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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-14190
DREYER'S GRAND ICE CREAM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE NO. 94-2967523
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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5929 COLLEGE AVENUE, OAKLAND, CALIFORNIA 94618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 652-8187
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Not applicable Not applicable
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $1.00 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value (based on the average of the high and low sales
prices on March 18, 1999, as reported by NASDAQ) of the Common Stock held by
non-affiliates was approximately $321,211,655. (Such amount excludes the
aggregate market value of shares beneficially owned by the executive officers
and members of the Board of Directors of the registrant.)
As of March 18, 1999, the latest practicable date, 27,490,677 shares of
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Dreyer's Grand Ice Cream, Inc. Annual Report to
Stockholders for the fiscal year ended December 26, 1998, filed as Exhibit 13 to
this Annual Report on Form 10-K, are incorporated by reference into Part IV of
the Annual Report on Form 10-K. With the exception of those portions which are
specifically incorporated by reference in this Annual Report on Form 10-K, the
Dreyer's Grand Ice Cream, Inc. Annual Report to Stockholders for the fiscal year
ended December 26, 1998 is not to be deemed filed as part of this Report.
Portions of the Dreyer's Grand Ice Cream, Inc. Proxy Statement for the 1999
Annual Meeting of Stockholders to be filed with the Commission on or before
April 25, 1999 are incorporated by reference into Part III of this Annual Report
on Form 10-K. With the exception of those portions which are specifically
incorporated by reference in this Annual Report on Form 10-K, the Dreyer's Grand
Ice Cream, Inc. Proxy Statement for the 1999 Annual Meeting of Stockholders is
not to be deemed filed as part of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Dreyer's Grand Ice Cream, Inc. and its consolidated subsidiaries are,
unless the context otherwise requires, sometimes referred to herein as
"Dreyer's" or the "Company." The Company, successor to the original Dreyer's
Grand Ice Cream business, was originally incorporated in California on February
23, 1977 and reincorporated in Delaware on December 28, 1985.
Dreyer's, a single segment industry company, manufactures and distributes
premium ice cream and other frozen dessert products. Since 1977, Dreyer's has
developed from a specialty ice cream sold principally in selected San Francisco
Bay Area grocery and ice cream stores to a broad line of frozen dairy and other
frozen desserts sold under the Dreyer's and Edy's brand names in retail outlets
serving more than 87% of the households in the United States. The Dreyer's line
of products are available in the thirteen western states, Texas, certain markets
in the Far East and South America. The Company's products are sold under the
Edy's brand name generally throughout the remaining regions of the United
States. The Dreyer's and Edy's line of products are distributed through a
direct-store-delivery system further described below under the caption
"Marketing, Sales and Distribution." The Company also distributes and, in
certain instances, manufactures branded ice cream and frozen dessert products of
other companies. The Dreyer's and Edy's line of ice cream and related products
is relatively expensive and is sold by the Company and its independent
distributors to grocery stores, convenience stores, club stores, ice cream
parlors, restaurants, hotels and certain other accounts. The Dreyer's and Edy's
brands enjoy strong consumer recognition and loyalty.
MARKETS
Ice cream was traditionally supplied by dairies as an adjunct to their
basic milk business. Accordingly, ice cream was marketed like milk, as a
fungible commodity, and manufacturers competed primarily on the basis of price.
This price competition motivated ice cream producers to seek economies in their
formulations. The resulting trend to lower quality ice cream created an
opportunity for the Company and other producers of premium ice creams, whose
products can be differentiated on the basis of quality, technological
sophistication and brand image, rather than price. Moreover, the market for all
packaged ice creams was influenced by the steady increase in market share of
"private label" ice cream products owned by the major grocery chains and the
purchase or construction by the chains of their own milk and ice cream plants.
The resulting reduction in the demand for milk and the "regular" ice cream
brands produced by the independent dairies has caused many such dairies to
withdraw from the market. Manufacturing and formulation complexities, broader
flavor requirements, consumer preference and brand identity, however, make it
more difficult for the chains' private label brands to compete effectively in
the premium market segment. As a result, independent premium brands such as the
Company's are normally stocked by major grocery chains.
While many foodservice operators, including hotels, schools, hospitals and
other institutions, buy ice cream primarily on the basis of price, there are
also those in the foodservice industry who purchase ice cream based on its
quality. Operators of ice cream shops wanting to feature a quality brand,
restaurants that include an ice cream brand on their menu and clubs or chefs
concerned with the quality of their fare are often willing to pay for Dreyer's
quality, image and brand identity.
PRODUCTS
The Company and its predecessors have always been innovators of flavor,
package development and formulation. William A. Dreyer, the founder of Dreyer's
and the creator of Dreyer's Grand Ice Cream, is credited with inventing many
popular flavors including Rocky Road. Dreyer's was the first to produce an ice
cream lower in calories. The Company's Grand Light(R) formulation was a
precursor to the reduced fat, reduced sugar and low cholesterol products in the
Company's current product line.
The Company uses only the highest quality ingredients in its products. The
Company's philosophy is to make changes in its formulations or production
processes only to the extent that such changes do not
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compromise quality for cost even though the industry in general may adopt such
new formulation or process compromises.
Dreyer's and Edy's Grand Ice Cream is the Company's flagship product which
utilizes traditional formulations with all natural flavorings and is
characterized by premium quality taste and texture, and diverse flavor
selection. The flagship product is complimented by Dreyer's and Edy's Homemade
Ice Cream, a product formulated for regional taste preferences and now
distributed on a nationwide basis, and the Company's reduced fat, low
cholesterol products such as Frozen Yogurt; Grand Light(R); No Sugar Added and
Fat Free ice creams; and the Company's Sherbet and Whole Fruit Sorbet products.
The Company believes these "better for you" products are well positioned in the
market where products are characterized by lower levels of fat, sugar and
cholesterol than those of regular ice cream. The Company also produces
Portofino(R) brand Italian style ice cream which is distributed in selected
western markets, and manufactures and distributes Starbucks(R) Ice Cream
products for its joint venture with Starbucks Coffee Company. The Company also
produces a premium soft serve product, Grand Soft(R), which is available as ice
cream or frozen yogurt. The Company's novelty line features Dreyer's and Edy's
Ice Cream Bars, Fruit Bars, and Sundae Cones. The Company has launched Godiva(R)
Ice Cream, a ultra-premium product produced by the Company under a long-term
license with Godiva Chocolatier. The Company also distributes and, in some
instances, manufactures selected branded frozen dessert products of other
companies.
The Company's product lines now include over 110 flavors that are selected
both on the basis of general popularity and on the intensity of consumer
response. Some flavors are seasonal and are produced only as a featured flavor
during particular months. The Company operates a continuous flavor development
and evaluation program.
The Company holds registered trademarks on many of its products. Dreyer's
believes that consumers associate the Company's trademarks, distinctive
packaging and trade dress with its high quality products. The Company does not
own any patents that are material to its business. Research and development
expenses are not significant, nor have they been significant in the past.
MARKETING, SALES AND DISTRIBUTION
The Company's marketing strategy is based upon management's belief that a
significant number of people prefer a quality product and quality image in ice
cream just as they do in other product categories. A quality image is
communicated in many ways -- taste, packaging, flavor selection, price and often
through advertising and promotion. If consistency in the product's quality and
image are strictly maintained, a brand can develop a clearly defined and loyal
consumer following. It is the Company's goal to develop such a consumer
following in each major market in which it does business.
In fiscal 1994 the Company adopted a strategic plan to accelerate the sales
of its brand throughout the country (the Strategic Plan). The key elements of
this plan are: 1) to build high margin brands with leading market shares through
effective consumer marketing activities, 2) to expand the Company's
direct-store-delivery distribution network to national scale and enhance this
capability with sophisticated information and logistics systems and 3) to
introduce innovative new products. The potential benefits of the Strategic Plan
are increased market share and future earnings above those levels that would be
attained in the absence of the Strategic Plan.
In accordance with the Strategic Plan, the Company embarked on an
aggressive national expansion. This expansion involved the entry into 34 new
markets, which included the opening of a major manufacturing and distribution
center in Texas, a significant increase in marketing spending and the
introduction of several new products. At the same time, the Company invested in
its soft-serve equipment manufacturing business (Grand Soft). The investments
required to fund the brand building actions and national expansion and to
support the Grand Soft business substantially increased the Company's cost
structure.
Beginning in late fiscal 1997 and continuing into fiscal 1998, the cost of
dairy, the primary ingredient in ice cream, increased significantly. These costs
peaked in fiscal 1998 at a rate more than double that experienced in the prior
year. This increase reduced the Company's fiscal 1998 gross margin by
approximately
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$22,000,000 when compared to fiscal 1997. Aggressive discounting by the
Company's competitors made it difficult to raise prices by an amount sufficient
to compensate for these higher dairy costs. During this same period, sales
volumes of the Company's "better for you" products continued the significant
decline that began in fiscal 1997, consistent with an industry-wide trend. These
"better for you" products enjoy a higher margin than the Company's classic ice
cream and the volume decline had a significant impact on the Company's
profitability in fiscal 1998. Finally, in August of 1998, Ben & Jerry's
Homemade, Inc. (Ben & Jerry's) informed the Company of its intention to
terminate its distribution contract. Subsequent negotiations with Ben & Jerry's
yielded revisions to the original contract terms which will reduce the Company's
distribution gross margin of Ben & Jerry's products by approximately 54%
starting September 1, 1999. The Company estimates that the markets where it will
stop distributing Ben & Jerry's products contributed approximately 6% of its
gross margin, or $13,000,000, in fiscal 1998.
The above factors: the higher dairy costs; the decline in "better for you"
volumes; and the reduction in future Ben & Jerry's sales; had and will have a
negative effect on the Company's gross margin and its ability to successfully
implement the Strategic Plan. The Company, therefore, concluded that a thorough
reassessment of its cost structure and strategy was necessary. This reassessment
yielded a restructuring program designed to improve profitability and accelerate
cost reductions by increasing focus on the core elements of the Strategic Plan.
The reassessment also addressed the need to review the valuation of certain
assets unfavorably impacted by Ben & Jerry's decision to change its distribution
agreement with the Company. On October 16, 1998, the board of directors approved
the restructuring program.
For additional information see the discussion set forth in Note 3 which
appears on pages 22-24 of the Company's 1998 Annual Report to Stockholders which
is incorporated herein by reference. In addition, see the discussions set forth
under the captions "Background," "Revision of Ben & Jerry's Distribution
Agreement" and "Restructuring Program and Other Actions" in "Management's
Discussion and Analysis" which appear on pages 34-37 of the Company's 1998
Annual Report to Stockholders and are incorporated herein by reference.
Unlike most other ice cream manufacturers, the Company uses a
direct-store-delivery system to distribute the Company's products directly to
the retail ice cream cabinet by either the Company's own personnel or
independent distributors who primarily distribute the Company's products. This
store level distribution allows service to be tailored to the needs of each
store. Dreyer's believes this service ensures proper product handling, quality
control, flavor selection and retail display. The implementation of this system
has resulted in an ice cream distribution network capable of providing frequent
direct service to grocery stores in every market where the Company's products
are sold. Under the Strategic Plan, the Company's distribution network has been
significantly expanded to where the Company's products are available to grocery
stores serving approximately 87% of the households in the United States. This
distribution system is considerably larger than any other direct-store-delivery
system for ice cream products currently operating in the United States.
The distribution network in the West now includes twelve distribution
centers operated by the Company in large metropolitan areas such as Los Angeles,
the San Francisco Bay Area, Phoenix, San Diego, Seattle and Denver. The Company
also has independent distributors handling the Company's product in various
areas of the thirteen western states, Texas, the Far East and South America.
Distribution in the remainder of the United States is under the Edy's brand
name with most of the distribution handled through seventeen Company-owned
distribution centers, including centers in the New York/New Jersey metropolitan
area, Chicago, the Washington/Baltimore metropolitan area, Atlanta, Tampa and
Kansas City. The Company also has independent distributors handling the
Company's products in certain market areas east of the Rocky Mountains.
Taken together, independent distributors accounted for approximately 21% of
the Company's consolidated sales in fiscal 1998. The Company's agreements with
its independent distributors are generally terminable upon 30 days notice by
either party.
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Each distributor, whether Company-owned or independent, is primarily
responsible for sales of all products within its respective market area.
However, the Company provides sales and marketing support to its independent
distributors, including training seminars, sales aids of many kinds, point of
purchase materials, assistance with promotions and other sales support.
For fiscal 1998, one customer, Safeway, Inc., accounted for 10% of
consolidated sales of the Company. No other customers accounted for 10% or more
of consolidated sales. The Company's export sales were about 1% of fiscal 1998
consolidated sales.
The Company experiences a seasonal fluctuation in sales, with more demand
for its products during the spring and summer than during the fall and winter.
MANUFACTURING
The Company manufactures its products at its plants in Union City,
California; City of Commerce, California; Fort Wayne, Indiana; Houston, Texas;
and Salt Lake City, Utah. The Company has a manufacturing agreement with one ice
cream manufacturer to produce Dreyer's line of products serving high altitude
markets and to occasionally meet peak periods of demand in accordance with
specifications and quality control provided by Dreyer's. Of the approximately 93
million gallons of the Company's products sold in fiscal 1998, approximately two
million gallons were manufactured under this agreement. The Company also has
manufacturing agreements with six different companies to produce a portion of
its novelty products. During fiscal 1998, approximately two million cases (45%
of total production) of Dreyer's and Edy's Ice Cream Bars and Fruit Bars were
produced under these agreements. In addition, the Company has agreements to
produce products for other manufacturers. In fiscal 1998, the Company
manufactured approximately 14 million gallons of product under these agreements.
The primary factor in the Company's product costs is the price of basic
dairy ingredients (cream, milk and skim milk) and sugar. The minimum prices paid
for dairy ingredients are established by the market under the Federal Milk Price
Support Program. In fiscal 1997, dairy raw material prices decreased from 1996
resulting in a favorable impact of approximately $3,800,000 in gross margin. In
fiscal 1998, the Company experienced a significant increase of approximately
$22,000,000 in dairy raw materials costs, when compared to fiscal 1997, which
negatively impacted the Company's gross margin.
In order to ensure consistency of flavor, each of the Company's
manufacturing plants purchases, to the extent practicable, all of its required
dairy ingredients from a limited number of suppliers. These dairy products and
most other ingredients or their equivalents are available from multiple sources.
The Company maintains a rigorous process for evaluating qualified alternative
suppliers of its key ingredients.
COMPETITION
The Company's manufactured products compete on the basis of brand image,
quality and breadth of flavor selection. The ice cream industry is highly
competitive and most ice cream manufacturers, including full line dairies, the
major grocery chains and the other independent ice cream processors, are capable
of manufacturing and marketing high quality ice creams. Furthermore, there are
relatively few barriers to new entrants in the ice cream business. However,
reduced fat, reduced sugar and low cholesterol ice cream products generally
require technologically sophisticated formulations and production in comparison
to standard or "regular" ice cream products.
Much of the Company's competition comes from the "private label" brands
produced by or for the major supermarket chains and which generally sell at
prices below those charged by the Company for its products. Because these brands
are owned by the retailer, they often receive preferential treatment when the
retailers allocate available freezer space. The Company's competition also
includes premium ice creams produced by other ice cream manufacturers, some of
whom are owned by parent companies much larger than Dreyer's.
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EMPLOYEES
On December 26, 1998, the Company had approximately 3,450 employees. The
Company's Union City manufacturing and distribution employees are represented by
the Teamsters Local 853, whose contract with the Company expires between
September 1999 and December 2000 for different types of employees, and the
International Union of Operating Engineers, Stationary Local No. 39, whose
contract with the Company expires in August 2001. The Sacramento distribution
employees are represented by the Chauffeurs, Teamsters and Helpers Union, Local
150 whose contract with the Company expires in August 1999. The St. Louis
distribution employees are represented by the United Food & Commercial Workers
Union, Local 655 whose contract with the Company expires in December 2000. The
Company has never experienced a strike by any of its employees.
ITEM 2. PROPERTIES
The Company owns its headquarters located at 5929 College Avenue in
Oakland, California. The headquarters buildings include 54,000 square feet of
office space utilized by the Company and 10,000 square feet of retail space
leased to third parties.
The Company owns a manufacturing and distribution facility in Union City,
California. This facility has approximately 60,000 square feet of manufacturing
and dry storage space, 40,000 square feet of cold storage warehouse space and
15,000 square feet of office space. The plant has the current production
capacity of 28 million gallons per year. During fiscal 1998, the facility
produced approximately 19 million gallons of ice cream and related products.
The Company leases an ice cream manufacturing plant with an adjoining cold
storage warehouse located in the City of Commerce, California. This facility has
approximately 76,000 square feet of manufacturing and dry storage space, 25,000
square feet of cold storage space and 19,000 square feet of office space. The
lease on this property, including renewal options, expires in 2022. The plant
has the current production capacity of 22 million gallons per year. During
fiscal 1998, the facility produced approximately 18 million gallons of ice cream
and related products.
The Company owns a cold storage warehouse facility located in the City of
Industry, California. This facility includes 52,000 square feet of cold and dry
storage warehouse space and 13,000 square feet of office space. This facility
supplements the cold storage warehouse and office space leased in the City of
Commerce.
The Company owns a manufacturing plant with an adjoining cold storage
warehouse in Fort Wayne, Indiana. This facility has approximately 74,000 square
feet of manufacturing and storage space and 16,000 square feet of office space.
In January 1998, the Company completed construction of an additional warehouse
on land adjacent to the Ft. Wayne manufacturing facility. The newly constructed
warehouse has cold storage space of 109,000 square feet. The plant has the
current production capacity of 64 million gallons per year. During fiscal 1998,
the facility produced approximately 49 million gallons of ice cream and related
products. The Company's original purchase and development of the Fort Wayne
facility was financed by industrial development bonds and the property is
pledged as collateral to secure payment of the Company's obligations to the
issuer of the irrevocable letter of credit established for the benefit of the
bondholders.
The Company owns a manufacturing and distribution facility in Houston,
Texas. This facility has approximately 68,000 square feet of manufacturing and
dry storage space, 46,000 square feet of cold storage warehouse space and 20,000
square feet of office space. The plant has the current production capacity of
approximately 30 million gallons per year. During fiscal 1998, this facility
produced approximately 19 million gallons of ice cream and related products. As
a result of the restructuring program, the Company will realize substantially
lower production volumes over the remaining useful life of its Houston, Texas
manufacturing plant than originally contemplated. For additional information see
the discussion set forth under the caption "Restructuring Program and Other
Actions" in "Management's Discussion and Analysis" which appears on pages 35-37
of the Company's 1998 Annual Report to Stockholders which is incorporated herein
by reference.
