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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 333-50681
AURORA FOODS INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-3303521
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1000 Union Station, Suite 300
St. Louis, MO 63103
(Address of Principal Executive Office, Including Zip Code)
(314) 241-0303
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, par New York Stock Exchange
value $0.01 per Pacific Exchange
share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 7, 2000, based upon the closing price of the Common Stock
as reported on the New York Stock Exchange on such date, was approximately
$121,051,569.
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock as of the latest practicable date.
Shares Outstanding
April 7, 2000
---------------
Common Stock, $0.01 par value 67,049,811
Documents incorporated by reference: None
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PART I
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ITEM 1: BUSINESS
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Aurora Foods Inc. (the "Company") is a leading producer and marketer of premium
branded food products including Duncan Hines(R) baking mix products, Mrs.
Butterworth's(R) and Log Cabin(R) syrup products, Van de Kamp's(R) and Mrs.
Paul's(R) frozen seafood products, Aunt Jemima(R) frozen breakfast products,
Celeste(R) frozen pizza, Chef's Choice(R) frozen skillet meals and Lender's(R)
bagel products. The Company's brands are among the most widely recognized food
brands in the United States and have leading market positions. The Company
groups its brands into two general divisions: the dry grocery division and the
frozen food division.
Recent Developments
- -------------------
The Company has been significantly affected by the following recent
developments.
Special Committee Investigation; Restatement of Financial Results
On February 11, 2000, the Company's Board of Directors, after discussions with
the Company's auditors, PricewaterhouseCoopers LLP, formed a special committee
(the "Special Committee") to conduct an investigation into the Company's
application of its accounting policies. The Special Committee retained legal
counsel, which retained an independent accounting firm to assist in the
investigation. The investigation is not yet completed.
Prior to the issuance of the Company's financial statements as of and for the
year ended December 31, 1999, it was determined that the results reported in the
Company's Form 10-K as of and for the year ended December 31, 1998 as well as
the unaudited interim results reported in the Company's Forms 10-Q as of and for
the periods ended September 30, 1998, March 31, 1999, June 30, 1999 and
September 30, 1999 were misstated. Upon further investigation, it was determined
that liabilities that existed for certain trade promotion and marketing
activities and other expenses (primarily sales returns and allowances,
distribution and consumer marketing) were not properly recognized as liabilities
and that certain assets were overstated (primarily accounts receivable,
inventories and fixed assets). In addition, certain activities were improperly
recognized as sales. As a result, the financial statements as of and for the
year ended December 31, 1998 as well as the unaudited quarterly financial data
as of and for the interim periods ended September 30, 1998, March 31, 1999, June
30, 1999 and September 30, 1999 have been restated. The restated financial
statements as of and for the year ended December 31, 1998 have been included in
the consolidated financial statements included herein. Unaudited restated
condensed financial statement information for the quarters ended September 30,
1998, March 31, 1999, June 30, 1999 and September 30, 1999 have been included in
the notes to the consolidated financial statements included herein. All restated
financial information included herein has been adjusted to properly expense
costs and recognize revenues in accordance with generally accepted accounting
principles and the Company's stated accounting policies included in the notes to
the consolidated financial statements.
For the year ended December 31, 1998, these misstatements primarily understated
trade promotions expense by $28.5 million, overstated net sales by $4.6 million,
understated brokerage and distribution expense by $2.8 million and understated
cost of goods sold by $1.4 million. After adjusting for the misstatements, the
Company recalculated its income tax provision reducing income tax expense by
$14.5 million. The impact of the misstatements on reported operating results for
the year ended December 31, 1998, was to overstate gross profit by $6.0 million,
operating income by $38.3 million, and net income by $23.8 million. For the nine
months ended September 30, 1999, these misstatements primarily understated trade
promotions expense by $15.2 million, overstated net sales by $20.8 million and
understated cost of goods sold by $5.0 million. After adjusting for the
misstatements, the Company recalculated its income tax provision reducing income
tax expense by $16.9 million. The impact of the misstatements for the nine month
ended September 30, 1999, was to overstate gross profit by $25.8 million,
operating income by $43.3 million, and net income by $26.4 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Restatements" and Notes 1, 20 and 21 to the consolidated financial
statements.
The Company expects to file amended Form 10-Qs for the quarters ended September
30, 1998, March 31, 1999, June 30, 1999 and September 30, 1999, and an amended
Form 10-K for the year ended December 31, 1998.
Management Changes
2
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On February 17, 2000 the following members of senior management resigned: Ian
R. Wilson, Chairman and Chief Executive Officer, James B. Ardrey, Vice Chairman,
Ray Chung, Executive Vice President and M. Laurie Cummings, Chief Financial
Officer. Mr. Wilson and Mr. Ardrey also resigned from the Board of Directors.
The Board appointed Richard C. Dresdale, President of Fenway Partners, Inc. as
Chairman of the Board, David E. De Leeuw, Managing Director of McCown De Leeuw &
Co., Inc., as Vice Chairman, Peter Lamm, Chairman and Chief Executive Officer of
Fenway Partners, Inc. as acting President and Chief Executive Officer and Andrea
Geisser, Managing Director of Fenway Partners, Inc. as acting Vice President-
Finance, acting Treasurer and acting Secretary, effective February 18, 2000.
On April 3, 2000, the Company announced that it had hired James T. Smith as
President and Chief Executive Officer of the Company, and Christopher T.
Sortwell as Executive Vice President and Chief Financial Officer. Mr. Smith and
Mr. Sortwell were also elected to the Board of Directors of the Company. See
"Directors and Executive Officers of the Company."
Legal Proceedings
Following the announcement of the aforementioned investigation, several
purported class action lawsuits were filed against the Company in the United
States District Court for the Northern District of California alleging that the
Company and the directors and officers who resigned on February 17, 2000
violated federal securities laws. See "Item 3. Legal Proceedings."
Headquarters
In February 2000, the company relocated its corporate headquarters from San
Francisco, CA to the frozen food division corporate office in St. Louis, MO.
Products and Markets
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The Company has acquired premium, well recognized brands with strong brand
equity that have been undermarketed and undermanaged in recent years and have
become non-core businesses to their corporate parents. The Company's objective
is to renew the growth of its brands by giving them the focus, strategic
direction, marketing resources and dedicated sales and marketing organization
they have lacked in recent years. The Company then sustains the growth of the
brands with high levels of marketing support directed towards consumer
promotions, new products and new packaging. Each of the Company's brands is a
leading national brand with significant market share and strong consumer
awareness. The Company competes in two segments of the food industry, dry
grocery and frozen food, and sells its products nationwide to supermarkets and
other retail channels. The Company sells its products through food brokers to
wholesale and retail grocery accounts. The products are distributed either
directly to the customer or through independent wholesalers. The Company also
sells its syrup and frozen food products in the foodservice distribution
channel. Foodservice customers include military bases, restaurant chains and
business/industry.
3
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[LOGO] [LOGO] [LOGO]
MRS BUTTER-WORTH'S LOG CABIN DUNCAN HINES
[LOGO] [LOGO] [LOGO]
MRS PAUL'S VAN de KAMP'S LENDER'S
[LOGO] [LOGO] [LOGO]
CELESTE AUNT JAMIMA CHEFS CHOICE
References to market, category and segment sales, market share percentages and
market positions reflect U.S. retail supermarket sales dollars for the 52-week
period ended December 26, 1999, as gathered by Information Resources
Incorporated for the frozen food division and for the 52-week period ended
December 25, 1999, as gathered by A.C. Nielsen Company for the dry grocery
division.
Dry Grocery Division
- --------------------
The Company has three brands in the dry grocery segment: Mrs. Butterworth's(R),
Log Cabin(R) and Duncan Hines(R).
Mrs. Butterworth's(R) and Log Cabin(R)
Together, the Mrs. Butterworth's(R) and Log Cabin(R) syrup products have a
leading 33% share of the syrup category. Log Cabin(R) and Mrs. Butterworth's(R)
Original 24-ounce bottles are the number one and number two selling stock
keeping units, respectively, in the syrup category. Different consumer
perceptions of these two brands offer unique opportunities for consumer
targeting. Mrs. Butterworth's(R) distinctive, grandmother-shaped bottle and
buttery flavor represents a fun image to the family with children. The strong
heritage of Log Cabin(R), which dates back to 1888, represents an authentic,
rich maple brand targeted to more traditional, "warm, cozy" breakfast occasions.
The Company also sells Country Kitchen(R), a value-priced syrup, to target the
economy segment. Introduced in 1954, Country Kitchen(R) has the highest share
in the economy segment. Mrs. Butterworth's(R), Log Cabin(R) and Country
Kitchen(R) are offered in regular and lite versions. The Company also sells
pancake mixes under the Mrs. Butterworth's(R) and Log Cabin(R) brands. In 1998,
the Company introduced a sugar-free syrup under the Log Cabin(R) label to target
health-conscious and diabetic consumers. In 1999, the Company introduced
flavored syrups under the Mrs. Butterworth's(R) label to target children and
introduced butter-flavored syrup and premium syrups and mixes under the Log
Cabin(R) brand. In 1999, the Company also updated the packaging of its 24 oz.
Mrs. Butterworth's(R) syrup from glass to a high resin plastic bottle.
Duncan Hines(R)
For over 40 years, the Duncan Hines(R) brand has represented excellence in
baking mixes. The Duncan Hines(R) product line consists of cake mix, ready-to-
spread frosting, brownie mix, muffin mix, and cookie and other specialty mixes.
Duncan Hines(R) cake mix products are universally available throughout chain
grocery stores in the United States and have a market share of 37%. Consumer
test results show the Duncan Hines(R) brand appeals to the consumer who wants to
bake a "quality, good as homemade" product. In 1999, the Company introduced two
new cake mixes (German chocolate and red velvet), introduced All-Bran muffins
(blueberry and apple-cinnamon) that are co-branded with the Kellogg Company,
introduced a coconut pecan ready-to-spread frosting, and reformulated cookies
and other specialty mixes. The Company also restaged the packaging for the
entire Duncan Hines(R) product line in 1999.
4
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The Duncan Hines(R) brand has been built on the strength of its cake mix.
Introduced in 1956, Duncan Hines(R) has the #1, #2 and #3 selling stock keeping
units in the cake mix segment (yellow, butter golden and devil's food cake
mixes). Cake mixes accounted for approximately 55% of Duncan Hines(R) total
sales for the year ended December 31, 1999. To complement its cake mixes,
Duncan Hines(R) offers Ready To Spread frostings. Popular Duncan Hines(R)
frostings include homestyle vanilla and chocolate flavors. Duncan Hines(R) also
offers two tiers of brownie mixes, plain and premium. Other Duncan Hines(R)
products include muffin and cookie mixes.
Frozen Food Division
- --------------------
The Company has six brands in the frozen food segment: Van de Kamp's(R), Mrs.
Paul's(R), Aunt Jemima(R), Celeste(R), Chef's Choice(R) and Lender's(R).
Van de Kamp's(R) and Mrs. Paul's(R)
The Company manufactures and markets frozen seafood products under the Van de
Kamp's(R) and Mrs. Paul's(R) brands, which together hold a leading market share
position of 24% of the frozen seafood category. The frozen seafood product line
includes breaded and battered fish sticks and fish fillets, grilled and plain
fish fillets, "healthy" breaded fish, and specialty seafood items. The
Company's dual brand strategy emphasizes both brands' respective regional
strengths (Van de Kamp's(R) is stronger in the West and Central U.S., while Mrs.
Paul's(R) is stronger in the Northeast and Southeast) and brand positioning (Van
de Kamp's(R) targets families with younger children while Mrs. Paul's(R) targets
adults and families with older children). The Van de Kamp's(R) trademark dates
back over 40 years and is recognized as a fun, contemporary image that appeals
to families with children. The Mrs. Paul's(R) franchise began in the mid-1940's
with the introduction of deviled crab cakes and has grown to include a wide
range of specialty seafood items that target the adult consumer. In 1999, the
Company introduced new "Tenders" and "Strips" products under both brands, "Crisp
and Healthy" flavored fillets under the Van de Kamp's(R) brand and "Hearty Size"
fish sticks and fillets made from the whole fish fillet rather than minced
pieces under the Mrs. Paul's(R) brand. In addition, in 1999 the Company
introduced new packaging across its entire line of seafood products.
The Company continues to build Van de Kamp's(R) and Mrs. Paul's(R) 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(R) products are cross-promoted with Kraft(R) tartar sauce.
Aunt Jemima(R)
The Aunt Jemima(R) brand was established over 100 years ago. The Company offers
Aunt Jemima(R) frozen breakfast products in three categories: french toast,
pancakes and waffles. Aunt Jemima(R) has a number one market share position in
french toast, a number two position in pancakes and is the number three brand in
the frozen waffle category. Aunt Jemima(R) waffle and pancake products are
offered in four varieties: original, blueberry, buttermilk and lowfat. The
french toast product is offered in two flavors: regular and cinnamon. In 1999,
the Company expanded its offerings in frozen breakfast products with the launch
of french toast sticks and mini pancakes. The Company also changed the shape of
its waffles from square to round in 1999 and increased the package size to ten
waffles per package from eight in response to competitive activity from the
Kellogg Company's Eggo(R) waffle product line.
Celeste(R)
For over 37 years, Celeste(R) frozen pizza has been a prominent regional brand
in the Northeast. The Company offers Celeste(R) frozen pizzas in small and
large sizes and a rising crust pizza under the Mama Celeste label. Celeste(R)
small pizzas (marketed as Celeste(R) Pizza for One) and large pizzas are economy
priced, while the Mama Celeste Fresh-Baked Rising Crust pizza is value priced
relative to other rising crust pizzas. Rising crust pizzas have been a driver of
growth within the frozen pizza category. These pizzas rise as they bake in the
consumer's oven and offer a pizza comparable in quality to a restaurant or home
delivered pizza. In the aggregate markets in which it competes, Celeste(R)
Pizza for One is the leading brand of small pizzas in terms of sales dollars.
Celeste(R) products are primarily sold in the Northeast, Florida and California.
Late in 1999, Celeste(R) introduced two new flavors of Pizza-for-One in Zesty
Chicken Supreme and Sausage and Pepperoni.
Chef's Choice(R)
5
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The Chef's Choice(R) line of frozen skillet meals is a leading premium brand in
the rapidly growing frozen skillet meal category, also referred to as Home Meal
Replacements. Skillet meals are an entire meal in one package that can be cooked
in a single skillet in under fifteen minutes. The Chef's Choice(R) brand was
created to address consumer demand for convenient, tasty, high quality meals
that can be prepared quickly at home as an alternative to take-out. Chef's
Choice(R) products are a premium product offering in the category and include
more protein and higher quality ingredients than some competitors in the
category. The Chef's Choice(R) product line consists of ten items: Chicken Stir
Fry, Shrimp Stir Fry, Beef Stir Fry, Shrimp Linguini, Chicken Santa Fe, Chicken
Marinara, Shrimp Fried Rice, Steak Ranchero, Sun-Up Skillet Breakfast with
Sausage and Sun-Up Skillet Breakfast with Ham. The Company acquired Chef's
Choice(R) in April 1999.
Lender's(R)
Founded in 1927, the Lender's(R) brand is over 70 years old and is synonymous
with bagels. Lender's(R) is the leading brand of scannable bagels (bagels sold
through the grocery store, excluding in-store bakery), with an overall 36%
market share. The Lender's(R) brand participates in all three scannable bagel
categories: frozen, refrigerated and fresh. In the frozen and refrigerated
segments, Lender's(R) commands leading market shares of 79% and 67%,
respectively. Lender's(R) bagels are offered in several flavors in several
styles: Lender's Original(R), Big 'n Crusty(R), Lender's Premium Refrigerated
Bagels(R) and Bagel Shop. The Company acquired Lender's(R) in November 1999.
Industry
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The U.S. food industry is relatively stable with growth driven primarily by
modest price and population increases. Over the last ten years, food companies
have been divesting non-core business lines and making strategic acquisitions.
The desire for nutrition and convenience strongly affects consumer demand for
food products. Increasingly, consumers want nutritious food that is convenient
to prepare and can be served as a meal occasion. The Company targets consumers
between the ages of 25 and 48 and particularly households with children. There
are approximately 40 million children between the ages of 5 and 14, which
represent a growing target market for the Company.
The Company competes in the dry grocery and frozen food categories of the retail
food industry and in club stores and is expanding its presence in foodservice
markets, which the Company believes offer further growth opportunities.
Financial Information About Industry Segments
- ---------------------------------------------
See "Item 14(a) 1. Consolidated Financial Statements of the Company"
incorporated herein by reference.
Trademarks
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The Company's principal trademarks in the Dry Grocery Division are Duncan
Hines(R), Log Cabin(R), Mrs. Butterworth's(R), and in the Frozen Food Division
are Van de Kamp's(R), Mrs. Paul's(R), Celeste(R), Mama Celeste, Chef's Choice(R)
and Lender's(R). The trademarks in both divisions are important to the
maintenance of the Company's brands. The Company licenses, for use on frozen
breakfast products, the Aunt Jemima(R) trademark pursuant to a perpetual,
royalty-free, license agreement with The Quaker Oats Company ("Quaker Oats").
The license agreement requires the Company to obtain the approval of Quaker Oats
for any material change to any labels, packaging, advertising, and promotional
materials bearing the Aunt Jemima(R) trademark. Quaker Oats can only withhold
approval if such proposed use violates the terms of the license agreement. The
registrations for the Company's trademarks expire from time to time and the
Company renews them in the ordinary course of business prior to the expiration
dates.
Competition
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The food industry is highly competitive. Numerous brands and products compete
for shelf space and sales, with competition based primarily on brand recognition
and loyalty, price, quality and convenience. The Company competes with a
significant number of companies of varying sizes, including divisions or
subsidiaries of larger
6
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companies. A number of these competitors have broader product lines,
substantially greater financial and other resources available to them, lower
fixed costs and/or longer operating histories.
Production
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Frozen Food Division
The Company produces its Van de Kamp's(R) and Mrs. Paul's(R) frozen seafood
products primarily at its Erie, Pennsylvania, and Jackson, Tennessee
manufacturing facilities. The Company has also moved the manufacturing of some
of its specialty seafood products from co-packers to a seafood processing
facility in Yuba City, California that the Company acquired in February 1999.
The Company also uses this facility to produce some of its new seafood items.
The Company produces its Aunt Jemima(R) frozen breakfast products at its
Jackson, Tennessee and Erie, Pennsylvania facilities and its Celeste(R) frozen
pizza products at the Jackson, Tennessee facility. The Company produces its
Lender's(R) frozen, refrigerated and fresh bagel products at its Mattoon,
Illinois and West Seneca, New York facilities. The Company's Chef's Choice(R)
products are packaged by a contract manufacturer under an agreement that has a
term of two years with an automatic renewal provision of one year.
Dry Grocery Division
The Company's syrup products are produced by contract manufacturers at various
manufacturing facilities pursuant to syrup co-pack agreements. These syrup
agreements have terms of five to seven years and automatic renewal provisions
for one year unless cancelled by either party. All of the Company's syrup
production equipment, including batching, filling and case-packing equipment, is
located at the contract manufacturers' facilities. Duncan Hines(R) cake mixes,
brownie mixes, specialty mixes and frosting products are also produced by
contract manufacturers pursuant to co-pack agreements. All of the Company's
cake mixes, brownie mixes, specialty mixes and frosting production equipment
including co-milling, blending and packaging equipment is located at the
contract manufacturers' facilities. These Duncan Hines(R) agreements have terms
of five years and automatic renewal provisions for one year unless cancelled by
either party. It is the Company's intention to maintain long-term relationships
with its contract manufacturer partners.
The Company has entered into manufacturing contracts which require minimum
annual production orders. The minimum annual production orders for all
contracts through the year 2002 are 5.8 million cases of product. This volume
represents substantially less than the Company's current production
requirements.
Quality Control
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Quality control processes at the Company's principal manufacturing facilities
and at the production facilities where the Company's products are contract
manufactured emphasize applied research and technical services directed at
product improvement.
The Company's products and the facilities where the products are manufactured
are also subject to various laws and regulations administered by the Federal
Food and Drug Administration, the United States Department of Agriculture, and
other federal, state, and local governmental agencies relating to the quality of
products, safety and sanitation. The Company believes that it complies with
such laws and regulations in all material respects.
Customers
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The Company's business is not dependent upon a single customer or a small number
of customers, the loss of whom would have a material adverse effect on the
Company's operations.
Seasonality
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The Company experiences some seasonality in its businesses. In the Frozen Foods
Division, seasonality is primarily due to increased demand for its seafood
products during Lent. In the Dry Grocery Division, it is primarily due to
increased demand for its Duncan Hines(R) products during the Thanksgiving and
Christmas holiday baking seasons. As a result, the first and fourth quarters
generally experience higher levels of sales. There are no material backlogs.
Raw Materials and Supplies
- --------------------------
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The principal raw materials used by the Company are corn syrup, flour, sugar,
fish, eggs, cheese, vegetable oils, shortening, other agricultural products and
paper and plastic for packaging materials. All such materials and supplies are
available from numerous independent suppliers. The Company procures ingredients
through its contract manufacturer partners for most of the dry grocery division.
The procurement process for its frozen food division and the production of
brownie mixes is managed by purchasing the necessary raw materials directly from
various suppliers. The Company's objective is to meet both the Company's
production needs and its quality standards, while achieving the lowest aggregate
cost to the Company.
Research and Development
- ------------------------
The Company maintains its primary research and development departments for its
dry grocery division in Columbus, Ohio and for its frozen food division in St.
Louis, Missouri. The departments are responsible for nearly all of the food
research and product development for the Company. The Company uses food
technology consultants where appropriate. The Company's research and
development resources are focused on new product development and product
enhancement, cost containment through improvements in process design and
packaging, and exploratory research in new business areas.
Employees
- ---------
As of March 31, 2000, the Company had approximately 1,850 employees. Of these,
approximately 200 employees at the West Seneca, NY facility are covered by a
collective bargaining agreement expiring in 2001. Management of the Company
believes it generally has good relations with its employees and has not
experienced any work stoppages or strikes.
Business History
- ----------------
The Company was incorporated in Delaware on June 19, 1998, as the successor to
Aurora Foods Holdings Inc. ("Holdings") and its subsidiary, AurFoods Operating
Co., Inc. (formerly known as Aurora Foods Inc.) ("AurFoods"), both of which were
incorporated in Delaware in December 1996. AurFoods was wholly-owned by
Holdings, which in turn was wholly-owned by MBW Investors LLC ("MBW LLC").
AurFoods was formed for the purpose of acquiring the Mrs. Butterworth's(R) syrup
business ("MBW") from Conopco, Inc., a subsidiary of Unilever United States,
Inc. ("Conopco" or the "Predecessor"). AurFoods subsequently acquired the Log
Cabin(R) syrup business ("LC") from Kraft Foods, Inc. ("Kraft") in July 1997 and
the Duncan Hines(R) baking mix business ("DH") from The Procter & Gamble Company
("P&G") in January 1998.
Van de Kamp's, Inc. ("VDK") was a wholly-owned subsidiary of VDK Holdings, Inc.,
a Delaware corporation ("VDK Holdings"), and was incorporated in Delaware in
July 1995 for the purpose of acquiring the Van de Kamp's(R) frozen seafood and
frozen dessert businesses from The Pillsbury Company in September 1995. VDK
then acquired the Mrs. Paul's(R) frozen seafood business from the Campbell Soup
Company in May 1996 and the Aunt Jemima(R) frozen breakfast and Celeste(R)
frozen pizza businesses from Quaker Oats in July 1996. VDK Holdings was wholly-
owned by VDK Foods LLC ("VDK LLC"). On April 8, 1998, MBW LLC and VDK LLC
formed Aurora/VDK LLC ("New LLC"). MBW LLC contributed all of the capital stock
of Holdings and VDK LLC contributed all of the capital stock of VDK Holdings to
New LLC (the "Contribution").
On July 1, 1998, Holdings, AurFoods, VDK Holdings and VDK merged with and into
the Company, and the Company consummated an initial public offering of
12,909,372 shares of its Common Stock (the "IPO"). Concurrently with the IPO,
New LLC also sold 1,590,628 shares of the Company's Common Stock to the public
at a price of $21.00 per share. The sale of stock by New LLC and the IPO are
together herein referred to as the "Equity Offerings." Also, concurrently with
the IPO, the Company issued $200.0 million aggregate principal amount of 8.75%
senior subordinated notes due 2008 (the "New Notes") and borrowed $225.0 million
of senior secured term debt and $99.0 million out of a total of $175.0 million
of available senior secured revolving debt.
On April 1, 1999, the Company acquired 100% of the stock in Sea Coast Foods,
Inc. ("Seacoast") for a purchase price of $51.2 million, subject to adjustment
based on an "earn-out" clause, from Galando Investment Limited Partnership,
Carey-On Limited Partnership, Joseph A. Galando, Barbara J. Galando, Stanley J.
Carey and Mary K. Carey. Seacoast markets the line of Chef's Choice(R) frozen
skillet meals.
On November 1, 1999, the Company acquired all the assets and certain liabilities
of the Lender's Bagel business ("Lender's") for a purchase price of $275.5
million from The Eggo Company, a subsidiary of the Kellogg Company
("Kellogg's"). Concurrently with the acquisition of Lender's, the Company
borrowed $275.0 million of senior
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secured term debt under the Fifth Amended and Restated Credit Agreement dated as
of November 1, 1999, among the Company, as borrower, the lenders listed therein,
The Chase Manhattan Bank, as Administrative Agent, The National Westminster Bank
PLC, as Syndication Agent and Swiss Bank Corporation, as Documentation Agent
(the "Senior Bank Facilities").
ITEM 2: PROPERTIES
- -------------------
The Company owns and operates five facilities, described in the following table,
to manufacture its frozen foods products. The Company's lease in St. Louis, MO
will expire in March 2001. The office lease in Columbus, OH will expire in
March 2004. The Company also owns a 175,000 square foot manufacturing facility
located in Chambersburg, Pennsylvania, which the Company has made available for
sale. The Company manufactured its frozen desserts product line, which it sold
on May 1, 1998, at this facility. The Company's facilities and equipment are
subject to security interests granted to its lenders.
<TABLE>
<CAPTION>
Approximate
Location Principal Use Square footage Owned/Leased
- --------------------- ------------------------------------- -------------------- --------------------
<S> <C> <C> <C>
Jackson, TN Frozen breakfast, frozen pizza and 302,000 Owned
grilled fish production
Erie, PA Frozen seafood production 116,000 Owned
Yuba City, CA Frozen seafood production 56,000 Owned
Mattoon, IL Frozen and refrigerated bagel 215,000 Owned
production
West Seneca, NY Frozen and fresh bagel production 92,000 Owned
St. Louis, MO Company headquarters and frozen food 45,000 Leased
division corporate office
Columbus, OH Dry grocery division corporate office 29,000 Leased
</TABLE>
All of the Company's equipment is generally in good physical condition, well
maintained and suitable for the manufacture of the particular product line for
which it is used. The Company's equipment generally operates with some
available capacity.
ITEM 3: LEGAL PROCEEDINGS
- -------------------------
As of April 13, 2000, the Company has been served with thirteen complaints in
purported class action lawsuits filed in the United States District Court for
the Northern District of California. The complaints received by the Company
allege that, among other things, as a result of accounting irregularities, the
Company's previously issued financial statements were materially false and
misleading and thus constituted violations of federal securities laws by the
Company and the directors and officers who resigned on February 17, 2000 (Ian R.
Wilson, James B. Ardrey, Ray Chung and M. Laurie Cummings). The actions allege
that the defendants violated Sections 10(b) and/or Section 20(a) of the
Securities Exchange Act and Rule 10b-5 promulgated thereunder (the "Securities
Actions"). The Securities Actions complaints seek damages in unspecified
amounts. These Securities Actions purport to be brought on behalf of purchasers
of the Company's Common Stock during various periods, all of which fall between
October 28, 1998 and February 18, 2000. The Company believes that additional
purported class action lawsuits similar to those described above have been or
may be filed. The Company is currently evaluating these claims and possible
defenses thereto and intends to defend these suits vigorously.
Pursuant to the Company's articles of incorporation, and certain of its
contractual obligations, the Company has agreed to indemnify its officers and
directors under certain circumstances against claims arising from the lawsuits.
The Company may be obligated to indemnify certain of its officers and directors
for the costs they may incur as a result of the lawsuits.
While it is not feasible to predict or determine the final outcome of these or
similar proceedings, or to estimate the amounts or potential range of loss with
respect to these matters, management believes that an adverse outcome with
respect to such proceedings could have a material adverse impact on the
company's financial position, results of operations and cash flow.
The Company is also subject to litigation in the ordinary course of business.
In the opinion of management, the ultimate outcome of any existing litigation,
other than the Securities Actions described above, would not have a material
adverse effect on the Company's financial condition or results of operations.
9
<PAGE>
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
10
<PAGE>
PART II
- -------
ITEM 5: MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange and the
Pacific Exchange under the symbol AOR. The table below states the high and low
closing prices by quarter on the New York Stock Exchange from the date of the
Company's initial public offering to December 31, 1999:
<TABLE>
<CAPTION>
1998 High Low
- ---------------------- ---------------- ----------------
<S> <C> <C>
June 26 - June 30 $21.1250 $21.0000
July 1- September 30 $22.3750 $12.6250
October 1 - December 31 $19.8750 $ 9.9375
</TABLE>
<TABLE>
<CAPTION>
1999 High Low
- ----------------------------- ----------------- ----------------
<S> <C> <C>
January 1 - March 31 $20.0000 $12.7500
April 1 - June 30 $19.5000 $14.1250
July 1 - September 30 $19.0000 $13.5000
October 1 - December 31 $15.9375 $ 7.5625
</TABLE>
As of March 31, 2000, there were approximately 250 holders of record of the
Company's common stock. The Company has not paid any cash dividends since its
inception. The terms of the Senior Bank Facilities restrict the Company's
ability to declare dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and Note 9 to the Company's consolidated financial statements.
ITEM 6: SELECTED FINANCIAL DATA
- -------------------------------
The selected financial data presented below, as of and for the years ended
December 31, 1999 and 1998, and December 27, 1997 is derived from the Company's
audited financial statements. The selected financial data of the Predecessor
for the years ended December 31, 1996 and 1995 is derived from the audited
Statements of Operations of the Predecessor. The selected financial data should
be read in conjunction with the Company's financial statements and notes thereto
included elsewhere in this Form 10-K. The comparability of the selected
financial data presented below is significantly affected by the merger of VDK
with the Company and by the acquisitions and related financings completed by the
Company during its history. See "Business - Business History," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
<TABLE>
<CAPTION>
Aurora Foods Inc. Predecessor
----------------------------------------------------------------- ------------------------------------
Years Ended
----------------------------------------------------------------- ------------------------------------
December 31, December 27,
------------------------------------
1999 1998 1997 1996 1995
----------- -------------- ----------------- --------------- --------------
As Restated /(1)/
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 995,418 $ 784,557 $143,020 $89,541 $91,302
Gross profit 570,482 465,622 97,291 60,586 63,559
Operating income 64,061 6,492 23,398 17,186 17,185
Net (loss) income (4,449) (69,129) 1,235 10,570 10,569
Total assets /(2)/ 1,851,116 1,448,442 372,739 - -
Total debt /(2)/ 1,079,220 708,092 279,919 - -
Earnings (loss) per
share /(2)/ (0.07) (1.29) 0.04 - -
</TABLE>
/(1)/ As restated. See "Item 7. Management's Discussion and Analysis of
Financial Conditions- Restatements" for a description of the adjustments.
/(2)/ Total assets, total debt and earnings (loss) per share of the Predecessor
for the years ended December 31, 1996 and 1995 are not available. The
Predecessor did not operate MBW as a separate division or business entity
and, as a result, such information is not available.
11
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the historical
financial information included in the financial statements and notes thereto.
Unless otherwise noted, fiscal years in this discussion refer to the Company's
December-ending fiscal years.
Restatements
- ------------
Prior to the issuance of the Company's financial statements as of and for the
year ended December 31, 1999, it was determined that the results reported in the
Company's Form 10-K as of and for the year ended December 31, 1998 as well as
the unaudited interim results reported in the Company's Forms 10-Q as of and for
the periods ended September 30, 1998, March 31, 1999, June 30, 1999 and
September 30, 1999 were misstated. Upon further investigation, it was determined
that liabilities that existed for certain trade promotion and marketing
activities and other expenses (primarily sales returns and allowances,
distribution and consumer marketing) were not properly recognized as liabilities
and that certain assets were overstated (primarily accounts receivable,
inventories and fixed assets). In addition, certain activities were improperly
recognized as sales. As a result, the financial statements as of and for the
year ended December 31, 1998 as well as the quarterly financial data as of and
for the unaudited interim periods ended September 30, 1998, March 31, 1999, June
30, 1999 and September 30, 1999 have been restated. The restated financial
statements as of and for the year ended December 31, 1998 have been included in
the consolidated financial statements included herein. Unaudited restated
condensed financial statement information for the quarters ended September 30,
1998, March 31, 1999, June 30, 1999 and September 30, 1999 have been included in
the notes to the consolidated financial statements included herein. All restated
financial information included herein has been adjusted to properly expense
costs and recognize revenues in accordance with generally accepted accounting
principles and the Company's stated accounting policies included in the notes to
the consolidated financial statements.
For the year ended December 31, 1998, these misstatements primarily understated
trade promotions expense by $28.5 million, overstated net sales by $4.6 million,
understated brokerage and distribution expense by $2.8 million and understated
cost of goods sold by $1.4 million. After adjusting for the misstatements, the
Company recalculated its income tax provision reducing income tax expense by
$14.5 million. The impact of the misstatements on reported operating results
for the year ended December 31, 1998, was to overstate gross profit by $6.0
million, operating income by $38.3 million, and net income by $23.8 million.
For the nine months ended September 30, 1999, these misstatements primarily
understated trade promotions expense by $15.2 million, overstated net sales by
$20.8 million and understated cost of goods sold by $5.0 million. After
adjusting for the misstatements, the Company recalculated its income tax
provision reducing income tax expense by $16.9 million. The impact of the
misstatements for the nine month ended September 30, 1999, was to overstate
gross profit by $25.8 million, operating income by $43.3 million, and net income
by $26.4 million.
Trade promotions expense includes the costs paid to retailers to promote the
Company's products. Such costs include amounts paid to customers for space in
the retailers' stores ("slotting fees"), amounts paid to provide samples of the
Company's products to consumers, and amounts paid to obtain favorable display
positions in the retailers' stores. These promotions are offered to customers
in lump sum payments and as rate per unit allowances as dictated by industry
norms. The Company expenses slotting fees when incurred or, when under a
contract, over a period not to exceed 12 months and expenses other trade
promotions in the period during which the deals occur. Customers collect
payment from the Company for trade promotion expenses utilizing one of two
primary methods. In some cases, the Company includes a separate line on the
face of the invoice that reduces the net amount invoiced. This is typically
referred to as an "off-invoice" amount. The Company records the sale to the
customer at the list price of its product when the product is shipped and
records the cost of the off-invoice amount as an expense in the appropriate
period in accordance with the Company's policy. In order to collect money from
the Company for trade promotion deals that are not provided in an "off-invoice"
form, customers deduct specified deal costs from their payments on other
invoices. The Company records the sale to the customer at the list price of its
product when the product is shipped. In this case, however, the Company
estimates the amount of trade promotion expense and accrues it at the time of
shipment. As customers take deductions from their invoices upon payment, the
Company charges these deductions against the accrual. See Notes 1, 20 and 21 to
the consolidated financial statements.
12
<PAGE>
A summary of the effects of the restatement follows (in thousands, except per
share data):
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------
As Previously
Reported As Restated
---------------------- ----------------
<S> <C> <C>
Net sales $789,193 $784,557
Cost of goods sold 317,547 318,935
------------------- -----------------
Gross profit 471,646 465,622
------------------- -----------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution 74,703 77,553
Trade promotions 173,467 201,926
Consumer marketing 56,683 56,699
------------------- -----------------
Total brokerage, distribution and marketing expenses 304,853 336,178
Amortization of goodwill and other intangibles 30,048 30,048
Selling, general and administrative expenses 25,043 25,955
Incentive plan expense 56,583 56,583
Transition expenses 10,357 10,366
------------------- -----------------
Total operating expenses 426,884 459,130
------------------- -----------------
Operating income 44,762 6,492
Interest expense, net 64,487 64,493
Amortization of deferred financing expense 1,872 1,872
Other bank and financing expenses 263 259
------------------- -----------------
Loss before income taxes and extraordinary loss (21,860) (60,132)
Income tax expense (benefit) 14,306 (214)
------------------- -----------------
Loss before extraordinary loss (36,166) (59,918)
Extraordinary loss on early extinguishment of debt,
net of tax 9,211 9,211
------------------- -----------------
Net loss $(45,377) $(69,129)
=================== =================
Basic and diluted earnings (loss) per share before
extraordinary loss $ (0.68) $ (1.12)
Extraordinary loss per share 0.17 0.17
------------------- -----------------
Basic and diluted earnings (loss) per share $ (0.85) $ (1.29)
=================== =================
EBITDA /(1)/ $ 84,763 $ 46,486
=================== =================
Adjusted EBITDA /(2)/ $151,702 $113,435
=================== =================
</TABLE>
/(1)/ EBITDA is defined as net loss plus extraordinary item, income tax
expense, interest expense, amortization of deferred financing expense,
other bank and financing expenses, depreciation and amortization of
goodwill and other intangibles. The Company believes that EBITDA provides
additional information for determining its ability to meet debt service
requirements. EBITDA does not represent and should not be considered as an
alternative to net income or cash flow from operations as determined by
13
<PAGE>
generally accepted accounting principles, and EBITDA does not necessarily
indicate whether cash flow will be sufficient for cash requirements. The
calculation of EBITDA does not include the commitments of the Company for
capital expenditures and payment of debt and should not be deemed to
represent funds available to the Company. EBITDA, as presented, may not
be comparable to similarly-titled measures of other companies.
/(2)/ Adjusted EBITDA is defined as EBITDA plus incentive plan expense and
transition expenses.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------
As previously
reported As restated
----------------- ---------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 354 $ 354
Accounts receivable, net 86,539 82,093
Inventories 76,674 77,331
Prepaid expenses and other assets 6,517 6,850
Asset held for sale 3,000 -
Current deferred tax assets 8,251 27,170
----------------- --------------
Total current assets 181,335 193,798
Property, plant and equipment, net 153,167 152,085
Goodwill and other intangible assets, net 1,072,760 1,072,759
Asset held for sale - 3,000
Other assets 26,620 26,800
----------------- --------------
Total assets $1,433,882 $1,448,442
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of senior secured term debt $ 20,000 $ 20,000
Senior secured revolving debt facility 85,850 85,850
Accounts payable 59,078 59,395
Accrued liabilities 49,836 83,433
----------------- --------------
Total current liabilities 214,764 248,678
Non-current deferred tax liabilities 649 5,047
Other liabilities 12,372 12,372
Long-term debt 602,242 602,242
----------------- --------------
Total liabilities 830,027 868,339
----------------- --------------
Stockholders' equity:
Preferred stock - -
Common stock 670 670
Paid-in capital 647,889 647,889
Promissory notes (562) (562)
Accumulated deficit (44,142) (67,894)
----------------- --------------
Total stockholders' equity 603,855 580,103
----------------- --------------
Total liabilities and stockholders' equity $1,433,882 $1,448,442
================= ==============
</TABLE>
14
<PAGE>
A summary of the 1998 and 1999 quarterly effects of the restatement follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------------------------------------------------------
March 31, 1999 June 30, 1999 September 30, 1999
------------------------------ ------------------------------ ------------------------------
As As As
previously previously previously
reported As restated reported As restated reported As restated
--------------- ------------- -------------- ------------ ----------------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales $261,050 $254,264 $221,711 $214,034 $238,275 $231,896
Cost of goods sold 104,128 104,703 87,369 91,230 100,970 101,536
-------------- ----------- --------------- ------------ --------------- -----------
Gross profit 156,922 149,561 134,342 122,804 137,305 130,360
Brokerage, distribution and
marketing expenses 108,565 113,115 84,965 91,288 82,486 87,720
Other operating expenses 20,386 20,717 19,948 20,638 19,354 19,674
--------------- ----------- --------------- ------------ --------------- -----------
Operating income 27,971 15,729 29,429 10,878 35,465 22,966
Interest and financing
expenses 15,029 15,030 16,283 16,283 17,420 17,420
--------------- ----------- --------------- ------------ --------------- -----------
Income (loss) before taxes
and extraordinary item 12,942 699 13,146 (5,405) 18,045 5,546
Income taxes 5,112 217 5,193 (1,675) 6,877 1,719
--------------- ----------- --------------- ------------ --------------- -----------
Net income (loss) $ 7,830 $ 482 $ 7,953 $ (3,730) $ 11,168 $ 3,827
=============== =========== =============== ============ =============== ===========
Basic and diluted earnings
(loss) per share $ 0.12 $ 0.01 $ 0.12 $ (0.06) $ 0.17 $ 0.06
=============== =========== =============== ============ =============== ===========
EBITDA /(1)/ $ 39,675 $ 27,525 $ 42,202 $ 23,899 $ 48,235 $ 36,171
=============== =========== =============== ============ =============== ===========
Adjusted EBITDA /(2)/ $ 43,947 $ 31,803 $ 45,273 $ 26,464 $ 50,371 $ 37,868
=============== =========== =============== ============ =============== ===========
<CAPTION>
Three months ended
------------------------------------------------------------------
September 30, 1998 December 31, 1998
-------------------------------- --------------------------------
As As
previously previously
reported As restated reported As restated
------------------ ------------ ---------------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Net sales $220,368 $218,768 $279,627 $276,591
Cost of goods sold 89,264 89,974 108,806 109,484
------------------ ----------- -------------- -----------
Gross profit 131,104 128,794 170,821 167,107
Brokerage, distribution and
marketing expenses 85,797 100,243 108,480 125,358
Other operating expenses 17,092 17,402 21,218 21,830
------------------ ----------- -------------- -----------
Operating income 28,215 11,149 41,123 19,919
Interest and financing
expenses 15,980 15,980 15,425 15,426
------------------ ----------- -------------- -----------
Income (loss) before taxes
and extraordinary item 12,235 (4,831) 25,698 4,493
Income taxes 4,132 (163) 10,241 16
------------------ ----------- -------------- -----------
Income (loss) before 8,103 (4,668) 15,457 4,477
extraordinary item
Extraordinary item 7,449 7,449 (114) (115)
------------------ ----------- -------------- -----------
Net income (loss) $ 654 $(12,117) $ 15,571 $ 4,592
Basic and diluted earnings ================== =========== ============== ===========
(loss) per share $ 0.01 $ (0.18) $ 0.28 $ 0.07
================== =========== ============== ===========
EBITDA /(1)/ $ 40,085 $ 23,019 $ 52,178 $ 31,314
================== =========== ============== ===========
Adjusted EBITDA /(2)/ $ 41,354 $ 24,286 $ 56,818 $ 35,965
================== =========== ============== ===========
</TABLE>
/(1)/ EBITDA is defined as net income plus extraordinary item, income tax
expense, interest expense, amortization of deferred financing expense,
other bank and financing expenses, depreciation and amortization of
goodwill and other intangibles. The Company believes that EBITDA provides
additional information for determining its ability to meet debt service
requirements. EBITDA does not represent and
15
<PAGE>
should not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles, and
EBITDA does not necessarily indicate whether cash flow will be sufficient
for cash requirements. The calculation of EBITDA does not include the
commitments of the Company for capital expenditures and payment of debt
and should not be deemed to represent funds available to the Company.
