obligations of the Company owed under Sections 2 or 3 hereof, and (ii)
the Company's obligations under Section 4 hereof shall survive to the maximum
extent permitted by law.
<PAGE>
(b) DUTIES. During the Term, the Advisor will render such services
(the "SERVICES") as the Company may reasonably request from time to time in
connection with actual and potential acquisitions by the Company or any of its
direct or indirect subsidiaries and the financing thereof.
2. COMPENSATION OF ADVISOR.
(a) In the event that during the Term the Company or any direct or
indirect subsidiary thereof either (i) consummates an acquisition of the stock
or assets of another entity (including without limitation by merger or
consolidation), enters into a joint venture with another entity, or effects any
similar investment or business combination (each, an "ACQUISITION"), or
(ii) initiates any discussions or negotiations or undertakes a review of a
possible Acquisition that is ultimately consummated within one year following
termination of the Term, then in either case the Company shall pay to the
Advisor on the closing date of such Acquisition, in consideration of Services
rendered with respect thereto, a transaction fee (a "TRANSACTION FEE") in an
amount equal to one-third-of-one percent (0.333%) of the Acquisition Price (as
defined below), by wire transfer of immediately available funds to an account
specified by the Advisor to the Company.
"ACQUISITION PRICE" means the sum of (A) the cash purchase price
actually received, PLUS (B) the fair market value of any equity securities
issued to or retained by the seller in connection with the Acquisition, PLUS
(C) the face value of any promissory note or other debt instrument issued to the
seller in connection with such Acquisition less any discounts thereto, PLUS
(D) the amount of any liabilities assumed by the Company or a direct or indirect
subsidiary thereof in connection with such Acquisition plus (E) the fair market
value of any other property paid as consideration in connection with the
Acquisition, including installment or deferred payments, if any, in which case
the Transaction Fee with respect to such installment or deferred payments shall
be paid after giving effect to the present value thereof. If such installment
or deferred payments are conditioned upon the achievement of certain
contingencies (other than the passage of time) such fees shall be payable in
respect of such installment or deferred payments as, when and if received by the
seller.
(b) During the Term, the Company shall pay to the Advisor an annual
fee of $500,000 payable quarterly in advance commencing October 1, 1998;
PROVIDED, that no fee shall be payable under this Section 2(b) if the IPO closes
on or before September 30, 1998.
3. CONTRIBUTION FEE. In connection with Services rendered with respect
to the Contribution, the Company hereby agrees to pay the Advisor a fee in the
amount of $1,500,000, together with reimbursement of any unreimbursed or unpaid
expenses incurred by the Advisor in connection with the Contribution, with such
fee and expenses to be payable by the Company on the earlier of (x) the closing
of an initial public offering of common stock by
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<PAGE>
the Company (or any successor to the Company by merger, consolidation or
reorganization of the Company, by incorporation or otherwise), or (y) September
30, 1998.
4. EXPENSES; INDEMNIFICATION.
(a) EXPENSES. Whether or not any of the transactions contemplated by
this Agreement or any other agreement shall be consummated, the Company agrees
to pay on demand all expenses incurred by the Advisor or any of its affiliates
in connection with this Agreement and such other transactions and all operations
hereunder, including but not limited to (i) the fees and disbursements of: (A)
counsel to the Advisor, (B) accountant to the Advisor, and (C) any other
consultants or advisors retained by the Advisor or either of the parties
identified in clauses (A) and (B) arising in connection therewith, and (ii) any
out-of-pocket expenses incurred by the Advisor in connection with the provision
of services hereunder or the attendance at any meeting of the board of directors
(or any committee thereof) of the Company or any of its affiliates.