The Company owns a manufacturing and distribution facility in Salt Lake
City, Utah. This facility has approximately 12,000 square feet of manufacturing
and dry storage space, 13,000 square feet of cold storage space and 1,000 square
feet of office space. Another 4,000 square feet of office space is leased. The
plant has
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the current production capacity of 5 million gallons per year. During fiscal
1998, the facility produced approximately 5 million gallons of ice cream and
related products.
The Company intentionally acquires, designs and constructs its
manufacturing and distribution facilities with a capacity greater than current
needs require. This is done to facilitate growth and expansion and minimize
future capital outlays. The cost of carrying this excess capacity is not
significant.
The Company leases or rents various local distribution and office
facilities with leases expiring through the year 2022, including options to
renew, except for one that has 89 years remaining on the lease.
ITEM 3. LEGAL PROCEEDINGS
During the third quarter of fiscal 1998, Ben & Jerry's notified the Company
of its intention to terminate the distribution agreement between the Company and
Ben & Jerry's. The Company subsequently entered into negotiations with Ben &
Jerry's to resolve issues associated with the pending termination. In the first
quarter of 1999, the companies announced that they reached a resolution
regarding these issues by amending the existing distribution agreement and
entering into a new distribution agreement. As a result, the Company will
continue to distribute Ben & Jerry's products until August 31, 1999 in all
existing markets, except the New York metropolitan area, and on terms and
conditions different in some respects from those in place prior to the
amendment. The Company will stop distributing Ben & Jerry's products in New York
on April 1, 1999. Starting September 1, 1999, the Company's distribution of Ben
& Jerry's products will continue in a smaller geographic region pursuant to the
terms of the new distribution agreement.
For additional information see the discussion set forth under the caption
"Revision of Ben & Jerry's Distribution Agreement" in Note 3 which appears on
page 22 of the Company's 1998 Annual Report to Stockholders which is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and their ages are as follows:
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T. Gary Rogers Chairman of the Board and Chief Executive Officer 56
William F. Cronk, III President 56
Edmund R. Manwell Secretary 56
Thomas M. Delaplane Vice President -- Sales 54
J. Tyler Johnston Vice President -- Marketing 45
Timothy F. Kahn Vice President -- Finance and Administration and
Chief Financial Officer 45
William R. Oldenburg Vice President -- Operations 52
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All officers hold office at the pleasure of the Board of Directors. There
is no family relationship among the above officers.
Mr. Rogers has served as Dreyer's Chairman of the Board and Chief Executive
Officer since its incorporation in February 1977.
Mr. Cronk has served as a director of the Company since its incorporation
in February 1977 and has been the Company's President since April 1981.
Mr. Manwell has served as Secretary of the Company since its incorporation
and as a director of the Company since April 1981. Since March 1982, Mr. Manwell
has been a partner in the law firm of Manwell & Milton, general counsel to the
Company.
Mr. Delaplane has served as Vice President -- Sales of the Company since
May 1987.
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Mr. Johnston has served as Vice President -- Marketing of the Company since
March 1996. From September 1995 to March 1996, he served as the Company's Vice
President -- New Business. From May 1988 to August 1995, he served as the
Company's Director of Marketing.
Mr. Kahn has served as Vice President -- Finance and Administration and
Chief Financial Officer since March 1998. In 1994 through October 1997, Mr. Kahn
served in the positions of Senior Vice President, Chief Financial Officer and
Vice President for several divisions of PepsiCo, Inc., which included Pizza Hut
Restaurants.
Mr. Oldenburg has served as Vice President -- Operations of the Company
since September 1986.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth in Note 16 under the caption "Price Range Per
Common Share (NASDAQ)" which appears on page 31 of the Company's 1998 Annual
Report to Stockholders is incorporated herein by reference. The bid and asked
quotations for the Company's Common Stock are as reported by NASDAQ.
On March 18, 1999, the number of holders of record of the Company's common
stock was 5,114.
On November 18, 1997, the Company issued shares of common stock to holders
of record on October 30, 1997 to effect a two-for-one common stock split. Unless
otherwise indicated, all share information appearing in this report has been
restated to reflect this stock split on a retroactive basis.
The Company paid a regular quarterly dividend of $.03 per share of common
stock for each quarter of fiscal 1997 and fiscal 1998. On February 23, 1999, the
Board of Directors, subject to compliance with law, contractual restrictions and
future review of the condition of the Company, declared its intention to issue
regular quarterly dividends of $.03 per share of common stock for each quarter
of fiscal 1999. Also on February 23, 1999, the Board of Directors declared a
dividend of $.03 per share of common stock for the first quarter of fiscal 1999
for stockholders of record on March 26, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Summary of
Significant Financial Data" which appears on page 33 of the Company's 1998
Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this report are forward-looking statements
made pursuant to the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks and uncertainties,
which may cause the Company's actual actions or results to differ materially
from those contained in the forward-looking statements. The Company believes
that the benefits under the Strategic Plan will be realized in future years,
although no assurance can be given that the expectations relative to future
market share and earnings benefits of the strategy will be achieved. Specific
factors that might cause such a difference include, but are not limited to, the
Company's ability to achieve the cost reductions anticipated from its
restructuring program and to achieve efficiencies in its manufacturing and
distribution operations without negatively affecting sales, the cost of dairy
and other commodities used in the Company's products, competitors' marketing and
promotion responses, market conditions affecting the price of the Company's
products, the Company's ability to increase sales of its branded products and
responsiveness of the trade and consumers to the Company's new products and
increased marketing and promotional expenses.
The information set forth under the caption "Risks and Uncertainties" in
"Management's Discussion and Analysis" which appears on page 37 of the Company's
1998 Annual Report to Stockholders is incorporated herein by reference.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the caption "Market Risk" in "Management's
Discussion and Analysis" which appears on page 39 of the Company's 1998 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated February 22, 1999 appearing on pages 16-32 of
the Company's 1998 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Board of
Directors -- Nominees for Director" and "Board of Directors -- Continuing
Directors," "Matters Submitted to the Vote of Stockholders -- Election of
Directors," "Executive Compensation -- Compensation Committee Interlocks and
Insider Participation" and "Security Ownership of Certain Beneficial Owners and
Management -- Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders to be
filed with the Commission on or before April 25, 1999, and the information
contained in Part I of this Annual Report on Form 10-K under the caption
"Executive Officers of the Registrant," is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Executive Compensation" and
"Board of Directors -- Remuneration of Directors" in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders to be filed with the
Commission on or before April 25, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the 1999
Annual Meeting of Stockholders to be filed with the Commission on or before
April 25, 1999 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation" and
"Executive Compensation -- Other Relationships" in the Company's Proxy Statement
for the 1999 Annual Meeting of Stockholders to be filed with the Commission on
or before April 25, 1999 is incorporated herein by reference.
9
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE:
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
PAGE(S) IN
ANNUAL REPORT*
--------------
<S> <C> <C>
1. Financial Statements:
Consolidated Statement of Operations for each of the three
years in the period ended December 26, 1998............ 16
Consolidated Balance Sheet at December 26, 1998 and December
27, 1997............................................... 17
Consolidated Statement of Changes in Stockholders' Equity
for the three years ended December 26, 1998............ 18
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 26, 1998............ 19
Notes to Consolidated Financial Statements.................. 20-31
Report of Independent Accountants........................... 32
</TABLE>
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C> <C>
2. Financial Statement Schedule:
Report of Independent Accountants on Financial Statement
Schedule for each of the three years in the period
ended December 26, 1998................................ 18
Schedule II. Valuation and Qualifying Accounts.............. 19
</TABLE>
- ---------------
* Incorporated by reference to the indicated pages of the Company's 1998
Annual Report to Stockholders.
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
Financial statements of any other 50 percent or less owned company have
been omitted because the Registrant's proportionate share of income from
continuing operations before income taxes and cumulative effect of change
in accounting principle is less than 20 percent of the respective
consolidated amounts, and the investment in and advances to any such
company is less than 20 percent of consolidated total assets.
3. List of Management Compensation Agreements
(i) Dreyer's Grand Ice Cream, Inc. Incentive Stock Option Plan (1982)
referenced in Exhibit 10.3 herein.
(ii) Indemnification Agreements by and between Dreyer's Grand Ice Cream,
Inc. and each of its directors, executive officers and certain other
officers referenced in Exhibit 10.10 herein.
(iii) Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1992) referenced in
Exhibit 10.16 herein.
(iv) Dreyer's Grand Ice Cream, Inc. Incentive Bonus Plan referenced in
Exhibit 10.19 herein.
(v) Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993) referenced in
Exhibit 10.20 herein.
(vi) Dreyer's Grand Ice Cream, Inc. Income Swap Plan referenced in Exhibit
10.21 herein.
(b) REPORTS ON FORM 8-K
Not applicable.
10
<PAGE> 12
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Securities Purchase Agreement dated June 24, 1993 by and
among Dreyer's Grand Ice Cream, Inc., Trustees of General
Electric Pension Trust, GE Investment Private Placement
Partners, I and General Electric Capital Corporation
(Exhibit 2.1(11)).
2.2 Amendment to Securities Purchase Agreement dated May 6, 1994
by and among Dreyer's Grand Ice Cream, Inc., Trustees of
General Electric Pension Trust, GE Investment Private
Placement Partners, I and General Electric Capital
Corporation, amending Exhibit 2.1 (Exhibit 2.1(14)).
2.3 Stock and Warrant Purchase Agreement dated as of May 6, 1994
by and between Dreyer's Grand Ice Cream, Inc. and Nestle
Holdings, Inc. (Exhibit 2.1(15)).
2.4 First Amendment to Stock and Warrant Purchase Agreement
dated as of June 14, 1994 by and between Dreyer's Grand Ice
Cream, Inc. and Nestle Holdings, Inc., amending Exhibit 2.3
(Exhibit 2.1(16)).
2.5 Second Amendment to Securities Purchase Agreement dated July
28, 1995 and effective as of June 1, 1995 by and among
Dreyer's Grand Ice Cream, Inc., Trustees of General Electric
Pension Trust, GE Investment Private Placement Partners, I
and General Electric Capital Corporation, amending Exhibit
2.1 (Exhibit 10.2(18)).
2.6 Third Amendment to Securities Purchase Agreement dated
October 30, 1995 and effective as of September 30, 1995 by
and among Dreyer's Grand Ice Cream, Inc., Trustees of
General Electric Pension Trust, GE Investment Private
Placement Partners, I and General Electric Capital
Corporation, amending Exhibit 2.1 (Exhibit 10.1(19)).
2.7 Amended and Restated Fourth Amendment to Securities Purchase
Agreement dated March 12, 1996 and effective as of October
1, 1995 by and among Dreyer's Grand Ice Cream, Inc.,
Trustees of General Electric Pension Trust, GE Investment
Private Placement Partners, I and General Electric Capital
Corporation, amending Exhibit 2.1 (Exhibit 2.8(20)).
3.1 Certificate of Incorporation of Dreyer's Grand Ice Cream,
Inc., as amended, including the Certificate of Designation
of Series A Convertible Preferred Stock, as amended, setting
forth the Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions of such series of Preferred
Stock and the Certificate of Designation of Series B
Convertible Preferred Stock, as amended, setting forth the
Powers, Preferences, Rights, Qualifications, Limitations and
Restrictions of such series of Preferred Stock (Exhibit
3.1(16)).
3.2 Certificate of Designation, Preferences and Rights of Series
A Participating Preference Stock (Exhibit 3.2(17)).
3.3 By-laws of Dreyer's Grand Ice Cream, Inc., as last amended
May 2, 1994 (Exhibit 3.2(16)).
4.1 Amended and Restated Rights Agreement dated March 4, 1991
between Dreyer's Grand Ice Cream, Inc. and Bank of America,
NT & SA (Exhibit 10.1(6)).
4.2 Registration Rights Agreement dated as of June 30, 1993
among Dreyer's Grand Ice Cream, Inc., Trustees of General
Electric Pension Trust, and GE Investment Private Placement
Partners, I and General Electric Capital Corporation
(Exhibit 4.1(12)).
4.3 Amendment to Registration Rights Agreement dated May 6, 1994
by and among Dreyer's Grand Ice Cream, Inc., Trustees of
General Electric Pension Trust, GE Investment Private
Placement Partners, I and General Electric Capital
Corporation, amending Exhibit 4.2 (Exhibit 4.1(14)).
4.4 First Amendment to Amended and Restated Rights Agreement
dated as of June 14, 1994 between Dreyer's Grand Ice Cream,
Inc. and First Interstate Bank of California (as successor
Rights Agent to Bank of America NT & SA), amending Exhibit
4.1 (Exhibit 4.1(16)).
4.5 Registration Rights Agreement dated as of June 14, 1994
between Dreyer's Grand Ice Cream, Inc. and Nestle Holdings,
Inc. (Exhibit 4.2(16)).
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.6 Warrant Agreement dated as of June 14, 1994 between Dreyer's
Grand Ice Cream, Inc. and Nestle Holdings, Inc. (Exhibit
4.3(16)).
4.7 Second Amendment to Amended and Restated Rights Agreement
dated March 17, 1997 between Dreyer's Grand Ice Cream, Inc.
and ChaseMellon Shareholder Services, LLC, as Rights Agent,
amending Exhibit 4.1 (Exhibit 10.1 (24)).
4.8 Third Amendment to Amended and Restated Rights Agreement
dated May 15, 1997 between Dreyer's Grand Ice Cream, Inc.
and ChaseMellon Shareholder Services, LLC, as Rights Agent,
amending Exhibit 4.1 (Exhibit 10.1 (25)).
10.1 Agreement dated September 18, 1978 between Dreyer's Grand
Ice Cream, Inc. and Kraft, Inc. (Exhibit 10.8(1)).
10.2 Agreement and Lease dated as of January 1, 1982 and
Amendment to Agreement and Lease dated as of January 27,
1982 between Jack and Tillie Marantz and Dreyer's Grand Ice
Cream, Inc., as amended (Exhibit 10.2(17)).
10.3 Dreyer's Grand Ice Cream, Inc. Incentive Stock Option Plan
(1982), as amended. (Exhibit 10.6(13)).
10.4 Loan Agreement between Edy's and City of Fort Wayne, Indiana
dated September 1, 1985 and related Letter of Credit, Letter
of Credit Agreement, Mortgage, Security Agreement, Pledge
and Security Agreement and General Continuing Guaranty of
Dreyer's Grand Ice Cream, Inc. (Exhibit 10.33(2)).
10.5 Distribution Agreement between Dreyer's Grand Ice Cream,
Inc. and Ben & Jerry's Homemade, Inc. dated January 6, 1987
(Exhibit 10.1(3)).
10.6 Amendment and Waiver dated July 17, 1987 between Dreyer's
Grand Ice Cream, Inc. and Security Pacific National Bank,
amending the General Continuing Guaranty referenced in
Exhibit 10.4 (Exhibit 10.44(7)).
10.7 Amendment and Waiver dated December 24, 1987 between
Dreyer's Grand Ice Cream, Inc. and Security Pacific National
Bank, amending the General Continuing Guaranty referenced in
Exhibit 10.4 (Exhibit 10.45(7)).
10.8 Agreement for Amendments to Distribution Agreement dated as
of January 20, 1989 among Dreyer's Grand Ice Cream, Inc.,
Edy's Grand Ice Cream, Edy's of New York, Inc., and Ben &
Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.46
(4)).
10.9 Amendment to the Distribution Agreement dated as of April
11, 1989 by and among Dreyer's Grand Ice Cream, Inc., Edy's
Grand Ice Cream, Edy's of New York, Inc., and Ben & Jerry's
Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.46(5)).
10.10 Form of Indemnification Agreement between Dreyer's Grand Ice
Cream, Inc. and each officer and director of Dreyer's Grand
Ice Cream, Inc. (Exhibit 10.47(4)).
10.11 Assignment of Lease dated as of March 31, 1989 among
Dreyer's Grand Ice Cream, Inc., Smithway Associates, Inc.
and Wilsey Foods, Inc. (Exhibit 10.52(5)).
10.12 Amendment of Lease dated as of March 31, 1989 between
Dreyer's Grand Ice Cream, Inc. and Smithway Associates,
Inc., as amended by letter dated April 17, 1989 between
Dreyer's Grand Ice Cream, Inc. and Wilsey Foods, Inc.,
amending Exhibit 10.11 (Exhibit 10.53(5)).
10.13 Third Amendment to General Continuing Guaranty and Waiver
dated January 29, 1991 between Dreyer's Grand Ice Cream,
Inc. and Security PacificNational Bank, amending the General
Continuing Guaranty referenced in Exhibit 10.4 (Exhibit
10.46(7)).
10.14 $25,000,000 9.3% Senior Notes: Form of Note Agreement dated
as of March 15, 1991, and executed on April 12, 1991 between
Dreyer's Grand Ice Cream, Inc. and each of Massachusetts
Mutual Life Insurance Company, Massachusetts Mutual Life
Pension Insurance Company, Connecticut Mutual Life Insurance
Company, the Equitable Life Assurance Society of the United
States, and Transamerica Occidental Life Insurance Company
(Exhibit 19.1(8)).
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.15 Second Amendment to Distribution Agreement dated as of
August 31, 1992 between Dreyer's Grand Ice Cream, Inc. and
Ben & Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit
19.6(9)).
10.16 Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1992)
(Exhibit 10.35(13)).
10.17 Agreement of Amendment and Waiver, dated as of September 30,
1992, between Dreyer's Grand Ice Cream, Inc. and each of
Massachusetts Mutual Life Insurance Company, MML Pension
Insurance Company, the Connecticut Mutual Life Insurance
Company, the Equitable Life Assurance Society of the United
States, and Transamerica Occidental Life Insurance Company
(together, the "Lenders") regarding the Note Agreements
dated as of March 15, 1991 between Dreyer's Grand Ice Cream,
Inc. and each of the Lenders, which Note Agreements are
referenced in Exhibit 10.14 (Exhibit 19.5(9)).
10.18 Second Amendment to Note Agreements dated as of September
30, 1992, between Dreyer's Grand Ice Cream, Inc. and each of
Massachusetts Mutual Life Insurance Company, MML Pension
Insurance Company, the Connecticut Mutual Life Insurance
Company, the Equitable Life Assurance Society of the United
States, and Transamerica Occidental Life Insurance Company
(together, the "Lenders") regarding the Note Agreements
dated as of March 15, 1991 between Dreyer's Grand Ice Cream,
Inc. and each of the Lenders, which Note Agreements are
referenced in Exhibit 10.14 (Exhibit 10.58(10)).
10.19 Description of Dreyer's Grand Ice Cream, Inc. Incentive
Bonus Plan (Exhibit 10.57(10)).