EBITDA, as presented, may not be comparable to similarly-titled measures
of other companies.
/(2)/ Adjusted EBITDA is defined as EBITDA plus incentive plan expense (credit)
and transition expenses.
Results of Operations
- ---------------------
The following tables set forth the historical and pro forma results of
operations for the periods indicated as well as the percentage which the
historical and pro forma items in the Statements of Operations bear to net
sales. The statements include a presentation of the pro forma results of
operations as if the Lender's, Seacoast, VDK Holdings (Van de Kamp's(R), Mrs.
Paul's(R), Aunt Jemima(R) and Celeste(R)) and Duncan Hines(R) acquisitions and
related financings had taken place January 1, 1998. Certain amounts from prior
years have been reclassified to conform to the Company's current year
presentation, and financial information for the year ended December 31, 1998 has
been restated as discussed above.
16
<PAGE>
Statements of Operations
- ------------------------
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Actual Years Ended Pro forma Years Ended
------------------------------------------------- --------------------------------
December 31, December 31,
---------------------------------- --------------------------------
1998 December 31, 1998
1999 (as restated) /(1)/ 1997 1999 (as restated) /(1)/
-------- -------------------- ------------ ---------- -------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $995,418 $784,557 $143,020 $1,190,019 $1,211,352
Cost of goods sold 424,936 318,935 45,729 508,015 504,597
-------- -------- -------- ---------- ----------
Gross profit 570,482 465,622 97,291 682,004 706,755
-------- -------- -------- ---------- ----------
Brokerage, distribution and
marketing expenses:
Brokerage and distribution 103,518 77,553 17,096 145,281 147,106
Trade promotions 241,281 201,926 26,075 271,771 278,506
Consumer marketing 77,092 56,699 15,142 85,418 98,848
-------- -------- -------- ---------- ----------
Total brokerage, distribution and
marketing expenses 421,891 336,178 58,313 502,470 524,460
Amortization of goodwill and
other intangibles 38,305 30,048 5,938 42,456 39,978
Selling, general and administrative
expenses 35,596 25,955 5,229 45,899 45,570
Incentive plan expense (credit) (571) 56,583 2,300 (571) 121,314
Transition expenses 11,200 10,366 2,113 11,200 10,366
-------- -------- -------- ---------- ----------
Total operating expenses 506,421 459,130 73,893 601,454 741,688
-------- -------- -------- ---------- ----------
Operating income (loss) 64,061 6,492 23,398 80,550 (34,933)
Interest expense, net 68,403 64,493 18,242 86,202 84,811
Amortization of deferred financing
expense 2,060 1,872 3,059 2,794 3,370
Other bank and financing expenses 838 259 83 837 307
-------- -------- -------- ---------- ----------
Income (loss) before income
taxes and extraordinary loss (7,240) (60,132) 2,014 (9,283) (123,421)
Income tax expense (benefit) (2,791) (214) 779 (5,742) (35,737)
-------- -------- -------- ---------- ----------
Net income (loss) before
extraordinary loss (4,449) (59,918) 1,235 (3,541) (87,684)
Extraordinary loss on early
extinguishment of debt, net of
tax of $5,632 - 9,211 - - 9,211
-------- -------- -------- ---------- ----------
Net income (loss) $ (4,449) $(69,129) $ 1,235 $ (3,541) $ (96,895)
======== ======== ======== ========== ==========
Earnings (loss) per share $ (0.07) $ (1.29) $ 0.04 $ (0.05) $ (1.81)
======== ======== ======== ========== ==========
EBITDA /2)/ $117,448 $ 46,486 $ 30,396 $ 143,090 $ 22,838
======== ======== ======== ========== ==========
Adjusted EBITDA /(3)/ $128,077 $113,435 $ 34,809 $ 160,313 $ 163,343
======== ======== ======== ========== ==========
Adjusted EPS /(4)/ $ 0.03 $ 0.05 $ 0.14 $ 0.05 $ 0.27
======== ======== ======== ========== ==========
</TABLE>
Adjusted EPS /(4)/
(1) As restated. See " -Restatements" and Notes 1, 20 and 21 to the
consolidated financial statements.
(2) EBITDA is defined as net income plus extraordinary item, interest expense,
amortization of deferred financing expense, other bank and financing
expenses, depreciation and amortization of goodwill and other intangibles.
The Company believes EBITDA provides additional information for
determining its ability to meet debt service requirements. EBITDA does not
represent and should not be considered an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles. EBITDA does not necessarily indicate whether cash flow will be
sufficient for cash requirements and should not be deemed to represent
funds available to the Company. The calculation of EBITDA does not include
the commitments of the Company for capital expenditures and payment of
debt. EBITDA, as presented, may not be comparable to similarly-titled
measures of other companies.
(3) Adjusted EBITDA is defined as EBITDA plus incentive plan expense (credit),
transition expenses and, for pro forma purposes only, Kellogg's
allocations of $15,958 and $13,583 in 1999 and 1998, respectively, less
estimated pro forma costs to be incurred by the Company of $3,333 and
$4,000 in 1999 and 1998, respectively, related to the estimated additional
administrative costs associated with operating the Lender's business.
(4) Adjusted EPS is defined as earnings (loss) per share plus the per share
after tax effect of incentive plan expense (credit), transition expenses
and extraordinary item.
17
<PAGE>
Statements of Operations
- ------------------------
(as a percentage of net sales)
<TABLE>
<CAPTION>
Actual Years Ended Pro forma Years Ended
------------------------------------------------- --------------------------
December 31, December 31,
------------------------------------------------- --------------------------
1998 December 27, 1998
1999 (as restated) /(1)/ 1997 1999 (as restated) /(1)/
--------- ------------------- ------------ ------ -------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 42.7 40.7 32.0 42.7 41.7
----- ----- ----- ----- -----
Gross profit 57.3 59.3 68.0 57.3 58.3
----- ----- ----- ----- -----
Brokerage distribution and
marketing expenses:
Brokerage and distribution 10.4 9.9 12.0 12.1 11.9
Trade promotions 24.2 25.7 18.2 23.1 25.6
Consumer marketing 7.8 7.2 10.6 6.5 5.8
----- ----- ----- ----- -----
Total brokerage, distribution and
marketing expenses 42.4 42.8 40.8 41.7 43.3
Amortization of goodwill and
other intangibles 3.8 3.8 4.1 3.2 2.8
Selling, general and administrative
expenses 3.6 3.3 3.6 3.3 3.0
Incentive plan expense 0.0 7.2 1.6 0.0 10.0
Transition expenses 1.1 1.3 1.5 0.9 0.9
----- ----- ----- ----- -----
Total operating expenses 50.9 58.4 51.6 49.1 60.0
----- ----- ----- ----- -----
Operating income (loss) 6.4 0.9 16.4 8.2 (1.7)
Interest expense, net 6.8 8.2 12.8 0.0 4.9
Amortization of deferred financing
expense 0.2 0.2 2.1 0.0 0.1
Other bank and financing expenses 0.1 0.0 0.1 0.0 0.0
----- ----- ----- ----- -----
Income (loss) before income
taxes and extraordinary loss (0.7) (7.5) 1.4 8.2 (6.7)
Income tax expense (benefit) (0.3) 0.0 0.5 0.0 0.7
----- ----- ----- ----- -----
Net income (loss) before
extraordinary loss (0.4) (7.5) 0.9 8.2 (7.4)
Extraordinary loss on early
extinguishment of debt, net of
tax 0.0 1.2 0.0 0.0 0.8
----- ----- ----- ----- -----
Net income (loss) (0.4%) (8.7%) 0.9% 8.2% (8.2%)
===== ===== ===== ===== =====
</TABLE>
18
<PAGE>
The Company manages its business in two operating segments, the frozen food
division and the dry grocery division. The separate financial information of
each segment is presented consistently with the manner in which results are
evaluated by the chief operating decision-maker in deciding how to allocate
resources and in assessing performance.
In 1998, the Company acquired VDK Holdings, which had four brands, Van de
Kamp's(R) and Mrs. Paul's(R) seafood products, Aunt Jemima(R) frozen breakfast
products and Celeste(R) frozen pizza products and which now comprises the frozen
foods division. In 1999, the frozen foods division added two additional brands,
Chef's Choice(R) frozen skillet meal products and Lender's(R) frozen bagel
products. The dry grocery division consists of three brands, Mrs.
Buttersworth(R) and Log Cabin(R) breakfast products and Duncan Hines(R) baking
mix products, which was acquired in 1998.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998 (as
restated)
The following table sets forth certain historical results of operations data by
division for the years ended December 31, 1999 and 1998 (as restated):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1999 1998
------------------ ------------------
Frozen Dry Frozen Dry
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $523,933 $471,485 $279,229 $505,328
Cost of goods sold 238,491 186,445 121,371 197,564
-------- -------- -------- --------
Gross profit 285,442 285,040 157,858 307,764
-------- -------- -------- --------
Brokerage, distribution and marketing
expenses:
Brokerage and distribution 57,899 45,619 26,872 50,681
Trade promotions 120,901 120,380 76,799 125,127
Consumer marketing 41,975 35,117 20,221 36,478
-------- -------- -------- --------
Total brokerage, distribution and
marketing expenses 220,775 201,116 123,892 212,286
Amortization of goodwill and other
Intangibles 17,223 21,082 10,038 20,010
Selling, general and administrative expenses 23,604 11,992 14,438 11,517
Incentive plan expense (credit) - (571) - 56,583
Transition expenses 3,179 8,021 - 10,366
-------- -------- -------- --------
Total operating expenses 264,781 241,640 148,368 310,762
-------- -------- -------- --------
Operating income (loss) $ 20,661 $ 43,400 $ 9,490 $ (2,998)
======== ======== ======== ========
</TABLE>
Net Sales. Net sales increased from $784.6 million in 1998 to $995.4 million in
1999 due to increased sales in the frozen foods division, which was partially
offset by a decline in dry grocery division sales.
Frozen Foods. Frozen foods division net sales increased from $279.2 million
in 1998 to $523.9 million in 1999. Net sales in 1998 included nine months of
frozen foods operations, following the acquisition of VDK Holdings in April
1998. Sales in 1999 included a full year of frozen foods operation and the
subsequent acquisitions of Chef's Choice(R) in April 1999 and Lender's(R) in
November 1999. Before giving effect to the Chef's Choice(R) and Lender's(R)
acquisitions, net sales in 1999 were $443.0 million. Chef's Choice(R)
contributed $52.1 million of sales and Lender's(R) generated $28.8 million of
sales during Aurora's ownership period in 1999.
Dry Grocery. Dry grocery division net sales decreased from $ 505.3 million
in 1998 to $471.5 million in 1999 due primarily to unit volume declines for both
breakfast and baking products. Breakfast products unit volume declined 3%, and
sales decreased 6% due to the volume decline and a shift from retail to
alternative channels sales. Baking products net sales decreased 7% due to
capacity constraints related to the transition from production in the
predecessor owner's facility to the new co-manufacturer.
Gross Profit. Gross profit increased from $465.6 million, or 59.3% of net
sales in 1998 to $570.5 million, or 57.3% of net sales in 1999. The decline in
gross profit as a percentage of net sales was attributable to both segments of
the business.
Frozen Foods. Frozen foods division gross profit as a percentage of net
sales declined from 56.5% in 1998 to 54.5% in 1999 due to higher seafood
material costs, a lower gross profit percentage on Aunt Jemima(R) waffles due to
an increase in the number of waffles per carton and increased sales to private
label and club customers, which typically have a lower gross profit percentage
and
19
<PAGE>
lower associated marketing expenses. In addition, the Chef's Choice(R)
acquisition affected the division's gross profit percentage, as the Chef's
Choice(R) business generates a lower gross profit percentage than the other
retail brands.
Dry Grocery. Dry Grocery Division gross profit as a percentage of net sales
declined from 60.9% in 1998 to 60.4% in 1999 due to increased sales of lower
gross margin products and higher raw material costs. Breakfast sales were lower
in traditional retail channels and higher in club and foodservice, which
typically have lower gross margins and lower marketing expenses than retail.
Baking mixes experienced lower gross margins due to lower sales of high margin,
capacity constrained products such as cake and frosting products, which were
partially offset by higher sales of lower margin muffin and specialty product
mixes. The division also experienced higher material costs, particularly on corn
syrup and packaging.
Brokerage, Distribution and Marketing Expenses. Brokerage, distribution and
marketing expenses increased from $336.2 million in 1998 to $421.9 million in
1999, and decreased from 42.8% of sales in 1998 to 42.4% of sales in 1999.
Brokerage and distribution costs, which include broker commissions, freight,
warehousing and term discounts, increased to 10.4% of sales due to freight
increases and acquired businesses. Trade promotions, which consist of incentives
offered to food retailers to carry and promote Aurora products, declined to
24.2% of sales due to trade promotion spending rate reductions in both
divisions. Consumer marketing expenses, which include the costs of advertising,
couponing and market research, increased slightly to 7.8% of sales in 1999.
Frozen Foods. Brokerage and distribution expenses increased from 9.6% of
sales in 1998 to 11.1% of sales in 1999 due to distribution cost increases and
the inclusion of the Lender's(R) business for part of the year, which has higher
distribution costs due to the fresh bagel distribution system. Trade promotion
expenses decreased from 27.5% of sales in 1998 to 23.1% of sales in 1999 due to
reductions in trade spending in each of the product groups to support a shift in
focus toward consumer spending. In addition, cost containment initiatives
lowered the overall trade spending rate. Consumer spending increased from 7.2 %
of sales in 1998 to 8.0% of sales in 1999 due to increased advertising on the
seafood brands and introductory consumer support for new breakfast products.
Dry Grocery. Brokerage and distribution expenses decreased from 10.0% of
sales in 1998 to 9.7% of sales in 1999 due to a slight decrease in freight
costs. Trade promotion expenses decreased from $125.1 million in 1998 to $120.4
million in 1999. However, trade promotion expense increased from 24.8% of sales
in 1998 to 25.5% in 1999 due to new breakfast and baking product introductions
and a shift in promotional strategy on baking mix products. Consumer marketing
expenses increased from 7.2% of sales in 1998 to 7.4% of sales in 1999 due to
increases in coupon activity on the breakfast brands which were partially offset
by advertising reductions.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased from $30.0 million in 1998 to $38.3 million in 1999
due to the impact of a full year of ownership of VDK. The 1998 results include
nine months of operating activity for the frozen foods division due to the
acquisition of VDK Holdings in April 1998. The acquisitions of Chef's Choice(R)
and Lender's(R) also contributed to the increase in amortization. Frozen foods
amortization totaled $17.2 million and $10.0 million in 1999 and 1998,
respectively. Dry grocery amortization was $21.1 million in 1999 and $20.0
million in 1998.
Selling, General and Administrative Expense. Selling, general and administrative
expenses increased from $26.0 million in 1998 to $35.6 million in 1999 due
primarily to the effect of including only nine months of operating activity for
the frozen foods division in 1998 compared to a full year for 1999. Selling,
general and administrative expenses were 3.6% of sales in 1999 compared to 3.3%
of sales in the prior year. Frozen foods selling, general and administrative
expenses increased from $14.4 million in 1998 to $23.6 million in 1999 due to
the growth in the business. Dry grocery selling, general and administrative
expenses were in $12.0 million in 1999 compared to $11.5 million in 1998.
Incentive Plan Expense. Incentive plan expense of $56.6 million in 1998
represents a one-time charge estimated and recorded by the Company related to
its equity incentive plan, whereby certain employees of the Company were
provided the opportunity to participate in the potential appreciation of the
value of the Company's common stock. The credit of $0.6 million in 1999
represents an adjustment to the Company's estimate.
Transition Expenses. Transition expenses were $11.2 million in 1999, an increase
of $0.8 million versus prior year. These expenses represent one-time costs
incurred to integrate acquired businesses. Transition expenses totaled $3.2
million for the frozen foods division in 1999, which were related to the
acquisitions of Chef's Choice(R) and Lender's(R). Dry grocery transition
expenses were related to the integration of the Duncan Hines(R) and totaled
$10.4 million and $8.0 million in 1998 and 1999, respectively.
20
<PAGE>
Operating Income. Operating income increased from $6.5 million in 1998 to $64.1
million in 1999. Operating income in 1998 was affected by the $56.6 million one-
time expense for the Company's equity incentive plan. Before giving effect to
the equity incentive plan expense and transition expense, operating income
increased from $73.4 million in 1998 to $74.7 million in 1999. Operating income
in 1998 reflected nine months of VDK Holdings operating activity. Operating
income in 1999 reflected twelve months of frozen foods division activity,
including nine months of Chef's Choice(R) and two months of Lender's(R). Frozen
foods operating income increased from $9.5 million in 1998 to $20.7 million in
1999 due primarily to the increase in the size of the division. Dry grocery
operating results improved from a loss of $3.0 million in 1998 to operating
income of $43.4 million in 1999 due primarily to the impact of the equity
incentive plan in 1998. Before giving effect to the equity income plan and
transition expenses in both years, dry division operating income decreased from
$64.0 million in 1998 to $50.9 million in 1999 due primarily to the decrease in
sales.
Interest Expense and Amortization of Deferred Financing Expense. The aggregate
of net interest income and expense, amortization of loan fees and other bank and
financing expenses increased from $66.6 million in 1998 to $71.3 million in
1999. The increase was due to the additional debt associated with the
acquisitions of Chef's Choice(R) in April 1999 and Lender's(R) in November
1999.
Income Tax Expense (Benefit). The income tax benefit for 1999 was $2.8 million
compared to an income tax benefit in 1998 of $0.2 million. The effective tax
rate for 1999 was 38.5% compared to 0.4% in 1998. After giving effect to the
impact of the extraordinary loss, the effective tax rate in 1998 was 7.8%. The
low effective tax rate in 1998 was due to the non-deductibility of the incentive
compensation recorded by the Company.
Net (Loss) Income. The Company incurred a net loss of $4.4 million in 1999
compared to a net loss in 1998 of $69.1 million. The loss in 1998 included the
$56.6 equity incentive plan expense and an extraordinary charge in the net of
tax amount of $9.2 million as a result of the write-off of deferred financing
charges associated with the early extinguishment of debt facilities.
Pro Forma Year Ended December 31, 1999 Compared to the Pro Forma Year Ended
December 31, 1998 (as restated)
The following table sets forth certain pro forma results of operations data by
division for the years ended December 31, 1999 and 1998 (as restated):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998
------------------- --------------------
Frozen Dry Frozen Dry
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Pro forma net sales $718,534 $471,485 $700,339 $511,013
Pro forma cost of goods sold 321,570 186,445 304,567 200,030
-------- -------- -------- --------
Pro forma gross profit 396,964 285,040 395,772 310,983
-------- -------- -------- --------
Pro forma brokerage, distribution and
marketing expenses:
Pro forma brokerage and distribution 99,662 45,619 95,777 51,329
Pro forma trade promotions 151,391 120,380 152,831 125,675
Pro forma consumer marketing 50,301 35,117 61,948 36,900
-------- -------- -------- --------
Total pro forma brokerage, distribution
and marketing expenses 301,354 201,116 310,556 213,904
Pro forma amortization of goodwill and
other intangibles 21,374 21,082 19,689 20,289
Pro forma selling, general and
administrative expenses 33,907 11,992 34,053 11,517
Pro forma incentive plan expense (credit) - (571) 64,731 56,583
Pro forma transition expenses 3,179 8,021 - 10,366
-------- -------- -------- --------
Total pro forma operating expenses 359,814 241,640 429,029 312,659
-------- -------- -------- --------
Pro forma operating income (loss) $ 37,150 $ 43,400 $(33,257) $ (1,676)
======== ======== ======== ========
</TABLE>
Pro Forma Net Sales. Pro forma net sales decreased from $1,211 million in 1998
to $1,190 million in 1999. The decline in pro forma net sales was attributable
to the decline in dry grocery division sales and was partially offset by growth
in the frozen foods division.
21
<PAGE>
Frozen Foods. Frozen foods division pro forma net sales increased from
$700.3 million in 1998 to $718.5 million in 1999. Frozen seafood sales declined
3% due to lower sales of uncoated products. Lower unit sales were partially
offset by a price increase instituted in the fall of 1999. Frozen breakfast
sales declined 4% due to the successful introduction of Aunt Jemima(R) mini-
pancakes and french toast sticks, which largely offset a volume decline in Aunt
Jemima(R) waffle sales. The Company experienced a decline in net sales of Aunt
Jemima(R) frozen waffles due to the increase in unit count per package and
temporary capacity constraints relating to the redesign of the waffle product
and packaging. Net sales to foodservice customers decreased $8.4 million from
1998 to 1999 as a result of the divestiture of the Company's dessert business in
1998. Excluding the desserts sales in 1998, foodservice sales increased 13% from
1998 to 1999 due to increased breakfast sales and the increased seafood
production capacity acquired through the purchase of the Yuba City, CA facility.
Frozen pizza net sales increased 5% from 1998 to 1999 due to successful early
1999 promotions and the full year 1999 impact of a geographic expansion in mid-
1998. Chef's Choice(R) net sales increased 22% in 1999 due to increased
distribution and new product introductions. Lender's(R) net sales declined 3%
versus 1998 due to reduced promotional activity.
Dry Grocery. Dry grocery division pro forma net sales decreased from $511.0
million in 1998 to $471.5 million in 1999 due primarily to unit volume declines
for both breakfast and baking products. Breakfast products unit volume declined
3%, and net sales decreased 6% due to the volume decline and a shift from retail
to alternative channels sales. Baking products net sales decreased 8% due to
capacity constraints related to the transition from production in the
predecessor owner's facility to the new co-manufacturer.
Pro Forma Gross Profit. On a pro forma basis, the gross profit percentage
declined from 58.3% of sales in 1998 to 57.3% of sales in 1999. The decline was
due to higher raw material costs, the Aunt Jemima(R) waffle upsizing and a
product mix shift toward club and foodservice.
Frozen Foods. Frozen foods pro forma gross profit percentage declined from
56.5% in 1998 to 55.3% in 1999 due to higher seafood raw material costs, the
impact of the Aunt Jemima(R) waffle upsizing and increased sales of foodservice
products, private label products and Chef's Choice(R), which generate lower
gross margins than the average for the division.
Dry Grocery. Dry grocery pro forma gross profit percentage declined from
60.9% of sales in 1998 to to 60.5% in 1999 due to increases in sales of lower
gross margin products and increases in raw material costs. Baking mixes
experienced lower gross margins due to lower sales of high margin, capacity
constrained products such as cake and frosting products, which were offset by
higher sales of muffins and other specialty products, which generate lower gross
margin. The division experienced higher material costs on corn syrup and
packaging.
Pro Forma Brokerage, Distribution and Marketing Expenses. Brokerage,
distribution and marketing expenses decreased from $524.5 million in 1998 to
$502.5 million in 1999. Brokerage and distribution costs increased from 12.1% of
sales in 1998 to 12.2% of sales in 1999. Trade promotion expenses declined from
23.0% of sales in 1998 to 22.8% of sales in 1999 from 8.2% in 1998 in 1999.
Consumer marketing expenses decreased to 7.2% of pro forma net in 1999 from 8.2%
in 1998 sales due to a significant spending reduction on the Lender's(R) brand.
Frozen Foods. Brokerage and distribution expense increased from $95.8
million in 1998 to $99.7 million in 1999 due to the sales increase in 1999.
Trade promotion expenses declined $1.4 million from 1998 to 1999 and decreased
from 21.8% of sales in 1998 to 21.1% of sales in 1999 due to reductions in
trade spending on each of the product groups. Trade spending reductions were
implemented to support a shift in focus toward consumer spending. Consumer
spending declined from 8.8% of sales in 1998 to 7.0% of sales in 1999 due to the
elimination of a $13 million advertising campaign that was executed by the
predecessor on the Lender's(R) brand in 1998.
Dry Grocery. Brokerage and distribution expenses decreased from 10.0% of
sales in 1998 to 9.7% of sales in 1999 due to a slight decrease in freight
costs. Trade promotion expenses decreased from $125.7 million in 1998 to $120.4
million in 1999. However, trade promotion expense increased from 24.6% of sales
in 1998 to 25.5% in 1999 due to new breakfast and baking product introductions
and a shift in promotional strategy on baking mix products. Consumer marketing
expenses increased from 7.2% of sales in 1998 to 7.4% of sales in 1999 due to
increases in coupon activity on the breakfast brands, which were partially
offset by advertising reductions.
Pro Forma Amortization of Goodwill and Other Intangibles. Frozen foods
amortization totaled $21.4 million and $19.7 million in 1999 and 1998,
respectively. Dry grocery amortization was $21.1 in 1999 and $20.3 in 1998.
22
<PAGE>
Pro Forma Selling, General and Administrative Expenses. Total pro forma selling,
general and administrative expenses increased from $45.6 million in 1998 to
$45.9 million in 1999. As a percentage of pro forma net sales, pro forma
selling, general and administrative expenses increased from 3.8% in 1998 to 3.9%
in 1999. The decrease in pro forma selling, general and administrative expenses
of the frozen division from $34.1 million in 1998 to $33.9 million in 1999 was
offset by an increase in the pro forma selling, general and administrative
expenses of the dry grocery division from $11.5 million in 1998 to $12.0 million
in 1999.
Pro Forma Incentive Plan Expense. Incentive plan expense of $121.3 million in
1998 represents a one-time charge estimated and recorded by the Company related
to the Aurora and VDK Foods LLC equity incentive plans, whereby certain
employees of the Company were provided the opportunity to participate in the
potential appreciation of the value of the Company's common stock. The credit of
$0.6 million in 1999 represents an adjustment of the estimate.
Pro Forma Operating (Loss) Income. Operating income for the year ended December
31, 1999 totaled $80.6 million. Excluding the effects of incentive plan and
transition expense in both years, the Company achieved operating income of $96.7
million in 1998 and $91.2 million in 1999. The decrease in operating profit is
the result of the decline in gross profit margins and increased selling, general
and administrative expenses offset by improved marketing spending. Excluding the
impact of the equity incentive plan and transition expenses in both years,
frozen foods operating income totaled $31.5 million in 1998 and $40.3 million in
1999. The increase was due to increased sales and the reduction in marketing
expenses. Excluding the impact of the equity incentive plan and transition
expenses in both years, dry grocery operating income totaled $65.3 million in
1998 and $50.9 million in 1999. The decrease was due primarily to the sales
decline.
Pro Forma Interest Expense and Amortization of Deferred Financing Expense. The
aggregate of net interest income and expense, amortization of loan fees and
other bank and financing expenses increased from $88.5 million in 1998 to $89.8
million in 1999 due to higher interest rates on the floating rate debt in 1999.
Pro Forma Income Tax Expense. The pro forma income tax benefit in 1999 was
$5.7 million compared to a pro forma income tax benefit of $35.7 million in
1998. The pro forma effective tax rate for 1999 was 61.8%, which was impacted
favorably by certain state tax credits applied for by the Company that increase
the pro forma income tax benefit. The pro forma effective tax rate for 1998 was
30.0%.
Pro Forma Net (Loss) Income. The Company's pro forma net loss of $3.5 million in
1999 compares to a pro forma net loss in 1998 of $96.9 million. The loss in 1998
included the $121.3 million equity incentive plan expense and an extraordinary
charge, net of tax, in the amount of $9.2 million as a result of the write-off
of deferred financing charges associated with the early extinguishment of debt
facilities.
23
<PAGE>
Year Ended December 31, 1998 (as restated) Compared to the Year Ended December
27, 1997
The following table sets forth certain historical results of operations data by
division for the years ended December 31, 1998 (as restated) and December 27,
1997:
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------
December 31, 1998 December 27, 1997
------------------- --------------------
Frozen Dry Frozen Dry
-------- --------- ------ --------
<S> <C> <C> <C> <C>
Net sales $279,229 $505,328 N/A $143,020
Cost of goods sold 121,371 197,564 N/A 45,729
-------- -------- --------
Gross profit 157,858 307,764 N/A 97,291
-------- -------- --------
Brokerage, distribution and marketing
expenses:
Brokerage and distribution 26,872 50,681 N/A 17,096
Trade promotions 76,799 125,127 N/A 26,075
Consumer marketing 20,221 36,478 N/A 15,142
-------- -------- --------
Total brokerage, distribution and
marketing expenses 123,892 212,286 N/A 58,313
Amortization of goodwill and other
Intangibles 10,038 20,010 N/A 5,938
Selling, general and administrative expenses 14,438 11,517 N/A 5,229
Incentive plan expense (credit) - 56,583 N/A 2,300
Transition expenses - 10,366 N/A 2,113
-------- -------- --------
Total operating expenses 148,368 310,762 N/A 73,893
-------- -------- --------
Operating income $ 9,490 $ (2,998) N/A $ 23,398
======== ======== ========
</TABLE>
Net Sales. Net sales for the year ended December 31, 1998 were $784.6 million,
an increase of $641.5 million versus 1997. The sales growth in 1998 was due to
acquisition activity as described below.
Dry Grocery. Dry grocery division net sales increased $362.3 million from
1997 to 1998, and totaled $505.3 million in 1998. Dry division breakfast net
sales in 1997 consisted of a full year of Mrs. Butterworth's(R) products and
sales of the Log Cabin(R) brand from acquisition at July 1, 1997 to December 27,
1997. Dry division net sales growth during 1998 was due to the full year impact
of owning the Log Cabin(R) brand and the acquisition of the Duncan Hines(R)
brand in January 1998.
Frozen Foods. VDK Holdings was acquired on April 8, 1998. Post acquisition
sales in 1998 totaled $279.2 million.
Gross Profit. Gross profit increased from $97.3 million in 1997 to $465.6
million in 1999. Gross profit as a percentage of net sales declined from 68.0%
of sales in 1997 to 59.3% of net sales in 1998. The decline is due to the mix of
business, as the brands acquired during 1998 generate lower gross margins than
the breakfast brands that comprised the 1997 sales.
Dry Grocery. Dry grocery margins declined to 60.9% of sales in 1998 due to
the acquisition of the Duncan Hines(R) brand, which generates lower gross
margins than the breakfast business, which comprised all of the 1997 sales.
Frozen Foods. Frozen foods gross margin on 1998 sales was 56.5%.
Brokerage, Distribution and Marketing Expenses. Brokerage, distribution and
marketing expenses increased from $58.3 million in 1997 to $336.2 million in
1998. The increase was due to the acquisition of the Log Cabin(R), Duncan
Hines(R) and VDK Holdings businesses. Brokerage, distribution and marketing
expenses increased from 40.8% of sales in 1997 to 42.8% of sales in 1998, with
an increase in trade promotion offsetting declines in distribution and consumer
marketing costs. Brokerage and distribution costs decreased from 12.0% of sales
in 1997 to 9.9% of sales in 1998 due to the lower cost structure in the acquired
businesses. Trade promotion expenses increased from 18.2% of sales in 1997 to
25.7% of sales in 1998 due to the higher trade promotion spending rate on the
Duncan Hines(R) brand and the Frozen division, both of which were acquired in
1998. Consumer marketing expenses declined from 10.6% of sales in 1997 to 7.2%
of sales in 1998 due to lower consumer spending rates in both divisions.
24
<PAGE>
Dry grocery. Dry grocery brokerage, distribution and marketing expenses
increased from 40.8% of net sales in 1997 to 42.0% in 1998. Trade promotion
expenses increased from 18.2% of sales in 1997 to 24.8% of sales in 1998 due to
the acquisition of Duncan Hines(R) in January 1998 and the shift in promotional
strategy adopted on the brand after it was acquired.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased from $5.9 million in 1997 to $30.0 million in 1998.
The increase of $24.1 million was due to the additional amortization expense
generated by the goodwill recorded in connection with the Log Cabin(R), Duncan
Hines(R) and VDK Holdings acquisitions.
Selling, General and Administrative Expense. Selling, general and administrative
expenses increased from $5.2 million in 1997 to $26.0 million in 1998 due to the
additional infrastructure and staffing required by the acquisitions of the Log
Cabin(R), Duncan Hines(R) and VDK Holdings businesses in 1997 and 1998. Selling,
general and administrative expenses declined to 3.3% of net sales due to the
increased scale of the business.
Incentive Plan Expense. Incentive plan expense increased from $2.3 million to
$56.6 million. The expense in both years represents the recording of incentive
plan expense in accordance with the equity incentive awards granted to Company
employees.
Transition Expense. Transition expenses were $10.4 million in 1998, an increase
of $8.3 million compared to the prior year. These expenses represent one-time
costs incurred to establish the Company's operations and integrate the acquired
Log Cabin(R) and Duncan Hines(R) businesses.
Operating Income. Operating income was $6.5 million in 1998 compared to
operating income of $23.4 million in 1997. Excluding the effects of equity
incentive plan and transition expenses, the Company would have achieved
operating income of $73.4 million in 1998 compared to operating income of $27.8
million in the prior year. The increase is due to the acquisitions of Log
Cabin(R), Duncan Hines(R) and VDK Holdings.
Interest Expense and Amortization of Deferred Financing Expense. The aggregate
of net interest income and expense, amortization of loan fees and other bank and
financing expenses totaled $66.6 million in 1998 compared to $21.4 million in
1997. The increase was due to the additional debt associated with the
acquisitions of Log Cabin(R), Duncan Hines(R) and VDK Holdings.
Income Tax Expense. The income tax benefit reported for 1998 was $0.2 million
compared to 1997 income tax expense of $0.8 million. The effective tax rate for
1998 was 0.4% compared to 38.7% for 1997. The effective tax rate in 1998 was
7.8% after giving effect to the impact of the extraordinary loss. The lower than
expected effective tax rate in 1998 was due to the non-deductibility of the
incentive compensation recorded by the Company.
Net (Loss) Income. The Company incurred a net loss of $69.1 million in 1998,
compared to net income of $1.2 million in 1997. The 1998 loss included the
incentive plan expense and an extraordinary charge of $9.2 million net of tax as
a result of the write-off of deferred financing charges associated with the
early extinguishment of debt facilities.
Liquidity and Capital Resources
For the year ended December 31, 1999, cash provided by operations was $11.1
million compared to cash provided by operations for the year ended December 31,
1998 of $49.3 million. The decrease from 1998 to 1999 was due primarily to
increases in inventories, prepaid expenses and other current assets, cash
required to fund increases in working capital caused by the acquisition of
Lender's and the payment of employee taxes associated with the VDK Plan (see
"Item 11: Executive Compensation"), partially offset by an increase in account
payable.
Net cash used in investing activities was $375.2 million for the year ended
December 31, 1999 compared to net cash used for the year ended December 31, 1998
of $477.8 million. The 1999 acquisitions of Seacoast (and its Chef's Choice(R)
brand) and Lender's used cash of $51.2 million and $275.5 million,respectively.
The Company also used approximately $11.8 million to acquire Avalon Bay. Avalon
Bay was a small business that, at the time it was acquired, was primarily
involved in producing specialty seafood products for foodservice industry and
club store customers. Also, during 1999, the Company incurred capital
expenditures of $25.3 million to expand capacity, reduce production costs, and
convert the shape of branded retail waffles from square to round. During 1998,
the acquisitions of Duncan Hines(R) and VDK Holdings used cash of $454.3 million
and $8.4 million, respectively. On
25
<PAGE>
May 1, 1998, VDK completed the sale of its frozen desserts product line (the
"Desserts Sale"), which generated net proceeds of $28.0 million. During 1998,
the Company spent $38.7 million on capital expenditures and received $10.0
million as reimbursement from the seller as part of the acquisition of Duncan
Hines(R) relating to the relocation of manufacturing equipment to the Company's
contract manufacturers' production facilities. See "Business - Products and
Markets." The Company expects to spend approximately $20.0 million on capital
projects in 2000.
During the year ended December 31, 1999 financing activities provided cash of
$364.0 million compared to cash provided by financing activities of $424.2
million in 1998. During 1999, to finance the acquisition of Lender's assets, the
Company incurred an additional $275.0 million of senior secured term debt under
an amended senior bank facility and, to finance the Seacoast acquisition, the
Company borrowed $50.0 million under its revolving credit facility. During 1998,
to finance the acquisition of the Duncan Hines(R) business and related expenses,
the Company borrowed $450.0 million of senior secured term debt under its Senior
Bank Facilities and received a $93.8 million capital contribution from Holdings.
The Company also repaid the senior secured term debt and senior secured
revolving debt facility in 1998 that existed prior to the Aurora Senior Bank
Facilities in the amount of $77.5 million and incurred an extraordinary charge
for the write-off of deferred financing charges in connection with the early
extinguishment of debt in the net of tax amount of $1.9 million. The Company
used the net proceeds from the Desserts Sale to repay $25.0 million on the VDK
Senior Bank Facilities.
In conjunction with the consummation of the IPO on July 1, 1998 (See Financial
Statement Note 1 - The Company), the Company used net proceeds from the sale of
12,909,372 of common equity securities in the amount of $254.8 million and
proceeds from the Company's Senior Bank Facilities and $200.0 million of 8 3/4%
Senior Subordinated Notes due 2008 to repay $647.8 million of senior secured
debt and $114.5 million of senior subordinated notes, including the associated
redemption premium, and pay associated fees and expenses. As a result of the
early extinguishment of senior secured debt, the Company recorded an
extraordinary charge of $7.3 million, net of income tax of $4.4 million, for the
write-off of deferred financing charges. The remaining proceeds and repayments
during the year ended December 31, 1998 were periodic draws and repayments under
the Company's senior secured revolving debt facilities.
Senior Credit Facility
The Company is party to a credit agreement (the "Credit Agreement") with a
syndicate of financial institutions for $500 million of senior secured term debt
and a $175 million senior secured revolving debt facility. At December 31, 1999,
the Company had no unused commitments on its senior secured term debt, and $69.4
available under its revolving credit facility. As of March 31, 2000, the Company
had borrowed the maximum amount under its revolving credit facility. Currently,
outstanding borrowings under the revolving and Term A facilities under the
Credit Agreement bear interest at a prime rate plus 2.25% or, alternatively, the
one, two or three month Eurodollar rate plus 3.25%, and outstanding borrowings
under the Term B facility bear interest at a prime rate plus 2.75% or,
alternatively, the one, two or three month Eurodollar rate plus 3.75%. There is
a commitment fee of .50% per annum payable monthly on the unused portions of the
revolving debt facility. The Credit Agreement requires the Company to comply
with various covenants including, without limitation, those limiting debt,
dividends and other restricted payments and capital expenditures, and also
requires that the Company maintain certain financial ratios.
As a result of the restatements of the Company's financial statements described
above, the Company was in default of a number of terms of the Credit Agreement
as of March 2000. The Company and the senior lenders amended the Credit
Agreement (the "Amended Credit Agreement") effective March 29, 2000. The Amended
Credit Agreement includes provisions that:
. amends the financial covenants;
. waives certain existing defaults of covenants and breaches of
representations and warranties;
. establishes interest on borrowings made pursuant to the facility as
described above; and
. contemplates the sale by the Company of certain accounts receivable subject
to approval by the Agent and majority lenders of the terms of such
arrangement.
26
<PAGE>
In addition to the above amendments, the senior debt holders agreed to forebear,
through June 30, against their cross-defaults with the senior subordinated note
indentures which also suffered events of default due to the restatements.
Negotiations are currently underway to obtain the requisite subordinated
consents necessary to waive these defaults and bring the senior subordinated
notes into compliance. In the event that these consents are not obtained by June
30, the senior lenders could exercise their rights under the Amended Credit
Agreement. Such exercised rights could include the acceleration of $675 million
of senior debt plus accrued and unpaid interest. In such an event, the Company
could be forced to seek protection under federal bankruptcy laws.
The Company's recent defaults and the amount of borrowings the Company has
incurred have the potential to limit the Company's ability to pay its
obligations as they become due, to obtain additional financing and to operate
the business.
Senior Subordinated Notes
On February 10, 1997, the Company issued $100 million of 9 /7/8% senior
subordinated notes (the "February 9 /7/8/ Notes"); on July 1, 1997, the Company
issued $100 million of 9 /7/8/% senior subordinated notes (the "July 9 /7/8/
Notes"); and on July 1, 1998, the Company issued $200 million of 8 /3/4/% senior
subordinated notes (the "8 /3/4/ Notes" and, together with the February 9 /7/8/
Notes and July 9 /7/8/ Notes, the "Subordinated Notes"). The Subordinated Notes
are governed by indentures that include restrictive covenants, including limits
on additional debt, cash dividends and sales of assets.
Based on the Company's restated financial results discussed above, as of April
3, 2000, the Company was in default under the Subordinated Notes. The Company
has initiated discussions regarding the defaults with the holders of the
Subordinated Notes to obtain a waiver of the covenant breaches and amendment of
the indentures, which requires the consent of a majority of each issue of
Subordinated Notes. The Trustee under the indentures or the holders of 25% in
principal amount of each of the Subordinated Notes issues have the right to
accelerate the maturity thereof upon notice to the Company. Upon such
acceleration, $400 million of principal and accrued and unpaid interest shall be
due and payable immediately. In the event of such a declaration, the Company's
senior lenders would likely accelerate payment as well. In such an event, if the
Company were unable to supplement its operations with outside funding, the
Company could be forced to seek protection under the federal bankruptcy laws.
The Company is highly leveraged. At April 7, 2000, the Company has outstanding
approximately $1.1 billion in aggregate principal amount of indebtedness for
borrowed money. The degree to which the Company is leveraged results in
significant cash interest expense and principal repayment obligations and such
interest expense may increase with respect to its revolving credit facility
based upon changes in prevailing interest rates. This leverage may, among other
things, affect the ability of the Company to obtain additional financing, or
adjust to changing market conditions. In addition, the Company is limited in its
ability to pursue additional acquisitions.