(b) INDEMNITY AND LIABILITY. In consideration of the execution and
delivery of this Agreement by the Advisor, the Company hereby agrees to
indemnify and hold the Advisor and each of its members, partners, shareholders,
affiliates, directors, officers, fiduciaries, employees and agents and each of
the members, partners, shareholders, affiliates, directors, officers,
fiduciaries, employees and agents of each of the foregoing (collectively, the
"INDEMNITEES") free and harmless from and against any and all actual or
threatened claims, actions, causes of action, suits, losses, liabilities and
damages, and expenses in connection therewith, including without limitation
reasonable attorneys' fees and disbursements and other litigation costs
(collectively, the "INDEMNIFIED LIABILITIES"), incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to the execution,
delivery, performance, enforcement or existence of this Agreement or the
transactions contemplated hereby (including but not limited to any
indemnification obligations assumed or incurred by any Indemnitee to or on
behalf of the Company, or any of its accountants or other representatives,
agents or affiliates) except for any such Indemnified Liabilities arising
directly from such Indemnitees's gross negligence or willful misconduct, and if
and to the extent that the foregoing undertaking may be unenforceable for any
reason, the Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. None of the Indemnitees shall be liable to
the Company or any of its affiliates for any act or omission suffered or taken
by such Indemnitee as a result of, or arising out of, or relating to the
execution, delivery, performance, enforcement or existence of this Agreement or
the transactions contemplated hereby that does not constitute gross negligence
or willful misconduct.
5. ASSIGNMENT, ETC. Except as provided below, neither party shall have
the right to assign this Agreement. The Advisor acknowledges that its services
under this Agreement are unique. Accordingly, any purported assignment by the
Advisor (other than as
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<PAGE>
provided below) shall be void. Notwithstanding the foregoing, the Advisor may
assign all or part of its rights and obligations hereunder to any affiliate of
the Advisor which provides services similar to those called for by this
Agreement, in which event the Advisor shall be released of all of its rights,
other than the rights in Section 4 hereof, and obligations hereunder.
6. AMENDMENTS AND WAIVERS. No amendment or waiver of any term, provision
or condition of this Agreement shall be effective, unless in writing and
executed by each of the Advisor and the Company. No waiver on any one occasion
shall extend to or effect or be construed as a waiver of any right or remedy on
any future occasion. No course of dealing of any person nor any delay or
omission in exercising any right or remedy shall constitute an amendment of this
Agreement or a waiver of any right or remedy of any party hereto.
7. GOVERNING LAW; JURISDICTION.
(a) CHOICE OF LAW. This Agreement shall be governed by and construed
in accordance with the domestic substantive laws of the State of New York
without giving effect to any choice or conflict of law provision or rule that
would cause the application of the domestic substantive law of any other
jurisdiction.
(b) CONSENT TO JURISDICTION. Each of the parties agrees that all
actions, suits or proceedings arising out of or based upon this Agreement or the
subject matter hereof shall be brought and maintained exclusively in the federal
and state courts of the State of New York located in the Borough of Manhattan in
New York City. Each of the parties hereto by execution hereof (i) hereby
irrevocably submits to the jurisdiction of the above-named courts for the
purpose of any action, suit or proceeding arising out of or based upon this
Agreement or the subject matter hereof and (ii) hereby waives to the extent not
prohibited by applicable law, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that it
is immune from extraterritorial injunctive relief or other injunctive relief,
that its property is exempt or immune from attachment or execution, that any
such action, suit or proceeding may not be brought or maintained in one of the
above-named courts, that any such action, suit or proceeding brought or
maintained in one of the above-named courts should be dismissed on grounds of
FORUM NON CONVENIENS, should be transferred to any court other than one of the
above-named courts, should be stayed by virtue of the pendency of any other
action, suit or proceeding in any court other than one of the above-named
courts, or that this Agreement or the subject matter hereof may not be enforced
in or by any of the above-named courts. Each of the parties hereto hereby
consents to service of process in any such suit, action or proceeding in any
manner permitted by the laws of the State of New York, agrees that service of
process by registered or certified mail, return receipt requested, at the
address specified in or pursuant to Section 9 is reasonably calculated
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<PAGE>
to give actual notice and waives and agrees not to assert by way of motion, as a
defense or otherwise, in any such action, suit or proceeding any claim that
service of process made in accordance with Section 9 does not constitute good
and sufficient service of process. The provisions of this Section 7(b) shall
not restrict the ability of any party to enforce in any court any judgment
obtained in one of the above-named courts.