10.20 Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993), as
amended May 1, 1996.
10.21 Dreyer's Grand Ice Cream, Inc. Income Swap Plan (Exhibit
10.38(13)).
10.22 Amendment to Distribution Agreement dated April 18, 1994,
and Letter Agreement modifying such Amendment to
Distribution Agreement dated April 18, 1994 between Dreyer's
Grand Ice Cream, Inc. and Ben & Jerry's Homemade, Inc.,
amending Exhibit 10.5 (Exhibit 10.3(14)).
10.23 Amendment to Distribution Agreement dated December 12, 1994
between Dreyer's Grand Ice Cream, Inc. and Ben & Jerry's
Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.27(17)).
10.24 Third Amendment to Note Agreement dated as of June 5, 1995
between Dreyer's Grand Ice Cream, Inc. and each of
Massachusetts Mutual Life Insurance Company, MML Pension
Insurance Company, the Connecticut Mutual Life Insurance
Company, the Equitable Life Assurance Society of the United
States, and Transamerica Occidental Life Insurance Company
(together, the "Lenders"), regarding the Note Agreements
dated as of March 15, 1991 between Dreyer's Grand Ice Cream,
Inc. and each of the Lenders, which Note Agreements are
referenced in Exhibit 10.14 (Exhibit 10.3(18)).
10.25 Letter Agreement dated August 4, 1995 between Dreyer's Grand
Ice Cream, Inc. and Smithway Associates, Inc., amending
Exhibits 10.2 and 10.11 (Exhibit 10.29(20)).
10.26 Credit Agreement dated as of December 22, 1995 among
Dreyer's Grand Ice Cream, Inc., Bank of America NT & SA (as
a Bank and as Agent), ABN-AMRO Bank N.V. (as a Bank and as
Co-Agent), Credit Suisse and The Bank of California (Exhibit
10.30(20)).
10.27 Participation Agreement dated March 29, 1996 among Dreyer's
Grand Ice Cream, Inc., Edy's Grand Ice Cream, BA Leasing &
Capital Corporation (as Agent and as a Participant), ABN-
AMRO Bank, NV and Credit Suisse (Exhibit 10.2(21)).
10.28 First Amendment to Credit Agreement dated April 15, 1996
among Dreyer's Grand Ice Cream, Inc., Bank of America, NT &
SA (as Agent and as a Bank), ABN-AMRO Bank, NV (as Co-Agent
and as a Bank), Credit Suisse and Union Bank of California,
NA, amending Exhibit 10.26 (Exhibit 10.1(21)).
10.29 April 1996 Amendment to Commerce Lease dated April 23, 1996
between Dreyer's Grand Ice Cream, Inc. and Smithway
Associates, Inc., amending Exhibits 10.2 and 10.11 (Exhibit
10.29(23)).
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.30 Letter Agreement dated April 23, 1996 between Dreyer's Grand
Ice Cream, Inc. and Smithway Associates, Inc., amending
Exhibits 10.2 and 10.11 (Exhibit 10.30(23)).
10.31 $15,000,000 7.86% Series A Senior Notes Due 2002,
$15,000,000 8.06% Series B Senior Notes Due 2006 and
$20,000,000 8.34% Series C Senior Notes Due 2008: Form of
Note Agreement dated as of June 6, 1996 between Dreyer's
Grand Ice Cream, Inc. and each of The Prudential Insurance
Company of America, Pruco Life Insurance Company, and
Transamerica Life Insurance and Annuity Company (Exhibit
10.1(22)).
10.32 Fourth Amendment to Note Agreement dated as of June 10, 1997
between Dreyer's Grand Ice Cream, Inc. and each of
Massachusetts Mutual Life Insurance Company, MML Pension
Insurance Company, the Connecticut Mutual Life Insurance
Company, the Equitable Life Assurance Society of the United
States, and Transamerica Occidental Life Insurance Company,
(together, the "Lenders"), regarding the Note Agreements
dated as of March 15, 1991 between Dreyer's Grand Ice Cream,
Inc. and each of the Lenders, which Note Agreements are
reference in Exhibit 10.14 (Exhibit 10.1(26)).
10.33 Second Amendment to Credit Agreement dated as of December
26, 1997 among Dreyer's Grand Ice Cream, Inc., Bank of
America, NT&SA (as Agent and as a bank), ABN-AMRO Bank, NV
(as Co-Agent and as a bank), Credit Suisse First Boston and
Union Bank of California, NA, amending Exhibit 10.26.
(Exhibit 10.33(27)).
10.34 Amended and Restated Credit Agreement dated as of March 27,
1998 by and among Dreyer"s Grand Ice Cream, Inc., Bank of
America National Trust and Savings Association, as one of
the Banks and as Agent, ABN AMRO Bank, N.V., as one of the
Banks and as Co-Agent, Credit Suisse First Boston and Union
Bank of California, N.A. (Exhibit 10.1(28)).
10.35 First Amendment to Amended and Restated Credit Agreement
dated as of November 3, 1998 and effective as of September
25, 1998, among Dreyer's Grand Ice Cream, Inc. and Bank of
America National Trust and Savings Association, as a bank as
Agent, ABN-AMRO Bank N.V., San Francisco International
Branch as a bank and as Co-Agent, Credit Suisse First Boston
and Union Bank of California, N.A. (collectively the
"Banks"), amending the Amended and Restated Credit Agreement
dated as of March 27, 1998 among Dreyer's Grand Ice Cream,
Inc. and the Banks. (Exhibit 10.1(29)).
10.36 Fourth Amendment to General Continuing Guaranty and Waiver
dated November 12, 1998, between Dreyer's Grand Ice Cream,
Inc. and Bank of America National Trust and Savings
Association, amending the General Continuing Guaranty
referenced in Exhibit 10.4.
10.37 First Amendment dated as of November 17, 1998 to Note
Purchase Agreements dated as of June 6, 1996 between
Dreyer's Grand Ice Cream, Inc. and each of The Prudential
Insurance Company of America, Pruco Life Insurance Company,
and Transamerica Life Insurance and Annuity Company amending
Exhibit 10.31.
10.38 First Amendment to Participation Agreement dated December
21, 1998 among Dreyer's Grand Ice Cream, Inc., Edy's Grand
Ice Cream, BA Leasing & Capital Corporation (as Agent and as
a Participant), ABN-AMRO Bank, NV and Credit Suisse First
Boston (formerly Credit Suisse) amending Exhibit 10.27.
10.39 Letter Amendment Agreement dated as of January 11, 1999 to
that certain Distribution Agreement between Ben & Jerry's
Homemade, Inc., and Dreyer's Grand Ice Cream, Inc. and
certain of its subsidiaries, amending Exhibit 10.5.(**)
10.40 New Distribution Agreement between Dreyer's Grand Ice Cream,
Inc. and Ben & Jerry's Homemade, Inc. dated as of January
11, 1999 and related Addendum dated as of January 11,
1999.(**)
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.41 Secured Promissory Notes dated October 5, 1998 and December
11, 1998 in the principal sum of $95,000 and $186,000,
respectively, with Thomas M. Delaplane as Maker and Dreyer's
Grand Ice Cream, Inc. as Payee, and related Pledge Agreement
dated October 5, 1998 by and between Thomas Miller
Delaplane, as Trustee of the Delaplane Family Trust UAD
6/22/95 and Dreyer's Grand Ice Cream, Inc.
13 Those portions of the Dreyer's Grand Ice Cream, Inc. 1998
Annual Report to Stockholders which are incorporated by
reference into this Annual Report on Form 10-K.
21 Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Registration Statement on Form S-1 and Amendment No. 1
thereto, filed under Commission File No. 2-71841 on April 16, 1981 and June
11, 1981, respectively.
(2) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K and Amendment No. 1 thereto for
the fiscal year ended December 28, 1985 filed under Commission File No.
0-10259 on March 28, 1986 and April 14, 1986, respectively.
(3) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-10259 on January 23, 1987.
(4) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31, 1988 filed under Commission File No. 0-10259 on March 31, 1989.
(5) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
30, 1989 filed under Commission File No. 0-10259 on March 30, 1990.
(6) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-10259 on March 20, 1991.
(7) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
29, 1990 filed under Commission File No. 0-10259 on March 29, 1991.
(8) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
on June 29, 1991 filed under Commission File No. 0-10259 on August 13,
1991.
(9) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
on September 26, 1992 filed under Commission File No. 0-10259 on November
10, 1992.
(10) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
26, 1992 filed under Commission File No. 0-10259 on March 26, 1993.
(11) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-10259 on June 25, 1993.
(12) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
on June 26, 1993 filed under Commission File No. 0-10259 on August 10,
1993.
(13) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
25, 1993 filed under Commission File No. 0-14190 on March 25, 1994.
15
<PAGE> 17
(14) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 26, 1994 filed under Commission File No. 0-14190 on May 10, 1994.
(15) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-14190 on May 9, 1994.
(16) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
June 25, 1994 filed under Commission File No. 0-14190 on August 9, 1994.
(17) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31, 1994 filed under Commission File No. 0-14190 on March 30, 1995.
(18) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
July 1, 1995 filed under Commission File No. 0-14190 on August 15, 1995.
(19) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995 filed under Commission File No. 0-14190 on November 14,
1995.
(20) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
30, 1995 filed under Commission File No. 0-14190 on March 29, 1996.
(21) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 30, 1996 filed under Commission File No. 0-14190 on May 14, 1996.
(22) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
June 29, 1996 filed under Commission File No. 0-14190 on August 13, 1996.
(23) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
28, 1996 filed under Commission File No. 0-14190 on March 28, 1997.
(24) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
20-14190 on March 21, 1997.
(25) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-14190 on May 19, 1997.
(26) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 27, 1997 filed under Commission File No. 0-14190 on November 11,
1997.
(27) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
27, 1997 filed under Commission File No. 0-14190 on March 26, 1998.
(28) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 28, 1998 filed under Commission File No. 0-14190 on May 12, 1999.
(29) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 26, 1998 filed under Commission File No. 0-14190 on November 10,
1998.
(**) Confidential treatment requested as to certain portions. The term
"confidential treatment" and the mark "*" used throughout the indicated
exhibits means that material has been omitted and separately filed with the
Commission.
16
<PAGE> 18
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.
DREYER'S GRAND ICE CREAM, INC.
By: /s/ T. GARY ROGERS
------------------------------------
(T. Gary Rogers)
Chairman of the Board and
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ T. GARY ROGERS Chairman of the Board March 25, 1999
- -------------------------------------------------------- and Chief Executive Officer
(T. Gary Rogers) and Director
(Principal Executive Officer)
/s/ WILLIAM F. CRONK, III President and Director March 25, 1999
- --------------------------------------------------------
(William F. Cronk, III)
/s/ EDMUND R. MANWELL Secretary and Director March 25, 1999
- --------------------------------------------------------
(Edmund R. Manwell)
/s/ TIMOTHY F. KAHN Vice President -- Finance and March 25, 1999
- -------------------------------------------------------- Administration and Chief
(Timothy F. Kahn) Financial Officer
(Principal Financial Officer)
/s/ JEFFREY P. PORTER Corporate Controller March 25, 1999
- -------------------------------------------------------- (Principal Accounting
(Jeffrey P. Porter) Officer)
/s/ JAN L. BOOTH Director March 25, 1999
- --------------------------------------------------------
(Jan L. Booth)
/s/ ROBERT A. HELMAN Director March 25, 1999
- --------------------------------------------------------
(Robert A. Helman)
/s/ M. STEVEN LANGMAN Director March 25, 1999
- --------------------------------------------------------
(M. Steven Langman)
/s/ JOHN W. LARSON Director March 25, 1999
- --------------------------------------------------------
(John W. Larson)
/s/ JACK O. PEIFFER Director March 25, 1999
- --------------------------------------------------------
(Jack O. Peiffer)
/s/ TIMOTHY P. SMUCKER Director March 25, 1999
- --------------------------------------------------------
(Timothy P. Smucker)
</TABLE>
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act:
Not applicable.
17
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Dreyer's Grand Ice Cream, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 22, 1999 appearing in the 1998 Annual Report to
Stockholders of Dreyer's Grand Ice Cream, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)2 of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
San Francisco, California
February 22, 1999
18
<PAGE> 20
SCHEDULE II
DREYER'S GRAND ICE CREAM, INC.
VALUATION AND QUALIFYING ACCOUNTS
(TABLE AND FOOTNOTES IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended December 28, 1996:
Allowance for doubtful accounts............. $ 698 $ 891 $ 834(1) $ 755
Amortization of goodwill and distribution
rights................................... 13,414 3,202 -- 16,616
Amortization of other assets................ 4,197 992 191(2) 4,998
------- ------- ------ -------
$18,309 $ 5,085 $1,025 $22,369
======= ======= ====== =======
Fiscal year ended December 27, 1997:
Allowance for doubtful accounts............. $ 755 $ 1,463 $1,508(1) $ 710
Amortization of goodwill and distribution
rights................................... 16,616 3,201 -- 19,817
Amortization of other assets................ 4,998 923 -- 5,921
------- ------- ------ -------
$22,369 $ 5,587 $1,508 $26,448
======= ======= ====== =======
Fiscal year ended December 26, 1998:
Allowance for doubtful accounts............. $ 710 $ 6,498(3) $1,498(1) $ 5,710
Amortization of goodwill and distribution
rights................................... 19,817 12,603(4) 2,208(2,4) 30,212
Amortization of other assets................ 5,921 1,001 1,061(2) 5,861
------- ------- ------ -------
$26,448 $20,102 $4,767 $41,783
======= ======= ====== =======
</TABLE>
- ---------------
(1) Write-off of receivables considered uncollectible.
(2) Removal of fully-amortized assets.
(3) Includes reserve of $5,000 for trade receivables related to a Texas
distributor.
(4) Includes goodwill and distribution rights impairment related to the
restructuring program and other actions.
19
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.36 Fourth Amendment to General Continuing Guaranty and Waiver
dated November 12, 1998, between Dreyer's Grand Ice Cream,
Inc. and Bank of America National Trust and Savings
Association, amending the General Continuing Guaranty
referenced in Exhibit 10.4.
10.37 First Amendment dated as of November 17, 1998 to Note
Purchase Agreements dated as of June 6, 1996 between
Dreyer's Grand Ice Cream, Inc. and each of The Prudential
Insurance Company of America, Pruco Life Insurance Company,
and Transamerica Life Insurance and Annuity Company amending
Exhibit 10.31.
10.38 First Amendment to Participation Agreement dated December
21, 1998 among Dreyer's Grand Ice Cream, Inc., Edy's Grand
Ice Cream, BA Leasing & Capital Corporation (as Agent and as
a Participant), ABN-AMRO Bank, NV and Credit Suisse First
Boston (formerly Credit Suisse) amending Exhibit 10.27.
10.39 Letter Amendment Agreement dated as of January 11, 1999 to
that certain Distribution Agreement between Ben & Jerry's
Homemade, Inc., and Dreyer's Grand Ice Cream, Inc. and
certain of its subsidiaries, amending Exhibit 10.5.(**)
10.40 New Distribution Agreement between Dreyer's Grand Ice Cream,
Inc. and Ben & Jerry's Homemade, Inc. dated as of January
11, 1999 and related Addendum dated as of January 11,
1999.(**)
10.41 Secured Promissory Notes dated October 5, 1998 and December
11, 1998 in the principal sum of $95,000 and $186,000,
respectively, with Thomas M. Delaplane as Maker and Dreyer's
Grand Ice Cream, Inc. as Payee, and related Pledge Agreement
dated October 5, 1998 by and between Thomas Miller
Delaplane, as Trustee of the Delaplane Family Trust
UAD6/22/95 and Dreyer's Grand Ice Cream, Inc.
13 Those portions of the Dreyer's Grand Ice Cream, Inc. 1998
Annual Report to Stockholders which are incorporated by
reference into this Annual Report on Form 10-K.
21 Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
- ---------------
(**) Confidential treatment requested as to certain portions. The term
"confidential treatment" and the mark "*" used throughout the indicated
exhibits means that material has been omitted and separately filed with the
Commission.
<PAGE> 1
EXHIBIT 10.36
FOURTH AMENDMENT TO GENERAL CONTINUING GUARANTY
THIS FOURTH AMENDMENT TO GENERAL CONTINUING GUARANTY (the "Amendment"),
dated as of November 12, 1998, is entered into by and between DREYER'S GRAND ICE
CREAM, INC. (the "Guarantor") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "Bank").
RECITALS
A. The Guarantor and the Bank (as successor by merger to Security
Pacific National Bank) are parties to a General Continuing Guaranty dated as of
September 1, 1985, as amended by an Amendment and Waiver dated July 17, 1987
effective as of January 1, 1987, a second Amendment and Waiver dated December
25, 1987 and effective as of January 1, 1987, and a Third Amendment and Waiver
dated as of January 9, 1991 (as in effect as of the date of this Amendment, the
"Guaranty").
B. The Guarantor and the Bank have agreed to certain amendments of the
Guaranty as set forth in and subject to the terms of this Amendment.
C. The Guarantor and the Bank are entering into this Amendment to
evidence such agreement.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein
shall have the meanings, if any, assigned to them in the Guaranty.
2. Amendments to Guaranty.
(a) Section 3 of the Guaranty is amended:
(1) by inserting "(1)" before the current text of Section 3.
(2) by inserting the following as new Subsections (2) through (8)
to Section 3:
"(2) The Guarantor authorizes the Bank, without notice
or demand and without affecting the Guarantor's liability
hereunder, from time to time, either before or after revocation
hereof, to renew, compromise, extend, accelerate, or otherwise
change the time for payment of, or otherwise change the terms of
the guaranteed indebtedness or any part thereof.
"(3) The Guarantor waives any defense arising by reason of
any disability or other defense of the Debtor, or the cessation
from any cause whatsoever of the
1
<PAGE> 2
liability of the Debtor, or any claim that the Guarantor's
obligations exceed or are more burdensome than those of the
Debtor. Until the guaranteed indebtedness shall have been paid in
full, the Guarantor waives any right of subrogation,
reimbursement, indemnification, and contribution (contractual,
statutory, or otherwise), including without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11 of
the U.S. Code) or any successor statute, arising from the
existence or performance of this guaranty, and the Guarantor
waives any right to enforce any remedy which the Bank now has or
may hereafter have against the Debtor and waives any benefit of
and any right to participate in any security now or hereafter
held by the Bank.