The Company believes that its cash flow from operations and, if necessary, the
proceeds from asset sales will be sufficient to meet its payment obligations
under its debt obligations and other operational requirements.
Contingencies
Following the announcement of special investigation by the Company's Board of
Directors, several purported class action lawsuits were filed against the
Company in the United States District Court for the Northern District of
California alleging that the Company and the directors and officers that
resigned on February 17, 2000 violated federal securities laws. See "Item 3.
Legal Proceedings," which is incorporated herein by reference.
27
<PAGE>
Impact of New Accounting Pronouncements
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is effective for all fiscal years
beginning after June 15, 2000. SFAS 133 requires that all derivatives be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of SFAS 133 will not have a significant effect on the Company's results
of operations or its financial position.
The Company currently does not use derivative financial instruments for trading
or speculative purposes. In accordance with the New Senior Bank Facilities, the
Company is required to enter into interest rate protection agreements to the
extent necessary to provide that, when combined with the Company's senior
subordinated notes, at least 50% of the Company's aggregate indebtedness is
subject to either a fixed interest rate or interest rate protection agreements.
Accordingly, the Company's interest rate agreements are as follows:
Interest Rate Collar Agreements
At December 31, 1999, the company was party to three interest rate swap
agreements. On March 17, 1998, the company entered into an interest rate swap
agreement (the "Swap") with a notional principal amount of $150.0 million and a
term of three years. The effective swap rate on March 17, 1998, was 5.81%. On
November 30, 1998, the Company amended the existing Swap whereby the counter-
party received the option to extend the termination date to March 17, 2003. The
new effective swap rate through the termination date of the Swap is 5.37%. Under
the Swap, the Company would receive payments from the counter-party if the
three-month LIBOR rate exceeds 5.37% and make payments to the counter-party if
the three-month LIBOR rate is less than 5.37%. The payments would be calculated
based upon the respective notional principal amount.
On April 13, 1999, the Company entered into a three-year interest rate swap
agreement ("Swap II") with a notional principal amount of $200.0 million. The
applicable rate is set quarterly with the next reset date due July 1, 2000. The
counter-party to the Company's Swap II is a major financial institution. Under
Swap II, the Company would receive payments from the counter-party if the three-
month LIBOR plus a spread of 3.25% falls below a cap rate of 8.63%. The Company
would make payments to the counter-party if the three-month LIBOR plus a spread
of 3.25% exceeds 10.25%.
On November 15, 1999, the Company entered into a five-year interest swap
agreement ("Swap III") with a notional principal amount of $150.0 million. The
applicable rate is set quarterly and was reset to 6.17% on March 17, 2000. The
next reset date is June 19, 2000. The counter-party to the Company's Swap III
transaction is a major financial institution. Under Swap III, the Company would
receive payments from the counter-party if the three-month LIBOR exceeds 6.21%
and is below 7.50%. Additionally, the Company would receive payments if the
three-month LIBOR exceeds 8.25% through November 15, 2002. The Company would
make payments if the three-month LIBOR decreases below 4.95% or between 7.50%
and 8.25%.
During fiscal 1999 and 1998, the Company made payments aggregating $0.6 million
and $0.2 million, respectively, under interest rate swap agreements.
Risks associated with the interest rate agreements include those associated with
changes in market value and interest rates. At December 31, 1999, the fair value
of the Company's interest rate agreements was approximately $2.3 million.
Recent Developments
In February 2000, the Company relocated its corporate headquarters from San
Francisco, CA to the frozen food division corporate office in St. Louis, MO. In
April 2000, the Company announced that it intends to streamline its operations
and management structure and, as a result, anticipates taking a one-time charge
of up to $10.0 million in the second quarter of 2000.
Forward-Looking Statements
28
<PAGE>
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. The Company and
its representatives may from time to time make written or oral statements that
are "forward-looking" including statements contained in this report and other
filings with the Securities and Exchange Commission and in reports to the
Company's stockholders. Certain statements, including, without limitation,
statements containing the words "believes," "anticipates," "intends," "expects,"
"estimates" and words of similar import constitute "forward-looking statements"
and involve known and unknown risk, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the availability of funding for operations; the
outcome of the Securities Actions and other current litigation; the ability of
the Company to service its high level of indebtedness; the ability of new
management to implement a successful strategy; whether the Company's lenders
continue to forbear from accelerating the Company's senior debt obligations; the
Company's success in obtaining from its bondholders waivers of defaults under
its senior subordinated notes; the actions of the Company's competitors; general
economic and business conditions; industry trends; demographics; raw material
costs; integration of acquired businesses into the Company; terms and
development of capital; and changes in, or the failure or inability to comply
with, governmental rules and regulations, including, without limitation, FDA and
environmental rules and regulations. See "- Liquidity and Capital Resources."
Given these uncertainties, undue reliance should not be placed on such forward-
looking statements. Unless otherwise required by law, the Company disclaims an
obligation to update any such factors or to publicly announce the results of any
revisions to any forward-looking statements contained herein to reflect future
events or developments.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------------------------------------------------------------------
The Company entered into interest rate swap agreements for non-trading purposes.
Risks associated with the interest rate swap agreements 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 interest
rate swap and collar agreements not to be material.
The table below provides information about the Company's financial instruments
and derivatives that are sensitive to changes in interest rates, including
interest rate swaps and debt obligations. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
maturity dates. For interest rate swaps, the table presents the notional amounts
and weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract rates. Weighted average variable rates are based on implied
forward rates in the yield curve as of December 31, 1999.
<TABLE>
<CAPTION>
Expected Maturity Date as of December 31, 1999
-------------------------------------------------------------------------------------
There-
2000 2001 2002 2003 2004 after Total Value
------ ------ ------ ------ ------ ------ ------ -------
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate debt........... $ - $ - $ - $ - $ - $400.0 $400.0 $418.6
Average interest rate.. 0.0% 0.0% 0.0% 0.0% 0.0% 9.3% 9.3%
Variable rate debt........ $ 28.0 $ 32.9 $ 37.9 $ 42.8 $ 47.8 $487.8 $677.2 $677.2
Average interest rate.. 8.3% 8.3% 8.3% 8.3% 8.3% 8.4% 8.4%
Interest rate derivatives
Variable to fixed......... $150.0 $150.0 $ - $ - $ - $ - N/A $ (1.8)
Average pay rate....... 5.4% 5.4% - - - - N/A
Average receive rate... 6.4% 6.9% - - - - N/A
Fixed to variable......... $350.0 $350.0 $350.0 $150.0 $150.0 $ - N/A $ 4.2
Average pay rate....... 7.6% 7.9% 7.9% 6.2% 6.2% - N/A
Average receive rate... 7.7% 7.7% 7.2% 6.2% 6.2% - N/A
</TABLE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
Reference is made to Item 14, which is incorporated herein by reference.
29
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
30
<PAGE>
PART III
- --------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
The names, ages and positions of all directors and executive officers of Aurora
Foods Inc., as of April 1, 2000, are listed below, followed by a brief account
of their business experience for at least the past five years. Directors and
officers serve in their positions until their resignation or removal. Officers
serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position(s)
---- -------- -----------
<S> <C> <C>
Richard C. Dresdale 44 Chairman of the Board and Director
David E. De Leeuw 55 Vice Chairman and Director
James T. Smith 52 President, Chief Executive Officer, and Director
Christopher T. Sortwell 43 Executive Vice President, Chief Financial
Officer and Director
Andrea Geisser 57 Treasurer and Director
Thomas O. Ellinwood 45 President, Frozen Food Division
Thomas J. Ferraro 52 President, Dry Grocery Division
Anthony A. Bevilacqua 43 Executive Vice President, Sales and
Marketing, Frozen Food Division
C. Gary Willett 45 Executive Vice President, Dry Grocery
Division
Clive A. Apsey 50 Director
Charles J. Delaney 40 Director
Peter Lamm 48 Director
George E. McCown 64 Director
Ronald S. Orr 53 Director
</TABLE>
Richard C. Dresdale - Chairman of the Board and Director
Mr. Dresdale has served as a Director of the Company since June 1998 and the
Chairman of the Board since February 2000. Prior to that time, Mr. Dresdale was
a Director of AurFoods from December 1996 to June 1998. Mr. Dresdale is
President of Fenway Partners, Inc. ("Fenway") and was a founding partner. Fenway
is a New York-based private equity firm for institutional investors with the
primary objective of acquiring leading middle-market companies. Prior to
founding Fenway with Messrs. Lamm and Geisser, Mr. Dresdale was employed by
Clayton, Dubilier and Rice, Inc. from June 1985 to March 1994, most recently as
a Principal. Mr. Dresdale serves as a director of a number of Fenway's portfolio
companies, including Blue Capital Management, LLC, Quality Stores, Inc., Delimex
Holdings, Inc. and Simmons Company.
David E. De Leeuw - Vice Chairman and Director
Mr. De Leeuw has served as a Director of the Company since June 1998 and as Vice
Chairman of the Board since February 2000. Prior to that time, Mr. De Leeuw was
a Director of AurFoods from December 1996 to June 1998. Mr. De Leeuw is a
managing director of McCown De Leeuw & Co., Inc. ("MDC.") Prior to founding MDC
with George E. McCown in 1984, Mr. De Leeuw was Manager of the Leveraged
Acquisition Unit and Vice President in the Capital Markets Group at Citibank,
N.A. Mr. De Leeuw also worked with W.R. Grace & Co. where he was Assistant
Treasurer and Manager of Corporate Finance. Mr. De Leeuw began his career as an
investment banker with Paine Webber Incorporated. He currently serves as a
director of American Residential Investment Trust, Papa Gino's, Inc.,
Cornerstone Family Services and DIMAC Holdings, Inc.
James T. Smith - President, Chief Executive Officer and Director
Mr. Smith has been the President, Chief Executive Officer and Director of the
Company since April 2000. From April 1993 until he accepted the position with
the Company, Mr. Smith was the President of ConAgra Frozen Foods. ConAgra is a
company that manufactures, among other items, agricultural chemicals, feed,
fertilizers, grain, poultry, processed meat, seafood and frozen prepared food
products. From 1991-1993, Mr. Smith served first as Executive Vice President,
and then President, of Gerber Products Company.
Christopher T. Sortwell - Executive Vice President, Chief Financial Officer and
Director
31
<PAGE>
Mr. Sortwell has been the Executive Vice President, Chief Financial Officer and
Secretary of the Company since March 2000 and a Director since April 2000. From
July 1999 until he accepted his position with the Company, Mr. Sortwell was the
Executive Vice President and Chief Financial Officer of The Stroh Brewery
Company, the investment vehicle that was formerly The Stroh Brewery Company.
Prior to that time, Mr. Sortwell had been the Executive Vice President and Chief
Financial Officer for Stroh Brewing Company from July 1996 to July 1999. From
August 1990 to June 1996, Mr. Sortwell was the Senior Vice President and Chief
Financial Officer of the Stroh Brewing Company.
Andrea Geisser - Treasurer and Director
Mr. Geisser has served as a Director of the Company since June 1998. Prior to
that time, Mr. Geisser was a Director of VDK from September 1995 to June 1998
and a Director of AurFoods from December 1996 to June 1998. Mr. Geisser has been
a Managing Director of Fenway since the firm's founding in 1994. Prior to
founding Fenway with Messrs. Lamm and Dresdale, Mr. Geisser was employed by
Butler Capital Corporation ("BCC") from February 1989 to June 1994, most
recently as Managing Director and General Partner of each of the management
partnerships of the investment partnerships sponsored by BCC. From 1986 to 1989,
Mr. Geisser was a Managing Director of Onex Investment Corporation, the largest
Canadian leveraged buyout company, and prior to that started the U.S. operations
of EXOR, a European investment company, where he was a Senior Vice President and
Director. Mr. Geisser serves as a director of a number of Fenway's portfolio
companies, including Decorative Concepts, Inc., Iron Age Corporation and Valley-
Dynamo LP.
Thomas O. Ellinwood - President, Frozen Food Division
Mr. Ellinwood joined VDK in 1995 as President and has been President, Frozen
Food Division since VDK's merger with the Company in 1998. Mr. Ellinwood has
been responsible for the management of VDK since Pet Incorporated ("Pet")
acquired Van de Kamp's(R), Inc. from Grand Metropolitan, PLC in October 1989,
when he headed the acquisition and integration team as Director/Marketing
Manager. Mr. Ellinwood was Vice President and General Manager of Pet from March
1992 until VDK bought the Van de Kamp's(R) business in 1995. Between 1990 and
1992, Mr. Ellinwood held the position of Vice President, Marketing at Pet. Prior
to Pet's acquisition of Van de Kamp's(R), 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. Mr. Ellinwood is a
director of Medical Office Online, Inc.
Thomas J. Ferraro - President, Dry Grocery Division
Mr. Ferraro joined AurFoods in 1996 as President, and has been President, Dry
Grocery Division since the merger with VDK in 1998. Prior to joining AurFoods in
December 1996, Mr. Ferraro led the LBO and served as President of Campfire,
Inc., from September 1994 to June 1996, which merged into International Home
Foods, Inc. Prior to joining Campfire, Inc. he was Vice President of Sales for
the Niche Grocery division of Borden, Inc. from 1991 to 1994. Mr. Ferraro's
experience with niche grocery products extends back to his early career with RJR
Nabisco Inc. and Dracket products, a division of Bristol-Meyers Squibb Company,
where he held a variety of marketing and sales positions.
Anthony A. Bevilacqua - Executive Vice President, Sales and Marketing, Frozen
Food Division
Mr. Bevilacqua joined VDK in February 1998 as Executive Vice President, Sales
and Marketing and has been Executive Vice President, Sales and Marketing, Frozen
Foods Division since VDK's merger with the Company. Mr. Bevilacqua is
responsible for the frozen food division's sales and marketing functions. Prior
to joining VDK, Mr. Bevilacqua was Senior Vice President at Aramark's Spectrum
Healthcare Services from September 1994 to December 1997. Between 1980 and 1994,
Mr. Bevilacqua held various positions of increasing responsibility in sales and
marketing with Ralston Purina Company ("Ralston"). In 1992, he was promoted to
Vice President of Marketing at Ralston's Eveready Battery Canadian division.
C. Gary Willett - Executive Vice President, Dry Grocery Division
Mr. Willett joined AurFoods in December 1996 as Executive Vice President and has
been Executive Vice President, Dry Grocery Division since the merger with VDK in
1998. From August 1995 to September 1996, he served as Executive Vice
President/General Manager of Campfire, Inc., which merged into International
Home Foods, Inc.
32
<PAGE>
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. Before joining Borden, Mr. Willett spent six years with
Kellogg in various marketing and sales positions from September 1977 to June
1983.
Clive A. Apsey - Director
Mr. Apsey has served as a Director of the Company since June 1998. Prior to that
time, Mr. Apsey was a Director of VDK from September 1995 to June 1998. Mr.
Apsey was an Executive Director of Tiger Oats Ltd. ("Tiger Oats") from 1987 to
1998 and currently serves as a non-Executive Director and consultant to the
group.
Peter Lamm - Director
Mr. Lamm has served as a Director of the Company since June 1998. Prior to that
time, Mr. Lamm was a Director of VDK from September 1995 to June 1998 and a
director of AurFoods from December 1996 to June 1998. Mr. Lamm is Chairman and
Chief Executive Officer of Fenway and was a founding partner. Prior to founding
Fenway with Messrs. Dresdale and Geisser, Mr. Lamm was employed by Butler
Capital Corporation from February 1982 to April 1994, most recently as Managing
Director and General Partner of each of the management partnerships of the
investment partnerships sponsored by BCC. Mr. Lamm serves as a director of a
number of Fenway's portfolio companies, including Blue Capital Management, LLC,
Quality Stores, Inc., Delimex Holdings, Inc., Iron Age Corporation and Simmons
Company.
George E. McCown - Director
Mr. McCown has been a Director of Aurora Foods since May 1999. Mr. McCown is a
managing director of MDC, which he founded with Mr. De Leeuw in 1984. Before co-
founding MDC, Mr. McCown spent 18 years at Boise Cascade Corporation in a series
of general management positions in paper, packaging, building materials and real
estate. When Mr. McCown left at the end of 1980, he was Senior Vice President
for the Building Materials Group and President of Boise Cascade Home and Land
Corporation. Mr. McCown is an officer and director of several current and former
MDC portfolio companies including positions as Chairman of the Board of Building
Materials Holding Corporation (NASDAQ); Vice-Chairman of Vans, Inc. (NASDAQ) and
a Director of FiberMark, Inc. (NYSE). He serves as Chairman of Gold Run Aviation
and as a Director of The Brown Schools, DIMAC Corporation, Home Asset Management
Corporation (AmReit, NYSE), International Data Response Corp., Fitness Holdings
International, and E-M-Solutions, Inc. and SARCOM Inc.
Charles J. Delaney - Director
Mr. Delaney has served as a Director of Aurora Foods Inc. since June 1998. Prior
to that time, Mr. Delaney was a Director of Van de Kamp's, Inc. from September
1995 to June 1998. Mr. Delaney is the President of UBS Capital Americas, which
is the manager for two funds established by UBS AG to make private equity
investments in the U.S. and Latin America. Mr. Delaney continues to manage the
portfolio of UBS Capital LLC along with its U.S. and Latin America affiliates.
Mr. Delaney served as the President of UBS Capital LLC since it was established
in 1993 as a subsidiary of UBS AG until December 1999. Prior to that from 1989
to 1993, Mr. Delaney headed the Leverage Finance Group of UBS AG in the United
States. Mr. Delaney is also a director of AduroNet.com, AMS Holdings Corp.,
Edison Schools Inc. and ETM Entertainment Network, Inc.
Ronald S. Orr - Director
Ronald S. Orr has been a Director of the Company since April 1, 2000. Mr. Orr is
an Operating Affiliate of MDC and presently serves on the Board of Directors of
DIMAC Holdings, Inc. (a premier direct marketing services provider) and E-M-
Solutions, Inc. (a leading provider of electronic contract manufacturing
services). Mr. Orr is President and a Director of Ron Orr and Professionals,
Inc. Mr. Orr served as a full time consultant to Colony Capital Inc., a
private equity fund, from March 1998 through August 1999, and during that period
he served as President and a Director of Lahotel Corporation (owner and operator
of the L'Ermitage Hotel in Beverly Hills, California) and as a Director of
Silverlink Holdings, Inc. (owner and operator of the Amanresorts located
throughout the world). From March 1980 through June 1997, Mr. Orr was a partner
at the law firm of Gibson, Dunn & Crutcher.
Certain of the directors of the Company are affiliated with Fenway entities, MDC
entities, Tiger Oats, Gloriande and UBS, all of which are shareholders of the
Company. Pursuant to the Securityholders Agreement, each of these entities has
certain rights and obligations regarding the designation of directors.
There are no family relationships between any directors or executive officers of
the Company.
33
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations, including
representations of its directors and executive officers that no other reports
were required, during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with by those parties.
34
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
- --------------------------------
The following Summary Compensation Table sets forth the compensation received by
the officers of the Company (together, the "Named Executive Officers"), during
the years ended December 31, 1999 and 1998, and December 27, 1997.
Summary Compensation Table
- --------------------------
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
----------------------- -------------------
Securities
Name and Principal Position Underlying All Other
as of December 31, 1999 Year Salary /(1)/ Bonus /(1)/ Options Compensation /(2)/
- ----------------------- ----------- ---------------- ------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Ian R. Wilson 1999 $1,000,000 $ - - $ -
Chairman of the Board and 1998 1,000,000 450,000 - -
Chief Executive Officer
James B. Ardrey 1999 600,000 - - -
Vice Chairman 1998 600,000 270,000 - -
Ray Chung 1999 350,000 - - -
Executive Vice President 1998 350,000 157,500 - -
M. Laurie Cummings 1999 250,000 - - -
Chief Financial Officer and 1998 250,000 112,500 - -
Secretary
Thomas O. Ellinwood 1999 290,000 - 70,000 9,740
President, Frozen Food Division 1998 275,000 123,750 175,000 8,895
Thomas J. Ferraro 1999 290,000 - 70,000 9,000
President, Dry Grocery Division 1998 275,000 165,000 175,000 9,000
1997 175,000 143,000 - 9,000
</TABLE>
/(1)/ Amounts have been annualized for 1998.
/(2)/ Other compensation includes Company contributions on behalf of the
officers to profit sharing and savings plans and other related benefits.
On February 17, 2000, Messrs. Wilson, Ardrey, Chung and Ms. Cummings resigned
their offices with the Company.
The following table sets forth information with respect to stock option grants
to the Named Executive Officers during 1999. The options were granted at an
exercise price equal to 100% of the fair market value of the common stock on the
date of grant. The options vest ratably over three years beginning in the third
year after the date of grant and expire ten years after the date of grant.
35
<PAGE>
Option Grants in the Last Fiscal Year
- -------------------------------------
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options Granted to Grant Date
Options Employees in Exercise Expiration Present
Name Granted Fiscal Year Price Date Value
- -------------------------- ----------------- ------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Ian R. Wilson - - $ - - $ -
James B. Ardrey - - - - -
Ray Chung - - - - -
M. Laurie Cummings - - - - -
Thomas O. Ellinwood - - - - -
Thomas J. Ferraro - - - - -
</TABLE>
The following table sets forth information with respect to each exercise of
stock options during the 1999 fiscal year by a Named Executive Officer and the
number and value of unexercised stock options held by the Named Executive
Officers at December 31, 1999.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
- --------------------------------------------------------------------------
Values
- ------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options at Fiscal Year
Options at Fiscal Year End End/(2)/
------------------------------- ---------------------------------
Shares
Acquired on Value
Name Exercise Realized/(1)/ Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ------------- ------------------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ian R. Wilson - $ - $ - - - $ -
James B. Ardrey - - - - - -
Ray Chung - - - - - -
M. Laurie Cummings - - - - - -
Thomas O. Ellinwood - - - 175,000 - -
Thomas J. Ferraro - - - 175,000 - -
</TABLE>
/(1)/ The Value Realized is equal to the fair market value on the date of
exercise, less the exercise price, times the number of shares acquired. No
options were exercised during the last fiscal year.
/(2)/ The Value of Unexercised In-the-Money Options at Fiscal Year End is equal
to $9.3125, the fair market value of each share underlying the options at
December 31, 1999, less the exercise price, times the number of options.
No options were in the money at December 31, 1999
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Board of Directors has appointed Messrs. Lamm and De Leeuw as members of its
Compensation Committee. Prior to his resignation as Chairman of the Board and
Chief Executive Officer, Mr. Wilson was an ex-officio member of the Compensation
Committee. The Compensation Committee governs the compensation of the executive
officers of the Company subject to ratification by the Board of Directors.
Messrs. Apsey and Delaney are the members of the Compensation Subcommittee. The
Compensation Subcommittee administers the Company's 1998 Incentive Plan and the
1998 Employee Stock Purchase Plan.
36
<PAGE>
Mr. Wilson is the managing partner of Dartford. During 1999, the Company paid
Dartford $1,083,000 in fees for services rendered in connection with the
acquisitions of Seacoast and Lender's.
Pursuant to an agreement dated July 1, 1998 and terminated on February 17, 2000,
the Company paid Dartford $800,000 for 1999 and $400,000 for 1998 as
reimbursement for corporate headquarters expenses. Such expenses included staff
salaries, miscellaneous office expenses related to the administration of the
Company's former corporate headquarters, and rent for the space leased by
Dartford and formerly used by the Company as its corporate headquarters. This
agreement terminated upon Mr. Wilson's resignation on February 17, 2000. The
Company remains obligated to pay $200,000 to Dartford until June of 2000.
Messrs. McCown and De Leeuw are general partners and Mr. Orr is an operating
affiliate of MDC. During 1999, the Company paid MDC Management Company III,
L.P., an affiliate of MDC, and a beneficial owner of the Company, $1,083,000 in
fees for services rendered in connection with the acquisitions of Seacoast and
Lender's.
Messrs. Dresdale, Geisser and Lamm are partners of Fenway. During 1999, the
Company paid Fenway $1,083,000 in fees for services rendered in connection with
the acquisitions of Seacoast and Lender's.
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 agreement with
Dartford terminated upon the resignation of Ian Wilson on February 17, 2000.
The Company and certain stockholders of the Company, including Fenway entities,
McCown entities and Dartford, have entered into the Securityholders Agreement,
which provides for certain rights, including registration rights of the
stockholders.
Employment Agreements
- ---------------------
Prior to his resignation, Mr. Ian R. Wilson served as the Chairman of the Board
and the Chief Executive Officer of the Company pursuant to an employment
agreement dated July 1, 1998. Under the agreement, Mr. Wilson received an
annual base salary of $1.0 million during the term of the agreement and was
eligible to receive a bonus of up to 80% of his base salary based on certain
earnings criteria. The employment agreement provided for a term of two years
and a non-compete covenant for the term of his employment and thereafter, if
applicable, until the earlier of July 1, 2000 or the first anniversary of
employing a Chief Executive Officer other than Mr. Wilson.
Prior to his resignation, Mr. James B. Ardrey served as the Vice Chairman of the
Company pursuant to an employment agreement dated July 1, 1998. Under the
agreement, Mr. Ardrey received an annual base salary of $600,000 during the term
of the agreement and was eligible to receive a bonus of up to 80% of his base
salary based on certain earnings criteria. The employment agreement provided
for a term of two years and a non-compete covenant for the term of his
employment and thereafter, if applicable, until the earlier of July 1, 2000 or
the first anniversary of employing a Chief Executive Officer other than Mr.
Wilson.
Prior to his resignation, Mr. Ray Chung served as the Executive Vice President
of the Company pursuant to an employment agreement dated July 1, 1998. Under
the agreement, Mr. Chung received an annual base salary of $350,000 during the
term of the agreement and was eligible to receive a bonus of up to 80% of his
base salary based on certain earnings criteria. The employment agreement
provided for a term of two years and a non-compete covenant for the term of his
employment and thereafter, if applicable, until the earlier of July 1, 2000 or
the first anniversary of employing a Chief Executive Officer other than Mr.
Wilson.
Prior to her resignation, Ms. M. Laurie Cummings served as the Chief Financial
Officer and Secretary of the Company pursuant to an employment agreement dated
July 1, 1998. Under the agreement, Ms. Cummings received an annual base salary
of $250,000 during the term of the agreement and was eligible to receive a bonus
of up to 80% of her base salary based on certain earnings criteria. The
employment agreement provided for a term of two years and a non-compete covenant
for the term of her employment and thereafter, if applicable, until the earlier
of July 1, 2000 or the first anniversary of employing a Chief Executive Officer
other than Mr. Wilson.
Mr. Thomas J. Ferraro serves as the President of the Dry Grocery Division
pursuant to an employment agreement, dated as of December 31, 1996, as amended
(the "Ferraro Employment Agreement"). He receives an annual base salary of
$290,000 (subject to annual adjustment) during the term of the agreement and is
eligible to receive a bonus of up to 80% of his base salary based upon certain
earnings criteria. The Ferraro Employment Agreement provides for a two-year
term ending December 31, 2000; however, on each December 31st, the term
automatically extends
37
<PAGE>
for one additional year so that the term ends three years after such December
31st unless notice by either the Company or Mr. Ferraro to terminate is given 30
days prior to the automatic extension. If the Company terminates Mr. Ferraro's
employment without cause, the Ferraro Employment Agreement requires the Company
to pay him an amount equal to the base salary he would have been entitled to
receive through the end of the current term of his employment agreement. Mr.
Ferraro is also entitled to receive any bonus for the preceding fiscal year
which has not been paid as of the date of his termination plus a pro rata
portion of any base and supplemental bonus with respect to such fiscal year
based upon the actual number of days the Company employed Mr. Ferraro during
such fiscal year. Mr. Ferraro may not compete with or solicit employees from the
Company until the later of the first anniversary of his termination and the end
of the current term of his employment agreement.
Mr. Thomas O. Ellinwood serves as the President of the Frozen Food Division
pursuant to an employment agreement, dated as of March 1, 1997 as amended (the
"Ellinwood Employment Agreement"). The Ellinwood Employment Agreement provides
for a three-year term; however, on each September 30th, the term automatically
extends for one additional year so that the term ends three years after such
September 30th unless notice by either the Company or Mr. Ellinwood to terminate
is given 30 days prior to the automatic extension. Mr. Ellinwood receives an
annual base salary of $290,000 (subject to annual adjustment) during the term of
the agreement and is eligible to receive a bonus of up to 80% of his base salary
based upon certain earnings criteria. If the Company terminates Mr. Ellinwood's
employment without cause before a change of control (as defined in the
agreement), the Company is required to pay him the greater of (i) 200% of his
base salary then in effect or (ii) the base salary he would have been entitled
to receive through the end of the current term of the employment agreement plus
his base bonus pro rated according to the actual number of days the Company
employed him for such fiscal year. If the Company terminates Mr. Ellinwood's
employment without cause after a change of control (as defined in the agreement)
or Mr. Ellinwood terminates his employment with the Company for "Good Reason"
(as defined in the agreement) after a change of control, the Company must pay
him the sum of 200% of his base salary then in effect plus his bonus pro rated
according to the actual number of days the Company employed him for such fiscal
year. The pro rated portion of his bonus is payable as if the Company's
financial results equal exactly 100% of the EBITDA target for that year. Mr.
Ellinwood's employment agreement also provides that for one year following his
termination of employment with the Company (other than a termination by the
Company without cause), Mr. Ellinwood may not compete with or solicit employees
from the Company.
Directors' Compensation
- -----------------------
Directors who are officers, employees, or otherwise affiliates of the Company do
not receive compensation for their services as directors. Non-employee
directors receive an annual retainer of $20,000, plus $2,000 for attending each
committee meeting of the Board of Directors and $5,000 per annum for serving as
a Chairman of any committee of the Board of Directors. Directors of the Company
are entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof.
VDK Incentive Plan
- ------------------
VDK LLC provided a compensation arrangement (the "VDK Plan") as a means by which
certain key employees, and other specifically designated persons ("VDK Covered
Employees") of VDK and/or affiliated with VDK, were given an opportunity to
benefit from appreciation in the equity value of VDK. Under the VDK Plan, VDK
Covered Employees were issued a specific class of limited liability company
member units and/or performance-based units (collectively, "VDK Management
Units"), at a nominal value, as a means to participate in the appreciation of
the equity value of VDK. The VDK Management Units were subject to vesting
requirements based on terms of employment or other factors.
Pursuant to the VDK Plan, Dartford, Thomas O. Ellinwood, and Anthony A.
Bevilacqua received 2,255,334, 244,072, and 91,756 shares of Common Stock,
respectively, under the VDK Plans on July 1, 1999. In addition, 27 employees
and other persons received an aggregate of 979,067 shares pursuant to the VDK
Plans on July 1, 1999.
Compensation Committee Report on Executive Compensation
- -------------------------------------------------------
The Compensation Committee of the Board of Directors consists exclusively of
non-employee directors and is responsible for setting and administering the
policies that govern the compensation of executive officers of the Company. The
Compensation Committee also administers the Company's 1998 Incentive Plan and
the 1998 Employee Stock Purchase Plan.
38
<PAGE>
Compensation Philosophy
The Company's compensation program for its executive officers is based on the
following objectives:
. Total compensation of the executive officers should be linked to the
financial performance of the Company.
. The compensation paid to the executive officers of the Company should
compare favorably with executive compensation levels of other
similarly-sized companies so that the Company can continue to attract
and retain outstanding executives.
. The compensation program should reward outstanding individual
performance and contributions as well as experience.
Compensation Methodology
The Company's executive compensation program has three components: base salary,
annual bonus and stock options. The Compensation Committee reviews executive
compensation in light of the Company's performance during the fiscal year and
compensation data at companies that are considered comparable. The Compensation
Committee considers the operating results of the Company as a factor in
determining the compensation of its executives.
Base Salary
The annual base salary is designed to compensate executives for their sustained
performance and level of responsibility. The Compensation Committee approves
all salary increases for executive officers, which is then subject to
ratification by the Board of Directors. The salaries of all executive officers
are established by employment agreements as previously discussed.
Annual Bonus
The annual bonus is given to promote the achievement of the Company's
performance objectives. The specific performance objectives for each executive
officer and the payments made relative thereto are governed by earnings criteria
as established in the employment agreements. Such criteria are primarily
measured by Company and/or divisional operating earnings and working capital
targets established in the annual operating budget process. The annual bonus
also takes into consideration any major acquisitions and the executive's
performance in integrating such acquisition into the Company's operations.
Stock Options
Stock options are designed to provide long-term incentives and rewards tied to
the price of the Company's Common Stock. The Compensation Committee believes
that stock options, which provide value to participants only when the Company's
shareholders benefit from stock price appreciation, are an important component
of the Company's executive compensation program. The Compensation Committee has
not established any target level of ownership of the Company's Common Stock by
the Company's executives. Retention of shares of the Company's Common Stock,
however, is encouraged. Stock options are awarded under the Company's 1998
Incentive Plan. Stock options granted to executive officers have exercise prices
equal to the market price of the Company's Common Stock on the date of grant,
vest over five years and have terms of ten years. The Compensation Subcommittee
approves all stock option grants, which is then subject to ratification by the
Board of Directors.
Compensation of the Chief Executive Officer
Mr. Wilson became Chairman of the Board and Chief Executive Officer of the
Company in June 1998. Mr. Wilson and the Company entered into an employment
agreement dated July 1, 1998 as described in "Executive Compensation -
Employment Agreements." Mr. Wilson resigned from his position as Chief
Executive Officer in February 2000.
39
<PAGE>
The Compensation Committee reviews the compensation of the chief executive
officer in light of the Company's performance during the fiscal year and
compensation data at companies that are considered comparable. The Compensation
Committee considers the operating results of the Company as a factor in
determining the compensation of its chief executive officer.
The Compensation Committee and the Board of Directors approved a total
compensation package that was designed to be competitive with compensation
provided to chief executive officers at companies of comparable size to the
Company.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986 ("Section 162(m)"), as
amended, limits the federal income tax deductibility of compensation paid to the
executive officers named in the Summary Compensation Table on page 20. The
Company generally may deduct compensation to such an officer only if the
compensation does not exceed $1,000,000 during any fiscal year or is
"performance-based" as defined in Section 162(m).
The Compensation Committee believes these executive compensation policies and
programs effectively serve the interests of shareholders and the Company and are
appropriately balanced to provide increased motivation for executives to
contribute to the Company's future success.
THE COMPENSATION COMMITTEE
David De Leeuw
Peter Lamm
Performance Graph
- -----------------
The following graph compares the cumulative total return to stockholders of the
Company's Common Stock from July 1, 1998 through December 31, 1999 to the
cumulative total return of (1) the Russell 2000 Index and (2) the S&P Mid Cap
Food Index over the same period (assuming the investment of $100 in the
Company's Common Stock and in each of the other indexes and reinvestment of all
dividends).
Comparison of Cumulative Total Return Among Aurora Foods, Inc., the Russell
2000 Index and the S&P Mid Cap food Index
[GRAPH APPEARS HERE]
40
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------------------------------------------------------------
MANAGEMENT
- ----------
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of April 7, 2000 by (a) each person
who is known to the Company to be the beneficial owner of more than five percent
of the Company's Common Stock, (b) each director and executive officer of the
Company, and (c) all directors and executive officers of the Company as a group.
Except as otherwise indicated, the Company believes that the persons or entities
listed below have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them, except to the extent such power may be
shared with a spouse.
<TABLE>
<CAPTION>
Shares Beneficially Owned/(1)/
-------------------------------
Name of Owner Number Percent
---------- ------------
<S> <C> <C>
Fenway Partners entities/(2)/ 18,654,686 27.8%
McCown De Leeuw & Co. entities/(3)(4)/ 16,396,371 24.5%
California Public Employees Retirement System/(4)/ 3,737,581 5.6%
Dartford Partnership L.L.C./(5)/ 6,971,301 10.9%
Tiger Oats Limited/(6)/ 4,259,390 6.4%
UBS Capital LLC/(7)/ 4,259,390 6.4%
Officers and Directors:
Ian R. Wilson/(5)/ 6,971,301 10.4%
James B. Ardrey/(5)/ 6,971,301 10.4%
Ray Chung/(5)/ 6,971,301 10.4%
M. Laurie Cummings/(5)/ 6,971,301 10.4%
Thomas O. Ellinwood/(8)/ 280,918 *
Thomas J. Ferraro/(9)/ 486,444 *
Clive A. Apsey/(6)/ 4,259,390 6.4%
David E. De Leeuw/(3)/ 16,396,371 24.5%
Charles J. Delaney/(7)/ 4,259,390 6.4%
Richard C. Dresdale/(2)/ 18,654,686 27.8%
Andrea Geisser/(2)/ 18,654,686 27.8%
Peter Lamm/(2)/ 18,654,686 27.8%
George E. McCown/(3)/ 16,396,371 24.5%
Ronald S. Orr/(3)/ 16,396,371 24.5%
All directors and executive officers of the Company as a 47,049,110 70.2%
group (14 persons)
</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.
/(2)/ Includes 16,362,052, 1,911,218, 240,304, and 141,112 shares of Common
Stock owned directly or indirectly by the Fenway Partners Capital Fund,
L.P. (the "Fenway Fund I"), Fenway Partners Capital Fund II, L.P. (the
"Fenway Fund II" and, together with the Fenway Fund I, the "Fenway
Funds"), FPIP, LLC and FPIP Trust, LLC, respectively. FPIP, LLC and FPIP
Trust, LLC are entities formed by the investment professionals of Fenway
to make co-investments alongside the Fenway Funds. The managing member of
each of FPIP, LLC, and FPIP Trust, LLC is Fenway. The general partner of
the Fenway Fund I is Fenway Partners, L.P., a Delaware limited
partnership, whose general partner is Fenway Partners Management, Inc., a
Delaware corporation. The general partner of Fenway Fund II is Fenway
Partners II, LLC, a Delaware limited liability company. Peter Lamm,
Richard Dresdale, and Andrea Geisser are directors and officers of each of
Fenway Partners Management, Inc. and Fenway, and Peter Lamm and Richard
Dresdale are managing members of Fenway Partners II, LLC, 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 Funds, 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 Funds, FPIP, LLC and FPIP Trust,
LLC. The address of the Fenway entities is 152 West 57th Street, New York,
New York 10019.
/(3)/ Includes 5,897,598 shares of Common Stock owned by McCown De Leeuw & Co.
III, L.P., an investment partnership whose general partner is MDC
Management Company III, L.P. 418,687 shares of Common Stock owned by
McCown De Leeuw & Co. III (Europe), L.P., an investment partnership whose
general partner is MDC Management Company III, L.P., 98,124 shares of
Common Stock owned by McCown De Leeuw & Co. III (Asia), L.P., an
investment partnership whose general partner is MDC Management Company
IIIA, L.P. ("MDC IIIA"), 127,571 shares of Common Stock owned by Gamma
Fund LLC, a California limited liability company,
41
<PAGE>
5,885,400 shares of Common Stock owned by McCown De Leeuw & Co. IV, L.P.,
an investment partnership whose general partner is MDC Management Company
IV, LLC ("MDC IV"), 95,308 shares of Common Stock owned by Delta Fund LLC,
a California limited liability company and 124,102 shares of Common Stock
owned by McCown De Leeuw & Co. IV Associates, L.P., whose general partner
is MDC IV. Includes 12,000 shares held by David E. De Leeuw. In addition,
includes 3,737,581 shares of Common Stock held by CALPERS for which McCown
De Leeuw & Co. III, L.P. has an irrevocable proxy, which provides the
power to vote all of the securities held by CALPERS. The voting members of
Gamma Fund LLC and Delta Fund LLC are George E. McCown, David E. De Leeuw,
David E. King, Robert B. Hellman, Jr., 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 owned by McCown De Leeuw & Co. III, L.P., McCown De Leeuw & Co.
III (Europe), L.P., McCown De Leeuw & Co. III (Asia), L.P. and McCown De
Leeuw & Co. IV, L.P. are made by Mr. McCown and Mr. De Leeuw, as Managing
General Partners of each of MDC III and MDC IIIA who together have more
than the required two-thirds-in-interest vote of the Managing General
Partners necessary to effect such decision on behalf of such entity and by
a vote or consent of all of the managing members of MDC IV. Voting and
dispositive decisions regarding securities owned by Delta Fund LLC and
Gamma Fund LLC are made by a vote or consent of a majority in number of
the voting members of Gamma Fund LLC and Delta Fund LLC. Messrs. McCown,
King, Hellman, 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. Mr. De Leeuw has direct ownership of only the 12,000
securities disclosed above, and disclaims beneficial ownership of all
other shares except, in the case of Gamma Fund LLC and Delta Fund LLC, to
the extent of his proportionate membership interests. Mr. Orr is an
operating affiliate of MDC. Mr. Orr has no direct ownership of any
securities and disclaims beneficial ownership of all shares. 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.
/(4)/ Under an irrevocable proxy, CALPERS has granted McCown De Leeuw & Co. III,
L.P. the right to vote all of the shares of Common Stock it holds. The
address of California Public Employees Retirement System is Lincoln Plaza,
400 P Street, Sacramento, CA 95814.
/(5)/ Includes 2000 shares held by the Dartford Partnership, L.L.C. Also
includes 2,228,456 shares, 1,458,411 shares, 1,453,411 shares, 737,236
shares and 1,091,787 shares held by Ian R. Wilson, James B. Ardrey, Ray
Chung, M. Laurie Cummings and Cary S. Fitchey, respectively. Ian Wilson's
shares include 130,990 shares held by the Ian and Susan Wilson 1998
Irrevocable Trust. James Ardrey's shares includes a total of 33,036 shares
held by family members and trusts: 4,504 shares held by Scott W. Seaton,
Trustee F/B/O Caitlin E. Ardrey; 4,504 shares held by Scott W. Seaton,
Trustee F/B/O Ian B. Ardrey; 6,007 shares held by Wendy R. Ardrey, Trustee
F/B/O Ann Richardson; 6,007 shares held by Elizabeth D. Ardrey; 6,007
shares held by R. Holt Ardrey, Trustee F/B/O Blake Ardrey; and 6,007
shares held by R. Holt Ardrey, Trustee F/B/O Scott Ardrey. James Ardrey
disclaims beneficial ownership of 27,029 shares held directly by certain
children's trusts. Ray Chung's shares include 102,094 shares held by
children's trusts; 51,047 shares held by the Ray and Eileen Chung
Children's Trust F/B/O Melissa Ann Chung and 51,047 shares held by the Ray
and Eileen Chung Children's Trust F/B/O Jessica Michelle Chung.