(c) WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT, OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, CAUSE OF ACTION, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE.
Each of the parties hereto acknowledges that it has been informed by each other
party that the provisions of this Section 7(c) constitute a material inducement
upon which such party is relying and will rely in entering into this Agreement
and the transactions contemplated hereby. Any of the parties hereto may file an
original counterpart or a copy of this Agreement with any court as written
evidence of the consent of each of the parties hereto to the waiver of its right
to trial by jury.
8. SEVERABILITY. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then such
unenforceable provision shall be deemed eliminated from this Agreement for the
purpose of such proceedings to the extent necessary to permit the remaining
provisions to be enforced. To the full extent, however, that the provisions of
any applicable law may be waived, they are hereby waived to the end that this
Agreement be deemed to be a valid and binding agreement enforceable in
accordance with its terms, and in the event that any provision hereof shall be
found to be invalid or unenforceable, such provision shall be construed by
limiting it so as to be valid and enforceable to the maximum extent consistent
with and possible under applicable law.
9. NOTICES. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly given if (a)
delivered by hand, (b) sent (i) by overnight courier or (ii) by registered or
certified mail, return receipt
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<PAGE>
requested, postage and registry fees prepaid, or (c) sent by facsimile with a
confirmation receipt, in each case addressed as follows:
If to the Advisor:
MDC Management Company III, L.P.
c/o McCown De Leeuw & Co., Inc.
101 East 52nd Street - 31st Floor
New York, NY 10022
Attention: Charles Ayres
If to the Company:
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
Attention: Chief Executive Officer
with a copy to:
Fenway Partners, Inc.
152 West 57th Street
New York, NY 10019
Attention: Richard C. Dresdale
with a copy to:
Dartford Partnership L.L.C.
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
Attention: Ian R. Wilson
Addresses may be changed by a notice in writing in accordance with the
provisions of this Section 9.
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<PAGE>
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof, including without
limitation (i) the Advisory Services Agreement dated December 31, 1996 between
the Advisor and MBW Foods Inc. (n/k/a Aurora Foods Inc.), and, (ii) the New
Compensation Agreement, dated as of April 8, 1998, by and among the Company, the
Advisor and certain other parties signatory thereto.
11. COUNTERPARTS. This Agreement may be executed in one or more original
or facsimile counterparts, all of which together shall constitute one and the
same instrument.
12. SUCCESSORS. This Agreement shall be binding on the successors and
assigns of any party hereto (including without limitation AFI or any other
successor to the Company by reason of the merger, consolidation, or
reorganization (by incorporation or otherwise) of the Company).
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of this 8th day of April, 1998.
AURORA/VDK LLC
By:
------------------------------
Name:
Title:
VDK HOLDINGS, INC.
By:
------------------------------
Name:
Title:
AURORA FOODS HOLDINGS INC.
By:
------------------------------
Name:
Title:
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<PAGE>
VAN DE KAMP'S, INC.
By:
------------------------------
Name:
Title:
AURORA FOODS INC.
By:
------------------------------
Name:
Title:
MDC MANAGEMENT COMPANY III, L.P.
By:
------------------------------
Name:
Title:
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<PAGE>
Exhibit 10.35
ADVISORY AGREEMENT
This Advisory Agreement (this "AGREEMENT") is entered into as of the 8th
day of April 1998 by and between Aurora/VDK LLC, a Delaware limited liability
company ("AURORA/VDK"), and Fenway Partners, Inc., a Delaware corporation
("FENWAY"). For purposes of this Agreement, the "COMPANY" shall mean
Aurora/VDK, any successor thereto whether by reason of merger, transfer of
substantially all of the assets and liabilities or otherwise, and each of their
respective direct and indirect subsidiaries.