(4) The Guarantor understands and acknowledges that if the
Bank forecloses, either by judicial foreclosure or by exercise of
power of sale, any deed of trust securing all or any part of the
guaranteed indebtedness, that foreclosure could impair or destroy
any ability that the Guarantor may have to seek reimbursement,
contribution, or indemnification from the Debtor or others based
on any right the Guarantor may have of subrogation,
reimbursement, contribution, or indemnification for any amounts
paid by the Guarantor under this guaranty. The Guarantor further
understands and acknowledges that in the absence of this
paragraph, such potential impairment or destruction of the
Guarantor's rights, if any, may entitle the Guarantor to assert a
defense to this guaranty based on Section 580d of the California
Code of Civil Procedure as interpreted in Union Bank v. Gradsky,
265 Cal. App. 2d. 40 (1968). By executing this guaranty, the
Guarantor freely, irrevocably, and unconditionally: (i) waives
and relinquishes that defense and agrees that the Guarantor will
be fully liable under this guaranty even though the Bank may
foreclose, either by judicial foreclosure or by exercise of power
of sale, any deed of trust securing all or any part of the
guaranteed indebtedness; (ii) agrees that the Guarantor will not
assert that defense in any action or proceeding which the Bank
may commence to enforce this guaranty; (iii) acknowledges and
agrees that the rights and defenses waived by the Guarantor in
this guaranty include any right or defense that the Guarantor may
have or be entitled to assert based upon or arising out of any
one or more of Sections 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure or Section 2848 of the
California Civil Code; and (iv) acknowledges and agrees that the
Bank is relying on this waiver in creating or continuing the
guaranteed indebtedness and amending this guaranty, and that this
waiver is a material part of the consideration which the Bank is
receiving for creating or continuing the guaranteed indebtedness
and amending this guaranty.
(5) The Guarantor waives any rights and defenses available
to the Guarantor by reason of Sections 2787 to 2855, inclusive,
of the California Civil Code including, without limitation, (1)
any defenses the Guarantor may have to its obligations under this
guaranty by reason of an election of remedies by the Bank and (2)
any rights or defenses the Guarantor may have by reason of
protection afforded to the Debtor with respect to any of the
guaranteed indebtedness pursuant
2
<PAGE> 3
to the antideficiency or other laws of California limiting or
discharging any of the guaranteed indebtedness, including,
without limitation, Section 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure.
(6) The Guarantor waives all rights and defenses arising
out of an election of remedies by the Bank, even though that
election of remedies, such as a nonjudicial foreclosure with
respect to security for a guaranteed obligation, has destroyed
the Guarantor's rights of subrogation and reimbursement against
the Debtor by the operation of Section 580d of the California
Code of Civil Procedure or otherwise.
(7) The Guarantor waives all rights and defenses, whether
based in law or in equity, arising from or related to the
antideficiency, security first, single action, or any other
applicable laws limiting or discharging this guaranty or any of
the guaranteed indebtedness, including, without limitation,
Section 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure. Without limiting the generality of the foregoing, the
Guarantor waives all rights to have the fair market value of any
security for a guaranteed obligation, or the size of any
deficiency judgment, determined by a hearing pursuant to Section
580a of the California Code of Civil Procedure following a
foreclosure or other disposition of such security, and waives all
defenses arising from or related to such rights. Any controversy
or claim between the Guarantor and the Bank regarding the
foregoing shall be determined according to Paragraph (17) below
regarding reference and arbitration.
(8) No provision or waiver in this guaranty shall be
construed as limiting the generality of any other waiver
contained in this guaranty."
(b) The fifth line of Section 6 of the Guaranty is amended in its entirety
to provide as follows:
"contingent, determined or inchoate, whether the Debtor may be
liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter become barred by any
statute of limitations, or whether such indebtedness may be or
hereafter become otherwise unenforceable, and this guaranty
shall"
(c) Section 8 of the Guaranty is amended as follows:
(1) by deleting the definitions of:
(A) Consolidated Current Assets
(B) Consolidated Current Liabilities
(C) Consolidated Total Liabilities
(D) Effective Consolidated Tangible Net Worth
(E) Fixed Charge Coverage
3
<PAGE> 4
(2) by adding the following definitions in the proper alphabetical
locations:
"'attorneys' fees' means and includes all fees and
disbursements of any law firm or other external counsel, the
allocated cost of internal legal services and all disbursements
of internal counsel."
"'Credit Agreement' means the credit agreement entered into
as of December 22, 1995 among Dreyer's Grand Ice Cream, Inc., the
several financial institutions from time to time party to the
Credit Agreement (collectively, the "Banks"), and ABN-AMRO Bank
N.V., San Francisco International Branch as Co-Agent, and Bank of
America National Trust and Savings Association, as Agent for the
Banks, as in effect from time to time."
(d) Section 10 of the Guaranty is amended as follows:
(1) by amending Subsection 10D in its entirety to provide as follows:
"10D. Incorporation of Certain Covenants by Reference to
Credit Agreement. Reference is hereby made to the Credit
Agreement and specifically, to the agreements and covenants
contained in Sections 7.01; 7.03; 7.13; 7.14; 7.15; and 7.16 of
the Credit Agreement, which agreements and covenants, together
with any defined terms used therein, are hereby incorporated by
reference with full force and effect as if set forth in full
herein (collectively, the "Incorporated Provisions"), and
provided, that each amendment, modification, or supplement to
such Incorporated Provisions subsequent to the date of this
Agreement shall automatically be deemed to be incorporated
herein, without the requirement of any further action or approval
by the parties hereto, and shall be of full force and effect;
provided, however, that the termination of the Credit Agreement
or the Incorporated Provisions, including, without limitation,
due to the repayment of the indebtedness thereunder, shall have
no effect on this Subsection for any purpose whatsoever, rather,
the Incorporated Provisions, in the form in effect immediately
prior to the termination of the Credit Agreement or the
Incorporated Provisions, continuing to survive as so incorporated
by reference herein."
(2) by amending clauses (1), (2), and (3) of Subsection 10E in their
entirety to provide as follows:
"(1) as soon as available, but not later than 100 days
after the end of each fiscal year, a copy of the audited
consolidated balance sheet of the Guarantor and its Subsidiaries
as at the end of such year and the related consolidated
statements of income or operations, shareholders' equity and cash
flows for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, and accompanied by
the opinion of Price Waterhouse or another nationally-recognized
independent public accounting firm ("Independent Auditor") which
report shall state that such consolidated financial statements
present fairly, in all material
4
<PAGE> 5
respects, the financial position for the periods indicated in
conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of
a restricted or limited examination by the Independent Auditor of
any material portion of the Guarantor's or any of its
Subsidiary's records;"
"(2) as soon as available, but not later than 60 days after
the end of each of the first three fiscal quarters of each fiscal
year, a copy of the unaudited consolidated balance sheet of the
Guarantor and its Subsidiaries as of the end of such quarter and
the related consolidated statements of income, shareholders'
equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, and certified by a
Responsible Officer (as defined in the Credit Agreement) as
fairly presenting, in all material respects, in accordance with
GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of
operations of the Guarantor and its Subsidiaries;"
"(3) The Guarantor shall furnish to the Bank:
(a) concurrently with the delivery of the
financial statements referred to in clause (1) of this
Subsection, a certificate of the Independent Auditor stating that
in making the examination necessary therefor no knowledge was
obtained of any event which is, or with the lapse of time or
notice or both would be, an Event of Default, except as specified
in such certificate;
(b) concurrently with the delivery of the
financial statements referred to in clauses (1) and (2) of this
Subsection, a Compliance Certificate (as defined in the Credit
Agreement) executed by a Responsible Officer."
(3) by adding the following as the last and unnumbered paragraph
of the Section:
"To the extent that the Bank has timely received from the
Guarantor pursuant to the Credit Agreement, any reports,
financial statements or certificates which are substantially
similar to reports, financial statements or certificates required
to be delivered pursuant to this Section, the Guarantor shall be
deemed to have satisfied the delivery requirements of this
Section with respect to each such item."
(e) Section 11 of the Guaranty is deleted in its entirety.
(f) Section 12 of the Guaranty is amended as follows:
(1) By amending Section 12C in its entirety to provide as follows:
"12C. Guarantor shall fail to pay when due any of its indebtedness
to the Bank, including without limitation the loans or lines of credit
evidenced by the Credit Agreement, and any such failure shall remain
unremedied for 15 days, or fail to observe or
5
<PAGE> 6
perform any term, covenant, or agreement set forth in the documents
evidencing or relating to any such indebtedness."
(2) Inserting the following as the last paragraphs of Section 12:
"If any Event of Default occurs, the Bank:
(A) may declare an amount equal to the sum of:
(1) the maximum aggregate amount that is or at any time
thereafter may become outstanding from the Debtor to
the Bank under all letters of credit issued by the
Bank for the account of the Debtor (whether or not any
beneficiary under such letters of credit shall have
presented, or shall be entitled at such time to
present, the drafts or other documents required to
draw under any such letters of credit); plus
(2) the unpaid principal amount of all outstanding credit
extended by the Bank to the Debtor plus all interest
accrued and unpaid thereon; plus
(3) all other amounts owing or payable to the Bank by the
Debtor "to be immediately due and payable, without
presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the
Guarantor. The Bank may elect, in its sole discretion
to hold all or part of sums paid hereunder as cash
collateral for such obligations, and
(B) exercise on behalf of itself all rights and remedies
available to it under applicable law."
3. Representations and Warranties. The Guarantor hereby represents and warrants
to the Bank as follows:
(a) No event which is, or with the lapse of time or notice or both would be,
an Event of Default (as defined in the Guaranty) has occurred and is continuing.
(b) The execution, delivery and performance by the Guarantor of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Guaranty as amended by this Amendment
constitutes the legal, valid and binding obligations of the Guarantor,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Guarantor contained in the
Guaranty are true and correct.
(d) The Guarantor is entering into this Amendment on the basis of its own
investigation and for its own reasons, without reliance upon the Bank or any
other Person.
6
<PAGE> 7
(e) The Guarantor reaffirms and agrees that the Guaranty is in full force and
effect, without defense, offset or counterclaim and applies to all indebtedness
of the Debtor to the Bank, including but not limited to the obligations of the
Debtor under that certain Letter of Credit Agreement dated as of September 1,
1985 (as modified by a consent and waiver and a waiver and amendment set forth
in letters dated April 10, 1991 and October 29, 1991 from Security Pacific
National Bank to the Debtor, a Third Amendment to Letter of Credit Agreement
between the Debtor and the Bank dated as of July 19, 1995, and a Fourth
Amendment to Letter of Credit Agreement between the Debtor and the Bank dated as
of July 16, 1996, and as in effect as of the date of this Amendment.)
4. Effective Date. This Amendment will become effective as of December 22, 1995
(the "Effective Date"), provided that each of the following conditions precedent
is satisfied:
(a) The Bank has received from the Guarantor a duly executed original (or, if
elected by the Bank, an executed facsimile copy) of this Amendment.
(b) The Bank has received from Manwell & Milton, counsel for the Guarantor, a
favorable written opinion in form and substance acceptable to the Bank covering
the matters in Paragraph 3(b) of this Amendment and such other matters as the
Bank may reasonably request.
5. Reservation of Rights. The Guarantor acknowledges and agrees that the
execution and delivery by the Bank of this Amendment shall not be deemed to
create a course of dealing or otherwise obligate the Bank to forbear or execute
similar amendments under the same or similar circumstances in the future.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and provisions
of the Guaranty are and shall remain in full force and effect and all references
therein to such Guaranty shall henceforth refer to the Guaranty as amended by
this Amendment. This Amendment shall be deemed incorporated into, and a part of,
the Guaranty.
(b) This Amendment shall be binding upon and inure to the benefit of the
parties hereto and thereto and their respective successors and assigns. No third
party beneficiaries are intended in connection with this Amendment.
(c) This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Bank of a
facsimile transmitted document purportedly bearing the signature of the
Guarantor shall bind the Guarantor with the same force and effect as the
delivery of a hard copy original. Any failure by the Bank to receive the hard
copy executed original of such document shall not diminish the binding effect of
receipt of the
7
<PAGE> 8
facsimile transmitted executed original of such document which hard copy page
was not received by the Bank.
(d) This Amendment supersedes all prior drafts and communications with
respect thereto. This Amendment may not be amended except in a writing signed by
the Bank and the Guarantor.
(e) If any term or provision of this Amendment shall be deemed prohibited by
or invalid under any applicable law, such provision shall be invalidated without
affecting the remaining provisions of this Amendment or the Guaranty,
respectively.
(f) The Guarantor covenants to pay to or reimburse the Bank, upon demand,
for all costs and expenses (including allocated costs of in-house counsel)
incurred in connection with the preparation, negotiation, execution and delivery
of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
DREYER'S GRAND ICE CREAM, INC.
By: /s/ WILLIAM C. COLLETT
--------------------------
Name: William C. Collett
Title: Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ JAMES JOHNSON
--------------------------
Name: James P. Johnson
Title: Managing Director
<PAGE> 1
EXHIBIT 10.37
DREYER'S GRAND ICE CREAM, INC.
FIRST AMENDMENT
Dated as of November 17, 1998
to
Note Purchase Agreements
Dated June 6, 1996
Re: $15,000,000 7.68% Series A Senior Notes Due 2002
$15,000,000 8.06% Series B Senior Notes Due 2006
$20,000,000 8.34% Series C Senior Notes Due 2008
<PAGE> 2
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENTS
THIS FIRST AMENDMENT dated as of November 17, 1998 (the or this
"FIRST AMENDMENT") to the Note Purchase Agreements dated June 6, 1996 is between
Dreyer's Grand Ice Cream, Inc., a Delaware corporation (the "COMPANY"), and each
of the institutions which is a signatory to this First Amendment (collectively,
the "NOTEHOLDERS").
RECITALS:
A. The Company and each of the Noteholders have heretofore
entered into separate and several Note Purchase Agreements each dated June 6,
1996 (collectively, the "NOTE AGREEMENTS;" capitalized terms used herein shall
have the respective meanings ascribed thereto in the Note Agreements unless
herein defined or the context shall otherwise require). The Company has
heretofore issued $50,000,000 aggregate principal amount of Senior Notes
consisting of its $15,000,000 7.68% Series A Senior Notes due 2002, $15,000,000
8.06% Series B Senior Notes due 2006 and $20,000,000 8.34% Series C Senior Notes
due 2008 (collectively the "NOTES") pursuant to the Note Agreements. The
Noteholders are, collectively, the holders of at least 51% of the outstanding
principal amount of the Notes.
B. The Company and the Noteholders now desire to amend the Note
Agreements in the respects, but only in the respects, hereinafter set forth.
C. All requirements of law have been fully complied with and all
other acts and things necessary to make this First Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.
NOW, THEREFORE, upon the full and complete satisfaction of the
conditions precedent to the effectiveness of this First Amendment set forth in
Section 3.1 hereof, and for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Company and the Noteholders do
hereby agree as follows:
SECTION 1. AMENDMENTS
1.1 Section 10.5(b) of the Note Agreements shall be and is hereby
amended in its entirety to read as follows:
Limitation on Consolidated Funded Debt. The Company will not, at
any time, permit the ratio of Consolidated Funded Debt plus, without
duplication, Funded Debt of the Company owed to Restricted Subsidiaries, to
Total Capitalization to be more than (i) .55 to 1.00 from the date of Closing
through September 26, 1998, (ii) .60 to 1.00 from September 27, 1998 to
September 25, 1999 and (iii) .55 to 1.00 thereafter.
1.2 Section 10.5(c) of the Note Agreements shall be and is hereby
amended in its entirety to read as follows:
Minimum Consolidated Net Worth. The Company will not, at any
time, permit Consolidated Net Worth to be less than the sum of (a) $140,000,000
plus (b) an aggregate
1
<PAGE> 3
amount equal to 50% of Consolidated Net Income (but, in each case, only if a
positive number) for each completed fiscal year ending after December 26, 1998.
1.3 Section 10.5(d) of the Note Agreements shall be and is hereby
amended in its entirety to read as follows:
The Company will not permit (i) the ratio of (w) Consolidated
Income Available for Fixed Charges to (x) Fixed Charges to be less than 1.50 to
1.00 as of the end of each fiscal quarter of the Company from the date of
Closing until December 31, 1996 and 2.00 to 1.00 thereafter through the end of
the fiscal quarter ended June 27, 1998, for a period consisting of four
consecutive fiscal quarters selected by the Company out of the immediately
preceding five fiscal quarters, and (ii) the ratio of (y) Consolidated Income
Available for Fixed Charges to (z) Fixed Charges for the period consisting of
the Company's four consecutive fiscal quarters ending on the last day of the
relevant fiscal quarter (the "Four Quarter Period") to be less than (A) 2.00 to
1.00 for the Four Quarter Period ending on September 26, 1998; (B) 1.50 to 1.00
for each Four Quarter Period ending on December 26, 1998, March 27, 1999, June
26, 1999 and September 25, 1999; (C) 2.00 to 1.00 for the Four Quarter Period
ending on December 25, 1999 and (D) 2.25 to 1.00 for each Four Quarter Period
ending on the last day of each fiscal quarter after December 25, 1999. For
purposes of this Section 10.5(d)(ii), in any Four Quarter Period that includes
the fiscal quarters ending September 26, 1998 or December 26, 1998, the
calculation of Consolidated Income Available for Fixed Charges shall be made by
adding back all non-recurring charges taken in such quarter or quarters (as
applicable), provided that the non-recurring charges so added back in respect of
such fiscal quarters shall not exceed $70,000,000 in the aggregate.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1. To induce the Noteholders to execute and deliver this First
Amendment, the Company represents and warrants to the Noteholders that (which
representations and warranties shall survive the execution and delivery of this
First Amendment):
(a) this First Amendment has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
obligation, contract and agreement of the Company enforceable against it
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights
generally;
(b) the Note Agreements, as amended by this First Amendment,
constitute the legal, valid and binding obligations, contracts and
agreements of the Company enforceable against it in accordance with
their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights
generally;
(c) the execution, delivery and performance by the Company of
this First Amendment (i) has been duly authorized by all requisite
action on the part of the Company, (ii) does not require the consent or
approval of any governmental or regulatory
2
<PAGE> 4
body or agency, and (iii) will not (A) violate (1) any provision of law,
statute, rule or regulation or its articles of incorporation or bylaws,
(2) any order of any court or any rule, regulation or order of any other
agency or government binding upon it, or (3) any provision of any
material indenture, agreement or other instrument to which it is a party
or by which its properties or assets are or may be bound, or (B) result
in a breach or constitute (alone or with due notice or lapse or both) a
default under any indenture, agreement or other instrument referred to
in clause (iii)(A)(3) of this Section 2.1(c);
(d) as of the date hereof and after giving effect to this First
Amendment, no Default or Event of Default has occurred which is
continuing; and
(e) all the representations and warranties contained in Section 5
of the Note Agreements are true and correct in all material respects
with the same force and effect as if made by the Company on and as of
the date hereof.