Information regarding share ownership has been derived from the Amended
Statement of Beneficial Ownership on form SC 13G/A filed February 14,
2000. Each of Messrs. Wilson, Ardrey, and Chung and Ms. Cummings disclaim
beneficial ownership of the shares of the Company's Common Stock held by
Dartford, except for those shares held directly by him or her,
respectively, or otherwise in which they have a pecuniary interest. The
address of Dartford is 456 Montgomery Street, Suite 2200, San Francisco,
CA 94104.
/(6)/ Tiger Oats' shares are held by Gloriande, a corporation organized under
the laws of Luxembourg, which is the record owner of the Company's Common
Stock. Gloriande is an indirect wholly-owned subsidiary of Tiger Oats. The
shares of capital stock of Tiger Oats are traded publicly on the
Johannesburg Stock Exchange. Mr. Clive A. Apsey is a director of Tiger
Oats and as such may be deemed to have the power to vote or dispose of the
Company's Common Stock held by Tiger Oats. Mr. Apsey disclaims beneficial
ownership of any such shares. The address of Tiger Oats Limited is 85 Bute
Lane, Sandown, Sandton 2196, Republic of South Africa.
/(7)/ UBS is a wholly-owned indirect subsidiary of Union Bank of Switzerland.
The shares of capital stock of Union Bank of Switzerland (now UBS AG) are
publicly held. Mr. Charles J. Delaney, a director of the Company, is the
president of UBS Capital Americas 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.
/(8)/ Includes 244,072 shares of Common Stock distributed to Mr. Ellinwood under
the VDK Plan distributed July 1, 1999. Also includes 100 shares held by
Mr. Ellinwood's son.
/(9)/ Includes 427,454 shares of Common Stock distributed to Mr. Ferraro under
the Aurora Plan and trusts for the benefit of certain of his family
members. Mr. Ferraro disclaims beneficial ownership as to the 128,236 of
such shares, which were transferred to trusts for the benefit of certain
of his family members.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
As of April 7, 2000, Aurora Foods Inc. has maintained business relationships and
engaged in certain transactions described below.
42
<PAGE>
During 1999, the Company paid the following fees for services rendered in
connection with the acquisitions of Seacoast and Lender's: $1,083,000 to
Dartford, whose partners, Messrs. Wilson, Ardrey and Chung, and Ms. Cummings
were executive officers and directors of the Company; $1,083,000 to MDC III,
whose general partners and operating affiliates include Messrs. McCown, De Leeuw
and Orr (all directors of the Company); and $1,083,000 was paid to Fenway, whose
partners include Messrs. Dresdale, Geisser and Lamm (all directors of the
Company). Services provided in connection with such fees included the
identification and analysis of the acquisition opportunity, the negotiation of
the acquisition and the raising of financing for such acquisition. Fees of
$500,000 and $2,750,000, in the aggregate, were paid in connection with the
acquisitions of Seacoast and Lender's, respectively.
The Company has entered into agreements pursuant to which it agreed to pay
transaction fees to each of Fenway, MDC and Dartford of 0.333% of the
acquisition price for future acquisitions by the Company. The Dartford
agreement terminated upon the resignation of Ian Wilson on February 17, 2000.
The 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.
Pursuant to an agreement dated July 1, 1998 and terminated on February 17, 2000,
the Company paid Dartford $800,000 for 1999 and $400,000 for 1998 as
reimbursement for corporate headquarters expenses. Such expenses included staff
salaries, miscellaneous office expenses related to the administration of the
Company's former corporate headquarters, and rent for the space leased by
Dartford and formerly used by the Company as its corporate headquarters. This
agreement terminated upon Mr. Wilson's resignation on February 17, 2000. The
Company remains obligated to pay $200,000 to Dartford until June of 2000.
The Company and certain stockholders of the Company have entered into the
Securityholders Agreement, which provides for certain rights, including
registration rights of the stockholders.
On December 31, 1996 and January 16, 1998, Mr. Thomas J. Ferraro, President, Dry
Grocery Division, executed promissory notes in the amount of $60,000 and
$131,000, respectively, in favor of the Company to evidence monies borrowed to
assist in the capitalization of his limited liability company interests held in
MBW LLC. The promissory notes mature December 31, 1999 and January 16, 2001.
Interest is due and payable quarterly at the rate of 8% per annum and there are
required annual principal payments. The aggregate balance outstanding on his
promissory notes as of December 31, 1999 and 1998 was $107,334 and $151,000,
respectively.
43
<PAGE>
PART IV
- -------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) 1. Consolidated Financial Statements of the Company
<TABLE>
<S> <C>
Report of Independent Accountants 51
Consolidated Balance Sheets as of December 31, 1999 and 1998 52
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998 and December 27, 1997 53
Consolidated Statements of Changes in Stockholders' Equity
as of December 31, 1999 and 1998 54
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 and December 27, 1997 55
Notes to Consolidated Financial Statements 56 through 82
2. Financial Statement Schedule
Schedule II - Valuation Reserves 83
3. Exhibits 2
</TABLE>
(a) Exhibits
Exhibit
Number Exhibit
- ------ -------
2.1 Asset Purchase Agreement, dated as of December 18, 1996, by and
between MBW Foods Inc. (as successor-in-interest to MBW Acquisition
Corp.) and Conopco, Inc., as amended. (Incorporated by reference to
Exhibit 2.1 to Aurora Foods Inc.'s Form S-4 filed on August 21, 1997,
File No. 333-24715 ("Aurora S-4")).
2.2 Asset Purchase Agreement, dated as of March 7, 1997, by and between
Aurora Foods Inc. and Kraft Foods, Inc. (Incorporated by reference to
Exhibit 2.2 to the Aurora S-4).
2.3 Asset Purchase Agreement, dated as of November 26, 1997, by and
between Aurora Foods Inc. and The Procter & Gamble Company.
(Incorporated by reference to Exhibit 2.1 to the Aurora Foods Inc.'s
Form 8-K filed on January 30, 1998 (the "Form 8-K")).
2.4 Merger Agreement, dated as of June 22, 1998, between the Aurora Foods
Inc. and A Foods Inc. (Incorporated by reference to Exhibit 2.1 to the
Aurora Foods Inc.'s Form S-1 filed on April 22, 1998, as amended, File
No. 338-50681 (the "S-1")).
2.5 Merger Agreement, dated as of June 25, 1998, among Aurora Foods
Holdings Inc., AurFoods Operating Co. Inc., VDK Holdings, Inc., Van de
Kamp's, Inc. and A Foods Inc. (Incorporated by reference to Exhibit
2.2 to the S-1).
2.6 Certificate of Merger, dated June 23, 1998, of Aurora Foods Inc. with
and into A Foods Inc. (Incorporated by reference to Exhibit 2.14 to
the S-1).
2.7 Amendment to Asset Purchase Agreement, dated as of February 13, 1997,
between Van de Kamp's, Inc. and Morningstar Foods, Inc. (Incorporated
by reference to Exhibit 2.2 to Van de Kamp's, Inc.'s Form 10-Q for the
quarter ended March 31, 1997).
2.8 Asset Purchase Agreement, dated as of February 3, 1997, between Van de
Kamp's, Inc. and Morningstar Foods, Inc. (Incorporated by reference to
Exhibit 2.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended
March 31, 1997).
44
<PAGE>
2.9 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).
2.10 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).
2.11 Asset Purchase and Sale Agreement, dated as of January 17, 1996,
between Shellfish Acquisition Company, LLC ("Shellfish") and Campbell
Soup Company ("Campbell"). (Incorporated by reference to the text of
which and Exhibits to which are incorporated by reference to Exhibit
2.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 30,
1996 and a list of the contents of the schedule of which is
incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s Form
8-K dated May 6, 1996).
2.12 Asset Purchase Agreement, dated as of January 17, 1996, between Van de
Kamp's, Inc. and Shellfish. (Incorporated by reference to Exhibit 2.2
to the Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 20,
1996).
2.13 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")).
2.14 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).
2.15 Asset Purchase Agreement, dated as of March 10, 1999, by and among the
Company and Sea Coast Foods, Inc., Galando Investments Limited
Partnership, Carry-on Limited Partnership, Joseph Galando, Barbara J.
Galando, Stanley J. Carey and Mary K. Carey (Incorporated by reference
to Exhibit 2.1 to the Form 10-Q for the quarter ended March 31, 1999).
2.16 Asset Purchase Agreement Dated September 24, 1999 between Aurora Foods
Inc. and The Eggo Company (Incorporated by reference to Exhibit 2.1 to
the Aurora Foods Inc. 8-K dated November 1, 1999).
3.1 Certificate of Incorporation of A Foods Inc., filed with the Secretary
of State of the State of Delaware on June 19, 1998. (Incorporated by
reference to Exhibit 3.1 to the S-1).
3.2 Amended and Restated By-laws of Aurora Foods Inc. (Incorporated by
reference to exhibit 3.2 to the S-1).
4.1 Indenture dated as of February 10, 1997, governing the 9 7/8% Series B
Senior Subordinated Notes due 2007 by and between Aurora Foods Inc.
and Wilmington Trust Company. (Incorporated by reference to Exhibit
4.1 to the Aurora S-4).
4.2 Specimen Certificate of 9 7/8% Series B Senior Subordinated Notes due
2007 (included in Exhibit 4.1 hereto). (Incorporated by reference to
Exhibit 4.2 to the Aurora S-4).
4.3 Form of Note Guarantee to be issued by future subsidiaries of Aurora
Foods Inc. pursuant to the Indenture (included in Exhibit 4.1 hereto).
(Incorporated by reference to Exhibit 4.4 to the Aurora S-4).
4.4 Indenture dated as of July 1, 1997, governing the 9 7/8% Series D
Senior Subordinated Notes due 2007 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).
45
<PAGE>
4.5 Specimen Certificate of 9 7/8% Series D Senior Subordinated Notes due
2007 (included in Exhibit 4.4 hereto). (Incorporated by reference to
Exhibit 4.3 to the Aurora S-4).
4.6 Form of Note Guarantee to be issued by future subsidiaries of Aurora
Foods Inc. pursuant to the Series D Indenture (included in Exhibit 4.4
hereto). (Incorporated by reference to Exhibit 4.8 to the Aurora S-
4).
4.7 Securityholders Agreement, dated as of April 8, 1998, by and among
Aurora/VDK LLC, MBW Investors LLC, VDK Foods LLC and the other parties
signatory thereto. (Incorporated by reference to Exhibit 4.2 to the
S-1).
4.8 Indenture dated as of July 1, 1998, governing the 8 3/4% Senior
Subordinated Notes due 2008 by and between Aurora Foods Inc. and
Wilmington Trust Company (Incorporated by reference to Exhibit 4.13 to
the S-1).
4.9 Specimen Certificate of 8 3/4% Senior Subordinated Notes due 2008.
4.10 Specimen Certificate of the Common Stock. (Incorporated by reference
to Exhibit 4.1 to the S-1).
4.11 Supplemental Indenture, governing the 9 7/8% Series D Senior
Subordinated Notes due 2007, dated as of April 1, 1999, among Sea
Coast Foods, Inc., Aurora Foods Inc. and Wilmington Trust Company, as
Trustee
4.12 Supplemental Indenture, governing the 9 7/8% Series C Senior
Subordinated Notes due 2007, dated as of April 1, 1999, among Sea
Coast Foods, Inc., Aurora Foods Inc. and Wilmington Trust Company, as
Trustee
4.13 Supplemental Indenture, governing the 8 3/4% Senior Subordinated Notes
due 2008, dated as of April 1, 1999, among Sea Coast Foods, Inc.,
Aurora Foods Inc. and Wilmington Trust Company, as Trustee
10.1 VDK Holdings, Inc. Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.1 to S-1).
10.2 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).
10.3 * 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).
10.4 * 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).
10.5 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).
10.6 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).
10.7 Trademark License Agreement, dated July 9, 1996 among Quaker Oats, The
Quaker Oats Company of Canada Limited and Van de Kamp's, Inc.
(Incorporated by reference to Exhibit H to Exhibit 2.1 to Van de
Kamp's, Inc.'s Form 8-K dated July 9, 1996).
10.8 First Amended and Restated Red Wing Co-Pack Agreement, dated as of
November 19, 1997, by and between Aurora Foods Inc. and The Red Wing
Company, Inc. (Confidential treatment for a portion of this document
has been requested by the Company). (Incorporated by reference to
Exhibit 10.16 to Aurora Foods Inc.'s Form 10-K, filed on March 27,
1998 (the "Aurora 10-K")).
46
<PAGE>
10.9 Production Agreement, dated November 19, 1997, by and between Aurora
Foods Inc. and The Red Wing Company, Inc. (Confidential treatment for
a portion of this document has been requested by the Company).
(Incorporated by reference to Exhibit 10.18 to the Aurora 10-K).
10.10 * Amendment No. 1 to Ferraro Employment Agreement, dated as of January
1, 1998, between Aurora Foods Inc. and Thomas J. Ferraro.
(Incorporated by reference to Exhibit 10.10 to the S-1).
10.11 * Amendment No. 1 to Willett Employment Agreement, dated as of January
1, 1998, between C. Gary Willett and Aurora Foods Inc. (Incorporated
by reference to Exhibit 10.13 to the S-1).
10.12 * Employment Agreement between Ian R. Wilson and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.7 to the S-1).
10.13 * Employment Agreement between James B. Ardrey and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.8 to the S-1).
10.14 * Employment Agreement between Ray Chung and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.9 to the S-1).
10.15 * Employment Agreement between M. Laurie Cummings and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.10 to the S-1).
10.16 * Amendment No. 1 to Ellinwood Amended and Restated Employment
Agreement, dated as of January 1, 1998, between Thomas O. Ellinwood
and Van de Kamp's, Inc. (Incorporated by reference to Exhibit 10.15 to
the S-1).
10.17 * Amended and Restated Employment Agreement, dated as of March 11, 1997,
by and between Thomas O. Ellinwood and Van de Kamp's, Inc.
(Incorporated by reference to Exhibit 10.16 to the S-1).
10.18 * Employment Agreement, dated as of February 16, 1998, by and between
Van de Kamp's, Inc. and Anthony A. Bevilacqua. (Incorporated by
reference to Exhibit 10.17 to the S-1).
10.19 Expense Agreement, made as of July 1, 1998, between Aurora Foods Inc.
and Dartford Partnership L.L.C. (Incorporated by reference to Exhibit
10.32 to the S-1).
10.20 * Advisory Agreement, made as of April 8, 1998, among Aurora/VDK LLC,
Van de Kamp's, Inc., VDK Holdings, Inc., Aurora Foods Inc. and Aurora
Foods Holdings Inc. and Dartford Partnership L.L.C. (Incorporated by
reference to Exhibit 10.33 to the S-1).
10.21 * Advisory Agreement, made as of April 8, 1998, among Aurora/VDK LLC,
Van de Kamp's, Inc., VDK Holdings, Inc., Aurora Foods Inc. and Aurora
Foods Holdings Inc. and MDC Management Company III, L.P. (Incorporated
by reference to Exhibit 10.34 to the S-1).
10.22 * Advisory Agreement, made as of April 8, 1998, between Fenway Partners,
Inc. and Aurora/VDK LLC, Van de Kamp's, Inc., VDK Holdings, Inc.,
Aurora Foods Inc. and Aurora Foods Holdings Inc. (Incorporated by
reference to Exhibit 10.35 to the S-1).
10.23 Indemnity Agreement, dated as of July 1, 1998, between Ian R. Wilson
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.46 to
the S-1).
10.24 Indemnity Agreement, dated as of July 1, 1998, between James B. Ardrey
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.49 to
the S-1).
10.25 Indemnity Agreement, dated as of July 1, 1998, between Clive A. Apsey
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.50 to
the S-1).
10.26 Indemnity Agreement, dated as of July 1, 1998, between David E. De
Leeuw and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.52 to the S-1).
47
<PAGE>
10.27 Indemnity Agreement, dated as of July 1, 1998, between Charles J.
Delaney and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.53 to the S-1).
10.28 Indemnity Agreement, dated as of July 1, 1998, between Richard C.
Dresdale and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.54 to the S-1).
10.29 Indemnity Agreement, dated as of July 1, 1998, between Andrea Geisser
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.55 to
the S-1).
10.30 Indemnity Agreement, dated as of July 1, 1998, between Peter Lamm and
Aurora Foods Inc. (Incorporated by reference to Exhibit 10.56 to the
S-1).
10.31 * 1998 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 10.48 to the Aurora Foods Inc. Form 10-K for the fiscal year
ended December 31, 1998).
10.32 Production Agreement, dated as of June 4, 1998, by and between Aurora
Foods Inc. and Gilster-Mary Lee Corporation. (Incorporated by
reference to Exhibit 10.48 to the S-1).
10.33 * 1998 Long Term Incentive Plan (Incorporated by reference to Exhibit
10.50 to the Aurora Foods Inc. Form 10-K for the fiscal year ended
December 31, 1998).
10.34 Fifth Amended and Restated Credit Agreement dated November 1, 1999 and
entered into by and among Aurora Foods Inc., as Borrower, the Lenders
listed therein, the Chase Manhattan Bank, as Administrative Agent for
the Lenders, National Westminster Bank PLC, as Syndication Agent, and
UBS AG, Stamford Branch, as Documentation Agent (Incorporated by
reference to Exhibit 10.1 to the Aurora Foods Inc. 8-K dated November
1, 1999).
10.35 Collective Bargaining Agreement between Lender's Bagel Bakery and
Bakery, Confectionery and Tobacco Workers of America Local # 429 -
September 1, 1998 to August 31, 2001.
21.1 Subsidiary of Aurora Foods Inc.
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule for the period ended December 31, 1999
including Restated Financial Data Schedule for the period ended
December 31, 1998 submitted to the Securities and Exchange Commission
in electronic format.
(b) Reports on Form 8-K
Date Filed
- ----------
October 1, 1999 Press release announcing the agreement to purchase the
Lender's Bagels business.
November 10, 1999 Acquisition of the Lender's Bagels business from The Eggo
Company on November 1, 1999, as amended by the 8-K/A's filed
on January 11 and 12, 2000. The financial statements
included with the 8-K/A's were as follows:
(a) Financial statements of the Business Acquired: the
statement of Acquired Assets and Liabilities as of
December 31, 1998 (audited) and September 30, 1999
(unaudited) and the Statement of Operations for the
year ended December 31, 1998 (audited) and nine months
ended September 30, 1999, together with the report of
independent accountants thereon.
48
<PAGE>
(b) Pro Forma Financial Information: the pro forma
statement of operations of Aurora Foods Inc. for the
year ended December 31, 1998 and the nine months ended
September 30, 1999 and the pro forma balance sheet as
of September 30, 1999 together with notes.
49
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AURORA FOODS INC.
By: /s/James T. Smith
-----------------
James T. Smith Director, President and Chief Executive
Officer
(Principal Executive Officer)
Date: April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on April 14, 2000.
/s/ Clive A. Apsey
--------------
Clive A. Apsey Director
/s/ George E. McCown
----------------
George E. McCown Director
/s/ Charles J. Delaney
------------------
Charles J. Delaney Director
/s/ David E. De Leeuw
-----------------
David E. De Leeuw Director and Vice Chairman
/s/ Richard C. Dresdale
-------------------
Richard C. Dresdale Director and Chairman of the Board
/s/ Andrea Geisser
--------------
Andrea Geisser Director and Treasurer
/s/ Peter Lamm
----------
Peter Lamm Director
/s/ Ronald S. Orr
-------------
Ronald S. Orr Director
/s/ Christopher T. Sortwell
-----------------------
Christopher T. Sortwell Director, Executive Vice President and Chief
Financial Officer
(Principal Accounting and Finance Officer)
/s/ James T. Smith
- --- --------------
James T. Smith Director, President and Chief Executive
Officer
(Principal Executive Officer)
50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders
of Aurora Foods Inc.
In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 14(a)(1) on page 44 present fairly, in all material
respects, the financial position of Aurora Foods Inc. and its subsidiary at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for the years ended December 31, 1999, December 31, 1998 and December 27,
1997 in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedules listed in
the index appearing under Item 14(a)(2) on page 44 present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements. 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 in the United States, 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.
As discussed in Note 1 to the consolidated financial statements, the Company
restated its December 31, 1998 financial statements for trade promotion
liabilities and certain other matters.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 9 to
the consolidated financial statements, the Company is not in compliance with
certain restrictive covenants contained in its long term debt permitting the
lender's to call repayment of such debt. This circumstance, at this time
unresolved, raises substantial doubt about the Company's ability to continue as
a going concern. Subsequent to December 31, 1999, the Company has obtained an
amendment to its Senior Secured Debt facility such that substantially all of its
debt would be classified as long-term in the event that it is able to obtain
appropriate waivers of covenant defaults in its subordinated indentures. The
Company has begun the process of negotiating to obtain these waivers. The
consolidated financial statements do not include any adjustments related to the
recoverability or classification of asset carrying amounts or the amount of
liabilities that might otherwise be necessary should the Company be unable to
continue as a going concern.
PricewaterhouseCoopers LLP
San Francisco, California
March 31, 2000
51
<PAGE>
AURORA FOODS INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
December 31,
1998
December 31, As Restated
1999 (Notes 1 & 20)
--------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 315 $ 354
Accounts receivable, net of $1,311 and $670 allowance, respectively 96,332 82,093
Inventories (Note 5) 123,967 77,331
Prepaid expenses and other assets 21,876 6,850
Current deferred tax assets (Note 11) 17,338 27,170
-------------------- ---------------------
Total current assets 259,828 193,798
Property, plant and equipment, net (Note 6) 257,443 152,085
Deferred tax asset (Note 11) 2,357 -
Goodwill and other intangible assets, net (Note 7) 1,294,995 1,072,759
Asset held for sale 800 3,000
Other assets 35,693 26,800
-------------------- ---------------------
Total assets $1,851,116 $1,448,442
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured term debt (Note 9) $ 571,571 $ 20,000
Senior secured revolving debt facility (Note 9) 105,600 85,850
Senior subordinated notes (Note 9) 402,049 -
Accounts payable 87,942 59,395
Accrued liabilities (Note 8) 105,192 83,433
-------------------- ----------------------
Total current liabilities 1,272,354 248,678
Non-current deferred tax liabilities (Note 11) - 5,047
Other liabilities 2,504 12,372
Senior secured term debt (Note 9) - 200,000
Senior subordinated notes (Note 9) - 402,242
-------------------- ---------------------
Total liabilities 1,274,858 868,339
-------------------- ---------------------
Commitments and contingent liabilities (Notes 5, 6, 12 and 16)
Stockholders' equity:
Preferred stock, $0.01 par value; 25,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, $0.01 par value; 250,000,000 shares authorized;
67,049,811 and 67,016,173 shares issued and outstanding,
respectively 670 670
Paid-in capital 648,254 647,889
Promissory notes (Note 14) (323) (562)
Accumulated deficit (72,343) (67,894)
-------------------- ---------------------
Total stockholders' equity 576,258 580,103
-------------------- ---------------------
Total liabilities and stockholders' equity $1,851,116 $1,448,442
==================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
52
<PAGE>
AURORA FOODS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1998
As Restated December 27,
1999 (Notes 1 & 20) 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net sales $ 995,418 $ 784,557 $ 143,020
Cost of goods sold 424,936 318,935 45,729
------------------ ------------------ -------------------
Gross profit 570,482 465,622 97,291
------------------ ------------------ -------------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution 103,518 77,553 17,096
Trade promotions 241,281 201,926 26,075
Consumer marketing 77,092 56,699 15,142
------------------ ------------------ -------------------
Total brokerage, distribution and marketing expenses 421,891 336,178 58,313
Amortization of goodwill and other intangibles 38,305 30,048 5,938
Selling, general and administrative expenses 35,596 25,955 5,229
Incentive plan expense (credit) (Note 15) (571) 56,583 2,300
Transition expenses (Note 10) 11,200 10,366 2,113
------------------ ------------------ -------------------
Total operating expenses 506,421 459,130 73,893
------------------ ------------------ -------------------
Operating income 64,061 6,492 23,398
Interest expense, net 68,403 64,493 18,242
Amortization of deferred financing expense 2,060 1,872 3,059
Other bank and financing expenses 838 259 83
------------------ ------------------ -------------------
Income (loss) before income taxes and extraordinary loss (7,240) (60,132) 2,014
Income tax expense (benefit) (Note 11) (2,791) (214) 779
------------------ ------------------ -------------------
Net income (loss) before extraordinary loss (4,449) (59,918) 1,235
Extraordinary loss on early extinguishment of debt,
net of tax of $5,632 - 9,211 -
------------------ ------------------ -------------------
Net income (loss) $ (4,449) $ (69,129) $ 1,235
================== ================== ===================
Basic and diluted earnings (loss) per share before
extraordinary loss $ (0.07) $ (1.12) $ 0.04
Extraordinary loss per share - 0.17 -
------------------ ------------------ -------------------
Basic and diluted earnings (loss) per share $ (0.07) $ (1.29) $ 0.04
================== ================== ===================
Weighted average number of shares outstanding 67,023 53,541 29,053
================== ================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
53
<PAGE>
AURORA FOODS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Retained
Common Additional Earnings
Stock Paid-in Promissory (Accumulated
--------------------
Shares Amount Capital Notes Deficit) Total
---------- ------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 29,053 $291 $ 32,979 $(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 29,053 291 63,912 (215) 1,235 65,223
Capital contribution (Notes 1 & - - 94,263 (473) - 93,790
14)
Shares issued for acquisition
of business (Note 3) 25,038 250 183,219 - - 183,469
Shares issued (Note 1) 12,909 129 254,702 - - 254,831
Equity offering costs - - (5,062) - - (5,062)
Employee stock
purchases (Note 17) 16 - 272 - - 272
Payments on officer promissory
notes (Note 14) - - - 126 - 126
Incentive plan expense (Note 15) - - 56,583 - - 56,583
Net loss - - - - (69,129) (69,129)
---------- ------- ----------- ----------- ------------ ---------
Balance at December 31, 1998 -
As restated (Notes 1 & 20) 67,016 670 647,889 (562) (67,894) 580,103
Employee stock
purchases (Note 17) 34 - 365 - - 365
Payments on officer promissory
notes (Note 14) - - - 239 - 239
Net loss - - - - (4,449) (4,449)
---------- ------- ----------- ----------- ------------ ---------
Balance at December 31, 1999 67,050 $670 $648,254 $(323) $(72,343) $576,258
========== ======= =========== =========== ============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
54
<PAGE>
AURORA FOODS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------
December 31,
--------------------------------------
1998
As Restated December 27,
1999 (Notes 1 & 20) 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,449) $ (69,129) $ 1,235
Early extinguishment of debt, net of tax of $5,632 - 9,211 -
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 55,256 41,336 10,057
Deferred income taxes (2,244) (184) 779
Incentive plan expense (Note 15) (571) 56,583 2,300
Loss on disposal of fixed assets 1,780 - -
Change in assets and liabilities, net of effects of
businesses acquired:
Increase in accounts receivable (6,625) (29,872) (13,356)
(Increase) decrease in inventories (22,664) (37,233) 2,975
Increase in prepaid expenses and other current assets (14,728) (3,733) (1,946)
Increase in accounts payable 19,528 43,573 6,443
Increase (decrease) in accrued liabilities (1,281) 38,727 14,624
Decrease in other noncurrent liabilities (12,853) - -
---------------- ---------------- ----------------
Net cash provided by operating activities 11,149 49,279 23,111
---------------- ---------------- ----------------
Cash flows from investing activities:
Additions to property, plant and equipment (25,281) (38,710) (2,411)
Changes to other non-current assets and liabilities (6,002) (4,343) (925)
Proceeds from sale of assets - 28,012 -
Payment for acquisition of businesses (Note 3) (343,885) (462,784) (225,930)
---------------- ---------------- ----------------
Net cash used in investing activities (375,168) (477,825) (229,266)
---------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from senior secured revolving and term debt (Note 9) 633,400 864,350 90,000
Proceeds from senior subordinated notes (Note 9) - 200,000 202,500
Repayment of borrowings (262,080) (947,259) (107,500)
Payment of redemption premium (Note 1) - (14,500) -
Proceeds from initial public offering - 254,831 -
Capital contributions, net of officer promissory notes 605 94,188 28,500
Debt issuance and equity offering costs (7,945) (27,427) (11,294)
---------------- ---------------- ----------------
Net cash provided by financing activities 363,980 424,183 202,206
---------------- ---------------- ----------------
Decrease in cash and cash equivalents (39) (4,363) (3,949)
Cash and cash equivalents, beginning of period 354 4,717 8,666
---------------- ---------------- ----------------
Cash and cash equivalents, end of period $ 315 $ 354 $ 4,717
================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
55
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1 - THE COMPANY
- --------------------
RESTATEMENTS
Prior to the issuance of the Company's financial statements as of and for the
year ended December 31, 1999, it was determined that the results reported in the
Company's Form 10-K as of and for the year ended December 31, 1998 as well as
the interim results reported in the Company's Forms 10-Q as of and for the
periods ended September 30, 1998, March 31, 1999, June 30, 1999 and September
30, 1999 were misstated. Upon further investigation, it was determined that
liabilities that existed for certain trade promotion and marketing activities
and other expenses (primarily sales returns and allowances, distribution and
consumer marketing) were improperly deferred into future periods and that
certain assets were overstated (primarily accounts receivable, inventories and
fixed assets). In addition, certain activities were improperly recognized as
sales. As a result, the financial statements as of and for the year ended
December 31, 1998 as well as the unaudited quarterly financial data as of and
for the interim periods ended September 30, 1998, March 31, 1999, June 30, 1999
and September 30, 1999 have been restated. The restated financial statements as
of and for the year ended December 31, 1998 have been included in the
consolidated financial statements included herein. Unaudited restated condensed
financial statement information for the quarters ended September 30, 1998, March
31, 1999, June 30, 1999 and September 30, 1999 have been included in the notes
to the consolidated financial statements included herein.
For the year ended December 31, 1998, these misstatements primarily understated
trade promotions expense by $28.5 million, overstated net sales by $4.6 million,
understated brokerage and distribution expense by $2.8 million and understated
cost of goods sold by $1.4 million. After adjusting for the misstatements, the
Company recalculated its income tax provision reducing income tax expense by
$14.5 million. The impact of the misstatements on reported operating results for
the year ended December 31, 1998, was to overstate gross profit by $6.0 million,
operating income by $38.3 million, and net income by $23.8 million.
A summary of the effects of the restatement are set forth in Notes 20 and 21.
OPERATIONS
Aurora Foods Inc. (the "Company") produces and markets branded food products
that are sold across the United States. The Company groups its brands into two
segments: the dry grocery division and the frozen food division. The dry grocery
division includes Duncan Hines(R) baking mix products and Mrs. Butterworth's(R)
and Log Cabin(R) breakfast products. The frozen food division includes Van de
Kamp's(R) and Mrs. Paul's(R) frozen seafood, Aunt Jemima(R) frozen breakfast
products, Celeste(R) frozen pizza products, Chef's Choice(R) frozen skillet
meals and Lender's(R) frozen bagel products. The dry grocery division's products
are manufactured under long-term co-packing agreements with third parties. The
Company's manufacturing equipment has been installed at certain production
facilities of contract manufacturer partners. The frozen food division's Chef's
Choice(R) products are packaged by a contract manufacturer and the meal
components are sourced from several suppliers. The remaining frozen food
division's products are manufactured out of production facilities that are owned
and operated by the Company in Erie, Pennsylvania; Jackson, Tennessee; Yuba
City, California; Mattoon, Illinois and West Seneca, New York.
ORGANIZATION
The Company was incorporated in Delaware on June 19, 1998, as the successor to
Aurora Foods Holdings Inc. ("Holdings") and its subsidiary, AurFoods Operating
Co., Inc. (formerly known as Aurora Foods Inc.) ("AurFoods"), both of which were
incorporated in Delaware in December 1996. AurFoods was wholly-owned by
Holdings, which in turn was wholly-owned by MBW Investors LLC ("MBW LLC").
AurFoods was formed for the purpose of acquiring the Mrs. Butterworth's(R) syrup
business ("MBW") from Conopco, Inc., a subsidiary of Unilever United States,
Inc. ("Conopco"). AurFoods subsequently acquired the Log Cabin(R) syrup business
("LC")
56
<PAGE>
from Kraft Foods, Inc. ("Kraft") in July 1997 and the Duncan Hines(R) baking mix
business ("DH") from The Procter & Gamble Company ("P&G") in January 1998.
Van de Kamp's, Inc. ("VDK") was a wholly-owned subsidiary of VDK Holdings, Inc.,
a Delaware corporation ("VDK Holdings") which was incorporated in Delaware in
July 1995 for the purpose of acquiring the Van de Kamp's(R) frozen seafood and
frozen dessert businesses from The Pillsbury Company in September 1995. VDK then
acquired the Mrs. Paul's(R) frozen seafood business from the Campbell Soup
Company in May 1996 and the Aunt Jemima(R) frozen breakfast and Celeste(R)
frozen pizza businesses from The Quaker Oats Company in July 1996. VDK Holdings
was wholly-owned by VDK Foods LLC ("VDK LLC").
On April 8, 1998, MBW LLC and VDK LLC formed Aurora/VDK LLC ("New LLC"). MBW LLC
contributed all of the capital stock of Holdings and VDK LLC contributed all of
the capital stock of VDK Holdings to New LLC (the "Contribution"). In return for
these contributions, MBW LLC was issued 55.5% of the interests in New LLC plus a
right to receive a special $8.5 million priority distribution from New LLC, and
VDK LLC was issued 44.5% of the interests in New LLC plus a right to receive a
special $42.4 million priority distribution from New LLC. The amount and source
of consideration used by MBW LLC and VDK LLC for their acquisition of interests
in New LLC was their equity in Holdings and VDK Holdings, respectively. New LLC
accounted for the contribution of the ownership of Holdings at MBW LLC's
historical cost and the contribution of the ownership of VDK Holdings was
accounted for as an acquisition using the purchase method of accounting at New
LLC's cost. After giving effect to the Contribution, New LLC directly held 100%
of Holdings' capital stock and Holdings continued to directly hold 100% of
AurFoods capital stock. New LLC also directly held 100% of VDK Holdings' capital
stock and VDK Holdings continued to directly hold 100% of VDK's capital stock.
On June 25, 1998, New LLC contributed to the Company all the issued and
outstanding stock of Holdings and VDK Holdings. Therefore, the Company's
financial statements, as it is the successor to Holdings, include the historical
financial information of Holdings from its inception. New LLC was then dissolved
in connection with the IPO (defined below).
On July 1, 1998, Holdings, AurFoods, VDK Holdings and VDK merged with and into
the Company, and the Company consummated an initial public offering of
12,909,372 shares of its Common Stock (the "IPO"). Concurrently with the IPO,
New LLC also sold 1,590,628 shares of the Company's common stock to the public
at a price of $21.00 per share. The sale of stock by New LLC and the IPO are
together herein referred to as the "Equity Offerings." The proceeds received by
New LLC were used to satisfy the $8.5 million priority distribution to MBW LLC
and, in combination with common stock, also satisfied the $42.4 million priority
distribution to VDK LLC. Also, concurrently with the IPO, the Company issued
$200.0 million aggregate principal amount of 8.75% senior subordinated notes due
2008 (the "Notes Offering" or "New Notes") and borrowed $225.0 million of senior
secured term debt and $99.0 million out of a total of $175.0 million of
available senior secured revolving debt under the Third Amended and Restated
Credit Agreement, dated as of July 1, 1998, among the Company, as borrower, the
lenders listed therein, The Chase Manhattan Bank, as Administrative Agent, The
National Westminster Bank PLC, as Syndication Agent and Swiss Bank Corporation,
as Documentation Agent (the "New Senior Bank Facilities").
The Company used the net proceeds from the IPO, the Notes Offering and the New
Senior Bank Facilities to (i) repay $180.8 million of senior secured bank debt
under the Second Amended and Restated Credit and Guarantee Agreement, dated as
of July 9, 1996, among VDK Holdings, VDK, the banks and other financial
institutions parties thereto and The Chase Manhattan Bank, as agent, as amended
(the "VDK Senior Bank Facilities"), (ii) repay $467.0 million under the Aurora
Senior Bank Facilities (as defined in Note 3), (iii) redeem the 12% Senior
Subordinated Notes due 2005 issued under an Indenture dated as of September 15,
1995, between VDK and Harris Trust and Savings Bank, as Trustee (the "VDK
Notes") (redemption completed on July 31, 1998) in the principal amount of
$100.0 million and (iv) pay the $14.5 million redemption premium associated with
the VDK Notes (in whole or in part, the "Refinancings"). As a result of the
early extinguishment of the Aurora Senior Bank Facilities, the Company recorded
in the year ended December 31, 1998 an extraordinary charge of $7.3 million, net
of income tax of $4.4 million, for the write off-of deferred financing charges.
As a consequence of the IPO, no additional incentive plan expense will be
recorded under the Aurora Plan (See Note 15 - Incentive Plan Expense). MBW LLC
satisfied its liability under the Aurora Plan by distributing shares of the
Company's common stock in connection with the liquidation of MBW LLC.
On April 1, 1999, the Company acquired 100% of the stock in Sea Coast Foods,
Inc. ("Seacoast") from Galando Investment Limited Partnership, Carey-On Limited
Partnership, Joseph A. Galando, Barbara J. Galando, Stanley J. Carey and Mary K.
Carey for a purchase price of $51.2 million, subject to an "earn-out" clause
under which the sellers may be entitled to further consideration based on the
performance of Seacoast over a specified period. Any such payment, if any, will
be recorded as an adjustment to the purchase price and, accordingly, goodwill.
The
57
<PAGE>
consolidated financial statements include the accounts of the Company and
Seacoast, its wholly-owned subsidiary since the acquisition. On November 1,
1999, the Company acquired all the assets of the Lender's Bagel business
("Lender's") from The Eggo Company, a subsidiary of Kellogg Company
("Kellogg's") for $275.5 million, subject to adjustment based on the level of
working capital acquired as of the date of closing. The consolidated financial
statements include the operations of Lender's since its acquisition.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
The policies utilized by the Company in the preparation of the consolidated
financial statements conform to generally accepted accounting principles and
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual amounts could differ from these
estimates and assumptions. The Company uses the accrual basis of accounting in
the preparation of its financial statements.
FISCAL YEAR
The Company's fiscal year ends on December 31. The Company's 1997 fiscal year
ended on the last Saturday of December. Accordingly for fiscal years 1998 and
1997, the results of operations and cash flows reflect activity for the period
from December 28, 1997 through December 31, 1998 and from December 31, 1996
(commencement of operations) through December 27, 1997. The Company has
presented balance sheets as of December 31, 1999 and 1998. Certain prior year
amounts have been reclassified to conform with the current year's presentation.
PRINCIPLES OF CONSOLIDATION
The Consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany transactions are
eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined
using the first-in first-out (FIFO) method. Inventories include the cost of the
Company's or the contract manufacturers' raw materials, packaging, labor and
manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the individual assets ranging from three to thirty years. Costs
that improve an asset or extend its useful life are capitalized, while repairs
and maintenance costs are expensed as incurred. Depreciation expense for the
years ended December 31, 1999, 1998, and December 27, 1997 was 15.1 million, 9.9
million and $1.1 million, respectively.
Depreciable lives for major classes of assets are as follows:
Computers 3-5 years
Furniture and fixtures 2-8 years
Machinery and equipment 10-15 years
Buildings and improvements 20-30 years
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets include goodwill, trademarks and various
identifiable intangible assets purchased by the Company. Goodwill, which
represents the excess of cost over the net tangible assets of acquired
businesses, is being amortized over forty years using the straight-line method.
Other intangible assets, which include the costs of trademarks and other
identifiable intangibles, 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
58
<PAGE>
income for the years ended December 31, 1999 and 1998 and December 27, 1997 was
$34.8 million, $30.0 million and $5.9 million, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
Upon commencement of operations, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS 121 requires the Company to review long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The assessment of impairment is based on the estimated undiscounted
future cash flows from operating activities compared with the carrying value of
the assets. If the undiscounted future cash flows of an asset are less than the
carrying value, a write-down would be recorded, measured by the amount of the
difference between the carrying value of the asset and the fair value of the
asset. Management believes that there has been no impairment at December 31,
1999.
OTHER ASSETS
Other assets consist of deferred loan acquisition costs, systems software,
packaging design and plates, and other miscellaneous assets. Deferred loan
acquisition costs are being amortized using the effective interest method over
the terms of the respective debt. Aggregate amortization of deferred loan
acquisition costs and other assets charged against income for the years ended
December 31, 1999 and 1998 and December 27, 1997 was $5.6 million, $1.9 million
and $3.1 million, respectively.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product and transfer of title to
customers. Sales and returns and allowances are included in net sales.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the fair
value of financial instruments, other than the senior subordinated notes,
approximates book value at December 31, 1999. The fair market value of the New
Notes and the Notes (as defined in Note 9 - Long Term Debt) at December 31,
1999, based on market prices, was $225.2 million and $193.4 million,
respectively. The fair value of the Company's interest rate agreements was $2.3
million.
CONCENTRATION OF CREDIT RISK
The Company sells its products to supermarkets, foodservice operators and other
retail channels. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and had no significant concentration of
credit risk at December 31, 1999.
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 EXPENSES
Advertising expenses are included in consumer marketing and include the costs to
produce, distribute and air print media, television and radio advertising for
the Company's products. Such costs are expensed ratably over the year in
relation to revenues.
TRADE PROMOTIONS EXPENSE
Trade promotions expense includes the costs paid to retailers to promote the
Company's products. Such costs include amounts paid to customers for space in
the retailers' stores ("slotting fees"), amounts paid to provide samples of the
Company's products to consumers, and amounts paid to obtain favorable display
positions in the
59
<PAGE>
retailers' stores. These deals are offered to customers in lump sum payments and
as rate per unit allowances as dictated by industry norms. The Company expenses
slotting fees when incurred or, when under a contract, over a period not to
exceed 12 months and expenses other trade promotions in the period during which
the deals occur.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for
Stock Based Compensation, allows companies to measure compensation cost in
connection with employee stock compensation plans either using a fair value-
based method or to continue to use the intrinsic value-based method prescribed
by Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock
Issued to Employees, and its related interpretations, which generally does not
result in compensation cost. The Company measures compensation cost in
accordance with APB 25. The Company's stock-based compensation plans are
discussed in Note 17.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is effective for all fiscal years
beginning after June 15, 2000. SFAS 133 requires that all derivatives be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of SFAS 133 will not have a significant effect on the Company's results
of operations or its financial position.