WHEREAS, Aurora/VDK has been formed for the purpose of acquiring by
way of contribution all of the outstanding capital stock of VDK Holdings
Inc., a Delaware corporation ("VDK"), and Aurora Foods Holdings Inc., a
Delaware corporation ("AURORA") (such transactions being referred to herein
as the "CONTRIBUTION"), all on the terms and subject to the conditions of
that certain Contribution Agreement dated as of April 8, 1998 between VDK
Foods LLC, a Delaware limited liability company ("VDK LLC") and MBW
Investors LLC, a Delaware limited liability company ("MBW LLC");
WHEREAS, a fund (the "FENWAY FUND") affiliated with Fenway has
provided equity financing (the "EQUITY INVESTMENTS") to VDK LLC and MBW
LLC; and
WHEREAS, subject to the terms and conditions of this Agreement, the
Company desires to retain Fenway to provide certain advisory services to
the Company, and Fenway desires to provide such services and the parties
hereto desire to terminate the Agreement dated December 31, 1996 between
Fenway and MBW Foods Inc., a subsidiary of Aurora/VDK, relating to services
to be provided by Fenway (the "MBW AGREEMENT");
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. SERVICES. Fenway hereby agrees that, during the term of this Agreement
(the "TERM"), it will:
a. provide the Company with advice in connection with the negotiation and
consummation of agreements, contracts, documents and instruments
necessary in respect of any acquisition, including without limitation,
those necessary to provide the Company with financing from banks or
other financial institutions or other entities on terms and conditions
satisfactory to the Company; and
<PAGE>
subject to Section 2 (c) below, and for as long as any fee thereunder
is payable, provide the Company with financial, managerial and
operational advice in connection with its operations, including,
without limitation:
i. advice with respect to the investment of funds; and
ii. advice with respect to the development and implementation of
strategies for improving the operating, marketing and financial
performance of the Company.
2. PAYMENT OF FEES. The Company hereby agrees to:
a. pay to Fenway a fee in the amount of $1,500,000, together with
reimbursement of Fenway's expenses incurred in connection with the
Contribution, such fees and expenses being payable by the Company on
the earlier to occur of (i) September 30, 1998 or (ii) the closing of
an initial public offering of common stock by the Company (the
"INITIAL PUBLIC OFFERING");
b. during the Term, allow Fenway to participate in the negotiation and
consummation of any acquisition transactions by the Company (each an
"ACQUISITION"), and pay to Fenway a fee in connection therewith equal
to 0.333% of the Acquisition Price (as defined below), such fee to be
due and payable for the foregoing services at the closing of such
transaction.
c. during the Term, pay to Fenway an annual fee of $500,000 payable
quarterly in advance commencing October 1, 1998; PROVIDED, HOWEVER,
that such fees shall not be payable if the Initial Public Offering
occurs on or before September 30, 1998.
For purposes of this Agreement, the term "ACQUISITION PRICE" means the
sum of (A) the cash purchase price actually received, PLUS (B) the fair
market value of any equity securities issued to or retained by the seller
in connection with the Acquisition, PLUS (C) the face value of any
promissory note or other debt instrument issued to the seller in connection
with such Acquisition less any discounts thereto, PLUS (D) the amount of
any liabilities assumed by the Company or a direct or indirect subsidiary
thereof in connection with such Acquisition PLUS (E) the fair market value
of any other property paid as consideration in connection with the
Acquisition, including installment or deferred payments, if any, in which
case the Transaction Fee with respect to such installment or deferred
payments shall be paid after giving effect to the present value thereof.
If such installment or deferred payments are conditioned upon the
achievement of certain contingencies (other than the passage of time) such
fees shall be payable in respect of such installment or deferred payments
as, when and if received by the seller.
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<PAGE>
Each payment made pursuant to this Section 2 shall be paid by wire transfer
of immediately available federal funds to the account specified on
Schedule 1 hereto, or to such other account(s) as Fenway may specify to the
Company in writing prior to such payment.