SECTION 3. CONDITIONS TO EFFECTIVENESS OF THIS FIRST AMENDMENT.
3.1. This First Amendment shall become effective as of September
25, 1998 upon the satisfaction in full of each of the following conditions:
(a) executed counterparts of this First Amendment, duly executed
by the Company and the Required Holders, shall have been delivered to
the Noteholders;
(b) each Noteholder shall have received from the Company a check
in the amount set forth opposite its name below as a fee for reviewing
and processing this First Amendment:
The Prudential Insurance Company of America: $33,350
Pruco Life Insurance Company: $ 1,650
Transamerica Life Insurance and Annuity Company $15,000
(c) (i) the representations and warranties of the Company set
forth in Section 2 hereof shall be true, correct and complete on and
with respect to the date hereof and (ii) no Default or Event of Default
shall have occurred and be continuing on the date hereof or would result
from this First Amendment becoming effective in accordance with the
terms hereof, and the Noteholders shall have received an Officer's
Certificate certifying to the effects set forth in clauses (i) and (ii)
above; and
(d) the Company shall have paid the reasonable fees and expenses
of O'Melveny & Myers LLP, counsel to the Noteholders, in connection with
the negotiation, preparation, approval, execution and delivery of this
First Amendment.
Upon receipt of all of the foregoing, this First Amendment shall become
effective.
SECTION 4. MISCELLANEOUS
3
<PAGE> 5
4.1. This First Amendment shall be construed in connection with
and as part of each of the Note Agreements, and except as modified and expressly
amended by this First Amendment, all terms, conditions, and covenants contained
in the Note Agreements and the Notes are hereby ratified and shall be and remain
in full force and effect.
4.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
First Amendment may refer to the Note Agreements without making specific
reference to this First Amendment but nevertheless all such references shall
include this First Amendment unless the context otherwise requires.
4.3. The descriptive headings of the various Sections or parts of
this First Amendment are for convenience only and shall not affect the meaning
or construction of any of the provisions hereof.
4.4. This First Amendment shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of
the State of California excluding choice-of-law principles of the law of such
State which would require the application of the laws of a jurisdiction other
than such State.
4.5. The execution hereof by you shall constitute a contract
between us for the uses and purposes hereinabove set forth, and this First
Amendment may be executed in any number of counterparts, each executed
counterpart constituting an original, but all together only one agreement.
[Remainder of page intentionally left blank]
4
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
DREYER'S GRAND ICE CREAM, INC.
By: /s/ William C. Collett
---------------------------
Name: William C. Collett
---------------------------
Title: Treasurer
---------------------------
Percentage of Principal of Notes Held: Noteholders:
66.7% THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Joseph Alouf
---------------------------
Name: Joseph Alouf
---------------------------
Title: Vice President
---------------------------
3.3% PRUCO LIFE INSURANCE COMPANY
By: /s/ Joseph Alouf
---------------------------
Name: Joseph Alouf
---------------------------
Title: Vice President
---------------------------
30% TRANSAMERICA LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ John Casparian
---------------------------
Name: John Casparian
---------------------------
Title: Investment Officer
---------------------------
S-1
<PAGE> 1
EXHIBIT 10.38
FIRST AMENDMENT
TO PARTICIPATION AGREEMENT
THIS FIRST AMENDMENT TO PARTICIPATION AGREEMENT (this
"Amendment"), dated as of December 21, 1998, is entered into among: (a) Dreyer's
Grand Ice Cream, Inc., a Delaware corporation ("Dreyer's"), and Edy's Grand Ice
Cream, a California corporation ("Edy's"), as Lessees (collectively, the
"Lessees"); (b) BA Leasing & Capital Corporation, a California corporation, not
in its individual capacity except to the extent expressly set forth herein, but
solely in its capacity as Agent for the Participants from time to time
hereunder, as Lessor (the "Agent"), and (c) the several Participants listed on
the signature pages hereto (together with their respective permitted successors,
assigns and transferees, collectively, the "Participants").
WHEREAS, Lessees, Agent and the Participants are parties to that certain
Participation Agreement, dated as of March 29, 1996 (the "Participation
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in Schedule X to the Participation
Agreement;
WHEREAS, simultaneously with execution of the Participation Agreement,
Lessees and the Agent, as lessor, entered into a Master Lease Intended as
Security (the "Lease") and the other Operative Documents;
WHEREAS, Dreyer's, certain financial institutions party thereto
(collectively, the "Banks"), Bank of America National Trust and Savings
Association ("BofA"), as agent for the Banks, ABN-AMRO Bank N.V., San Francisco
International Branch, as co-agent, entered into that certain Credit Agreement,
dated as of December 22, 1995 (such Credit Agreement, as amended as of April 15,
1996, December 26, 1997, March 27, 1998 and November 3, 1998, is referred to
herein as the "Revolving Credit Facility"), pursuant to which BofA and the Banks
have extended certain credit facilities to Dreyer's;
WHEREAS, the Participation Agreement incorporates by reference the
Financial Covenants set forth in the Revolving Credit Facility and certain
definitions set forth in Schedule X to the Participation Agreement; and
WHEREAS, the parties hereto desire to enter into this Amendment in order
to amend Schedule X to the Participation Agreement and to confirm certain
amendments recently made to the Revolving Credit Facility.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
terms and conditions herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE> 2
i. Modifications to Schedule X to Participation Agreement. The
parties hereto amend Schedule X to the Participation Agreement as follows, and
all references to "Schedule X" or "Schedule X to the Participation Agreement" or
"Schedule X hereto" shall hereinafter refer to Schedule X as amended hereby:
(a) The following definition is hereby added to Schedule X to the
Participation Agreement in the proper alphabetical order:
"Adjusted EBITDA" of Dreyer's means Dreyer's EBITDA computed on a rolling four
quarter basis, adding back amounts related to non-recurring charges taken in the
third and fourth quarter of 1998, not to exceed $70,000,000 (collectively, the
"Add-back Charges"). An amount of $13,000,000 of Add-back Charges shall be added
back in the calculation of Adjusted EBITDA for the third quarter of 1998, an
amount equal to the total Add-back Charges shall be added back for the fourth
quarter of 1998 and the first, second, and third quarter of 1999 calculations of
Adjusted EBITDA, with no amounts added back for the fourth quarter of 1999 and
thereafter. For the avoidance of doubt, it is understood and agreed that in each
calculation of Adjusted EBITDA, the aggregate Add-back Charges added back for
such calculation shall not exceed an aggregate amount of $70,000,000.
(b) The definition of "Base Rate" is deleted in its entirety and
replaced with the following:
"Base Rate" means, for the initial Rent Period, the Reference Rate, and for each
Rent Period thereafter with respect to the Lease Balance and each Supplement
Balance, the higher of (a) 0.50% per annum above the Federal Funds Rate for such
day and (b) the rate of interest in effect for such day as publicly announced
from time to time by Bank of America National Trust and Savings Association
("BofA") in San Francisco, California, as its "Reference Rate." The "Reference
Rate" is a rate set by BofA based upon various factors including BofA's costs
and desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at, above, or
below such announced rate. Any change in the Reference Rate announced by BofA
shall take effect at the opening of business on the day specified in the public
announcement of such change.
(c) The following definition is hereby added to Schedule X to the
Participation Agreement in the proper alphabetical order:
"Funded Debt/Adjusted EBITDA Ratio" of any Person means the ratio of such
Person's Funded Debt to its Adjusted EBITDA.
(d) The definition of "Interest Rate" is deleted in its entirety
and replaced with the following:
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<PAGE> 3
"Interest Rate" means (a) for the initial Rent Period, the Reference Rate (as
defined in the definition of "Base Rate" set forth above), (b) for the second
Rent Period, the rate per annum equal to the sum of the LIBO Rate for such Rent
Period plus 1.250%, (c) for each Rent Period thereafter until December 28, 1998,
the rate per annum equal to the sum of the LIBO Rate for such Rent Period plus
the percentage set forth below opposite Dreyer's Funded Debt/EBITDA Ratio as of
the most recently ended fiscal quarter reported prior to the commencement of
such Rent Period:
Ratio Percentage
----- ----------
Below 2.50 0.500%
2.50 or greater but less than 3.0 0.625%
3.0 or greater but less than 3.5 0.750%
3.5 or greater but less than 4.0 0.875%
4.0 or greater but less than 4.5 1.000%
4.5 or greater 1.250%;
and (d) for each Rent Period after December 28, 1998, the rate per annum equal
to the sum of the LIBO Rate for such Rent Period plus the percentage set forth
below opposite Dreyer's Funded Debt/Adjusted EBITDA Ratio as of the most
recently ended fiscal quarter reported prior to the commencement of such Rent
Period:
Ratio Percentage
----- ----------
Below 2.50 0.750%
2.50 or greater but less than 3.0 0.875%
3.0 or greater but less than 3.5 1.000%
3.5 or greater but less than 4.0 1.125%
4.0 or greater but less than 4.25 1.375%
4.25 or greater but less than 5.00 2.000%
5.00 or greater but less than 5.50 2.250%
5.50 or greater 2.750%
(e) The definition of "Revolving Credit Facility" is deleted in
its entirety and replaced with the following:
"Revolving Credit Facility" shall mean that certain Credit
Agreement dated as of December 22, 1995, among Dreyer's, the Banks listed
therein, Bank of America National Trust and Savings Association, as Agent, and
ABN Amro Bank N.V., as Co-Agent, as amended as of April 15, 1996, December 26,
1997, March 27, 1998, November 3, 1998, and as the same may be further amended,
restated, replaced, refinanced, supplemented, waived and otherwise in effect
from time to time, including any similar successor agreement or agreements or
arrangement or arrangements providing for revolving or working capital
indebtedness, whether or not secured; provided that if at any time there shall
exist no such arrangement or agreement, the term "Revolving Credit Facility"
shall
3
<PAGE> 4
be deemed to refer to the last such agreement or arrangement to have been in
effect, exclusive of any modification to the terms of such agreement or
arrangement that were made in contemplation of the termination thereof.
ii. Inducing Representations. As an inducement to the Agent and
the Participants to execute and deliver this Amendment, the Lessees represent
and warrant that (i) immediately before and after giving effect to this
Amendment, no default under the Revolving Credit Facility, the Lease or any of
the Operative Documents shall have occurred and be continuing and (ii) it has
full corporate power and authority to execute, deliver and perform its
obligations under this Amendment; its execution, delivery and performance of
this Amendment have been duly authorized by all necessary actions to be taken;
and this Amendment constitutes its legal, valid and binding obligation,
enforceable against it in accordance with the terms hereof, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity.
iii. Effectiveness. This Amendment shall be effective as of
December 28, 1998 (the "Effective Date") provided that each of the following
conditions precedent is satisfied on or before the date set forth in the
preamble to this Amendment:
(a). The Agent has received from each of the Lessees and the
Participants a duly executed original (or, if elected by the Agent, an
executed facsimile copy) of this Amendment;
(b). The Agent has received from each of the Lessees a copy of
the resolution passed by the board of directors of such corporation,
certified by the Secretary or an Assistant Secretary of such corporation
as being in full force and effect, authorizing the execution, delivery
and performance of this Amendment; and
(c). The payment by the Lessees of all expenses incurred by the
Agent and the Lessors (including the fees and expenses of Mayer, Brown &
Platt, counsel to the Agent and the Participants and allocated costs of
internal counsel to the Agent) incurred in connection herewith.
iv. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO THE CHOICE OF LAW PROVISIONS THEREOF.
v. Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
executed counterpart constituting an original but all together one agreement.
4
<PAGE> 5
[Remainder of page intentionally left blank]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered as of the date first above written.
DREYER'S: DREYER'S GRAND ICE CREAM, INC.,
as Lessee
By: /s/ William C. Collett
-------------------------------
Name Printed: William C. Collett
---------------------
Title: Treasurer
----------------------------
EDY'S: EDY'S GRAND ICE CREAM,
as Lessee
By: /s/ William C. Collett
-------------------------------
Name Printed: William C. Collett
---------------------
Title: Treasurer
----------------------------
[signatures continue on following page]
6
<PAGE> 7
LESSOR: BA LEASING & CAPITAL CORPORATION,
not individually except as set forth herein, but
solely in its capacity as Agent
By: /s/ Christine Lee
-------------------------------
Name Printed: Christine Lee
---------------------
Title: Vice President
----------------------------
[signatures continue on following page]
7
<PAGE> 8
PARTICIPANTS: BA LEASING & CAPITAL CORPORATION,
as Participant
By: /s/ Sonia T. Delen
-------------------------------
Name Printed: Sonia T. Delen
---------------------
Title: Vice President
----------------------------
[signatures continue on following page]
8
<PAGE> 9
ABN AMRO BANK N.V.
San Francisco International Branch, as
Participant
By: /s/ Matthew Harvey
-------------------------------
Name Printed: Matthew Harvey
---------------------
Title: Vice President
----------------------------
By: /s/ Diane D. Barkley
-------------------------------
Name Printed: Diane D. Barkley
---------------------
Title: Group Vice President
----------------------------
[signatures continue on following page]
9
<PAGE> 10
CREDIT SUISSE FIRST BOSTON, formerly
Credit Suisse, as Participant
By: /s/ Thomas G. Muoio
-------------------------------
Name Printed: Thomas G. Muoio
---------------------
Title: Vice President
-----------------------------
By: /s/ William S. Lutkins
-------------------------------
Name Printed: William S. Lutkins
---------------------
Title: Vice President
----------------------------
10
<PAGE> 11
Reference is made to the Guarantee, dated as of March 29, 1996 (the
"Guarantee"), made by DREYER'S GRAND ICE CREAM, INC., a Delaware corporation
(the "Guarantor"), in favor of the Beneficiaries identified therein and
delivered to BA Leasing & Capital Corporation, not individually, but solely in
its capacity as Agent (the "Agent") for the Participants party to the
Participation Agreement. Guarantor hereby consents to the foregoing amendments,
and acknowledges and agrees that all references in the Guarantee to the
"Participation Agreement" or to the "Participation Agreement, dated as of March
29, 1996," will hereafter refer to such Participation Agreement, as the case may
be, as respectively amended by this First Amendment to Participation Agreement,
dated as of the date of the foregoing amendment, among the Guarantor, Edy's
Grand Ice Cream, a California corporation, the Agent and the Participants listed
on the signature pages thereto. Except as modified by this paragraph, the
Guarantee is unmodified; and, as modified by this paragraph, the Guarantee
remains in full force and effect and is hereby reaffirmed by the Guarantor.
Guarantor:
DREYER'S GRAND ICE CREAM, INC.
By: /s/ William C. Collett
----------------------------
Name Printed: William C. Collett
-------------------
Title: Treasurer
-------------------------
Date: December 21, 1998
11
<PAGE> 1
EXHIBIT 10.39
Final
LETTER AMENDMENT AGREEMENT
Letter Amendment Agreement entered into as of January 11, 1999 to that
certain Distribution Agreement between Ben & Jerry's Homemade, Inc., a Vermont
corporation headquartered at 30 Community Drive, South Burlington, Vermont 05403
(the "Manufacturer") and Dreyer's Grand Ice Cream, Inc., a California
corporation located at 5929 College Avenue, Oakland, California 94618 and
certain of its subsidiaries (collectively, the "Distributor") dated as of
January 6, 1987 and as amended from time to time prior to the date hereof (such
Agreement as in effect immediately prior to this Letter Amendment Agreement
being sometimes referred to as the "Prior Agreement").
WHEREAS, the parties have agreed on certain amendments to the Prior
Agreement contained below, which shall be applicable to the distribution of the
Manufacturer's Products by Distributor during the period September 1, 1998
through August 31, 1999 (said period sometimes being referred to as the "Interim
Period");
WHEREAS, the parties have agreed that the Prior Agreement as further
amended hereby (the Prior Agreement as so further amended hereby being sometimes
referred to as the "Old Agreement") shall automatically expire, without any
further notice or actions, at the close of business on August 31, 1999 as more
fully set forth herein;
WHEREAS, the parties have simultaneously entered into a new distribution
agreement of even date (the "New Distribution Agreement") providing for the
purchase, commencing September 1, 1999, by Distributor of products of the
Manufacturer for resale and distribution in the territory specified in said New
Distribution Agreement (a copy of which is attached hereto); and
WHEREAS, the parties have simultaneously terminated, by stipulation of
dismissal, with prejudice, the litigation entitled Dreyer's Grand Ice Cream,
Inc. and Edy's Grand Ice Cream vs. Ben & Jerry's Homemade, Inc. pending in the
United States District Court for the northern District of California.
NOW THEREFORE, in consideration of these premises and the mutual
promises of the parties and other good and valuable consideration, receipt of
which is hereby acknowledged, the parties agree as follows:
1. PRIOR NOTICES. No effect shall be given to the termination notice
dated August 31, 1998 from Manufacturer to Distributor and the related notices
of the Distributor to Manufacturer dated September 22, 1998 and of the
Manufacturer to Distributor dated August 26, 1998 and October 12, 1998.
1
<PAGE> 2
Definitions used in the Prior Agreement are used herein with such
defined meanings, except as otherwise expressly provided herein.
2. AMENDMENTS TO THE PRIOR AGREEMENT. The parties agree that the
following amendments (or confirmations in some cases) to the Prior Agreement are
effective from and after this date and shall control, notwithstanding any
provisions of the Prior Agreement.
(i) The area within which Distributor shall purchase and resell
Manufacturer's Products under the Old Agreement shall continue
to be the Territory set forth in the Prior Agreement, subject
to the following provisions of this Letter Amendment Agreement.
Distributor's rights in all portions of the Territory (other
than the New York Territory) shall be exclusive to the extent
they were exclusive under the Prior Agreement on August 30,
1998 and shall be non-exclusive to the extent they were
non-exclusive under the Prior Agreement on August 30, 1998.
Subject to the terms of the existing agreements with such
parties, including the Prior Agreement, as applicable, during
the Interim Period, Manufacturer agrees to maintain or cause to
be maintained on essentially the same terms and conditions, the
current distribution relationships with Sunbelt Distributors
Inc. of Houston, Texas, and with Rainbo Distributors of San
Leandro, California, which serves the out-of-home markets in
Northern California.