NOTE 3 - BUSINESS ACQUISITIONS
- ------------------------------
LOG CABIN
On July 1, 1997, the Company acquired substantially all the assets of LC from
Kraft. The Company manufactures the Log Cabin(R) products under co-packing
agreements with third parties.
The Company acquired the inventories, certain manufacturing equipment and
intangible assets of LC for a purchase price of $222.0 million. The acquisition
was accounted for by using the purchase method of accounting. The acquisition
was financed by (i) a capital contribution from Holdings of approximately $28.6
million, (ii) term loans of $40.0 million and revolving loans of $47.0 million
borrowed under a senior secured debt facility, and (iii) proceeds of $102.5
million received in a senior subordinated note offering.
The cost to acquire LC has been allocated to tangible and intangible assets
acquired, as follows (in thousands):
Cash paid to acquire assets $ 221,995
Other acquisition costs 5,019
-------------
227,014
Costs assigned to tangible assets (15,266)
-------------
Cost attributable to intangible
assets $ 211,748
=============
DUNCAN HINES
On January 16, 1998, the Company acquired all the assets of DH from P&G for a
purchase price of $445.0 million. The assets acquired by the Company include (i)
the Duncan Hines(R) brand and associated trademarks, (ii) substantially all of
the equipment used for the manufacture of Duncan Hines(R) products currently
located in P&G's Jackson, Tennessee facility, (iii) proprietary formulations for
Duncan Hines(R) products, (iv) other product specifications and customer lists
and (v) rights under certain contracts, licenses, purchase orders and other
arrangements and permits. The Company uses the acquired assets in its operations
of DH. The acquisition was accounted for by using the purchase method of
accounting.
60
<PAGE>
To finance the acquisition of DH and related costs, the Company refinanced its
previously existing senior bank facilities with $450.0 million of senior secured
term debt under the Second Amended and Restated Credit Agreement, dated as of
January 16, 1998 by and among Holdings, the Company, the lenders listed therein,
The Chase Manhattan Bank, The National Westminster Bank PLC, and Swiss Bank
Corporation (the "Aurora Senior Bank Facilities"), and received a capital
contribution from Holdings of $93.8 million. As a result of the new bank
borrowings under the Aurora Senior Bank Facilities, the Company incurred an
early extinguishment of its pre-DH senior secured bank debt and the write-off of
the associated deferred financing charges was recorded in the quarter ended
March 28, 1998 as an extraordinary charge of $1.9 million, net of income taxes
of $1.2 million.
The cost to acquire DH has been allocated to tangible and intangible assets
acquired as follows (in thousands):
Cash paid to acquire assets $ 445,000
Other acquisition costs 11,544
------------
456,544
Cost assigned to tangible assets (38,922)
------------
Cost attributable to intangible
assets $ 417,622
============
VDK HOLDINGS, INC.
On April 8, 1998, the Company completed a stock purchase of VDK Holdings (See
Note 1). The Company acquired all the capital stock of VDK Holdings in exchange
for $183.5 million of the Company's equity. The acquisition was accounted for
using the purchase method of accounting.
The cost to acquire VDK Holdings has been allocated to tangible and intangible
assets acquired as follows (in thousands):
Value of stock used to acquire VDK Holdings $ 183,469
Liabilities assumed 386,362
Other acquisition costs 10,688
-------------
580,519
Cost assigned to tangible assets (199,757)
-------------
Cost attributable to intangible
assets $ 380,762
=============
SEACOAST
On April 1, 1999, the Company acquired 100% of the stock in Seacoast from
Galando Investment Limited Partnership, Carey-On Limited Partnership, Joseph A.
Galando, Barbara J. Galando, Stanley J. Carey and Mary K. Carey for a purchase
price of $51.2 million, subject to an "earn-out" clause under which the sellers
may be entitled to further consideration based on the performance of Seacoast
over a specified period. Any such payment, if any, will be recorded as an
adjustment to the purchase price and, accordingly, goodwill.
The cost to acquire Seacoast has been allocated to tangible and intangible
assets acquired as follows (in thousands):
Cash paid to acquire Seacoast $ 51,230
Other acquisition costs 2,173
-------------
53,403
Cost assigned to tangible assets (2,482)
-------------
Cost attributable to intangible
assets $ 50,921
=============
LENDER'S BAGELS
61
<PAGE>
On November 1, 1999, the Company acquired all the assets of Lender's from the
Eggo Company. The assets acquired by the Company include (i) Lender's(R) and all
associated trademarks, (ii) the plants and the accompanying assets in Mattoon,
Illinois and West Seneca, New York, (iii) proprietary formulations for Lender's
products, (iv) other product specification and customer lists and (v) rights
under certain contracts, licenses, purchase orders and other arrangements and
permits. The purchase price of approximately $275.5 million was based on an arms
length negotiation between the Company and the Eggo Company. The purchase price
is subject to adjustment based on the level of working capital acquired as of
the date of closing. This adjustment is currently in negotiation with the
seller. The acquisition was accounted for by using the purchase method of
accounting. The allocation of the purchase price has not been finalized;
however, any changes are not expected to be material.
To finance the acquisition of Lender's and related costs, the Company added
$275.0 million of senior secured term debt to its existing senior bank
facilities under the Fifth Amended and Restated Credit Agreement dated October
31, 1999, among the Company, as borrower, the lenders listed therein, The Chase
Manhattan Bank, as Administrative Agent, The National Westminster Bank PLC, as
Syndication Agent and UBS AF, Stamford Branch, as Documentation Agent ("Fifth
Senior Bank Facilities").
The cost to acquire the Lender's business has been allocated to tangible and
intangible assets acquired as follows (in thousands):
Cash paid to acquire assets $ 275,509
Other acquisition costs 3,321
----------
278,830
Costs assigned to tangible assets (96,463)
----------
Costs attributable to intangible assets $ 182,367
==========
Had the Lender's, Seacoast, VDK Holdings and DH acquisitions and related
financings taken place January 1, 1998, the unaudited pro forma results of
operations for the years ended December 31, 1999 and 1998, would have been as
follows (in thousands):
Year ended December 31,
----------------------------------------------
1998
1999 As Restated
--------------------- ---------------------
Net sales $1,190,019 $1,211,352
===================== =====================
Gross profit $ 682,004 $ 706,755
===================== =====================
Operating income $ 80,550 $ (34,933)
(loss)
===================== =====================
NOTE 4 - SUPPLEMENTAL CASH FLOW DISCLOSURE
- ------------------------------------------
Cash paid for interest for the years ended December 31, 1999 and 1998 and
December 27, 1997, was $67.7 million, $60.2 million, and $10.1 million,
respectively. Cash paid for income taxes for the years ended December 31, 1999
and 1998 and December 27, 1997, was $0.1 million, $0.3 million and $0.2 million,
respectively.
62
<PAGE>
BARTER TRANSACTION
On September 30, 1999, the Company entered into a barter transaction agreement
with Active Media Services, Inc. ("Active") in which it agreed to exchange
inventory with a carrying value of $786,000 for credits to be redeemed for
broadcast media, electronic media, print media, and outdoor media. The credits
provide a $0.25 reduction for every dollar spent on such media up to a maximum
of $3.6 million in credits. The media related to such credits needs to be
purchased by February 28, 2003. The media credits were valued at the carrying
value of the exchanged inventory and classified as prepaid advertising. At
December 31, 1999, the amount of prepaid advertising relating to these credits
is $786,000. For cash flow statement purposes, this is a non-cash transaction.
NOTE 5 - INVENTORIES
- --------------------
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998
1999 As Restated
-------------- ---------------
<S> <C> <C>
Raw materials $ 29,187 $ 17,999
Work in process 1,262 271
Finished goods 83,900 55,280
Packaging and other supplies 9,618 3,781
-------------- --------------
$ 123,967 $ 77,331
============== ==============
</TABLE>
At December 31, 1999 and 1998, the Company had commitments to buy raw materials
of $17.3 million and $23.8 million, respectively.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998
1999 As Restated
-------------- ---------------
<S> <C> <C>
Land $ 3,436 $ 2,300
Machinery and equipment 226,806 106,227
Buildings and improvements 27,342 14,339
Furniture and fixtures 3,853 2,163
Computer equipment 3,052 2,065
Construction in progress 18,952 35,682
-------------- ---------------
283,441 162,776
Less accumulated depreciation (25,998) (10,691)
-------------- ---------------
$ 257,443 $ 152,085
============== ===============
</TABLE>
At December 31, 1999 and 1998, the Company had commitments for facility
construction and related machinery and equipment purchases aggregating
approximately $0.0 million and $4.9 million. During 1999 and 1998, the Company
capitalized interest costs of $1.2 million and $0.8 million, respectively.
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<PAGE>
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
- ---------------------------------------------
Goodwill and other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998
1999 As Restated
-------------- --------------
<S> <C> <C>
Goodwill $ 785,746 $ 684,680
Trademarks 488,239 332,780
Other intangibles 90,758 90,265
-------------- --------------
1,364,743 1,107,725
Less accumulated amortization (69,748) (34,966)
-------------- --------------
$1,294,995 $1,072,759
============== ==============
</TABLE>
NOTE 8 - ACCRUED LIABILITIES
- ----------------------------
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998
1999 As Restated
-------------- --------------
<S> <C> <C>
Accrued marketing expenses $ 40,940 $ 38,104
Accrued interest 18,567 16,332
Accrued brokerage and distribution 19,196 10,411
expenses
Accrued acquisition costs 12,008 6,059
Other 14,481 12,527
-------------- --------------
$ 105,192 $ 83,433
============== ==============
</TABLE>
BARTER TRANSACTION
On November 16, 1999, the Company entered into a Sale and Repurchase Agreement
with Active and First International Bank ("FIB"), whereby FIB agreed to provide
cash in the amount of $3.3 million to the Company in exchange for the sale and
assignment of media credits (See Note 4) and the obligation of the Company to
repurchase the media credits by November 16, 2000. If the Company repurchases
all of the media credits from FIB before the termination date, FIB will pay to
the Company a rebate amount equal to the sum of the repurchase amount paid less
the principal amount of the loan, accrued interest, and unpaid fees. Should the
Company not repurchase all of the credits by the termination date, the Company
will be obligated to repurchase the unused credits or extend the agreement. The
Company paid FIB a loan structuring fee of $132,000 related to the arrangement.
The note payable carries an implied interest rate of 9.08%. As of December 31,
1999, $3.2 million remained on the note and was classified in other accrued
liabilities.
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<PAGE>
NOTE 9 - LONG TERM DEBT
- -----------------------
Long term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------------ --------------
<S> <C> <C>
SENIOR SECURED DEBT
Senior secured tranche A debt - interest rate of 7.93% at December 31, 1999;
principal due in quarterly installments through June 30, 2005; floating interest
rate at the prime rate plus 0.75%, or alternatively, the one, three or six month
Eurodollar rate plus 1.75% payable quarterly or at the termination of the
Eurodollar contract interest period $ 197,845 $ -
Senior secured tranche B debt - interest rate of 8.64% at December 31, 1999;
principal due in quarterly installments through September 30, 2006; floating
interest rate at the prime rate plus 1.50%, or alternatively, the one, three or
six month Eurodollar rate plus 2.50% payable quarterly or at the termination of
the Eurodollar contract interest period 373,726 -
Senior secured term debt; interest rate of 6.80% at December 31, 1998; principal
due in quarterly installments through June 30, 2005; floating interest rate at
the prime rate plus .50% or alternatively, the one, two three or six month
Eurodollar rate plus 1.50% payable quarterly or at the termination of the
Eurodollar contract interest period - 220,000
Senior secured revolving debt; weighted average interest rate of 7.00% at
December 31, 1998; principal due June 30, 2005; floating interest rate at the
prime rate plus 0.50% or, alternatively, the one, three or six month Eurodollar
rate plus 1.50% payable quarterly or at the termination of the Eurodollar
contract interest period - 85,850
Senior secured revolving debt; weighted average interest rate of 8.20% at
December 31, 1999; principal due June 30, 2005; floating interest rate at the
prime rate plus 0.75%, or alternatively, the one, three or six month Eurodollar
rate 1.75% payable quarterly or at the termination of the Eurodollar contract
interest period 105,600 -
SENIOR SUBORDINATED NOTES
Senior subordinated notes issued July 1, 1998 at par value of $200,000; coupon
interest rate of 8.75% with interest payable each January 1 and July 1, matures
July 1, 2008 200,000 200,000
Senior subordinated notes issued July 1, 1997 at par value of $100,000 plus
premium of $2,500; net of unamortized premium of $2,049 and $2,242 at December
31, 1999 and December 31, 1998, respectively; coupon interest rate of 9.875%
with interest payable each August 15 and February 15; matures on February 15,
2007 100,000 100,000
Senior subordinated notes issued February 10, 1997 at par value of $100,000;
coupon interest rate of 9.875% with interest payable each August 15 and February
15; matures on February 15, 2007 100,000 100,000
------------ --------------
1,077,171 705,850
Add: Unamortized premium on senior subordinated notes 2,049 2,242
------------ --------------
Less: Current portion of long term debt, senior secured revolving and
debt facility (1,079,220) (105,850)
------------ --------------
Long term debt $ - $ 602,242
============ ==============
</TABLE>
As indicated below, the Company is currently in default on its Senior Secured
Debt and its Senior Subordinated Notes. As a result, the Company has classified
all amounts due under these facilities as current. Were the Company
65
<PAGE>
not in default under these facilities, annual principal payments for the next
five years and thereafter would consist of the following (dollars in thousands):
<TABLE>
<S> <C>
2000 $ 27,980
2001 32,926
2002 37,872
2003 42,818
2004 47,764
Thereafter 887,811
----------
Total $1,077,171
==========
</TABLE>
SENIOR SECURED DEBT
On December 31, 1996, the Company entered into a Credit Agreement (the
"Agreement") with several banks for $15.0 million of senior secured term debt
and a $45.0 million senior secured revolving debt facility.
The Company amended the Agreement, dated as of July 1, 1997, to provide for
borrowings of $40.0 million of senior secured term debt and a $60.0 million
senior secured revolving debt facility. Together with a $100.0 million senior
subordinated note offering and capital contributed from Holdings, the Company
consummated the LC acquisition, paid fees and expenses and provided for the
working capital requirements related to the acquisition.
The Company amended the Agreement, dated as of January 16, 1998, to provide for
borrowings of $450.0 million of senior secured term debt and a $75.0 million
senior secured revolving debt facility. Together with capital contributed from
Holdings, the Company consummated the DH acquisition, paid fees and expenses and
provided for the working capital requirements related to the acquisition.
The Company amended the Agreement, dated as of July 1, 1998, to provide for
borrowings of $225.0 million of senior secured term debt and a $175.0 million
senior secured revolving debt facility. Together with a $200.0 million senior
subordinated note offering, the Company completed the repayment of debt in
connection with the Refinancings.
The Company amended the Agreement, dated as of March 31, 1999, to provide for
additional borrowings of $100.0 million of senior secured term debt. The
proceeds were used to finance the acquisition of Seacoast and related costs and
reduce the outstanding revolving credit facility balance.
The Company amended the Agreement, dated November 1, 1999, to provide for
additional borrowings of $275.0 million of senior secured term debt to finance
the acquisition of the Lender's(R) bagel business and related costs.
The $175.0 million senior secured revolving debt facility is subject to
limitations based on letters of credit. At December 31, 1999, the Company had
unused borrowing availability of $69.4 million. The Agreement requires a
commitment fee of 0.375% per annum payable quarterly on the unused portions of
the revolving debt facility.
The Agreement includes restrictive covenants, which limit additional borrowing,
cash dividends, and capital expenditures while also requiring the Company to
maintain certain financial ratios.
As a result of the adjustments to the Company's unaudited interim financial
results for the first, second and third quarters of 1999 and the third quarter
of 1998, and adjustments to its audited financial results for the year ended
December 1998, the Company was in default of a number of provisions of the
Agreement. The Company and the lenders amended the Agreement effective March
29, 2000. The amendment to the Agreement includes provisions that:
. amends the financial covenants;
. waives certain existing defaults of covenants and breaches of
representations and warranties;
. establish the interest rate on borrowings made pursuant to the
facility; and
. contemplates the sale by the Company of accounts receivable subject to
approval by the Agent and majority lenders of the terms of such
arrangement.
In addition to the above amendments, the senior debt holders agreed to forebear,
through June 30, against their cross-defaults with the senior subordinated note
indentures which also suffered events of default due to the restatements.
Negotiations are currently underway to obtain the requisite subordinated
consents necessary to waive these defaults and bring the senior subordinated
notes into compliance. In the event that these consents are not obtained by June
30, the senior lenders could exercise their rights under the Amended Credit
Agreement. Such exercised rights could include the acceleration of $675 million
of senior debt plus accrued and unpaid interest. In such an event, the Company
could be forced to seek protection under federal bankruptcy laws.
66
<PAGE>
SENIOR SUBORDINATED NOTES
On February 10, 1997, the Company issued $100.0 million of senior subordinated
notes (the "MBW Notes"). The proceeds from the MBW Notes were primarily used to
retire debt incurred to finance the MBW acquisition. On July 1, 1997, the
Company issued $100.0 million of senior subordinated notes (the "LC Notes").
The LC Notes were issued at a premium in the amount of $2.5 million. The
unamortized balance of the premium on the LC Notes at December 31, 1999 and
December 27, 1998 was $2.0 million and $2.2 million, respectively. The proceeds
from the LC Notes were primarily used to fund the acquisition of LC (together,
the MBW Notes and the LC Notes are the "Notes").
The Company may redeem the Notes at any time after February 15, 2002, at the
redemption price together with accrued and unpaid interest. 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.
On July 1, 1998, the Company issued the New Notes. The proceeds from the New
Notes were used to repay senior secured debt and senior subordinated debt and
pay fees and expenses related to the repayment of the debt in connection with
the Refinancings.
The Company may redeem the New Notes at any time after July 1, 2003, at the
redemption price together with accrued and unpaid interest. In addition, the
Company may redeem $70.0 million of the New Notes at any time prior to July 1,
2003 subject to certain requirements, with the cash proceeds received from one
or more Subsequent Equity Offerings (as defined), at a redemption price of
108.75% together with accrued and unpaid interest. Upon a Change in Control (as
defined), the Company has the option at any time prior to July 1, 2003, to
redeem the New Notes at a redemption price of 100% plus the Applicable Premium
(as defined), together with accrued and unpaid interest. If the Company does
not redeem the New Notes or if the Change of Control occurs after July 1, 2003,
the Company is required to offer to repurchase the New Notes at a price equal to
101% together with accrued and unpaid interest.
The indentures include restrictive covenants, which limit additional borrowings,
cash dividends, sale of assets, mergers and the sale of stock. As a result of
the adjustments to the Company's unaudited interim financial results for the
first, second and third quarters of 1999 and the third quarter of 1998, and
adjustments to its audited financial results for the year ended December 1998,
the Company is in default under its indentures. The Company has initiated
discussions with the holders of the Notes and the New Notes to obtain consents
for amendments to the indentures and waivers of past defaults thereunder.
INTEREST RATE AGREEMENTS
The Company does not use derivative financial instruments for trading or
speculative purposes. In accordance with the senior bank facilities, the
Company is required to enter into interest rate protection agreements to the
extent necessary to provide that, when combined with the Company's senior
subordinated notes, at least 50% of the Company's aggregate indebtedness is
subject to either a fixed interest rate or interest rate protection agreements.
Accordingly, the Company's interest rate agreements are as follows:
Interest Rate Swap Agreements - At December 31, 1999, the Company was party to
three interest rate swap agreements. On March 17, 1998, the Company entered
into an interest rate swap agreement (the "Swap") with a notional principal
amount of $150.0 million and a term of three years. The effective swap rate on
March 17, 1998 was 5.81%. On November 30, 1998, the Company amended the
existing Swap whereby the counterparty received the option to extend the
termination date to March 17, 2003. The new effective swap rate through the
termination date of the swap is 5.37%. Under the swap, the Company would
receive payments from the counterparty if the three-month LIBOR rate exceeds
5.37% and make payments to the counterparty if the three-month LIBOR is less
than 5.37%. The payments would be calculated based upon the respective notional
principal amount.
On April 13, 1999, the Company entered into a three-year interest rate swap
agreement ("Swap II") with a notional principal amount of $200.0 million. The
applicable rate is set quarterly with the next reset date of July 1, 2000. The
counterparty to the Company's Swap II is a major financial institution. Under
Swap II, the Company would receive payments from the counterparty if the three-
month LIBOR plus a spread of 3.25% falls below a cap rate of
67
<PAGE>
8.63%. The Company would make payments to the counterparty if the three-month
LIBOR plus a spread of 3.25% exceeds 10.25%.
On November 15, 1999, the Company entered into a five-year interest rate swap
agreement ("Swap III") with a notional principal amount of $150.0 million. The
applicable rate is set quarterly with the next reset date of June 19, 2000. The
counterparty to the Company's Swap III transaction is a major financial
institution. Under Swap III, the Company would receive payments from the
counterparty if the three-month LIBOR exceeds 6.21% and is below 7.50%.
Additionally, the Company would receive payments if the three-month LIBOR
exceeds 8.25% through November 15, 2002. The Company would make payments if the
three-month LIBOR is below 4.95%.
During fiscal 1999 and 1998, the Company made payments aggregating $0.7 million
and $0.2 million, respectively under interest rate agreements.
Risks associated with the interest rate agreements include those associated with
changes in market value and interest rates. At December 31, 1999, the fair
value of the Company's interest rate agreements was $2.3 million.
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 years ended December 31, 1999 and 1998 and December
27, 1997 were approximately $11.2 million, $10.4 million and $2.1 million,
respectively.
NOTE 11 - INCOME TAXES
- ----------------------
The Company was included in the consolidated federal income tax return of
Holdings for the year ended December 27, 1997 and the six months ended June 25,
1998. State income tax returns were filed by Holdings and the Company on a
separate company basis or on a combined basis depending on the particular rules
in each state for the year ended December 27, 1997 and the six months ended June
25, 1998. The Company filed short period federal and state returns for the six
months ended December 31, 1998 and will file federal and state returns for the
year ended December 31, 1999.
The provision for income taxes is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
December 31,
---------------------------------
1998 December 27,
1999 As Restated 1997
----------- ----------- -------------
<S> <C> <C> <C>
Current tax expense:
Federal $ - $ - $
State (547) (30) -
----------- ----------- -------------
Total current provision (547) (30) -
----------- ----------- -------------
Deferred tax expense:
Federal (795) (144) 656
State (1,449) (40) 123
----------- ----------- -------------
Total deferred provision (2,244) (184) 779
----------- ----------- -------------
Total provision for income taxes $ (2,791) $ (214) $ 779
=========== =========== =============
</TABLE>
68
<PAGE>
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998
1999 As Restated
----------- ------------
<S> <C> <C>
Deferred tax assets - current:
Accounts receivable $ 3,183 $ 1,860
Incentive compensation - 20,098
Coupon reserves 1,051 1,265
Inventory 6,498 3,072
Accrued expenses 6,606 875
----------- ------------
Total deferred tax assets - current $ 17,338 $ 27,170
=========== ============
Deferred tax assets (liabilities) - non-current:
Loss carryforwards $ 73,771 $ 42,917
Assets held for sale 2,768 2,384
State tax credit 2,102 -
Other 211 210
Goodwill (61,277) (41,054)
Depreciation (15,218) (9,504)
----------- ------------
Net deferred tax asset (liability) - non-current $ 2,357 $ (5,047)
=========== ============
</TABLE>
The Company has not recorded a valuation allowance for its deferred tax assets.
Management believes the deferred tax assets are more likely than not to be
realized.
At December 31, 1999, the Company had generated a federal net operating loss of
approximately $83.5 million. The net operating loss can be used to offset future
taxable income through the year 2018. The Company is a loss corporation as
defined in section 382 of the Internal Revenue Code. Therefore, if certain
substantial changes of the Company's ownership should occur, there could be
significant annual limitations of the amount of net operating loss carryforwards
which can be utilized.
69
<PAGE>
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income as a result of the following differences (in thousands):
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------
December 31,
--------------------------------------
1998 December 27,
1999 As Restated 1997
--------------- ---------------- -----------------
<S> <C> <C> <C>
(Benefit from) provision for
income taxes at U.S. statutory rate $ (2,462) $ (20,445) $ 685
Increase (decrease) in tax resulting from:
Non-deductible incentive plan expense - 19,238 -
Non-deductible goodwill 851 393 -
Other non-deductible expenses 137 104 13
State taxes, net of federal benefit (1,317) (153) 81
Provision to return differences - 746 -
Change in net state tax rate - (97) -
--------------- ---------------- -----------------
$ (2,791) $ (214) $ 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 and expire on various dates through 2004.
Future annual minimum lease payments under these leases are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Minimum
Lease
Years ending December 31, Payments
------------------------- ------------
<S> <C>
2000 $ 1,441
2001 851
2002 659
2003 601
2004 170
Thereafter -
------------
$ 3,722
============
</TABLE>
Rent expense for the years ended December 31, 1999 and 1998, and December 27,
1997 was $1.8 million, $1.0 million and $0.1 million, respectively.
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, dry grocery division employee
contributions up to 6% of total compensation are matched 50% by the Company and
frozen food division employee contributions up to 3% of total compensation are
matched 100% by the Company, with vesting occurring ratably over a five year
period. Profit sharing contributions of 2% of compensation are made on behalf of
all employees on an annual basis. Profit sharing contributions also vest ratably
over a five-year period. The Company's contributions to the 401(k) and profit
sharing plans for the years ended December 31, 1999 and 1998, and December 27,
1997 were $1.1 million, $0.8 million and $0.1 million, respectively.
70
<PAGE>
NOTE 14 - RELATED PARTY TRANSACTIONS
- ------------------------------------
The Company maintains business relationships and engages in certain transactions
as described below.
The Company entered into a Management Services Agreement, dated December 31,
1996 and terminated on July 1, 1998, with Dartford Partnership L.L.C.
("Dartford"), whose partners include Messrs. Ian R. Wilson, Ray Chung and James
B. Ardrey and Ms. M. Laurie Cummings (all are directors and/or executive
officers of the Company) pursuant to which Dartford provided management
oversight on financial and operational matters. The Company paid fees to
Dartford in connection with this agreement totaling $1.0 million and $0.8
million for the years ended December 31, 1998 and December 27, 1997,
respectively. The annual management fee was $0.6 million prior to the
acquisition of LC, $0.9 million after the acquisition of LC but before the
acquisition of DH and $2.0 million after the acquisition of DH.
The Company entered into an Advisory Services Agreement, dated December 31, 1996
which terminated on July 1, 1998, with McCown De Leeuw & Co. III, L.P. ("MDC")
whose general partners and principal included Mr. David E. De Leeuw, Mr. George
E. McCown (both directors of the Company) and Mr. Steven A. Zuckerman (a former
director of the Company) pursuant to which MDC provided certain advisory
functions. The Company paid fees to MDC in connection with this agreement
totaling $0.3 million for each of the years ended December 31, 1998 and December
27, 1997. The annual advisory fee was $0.2 million prior to the acquisition of
LC, $0.3 million after the acquisition of LC but before the acquisition of DH
and $0.7 million after the acquisition of DH.
In connection with the acquisitions of MBW, LC and DH the Company paid to
certain members of MBW LLC, who are also represented on the Board of Directors
or officers of the Company and beneficial owners, fees for services rendered in
connection with the acquisitions and related financings. The aggregate amount
paid to certain members of MBW LLC for the years ended December 31, 1998 and
December 27, 1997 was $4.0 million and $4.7 million, respectively, and was
funded by the proceeds of the financings. Of this amount, $0.0 and $1.2 million
was paid to Dartford; $0.0 and $0.3 million in total was paid to Mr. Thomas J.
Ferraro (President, Dry Grocery Division) and Mr. C. Gary Willett (Executive
Vice President, Dry Grocery Division); $3.0 million and $2.7 million was paid to
MDC; and $1.0 million and $0.5 million was paid to Fenway Partners Capital Fund,
L.P. ("Fenway"), whose partners include Mr. Peter Lamm, Mr. Andrea Geisser and
Mr. Richard C. Dresdale (all directors of the Company) in 1998 and 1997,
respectively. The fee amounts were negotiated among the equity investors.
Each of Fenway, MDC and Dartford earned $1.5 million; UBS Capital LLC, whose
president is Mr. Charles J. Delaney (a director of the Company), earned $0.2
million; and each of Tiger Oats Limited, whose directors include Mr. Clive A.
Apsey (a director of the Company), and the California Public Employees
Retirement System, who granted the right to vote all of the public shares of
common stock of the Company it holds to MDC under an irrevocable proxy, earned
$0.1 million in fees in connection with the Contribution transaction.
In connection with the acquisition of Lender's, the Company paid each of Fenway,
MDC and Dartford $0.9 million as fees for services rendered in connection with
the acquisition and related financing.
The Company has entered into agreements pursuant to which it agreed to pay
transaction fees to each of Fenway, MDC, and Dartford of 0.333% of the
acquisition price for future acquisitions by the Company. The Dartford agreement
was terminated upon the resignation of Ian Wilson on February 17, 2000. The
acquisition price is defined as the sum of (i) the cash purchase price actually
received by the seller, (ii) the fair market value of any equity securities
issued by the seller, (iii) the face value of any debt securities issued to the
seller less any discounts, (iv) the amount of liabilities assumed by the Company
plus (v) the fair market value of any other property or consideration paid in
connection with the acquisition, with installment or deferred payments to be
calculated using the present value thereof.
The Company paid Dartford $0.8 million in 1999 and $0.4 million in 1998 as
reimbursement of corporate headquarters expenses. Such expenses 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.
On December 31, 1996 and January 16, 1998, Mr. Ferraro, executed promissory
notes in the amount of $60,000 and $131,000, respectively, in favor of the
Company to evidence monies borrowed to assist in the capitalization of his
limited liability company interests held in MBW LLC. The promissory notes mature
December 31, 1999 and January 16, 2001. Interest is due and payable quarterly at
the rate of 8% per annum and there are required annual
71
<PAGE>
principal payments. The aggregate balance outstanding on his promissory notes as
of December 31, 1999 and 1998 was $107,334 and $151,000, respectively.
On September 19, 1995, Mr. Ellinwood, executed a promissory note in the amount
of $125,000 in favor of VDK to evidence monies borrowed to assist in the
capitalization of his limited liability company interests held in VDK LLC. The
promissory note matured March 31, 1999. Interest was due and payable quarterly
at the rate of 8.5% per annum. The balance outstanding on his promissory note as
of December 31, 1999 and 1998 was $0 and $41,666, respectively.
NOTE 15 - INCENTIVE PLAN EXPENSE
- --------------------------------
AURORA INCENTIVE PLAN
The Amended and Restated Limited Liability Company Agreement of MBW LLC
contained an incentive plan (the "Aurora Plan") as a means by which certain key
employees and other specifically designated persons ("Aurora Covered Employees")
of AurFoods and/or affiliated with AurFoods, were given an opportunity to
benefit from appreciation in the value of AurFoods. Under the Aurora Plan,
Aurora Covered Employees were issued a specific class of limited liability
company member units ("Management Units"), at a nominal value, as a means to
participate in the appreciation of the equity value of AurFoods. The Management
Units were subject to vesting requirements based on terms of employment or other
factors.
Prior to the closing of the Equity Offerings, the final value of all classes of
Management Units were determined based on the valuation of the Common Stock held
indirectly by MBW LLC, and upon the closing of the Equity Offerings all unvested
Management Units became fully vested. The aggregate value of all Management
Units was $58.9 million. Through December 27, 1997, the Company had recorded
estimated incentive plan expense of $2.3 million based on the estimated
valuation of the Company at that time. Additional incentive plan expense of
$56.6 million was recorded in the first and second quarters of 1998.
The incentive plan expense was recorded as a liability of MBW LLC as sponsor of
the Aurora Plan. However, because the Aurora Plan was for the benefit of Aurora
Covered Employees, expense recognized under the Aurora Plan was pushed down to
the Company as incentive plan expense and as additional paid-in capital from its
parent. No additional incentive plan expense will be recorded under the Aurora
Plan.
MBW LLC satisfied its liability under the Aurora Plan by distributing 4,152,417
shares of Common Stock of the Company based on the valuation of the Management
Units at the initial public offering price of the Company's Common Stock on the
dissolution of MBW Investors LLC.
VDK INCENTIVE PLAN
VDK LLC provided a compensation arrangement (the "VDK Plan") as a means by which
certain key employees and other specifically designated persons ("VDK Covered
Employees") of VDK and/or affiliated with VDK, were given an opportunity to
benefit from appreciation in the equity value of VDK. Under the VDK Plan, VDK
Covered Employees were issued a specific class of limited liability company
member units and/or performance-based units (collectively, "VDK Management
Units"), at a nominal value, as a means to participate in the appreciation of
the equity value of VDK. The VDK Management Units were subject to vesting
requirement based on terms of employment or other factors.
Prior to the closing of the Equity Offerings, the final value of all classes of
VDK Management Units were determined based on the valuation of the shares of the
Company held indirectly by VDK LLC, and upon the closing of the Equity Offerings
all unvested VDK Management Units became fully vested. The aggregate value of
all VDK Management Units was $66.7 million. Through December 31, 1997, no
incentive plan expense had been recorded by VDK based on the estimated valuation
of VDK at that time. Incentive plan expense of $66.7 million was recorded in the
first and second quarters of 1998. The incentive plan expense was recorded as a
liability of VDK LLC as sponsor of the VDK Plan. However, because the VDK Plan
was for the benefit of VDK Covered Employees, expense recognized under the VDK
Plan was pushed down to VDK as incentive plan expense and as additional paid-in
capital from its parent. No additional incentive plan expense will be recorded
under the VDK Plan.
72
<PAGE>
VDK LLC (or the Company as described below) satisfied its liability by
distributing a fixed number of shares of Common Stock of the Company upon the
dissolution of VDK LLC, based on the valuation of the VDK Management Units at
the initial public offering price of the Company's Common Stock.
The VDK Plan provides for tax gross-up payments on certain distributions.
Because the Company received the tax benefit of such distributions and related
tax gross-up payments, and because the tax benefit exceeded the amount of the
tax gross-up payments, the Company recorded the $11.8 million liability for the
tax gross-up payments due. The tax benefit of the tax gross-up payment and
related distributions of $17.1 million, which more than offset the gross-up
payments, was recorded to income tax expense and as a deferred tax asset.
To facilitate payment of the tax gross-up obligation and recognition of related
tax benefits, VDK adopted a new incentive plan (the "New VDK Plan" and together
with the VDK Plan, the "VDK Plans"), which was assumed by the Company in
connection with the Contribution. Under the New VDK Plan, the Company was
obligated to distribute no later than July 1, 1999 1,801,769 shares of the
Company's Common Stock to VDK Covered Employees who were granted certain types
of VDK Management Units under the VDK Plan. The issuance of such shares (the "MC
Shares") did not increase the number of outstanding shares of Common Stock
because the Company's obligations to issue the MC Shares was contingent upon the
Company's receiving from VDK LLC, as a contribution, a number of shares of the
Company's Common Stock owned by VDK LLC equal to the number of MC Shares. The
Company had no obligation to issue MC Shares unless it received a contribution
of an equal number of shares from VDK LLC. VDK LLC was 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 was
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. On July
1, 1999, the Company satisfied its liability under the VDK Plans by distributing
shares of the Company's Common Stock and paying the associated tax gross-up
liability.
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES
- ------------------------------------------------
LITIGATION
As of April 13, 2000, the Company has been served with thirteen complaints in
purported class action lawsuits filed in the United States District Court for
the Northern District of California. The complaints received by the Company
allege that, among other things, as a result of accounting irregularities, the
Company's previously issued financial statements were materially false and
misleading and thus constituted violations of federal securities laws by the
Company and the directors and officers who resigned on February 17, 2000 (Ian R.
Wilson, James B. Ardrey, Ray Chung and M. Laurie Cummings). The actions allege
that the defendants violated Sections 10(b) and/or Section 20(a) of the
Securities Exchange Act and Rule 10b-5 promulgated thereunder (the "Securities
Actions"). The Securities Actions complaints seek damages in unspecified
amounts. These Securities Actions purport to be brought on behalf of purchasers
of the Company's Common Stock during various periods, all of which fall between
October 28, 1999 and February 18, 2000. The Company believes that additional
purported class action lawsuits similar to those described above have been or
may be filed. The Company is currently evaluating these claims and possible
defenses thereto and intends to defend these suits vigorously.
Pursuant to the Company's articles of incorporation, and certain of its
contractual obligations, the Company has agreed to indemnify its officers and
directors under certain circumstances against claims arising from the lawsuits.
The Company may be obligated to indemnify certain of its officers and directors
for the costs they may incur as a result of the lawsuits.
While it is not feasible to predict or determine the final outcome of these or
similar proceedings, or to estimate the amounts or potential range of loss with
respect to these matters, management believes that an adverse outcome with
respect to such proceedings could have a material adverse impact on the
company's financial position, results of operations and cash flow.
The Company is also subject to litigation in the ordinary course of business. In
the opinion of management, the ultimate outcome of any existing litigation,
other than the Securities Actions described above, would not have a material
adverse effect on the Company's financial condition or results of operations.
PURCHASE COMMITMENTS
73
<PAGE>
The Company has entered into manufacturing contracts, which require minimum
annual production orders. The minimum annual production orders for all contracts
through the year 2002 are 5.8 million cases of product. This volume represents
substantially less than the Company's current production requirements.
NOTE 17 - STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
- --------------------------------------------------------
The Company has a stock option plan and an employee stock purchase plan as
described below. The Company applies APB 25 and its related interpretations in
accounting for its plans. No compensation cost has been recognized for its stock
option plans because grants have been made at exercise prices at or above fair
market value of the common stock on the date of grant.
The Company has adopted a stock option plan, the 1998 Long Term Incentive Plan
(the "1998 Option Plan"). Under the 1998 Option Plan, the Company is authorized
to grant both incentive and non-qualified stock options to purchase common stock
up to an aggregate amount of 3,500,000 shares, of which 1,207,350 shares
remained available as of December 31, 1999. No incentive stock options may be
granted with an exercise price less than fair market value of the stock on the
date of grant; non-qualified stock options may be granted at any price but, in
general, are not granted with an exercise price less than the fair market value
of the stock on the date of grant. Options are generally granted with a term of
ten years and vest ratably over three years beginning on either the first or
third anniversary of the date of grant. A summary of the activity under the 1998
Option Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise Price Options
Outstanding per Share Vested
-------------- -------
<S> <C> <C> <C>
December 31, 1997.......... - $ - -
Granted 2,031,900 20.91 -
Vested - - -
Forfeited (30,250) 20.91 -
---------
December 31, 1998.......... 2,001,650 20.91 -
Granted 206,750 15.30 -
Vested - - 667,200
Forfeited (58,379) 15.30 (9,700)
--------- -------
December 31, 1999.......... 2,204,021 19.99 657,500
========= =======
</TABLE>
For the purposes of calculating compensation cost under SFAS 123, the minimum
fair value of each option grant is estimated on the date of grant using the
Black-Scholes single option pricing model with the following weighted-average
assumptions: dividend yield of 0%, expected volatility of 0.30, a risk-free
interest rate of 6.5% and expected option lives of three to five years. Had the
minimum value of the options been calculated in accordance with SFAS 123, net
loss available to common stockholders in 1999 and 1998 would have been $5.7
million and $69.9 million, respectively, and the loss per diluted share would
have been $0.09 and $1.31, respectively.
The Company has adopted a stock purchase plan, the 1998 Employee Stock Purchase
Plan (the "1998 Purchase Plan") covering an aggregate of 200,000 shares of
common stock. Under the 1998 Purchase Plan, eligible employees have the right to
purchase common stock at 85% of the lower of the fair market value of the common
stock on the commencement date of each offering period or the date of purchase.
Purchases are made from accumulated payroll deductions of up to 15% of such
employee's earnings. During the year ended December 31, 1999, 33,638 shares were
purchased under the 1998 Purchase Plan at a weighted average price of $10.87 per
share.
NOTE 18 - EARNINGS PER SHARE
- ----------------------------
Basic earnings per share represents the income available to common stockholders
divided by the weighted average number of common shares outstanding during the
measurement period. Diluted earnings per share represents the income available
to common stockholders divided by the weighted average number of common shares
outstanding during the measurement period while also giving effect to all
potentially dilutive common shares that were outstanding during the period.
Potentially dilutive common shares consist of stock options (the dilutive impact
is calculated by applying the "treasury stock method").
The table below summarizes the numerator and denominator for the basic and
diluted earnings per share calculations (in thousands except per share amounts):
74
<PAGE>
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------------
December 31,
----------------------------------------
1998 December 27,
1999 As Restated 1997
---------------- ------------------- ------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary loss $ (4,449) $ (59,918) $ 1,235
Extraordinary loss, net of tax - 9,211 -
---------------- ------------------- ------------------
Net income (loss) $ (4,449) $ (69,129) $ 1,235
================ =================== ==================
Denominator - Basic shares:
Average common shares outstanding 67,023 53,541 29,053
---------------- ------------------- ------------------
Basic earnings (loss) per share $ (0.07) $ (1.29) $ 0.04
================ =================== ==================
Denominator - Diluted shares:
Average common shares outstanding 67,023 53,541 29,053
Dilutive effect of common stock equivalents - - -
---------------- ------------------- ------------------
Total diluted shares 67,023 53,541 29,053
---------------- ------------------- ------------------
Diluted earnings (loss) per share $ (0.07) $ (1.29) $ 0.04
================ =================== ==================
</TABLE>
75
<PAGE>
NOTE 19 - SEGMENT INFORMATION
- -----------------------------
The Company manages its businesses in two operating segments: dry grocery
division and frozen food division. The operating segments are managed as
strategic units due to their distinct manufacturing methodologies, distribution
channels and dedicated segment management teams. The dry grocery division
includes Duncan Hines(R) baking mix, and Mrs. Butterworth's(R) and Log Cabin(R)
syrup products. The frozen food division includes Van de Kamp's(R) and Mrs.
Paul's(R) frozen seafood, Aunt Jemima(R) frozen breakfast, Celeste(R) brand
frozen pizza products, Chef's Choice(R) frozen skillet meal products and
Lender's(R) bagel products.