3. TERM. This Agreement will terminate upon the later of (a) two years after
the closing of the Initial Public Offering or (b) such time when Fenway
beneficially owns less than 50% of the number of shares of common stock of
the Public Company (as such term is defined in the Aurora/VDK LLC
Securityholders Agreement dated as of April 8, 1998 (the "SECURITYHOLDERS
AGREEMENT")) beneficially owned by MDC (as defined in the Securityholders
Agreement) as of the closing of the Initial Public Offering. This
Agreement shall continue in full force and effect, unless and until
terminated by mutual consent of the parties, for so long as Fenway (or any
successor or permitted assign, as the case may be) continues to carry on
the business of providing services of the type described in Section 1
above; PROVIDED, HOWEVER, that (a) either party may terminate this
Agreement following a material breach of the terms of this Agreement by the
other party hereto and a failure to cure such breach within 30 days
following written notice thereof and (b) Fenway may terminate this
Agreement upon not less than 60 days written notice to the Company; and
PROVIDED, FURTHER that each of (x) the obligations of the Company under
Section 4 below, (y) any and all accrued and unpaid obligations of the
Company owed under Section 2 above and (z) the provisions of Section 7
shall survive any termination of this Agreement to the maximum extent
permitted under applicable law.
4. EXPENSES; INDEMNIFICATION.
a. EXPENSES. Whether or not any of the transactions contemplated by this
Agreement or any other agreement shall be consummated, the Company
agrees to pay on demand all expenses incurred by Fenway or any of its
affiliates in connection with this Agreement and such other
transactions and all operations hereunder, including but not limited
to (i) the fees and disbursements of: (A) Ropes & Gray, special
counsel to Fenway and the Fenway Fund, (B) Ernst & Young, accountant
to Fenway and the Fenway Fund, and (C) any other consultants or
advisors retained by Fenway, the Fenway Fund or either of the parties
identified in clauses (A) and (B) arising in connection therewith, and
(ii) any out-of-pocket expenses incurred by Fenway or any of its
affiliates in connection with the provision of services hereunder or
the attendance at any meeting of the board of directors (or any
committee thereof) of the Company or any of its affiliates.
b. INDEMNITY AND LIABILITY. In consideration of the execution and
delivery of this Agreement by Fenway and the provision of the Equity
Investments by the Fenway Fund, the Company hereby agrees to
indemnify, exonerate and hold
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<PAGE>
each of Fenway and the Fenway Fund, and each of their respective
partners, shareholders, affiliates, directors, officers, fiduciaries,
employees and agents and each of the partners, shareholders,
affiliates, directors, officers, fiduciaries, employees and agents of
each of the foregoing (collectively, the "INDEMNITEES") free and
harmless from and against any and all actions, causes of action,
suits, losses, liabilities and damages, and expenses in connection
therewith, including without limitation reasonable attorneys' fees and
disbursements (collectively, the "INDEMNIFIED LIABILITIES"), incurred
by the Indemnitees or any of them as a result of, or arising out of,
or relating to the Equity Investments, the execution, delivery,
performance, enforcement or existence of this Agreement or the
transactions contemplated hereby (including but not limited to any
indemnification obligations assumed or incurred by any Indemnitee to
or on behalf of the Company, or any of its accountants or other
representatives, agents or affiliates) except for any such Indemnified
Liabilities arising on account of such Indemnitee's gross negligence
or willful misconduct, and if and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Company hereby
agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. None of the Indemnitees shall be
liable to the Company or any of its affiliates for any act or omission
suffered or taken by such Indemnitee as a result of, or arising out
of, or relating to the Equity Investments, the execution, delivery,
performance, enforcement or existence of this Agreement or the
transactions contemplated hereby that does not constitute gross
negligence or willful misconduct.
5. ASSIGNMENT, ETC. Except as provided below, neither party shall have the
right to assign this Agreement. Fenway acknowledges that its services
under this Agreement are unique. Accordingly, any purported assignment by
Fenway (other than as provided below) shall be void. Notwithstanding the
foregoing, (a) Fenway may assign all or part of its rights and obligations
hereunder to any affiliate of Fenway which provides services similar to
those called for by this Agreement, in which event Fenway shall be released
of all of its rights, other than the rights in Section 4 hereof, and
obligations hereunder, and (b) the provisions hereof for the benefit of the
Fenway Fund shall inure to the benefit of their successors and assigns.