(ii) Distributor's exclusive rights to purchase and distribute
Manufacturer's Products to the supermarket trade (three cash
registers or more) in the New York Territory (the New York City
metropolitan area, including the five boroughs of New York,
Nassau County, Suffolk County, Westchester County and Northern
New Jersey) are hereby agreed to terminate automatically,
without any further notice or action, on April 15, 1999 and
Distributor agrees that it will not make any sales of
Manufacturer's Products, directly or indirectly, in such
supermarket trade in the New York Territory or to any person
for resale in such supermarket trade in the New York Territory
after April 15, 1999. The parties understand that the remaining
channels of distribution in the New York Territory remain
exclusive until April 15, 1999 and will then continue on a
non-exclusive basis until August 31, 1999. The parties confirm
that, notwithstanding any provision of the Old Agreement, the
Manufacturer has no right to make Distributor's distribution
rights non-exclusive in any channel of distribution in the New
York Territory prior to April 15, 1999.
(iii) The parties confirm that, without limiting Distributor's best
efforts obligations under the Prior Agreement to distribute
Manufacturer's Products, Distributor shall, during the Interim
Period, be required to
2
<PAGE> 3
purchase Manufacturer's Products in at least an amount equal to
the volume purchase commitment set forth in Section 8 of the
Prior Agreement (which commitment became applicable as a result
of Manufacturer's notice of August 31, 1998 and Distributor's
election of September 22, 1998 and which is hereby confirmed to
remain a commitment binding Distributor during the Interim
Period; provided, however, that this volume purchase commitment
shall not be applicable with respect to the Territory described
in Schedule 2A to the New Distribution Agreement. The parties
understand that such commitment shall be adjusted to reflect
changes in the Territory herein and the method of selling
hereunder. Distributor recognizes that this commitment forms
part of the Prior Agreement and is subject to the "for cause"
termination provisions thereof.
(iv) In addition to the purchase prices payable by Distributor for
Manufacturer's Products specified in the Old Agreement, for the
period beginning January 5, 1999 Distributor shall pay a rebate
to Manufacturer, payable every month in arrears 28 days after
the end of each month, equal to (*) of the amount of the
Distributor's monthly sales of all Products to all customers
including (without duplication) sales by subdistributors (but
excluding sales to or by those Non-affiliated subdistributors
making purchases in smaller quantities [i.e., 10 pallets or
less on an occasional basis] up to an aggregate of (*) of
Distributor's total monthly sales). The term "Non-affiliated
subdistributors" shall mean subdistributors in which
Distributor does not own more than 20% of the equity interests.
As used in this Section, Distributor's monthly sales shall mean
gross revenues less returns and allowances for damaged goods.
Distributor's failure to make rebate payments when due shall
constitute a failure to comply by Distributor which will permit
termination of the Old Agreement by Manufacturer under Section
8 of the Old Agreement unless cured within 30 days after notice
of such failure from Manufacturer to Distributor.
(v) The parties have previously agreed under the Prior Agreement
that Distributor will pay Manufacturer (*) of the cost of the
trade promotions on the Manufacturer's Products that have been
mutually agreed for the remaining months of the year 1998. With
respect to the period January 1, 1999 through August 31, 1999
Distributor agrees to pay Manufacturer (*) of the trade
promotion dollars in an amount equal to the cost for the same
months in 1998 (which are hereby deemed to be mutually agreed
in advance through August 31, 1999 and agreed through April 15,
1999 in the case of the supermarket channel in the New York
Territory) provided that Manufacturer pays the remaining (*) of
the cost of such promotions. The parties confirm that payments
shall be made by Distributor in the manner that has been the
current practice under the Prior Agreement in 1998, namely
promptly by way of off-invoice credits and debits.
- --------------
*This confidential portion has been omitted and
filed separately with the Commission.
3
<PAGE> 4
For these purposes, trade promotions on the Manufacturer's
Products shall not include print, radio, television or other
media advertising placed by the Manufacturer and all consumer
promotions, i.e. scoop trucks, marketing agents and community
agents or slotting, but shall include off-invoice, retailer
ads, retailer display specials, bunker programs, etc. and
other trade promotional techniques which may be used in lieu
of such conventional trade promotions. If Manufacturer wishes
to conduct additional trade promotions for the period January
1, 1999 through August 31, 1999, Distributor shall not be
required to make any (*) payment of the cost of such
additional trade promotions unless Distributor has given its
express consent. If the Distributor does not give its consent,
then Manufacturer may continue such additional trade
promotions and bear (*) of the cost thereof.
(vi) During the Interim Period, Distributor shall pay its portion
of the cost of all slotting on the Manufacturer's Products in
accordance with Section 4(c) of the Prior Agreement.
(vii) With respect to "selling" activities pertaining to the
Products of the Manufacturer during the Interim Period, it is
agreed that Manufacturer shall take over on January 5, 1999,
the "corporate selling", which means selling to all chain
accounts and headquarters selling; provided, however, that
Distributor will continue to provide such services so as to
work with Manufacturer to provide a smooth transition from
Distributor to Manufacturer but in no event shall this
continued support last more than three to four weeks after the
execution of this Letter Amendment. Distributor will continue
to do the selling activities "up and down the street" trade at
the store level through its route salesmen and other
personnel.
(viii) During the Interim Period, Distributor shall not, directly or
indirectly manufacture, test market, market, promote or sell
super premium ice cream or products as previously defined in
the Prior Agreement (and for convenience, set forth below)
except as follows:
Manufacturer agrees that the provisions of the Old
Agreement relating to super premium ice cream or products,
including, without limitation, the provisions of Section
8A thereof, shall not apply to the following activities of
Distributor and that the following activities shall be
permitted and shall not be deemed inconsistent with the
performance by Distributor of its best efforts obligations
under the Old Agreement:
- -----------------
*This confidential portion has been omitted and
filed separately with the Commission.
4
<PAGE> 5
1. The development of formulae, processes, marketing
and sales plans and other plans relating to super
premium ice cream or products;
2. Test-marketing, promoting, selling and
manufacturing (to the extent appropriate to
test-marketing) super premium ice cream or products
within the territory described in Schedule 2A to
the New Distribution Agreement, within the State of
California or, beginning April 15, 1999, within the
State of New York;
3. Distribution of super premium ice cream or products
of another manufacturer.
For this purpose, the parties confirm that a super
premium ice cream is defined as:
"ice cream, frozen yogurt, sorbets, ices or other
frozen dessert products whether dairy based or not
(although not to include super premium novelties)
primarily sold in pint-size containers for a
current retail price equal to or greater than an
average of $2.19 per pint over a 52 week period
adjusted by the CPI Index (December 1993 to equal
100 for this purpose), and including quart or
half-gallon sizes of such products."
(ix) The Old Agreement, including without limitation the
provisions relating to the New York Territory, shall
automatically, without any further notice or actions, expire
at the close of business on August 31, 1999 unless sooner
terminated in accordance with its provisions. Notwithstanding
this agreed expiration of the Old Agreement, all claims
arising prior to such expiration for any breach of or for any
amount due under the Old Agreement (excluding any such claims
that have been satisfied, waived or released prior to such
expiration) shall survive such expiration in each case.
(x) All sums payable to Manufacturer for Manufacturer's
Products purchased hereunder shall be paid in arrears 21 days
from the date of Manufacturer's invoice (which shall be the
post-marked date of the invoice or any earlier date of
facsimile transmission or other delivery to Distributor) with
a 7-day grace period. As to all sums not paid within such 28
day period, Distributor shall in addition pay a (*) late
payment premium.
(xi) The amount of credit available under paragraph 9 of the Old
Agreement shall be changed to (*) and all other provisions of
the line of credit and its workings will remain as in the Old
Agreement. Said credit line shall be available
- -----------------
*This confidential portion has been omitted and
filed separately with the Commission.
5
<PAGE> 6
unless Distributor is in breach of a material provision of the
Old Agreement or unless Manufacturer determines, pursuant to
the exercise of its regular credit policy, that Distributor's
financial condition warrants a change in the said credit line.
3. THE PARTIES' CURRENT COMPLIANCE; BEST EFFORTS STANDARD. The parties
acknowledge and agree that as of the date of this Letter Amendment Agreement
each party is in full compliance with all of the terms of Prior Agreement,
including, without limitation, each party's best efforts obligations, and each
party hereby waives any non-compliance (to the extent the relevant party knows
or has reason to know of non-compliance) by the other under the Prior Agreement
prior to the date of this Letter Amendment Agreement. Notwithstanding any other
provision of the Old Agreement, Distributor shall not be in breach of any of its
best efforts obligations under the Old Agreement if Distributor is performing
under the Old Agreement in a manner substantially consistent with its
performance during the twelve (12) month period immediately preceding the date
of execution of this Letter Amendment Agreement (the "Comparison Period").
Nothing herein shall be deemed to waive compliance with the "best efforts"
commitment under the Prior Agreement.
4. NEGOTIATION OF AGREEMENT. Each party and its counsel have cooperated
in the drafting and preparation of this Letter Amendment Agreement and the
documents referred to herein, and any and all drafts relating thereto shall be
deemed the work product of the parties and may not be construed against any
party by reason of its preparation. Accordingly, any rule of law or any legal
decision that would require interpretation of any ambiguities in this Letter
Amendment Agreement against the party that drafted it is of no application and
is hereby expressly waived.
5. REPRESENTATION AND COVENANT. Distributor hereby represents that as of
the date hereof it is not in default in any respect under, and will not be in
default in any respect but for the running of any applicable grace period under,
any loan agreement or other agreement for the borrowing of money or capitalized
leases (collectively referred to as the "Financing Agreements").
6. ENTIRE AGREEMENT; AMENDMENTS. The Prior Agreement as amended hereby
and the New Distribution Agreement constitute the entire agreement between the
parties, and there are no representations, warranties or conditions or
agreements (other than invoices, purchase orders and the like necessary to
implement said agreements) not contained herein (or in any document not referred
to herein) that constitutes any part hereof or that are being relied upon by any
party hereunder. If any provision of this Letter Agreement is held by a court of
competent judgment to be invalid, void or unenforceable, the other provisions
shall nevertheless be in full force and effect without being impaired or
invalidated in any way.
Except as expressly amended hereby, the Prior Agreement shall continue
in full force and effect.
No provisions of the Old Agreement may be modified or amended except by
a written instrument signed by each of Manufacturer and Distributor.
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7. GOVERNING LAW. This Letter Amendment Agreement shall be binding on
the parties and successors and assigns, as provided in the Prior Agreement. This
Letter Amendment Agreement and all actions related hereto shall be governed by,
and any dispute relating to this Letter Amendment Agreement or the Prior
Agreement or the entering into of this Letter Amendment Agreement or the
expiration of the Old Agreement shall be resolved in accordance with, the
provisions of the Old Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed and delivered by its duly authorized representative as of
the day and year first above- written.
BEN & JERRY'S HOMEMADE, INC.
By: /s/ PERRY ODAK
-------------------------------
Title: CEO
---------------------------
DREYER'S GRAND ICE CREAM, INC.
By: /s/ THOMAS DELAPLANE
------------------------------
Title: V.P. Sales
---------------------------
EDY'S GRAND ICE CREAM
By: /s/ THOMAS DELAPLANE
------------------------------
Title: V.P. Sales
---------------------------
7
<PAGE> 1
EXHIBIT 10.40
FINAL
NEW DISTRIBUTION AGREEMENT
This Distribution Agreement (sometimes referred to as the "New
Distribution Agreement" or this "Agreement") is entered into as of this 11th day
of January, 1999 by and between Dreyer's Grand Ice Cream, Inc., a Delaware
corporation headquartered at 5929 College Avenue, Oakland, California 94618
("Distributor") and Ben & Jerry's Homemade, Inc., a Vermont corporation
headquartered at 30 Community Drive, South Burlington, Vermont 05403-6828
("Manufacturer").
WHEREAS, the parties wish to confirm that a certain Distribution
Agreement dated as of January 6, 1987, as amended, including by a Letter
Amendment Agreement dated on the date hereof (the "Letter Amendment Agreement",
and such 1987 Agreement as so amended by the Letter Amendment Agreement being
sometimes referred to as the "Old Agreement"), will automatically expire,
without further notice or actions, as of the close of business on August 31,
1999, and wish, simultaneously with the entering into the Letter Amendment
Agreement and the filing of the Stipulation of dismissal with prejudice in the
pending case of Dreyer's Grand Ice Cream, Inc. and Edy's Grand Ice Cream vs. Ben
& Jerry's Homemade, Inc., to enter into this Agreement effective today, but
providing for the distribution upon the terms and conditions set forth below,
commencing on September 1, 1999, of the Manufacturer's Products by Distributor
in the Distributor Territory as defined below and for certain related matters
set forth below.
NOW THEREFORE, in consideration of these premises, the mutual promises
of the parties and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
1. Purposes of Agreement. Manufacturer is engaged in the manufacture,
sale and distribution of ice cream and frozen dessert products manufactured and
sold under the trade name "Ben & Jerry's" and in some cases other names.
Distributor is engaged in the manufacture, sale and distribution of ice cream
products and frozen desserts sold under several brand names including "Dreyer's"
and "Edy's" and including ice cream products manufactured by or for others. The
use of the term "Distributor" in this Agreement means Dreyer's Grand Ice Cream,
Inc. and any controlled subsidiaries thereof engaged in ice cream operations in
the United States (production or distribution). The term "Manufacturer" shall
mean Ben & Jerry's Homemade, Inc. and any controlled subsidiaries thereof
engaged in the United States.
Distributor and Manufacturer desire to enter into this Agreement setting
forth the mutual rights and responsibilities of the parties with respect to the
distribution, resale and promotion of Products (as defined) of the Manufacturer
through the distribution system of the Distributor, being the Distributor's
owned and operated distribution system and its authorized subdistributors.
It is understood that such distribution will commence September 1, 1999,
and that all of the provisions of this Agreement shall only be effective
commencing September 1, 1999, provided, however, that the provisions of Section
13 hereof shall be effective immediately.
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"Best efforts" as used in this Agreement means commercially reasonable
use of available resources to accomplish the specified objectives.
1.1. Representation. Distributor hereby represents that as of the date
hereof it is not in default in any respect under, and will not be in default in
any respect but for the running of any applicable grace period under, any loan
agreement or other agreement for the borrowing of money or capitalized leases.
2. Distribution.
2.1. Appointment of Distributor. Subject to all of the terms hereof,
Manufacturer hereby appoints Distributor, commencing September 1, 1999, as a
non-exclusive distributor for the Products (as defined below) in the Distributor
Territory within the United States as set out in Schedule 2A (the "Distributor
Territory"), which Distributor Territory may be changed by mutual written
consent of the parties.
The Products distributed by Distributor hereunder include (i) Ben &
Jerry's brand items which are pints, quarts, half gallons, single serve and
including bulk sizes of ice cream, frozen yogurt, sorbet, novelties and other
frozen desserts manufactured by the Manufacturer and (ii) subject to the effect
of distribution agreements between Distributor and third parties effective prior
to a designation by Manufacturer adding Products hereunder, such other brand ice
cream, frozen yogurt, sorbet, novelties and other frozen desserts of other
persons as are involved in a significant relationship with Manufacturer as may
be designated by Manufacturer from time to time, all as set forth in Schedule 2B
as supplemented or revised by Manufacturer from time to time with reasonable
notice to Distributor (collectively, the "Products").
Subject to all of the terms hereof, Distributor accepts such appointment
and agrees to use its best efforts to distribute, resell, and deliver the
Products in all flavors and sizes to all types of retail stores and all other
types of accounts in this Distributor Territory and to promote the Products in
accordance with the terms of this Agreement throughout the Distributor
Territory.
In accordance with the foregoing, Distributor will use its best efforts
to meet the distribution performance standards set out in Schedule 2C, and with
such updates and revisions as shall be agreed at least annually with respect to
each ADI or other market area listed on Schedule 2A (the "Performance
Requirements"). It is understood that the Distributor is responsible for meeting
the Performance Requirements on an annual basis on a market by market basis
within the Distributor Territory for the Distributor Territory served directly
(and if expressly applicable under Section 2 of this Agreement, geographic areas
within the Distributor Territory served indirectly, by using authorized
subdistributors). It is understood that, in the event that the Manufacturer adds
an additional distributor in part of the Distributor Territory, the volume
levels contained in the Performance Requirements shall be appropriately reduced
to reflect such appointment.
The performance goals, i.e. annual business plan volume, etc. (the
"Performance Goals") for any given calendar year, determined as provided below,
shall include the performance matters
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referred to in the immediately preceding paragraph that the Distributor
reasonably should be expected to achieve in the Distributor Territory for such
year and shall be determined by taking into account (a) the Performance Goals
for the immediately preceding year, (b) actual performance of the Distributor
during the immediately preceding year, (c) any events or situations out of the
ordinary that have occurred in the immediately preceding year or are reasonably
expected to occur in the marketplace in the following year, which affected or
would reasonably be expected to affect Distributor's performance, and (d) any
reasonably reliable market performance data for the various markets in which the
Distributor and other distributors distribute substantially the same products of
the Manufacturer.
The Performance Requirements and the Performance Goals for each calendar
year commencing 2000 shall be proposed no later than October 1 of the preceding
year by Manufacturer, after prior consultation with Distributor, and thereafter
shall be the subject of good faith negotiations by the parties. In the event the
parties fail to reach agreement by October 15 in any year on the Performance
Requirements and Performance Goals for the next calendar year, then the
Performance Requirements and Performance Goals for the next calendar year shall
be determined by the averaging of the Performance Requirements and Performance
Goals (where applicable) for the top four (other than those to be applicable
under this Agreement) of the major national markets used by the Manufacturer for
distribution, planning and operational purposes, provided that, as to 1999
(which consists of the months of September - December), the parties commit to
reach agreement on the 1999 Performance Requirements and Performance Goals by no
later than March 31, 1999.
Distributor confirms that it will, except as otherwise specified in this
Agreement, use its best efforts to follow Manufacturer's general distribution
policies (the "Distribution Policies") as now in effect and as reasonably
amended for application to Manufacturer's distributors generally upon reasonable
written notice to Distributor (see Schedule 2D for the Distribution Policies as
in effect on the date hereof).
2.2. Accounts. It is agreed that Distributor Territory will include, for
all Products except bulk, any and all channels and all retail outlets,
including, but not limited to, supermarkets, A and B stores/supermarkets,
military bases, food service accounts and concession areas, Distributor owned
push carts and bunker promotions in supermarkets, convenience stores, Mom and
Pops and specialty food stores and club stores (including those served on a
consignment basis as provided below). Except for mutually agreed authorized
subdistributors (whether or not Distributor owns a minority interest therein),
Distributor will establish, maintain and operate company-owned and operated
trucks, warehouse and related assets as necessary to obtain the distribution
coverage needed to carry out Distributor's obligations to distribute the
Products. Distributor will sell the Products to accounts whether or not the
account wishes to purchase any other products distributed by Distributor.