The following table presents a summary of operations by segment (in thousands):
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
December 31,
----------------------------
1998 December 27,
1999 As Restated 1997
---------- ----------- ------------
<S> <C> <C>
Net sales
Dry grocery $ 471,485 $ 505,328 $ 143,020
Frozen food 523,933 279,229 -
---------- ----------- ------------
Total $ 995,418 $ 784,557 $ 143,020
========== =========== ============
Operating income
Dry grocery $ 43,400 $ (2,998) $ 23,398
Frozen food 20,661 9,490 -
---------- ----------- ------------
Total $ 64,061 $ 6,492 $ 23,398
========== =========== ============
Total assets
Dry grocery $ 890,927 $ 899,538 $ 372,739
Frozen food 960,189 558,904 -
---------- ----------- ------------
Total $1,851,116 $ 1,448,442 $ 372,739
========== =========== ============
Depreciation and amortization
Dry grocery $ 27,458 $ 25,258 $ 10,057
Frozen food 27,990 16,609 -
---------- ----------- ------------
Total $ 55,448 $ 41,867 $ 10,057
========== =========== ============
Capital expenditures
Dry grocery $ 14,477 $ 24,649 $ 2,411
Frozen food 10,804 14,061 -
---------- ----------- ------------
Total $ 25,281 $ 38,710 $ 2,411
========== =========== ============
</TABLE>
76
<PAGE>
NOTE 20 - RESTATEMENT
- ---------------------
As described in Note 1, the December 31, 1998 financial statements have been
restated. A summary of the effects of the restatement follows (in thousands,
except per share data):
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------
As Previously
Reported As Restated
----------------- ------------------
<S> <C> <C>
Net sales $789,193 $784,557
Cost of goods sold 317,547 318,935
----------------- ------------------
Gross profit 471,646 465,622
----------------- ------------------
Brokerage, distribution and marketing expenses:
Brokerage and distribution 74,703 77,553
Trade promotions 173,467 201,926
Consumer marketing 56,683 56,699
----------------- ------------------
Total brokerage, distribution and marketing expenses 304,853 336,178
Amortization of goodwill and other intangibles 30,048 30,048
Selling, general and administrative expenses 25,043 25,955
Incentive plan expense 56,583 56,583
Transition expenses 10,357 10,366
----------------- ------------------
Total operating expenses 426,884 459,130
----------------- ------------------
Operating income 44,762 6,492
Interest expense, net 64,487 64,493
Amortization of deferred financing expense 1,872 1,872
Other bank and financing expenses 263 259
----------------- ------------------
Loss before income taxes and extraordinary loss (21,860) (60,132)
Income tax expense (benefit) 14,306 (214)
----------------- ------------------
Net loss before extraordinary loss (36,166) (59,918)
Extraordinary loss on early extinguishment of debt,
net of tax 9,211 9,211
----------------- ------------------
Net loss $(45,377) $(69,129)
================= ==================
Basic and diluted loss per share before
extraordinary loss $ (0.68) $ (1.12)
Extraordinary loss per share 0.17 0.17
----------------- ------------------
Basic and diluted loss per share $ (0.85) $ (1.29)
================= ==================
</TABLE>
77
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------
As previously
reported As restated
----------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 354 $ 354
Accounts receivable, net 86,539 82,093
Inventories 76,674 77,331
Prepaid expenses and other assets 6,517 6,850
Asset held for sale 3,000 -
Current deferred tax assets 8,251 27,170
----------------- ---------------
Total current assets 181,335 193,798
Property, plant and equipment, net 153,167 152,085
Goodwill and other intangible assets, net 1,072,760 1,072,759
Asset held for sale - 3,000
Other assets 26,620 26,800
----------------- ---------------
Total assets $1,433,882 $1,448,442
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of senior secured term debt $ 20,000 $ 20,000
Senior secured revolving debt facility 85,850 85,850
Accounts payable 59,078 59,395
Accrued liabilities 49,836 83,433
----------------- ---------------
Total current liabilities 214,764 248,678
Non-current deferred tax liabilities 649 5,047
Other liabilities 12,372 12,372
Long-term debt 602,242 602,242
----------------- ---------------
Total liabilities 830,027 868,339
----------------- ---------------
Stockholders' equity:
Preferred stock - -
Common stock 670 670
Paid-in capital 647,889 647,889
Promissory notes (562) (562)
Accumulated deficit (44,142) (67,894)
----------------- ---------------
Total stockholders' equity 603,855 580,103
----------------- ---------------
Total liabilities and stockholders' equity $1,433,882 $1,448,442
================= ===============
</TABLE>
78
<PAGE>
NOTE 21- QUARTERLY FINANCIAL DATA (UNAUDITED)
- ---------------------------------------------
As described in Note 1, the unaudited quarterly information for the three months
ended September 30, 1998, March 31, 1999, June 30 1999 and September 30, 1999
have been restated.
Unaudited quarterly financial data for the years ended December 31, 1999 and
1998 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------------------------------------------
March 31 June 30 September 30
-------------------------------------------------------------------------------------------
As As As
previously previously previously
reported As restated reported As restated reported As restated
-------------- ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Net sales $261,050 $254,264 $221,711 $214,034 $238,275 $231,896
Gross profit 156,922 149,561 134,342 122,804 137,305 130,360
Operating income 27,971 15,729 29,429 10,878 35,465 22,966
Adjusted operating income (1) 32,243 20,005 32,500 14,015 37,601 24,633
Net income (loss) 7,830 482 7,953 (3,730) 11,168 3,827
Basic earnings (loss) per
share 0.12 0.01 0.12 (0.06) 0.17 0.06
Diluted earnings (loss) per
share 0.12 0.01 0.12 (0.06) 0.17 0.06
Adjusted basic earnings
(loss) per share (2) 0.16 0.16 0.15 (0.03) 0.19 0.07
<CAPTION>
Year ended December 31, 1998:
Net sales $ 89,385 N/A $199,813 N/A $220,368 $218,768
Gross profit 51,651 N/A 118,070 N/A 131,104 128,794
Operating income (loss) (50,138) N/A 25,562 N/A 28,215 11,149
Adjusted operating income (1) 11,788 N/A 24,667 N/A 29,484 12,416
Income (loss) before
extraordinary item (62,956) N/A 3,230 N/A 8,103 (4,669)
Net income (loss) (64,832) N/A 3,230 N/A 654 (12,118)
Basic earnings (loss) per
share (1.20) N/A 0.06 N/A 0.01 (0.18)
Diluted earnings (loss) per
share (1.20) N/A 0.06 N/A 0.01 (0.18)
Adjusted basic earnings
(loss) per share (2) 0.08 N/A 0.03 N/A 0.12 (0.06)
<CAPTION>
----------------------------
December 31
---------------------------
As
previously
reported As restated
<S> <C> <C>
Year ended December 31, 1999:
Net sales $295,224 N/A
Gross profit 167,757 N/A
Operating income 14,487 N/A
Adjusted operating income (1) 16,576 N/A
Net income (loss) (5,030) N/A
Basic earnings (loss) per
share (0.08) N/A
Diluted earnings (loss) per
share (0.08) N/A
Adjusted basic earnings
(loss) per share (2) (0.06) N/A
<CAPTION>
Year ended December 31, 1998:
Net sales $279,627 $276,591
Gross profit 170,821 167,107
Operating income (loss) 41,123 19,919
Adjusted operating income (1) 45,763 24,570
Income (loss) before
extraordinary item 15,457 4,477
Net income (loss) 15,571 4,591
Basic earnings (loss) per
share 0.28 0.07
Diluted earnings (loss) per
share 0.28 0.07
Adjusted basic earnings
(loss) per share (2) 0.28 0.11
</TABLE>
/(1)/ Adjusted operating income is defined as operating income plus incentive
plan expense and transition expenses for the respective quarters.
/(2)/ Adjusted basic earnings (loss) per share is defined as basic earnings
(loss) per share plus the after-tax effect of incentive plan expense,
transition expenses and extraordinary items for the respective quarters.
NOTE 22 - CONDENSED FINANCIAL STATEMENTS OF SUBSIDIARY
- ------------------------------------------------------
Seacoast is a guarantor under the debt agreements. As a result, the condensed
financial statements as of December 31, 1999, and for the period from
acquisition (April 1, 1999) to December 31, 1999, are included below:
79
<PAGE>
SEA COAST FOODS, INC.
BALANCE SHEET
(dollars in thousands)
December 31,
1999
------------
ASSETS
Current assets:
Accounts receivable (net of allowance of $299) $ 4,889
Inventories 12,445
Current deferred tax asset 62
Prepaid expenses 116
-------
Total current assets 17,512
Property, plant and equipment, net 107
-------
Total assets $17,619
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 2,742
Accrued expenses 1,329
Income taxes payable 3,027
-------
Total current liabilities 7,098
Due to parent 1,062
-------
Total liabilities 8,160
-------
Stockholder's equity:
Common stock 1
Paid-in capital 200
Retained earnings 9,258
-------
Total stockholder's equity 9,459
-------
Total liabilities and stockholder's equity $17,619
=======
80
<PAGE>
SEA COAST FOODS, INC.
STATEMENT OF OPERATIONS
(dollars in thousands)
Nine months
ended
December 31,
1999
------------
Net sales $52,123
Cost of goods sold 28,918
-------
Gross profit 23,205
-------
Brokerage, distribution and marketing expense:
Brokerage and distribution 5,665
Trade promotions 7,463
Consumer marketing 573
-------
Total brokerage, distribution and marketing expense 13,701
Selling, general and administrative 1,937
-------
Total operating expense 15,638
-------
Operating income 7,567
Income tax expense 3,027
-------
Net income $ 4,540
=======
81
<PAGE>
SEA COAST FOODS, INC.
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine months
ended
December 31
1999
-----------
<S> <C>
Cash flows from operating activities:
Net income $ 4,540
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization 25
Change in assets and liabilities;
Decrease in receivables 2,725
Increase in inventories (5,568)
Increase in prepaid expenses and other assets (1)
Decrease in accounts payable (5,475)
Income taxes payable 3,027
Decrease in accrued expenses (335)
----------
Net cash used in operating activities (1,062)
----------
Cash flows from financing activities:
Intercompany borrowings 1,062
----------
Net cash provided from financing activities 1,062
----------
Net change in cash -
Beginning cash and cash equivalents -
----------
Ending cash and cash equivalents $ -
==========
</TABLE>
82
<PAGE>
Schedule II
-----------
Aurora Foods Inc.
-----------------
Valuation and Qualifying Accounts
---------------------------------
<TABLE>
<CAPTION>
Additions
-----------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions/(1)/ of Period
- ----------------------------------- ---------------- ---------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Year ended December 27, 1997
Allowance for doubtful accounts $ - $140,000 $ - $ - $140,000
================ ================ ================= =================== ================
Year ended December 31, 1998
Allowance for doubtful accounts $140,000 $202,000 $419,000 $(91,000) $670,000
================ ================ ================= =================== ================
Year ended December 31, 1999
Allowance for doubtful accounts $670,000 $1,005,000 $ 33,000 $(396,000) $1,312,000
================ ================ ================= =================== ================
</TABLE>
/(1)/ Accounts receivable written off.
83
<PAGE>
Exhibit
Number Exhibit
- ------ -------
2.1 Asset Purchase Agreement, dated as of December 18, 1996, by and
between MBW Foods Inc. (as successor-in-interest to MBW Acquisition
Corp.) and Conopco, Inc., as amended. (Incorporated by reference to
Exhibit 2.1 to Aurora Foods Inc.'s Form S-4 filed on August 21, 1997,
File No. 333-24715 ("Aurora S-4")).
2.2 Asset Purchase Agreement, dated as of March 7, 1997, by and between
Aurora Foods Inc. and Kraft Foods, Inc. (Incorporated by reference to
Exhibit 2.2 to the Aurora S-4).
2.3 Asset Purchase Agreement, dated as of November 26, 1997, by and
between Aurora Foods Inc. and The Procter & Gamble Company.
(Incorporated by reference to Exhibit 2.1 to the Aurora Foods Inc.'s
Form 8-K filed on January 30, 1998 (the "Form 8-K")).
2.4 Merger Agreement, dated as of June 22, 1998, between the Aurora Foods
Inc. and A Foods Inc. (Incorporated by reference to Exhibit 2.1 to the
Aurora Foods Inc.'s Form S-1 filed on April 22, 1998, as amended, File
No. 338-50681 (the "S-1")).
2.5 Merger Agreement, dated as of June 25, 1998, among Aurora Foods
Holdings Inc., AurFoods Operating Co. Inc., VDK Holdings, Inc., Van de
Kamp's, Inc. and A Foods Inc. (Incorporated by reference to Exhibit
2.2 to the S-1).
2.6 Certificate of Merger, dated June 23, 1998, of Aurora Foods Inc. with
and into A Foods Inc. (Incorporated by reference to Exhibit 2.14 to
the S-1).
2.7 Amendment to Asset Purchase Agreement, dated as of February 13, 1997,
between Van de Kamp's, Inc. and Morningstar Foods, Inc. (Incorporated
by reference to Exhibit 2.2 to Van de Kamp's, Inc.'s Form 10-Q for the
quarter ended March 31, 1997).
2.8 Asset Purchase Agreement, dated as of February 3, 1997, between Van de
Kamp's, Inc. and Morningstar Foods, Inc. (Incorporated by reference to
Exhibit 2.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended
March 31, 1997).
2.9 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).
2.10 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).
2.11 Asset Purchase and Sale Agreement, dated as of January 17, 1996,
between Shellfish Acquisition Company, LLC ("Shellfish") and Campbell
Soup Company ("Campbell"). (Incorporated by reference to the text of
which and Exhibits to which are incorporated by reference to Exhibit
2.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 30,
1996 and a list of the contents of the schedule of which is
incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s Form
8-K dated May 6, 1996).
2.12 Asset Purchase Agreement, dated as of January 17, 1996, between Van de
Kamp's, Inc. and Shellfish. (Incorporated by reference to Exhibit 2.2
to the Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 20,
1996).
2.13 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")).
2.14 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).
2.15 Asset Purchase Agreement, dated as of March 10, 1999, by and among the
Company and Sea Coast Foods, Inc., Galando Investments Limited
Partnership, Carry-on Limited Partnership, Joseph Galando, Barbara J.
Galando, Stanley J. Carey and Mary K. Carey (Incorporated by reference
to Exhibit 2.1 to the Form 10-Q for the quarter ended March 31, 1999).
2.16 Asset Purchase Agreement Dated September 24, 1999 between Aurora Foods
Inc. and The Eggo Company (Incorporated by reference to Exhibit 2.1 to
the Aurora Foods Inc. 8-K dated November 1, 1999).
3.1 Certificate of Incorporation of A Foods Inc., filed with the Secretary
of State of the State of Delaware on June 19, 1998. (Incorporated by
reference to Exhibit 3.1 to the S-1).
3.2 Amended and Restated By-laws of Aurora Foods Inc. (Incorporated by
reference to exhibit 3.2 to the S-1).
4.1 Indenture dated as of February 10, 1997, governing the 9 7/8% Series B
Senior Subordinated Notes due 2007 by and between Aurora Foods Inc.
and Wilmington Trust Company. (Incorporated by reference to Exhibit
4.1 to the Aurora S-4).
4.2 Specimen Certificate of 9 7/8% Series B Senior Subordinated Notes due
2007 (included in Exhibit 4.1 hereto). (Incorporated by reference to
Exhibit 4.2 to the Aurora S-4).
4.3 Form of Note Guarantee to be issued by future subsidiaries of Aurora
Foods Inc. pursuant to the Indenture (included in Exhibit 4.1 hereto).
(Incorporated by reference to Exhibit 4.4 to the Aurora S-4).
4.4 Indenture dated as of July 1, 1997, governing the 9 7/8% Series D
Senior Subordinated Notes due 2007 by and between Aurora Foods Inc.
and Wilmington Trust Company (the "Series D Indenture").
(Incorporated by reference to Exhibit 4.6 to the Aurora S-4).
4.5 Specimen Certificate of 9 7/8% Series D Senior Subordinated Notes due
2007 (included in Exhibit 4.4 hereto). (Incorporated by reference to
Exhibit 4.3 to the Aurora S-4).
4.6 Form of Note Guarantee to be issued by future subsidiaries of Aurora
Foods Inc. pursuant to the Series D Indenture (included in Exhibit 4.4
hereto). (Incorporated by reference to Exhibit 4.8 to the Aurora S-
4).
4.7 Securityholders Agreement, dated as of April 8, 1998, by and among
Aurora/VDK LLC, MBW Investors LLC, VDK Foods LLC and the other parties
signatory thereto. (Incorporated by reference to Exhibit 4.2 to the
S-1).
4.8 Indenture dated as of July 1, 1998, governing the 8 3/4% Senior
Subordinated Notes due 2008 by and between Aurora Foods Inc. and
Wilmington Trust Company (Incorporated by reference to Exhibit 4.13 to
the S-1).
4.9 Specimen Certificate of 8 3/4% Senior Subordinated Notes due 2008.
4.10 Specimen Certificate of the Common Stock. (Incorporated by reference
to Exhibit 4.1 to the S-1).
4.11 Supplemental Indenture, governing the 9 7/8% Series D Senior
Subordinated Notes due 2007, dated as of April 1, 1999, among Sea
Coast Foods, Inc., Aurora Foods Inc. and Wilmington Trust Company, as
Trustee
4.12 Supplemental Indenture, governing the 9 7/8% Series C Senior
Subordinated Notes due 2007, dated as of April 1, 1999, among Sea
Coast Foods, Inc., Aurora Foods Inc. and Wilmington Trust Company, as
Trustee
4.13 Supplemental Indenture, governing the 8 3/4% Senior Subordinated Notes
due 2008, dated as of April 1, 1999, among Sea Coast Foods, Inc.,
Aurora Foods Inc. and Wilmington Trust Company, as Trustee
10.1 VDK Holdings, Inc. Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.1 to S-1).
10.2 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).
10.3 * 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).
10.4 * 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).
10.5 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).
10.6 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).
10.7 Trademark License Agreement, dated July 9, 1996 among Quaker Oats, The
Quaker Oats Company of Canada Limited and Van de Kamp's, Inc.
(Incorporated by reference to Exhibit H to Exhibit 2.1 to Van de
Kamp's, Inc.'s Form 8-K dated July 9, 1996).
10.8 First Amended and Restated Red Wing Co-Pack Agreement, dated as of
November 19, 1997, by and between Aurora Foods Inc. and The Red Wing
Company, Inc. (Confidential treatment for a portion of this document
has been requested by the Company). (Incorporated by reference to
Exhibit 10.16 to Aurora Foods Inc.'s Form 10-K, filed on March 27,
1998 (the "Aurora 10-K")).
10.9 Production Agreement, dated November 19, 1997, by and between Aurora
Foods Inc. and The Red Wing Company, Inc. (Confidential treatment for
a portion of this document has been requested by the Company).
(Incorporated by reference to Exhibit 10.18 to the Aurora 10-K).
10.10 * Amendment No. 1 to Ferraro Employment Agreement, dated as of January
1, 1998, between Aurora Foods Inc. and Thomas J. Ferraro.
(Incorporated by reference to Exhibit 10.10 to the S-1).
10.11 * Amendment No. 1 to Willett Employment Agreement, dated as of January
1, 1998, between C. Gary Willett and Aurora Foods Inc. (Incorporated
by reference to Exhibit 10.13 to the S-1).
10.12 * Employment Agreement between Ian R. Wilson and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.7 to the S-1).
10.13 * Employment Agreement between James B. Ardrey and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.8 to the S-1).
10.14 * Employment Agreement between Ray Chung and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.9 to the S-1).
10.15 * Employment Agreement between M. Laurie Cummings and Aurora Foods Inc.
(Incorporated by reference to Exhibit 10.10 to the S-1).
10.16 * Amendment No. 1 to Ellinwood Amended and Restated Employment
Agreement, dated as of January 1, 1998, between Thomas O. Ellinwood
and Van de Kamp's, Inc. (Incorporated by reference to Exhibit 10.15 to
the S-1).
10.17 * Amended and Restated Employment Agreement, dated as of March 11, 1997,
by and between Thomas O. Ellinwood and Van de Kamp's, Inc.
(Incorporated by reference to Exhibit 10.16 to the S-1).
10.18 * Employment Agreement, dated as of February 16, 1998, by and between
Van de Kamp's, Inc. and Anthony A. Bevilacqua. (Incorporated by
reference to Exhibit 10.17 to the S-1).
10.19 Expense Agreement, made as of July 1, 1998, between Aurora Foods Inc.
and Dartford Partnership L.L.C. (Incorporated by reference to Exhibit
10.32 to the S-1).
10.20 * Advisory Agreement, made as of April 8, 1998, among Aurora/VDK LLC,
Van de Kamp's, Inc., VDK Holdings, Inc., Aurora Foods Inc. and Aurora
Foods Holdings Inc. and Dartford Partnership L.L.C. (Incorporated by
reference to Exhibit 10.33 to the S-1).
10.21 * Advisory Agreement, made as of April 8, 1998, among Aurora/VDK LLC,
Van de Kamp's, Inc., VDK Holdings, Inc., Aurora Foods Inc. and Aurora
Foods Holdings Inc. and MDC Management Company III, L.P. (Incorporated
by reference to Exhibit 10.34 to the S-1).
10.22 * Advisory Agreement, made as of April 8, 1998, between Fenway Partners,
Inc. and Aurora/VDK LLC, Van de Kamp's, Inc., VDK Holdings, Inc.,
Aurora Foods Inc. and Aurora Foods Holdings Inc. (Incorporated by
reference to Exhibit 10.35 to the S-1).
10.23 Indemnity Agreement, dated as of July 1, 1998, between Ian R. Wilson
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.46 to
the S-1).
10.24 Indemnity Agreement, dated as of July 1, 1998, between James B. Ardrey
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.49 to
the S-1).
10.25 Indemnity Agreement, dated as of July 1, 1998, between Clive A. Apsey
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.50 to
the S-1).
10.26 Indemnity Agreement, dated as of July 1, 1998, between David E. De
Leeuw and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.52 to the S-1).
10.27 Indemnity Agreement, dated as of July 1, 1998, between Charles J.
Delaney and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.53 to the S-1).
10.28 Indemnity Agreement, dated as of July 1, 1998, between Richard C.
Dresdale and Aurora Foods Inc. (Incorporated by reference to Exhibit
10.54 to the S-1).
10.29 Indemnity Agreement, dated as of July 1, 1998, between Andrea Geisser
and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.55 to
the S-1).
10.30 Indemnity Agreement, dated as of July 1, 1998, between Peter Lamm and
Aurora Foods Inc. (Incorporated by reference to Exhibit 10.56 to the
S-1).
10.31 * 1998 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 10.48 to the Aurora Foods Inc. Form 10-K for the fiscal year
ended December 31, 1998).
10.32 Production Agreement, dated as of June 4, 1998, by and between Aurora
Foods Inc. and Gilster-Mary Lee Corporation. (Incorporated by
reference to Exhibit 10.48 to the S-1).
10.33 * 1998 Long Term Incentive Plan (Incorporated by reference to Exhibit
10.50 to the Aurora Foods Inc. Form 10-K for the fiscal year ended
December 31, 1998).
10.34 Fifth Amended and Restated Credit Agreement dated November 1, 1999 and
entered into by and among Aurora Foods Inc., as Borrower, the Lenders
listed therein, the Chase Manhattan Bank, as Administrative Agent for
the Lenders, National Westminster Bank PLC, as Syndication Agent, and
UBS AG, Stamford Branch, as Documentation Agent (Incorporated by
reference to Exhibit 10.1 to the Aurora Foods Inc. 8-K dated November
1, 1999).
10.35 Collective Bargaining Agreement between Lender's Bagel Bakery and
Bakery, Confectionery and Tobacco Workers of America Local # 429 -
September 1, 1998 to August 31, 2001.
21.1 Subsidiary of Aurora Foods Inc.
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule for the period ended December 31, 1999
including Restated Financial Data Schedule for the period ended
December 31, 1998 submitted to the Securities and Exchange Commission
in electronic format.
*Represents management contracts or compensatory plans or arrangements
<PAGE>
EXHIBIT 4.9
EXHIBIT A to
Indenture
[FORM OF FACE OF INITIAL NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Private Placement Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
BELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT. (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES
<PAGE>
2
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATIONS UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR"
WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
(Regulation S Legend)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT-OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT
PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION 3 UNDER THE SECURITIES ACT
("REGULATION S"), (2) BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S,
(E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1),
<PAGE>
3
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF
THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR
FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND IN THE
CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED AFTER 40
CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH
THE SECURITIES ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN
REGULATION S) AND (B) THE DATE OF THE CLOSING OF THE ORIGINAL OFFERING. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
<PAGE>
No. Principal Amount $___________
CUSIP NO. ___________
8 3/4% Senior Subordinated Note due 2008
Aurora Foods Inc., a Delaware corporation, promises to pay to CEDE &
CO., or registered assigns, the principal sum of ________ Dollars on July 1,
2008.
Interest Payment Dates: January 1 and July 1 commencing January 1,
1999.
Record Dates: December 15 and June 15.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated: AURORA FOODS INC.
by
------------------------------------
------------------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
WILMINGTON TRUST COMPANY
as Trustee, certifies that this is one of
the securities referred to in the Indenture.
by
Authorized Signatory
<PAGE>
(FORM OF REVERSE SIDE OF INITIAL NOTE)
8 3/4% Senior Subordinated Note due 2008
1. Interest
Aurora Foods Inc., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above.
The Company will pay interest semiannually on January 1 and July 1 of
each year commencing January 1, 1999. Interest on the Securities will accrue
from the most recent date to which interest has been paid on the Securities or,
if no interest has been paid, from July 2, 1998. The Company shall pay interest
on overdue principal or premium, if any, at the rate borne by the Securities to
the extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on any Security is due and payable, the Company shall
transfer by wire to the accounts specified by the Trustee or the Paying Agent
money sufficient to pay such principal, premium, if any, and/or interest. The
Company will pay interest (except defaulted interest) to the Persons who are
registered Holders of Securities at the close of business on the December 15 or
June 15 next preceding the interest payment date even if Securities are
cancelled, repurchased or redeemed after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and interest by
check payable in such money. it may mail an interest check to a Holder's
registered address.
3. Paying Agent and Registrar
Initially, Wilmington Trust Company, a Delaware banking corporation
("Trustee"), will act as Paying Agent and Registrar. The company may appoint
and change any Paying Agent, Registrar or co-registrar without notice to any
Securityholder. The Company or any of its domestically incorporated Wholly-Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
<PAGE>
2
4. Indenture
The Company issued the Securities under an Indenture dated as of July
1, 1998 (as it may be amended or supplemented from time to time in accordance
with the terms thereof, the "Indenture"), between the Company and the Trustee.
The terms of the Securities include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. 5 S.S. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior subordinated obligations of
the Company limited to $200 million aggregate principal amount (subject to
Section 2.7 of the Indenture). The aggregate principal amount of notes which may
be authenticated and delivered under the Indenture, including the Securities, is
limited to $400.0 million (subject to section 2.7 of the Indenture). This
Security is one of the Initial Notes referred to in the Indenture. The
Securities include the Initial Notes and any Exchange Notes issued in exchange
for the initial Notes pursuant to the Indenture and the Registration Rights
Agreement. The initial Notes and the Exchange Notes are treated as a single
class of securities under the Indenture. The Indenture imposes certain
limitations on the Incurrence of Indebtedness by the Company and its
Subsidiaries, the payment of dividends and other distributions on the Capital
Stock of the Company and its Subsidiaries, the purchase or redemption of Capital
Stock of the Company and Capital Stock of such Subsidiaries, certain purchases
or redemptions of Subordinated Obligations, the sale or transfer of assets and
Capital Stock of Subsidiaries, the issuance or sale of Capital Stock of
Subsidiaries, the business activities and investments of the Company and its
Subsidiaries and transactions with Affiliates. In addition, the Indenture limits
the ability of the Company and its Subsidiaries to restrict distributions and
dividends from Subsidiaries.
In addition, the Indenture requires Subsidiaries of the Company (in the
circumstances specified in Section 4.10 of the Indenture and on the terms and
conditions specified in Article XI of the Indenture), to enter into a supplement
to the Indenture providing for a guarantee by such Subsidiaries (on a senior
subordinated basis) of the due and punctual payment of the principal of, premium
(if any) and interest on the Securities and all other amounts payable by the
Company under the Indenture and the Securities when and as the same shall be due
and payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture.
<PAGE>
3
5. Optional Redemption
Except as Set forth in this paragraph 5, the Securities will not be
redeemable at the option of the Company prior to July 1, 2003. On and after such
date, the Securities will be redeemable, at the Company's option, in whole or in
part, upon not less than 30 nor more than 60 days, prior notice mailed by first
class mail to each Holder's registered address, at the following redemption
prices (expressed as 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 July 1 of the years set
forth below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003 . . . . . . . . . . . . . 104.375%
2004 . . . . . . . . . . . . . 102.917%
2005 . . . . . . . . . . . . . 101.458%
2006 and thereafter . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior
to July 1, 2001 the Company my redeem up to $70 million of the aggregate
original principal amount of the Securities with the cash proceeds of one or
more Subsequent Equity offerings received by or invested in, the Company at a
redemption price (expressed as a percentage of principal amount) of 108.75% 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 after giving
effect to such redemption, at least $130 million of the aggregate principal
amount of the Securities remain outstanding after each such redemption,
provided, further, that each such redemption occurs within 90 days of the date
of the closing of each such Subsequent Equity Offering.
At any time on or prior to July 1, 2003, the Securities may also be
redeemed in whole, but not in part, at the option of the Company upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60 days,
prior notice (but in no event more than 90 days after the occurrence 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).
<PAGE>
4
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations of principal
amount larger than $1,000 may be redeemed in part but only in integral multiples
of $1,000. If money sufficient to pay the redemption price of and accrued and
unpaid interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
7. Put Provisions
Upon a Change of Control, unless the Company shall have exercised its
right to redeem the Securities pursuant to paragraph 5 of the Securities in
connection with such Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price equal to 101% of the principal amount thereof
plus accrued interest to the date of repurchase as provided in, and subject to
the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture, and the obligations of each Subsidiary Guarantor under the
Subsidiary Guarantee contained in Article XI of the Indenture are subordinated
to Guarantor Senior Indebtedness, as defined in the Indenture, of such
Subsidiary Guarantor. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid, and Guarantor
Senior Indebtedness of a Subsidiary Guarantor must be paid before such
Subsidiary Guarantor may make payments under the Subsidiary Guarantee. The
Company agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give them effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations
of principal amount of $1,000 and whole multiples of $1,000. A Holder may
transfer or exchange Securities in accordance with the Indenture. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees
<PAGE>
5
required by law or permitted by the Indenture. The Registrar need not register
the transfer of or exchange (i) any Securities selected for redemption (except,
in the case of a Security to be redeemed in part, the portion of the security
not to be redeemed) for a period beginning 15 days before a selection of
Securities to be redeemed and ending on the date of selection or (ii) any
Securities for a period beginning 15 days before an interest payment date and
ending on such interest payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its request unless an abandoned property law designates another Person. After
any such payment, Holders entitled to the money must look only to the Company
and not to the Trustee for payment.
12. Defeasance
Subject to certain conditions set forth in the Indenture, the Company
at any time may terminate some or all of its obligations under the Securities
and the Indenture if the Company deposits with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in outstanding principal amount of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in outstanding principal amount of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants for the
benefit of the Holders or surrender rights and powers conferred on the
<PAGE>
6
Company, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make any change that does not adversely
affect the rights of any Securityholder, or to provide for the issuance of
Exchange Notes.
14. Defaults and Remedies
Under the Indenture, Events of Default include: (i) default for 30 days
in payment of interest on the Securities when the same becomes due and payable;
(ii) default in payment of principal on the Securities when the same becomes due
and payable at maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon required repurchase, upon declaration or otherwise; (iii)
failure by the Company to comply with other agreements in the Indenture or the
Securities, in certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period after final
maturity) of other indebtedness of the Company or its Subsidiaries if the amount
accelerated (or so unpaid) exceeds $10 million and such acceleration or failure
to pay is not rescinded or cured within a 10-day period; (v) certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary; (vi) certain final, non-appealable judgments or decrees for the
payment of money in excess of $10 million; and (vii) the failure of any
Subsidiary Guarantee to be in full force and effect or the denial or
disaffirmation by any Subsidiary Guarantor of its obligations under the
Indenture or the Securities in certain cases. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 259. in principal amount
of the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities being due and payable immediately upon the
occurrence of such Events of Default. Securityholders may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee may
refuse to enforce the Indenture or the Securities unless it receives reasonable
indemnity or security. Subject to certain limitations, Holders of a majority in
principal amount of the Securities may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Securityholders notice of any
continuing Default or Event of Default (except a Default or Event of Default in
payment of principal or interest) if it determines that withholding notice is in
their interest.
15. Trustee Dealings with the company
Subject to certain limitations set forth in the Indenture, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and nay otherwise deal with and collect
obligations owed to it by
<PAGE>
7
the company or its affiliates and may otherwise deal with the Company or its
affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor shall not have any liability for any obligations of
the Company or any Subsidiary Guarantor under the Securities or the indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. Governing Law
This Security shall be governed by, and construed in accordance with,
the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the
<PAGE>
8
extent that the application of the laws of another jurisdiction would be
required thereby.
The Company will furnish to any
Securityholder upon written request and without charge to
the Securityholder a copy of the indenture which has in it
the text of this Security in larger type. Requests may be
made to: Aurora Foods Inc., 456 Montgomery Street, Suite
2200, San Francisco, CA 94104, Attention: M. Laurie
Cummings.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer
this Security on the books of the Company. The agent may
substitute another to act for him.
- -------------------------------------------------------------------------------
Date: Your Signature:
---------------------- -------------------------------
Signature Guarantee:
--------------------------------------
(Signature must be guaranteed)
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is two years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate of the
Company, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
1 [ ] acquired for the undersigned's own account, without transfer; or
2 [ ] transferred to the Company; or
3 [ ] transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933; or
4 [ ] transferred pursuant to an effective registration statement
under the Securities Act; or
5 [ ] transferred pursuant to and in compliance with Regulation S
under the Securities Act of 1933; or
6 [ ] transferred to an "accredited investor" (within the meaning
of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933) that is an institutional investor and that has furnished
to the Trustee a signed letter containing certain representation
and agreements (the form of which letter appears in Section 2.13
of the indenture); or
<PAGE>
2
7 [ ] transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
This certificate and the statements contained herein are made for the benefit of
the Company, the Guarantors, Wilmington Trust Company, as Trustee, and Chase
Securities Inc., the Initial Purchaser of such Notes being transferred and each
of you are entitled to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding with respect to the materials covered hereby.
------------------------------
Signature
Signature Guarantee:
- -------------------------- --------------------------------
Signature
(Signature must be guaranteed)
- -------------------------------------------------------------------------------
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, as amended, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Company as the undersigned has requested pursuant to Rule 14-4A or has
determined not to request
<PAGE>
3
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
<PAGE>
4
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amount of decrease Amount of increase Principal Amount of Signature of
Date of in Principal Amount In Principal Amount this Global Security authorized officer
Exchange of this Global of this Global following such of Trustee or
Security Security decrease or increase Securities Custodian
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: Your Signature
--------------------- -------------------------------
(Sign exactly as your name appears on the other side
of the Security)
Signature Guarantee:
------------------------------------------------------
(Signature must be guaranteed)
The signatures) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT B to
Indenture
(FORM OF FACE OF EXCHANGE NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS SECURITY IS SUBORDINATED TO SENIOR INDEBTEDNESS, AS DEFINED IN THE
INDENTURE (AS DEFINED HEREIN), AND THE OBLIGATIONS OF EACH SUBSIDIARY GUARANTOR
UNDER THE SUBSIDIARY GUARANTEE CONTAINED IN THE INDE19TURE ARE SUBORDINATED TO
GUARANTOR SENIOR INDEBTEDNESS, AS DEFINED IN THE INDENTURE, OF SUCH SUBSIDIARY
GUARANTOR.
<PAGE>
2
No. Principal Amount $200,000,000
------ CUSIP NO.
8 3/4% Senior Subordinated Note due 2008
Aurora Foods Inc., a Delaware corporation, promises to pay to CEDE &
CO., or registered assigns, the principal sum of Two Hundred Million Dollars
on July 1, 2008.
Interest Payment Dates: January 1 and July 1 commencing January 1,
1999.
Record Dates: December 15 and June 15.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated: AURORA FOODS INC.
by
-------------------------------
by
-------------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
WILMINGTON TRUST COMPANY
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
Authorized Signatory
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE NOTE]
8 3/4% Senior Subordinated Note due 2008
1. Interest
Aurora Foods Inc., a Delaware corporation (such corporation, and its
successors and assigns under the indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above.
The Company will pay interest semiannually on January 1 and July 1 of
each year. Interest on the Securities will accrue from the most recent date to
which interest has been paid on the Securities or, if no interest has been paid,
from July 1, 1998. The Company shall pay interest on overdue principal or
premium, if any, at the rate borne by the Securities to the extent lawful.
interest will he computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on any Security is due and payable, the Company shall
transfer by wire to the accounts specified by the Trustee or the Paying Agent
money sufficient to pay such principal, premium, if any, and/or interest. The
Company will pay interest (except defaulted interest) to the Persons who are
registered Holders of Securities at the close of business on the December 15 or-
June 15 next preceding the interest payment date even if Securities are
cancelled, repurchased or redeemed after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment
of public and private debts. However, the Company may pay principal and interest
by check payable in such money. It may mail an interest check to a Holder's
registered address.
3. Paying Agent and Registrar
Initially, Wilmington Trust Company, a Delaware banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice to any
Securityholder. The Company or any of its domestically incorporated Wholly-Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of July
1, 1998 (as it my be amended or supplemented from time to time in accordance
with the terms thereof, the
<PAGE>
2
"Indenture"), between the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act").
Capitalized terms used herein and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior subordinated obligations of
the Company limited to $200 million aggregate principal amount (subject to
Section 2.7 of the Indenture). The aggregate principal amount of notes which may
be authenticated and delivered under the Indenture, including the Securities, is
limited to $400.0 million (subject to Section 2.7 of the Indenture). This
Security is one of the Exchange Notes referred to in the Indenture. The
Securities include the Initial Notes and any Exchange Notes issued in exchange
for the Initial Notes pursuant to the Indenture and the Registration Rights
Agreement. The Initial Notes and the Exchange Notes are treated as a single
class of securities under the Indenture. The Indenture imposes certain
limitations on the Incurrence of Indebtedness by the Company and its
Subsidiaries, the payment of dividends and other distributions on the Capital
Stock of the Company and its Subsidiaries, the purchase or redemption of
Capital Stock of the Company and Capital Stock of such Subsidiaries, certain
purchasers or redemptions of Subordinated Obligations, the sale or transfer of
assets and Capital Stock of Subsidiaries, the issuance or sale of Capital Stock
of Subsidiaries, the business activities and investments of the Company and its
Subsidiaries and transactions with Affiliates. In addition, the Indenture limits
the ability of the Company and its Subsidiaries to restrict distributions and
dividends from Subsidiaries.
In addition, the Indenture requires Subsidiaries of the Company (in the
circumstances specified in Section 4.10 of the Indenture and on the terms and
conditions specified in Article XI of the Indenture), to enter into a supplement
to the Indenture providing for a guarantee by such Subsidiaries (on a senior
subordinated basis) of the due and punctual payment of the principal of, premium
(if any) and interest on the Securities and all other amounts payable by the
Company under the Indenture and the Securities when and as the same shall be due
and payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities will not be
redeemable at the option of the Company prior to July 1, 2003. On and after such
date, the Securities will be redeemable, at the Company's option, in whole or in
part, upon
<PAGE>
3
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address, at the following redemption prices
(expressed as 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 July 1 of the years set
forth below:
Year Redemption Price
---- ----------------
2003 . . . . . . . . . . . . . 104.375%
2004 . . . . . . . . . . . . . 102.917%
2005 . . . . . . . . . . . . . 101.458%
2006 and thereafter . . . . . 100.000%
Notwithstanding the foregoing, at any time or from time to time prior
to July 1, 2001, the Company my redeem up to $70 million of the aggregate
original principal amount of the Securities with the cash proceeds of one or
more Subsequent Equity Offerings received by or invested in, the Company at a
redemption price (expressed as a percentage of principal amount) of 108.75% 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); provided, however, that after giving effect to
such redemption, at least $130 million of the aggregate principal amount of
Securities remain outstanding after such redemption, provided, further, that
each such redemption occurs within 90 days of the date of the closing of each
such Subsequent Equity Offering.
At any time on or prior to July 1, 2003, the Securities may also be
redeemed in whole, but not in part, at the option of the Company upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60 days'
prior notice (but in no event more than 90 days after the occurrence 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).
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations of principal
amount larger than $1,000 may be redeemed in part but only in integral multiples
of $1,000. if money sufficient to pay the redemption
<PAGE>
4
price of and accrued and unpaid interest on all Securities (or portions thereof)
to be redeemed on the redemption date is deposited with the Paying Agent on or
before the redemption date and certain other conditions are satisfied, on and
after such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, unless the Company shall have exercised its
right to redeem the Notes pursuant to paragraph 5 of the Securities in
connection with such Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price equal to 101% of the principal amount thereof
plus accrued interest to the date of repurchase as provided in, and subject to
the terms of, the indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture, and the obligations of each Subsidiary Guarantor under the
Subsidiary Guarantee contained in Article XI of the Indenture are subordinated
to Guarantor Senior Indebtedness, as defined in the Indenture, of such
Subsidiary Guarantor. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid, and Guarantor
Senior Indebtedness of a Subsidiary Guarantor must be paid before such
Subsidiary Guarantor may make payments under the Subsidiary Guarantee. The
Company agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give them effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations
of principal amount of $1,000 and whole multiples of $1,000. A Holder may
transfer or exchange Securities in accordance with the Indenture. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange (i)
any Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) for a period
beginning 15 days before a selection of Securities to be redeemed and ending on
the date of selection or (ii) any Securities for a period beginning 15 days
before an interest payment date and ending on such interest payment date.
10. Persons Deemed Owners
<PAGE>
5
The registered holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its request unless an abandoned property law designates another Person. After
any such payment, Holders entitled to the money must look only to the Company
and not to the Trustee for payment.
12. Defeasance
Subject to certain conditions set forth in the Indenture, the Company
at any time may terminate some or all of its obligations under the Securities
and the Indenture if the Company deposits with the Trustee money or U.S.
Government obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in outstanding principal amount of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in outstanding principal amount of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants for the
benefit of the Holders or surrender rights and powers conferred on the Company
or to comply with any request of the SEC in connection with qualifying the
Indenture under the Act, or to make any change that does not adversely affect
the rights of any Securityholder, or to provide for the issuance of Exchange
Notes.