6. AMENDMENTS AND WAIVERS. No amendment or waiver of any term, provision or
condition of this Agreement shall be effective, unless in writing and
executed by each of Fenway and the Company. No waiver on any one occasion
shall extend to or effect or be construed as a waiver of any right or
remedy on any future occasion. No course of dealing of any person nor any
delay or omission in exercising any right or remedy shall constitute an
amendment of this Agreement or a waiver of any right or remedy of any party
hereto.
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<PAGE>
7. MISCELLANEOUS.
a. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of New York
without giving effect to any choice or conflict of law provision or
rule that would cause the application of the domestic substantive laws
of any other jurisdiction.
b. CONSENT TO JURISDICTION. Each of the parties agrees that all actions,
suits or proceedings arising out of or based upon this Agreement or
the subject matter hereof shall be brought and maintained exclusively
in the federal and state courts of the State of New York located in
the Borough of Manhattan in New York City. Each of the parties hereto
by execution hereof (i) hereby irrevocably submits to the jurisdiction
of the above-named courts for the purpose of any action, suit or
proceeding arising out of or based upon this Agreement or the subject
matter hereof and (ii) hereby waives to the extent not prohibited by
applicable law, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any
claim that it is not subject personally to the jurisdiction of the
above-named courts, that it is immune from extraterritorial injunctive
relief or other injunctive relief, that its property is exempt or
immune from attachment or execution, that any such action, suit or
proceeding may not be brought or maintained in one of the above-named
courts, that any such action, suit or proceeding brought or maintained
in one of the above-named courts should be dismissed on grounds of
FORUM NON CONVENIENS, should be transferred to any court other than
one of the above-named courts, should be stayed by virtue of the
pendency of any other action, suit or proceeding in any court other
than one of the above-named courts, or that this Agreement or the
subject matter hereof may not be enforced in or by any of the
above-named courts. Each of the parties hereto hereby consents to
service of process in any such suit, action or proceeding in any
manner permitted by the laws of the State of New York, agrees that
service of process by registered or certified mail, return receipt
requested, at the address specified in or pursuant to Section 9 is
reasonably calculated to give actual notice and waives and agrees not
to assert by way of motion, as a defense or otherwise, in any such
action, suit or proceeding any claim that service of process made in
accordance with Section 9 does not constitute good and sufficient
service of process. The provisions of this Section 7(b) shall not
restrict the ability of any party to enforce in any court any judgment
obtained in one of the above-named courts.
c. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT, OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
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<PAGE>
RESPECT OF ANY ISSUE, CLAIM, DEMAND, CAUSE OF ACTION, ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT
MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. Each of the parties
hereto acknowledges that it has been informed by each other party that
the provisions of this Section 7(c) constitute a material inducement
upon which such party is relying and will rely in entering into this
Agreement and the transactions contemplated hereby. Any of the
parties hereto may file an original counterpart or a copy of this
Agreement with any court as written evidence of the consent of each of
the parties hereto to the waiver of its right to trial by jury.
8. MERGER/ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes any
prior communication or agreement with respect thereto. The parties hereto
agree that as of the date hereof, the MBW Agreement shall be terminated and
shall be of no further force and effect.
9. NOTICE. All notices, demands, and communications of any kind which any
party may require or desire to serve upon any other party under this
Agreement shall be in writing and shall be served upon such other party and
such other party's copied persons as specified below by personal delivery
to the address set forth for it below or to such other address as such
party shall have specified by notice to each other party or by mailing a
copy thereof by certified or registered mail, or by Federal Express or any
other reputable overnight courier service, postage prepaid, with return
receipt requested, addressed to such party and copied persons at such
addresses. In the case of service by personal delivery, it shall be deemed
complete on the first business day after the date of actual delivery to
such address. In case of service by mail or by overnight courier, it shall
be deemed complete, whether or not received, on the third day after the
date of mailing as shown by the registered or certified mail receipt or
courier service receipt. Notwithstanding the foregoing, notice to any
party or copied person of change of address shall be deemed complete only
upon actual receipt by an officer or agent of such party or copied person.