Distributor agrees that it will not knowingly, directly or indirectly,
through independent distributors or otherwise, sell, market or distribute the
Products to any person outside the Distributor Territory or for sale outside the
Distributor Territory.
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<PAGE> 4
2.3. Sales in Distributor Territory and Authorized Accounts; Food
Service Accounts. With respect to distribution of Food Service (which shall
include novelties that are also distributed as provided in Section 2.2 above
and bulk) which shall consist of sales to non-grocery channels, including, but
not limited to, concessionaires, captive accounts, institutional accounts,
restaurants and the like and shall also include such scooping venues (other than
franchises) as may be established from time to time by the Manufacturer, the
Distributor shall sell to such Food Service accounts as the Manufacturer may
reasonably designate from time to time. It is understood that there may be
changes in the Manufacturer's designation of Food Service accounts which are to
be handled by the Distributor, and the parties agree to reach reasonable
accommodations in order to realize the potential for sales of the Products to
Food Service accounts.
Distributor agrees to distribute only to the authorized types of
accounts in the Distributor Territory in accordance with this Agreement,
including Sections 2.2 - 2.4. In order to carry out the provisions of this
Agreement, Distributor will abide by and, where applicable, impose these
contractual restrictions on all the persons distributing Products under this
Agreement who are not presently bound by an agreement with Distributor, except
when otherwise authorized in writing by the Manufacturer. Notwithstanding the
foregoing, nothing herein shall permit enlargement of the Distributor Territory.
Nonetheless, in the event that the Products are made available to a non-
permitted account, Distributor agrees to use its best efforts to remedy the
situation. Distributor, consistent with applicable law, will use its best
efforts to terminate any distributor or other person who continues to sell
unauthorized accounts. It is understood that the best efforts obligations of
Distributor with respect to the customer/territorial limitations are to use best
efforts, consistent with law, in enforcing such customer/territorial
restrictions under this Agreement and that Distributor shall not be liable to
the Manufacturer for any unauthorized sales or resales by the other distributors
as long as Distributor has not authorized any sales by other distributors in
derogation of the rights retained by the Manufacturer.
2.4. Distribution to Franchisees, etc. To the extent Manufacturer
supplies the Products to Distributor, Distributor agrees to supply the Products,
including bulk, to Manufacturer's franchised, licensed and company-owned scoop
shops in the Distributor Territory on a drayage basis. Distributor understands
that Manufacturer's franchise agreements require it to serve franchise customers
first in the event of product shortage. Distributor will receive a handling fee
per item delivered as established by Manufacturer, that fee currently being (*)
per 2 1/2 gallon bulk tub and (*) per sleeve of pints and miscellaneous boxed
goods, with (*) of the freight to the Distributor to be the responsibility of
Distributor.
2.5. No Exclusive Rights. As of the date of this Agreement, Manufacturer
has no other distributors in the Distributor Territory for the supermarket
channels of distribution. Before Manufacturer grants any other person a right to
distribute the Products in the Distributor Territory, Manufacturer shall first
give not less than 30 days prior written notice to Distributor and shall consult
with Distributor. Before Distributor commences the distribution of any ice cream
products of another person not being distributed by Distributor on the date
hereof, Distributor will give Manufacturer not less than 30 days prior written
notice and shall consult with Manufacturer.
- ------------
*This confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 5
2.6. Distributor's Directly Owned and Operated Distribution System. It
is understood that in the Distributor Territory Manufacturer shall sell the
Products to Distributor for distribution through Distributor's distribution
system (as more specifically described in Section 5.2 hereof ("DSD")) and with a
small percentage distributed by authorized subdistributors of the Distributor.
Distributor agrees that its maximum resale prices on Products resold to
subdistributors will not exceed (*) above the prices paid by Distributor for
such Products to the Manufacturer, including freight, under Section 9.
Distributor agrees that all subdistributors shall be subject to the
approval of the Manufacturer, which may not be unreasonably denied. All current
subdistributors are hereby approved by Manufacturer and will be listed on a
Schedule 2.6 to be delivered by Distributor to Manufacturer as soon as
practicable after execution of this Agreement by the parties. Manufacturer shall
have the right to suggest subdistributors subject to the approval of
Distributor, which may not be unreasonably denied. Without limiting any other
provision of this Agreement, the Manufacturer shall also have the right to
appoint an additional subdistributor or, if Distributor does not accept a
designated subdistributor, a co-distributor in an area if Distributor is unable
to sell any Products into a particular class of trade (such as Mom & Pops) or a
particular account of significance (an account with at least six stores) and,
provided that this right shall be limited to sales to such account(s) or class
of trade.
2.7. Supply of Products for Distribution. Manufacturer agrees to use its
best efforts to make the Products available to Distributor hereunder F.O.B.
Manufacturer's plants in Vermont, in such quantities and flavor assortments as
Distributor may reasonably require, subject only to Manufacturer's right, if
reasonably required by force majeure or other unforeseen circumstances affecting
production delays (subject to any priority contractually required by the
franchise agreements referred to above) to allocate Products between all
distributors and franchisees, including Distributor and Manufacturer's other
distributors (independent or company-owned) in this country or those buying for
distribution in foreign countries. Distributor shall purchase on full pallet
basis (or on a split pallet basis with a picking charge), one flavor per pallet
and on half-trailer load minimum basis.
2.8. No Discrimination. In order to ensure that competition for the
Products and products of the Distributor is vigorous, Distributor agrees that
all incentive, commission or other compensation programs or benefits for its
route salesmen or other sales and sales-type employees and other employees
directly involved in the distribution function shall have
incentive/commission/compensation/benefit terms relating to distribution of the
Products of the Manufacturer that are at least equal to those relating to
distribution of products manufactured by Distributor or other products
distributed by Distributor and that the instructions to and conduct of the
Distributor's personnel in the Distributor Territory shall be implemented so as
not to discriminate, directly or indirectly, against distribution of the
Products of the Manufacturer.
2.9. Co-distribution, etc. As to all ADI's within the Distributor
Territory where Distributor distributes products directly (or through
independent distributors and subdistributors, if and where so permitted by the
express terms of this Agreement) and where Manufacturer may be selling to other
distributors, Distributor will be co-distributors with Manufacturer's other
- ------------
*This confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 6
distributors, and, as between the Manufacturer and Distributor, Distributor will
not commit any material unfair trade practices as to such other distributors or
attempt to unlawfully interfere with their customers, and Manufacturer, when
acting as a distributor, will not commit any material unfair trade practices as
to Distributor or attempt to unlawfully interfere with Distributor's customers,
it being understood that neither Distributor nor Manufacturer shall be
responsible for actions taken or not taken by any of the other distributors or
subdistributors used by them.
3. Marketing and Sales. Manufacturer shall be responsible for
marketing of the Products in accordance with the provisions of this Agreement,
subject to the following:
3.1. Manufacturer and Distributor shall regularly exchange by electronic
means any information necessary to the performance of their respective
responsibilities and roles hereunder. Manufacturer will receive from Distributor
data provided through the standard UCS 867 product transfer/resale set. The
data, provided weekly, will be of the same quality and coverage as has been
supplied by Distributor in 1998 under the Old Agreement. Each party will
cooperate with the other to be able to receive and transmit data through the
standard UCS 867 protocol as soon as practicable.
3.2. Manufacturer will be responsible for the generation and (*) of the
cost of the following: all print, radio, tv or other media advertising placed by
the Manufacturer and all consumer promotions, i.e., scoop trucks, marketing
events and community events. Each party shall promptly pay, subject to the
following provisions, (*) of the cost of all slotting and trade promotions on
the Manufacturer's Products in the Distributor Territory, which shall not
include the foregoing items in the previous sentence, but shall include
off-invoice, retailer ads, retailer display specials, bunker programs, etc.,
other trade promotional techniques which may be used in lieu of such
conventional trade promotions. So long as each party's cost of trade promotions
and slotting as so defined herein on the Manufacturer's Products does not in the
aggregate exceed for all markets in the Distributor Territory (*) per Equivalent
Unit (as such term is defined in Schedule 3.2) per year, the Distributor shall
pay its (*) share of such trade promotions and slotting, without any requirement
for consent by Distributor.
With respect to the second category of trade promotions that would in
the aggregate exceed for all markets (*) per EU per year (*) share of trade
promotions, the parties must mutually agree on the promotion, in the event of
which agreement the cost of the trade promotion shall be shared on a (*) basis,
provided that, in the event the parties do not mutually agree on a trade
promotion in this second category, then the Manufacturer may require such trade
promotion to be carried out as directed, but with (*) of the cost of such trade
promotion being the responsibility of Manufacturer, it being understood that
Manufacturer shall first be required to send a notice to Distributor committing
to such (*) cost responsibility. It is understood that the provision of (*) per
EU per year will be subject to appropriate adjustment in the event of a
meaningful change in market conditions for promotion of Manufacturer's Products
(for example, if a retailer materially changes its way of doing business). All
credits or other payments necessary to carry out the provisions of this Section
3.2 shall be made by the parties on a monthly basis, and any adjustment
necessary to "true up" the amounts shall be made on a quarterly basis, with the
final adjustment promptly after the end of each calendar year.
- ----------------
*This confidential portion has been omitted and
filed separately with the Commission.
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3.3. It is understood that, unless otherwise agreed, Manufacturer's
sales representatives shall make presentations and sales calls to Supermarket
Channel (three cash registers or more), convenience store chains, national
accounts, restaurants, and any other accounts designated by Manufacturer
following reasonable notice to Distributor as to presentations and sales calls
in the Distributor Territory, provided that Distributor personnel in the
distribution system may accompany Manufacturer's personnel, unless inappropriate
in Manufacturer's judgment, to assist in the effective promotion of the Products
through the distribution system. With respect to other accounts which are to be
sold by Distributor under this Agreement, including convenience stores (other
than convenience store chains) and Mom & Pops, Manufacturer has determined that
it would be most efficient for sales calls to be made by Distributor personnel
at the direction of the Manufacturer. In addition, all promotions on the
Products must be only those authorized by the Manufacturer, prior to offering
these to accounts.
4. Social Mission Activities. Distributor recognizes the benefit of the
image and reputation of the Products and of the Manufacturer that has been
previously created in the Distributor Territory, including that part of the
image and reputation related to the Manufacturer's approach to marketing
activities, community oriented events, promotions or benefits and the
Manufacturer's Social Mission, as set forth in Schedule 4.1. Distributor
acknowledges its responsibility to maintain and sustain that image and
reputation in Distributor activities as a distributor of the Manufacturer in the
Distributor Territory, including the obligations set forth in Section 4.1
hereof.
4.1. Distributor shall use its best efforts to integrate into its
business of distributing the Products of Manufacturer hereunder a reasonable
number (given the size of Distributor's operation) of socially responsible
activities which are not inconsistent with those activities and programs which
Manufacturer conducts to implement its social mission, as described in
Manufacturer's Annual Report for 1997 and other Manufacturer's materials
attached as Schedule 4.1 and as reasonably updated from year to year by
Manufacturer upon reasonable notice to Distributor. The Manufacturer
acknowledges that the activities of the Distributor set forth in Schedule 4.2
are examples of such socially responsible activities and that activities of the
Distributor in the "socially responsible" arena have been acceptable overall
through the date of execution of this Agreement. However, Distributor as is its
custom, will strive to make improvements to the same as may be reasonable in the
circumstances. It is also understood that, in completing the Questionnaire
furnished under Schedule 4.1 on an annual basis, Distributor shall be entitled
not to respond to the extent that the response would include confidential
business information of Distributor. Material failure by Distributor to identify
and implement such socially responsible activity from time to time, after notice
of such failure, in reasonable detail, from Manufacturer and 90 days cure
period, shall, unless reasonably cured by Distributor in said cure period,
constitute Cause under Section 8.3.
5. Delivery; Other Services.
5.1. Distributor shall be responsible for delivery of the Products and
shall provide the same delivery service and care it provides for its own
products, including service (such intervals in the week as is necessary, given
the retail outlet, to exploit the market potential) for all types of
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<PAGE> 8
accounts, products rotation, correct flavor assortment, proper display and
pricing of product, removal of damaged product (provided that in the event that
Product is required to be removed pursuant to a decision of the Manufacturer,
such as discontinuance of a slow moving item, the Distributor shall be solely
entitled to credit for the purchase price previously paid for such Product),
assurance of adequate back stock where allowed and display of merchandising
materials in and around the freezer case. Distributor also agrees to comply with
Manufacturer's general service standards for distributors as set forth in the
Distribution Policies referred to above and including those in Section 5.2
below.
These services will be provided by Distributor where Distributor
delivers its own products. To the extent that the Products are expressly
permitted by this Agreement to be delivered by independent distributors (or
subdistributors) used by Distributor, Distributor will exercise best efforts to
cause such independent distributors (or subdistributors) to provide delivery
service and care of the Products as aforesaid but shall in no event be liable to
Manufacturer for any act or omission in respect thereof by any such distributor.
However, in the event that such independent distributors (or subdistributors) do
not provide such delivery and care of the Products, Distributor will take action
to correct the deficiency or appoint other distributors (or subdistributors) to
provide the required delivery and care of the Products.
5.2. Temperature/Handling. All Products of the Manufacturer must be
stored at -15 degrees F. The Products may at no time in the channel of
distribution go above -10 degrees F under this Section 5.2 and as provided in
the Distribution Policies of Manufacturer. In the event Manufacturer determines
that Products are being handled at improper temperatures, Manufacturer reserves
the right to insist that Product be destroyed if quality of such Product is
affected at any time and Distributor will remain responsible for payment for the
destroyed Products.
It is agreed that the required form of market delivery by Distributor
under this Agreement is direct store delivery ("DSD"). DSD is the process by
which consumer demand is fulfilled and delivered at the store level. As part of
this process, Distributor's personnel are directly responsible for developing
store specific orders, schematics, and replenishment schedules. Product delivery
to the store (non involving a retailer's warehouse) and merchandising may be
performed by Distributor or a contracted third party.
6. Other Distribution by the Distributor. Notwithstanding any other
provision of this Agreement, the parties acknowledge that Distributor intends to
continue its existing business which may be deemed to compete with
Manufacturer's Products, and may manufacture, sell and/or distribute additional
ice cream products and other products which may compete directly with
Manufacturer's Products, in all parts of the United States and abroad, to all
classes of trade. Manufacturer agrees that nothing in this Agreement is intended
to, or shall limit or affect in any way such activities by Distributor. Nothing
herein shall be deemed to waive compliance with the "best efforts" commitment of
Section 2 hereof.
7. Relationship of Distributor and Manufacturer. The relationship of
Distributor and Manufacturer with respect to sale and purchase of Products is
that of distributor (purchaser) and
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<PAGE> 9
manufacturer (seller), and nothing in this Agreement shall be construed to
create any agency or partnership or any other relationship, except as set forth
herein.
Neither Distributor nor Manufacturer shall have, nor shall either
represent itself as having, any right, power or authority to create any contract
or obligations, either express or implied, on behalf of, in the name of, or
binding upon the other party, or to pledge the other's credit or to extend
credit in the other's name unless the other party shall consent thereto in
advance in writing. Without limitation of the foregoing, Manufacturer shall not
make any representation concerning Distributor or use of Distributor name in
Manufacturer's marketing and sales effort without Distributor's advance written
approval. Manufacturer does have the right without prior approval of Distributor
to inform the trade that the Products are being distributed through the
Distributor's system, and as is necessary to carry out the purposes of this
Agreement. Without limitation to the foregoing, Distributor shall not make any
representation concerning Manufacturer or use of Manufacturer's name in
Distributor's marketing and sales effort without Manufacturer's advance written
approval. Distributor does have the right without prior approval of Manufacturer
to inform the trade that the Products are being distributed through the
Distributor's system, and as is necessary to carry out the purposes of this
Agreement.
8. Term; Termination.
8.1. Term. The term of this Agreement shall start as of September 1,
1999 and shall continue for an indefinite period, unless in any case sooner
terminated pursuant to the terms of this Agreement or by mutual agreement;
provided, however, that the provisions of Section 13 hereof shall be effective
immediately.
8.2. Termination Without Cause. This Agreement may be terminated after
September 1, 1999 by either Distributor or Manufacturer without cause on not
less than six months prior written notice given to the other party; provided
that no such notice may be given during the months of October, November,
December, January, February or March in any year.
During the termination notice period under Section 8.2, the following
additional obligations set forth in this Section shall apply.
Manufacturer shall not be obligated to appoint additional distributors
in any market area during any termination notice period. The below obligations
upon termination shall only apply to the market area or areas in which the
termination is effective and shall be interpreted accordingly. A "market" or
"market areas" shall be any of the areas listed on Schedule 2A.
In the event that Distributor fails to comply in a material respect in a
market (as defined above) with its best effort obligation during the termination
notice period, this failure shall constitute Cause justifying termination by the
Manufacturer under Section 8.3 of this Agreement, effective immediately upon
written notice to Distributor (notwithstanding any contrary provision in Section
8.3, including any cure period in which to cure such default that would
otherwise be applicable under Section 8.3), or, alternatively, Manufacturer
shall have the right, by written notice to Distributor, to shorten the
termination notice period to a shorter period (but not less than
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<PAGE> 10
30 additional days following the date of the Manufacturer's notice to shorten
under this paragraph). In the event of a termination by Distributor without
cause, Manufacturer may, by written notice to Distributor, shorten the
termination notice period to a shorter period (but not less than 30 additional
days following the date of Manufacturer's notice to shorten under this
paragraph).
8.3. Termination for Cause. Either party may at any time terminate this
Agreement, either entirely or as to a particular affected portion of the
Distributor Territory only (as elected in any case by the terminating party, by
written notice to the other party), upon sixty (60) days' written notice to the
other for failure of the other party to comply with any of the terms set forth
herein (which terms shall include the Distributor's failure to satisfy the
Performance Requirements or Performance Goals for Products to be purchased by
Distributor for any year), in any material respect, which shall also have a
material adverse effect on Distributor's distribution performance in either the
Distributor Territory or in the affected area(s) within the Distributor
Territory ("Cause"), unless such default shall have been reasonably cured to the
satisfaction of the other party within sixty (60) days after receipt of such
written notice specifying the failure in reasonable detail. The failure of
Distributor to continue DSD as the method of distribution hereunder shall be
deemed to be "Cause", entitling Manufacturer to give Distributor the 60 day
written notice as specified in this Section. An "affected portion" of the
Distributor Territory shall be any of the markets within the Distributor
Territory that are specified in Schedule 2A.