14. Defaults and Remedies
Under the Indenture, Events of Default include: (i) default for 30 days
in payment of interest on the Securities when the same becomes due and payable;
(ii) default in payment of principal on the Securities when the same becomes due
and payable at maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon required repurchase, upon declaration or otherwise; (iii)
failure by the Company to comply with other agreements in the Indenture or the
Securities, in certain cases
<PAGE>
6
subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of other
Indebtedness of the Company or its Subsidiaries if the amount accelerated (or so
unpaid) exceeds $10.0 million and such acceleration or failure to pay is not
rescinded or cured within a 10-day period; (v) certain events of bankruptcy or
insolvency with respect to the Company or any Significant Subsidiary; (vi)
certain final, non-appealable judgments or decrees for the payment of money in
excess of $10.0 million; and (vii) the failure of any Subsidiary Guarantee to be
in full force and effect or the denial or disaffirmation by any Subsidiary
Guarantor of its obligations under the Indenture or the Securities in certain
cases. if an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities may declare all
the Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default or Event of
Default (except a Default or Event of Default in payment of principal or
interest) if it determines that withholding notice is in their interest.
15. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its affiliates and my otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor shall not have any liability for any obligations
of the Company or any Subsidiary Guarantor under the Securities or the Indenture
or for any claim based on, in respect of or by reason of such obligations or
their creation. By accepting a Security, each Securityholder waives and releases
all such liability. The waiver and release are part of the consideration for the
issue of the Securities.
17. Authentication
<PAGE>
7
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. Governing Law
This Security shall be governed by, and construed in accordance with,
the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
The Company will furnish to any
Securityholder upon written request and
without charge to the Securityholder a copy
of the indenture which has in it the text of
this Security in larger type. Requests may
be made to: Aurora Foods Inc., 456
Montgomery Street, Suite 2200, San Francisco,
CA 94104, Attention: M. Laurie Cummings.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
- -------------------------------------------------------------------------------
Date: Your Signature
----------------------- ----------------------------
Signature Guarantee:
---------------------------------------------------
(Signature must be guaranteed)
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this security.
The signatures) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
Membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4,6 or 4.8 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date:
--------------------
Signature:
----------------------
(Sign exactly as your name appears on the other side of the Security)
Signature
Guarantee:
-----------------------------------------------
(Signature must be guaranteed)
The signatures) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT 4.11
This Supplemental Indenture, dated as of April 1, 1999 (this
"Supplemental Indenture" or "Guarantee"), among Sea Coast Foods, Inc. (the
"Guarantor"), Aurora Foods Inc. (together with its successors and assigns, the
"Company") and Wilmington Trust Company, as Trustee under the Indenture referred
to below.
W I T N E S S E T H:
WHEREAS, the Company and the Trustee have heretofore executed and
delivered an Indenture, dated as of February 10, 1997 (as amended, supplemented,
waived or otherwise modified, the "Indenture"), providing for the issuance of 9
7/8% Senior Subordinated Notes due 2007 of the Company (the "Securities");
WHEREAS, Section 4.10 of the Indenture provides that the Company is
required to cause each Subsidiary which Incurs Indebtedness or which is a
guarantor of Indebtedness Incurred pursuant to Section 4.3(b)(i) of the
Indenture to execute and deliver to the Trustee a Supplemental Indenture
pursuant to which such Subsidiary will Guarantee, jointly and severally, to the
Holders and the Trustee, subject to subordination provisions in Article X, the
full and prompt payment of the Securities in the Indenture; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and
the Company are authorized to execute and deliver this Supplemental Indenture to
amend the Indenture, without the consent of any Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor, the Company and the Trustee mutually covenant and agree for the equal
and ratable benefit of the holders of the Securities as follows:
ARTICLE I
Definitions
SECTION 1.1. Defined Terms. As used in this Subsidiary Guarantee,
terms defined in the Indenture or in the preamble or recital hereto are used
herein as therein defined, except that the term "Holders" in this Guarantee
shall refer to the term "Holders" as defined in the Indenture and the Trustee
acting on behalf or for the benefit of such holders. The words "herein,"
"hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
<PAGE>
ARTICLE II
Agreement to be Bound; Guarantee
SECTION 2.1. Agreement to be Bound. The Guarantor hereby becomes a
party to the Indenture as a Subsidiary Guarantor and as such will have all of
the rights and be subject to all of the obligations and agreements of a
Subsidiary Guarantor under the Indenture. The Guarantor agrees to be bound by
all of the provisions of the Indenture applicable to a Subsidiary Guarantor and
to perform all of the obligations and agreements of a Subsidiary Guarantor under
the Indenture.
SECTION 2.2. Guarantee. (a) The Guarantor hereby fully,
unconditionally and irrevocably guarantees, as primary obligor and not merely as
surety, jointly and severally with each other Subsidiary Guarantor, to each
Holder of the Securities and the Trustee, the full and punctual payment when
due, whether at maturity, by acceleration, by redemption or otherwise, of the
Obligations pursuant to Article XI of the Indenture.
(b) The Guarantor agrees that the Indebtedness evidenced by its
Subsidiary Guarantee shall be subordinated in right of payment, to the extent
and in the manner provided in Article X of the Indenture, to the prior payment
when due in cash or Cash Equivalents of all Guarantor Senior Indebtedness of the
Guarantor and that the subordination is for the benefit of and enforceable by
the holders of Guarantor Senior Indebtedness of the Guarantor. This Guarantee
shall in all respects rank pari passu with all other Guarantor Senior
Subordinated Indebtedness of the Guarantor and only Indebtedness of the
Guarantor which is Guarantor Senior Indebtedness will rank senior to this
Guarantee in accordance with the provisions set forth herein.
ARTICLE III
Miscellaneous
SECTION 3.1. Notices. All notices and other communications to the
Guarantor shall be given as provided in the Indenture to the Guarantor, at its
address set forth below, with a copy to the Company as provided in the Indenture
for notices to the Company.
SECTION 3.2. Parties. Nothing expressed or mentioned herein is
intended or shall be construed to give any Person, firm or corporation, other
than the Holders and the Trustee and the holders of any Guarantor Senior
Indebtedness, any legal or equitable right, remedy or claim under or in respect
of this Supplemental Indenture or the Indenture or any provision herein or
therein contained.
SECTION 3.3. Governing Law. This Supplemental Indenture shall be
governed by the laws of the State of New York.
SECTION 3.4. Severability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the
2
<PAGE>
remaining provisions shall not in any way be affected or impaired thereby and
such provision shall be ineffective only to the extent of such invalidity,
illegality or unenforceability.
SECTION 3.5. Ratification of Indenture; Supplemental Indentures Part
of Indenture. Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This Supplemental Indenture shall
form a part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby. The
Trustee makes no representation or warranty as to the validity or sufficiency of
this Supplemental Indenture.
SECTION 3.6. Counterparts. The parties hereto may sign one or more
copies of this Supplemental Indenture in counterparts, all of which together
shall constitute one and the same agreement.
SECTION 3.7. Headings. The headings of the Articles and the sections
in this Guarantee are for convenience of reference only and shall not be deemed
to alter or affect the meaning or interpretation of any provisions hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
SEA COAST FOODS, INC.,
as a Subsidiary Guarantor
By:______________________________
Name:
Title:
AURORA FOODS INC.
By:______________________________
Name:
Title:
WILMINGTON TRUST COMPANY
as Trustee
By:______________________________
Name:
Title:
4
<PAGE>
EXHIBIT 4.12
This Supplemental Indenture, dated as of April 1, 1999 (this
"Supplemental Indenture" or "Guarantee"), among Sea Coast Foods, Inc. (the
"Guarantor"), Aurora Foods Inc. (together with its successors and assigns, the
"Company") and Wilmington Trust Company, as Trustee under the Indenture referred
to below.
W I T N E S S E T H:
WHEREAS, the Company and the Trustee have heretofore executed and
delivered an Indenture, dated as of July 1, 1997 (as amended, supplemented,
waived or otherwise modified, the "Indenture"), providing for the issuance of 9
7/8% Series C Senior Subordinated Notes due 2007 of the Company (the
"Securities");
WHEREAS, Section 4.10 of the Indenture provides that the Company is
required to cause each Subsidiary which Incurs Indebtedness or which is a
guarantor of Indebtedness Incurred pursuant to Section 4.3(b)(i) of the
Indenture to execute and deliver to the Trustee a Supplemental Indenture
pursuant to which such Subsidiary will Guarantee, jointly and severally, to the
Holders and the Trustee, subject to subordination provisions in Article X, the
full and prompt payment of the Securities in the Indenture; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and
the Company are authorized to execute and deliver this Supplemental Indenture to
amend the Indenture, without the consent of any Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor, the Company and the Trustee mutually covenant and agree for the equal
and ratable benefit of the holders of the Securities as follows:
ARTICLE I
Definitions
SECTION 1.1. Defined Terms. As used in this Subsidiary Guarantee,
terms defined in the Indenture or in the preamble or recital hereto are used
herein as therein defined, except that the term "Holders" in this Guarantee
shall refer to the term "Holders" as defined in the Indenture and the Trustee
acting on behalf or for the benefit of such holders. The words "herein,"
"hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
<PAGE>
ARTICLE II
Agreement to be Bound; Guarantee
SECTION 2.1. Agreement to be Bound. The Guarantor hereby becomes a
party to the Indenture as a Subsidiary Guarantor and as such will have all of
the rights and be subject to all of the obligations and agreements of a
Subsidiary Guarantor under the Indenture. The Guarantor agrees to be bound by
all of the provisions of the Indenture applicable to a Subsidiary Guarantor and
to perform all of the obligations and agreements of a Subsidiary Guarantor under
the Indenture.
SECTION 2.2. Guarantee. (a) The Guarantor hereby fully,
unconditionally and irrevocably guarantees, as primary obligor and not merely as
surety, jointly and severally with each other Subsidiary Guarantor, to each
Holder of the Securities and the Trustee, the full and punctual payment when
due, whether at maturity, by acceleration, by redemption or otherwise, of the
Obligations pursuant to Article XI of the Indenture.
(b) The Guarantor agrees that the Indebtedness evidenced by its
Subsidiary Guarantee shall be subordinated in right of payment, to the extent
and in the manner provided in Article X of the Indenture, to the prior payment
when due in cash or Cash Equivalents of all Guarantor Senior Indebtedness of the
Guarantor and that the subordination is for the benefit of and enforceable by
the holders of Guarantor Senior Indebtedness of the Guarantor. This Guarantee
shall in all respects rank pari passu with all other Guarantor Senior
Subordinated Indebtedness of the Guarantor and only Indebtedness of the
Guarantor which is Guarantor Senior Indebtedness will rank senior to this
Guarantee in accordance with the provisions set forth herein.
ARTICLE III
Miscellaneous
SECTION 3.1. Notices. All notices and other communications to the
Guarantor shall be given as provided in the Indenture to the Guarantor, at its
address set forth below, with a copy to the Company as provided in the Indenture
for notices to the Company.
SECTION 3.2. Parties. Nothing expressed or mentioned herein is
intended or shall be construed to give any Person, firm or corporation, other
than the Holders and the Trustee and the holders of any Guarantor Senior
Indebtedness, any legal or equitable right, remedy or claim under or in respect
of this Supplemental Indenture or the Indenture or any provision herein or
therein contained.
SECTION 3.3. Governing Law. This Supplemental Indenture shall be
governed by the laws of the State of New York.
SECTION 3.4. Severability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and
2
<PAGE>
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby and such provision shall be ineffective only to the extent of
such invalidity, illegality or unenforceability.
SECTION 3.5. Ratification of Indenture; Supplemental Indentures Part
of Indenture. Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This Supplemental Indenture shall
form a part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby. The
Trustee makes no representation or warranty as to the validity or sufficiency of
this Supplemental Indenture.
SECTION 3.6. Counterparts. The parties hereto may sign one or more
copies of this Supplemental Indenture in counterparts, all of which together
shall constitute one and the same agreement.
SECTION 3.7. Headings. The headings of the Articles and the sections
in this Guarantee are for convenience of reference only and shall not be deemed
to alter or affect the meaning or interpretation of any provisions hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
SEA COAST FOODS, INC.,
as a Subsidiary Guarantor
By:______________________________
Name:
Title:
AURORA FOODS INC.
By:______________________________
Name:
Title:
WILMINGTON TRUST COMPANY
as Trustee
By:______________________________
Name:
Title:
4
<PAGE>
EXHIBIT 4.13
This Supplemental Indenture, dated as of April 1, 1999 (this
"Supplemental Indenture" or "Guarantee"), among Sea Coast Foods, Inc. (the
"Guarantor"), Aurora Foods Inc. (together with its successors and assigns, the
"Company") and Wilmington Trust Company, as Trustee under the Indenture referred
to below.
W I T N E S S E T H:
WHEREAS, the Company and the Trustee have heretofore executed and
delivered an Indenture, dated as of July 1, 1998 (as amended, supplemented,
waived or otherwise modified, the "Indenture"), providing for the issuance of 8
3/4% Senior Subordinated Notes due 2008 of the Company (the "Securities");
WHEREAS, Section 4.10 of the Indenture provides that the Company is
required to cause each Subsidiary which Incurs Indebtedness or which is a
guarantor of Indebtedness Incurred pursuant to Section 4.3(b)(i) of the
Indenture to execute and deliver to the Trustee a Supplemental Indenture
pursuant to which such Subsidiary will Guarantee, jointly and severally, to the
Holders and the Trustee, subject to subordination provisions in Article X, the
full and prompt payment of the Securities in the Indenture; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and
the Company are authorized to execute and deliver this Supplemental Indenture to
amend the Indenture, without the consent of any Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor, the Company and the Trustee mutually covenant and agree for the equal
and ratable benefit of the holders of the Securities as follows:
ARTICLE I
Definitions
SECTION 1.1. Defined Terms. As used in this Subsidiary Guarantee,
terms defined in the Indenture or in the preamble or recital hereto are used
herein as therein defined, except that the term "Holders" in this Guarantee
shall refer to the term "Holders" as defined in the Indenture and the Trustee
acting on behalf or for the benefit of such holders. The words "herein,"
"hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
<PAGE>
ARTICLE II
Agreement to be Bound; Guarantee
SECTION 2.1. Agreement to be Bound. The Guarantor hereby becomes a
party to the Indenture as a Subsidiary Guarantor and as such will have all of
the rights and be subject to all of the obligations and agreements of a
Subsidiary Guarantor under the Indenture. The Guarantor agrees to be bound by
all of the provisions of the Indenture applicable to a Subsidiary Guarantor and
to perform all of the obligations and agreements of a Subsidiary Guarantor under
the Indenture.
SECTION 2.2. Guarantee. (a) The Guarantor hereby fully,
unconditionally and irrevocably guarantees, as primary obligor and not merely as
surety, jointly and severally with each other Subsidiary Guarantor, to each
Holder of the Securities and the Trustee, the full and punctual payment when
due, whether at maturity, by acceleration, by redemption or otherwise, of the
Obligations pursuant to Article XI of the Indenture.
(b) The Guarantor agrees that the Indebtedness evidenced by its
Subsidiary Guarantee shall be subordinated in right of payment, to the extent
and in the manner provided in Article X of the Indenture, to the prior payment
when due in cash or Cash Equivalents of all Guarantor Senior Indebtedness of the
Guarantor and that the subordination is for the benefit of and enforceable by
the holders of Guarantor Senior Indebtedness of the Guarantor. This Guarantee
shall in all respects rank pari passu with all other Guarantor Senior
Subordinated Indebtedness of the Guarantor and only Indebtedness of the
Guarantor which is Guarantor Senior Indebtedness will rank senior to this
Guarantee in accordance with the provisions set forth herein.
ARTICLE III
Miscellaneous
SECTION 3.1. Notices. All notices and other communications to the
Guarantor shall be given as provided in the Indenture to the Guarantor, at its
address set forth below, with a copy to the Company as provided in the Indenture
for notices to the Company.
SECTION 3.2. Parties. Nothing expressed or mentioned herein is
intended or shall be construed to give any Person, firm or corporation, other
than the Holders and the Trustee and the holders of any Guarantor Senior
Indebtedness, any legal or equitable right, remedy or claim under or in respect
of this Supplemental Indenture or the Indenture or any provision herein or
therein contained.
SECTION 3.3. Governing Law. This Supplemental Indenture shall be
governed by the laws of the State of New York.
2
<PAGE>
SECTION 3.4. Severability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby and such provision shall be ineffective only to the
extent of such invalidity, illegality or unenforceability.
SECTION 3.5. Ratification of Indenture; Supplemental Indentures Part
of Indenture. Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This Supplemental Indenture shall
form a part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby. The
Trustee makes no representation or warranty as to the validity or sufficiency of
this Supplemental Indenture.
SECTION 3.6. Counterparts. The parties hereto may sign one or more
copies of this Supplemental Indenture in counterparts, all of which together
shall constitute one and the same agreement.
SECTION 3.7. Headings. The headings of the Articles and the sections
in this Guarantee are for convenience of reference only and shall not be deemed
to alter or affect the meaning or interpretation of any provisions hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
SEA COAST FOODS, INC.,
as a Subsidiary Guarantor
By:______________________________
Name:
Title:
AURORA FOODS INC.
By:______________________________
Name:
Title:
WILMINGTON TRUST COMPANY
By:______________________________
Name:
Title:
4
<PAGE>
EXHIBIT 10.35
COLLECTIVE BARGAINING AGREEMENT
between
LENDER'S BAGEL BAKERY
and
BAKERY, CONFECTIONERY and TOBACCO
WORKERS OF AMERICA
LOCAL #429
SEPTEMBER 1, 1998 to AUGUST 31, 2001
<PAGE>
TABLE OF CONTENTS
-----------------
Article Page
- ------- ----
1. Recognition_________________________________________________________1
2. Hours of Work_______________________________________________________2
3. Holidays____________________________________________________________3
4. Night Premium_______________________________________________________5
5. Lunch & Relief Periods______________________________________________5
6. Rest Hours__________________________________________________________5
7. Wages for Higher Classification Work________________________________6
8. Vacations___________________________________________________________6
9. Job Posting and Bidding_____________________________________________8
10. Seniority__________________________________________________________10
11. Uniforms___________________________________________________________12
12. Death in Family____________________________________________________12
13. Jury Duty__________________________________________________________13
14. Physical Examinations______________________________________________13
15. Union Label________________________________________________________13
16. Union Business_____________________________________________________13
17. Selective Service Act______________________________________________14
18. Grievance Procedure________________________________________________14
19. No Strike Clause___________________________________________________16
20. Benefits Package___________________________________________________16
21. Pension____________________________________________________________17
22. Sick Leave_________________________________________________________18
23. Checkoff___________________________________________________________19
24. Leaves of Absence__________________________________________________19
25. Rights of Management_______________________________________________20
26. Executive or Management Work_______________________________________20
27. Nondiscrimination Clause___________________________________________21
28. Miscellaneous______________________________________________________21
29. Posting of Work Schedule___________________________________________23
30. Severance Pay______________________________________________________23
31. Scope of Agreement and Separability________________________________23
32. Termination________________________________________________________24
33. Political Contributions____________________________________________24
34. Americans With Disabilities Act____________________________________25
35. Part-Time Employees________________________________________________25
36. Alternative Work Schedule__________________________________________25
37. Substance Abuse Policy_____________________________________________26
Schedule "A"_______________________________________________________35
Attachment: Memorandum of Agreement
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made and executed this 1st day of September, 1998, as of
September 1, 1998, between LENDER'S BAGEL BAKERY with its offices at 75 Empire
Drive, West Seneca, New York, 14224, hereinafter referred to as the Employer and
the BAKERY, CONFECTIONERY & TOBACCO WORKERS' INTERNATIONAL UNION OF AMERICA,
LOCAL 429, with its offices at 1560 Harlem Road, Cheektowaga, New York, 14206,
hereinafter referred to as the Union.
WITNESSETH:
-----------
This Agreement as to hours, wages and working conditions is entered into
and shall be binding on the parties hereto and their successors and assigns from
September 1, 1998 until terminated as hereinafter provided.
ARTICLE 1 - RECOGNITION
-----------------------
Section 1. The Employer recognizes the Union as the collective bargaining
---------
agent for all of his Employees, in all Lender's Bagel Bakery production,
shipping, packing, maintenance and sanitation, including regular part-time
Employees, but excluding store clerks, office and clerical Employees, route
salesmen, drivers and supervisors.
Section 2. It shall be a condition of employment that all of the
---------
Employer's Employees in the contractual bargaining unit who are members of the
Union in good standing on either the effective date or the execution date of the
Agreement, whichever is later, shall remain members in good standing for the
term of the Agreement; those Employees in the unit who are not members on the
latter of those two dates, shall become Union members on the 31st day following
either the effective date or the execution date of this Agreement, whichever is
later, and remain good standing members for the term of the Agreement; all new
Employees in the unit shall become Union members on the 31st day following the
beginning of such employment, and remain good standing members for the term of
the Agreement.
It is agreed that the Employer shall retain in his employ only
such Employees covered by this Agreement who are dues paying members in good
standing of the Bakery Confectionery & Tobacco Workers' International Union of
America. Good
1
<PAGE>
standing members are those owing not more that two (2) months dues. The
Employer shall have sixty (60) calendar days to determine if the new Employee
qualifies to do the work before he/she shall be considered regular full-time
during which time the Employee may be discharged without recourse, unless the
Union and Employer agree in writing to extend the period for a term not to
exceed three (3) weeks.
ARTICLE 2 - HOURS OF WORK
-------------------------
Section 1. Minimum wages and classification shall be as agreed upon in
---------
negotiation conferences and as set forth in Schedule 'A', a copy of which is
annexed hereto and made a part hereof, and is to be identified by the signature
of the Employer and the Union.
Section 2. The normal work day for full-time Employees shall be seven and
---------
one-half (7.5) hours and the normal work week shall consist of five (5) days or
thirty-seven and one-half (37.5) hours, which need not be worked consecutively,
being the normal times worked at straight time rates. A part-time Employee is
one who works less than thirty-seven and one-half (37.5) hours per week. The
normal work week shall commence on a Sunday or any other day which shall be
selected at the option of the Employer. This section is intended only to
provide a basis for the calculation of overtime and it should not be construed
as a guarantee of work per day or per week.
Section 3. All regular full-time Employees asked to report for work
---------
shall be guaranteed seven and one-half (7.5) hours per day and all part-time
Employees asked to report for work shall be guaranteed four (4) hours per day,
except those voluntarily agreeing to work less hours.
Section 4. All hours worked in excess of seven and one half (7.5) hours
---------
in any one day and/or thirty-seven and one-half (37.5) hours per week, shall be
compensated for at the rate of time and one-half the straight time hourly
classification rate.
Section 5. Time and one-half the straight time hourly classification rate
---------
shall be paid for all hours on the sixth (6th) day and double time on the
seventh (7th) consecutive day of any one work week. For the purposes of this
section the day is defined as no less than seven and one half (7.5) hours
worked, with the exception of those voluntarily agreeing to work less hours.
Section 6. Overtime is to be calculated on either the daily or weekly
---------
basis, whichever is greater, but not on both.
2
<PAGE>
Section 7. Except in the event of an emergency, no Employee may be
---------
required to work more than ten (10) hours in any one day. As far as possible
the distribution of available overtime shall be equally divided among all
Employees, subject, however, to the qualifications of such Employee to do the
required work. For the purpose of this Agreement, emergency shall be defined as
a malfunction in the production line or plant support, and unavoidable absence
with regard to which the Employer was not notified within a reasonable time or
an injury occurring during the work day with regard to whose station no
replacement can be reasonable found.
When Employees are required to work overtime, they shall be so
notified at least one (1) hour before the completion of their scheduled shift,
except in cases of emergency.
Section 8. The parties agree that it is the spirit and intent of this
---------
Agreement for all Employees to enjoy a five (5) day work week. The Union
recognizes however, that occasions may arise when it might become necessary for
an Employer to request that work be performed on the sixth (6th) day and/or
seventh (7th) consecutive day. The Union, therefore, agrees that if under such
circumstances, it cannot supply qualified workers as needed by the Employer, the
Employees will work the extra day or days unless they have a valid reason for
not doing so. The Shop Committee and Management will resolve any questions
concerning the validity of any such excuse.
ARTICLE 3-HOLIDAYS
------------------
Section 1.
---------
(a) The following days shall be observed as holidays. All
observances shall be as prescribed by the Federal Government.
New Year's Day Labor Day
Martin Luther King Day Thanksgiving Day
Easter Monday Christmas Eve
Memorial Day Christmas Day
Independence Day
(b) An Employee's birthday shall be considered a holiday, provided
that the Employee has so notified the Employer in writing at least two weeks
prior thereto, each year of the term of this Agreement. In the event two or
more Employees' birthdays fall on the same day, seniority shall prevail.
3
<PAGE>
Section 2. To be eligible for a particular unworked holiday, an Employee must
---------
meet all of the following requirements:
(a) The Employee must have thirty (30) days of service as full-time.
(b) In the case of a full-time Employee, he/she must have worked seven
and one-half (7.5) hours on his/her scheduled shift the day preceding the
holiday and seven and one-half (7.5) hours on his/her scheduled shift the day
following the holiday.
Eligible Employees shall receive seven and one half (7.5) hours
pay for each holiday in the case of a full-time Employee. In the event an
Employee is prevented from reporting to work because of inclement weather
conditions, this factor may be considered by the Employer in determining whether
the Employee reported for work during said week, but said factor need not be
conclusive.
Section 3. Time and one-half the straight time hourly classification rate
---------
shall be paid for all hours worked on the fifth (5th) day in a holiday week. In
the event Employees are required to work on the sixth (6th) and seventh (7th)
day in a holiday week, they shall be entitled to double the straight time hourly
classification rate for hours worked on such days.
Section 4. In the event an Employee is laid off during a holiday week, if
---------
employed over one year prior to being laid off, said Employee shall be entitled
to holiday pay as described in Section 2 hereof. Wherever practicable, there
shall be no Employee training during said week.
Section 5. In the case of sickness or accident on an Employee's last
---------
scheduled day before a holiday or first scheduled day after a holiday, the
Employee can receive holiday pay. However, the Employee affected must have a
Doctor's Certificate. The Employer will have the right to check on the Doctor's
Certificate. The Union will cooperate with the Employer if the Employer has any
problems on the above. Employees who are receiving Disability or Workers'
Compensation payments will not be eligible for holiday pay.
Section 6. No production work will be performed on the holidays. However, no
---------
overtime shall be earned by Employees facilitating the shutdown prior to a
holiday day or reopening it subsequent thereto. Rest periods are deemed waived
for this purpose.
Section 7. Time and one-half the straight time hourly classification rate
---------
shall be paid for all hours worked on the holiday except no overtime shall be
earned by Employees facilitating the shutdown prior to a holiday day or
reopening it subsequent thereto.
4
<PAGE>
Section 8. The Company and the Union agree that normally holidays will
---------
be scheduled to begin at 10:00 P.M. the day before the holiday and end at 10:00
P.M. on the holiday. However, it is understood the Company and the Union may
change this time frame by mutual agreement.
ARTICLE 4-NIGHT PREMIUM
-----------------------
A night premium of twenty cents ($.20) per hour will be paid to
employees regularly assigned to second and third shifts. Night premium will be
included in the overtime computation for the assigned second and third shift
employees.
ARTICLE 5-LUNCH & RELIEF PERIODS
--------------------------------
Not less than or more than thirty (30) minutes lunch period shall be
granted to all Employees in the middle of the work day, which shall not be paid
for nor included in the regular working hours.
Employees scheduled to work seven and one-half (7.5) hours or more shall
receive two (2) ten (10) minute relief periods, one (1) period before and one
(1) period after lunch. If the work day is more than seven and one half (7.5)
hours, a fifteen (15) minute relief period shall be granted after the seven and
one-half (7.5) hours. Additional ten (10) minute relief periods will be granted
for every additional two (2) hours of work. These relief periods shall be
considered as time worked and compensated for. For the purpose of company
meetings only, any employee required to attend a company meeting shall receive a
rest period only if the meeting will require more than one hour to attend.
ARTICLE 6-REST HOURS
--------------------
There shall be a minimum of twelve (12) hours of rest for all Employees
between daily shifts; and a minimum of thirty-six (36) hours of rest during
their regular scheduled day off; and sixty (60) hours rest between shifts when a
double holiday or double day off occurs. The sixty (60) hours rest shall be the
maximum circumstance for which the following premium pay guidelines shall apply.
<PAGE>
Any Employee called in to work before the expiration of the
aforementioned rest hour shall be compensated for all such hours worked at
double his/her straight time hourly classification rate, and such hours worked
shall be considered a part of the daily guarantee and shall also be used towards
the seven and one-half (7.5) hour daily overtime calculation. It is understood
that overtime is calculated on either the daily or weekly basis, whichever is
greater, but not on both.
ARTICLE 7 - WAGES FOR HIGHER CLASSIFICATION WORK
------------------------------------------------
Section 1. In the event an Employee works in a higher paid
---------
classification than his/her own, he/she will receive the higher classification
rate for such hours worked, provided however, if such Employee works in excess
of four (4) hours on any one (1) shift, he/she shall be paid the higher
classification rate for the entire shift. If an Employee works twenty (20) hours
or more per week, he/she will receive the higher classification rate for the
entire week.
Section 2. Any Employee receiving a higher hourly rate than specified in
---------
this Agreement shall not be reduced, provided his/her classification of work is
not changed on a permanent basis.
ARTICLE 8 - VACATIONS
---------------------
Section 1. All full-time Employees covered by this Agreement shall
---------
receive vacation according to the following schedule:
Continuous Service Vacation
------------------ -------
1 year, but less than 2 years 1 week
2 years, but less than 5 years 2 weeks
5 years, but less than 14 years 3 weeks
14 years, but less than 20 years 4 weeks
20 years or more 5 weeks
Section 2. Full-time Employees on vacation shall receive as vacation pay
---------
thirty-seven and one-half (37.5) hours pay for one (1) weeks vacation, seventy-
five (75) hours pay for two (2) weeks vacation, one hundred-twelve and one-half
(112.5) hours pay for three (3) weeks vacation, one hundred-fifty (150) hours
pay for four (4) weeks vacation and one hundred-eighty seven and one-half
(187.5) hours pay for five (5) weeks vacation. A full-time Employee who shows a
pattern of night work three (3) weeks prior to taking a vacation will receive
night premium pay in their vacation pay.
6
<PAGE>
Section 3. The regular vacation period shall be from the 1st day of
---------
January until the 31st day of December and shall be distributed in accordance
with seniority during such period of time. All vacation polling will be
completed by March 1st. A minimum of one (1) person per shift shall be entitled
to vacation during the regular vacation period (two [2] in packing). Should a
single down week occur, all Employees not scheduled to work that week will be
required to take one (1) week of vacation during that time. Should two (2)
successive down weeks occur, all Employees not scheduled to work those weeks
will be required to take a maximum of two (2) weeks of vacation during that
time. All Employees will be excluded from this provision if the shutdown is
outside the last week of June, the entire months of July and August.
Notification of Plant down week(s) will take place not later than February 1st.
Section 4. Qualified relief must be available to the Employer during the
---------
Employee's vacation period.
Section 5. Full-time Employees eligible for vacation must take their
---------
vacation, except that an Employee who loses time at work, due to illness or
unforeseen emergency, may, subject to approval by the Employer and the Union,
work during his/her vacation period and receive the extra compensation.
Any regular, Full-Time Employee with one (1) year of service
will receive their vacation according to the following schedule:
Hours Worked Percent of Vacation
------------ -------------------
1275 Hours or more 100%
Less than 1275 but more than 975 75%
Less than 975 but more than 487.5 50%
Less than 487.5 -0-%
For purposes of calculating hours worked the following will
be included: paid sick time, jury duty, time off for Union business, vacation,
military duty (up to two (2) weeks per year), and overtime (one hour worked
equals one hour of credit).
Section 6. The seniority list of Employees shall be posted at least
---------
thirty (30) days prior to the start of the vacation period. The vacation
schedule shall be posted and remain posted throughout the vacation period.
Employees shall choose their time of vacation within two (2) weeks after the
posting of the seniority list.
7
<PAGE>
ARTICLE 9 - JOB POSTING AND BIDDING
-----------------------------------
Section 1. In all cases of filling of regular full-time vacancies which
---------
are required to be posted, the length of continuous service shall be the
governing factor (seniority). However, the Employee must also have the ability
and physical fitness to perform the work and must have a good work record
including attendance, tardiness, and job performance. In determining an
Employee's ability and physical fitness to perform the normal requirements of
the new job, consideration will be given to job experience, related job
experience, education, and/or ability.
Section 2. A job, other than a supervisory one, becoming open as a
---------
regular full-time vacancy shall be posted on the appropriate bulletin board for
a period of three (3) working days by the Employer and assigned to the senior
qualified bidder.
Section 3. A standard form of posted notice shall be used for
---------
advertising such job vacancy and shall contain the following information:
department, date of posting notice, description and rate of job that is vacant.
Such bids shall be in writing and submitted by the Employee to the Employer.
Section 4. The following rules for bidding shall apply:
---------
(a) In the event of a transfer to the production department, the
applicant must have a minimum of six (6) months seniority and a good work
record, including attendance, tardiness, and performance.
(b) Anyone not making claim or refusing the job within
seventy-two (72) hours after notice is posted shall forfeit any claim to the job
unless it again becomes available.
(c) Where no one signs the bid, the Employer will assign the
work to either a new Employee or to one of the part-time Employees most fitted
for the job.
(d) With respect to hourly pay rates, the following applies. Up
bidding can take place at any time. If an Employee bids up, laterally or down,
and is placed in the new job, he/she cannot bid laterally or down for a six (6)
month period. Within five (5) working days on the job, if the Employee shall so
elect, he/she shall be permitted to return to his/her former job, but will not
be permitted to lateral or down bid for a six (6) month period. If within
fifteen (15) working days on the job, the Employee is adjudged as having failed
to perform satisfactorily, he/she shall be permitted to return to his/her former
job and his/her replacement shall return to his/her former job. If an Employee
is returned to his/her former job because he/she failed to perform
satisfactorily, he/she will
8
<PAGE>
not be permitted to rebid into that department, from which he/she was
disqualified, for a period of six (6) months.
(e) With respect to shift preference, the following applies.
Notwithstanding the foregoing in Section 4(d), an Employee may bid to a
preferred shift within his/her present department and job for which he/she is
qualified and requires no additional training.
When the Employee is awarded and accepts the new shift
he/she, at the time this choice is made, waives his/her five (5) day trial
period, and will not be permitted to return to his/her former shift. Shift
preference bidding, as described in this section, will be allowed only once in
any six (6) month period.
(f) When an Employee accepts a job which has been posted, before
his/her trial period begins, his/her name will be removed from all other active
bid sheets. If more than one Employee signs a bid sheet, when that bid sheet is
removed from the bulletin board, it remains active until the job is filled. If
the senior qualified Employee on a multi-signed bid refuses or is disqualified
from the job, as outline in Section 4(d), the 2nd senior qualified Employee will
be given the opportunity to fill the open job. If the 2nd senior Employee
refuses or is disqualified from the job, then the 3rd senior qualified Employee
is given the opportunity to fill the job. This procedure is followed until the
job opening is filled or until all names on the bid sheet have been exhausted,
at which time the bid sheet becomes inactive.
(g) It is understood by both the Company and the Union that an
Employee, who bids into and is awarded a job in the production department, will
be required to accept training and become qualified in all production department
jobs. It is also understood that the fifteen (15) day trial period outlined in
Section 4(d) does not allow adequate time for an Employee to become fully
qualified in all production jobs. If, after the fifteen (15) day trial period,
the Employee is awarded the job, but does not actively and willingly accept
training or, after receiving adequate training, does not become qualified in all
production department jobs, his/her performance will be brought to the Union's
attention before remedial action is taken by the Company. In any case, he/she
will not be able to bump the Employee who filled his/her former job.
Section 5. An Employee who claims a job which has been posted need not
---------
be transferred by the Employer to the posted job if the transfer will affect the
progress of an unusually important job or if there is an emergency which
requires the Employee's retention on his/her present job. Nor shall he/she be
transferred until a replacement has been secured for him/her. The Company will
aggressively seek a replacement for any Employee who is waiting to be
transferred.
9
<PAGE>
A person who successfully bids on a job must be moved within six
(6) weeks or he/she should receive the rate of pay (if higher), but still
receives five (5) days to adjust, and your time period starts after two (2)
weeks for purposes of bidding rights. Awarded job bid is to be posted within
seventy-two (72) hours of job being taken down. This time period may be extended
from six (6) weeks to eight (8) weeks due to unforeseen circumstances upon
mutual agreement between the Company and the Union.
Section 6. In the event a part-time Employee works thirty seven and
---------
one-half (37.5) hours or more on job for a period of six (6) weeks, not
including replacement for vacation or absence of Employees, the job shall be
considered a full-time position, subject to posting and bidding.
Section 7. Employees who are absent from the plant with a reasonable
---------
excuse, shall be eligible to have their name placed on a bid which is posted
during their absence, if they complete and turn into the Company a bid
preference request which indicates any job positions for which they wish to be
considered during such absence.
Section 8. Notwithstanding the foregoing an Employee holding a bid
---------
position, whose bid position has been eliminated and subsequently recreated
within three (3) months, has the right to first refusal of the original job.
This applies only to the Employee whose job was eliminated.
Section 9. In the event of a significant change in the packing
---------
department workforce needs (e.g.: five (5) day v. six (6) day production
schedule), seniority will be a determining factor in job assignments. As always
performance must be maintained at an acceptable level.
ARTICLE 10 - SENIORITY
----------------------
Section 1. The Employer and the Union believe in the principles and
---------
doctrines of seniority, but in individual cases shall take into consideration,
the efficiency, needs and industry of the Employee affected.
Section 2. The Employer agrees to notify the Union, once a week, of the
---------
names and classifications of new Employees hired during that week.
Section 3. When reductions in the working force become necessary, the
---------
Employer shall give proper recognition to the length of the Employee's service.
Seniority is the right of preference in the event of permanent layoff and
recall. When layoffs become necessary, the full time Employee with the least
amount of seniority
10
<PAGE>
shall be laid off first, and in recalling Employees, the last Employees laid off
shall be the first to be recalled, except that the right of preference for
maintenance department Employees shall be limited to the maintenance department
and the right of preference for all other plant Employees shall be limited to
the production, packing, sanitation and shipping departments. However, it is
understood that part time Employees shall be laid off first wherever practical.
Section 4. Seniority right shall terminate if an Employee:
---------
(a) Voluntarily quits.
(b) Is discharged for just cause.
(c) Fails to return to work within three (3) days after notice
by registered or certified mail to his/her last known address. A copy of such
notice shall also be served by mail upon the Local Union.
(d) Is laid off for the following period of time:
(1) Employees with less than one year continuous service:
forty-five (45) days. However, non probationary Employees rehired within sixty
(60) days from date of layoff will have their seniority reinstated to their
original hire date after working a period equal to the amount of time such
Employee was on layoff.
(2) Employees with less than two (2) years continuous
service: one hundred twenty (120) days.
(3) Employees with less than three (3) years continuous
service: two hundred forty (240) days.
(4) Employees with less than four (4) years continuous
service: three hundred forty (340) days.
(5) Employees with less than five (5) years continuous
service: four hundred eighty-five (485) days.
(6) Employees with more than five (5) years of continuous
service: seven hundred thirty (730) days.
11
<PAGE>
(e) Absences of two (2) years or more, excluding layoff, shall
terminate seniority. Extensions may be granted by mutual agreement between the
Employer and the Union. This applies to cases occurring on or after September 1,
1998. The Company agrees to notify the Union and the Employee, in writing, each
month for the three (3) months preceding the expiration of the two (2) year time
frame about the impending termination of seniority.
(f) Voluntarily transfers from full time to part time.
ARTICLE 11 - UNIFORMS
---------------------
The Employer agrees to furnish hair nets and caps, and to furnish and
launder and keep in repair, aprons, shirts and trousers for the Employees
covered by this Agreement.
ARTICLE 12 - DEATH IN FAMILY
----------------------------
In the event of a death in a full-time Employee's immediate family i.e.
father, mother, sister, brother, son, daughter, (includes adopted children) wife
or husband, mother-in-law, father-in-law, grandfather or grandmother, it is
recognized by the parties that the Employee may need time off to attend the
funeral service, from the day of death to and including the day of the funeral.
If any of these days off are the Employee's scheduled working days, the
Employer shall grant seven and one-half (7.5) hours pay at the straight time
hourly rate for each such full day lost, not to exceed a maximum of three
(3) full days. In the case of a part-time Employee, they will be paid
proportionately according to their schedule. In the event of the death of a
regular full-time employee's immediate brother-in-law or sister-in-law, it
is recognized that the Employee may need time off to attend the funeral service.
If this day is one of the Employee's scheduled work days, the Employee will be
granted seven and one-half hours pay at the straight time hourly rate for the
day. This applies to an employee's brother's or sister's spouse, or the
employee's spouse's brother or sister.
12
<PAGE>
ARTICLE 13 - JURY DUTY
----------------------
The Employer agrees to pay a full seven and one-half (7.5) hours pay at
straight time hourly classification rate for each day that an Employee is
required to serve and does serve as a juror, provided his/her department is
scheduled to work on the day or days actually served on a jury. The Employee,
however, will be required to turn in to the Employer the jury fees in order to
receive the compensation above provided.
ARTICLE 14 - PHYSICAL EXAMINATIONS
----------------------------------
The Employer shall pay for all physical examinations of Employees with the
exception of pre-employment physical examinations that may be required by law,
city ordinance and the Employer.
ARTICLE 16 - UNION LABEL
------------------------
All bagels and bread shall bear the Union Label. Such bagels and bread
labels shall cost the Employer the current price. The Union shall claim the
right to withdraw the label at any time, in case of misunderstanding. As printed
packages become standardized for bagels and bread, they shall bear the Union
Label. The Union will furnish the Employer Shop Cards for his own stores.
ARTICLE 16 - UNION BUSINESS
---------------------------
Section 1. A representative of the Union shall be granted admission to
---------
the bakery during working hours, on notification to the Manager or his
representative, to interview members of the Union on Union business, provided it
does not interfere with the efficient operation of the Bakery.
Section 2. The Employer shall provide in a conspicuous place, a bulletin
---------
board for the use of the Employees and the Union. All postings are to be
official Union business and/or approved by the local Human Resources Manager.
13
<PAGE>
ARTICLE 17 - SELECTIVE SERVICE ACT
----------------------------------
The rights of an Employee under the Selective Service and Training Act are
recognized by both parties, and incorporated in this Agreement as if actually
written herein.