If to the Company, to it at:
456 Montgomery Street
Suite 2200
San Francisco, CA 94104
Attention: Chief Executive Officer
-6-
<PAGE>
If to Fenway, to it at:
152 West 57th Street
New York, NY 10019
Attention: Richard C. Dresdale
With a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Lauren I. Norton
10. SEVERABILITY. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then
such unenforceable provision shall be deemed eliminated from this Agreement
for the purpose of such proceedings to the extent necessary to permit the
remaining provisions to be enforced. To the full extent, however, that the
provisions of any applicable law may be waived, they are hereby waived to
the end that this Agreement be deemed to be valid and binding agreement
enforceable in accordance with its terms, and in the event that any
provision hereof shall be found to be invalid or unenforceable, such
provision shall be construed by limiting it so as to be valid and
enforceable to the maximum extent consistent with and possible under
applicable law.
11. COUNTERPARTS. This Agreement may be executed in any number of counterparts
and by each of the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as an instrument under seal as of the date first above
written by its officer or representative thereunto duly authorized.
THE COMPANY: AURORA/VDK LLC
BY
-------------------------------------
Title:
AURORA FOODS HOLDINGS INC.
BY
-------------------------------------
Title:
VDK HOLDINGS, INC.
BY
-------------------------------------
Title:
AURORA FOODS INC.
BY
-------------------------------------
Title:
-8-
<PAGE>
VAN DE KAMP'S, INC.
BY
-------------------------------------
Title:
FENWAY: FENWAY PARTNERS, INC.
BY
-------------------------------------
Title:
-9-
<PAGE>
Schedule 1 to
Management Agreement
--------------------
WIRE TRANSFER INSTRUCTIONS FOR
FENWAY PARTNERS, INC.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of Amendment
No. 2 to this Registration Statement on Form S-1 (No. 333-50681) of our
report dated March 18, 1998, relating to the financial statements of Aurora
Foods Holdings Inc., which appears in such Prospectus. We also consent to the
reference to us under the headings "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Francisco, California
June 9, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of Amendment
No. 2 to this Registration Statement on Form S-1 (No. 333-50681) of our
report dated September 23, 1997, relating to the financial statements of VDK
Holdings, Inc., which appears in such Prospectus. We also consent to the
reference to us under the headings "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Francisco, California
June 9, 1998
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of Amendment
No. 2 to this Registration Statement on Form S-1 (No. 333-50681) of our
report dated March 14, 1997, relating to the financial statements of the Mrs.
Butterworth's Business, a component of CONCOPCO, Inc., which appears in such
Prospectus. We also consent to the reference to us under the headings
"Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Francisco, California
June 9, 1998
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-50681 of Aurora Foods Inc. on Form S-1 of our report dated March 20,
1998, on The Duncan Hines Business of The Procter & Gamble Company, appearing
in the Prospectus, which is part of this Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
June 9, 1998
<PAGE>
CONSENT OF COOPERS AND LYBRAND
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-50681) of our report dated August 20, 1997, on our audits of the
statements of assets to be acquired of the Log Cabin Syrup Business, a
component of Kraft Foods, Inc., as of December 28, 1996, and December 30, 1995
and the statements of operations for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994. We also consent to the reference to
our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Chicago, Illinois
June 9, 1998
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of Amendment
No. 2 to this Registration Statement on Form S-1 (No. 333-50681) of our
report dated July 22, 1996, relating to the financial statements of Van de
Kamp's and Frozen Dessert Product Lines of Pet Incorporated, which appears in
such Prospectus. We also consent to the reference to us under the headings
"Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Francisco, California
June 9, 1998