ARTICLE 18 - GRIEVANCE PROCEDURE
--------------------------------
Should differences arise between the Employer and the Union as to the
meaning and application of this Agreement, an earnest effort shall be made to
settle such differences promptly by the following methods of procedure:
(a) The Shop Chairman or Chairlady shall appoint a steward from each shift
to represent the Union and the Employees in the negotiation of any grievances or
disputes.
(b) The Employee who believes he/she has suffered a grievance, together
with his/her department steward shall meet with his/her immediate supervisor and
attempt to adjust the difference. The supervisor will provide a verbal response
to the steward within twenty-four (24) hours after the conclusion of this
meeting. Complaints resolved in this step shall be non-precedent setting.
(c) If no satisfactory settlement is reached in the preceding paragraph,
the Employee who believes he/she has suffered a grievance shall submit the same
in writing, signed by both the Employee and his/her steward, to the Employee's
immediate superior in an attempt to arrive at a satisfactory settlement within
three (3) working days after the inception of the acts or occurrences or
omissions constituting the basis of the grievances, or the right to make a
grievance is deemed to be waived.
(d) If no satisfactory settlement is reached in the preceding paragraph
(c) within three (3) working days after its submission to the Employee's
immediate superior, the grievance shall then be discussed between the steward,
Employee's immediate superior, Employee and Employer's manager or representative
within three (3) working days after the expiration of the time period set forth
in the preceding subparagraph (c).
(e) In the event that the parties in preceding paragraph (d) cannot settle
or adjust the grievances within three (3) working days after its submission, the
grievances shall then be discussed between the steward, Employee, Employee's
immediate superior, plant manager and business agent of the Union.
14
<PAGE>
(f) If the parties in preceding subparagraph (e) have not settled or
adjusted the grievance within five (5) working days after its being submitted to
them, then either the Employer or the Union can submit the matter to the New
York State Board of Mediation for purposes of arbitration as hereinafter set
forth, within seven (7) working days after the expiration of the aforementioned
five (5) day period. in the event the New York State Board of Mediation is
abolished the parties agree to use the services of the American Arbitration
Association. The seven working day period may be extended up to 30 calendar days
upon agreement of the Plant Manager and Union Business Agent. If the grievance
is settled, a written disposition shall be noted and filed by the parties.
(g) Grievances shall be separately arbitrated and are not to be merged.
(h) In the event of a dispute, the Employer may take the initiative
following its interpretation of the contract provisions in question, subject to
the grievance procedure.
Arbitration
-----------
(a) Arbitration is available only to the Union and the Employer and
cannot be availed of until all the steps to be followed in the grievance
procedure have been complied with, at which time either party may submit the
controversy to arbitration as hereinabove sets forth.
(b) It is expressly understood that in no event shall the arbitrator
have jurisdiction or authority to add to, subtract from, modify or in any way
change the provision of this Agreement.
(c) Any issues involving interpretations and/or application of any
terms of this Agreement may be initiated by either party directly, i.e., the
Union or the Employer, with the other party. Upon the failure of the Union and
Employer to agree, it may then be submitted directly to the New York State Board
of Mediation for arbitration. In the event the New York State Board of Mediation
is abolished the parties agree to the use the services of the American
Arbitration Association. There shall be no strikes or lockouts while grievances
or arbitration procedures are pending. No Employee shall have the right to
compel arbitration, this right being reserved to the Union and the Employer.
15
<PAGE>
ARTICLE 19 - NO STRIKE CLAUSE
-----------------------------
The Union agrees that during the life of this Agreement, the Union will not
permit or cause its members to participate in any strike, slowdown, or stoppage
(total or partial) of work, or interfere directly or indirectly with the full
operation of the plant. The Employer shall have the right to discharge or
suspend any Employee participating in any action in violation of this section.
The Employer, on its part, agrees that there shall be no lockouts of any of its
Employees during the life of this Agreement.
ARTICLE 20 - BENEFITS PACKAGE
-----------------------------
Medical Benefits
- ----------------
The Employer agrees to provide all regular full-time Employees coverage
under the independent Health Silver or Community Blue plans with riders for:
Prescription Drug Plan, Age 25 Dependent Coverage if full-time student,
Prosthetic Devices and Medical Appliances, and Inpatient Rehabilitation for
Substance Abuse.
Medical coverage shall begin the first day of the month following
completion of the Employee's probationary period. Effective September 1, 1998,
the Company agrees to maintain Employee contributions to the medical plan at the
1998 contribution rate until January 1, 200O. Employees participating in the
medical benefits plan will be required to pay an Employee contribution equal
to ten percent (10%) of the premium cost effective January 1, 2000 for the
duration of the contract.
These same medical plan provisions will be extended to all future Retirees
except for those Employees Grandfathered by Kraft Foods, Inc. for Retiree
Medical benefits. Those Employees include people who were age fifty-five
(55) or older with ten (10) or more years of service as of December 16, 1996.
Employees leaving employment after age fifty-five (55) with less than
(10) years of service will be eligible to purchase the same medical
coverage at the group rate for themselves and eligible dependents.
Medical benefits will be continued for one (1) year as a result of any
disability according to the provisions of the plan. In the event of a personal
leave of absence, medical benefits will cease at the end of the month in which
the Employee last worked.
16
<PAGE>
Dental Benefits
- ---------------
The Employer agrees to provide all regular full-time Employees dental
coverage under the Kellogg Company Welfare Benefit Plan. One (1) level of
coverage shall be available to the Employee and his/her qualified dependents,
including dependent children aged 19-25 if a full-time student.
Accident or Sickness
- --------------------
The Employer agrees to provide accident and sickness benefits under the
Kellogg Company Welfare Benefit Plan. This Plan will pay a weekly income benefit
of sixty-six and two-thirds percent (66-2/3%) of the Employee's basic weekly
wage, up to two hundred and fifty dollars ($250), for up to twenty-six
(26) weeks, beginning on the eighth (8th) calendar day of disability.
Effective August 29, 1999, the Plan's weekly benefit maximum will increase
to two hundred and seventy-five dollars ($275), for up to twenty-six weeks,
beginning on the eighth (8th) calendar day of disability.
This A&S benefit is not payable as a result of a work-related injury.
Life Insurance
- --------------
The Employer agrees to provide all regular, full-time Employees Company-Paid
Life Insurance under the Kellogg Company Welfare Benefit Plan on the first day
of the month following completion of the employee's probationary period. The
Employee will receive a life insurance benefit equal to one time their annual
base pay, calculated by base hourly rate x 2080.
ARTICLE 21-PENSION
------------------
1. The Company agrees to provide pension benefits under the Eggo Company
Pension Plan. The Plan will provide all service benefits, offset by any
benefits accrued under the BC&T International Pension Plan and/or the Kraft
Foods Retirement Plan as a result of service with Lender's Bagel Bakery or its
predecessors.
17
<PAGE>
2. Effective September 1, 1998 the New Pension benefit level will be
established at thirty-two dollars ($32) per month per year of service. This is
equivalent to eight hundred dollars ($800) per month after twenty-five (25)
years of service, or nine hundred sixty dollars ($960) per month benefit after
thirty (30) years of service, subject to the plan provisions, such as early
retirement.
3. No reductions in earned benefit amount will be made on or after age
sixty-two (62). Benefits reduced five percent (5%) per year between ages sixty-
two (62) and sixty (60), and six percent (6%) per year between ages sixty (60)
and fifty-five (55) (forty percent (40%) maximum reduction).
4. 100% vesting at five (5) years.
ARTICLE 22 - SICK LEAVE
-----------------------
Section 1.
---------
(a) Employees with one (1) year service are entitled to three (3)
days sick leave per calendar year.
(b) New Employees with less than one (1) year service are entitled
to sick leave as follows:
Hired January 2 to April 30 Two (2) days
Hired May 1 to September 1 One (1) day
Hired after September 1 Zero (0) day
(c) In the event entitled sick leave is not used within the
calendar year, pay for these unused sick days will be added to an Employee's
paycheck no later than December 15th. It is understood probationary Employees
are not eligible for sick leave.
Section 2. In the event an Employee is hurt on the job and is unable to
---------
complete his/her day's work, he/she shall receive wages for the entire day. When
such Employee returns to work, he/she must furnish a Doctor's Certificate that
he/she is capable of returning to work.
Section 3. An Employee who becomes ill while at work shall notify his/her
---------
immediate supervisor before leaving the plant. If the Employee becomes ill away
from work, he/she shall notify the Employer as soon as possible of the reason
for his/her absence.
18
<PAGE>
Section 4. Notwithstanding the provisions of Sections 1 and 2 of this
----------
Article, any Employee absent from work for three (3) days or more may not return
to work until the Employee has furnished to the Employer a Certificate from a
Doctor stating that he/she has been sick during such period of time.
ARTICLE 23 - CHECKOFF
---------------------
It is agreed that the Employer and the Union shall establish a checkoff
plan of Union initiation fees and dues for all Employees covered by this
Agreement. It is further agreed the Employees shall sign statements authorizing
the Employer to make proper deductions from the Employee's pay in accordance
with the checkoff plan. The Employer shall forward a copy of the signed checkoff
authorization to the Union office.
The Company agrees to deduct Union dues on a weekly basis.
ARTICLE 24 - LEAVES OF ABSENCE
------------------------------
Section 1. Any member of the Union who is elected as a delegate or
---------
representative of the Union in any activity necessitating temporary absence from
his/her employment shall be granted such leave of absence without pay upon
adequate advance notice thereof to the Employer.
For the purpose of Steward education, the Company will pay one-
half of one days wages, at the straight time hourly rate, per contract year. The
Union agrees to validate attendance at such training.
Section 2. Any member of the Union who is elected to a full-time position
----------
with the Union necessitating lengthy absence from his/her employment shall be
granted a leave of absence not exceeding one (1) year in length without loss of
seniority and at the end of such service in the business of the Union he/she
shall be re-employed at his/her former wage rate, plus any increase or less any
reduction that may have become effective during his/her absence. Seniority shall
not accumulate during such absence.
Section 3. Such leaves of absence by the joint and mutual consent and
----------
approval of both the Union and the Employer will be renewed and extended for
additional periods of one (1) year each, subject to the conditions set forth in
Paragraph 2 above.
19
<PAGE>
Section 4. Leaves of absence may be granted in special and extenuating
---------
circumstances on a case by case basis with prior approval from the Company.
Such requests must be sent, in writing, to the Plant Manager. The Union shall
be notified when such leaves are granted.
ARTICLE 25 - RIGHTS OF MANAGEMENT
---------------------------------
The Employer retains the sole right to manage its business including but not
limited to the rights to decide the number and location of plants, the number
and type of machinery and equipment to be used, the products to be produced, the
method and place of production, the schedules of production, the size and
composition of the working force, and the control of raw materials which may be
incorporated into the products produced; the right to shift product, processes
or types of work or methods in or out of the plant; plus the rights to hire,
assign, layoff, recall, transfer, and promote Employees, to maintain order and
efficiency in its plant operation; to discipline and discharge Employees for
just cause; to set job requirements and reasonably determine the individual
qualifications of all Employees; to determine the starting and quitting times
and the number of hours to be worked of all Employees; to discontinue all or any
part of its business operation; to control, regulate, or discontinue the use of
supplies, machinery, equipment and other property owned, used, possessed, or
leased by the Employer. Management shall have all other rights and prerogatives
subject only to those express restrictions on such rights as provided in this
Agreement.
ARTICLE 26 - EXECUTIVE OR MANAGEMENT WORK
-----------------------------------------
Executive or Management Work - Non-Union supervisory Employees shall not
do work usually performed by the Employees covered by this Agreement, except:
(a) Covering absent Employees until a replacement is secured.
(b) For replacing ill or injured Employees pending replacement.
(c) Providing physical relief for Employees.
(d) For giving instructions or for the purpose of performing
experimental or research Work.
20
<PAGE>
(e) Emergency and Act of God, such as equipment failure, tire, flood,
etc.
ARTICLE 27 - NONDISCRIMINATION CLAUSE
-------------------------------------
No Employee shall be discriminated against in hiring, promotion, or
continued employment because of their race, color, creed, national origin, sex,
age, or physical handicap. Neither the Employer nor the Union, in carrying out
their obligations under this agreement, shall discriminate in any manner
whatsoever against any Employee because of race, sex, religious affiliation,
nationality, age, or Vietnam Era Veteran status.
ARTICLE 28 - MISCELLANEOUS
--------------------------
Employer to furnish and replace (upon fair wear and tear) Freezer Wear
Paraphernalia worn by Shipper and Freezer tenders such as: Insulated Chill
Factor Rated Gloves, Boots and Head Covering, also at the option of the wearer,
Cold Weather Masks.
It is understood that the Company will supply, on an as-needed basis,
Company-owned rubber boots, gloves and protective clothing, when available. It
is also understood that in the event there is an unexpected shortage of any of
the above Company-owned articles, the necessary work assignments will be
completed as assigned.
The Company agrees to provide a tool allowance of two hundred dollars
($200.00) net (after taxes) per contract year upon proof of purchase.
SHOE PROGRAM FOR LENDER'S BAGEL BAKERY - WEST SENECA
----------------------------------------------------
I. PURPOSE.
-------
The Lender's Shoe Program is designed to help ensure the safety of its
Employees as they work within the confines of the bakery. The Program helps
prevent slips and falls which may be caused by water, raw materials or
ingredients spilled on the floor in the working area.
21
<PAGE>
II. REQUIREMENTS OF THE PROGRAM
---------------------------
A. All Lender's Employees who have work assignments that require them to
access the bakery must wear shoes.
B. All Employees affected by this Program will be required to wear shoes
with an anti-slip sole (slip coefficient of friction of at least 0.5)
as determined by the Company.
C. The shoe payout is e maximum of one hundred dollars ($100.00) per year
per employee on one (1) pair of shoes per year, paid out on proof of
purchase and verification that the shoes meet Policy standards.
D. Shoes shall be of sturdy construction to afford some impact protection.
Only low-heeled leather/vinyl-type shoes are permitted. Shoe types
prohibited are canvas, nylon, sandal-type, open heels, open toes,
deep grooved soles (1/4" or more). Suede is not permitted on shoes.
E. Shoes will be kept clean, neat and in good repair.
F. Shoes with a safety toe are highly recommended for all employees, but
are not mandatory.
G. Employees found not to be in compliance with the guidelines of the
Policy will not be permitted to work until they comply.
H. Employees involved in an accident which is related to a slip or fall,
and who are not wearing shoes as outlined in the Policy, will be
subject to Disciplinary Action up to and including Termination.
I. Visitors and Contractors to the bakery who are taking a plant tour
must comply with Item "D" of this Program. It is also highly
recommended that these individuals be informed prior to their entry
into the bakery of the hazards they may encounter.
J. The Company will provide a list of shoe vendors and styles. Purchases
outside of this approved list are the Employees' responsibility to
ensure compliance with the Policy as listed above.
K. Exceptions to this Policy will be made on a case-by-case basis and
must be accompanied by medical documentation.
L. All Employees will be in compliance by January 1, 1996.
22
<PAGE>
ARTICLE 29 - POSTING OF WORK SCHEDULE
-------------------------------------
A schedule of starting times for all Employees for the following week shall
be posted at least sixiy (60) hours in advance. In the event it is necessary to
change the Employee's starting time, he/she shall be notified by the Employer at
the completion of his/her work day. The only time a change can be made is in
case of emergency.
ARTICLE 30 - SEVERANCE PAY
--------------------------
The Company has a responsibility to improve its competitive position through
equipment upgrades, technology advances, and work methods. The Company agrees to
offer training or education to Employees impacted by these changes.
It is agreed that each full-time Employee who is displaced from his/her
employment by reason of the closing of the plant, shutdown of a department,
displacement from their job as a result of the introduction of labor saving
machinery, or to any full-time Employee who leaves his/her employment in the
event the Employer moves his shop to another place located thirty-five (35) or
more miles from his shops present location, shall be compensated by the Employer
or his/her predecessor for such displacement providing he/she has been actively
employed by the "Employer" for a period of at least two (2) years. An eligible
Employee's compensation for his/her displacement shall be on the basis of
thirty-seven and one-half hours (37.5) of severance pay (at his/her straight
time hourly rate of pay) for each full year of his/her actual employment,
commencing with the third (3rd) year thereof.
ARTICLE 31 - SCOPE OF AGREEMENT AND SEPARABILITY
------------------------------------------------
Section 1. It is agreed that this written Agreement reflects the entire
---------
Agreement between the Union and the Company. Amendments or clarification of
this Agreement, mutually agreed upon, shall be reduced to writing and become a
part this Agreement.
Section 2. The Union and the Employer acknowledge that during the
---------
negotiations which resulted in this Agreement, each had the unrestricted right
and opportunity to present demands and proposals with respect to any matter
subject to collective bargaining. Therefore, this Agreement includes all
contracted matters related to wages, hours, benefits and conditions of
employment. All other matters related to wages, hours, benefits and conditions
of employment are expressly and unequivocally waived.
23
<PAGE>
Further, the Employer and the Union freely agree that during the life of this
Agreement neither party shall be obligated to bargain with respect to any matter
or subject covered or not covered in this Agreement, except in the event the
Employer creates a new job classification, the Employer will notify and discuss
with the Union the wage rate of such new classification.
Section 3. Should any part or provision of this Agreement be rendered or
---------
declared invalid by reason of any existing or subsequently enacted legislation
or by decree of a court of competent jurisdiction, such invalidation of such
part or provision of this Agreement shall not invalidate the remaining portions
of this Agreement and they shall remain in full force and effect.
ARTICLE 32 - TERMINATION
------------------------
This Agreement shall be in full force and effect from September 1, 1998 to
and including August 31, 200l and thereafter from year to year until terminated
by either party as hereinafter provided. Sixty (60) days prior to August 31,
200l or any subsequent annual expiration date, either party may notify the other
of its desire to negotiate a new Agreement. During negotiations, this Agreement
shall remain in full force and effect and the wage rate provisions of such new
Agreement, when consummated, shall be retroactive to August 31, 200l or any
subsequent annual expiration date. However, such retroactive provision shall not
be applicable to any Employee who has resigned or been discharged prior to the
time of the signing of this Agreement.
In the event either party shall not be satisfied with the progress of the
negotiations, the Employer or the Union, Local #429 with the sanction of the
Bakery, Confectionery & Tobacco Workers International Union of America, may
terminate this Agreement, after any expiration date, upon forty-eight (48) hours
notice to the other party.
ARTICLE 33 - POLITICAL CONTRIBUTIONS
------------------------------------
Effective upon thirty (30) days notice from the Union, the Employer agrees to
honor contribution deduction authorization from its Employees for the BCT - PAC.
It is understood that the authorization is voluntarily made by the Employees and
such deduction shall be on a monthly basis.
24
<PAGE>
ARTICLE 34 - AMERICANS WITH DISABILITIES ACT
--------------------------------------------
The parties recognize that each of them have obligations pursuant to the
Americans With Disabilities Act to employ and, in some cases, to accommodate,
disabled persons. The parties further acknowledge that the Employer may take
whatever action is necessary to comply with the provisions of that Act and that
nothing in this agreement is intended to interfere with, or impede, the Employer
in meeting these obligations.
The parties hereto recognize and agree to comply with the Family Medical
Leave Act as such applies to the Employees of the Employer.
ARTICLE 35 - PART-TIME EMPLOYEES
--------------------------------
a) The part-time workforce will not exceed six percent (6%) of the regular,
full-time workforce.
b) Part-time Employees will not be eligible for holiday or vacation pay.
c) Part-time Employees will be eligible for funeral leave as stated in
Article 12.
d) Part-time Employees who become regular, full-time Employees will be
eligible for holiday pay provided they have thirty (30) days of service as
part-time Employees.
e) Part-time Employees who become regular, full-time Employees will become;
eligible for medical benefits on the first of the month following their
move to regular, full-time status, provided they have sixty (60) days of
service as part-time.
f) This language applies only to part-time Employees hired after 9/1/95.
ARTICLE 35 - ALTERNATIVE WORK SCHEDULE
--------------------------------------
In addition to the provisions of the Agreement, the Employer may establish
an Alternative Work Schedule. Such Alternative Work Schedule shall be subject to
agreement with a full-time Officer and Shop Committee of the Union.
25
<PAGE>
ARTICLE 37 - SUBSTANCE ABUSE POLICY
-----------------------------------
SUBSTANCE ABUSE POLICY
- ----------------------
Kellogg Company (Kellogg) recognizes the growing problem of drug and alcohol
abuse in society, while also realizing that drug and alcohol dependency and
abuse can be treated and controlled. Kellogg desires to provide a safe work
environment for all of its employees. To this end, the purpose of this policy is
to provide a work environment that is free of illegal drugs and alcohol by
offering programs concerned with awareness, intervention and rehabilitation.
Kellogg will offer assistance to all employees for the treatment of drug and
alcohol abuse through programs authorized by the Company for this purpose.
Employees are encouraged to voluntarily acknowledge a problem before any
disciplinary action is initiated and to undertake a Company-approved treatment
program. If no other Company policies are violated, employees who successfully
complete the program will not place their jobs in jeopardy.
The elements of this program are:
1. The sale, use or possession of alcohol or illegal drug or controlled
--------------------------------------------------------------------
substances are prohibited. Violation of this rule will result in disciplinary
-----------------------------------------------------------------------------
action up to and including termination.
--------------------------------------
a) Using, selling or possessing illegal narcotics, drugs or controlled
substances (including, but not limited to, marijuana, cocaine, crack,
PCP, heroin, LSD, amphetamines and barbiturates) while on the job-or on
Company-owned or Company-leased property (including vehicles). In
addition, any illegal substances will be turned over to the appropriate
law enforcement agency and may result in criminal prosecution.
b) Bringing or consuming alcohol on any Company-owned or Company-leased
property (including vehicles), unless specifically authorized by a senior
Kellogg manager.
c) If an employee is subject to discipline or termination for cause under
existing rules, separate and apart from any impairment related to
substance abuse (i.e. plant rules or attendance policies), such employee
shall not utilize the substance abuse policy to circumvent other policies
or practices to avoid discipline or termination. Disciplinary actions
other than those specified under this policy shall follow the time limits
and principles of progressive discipline and, where applicable, the
collective bargaining agreement, and bargaining unit employees shall have
recourse to the grievance and arbitration procedure therein.
26
<PAGE>
d) Working with a level of prohibited drugs in one's system above cutoff
level. Prohibited drugs include both illegal substances and prescription
drugs that have not been specifically prescribed by a registered
physician for specific treatment purposes for the employee. Employees are
required to report to work in a condition that allows them to perform
their duties. Employees who appear to be unfit for work may be subject to
a fitness-for-duty examination at a designated medical facility.
e) Working while under the influence of alcohol.
2. Voluntary Recognition of Substance Abuse/Dependency (Self-Identification)
------------------------------------------------------------------------
a) Employees of the Company with drug and/or alcohol dependency/abuse
problems are encouraged to come forward voluntarily.
b) Employees will be strongly encouraged to seek and receive the services of
the employee assistance program prior to any violations of this policy
which causes disciplinary action to be initiated.
c) Individuals who voluntarily seek assistance for substance abuse/chemical
dependency (either directly or through a third party) will be eligible
for the employee assistance program established by the Company.
d) The concerned individual will be referred to a designated medical and/or
counseling facility for evaluation of their problem/dependency. A
recovery program will be outlined and submitted to the Plant Manager or
other appropriate senior manager. If appropriate, that program may
include a leave of absence of up to four (4) consecutive weeks for
inpatient treatment and two (2) weeks outpatient treatment at a facility
designated by the Company.
e) Following completion of the leave of absence, the individual will be
expected to return to their former position (with no loss of
seniority) and complete continuing and/or follow-up rehabilitation
treatment/counseling. To reinforce the treatment regimen, the Company
reserves the right to require the affected employee to submit to
drug/alcohol tests within the first year following referral for treatment
on a random basis as determined by the Company. Refusal to be tested or
comply with the approved treatment plan will result in termination.
f) Employees who successfully complete the employee assistance program and
their individual treatment plan agreements, return to work and
subsequentiy relapse into substance abuse/dependency will be afforded a
second and final opportunity to use the employee assistance program's
services under the terms
27
<PAGE>
provided in this Section if they come forward voluntarily and prior to
any violations of this policy which causes disciplinary action to be
initiated.
3. Involuntary Recognition of Substance Abuse/Dependency
-----------------------------------------------------
Employees who do not voluntarily confront their alcohol/drug dependency/abuse
problems will be subject to the following terms which differ from those
outlined above:
a) When a supervisor or manager (hereafter referred to as the "Employer") has
reasonable suspicion to conclude that an employee has a substance abuse/
chemical dependency problem, the Employer may attempt to meet with and
counsel that employee to seek treatment and rehabilitation.
b) When the Employer has reasonable suspicion to determine an employee's job
performance is impaired by alcohol or drugs (hereafter referred to as
"substance"), the Employer shall document these observations in writing
and contact another Employer representative for purposes of confirming the
observations.
The Employer shall contact the Business Agent, Union Steward or other
Union representative for the purpose of informing and involving the
appropriate and available Union representative in the immediate situation.
In the presence of the employee and the Union representative, the Employer
shall present the observations establishing reasonable suspicion. The
employee, shall, upon hearing the Employer's confirmed observations,
receive counseling as to the policy and shall be presented with the
opportunity to immediateiy enter the employee assistance program. If the
employee agrees to enter the employee assistance program, at this point it
will be treated as voluntary recognition and the aforementioned provision8
of Section 2 shall apply. If the employee does not agree to enter the
employee assistance program, the employee will be subject to drug/alcohol
testing for substance abuse. The refusal to be tested will cause
termination.
c) Reasonable suspicion based on objective criteria means that based on
specific personal observations which the Employer representative can
describe concerning the appearance, behavior, speech or performance of the
emploee, it is reasonable to conclude that because of drug or alcohol
use the employee is unable to satisfactorily perform his or her job.
Suspicion is not reasonable, and thus not a basis for testing, if it is
based solely on third party observations and reports.
28
<PAGE>
The Employer may require that the employee immediately go to a medical
facility to provide urine specimens for the purpose of testing and/or
taking a breath test and to receive a fitness-for-work examination by a
licensed physician.
d) While the obervations of the Business Agent, Union Steward, or other
bargaining unit employee may be solicited and are relevant in the context
of the joint Employer/Union commitment to addressing the problem of
substance abuse, Union representatives shall have no right to interfere
with the Employer's decision to require testing or to take other
management action.
4. Drug/Alcohol Test Procedures
----------------------------
Drug/Alcohol testing shall be done at the medical facility using urine
specimens/breathalyzer tests. With regard to alcohol, the cutoff level below
which a test is presumed negative shall be that used by the State Police to
conclude impairment in the operation of a motor vehicle.
a) If required by the medical facility or testing lab the employee shall sign
forms authorizing: (1) providing the medica1 facility a specimen of
urine; (2) the testing laboratory to release the results of the testing
indicating the presence or absence of a substance capable of causing
impairment to the medical facility for a physician review and to the
designated manager of the Company, and; (3) at the employee's
discretion, he/she may authorize the same release as defined in
(2 above) to the Union. An employee's refusal to sign the release shall
constitute refusal to be examined and tested. Such refusal shall result
in termination.
b) The employee to be tested shall be taken to the medical facility by an
Employer representative accompanied, at the request of the employee, by
the Business Agent Union Steward or another employee.
c) In an effort to protect individual privacy, employees will not be subject
to direct observation while rendering urine samples. If the employee
provides urine samples that contain confirmed evidence of any form of
tampering or substitution, the employee shall be discharged.
d) Urine samples shall be drawn; subject to the provisions set forth below.
Upon receipt of the specimens by the laboratory one of three urine
specimens (or subdivisions of a single specimen) will be placed
immediately, unopened in a locked freezer for storage. A second sample
will be used for the initial and confirming test. In the event of a
positive initial test, within twenty-four (24) hours a second,
independent, confirming test will be conducted at the laboratory site. The
cost of the examination and initial and confirming test shall be borne by
the Company. A negative result in the confirming test will prevail.
29
<PAGE>
A third sample will, at the employee's request, be transferred to a
laboratory (meeting standards mutually agreed on by Company and
Union) chosen by the Employer for an independent test. The employee shall
bear all costs for this test.
e) The examination and testing procedures and standards to be carried out by
the medical facility personnel and testing laboratory shall be those
adopted by the Employer and the Union and shall include the following
general components:
(e. 1) Medical Facilities:
Medical facilities performing the examination must be under the direction
of a licensed physician. The facility must employ at least one charge
nurse who is a registered nurse, or a degreed, registered medical
technician.
A licensed physician must perform the fitness for work examination and
review the laboratory reports. The physician must have knowledge of
substance abuse disorders and must possess the appropriate medical
training to interpret and evaluate all positive test results together
with the employee's medical history, including medications used, and any
other relevant biomedical information.
The medical facility must possess all necessary personnel, materials,
equipment, facilities, and supervision to provide for the collection,
security, temporary storage, and transportation (shipping)of urine
specimens to the testing laboratory.
The medical facility must provide written assurances that the specimen
collection space is secure; that chain of custody forms will be
properly executed by authorized collection personnel upon receipt of
specimens: that the handling and transportation of specimens from one
authorized individual or place to another will be accomplished through
the use of chain of custody procedures; and that no unauthorized
personnel are permitted in any part of the specimen collection or storage
spaces.
(e. 2) Laboratory Facilities
Laboratory facilities must comply with applicable provisions of any
state licensing requirement and must meet the standards for accreditation
promulgated by the National Institute on Drug Abuse and be an ongoing
participant in a program of external quality assurance. These standards
may be revised as recommended by the National institute on Drug Abuse.
30
<PAGE>
f) Specific specimen collection procedures that include safeguards to ensure
the employee's right to privacy:
(f.1) Authorized specimen collection personnel shall request that the
employee show positive identification by providing a pictured
identification card such as a driver's license, or being identified by
accompanying Management or Union personnel, and shall assure that the
employee signs the notice that explains the procedures for testing and
reporting results. These personnel shall remove all articles and items
from the collection space or bathroom, shall turn off the hot water valve
under the sink, shall assure that the tamper-proof specimen collection
kit is intact, and shall instruct the employee to wash and dry hands
prior to entry.
(f.2) Employees shall remove all coats, sweaters, jackets and similar
excess clothing and leave belongings outside the bathroom and shall
provide urine samples in multiple containers. Employees will not be
subject to direct observation while rendering samples. Authorized
specimen collection personnel shall, however, be present outside the
bathroom and shall receive the containers, assure that the quantity is
sufficient for testing, check color and measure the temperature of each
container and record same. These personnel shall fill in specimen labels
in the presence of the employee, shall cap and seal containers with
evidence tape and shall secure the employee's initials on the tape.
g) Flawless chain of custody procedures shall govern specimen handling
throughout the testing process. Chain of custody procedures shall assure
that urine samples shall not leave the sight of the employee until each
vial has been sealed and initialed and that at least the following
measures are taken by medical facility and laboratory staff:
(g.1) Medical Facilities
Personnel shall complete a chain of custody form and shall place the
sealed and initialed specimens in the drug collection kit or box provided
by the laboratory along with the chain of custody form and signed notice.
The collection kit or box shall be sealed by authorized medical facility
personnel and this seal or tape shall be initialed by these personnel.
The medical facility shall make prior arrangements for courier pickup of
the specimens and shall assure that all specimens are couriered or
shipped to the testing laboratory as immediately as possible. The medical
facility shall assure that no specimens will be shipped on a Friday or
the day before a holiday and
31
<PAGE>
that any specimens held at the facility overnight shall be placed in a
secured refrigerator until courier pickup.
(g.2) Laboratory
The testing laboratory shall assure that personnel authorized to receive
specimens immediately open the package, inspect the sealing tape for
initials, and open the kit or box. These personnel shall examine and inspect
the chain of custody form, the specimen containers, and kit or box to assure
that it conforms to the requirements of Subsection g.1 (above). If these
requirements are not met, the laboratory personnel shall immediately notify
the laboratory's scientific director and shall document any and all
inadequacies in the chain of custody requirements. The laboratory's
scientific director shall immediately notify the medical facility and the
Company of the inadequacies and shall retain the specimens in a locked
freezer pending disposition direction. Failure to maintain the secure chain
of custody delineated will be the equivalent of a negative test result.
If the requirements are met, authorized laboratory personnel shall sign on
the appropriate line of the chain of custody form and deliver the specimen
kit or box to authorized laboratory technologists for testing. Each
technologist shall sign on the appropriate line of the chain of custody
form.
All positive samples shall be resecured with evidence tape, signed, and
dated by an authorized technologist. Upon completion of testing procedures,
testing reports shall be prepared and a signed by at least two authorized
technologists for the review, approval, and signature of the scientific
director.
h) Established levels below which specimens are deemed negative:
Drug Assay Cut-Off Level
---------- -------------
Cocaine Metaboiite 300 ng/ml
Phencyclidine 25 ng/ml
Opiates 300 ng/ml
Amphetamine 1000 ng/ml
Cannabinoids 100 ng/ml
i) Laboratory use of appropriate screening and confirmation procedures and
technology:
(i.1) The laboratory shall assure that each specimen in both initial and
confirming tests (as well as tests paid for by the employee) will use gas
32
<PAGE>
chromatography/mass spectrometry. Both tests must be positive before a
specimen is reported as positive.
j) Procedures to assure the confidentiality of test results and the treatment
of these records as confidential health information or data:
(j.1) The laboratory shall ensure that alcohol and drug testing reports,
including the original chain of custody form, are mailed only to the
appropriate personnel at the medical facility, the designated manager of
the Company and, if the employee so chooses, to the Union immediately. The
lab shall ensure that, in the event that telephone reports of testing
results are required, a security code system be used to establish that
results are being verbally reported only to those individuals authorized by
the medical facility, the employee and the Employer.
(j.2) If an employee is taking a prescription or non-prescription
medication in the appropriate manner, had noted such use, and the observed
impairment in the opinion of the physician reviewing laboratory reports of
tests could reasonably have been caused, in the absence of other
substances, by the legal medication, then the employee will not be
disciplined under this policy and will be returned to work or, at the
Employer's discretion, given sick leave and/or disability for the duration
of the medication's use.
(j.3) All information other than positive or negative test results and
fitness-for-work examination results are confidential and will be revealed
only to the examining physician, employee and those authorized by him or
her.
5. Status of Tested Employees and Penalties for Positive Results
-------------------------------------------------------------
a) Employees subject to the requirement for testing shall be suspended without
pay, effective immediately after receipt of the fitness-for-work
examination and rendering of samples for the period of time required to
process, confirm and report test results.
b) Employees whose test results are negative, and who pass the fitness-for-
work examination, shall be reinstated and made whole for the period of
suspension.
c) Employees whose first alcohol/drug test results are positive shall not be
eligible for reinstatement with back pay but shall be given a final
opportunity to immediately enter the employee assistance program. Failure
to enter the rehabilitation program and failure to abide by the terms of
the treatment plan shall be grounds for discharge. This option will not be
afforded to those who test positive for a second time.
33
<PAGE>
d) An employee who, on the basis of such random and mandatory tests as
defined in this policy, provides samples that contain positive and
confirmed evidence of substances at or above the stipulated levels, or
confirmed evidence of tampering or substitution, shall be discharged.
6. Right of Search
---------------
Kellogg does not intend to authorize indiscriminate searches of employee
desks, lockers, vehicles or personal effects such as purses and lunch boxes,
but the Company reserves the right to authorize searches for illegal drugs,
alcohol or contraband, if warranted, by reasonable cause.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
day and year first above written.
LENDER'S BAGEL BAKERY BAKERY, CONFECTIONERY & TOBACCO
WORKERS' INTERNATIONAL UNION OF
AMERICA, LOCAL 429
For the Company: For the Union:
/s/ Francis W. Furlong /s/ James T. Short
- -------------------------- --------------------------------
Francis W. Furlong James T. Short, Business Agent
Human Resources Manager BC&T Local #429
/s/ Joseph C. Waryold /s/ Robert T. Giczkowski
- -------------------------- --------------------------------
Joseph C. Waryold, Jr. Robert T. Giczkowski
Plant Manager President, BC&T Local #429
/s/ Stefon L. Martin /s/ Timothy C. Ahrens
- -------------------------- --------------------------------
Stefon L. Martin Timothy C. Ahrens
Operations Manager Shop Chairman, BC&T Local #429
/s/ Francis J. Zajac /s/ Michael G. Kinsley, Sr.
- -------------------------- --------------------------------
Francis J. Zajac Michael G. Kinsley, Sr.
Logistics Manager Committee Member, BC&T Local #429
/s/ Mark J. Coolican /s/ Edward J. Walsh
- -------------------------- --------------------------------
Mark J. Coolican Edward J. Walsh
Director, Industrial Relations Committee Member, BC&T Local #429
Kellogg Company
/s/ Marcus A. Tatko
--------------------------------
Marcus A. Tatko
Committee Member, BC&T Local #429
34
<PAGE>
SCHEDULE "A" OF AGREEMENT BETWEEN
LENDER'S BAGEL BAKERY AND
BAKERY, CONFECTIONERY & TOBACCO WORKERS'
INTERNATIONAL UNION OF AMERICA, LOCAL 429
DATED AS OF SEPTEMBER 1, 1998
WAGE SCHEDULE
-------------
<TABLE>
<CAPTION>
Effective Effective Effective
CLASSIFICATION 8/30/98 8/28/99 9/3/2000
-------------- ------- ------- --------
<S> <C> <C> <C>
Maintenance $13.83 $14.13 $14.43
Employees
Production $12.77 $13.07 $13.37
Employees
Shippers $12.17 $12.47 $12.77
Packers, Sanitors $11.92 $12.22 $12.52
and Helpers
</TABLE>
Any Employee receiving a higher rate than specified in this Agreement,
his/her hourly rate shall not be reduced for any condition.
New, inexperienced Employees hired after August 31, 1995 shall be paid at
the rate of seventy percent (70%) of the job rate in the classification in which
the Employee is working for the first six (6) months, eighty percent (80%) of
the job rate for the second six (6) months, and ninety percent (90%) for the
third six (6) months. Thereafter, the Employee shall receive the rate of the
classification. If an Employee has worked in the industry and has completed the
necessary time requirements end leaves such company and resumes work with the
same company or another company in the industry and still maintains the skills
and ability, such Employee will not be required to meet the time requirements
again, and will receive the rate stated in the classification the Employee is
working.
35
<PAGE>
MEMORANDUM OF AGREEMENT
-----------------------
Disability Pension
- ------------------
A collectively bargained Employee who was formerly employed by Lender's Bagels
at its West Seneca facility shall be entitled to receive a Disability Retirement
Pension under this Plan if he incurs a Disability and
1) his Disability has continued for at least six months, and
2) he has completed at least 15 years of Benefit Service
The monthly amount of a Pension payable in the form of a Life Only Pension shall
be equal to $32.00 multiplied by the Participant's years of Benefit Service up
to a maximum of 30 years of Benefit Service. If the Disability Retirement
Pension is not a whole dollar amount, it shall be rounded to the next higher
whole dollar amount.
The disabled Participant's Disability Retirement Pension shall be reduced by
l/4 of 1% for each month that he is younger than age 62, but in no event shall
the reduction exceed 50% of the Pension payable at age 62.
The disabled Participant's Disability Retirement Pension shall commence as of
the seventh month after the Participant incurs a Disability. The Disability
Retirement Pension payments shall be made to the Participant as long as the
Disability continues.
For the Company: For the Union:
/s/ Francis W. Furlong /s/ James T. Short
- --------------------------- ----------------------------------
Francis W. Furlong James T. Short, Business Agent
Human Resources Manager BC&T Local #429
/s/ Joseph C. Waryold /s/ Robert T. Giczkowski
- --------------------------- ----------------------------------
Joseph C. Waryold Robert T. Giczkowski
Plant Manager President, BC&T Local #429
/s/ Stefon L. Martin /s/ Timothy C. Ahrens
- --------------------------- ----------------------------------
Stefon L. Martin Timothy C. Ahrens
Operations Manager Shop Chairman,
/s/ Francis J. Zejac /s/ Michael G. Kinsley, Sr.
- --------------------------- ----------------------------------
Francis J. Zejac Michael G. Kinsley, Sr.
Logistics Manager Committee Member, BC&T Local #429
/s/ Mark J. Coolican /s/ Edward J. Walsh
- --------------------------- ----------------------------------
Mark J. Coolican Edward J. Walsh
Director, Industrial Relations Committee Member, BC&T Local #429
Kellogg Company
/s/ Marcus A. Tatko
----------------------------------
Marcus A. Tatko
Committee Member, BC&T Local #429
<PAGE>
Exhibit 21.1
Subsidiaries of Aurora Foods Inc.
- ---------------------------------
Sea Coast Foods, Inc., a Washington state corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-58215) of Aurora Foods Inc. of our report dated
March 31, 2000 relating to the consolidated financial statements and financial
statement schedules, which appear on page 51 of this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
April 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-27-1997
<PERIOD-START> JAN-01-1999 DEC-28-1997 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-27-1997
<CASH> 315 354 4,717
<SECURITIES> 0 0 0
<RECEIVABLES> 97,643 82,763 13,976
<ALLOWANCES> 1,311 670 140
<INVENTORY> 123,967 77,331 6,902
<CURRENT-ASSETS> 259,828 193,798 30,376
<PP&E> 283,441 162,776 15,086
<DEPRECIATION> 25,998 10,691 1,011
<TOTAL-ASSETS> 1,851,116 1,448,442 372,739
<CURRENT-LIABILITIES> 1,272,354 248,678 28,227
<BONDS> 402,049 402,242 202,419
0 0 0
0 0 0
<COMMON> 670 670 291
<OTHER-SE> 575,589 579,433 1,235
<TOTAL-LIABILITY-AND-EQUITY> 1,851,116 1,448,442 372,739
<SALES> 995,418 784,557 143,020
<TOTAL-REVENUES> 995,418 784,557 143,020
<CGS> 424,936 318,935 45,729
<TOTAL-COSTS> 846,827 655,113 104,042
<OTHER-EXPENSES> 83,890 122,282 15,440
<LOSS-PROVISION> 641 670 140
<INTEREST-EXPENSE> 71,301 66,624 21,384
<INCOME-PRETAX> (7,240) (60,132) 2,014
<INCOME-TAX> (2,791) (214) 779
<INCOME-CONTINUING> (4,449) (59,918) 1,235
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 9,211 0
<CHANGES> 0 0 0
<NET-INCOME> (4,449) (69,129) 1,235
<EPS-BASIC> (0.07) (1.29) 0.04
<EPS-DILUTED> (0.07) (1.29) 0.04
</TABLE>