8.3.1. Without limiting any of the foregoing provisions of this
Agreement, if Manufacturer notifies Distributor with reasonable
specificity that a particular account or group of accounts in a specific
market in the Distributor Territory is not, in the reasonable judgment
of Manufacturer, receiving appropriate distribution (i.e. in accordance
with the Performance Requirements or the Performance Goals, as in effect
for the applicable period); Distributor shall endeavor to correct the
problem. If following sixty (60) days from such notice, Manufacturer is
not, in its reasonable judgment, satisfied that the problem has been
corrected, Manufacturer may propose a solution. If within a reasonable
period (generally thirty (30) days), Distributor agrees to implement
such solution and if Distributor in fact implements such solution, such
notice shall be of no further effect. If Distributor does not so agree
to implement such solution or does not in fact implement such solution,
Manufacturer shall have the right to terminate Distributor's
distribution rights to such account or group of accounts.
8.4. Termination Upon Change in Control. Upon a Change in Control (as
defined below) of the Distributor, the Manufacturer may terminate this Agreement
upon 180 days notice, and upon a Change in Control (as defined) of Manufacturer,
Distributor may terminate this Agreement upon 180 days notice, in each case
given at any time within the nine-month period following the Change in Control
of the other party, provided, further, that if notice of termination for Change
in Control is given more than six months (but not more than nine months) after
the Change in Control, the period of the six month purchase or sales obligation
set forth below shall be shortened by the number of days equal to the number of
days by which the date of the giving of such notice of termination is later than
six months after the date of the Change in Control and the purchase or sale
obligation shall be correspondingly adjusted.
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A "Change in Control" of a party means a change in control of that party
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not that party is then subject to such reporting
requirements; provided, however, that, without limitation, such a Change in
Control of that party shall be deemed to have occurred if (a) any "person" (as
such term is used in Section 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of that party representing 50% or more of the combined
voting power of that party's then outstanding securities eligible to vote in the
election of directors; provided, however, that in the event, with respect to a
Change in Control of Distributor, that person (or any entity controlled by or
controlling that person) is a manufacturer or distributor of frozen desserts
which is a significant competitive factor in the United States or, with respect
to a Change in Control of Manufacturer, that person (or any entity controlled by
or controlling that person) is a manufacturer or distributor of frozen desserts
which is a significant competitive factor in the United States, the "50%" figure
shall be "35%" in each case (calculated on a "fully-diluted basis", i.e.
assuming issuance of all shares issuable upon exercise or conversion of any
outstanding options, warrants or other securities or rights irrespective of the
exercise, conversion or exchange price thereof or any term limiting the current
exercisability); (b) that party is a party to a merger, consolidation, sale of
assets or other reorganization, an issuance of securities or other transaction,
or a proxy contest, as a consequence of which members of the Board of Directors
of that party in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter; or (c)
during any period of twelve consecutive months, individuals who at the beginning
of such period constituted the Board of Directors (including for this purpose
any new director whose election or nomination for election by that party's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of Directors of that
party.
Notwithstanding the foregoing provisions of the definition, a "Change of
Control" of Distributor will not be deemed to have occurred solely because of
(i) the acquisition of securities of Distributor (or any reporting requirement
under the Act relating thereto) by an employee benefit plan maintained by
Distributor for the benefit of employees or by William F. Cronk or T. Gary
Rogers or their "affiliates" or "associates" (as such terms are defined in Rule
12b-2 under the Act) or members of their family (or trusts for their benefit) or
(ii) any merger, consolidation or reorganization involving Distributor in which
the holders of voting stock having power to cast 80% of the votes in elections
of directors of Distributor immediately prior to such merger, consolidation or
reorganization hold immediately after such transaction voting stock having power
to cast 80% of the votes in elections of directors of the surviving entity in
such transaction, and notwithstanding the foregoing provisions of the
definition, a "Change in Control" of Manufacturer will not be deemed to have
occurred solely because of (i) the acquisition of securities of Manufacturer (or
any reporting requirement under the Act relating thereto) by an employee benefit
plan maintained by Manufacturer for the benefit of employees or by Ben Cohen,
Jerry Greenfield or Perry Odak or other members of the executive management or
Board of Directors or their "affiliates" or "associates" (as such terms are
defined in Rule 12b-2 under the Act) or members
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<PAGE> 12
of their family (or trusts for their benefit) or (ii) any merger, consolidation
or reorganization involving Manufacturer in which the holders of voting stock
having power to cast 80% of the votes in elections of directors of the
Manufacturer immediately prior to such merger, consolidation or reorganization
hold immediately after such transaction voting stock having power to cast 80% of
the votes in elections of directors of the surviving entity in such transaction.
8.4.1. In the event of termination by Manufacturer for Change in
Control of Distributor hereunder, Distributor shall be obligated, during
the 180 day period following the date of the giving of notice of
termination for Change in Control, to purchase from Manufacturer for
resale and resell and, in the event of termination by Distributor for
Change in Control of Manufacturer hereunder, Manufacturer shall be
obligated, during the 180 day period following the date of giving of
such notice, to sell to Distributor, in each case in each market area in
the Distributor Territory, where Distributor was a distributor hereunder
immediately prior to the termination notice on a quarterly basis, not
less than the same amount of the Products as were purchased hereunder
for resale and resold in such market area during the comparable calendar
quarter of the prior year, provided that the amount required to be
purchased and resold by Distributor, during such period shall be reduced
by the amount of any increased purchases and resales during the period
by such other person (or the Manufacturer) previously distributing in
such market area and by the amount of any sales of such other person (or
the Manufacturer) making distribution for the first time in such market
area of such termination notice period. A "market" or "market area"
shall be any of the areas listed on Schedule 2A. It is understood that
the amount required to be purchased and resold by Distributor pursuant
to this paragraph shall be reduced for adverse changes in market
conditions beyond the reasonable control of Distributor, including, for
example, failure of the Manufacturer to deliver Product or novelties of
the Manufacturer or loss of a chain due to the Manufacturer's action or
inaction (and not by Distributor action or inaction), or decline in
consumer preference for super premium ice cream or novelties on a
market-wide basis, so long as Distributor is fulfilling its applicable
best efforts obligations during the applicable period under this
paragraph of Section 8.4.1 of this Agreement and that the amount
required to be sold by Manufacturer pursuant to this paragraph shall be
reduced for adverse changes in market conditions beyond the reasonable
control of Manufacturer.
In the event that Distributor fails to comply in a material respect in a
market (as defined above) with the purchase obligations set forth above during
the termination notice period, this failure shall constitute Cause justifying
termination by the Manufacturer under Section 8.3 of this Agreement, effective
immediately upon written notice to Distributor (notwithstanding any contrary
provision in Section 8.3, including any cure period in which to cure such
default that would otherwise be applicable under Section 8.3), or,
alternatively, Manufacturer shall have the right, by written notice to the
Distributor, to shorten the termination notice period to a shorter period (but
not less than 30 additional days following the date of the Manufacturer's notice
to shorten under this paragraph).
The provisions of this Section 8.4 shall be in addition to the
provisions of Sections 8.2 and 8.3.
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<PAGE> 13
8.5. In addition to the applicable provisions of Sections 8.2 and 8.4
above with respect to certain termination notice periods, Distributor agrees to
continue to use its best efforts hereunder during all applicable termination
notice periods under this Agreement to distribute the Products of the
Manufacturer and to preserve Manufacturer's shelf position for the replacement
distributor(s) selected by the Manufacturer upon any termination of this
Agreement in each market in the Distributor Territory listed in Schedule 2A
where Distributor was a distributor hereunder immediately prior to the
applicable termination notice.
Upon any termination of this Agreement, all materials and other data
submitted to Distributor by Manufacturer and still in Distributor possession
shall be returned to Manufacturer and Distributor shall not use the contents
thereof.
8.6. Post Termination Obligations. Upon the termination of this
Agreement by Manufacturer or by Distributor, Distributor shall return, and
Manufacturer agrees to repurchase all Products (other than unsalable Products)
at Distributor's original purchase price or in the event of Products close to
out-of-code (i.e. less than 60 days before the out of code date) at the
appropriate discount from such original purchase price, all in accordance with
the industry standards, or, at Manufacturer's option (exercisable by written
notice to Distributor), Distributor shall have the right to sell or liquidate in
the Distributor Territory in a manner approved by Manufacturer its then-current
inventory of Products, but not including unsalables in accordance with the
provisions of this Agreement. In the event of any return of Products hereunder,
the terminating party shall pay (*) of the applicable reasonable return shipping
charges; provided; however, that if either party terminates for cause, then in
such incident, the breaching party shall pay (*) of the applicable reasonable
return shipping charges. For the purposes of this provision, "unsalables" means
damaged or out-of-code Products which shall be destroyed. All amounts due for
Products sold to Distributor and all other amounts due under Sections 3.2 and 9
and any other provisions of this Agreement shall be immediately due and payable.
Nothing in this Section should affect either party's obligations to the other
upon termination, including any claims for damages.
9. Prices for Products; Payment Terms; Resale Prices; Related Matters.
9.1. Prices Payable by Distributor. Manufacturer agrees to sell the
Products at the prices determined by Manufacturer from time to time
(Manufacturer's regular Distributor Prices), which shall initially be as set
forth on Schedule 9.1 attached, F.O.B. Manufacturer's plants in Vermont, with
freight arranged by Manufacturer (or as requested by Distributor) using its
reasonable efforts to obtain the best possible freight charge available and
reimbursed by Distributor. Freight shall be split (*) between the parties,
payable within 28 days after receipt of invoice for freight services by the
party obligated by this Section to make such (*) reimbursement to the other
party. Manufacturer may change prices to the Distributor when it changes price
to its other distributors (absent unusual geographic market conditions), upon
not less than reasonable notice to Distributor which shall normally be not less
than 30 days.
9.1.1. Rebate. Distributor will pay a rebate to Manufacturer in
an amount equal to (*) of the Distributor's monthly sales of all
Products to all customers, including
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*This confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 14
(without duplication) sales by subdistributors (but excluding sales to
or by Non-affiliated subdistributors making purchases in smaller
quantities [i.e., 10 pallets or less on an occasional basis] up to an
aggregate of 10% of Distributor's total monthly sales), payable monthly
in arrears 28 days after the end of the month via Electronic Funds
Transfer (EFT) [EDI transaction type 820]. The term "Non-affiliated
subdistributors" shall mean subdistributors in which Distributor does
not own more than 20% of the equity interests.
As used in this Section 9.1.1, Distributor's monthly sales shall
mean gross revenues less returns and allowances for damaged goods.
The parties acknowledge that the pricing method they have, for
convenience, selected to reflect the sharing of the efficiencies or savings may
erroneously be viewed by others as a discriminatory net price charged by
Manufacturer to Distributor, when such view is not consistent with the economics
of the matter. Accordingly, to eliminate any uncertainty Distributor hereby
agrees and confirms that its submission from time to time of any purchase order
for Products from Manufacturer shall irrevocably (i) confirm the release of, and
constitute a covenant not to sue in respect of, any claim of any kind whatsoever
that its payment of such net higher price for the Products covered by such
invoice may be in violation of the price discrimination provisions of the
Robinson-Patman Act and any state price discrimination or unfair competition law
and (ii) confirm the release of, and constitute a covenant not to sue in respect
of, any claim of any kind whatsoever that its payment of such higher price in
respect of any previously submitted purchase order for Products of the
Manufacturer may be in violation of the Robinson-Patman Act or any state price
discrimination or unfair competition law. Each release and covenant not to sue
by Distributor shall remain in effect notwithstanding any inconsistent or
contradictory provision in any purchase order or other instrument unless the
provisions of this Section 9.1 are expressly terminated by a written amendment
to this Agreement.
9.2. Payment Terms. Payment terms shall be 21 days with a 7-day grace
period from the date of Manufacturer's invoice (which shall be the post-marked
date of the invoice or any earlier date of facsimile transmission or other
delivery to Distributor). Distributor agrees to maintain its internal bill
receipt and payment procedures so that it will be able to meet the payment terms
in the Agreement, and the parties agree that all payments shall be EFT. It is
agreed that these are material terms of this Agreement and that failure of
Distributor to make timely payments shall constitute "Cause" under Section 8.3
(unless cured or provided therein). Manufacturer also agrees to notify
Distributor of any substantial increase in freight charges before shipment is
authorized.
9.3. National Pricing. Notwithstanding the foregoing provisions of
Section 2 or this Section 9, it is understood that Manufacturer may, as is
common in the food industry, negotiate "national" or "regional" pricing
agreements with certain accounts (such as airlines or Wal-Mart, to take two
examples) where the Manufacturer's distributors, including the Distributor
hereunder, continue to sell to such accounts, but this Agreement is modified to
the extent necessary to accommodate such national pricing agreements, subject to
reaching mutual agreement between the parties in each case. The parties agree to
make such necessary amendments to implement agreements reached under this
Section 9.3. In the event that the Distributor does not agree to any
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<PAGE> 15
such national pricing arrangement within 14 days after a reasonably specific
presentation of the arrangement to the Distributor, then the Manufacturer shall
have the right to arrange for other distribution for such national pricing
arrangement.
9.3.1. Consignment Sales. Notwithstanding the provisions of
Section 2 and this Section 9, it is understood that Manufacturer may, as
is common in the food industry, negotiate certain consignment
arrangements for sales to club stores or Food Service accounts and
Distributor will use its best efforts to distribute the Products to such
outlets on a consignment basis, provided that consignment sales shall
require the mutual agreement of the parties. In the event that the
Distributor does not agree to any such consignment arrangement within 14
days after a reasonably specific presentation of the arrangement to the
Distributor, then the Manufacturer shall have the right to arrange for
other distribution for such consignment arrangement.
9.4. Resale Prices. Distributor shall resell at such prices as it may
determine, and Manufacturer retains no control over such resale prices.
9.5. Trade Shows. The parties confirm that the arrangements and
practices with respect to trade shows attended by Manufacturer that are
currently in effect under the Prior Agreement shall continue under this
Agreement, namely that Distributor agrees to provide delivery of Products to
Trade Shows in the areas in which Distributor is distributing hereunder at no
charge, provided that Manufacturer provides the Products and necessary freezers
for such shows.
9.6. Credit Line. Distributor shall have a line of credit under this
Agreement which shall be reasonably established by Manufacturer consistent with
the payment terms defined herein, and Manufacturer shall have the right, from
time to time at its election, to require C.O.D. payment for any Products at any
time when outstanding receivables under this Agreement and any that arose under
the Old Agreement, for purchase of the Products of the Manufacturer thereunder
(whether or not due) exceed the amount of such credit line or at any time when
the circumstances of Distributor's financial condition are such that
Manufacturer would be entitled under its regular credit policies to reduce this
amount of the credit line. Said credit line shall be available unless
Distributor is in breach of a material provision of this Agreement or unless
Manufacturer determines, pursuant to the exercise of its regular credit
policies, that Distributor's financial condition warrants a change in said
credit line. Distributor agrees to pay interest on overdue accounts at an annual
rate equal to the base rate charged to best commercial customers at BankBoston
(or its successor) from time to time plus (*). Interest shall be payable to
Manufacturer on the last day of each month.
10. Compliance with Laws: Quality Control. Each party covenants and
agrees during the term hereof, that it will fully comply with all applicable
laws, ordinances, regulations, licenses and permits of or issued by any federal,
state or local government entity, agency or instrumentality applicable to its
responsibilities hereunder.
Manufacturer shall be responsible for the quality, including proof of
quality and quality control, labeling requirements and truth of labeling, and
fitness for human consumption of the
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*This confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 16
Products delivered hereunder. Manufacturer warrants and represents that the
Products delivered hereunder (1) are not adulterated or misbranded under the
Federal Food Drug and Cosmetic Act, as amended (the "Act"); and (2) are not
articles which may not be shipped pursuant to Sections 404 or 505 of the Act.
Title shall pass upon delivery, F.O.B. Manufacturer's plants in Vermont.
Notwithstanding any other provision hereof, the parties understand that loss or
damage to the Products during shipment, after delivery F.O.B. Manufacturer's
Plant, shall be the responsibility of Distributor.
10.1. Recall Possibility. In the event the Manufacturer determines to
recall or withdraw any of its Products (the "Recalled Products"), Distributor
will use its personnel (or a third party retrieval service if Distributor
reasonably believes the recall or withdrawal will be achieved faster, at less
expense or more efficient) to remove any Recalled Products from accounts to
which it had delivered the Recalled Products (and, where it uses any other
distributors or subdistributors, will use its best efforts to cause such other
persons to do likewise) and shall return (or cause to be returned) to
Manufacturer or dispose of Recalled Products as directed by Manufacturer.
Distributor shall be reimbursed by Manufacturer for all Recalled Products in the
amount of the net purchase price previously paid by Distributor for such
Recalled Products including freight costs and for its reasonable out-of-pocket
expenses for using its personnel or third party service to accomplish such
recall or withdrawal, including disposal costs, with payments by Manufacturer
for Recalled Products being in cash or replacement Products, at Manufacturer's
option. In the event that any recall or withdrawal of either party's products
significantly disrupts Distributor's ability to distribute the Manufacturer's
Products or Manufacturer's ability to have such distribution occur, then
Manufacturer and Distributor agree to discuss in good faith compensation for
losses incurred by either party by such disruption.
11. Hold Harmless.
11.1. It is expressly understood and agreed that Distributor shall not
be liable for and Manufacturer shall hold Distributor harmless from any
obligations, claims, demands, losses, costs, damages, suits, judgments,
penalties, expenses and liabilities of any kind or nature to a person not a
party to this Agreement ("Third Party") arising directly or indirectly out of or
in connection with this Agreement caused by Manufacturer's negligence, willful
misconduct or contractual breach, including but not limited to any costs,
expenses, court costs and reasonable attorneys' fees incurred by Distributor by
reason of any defense to any claims or lawsuits to which Distributor has been
named a party.
11.2. It is expressly understood and agreed that Manufacturer shall not
be liable for and Distributor shall hold Manufacturer harmless from any
obligations, claims, demands, losses, costs, damages, suits, judgments,
penalties, expenses and liabilities of any kind or nature to a Third Party
arising directly or indirectly out of or in connection with this Agreement
caused by Distributor's negligence, willful misconduct or contractual breach,
including but not limited to any costs, expenses, court costs and reasonable
attorneys' fees incurred by the Manufacturer by reason of any defense to any
claims or lawsuits to which Manufacturer has been named a party.
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<PAGE> 17
11.3. Third Person Claims. Promptly after a party has received notice of
or has knowledge of any claim against it covered by Section 11 by a Third Party
or the commencement of any action or proceeding by a Third Person with respect
to any such claim, such party (sometimes referred to as the "Indemnitee") shall
give the other party (sometimes referred to as the "Indemnitor") written notice
of such claim or commencement of such action or proceeding; provided, however,
that the failure to give such notice will not affect the right to
indemnification hereunder with respect to such claim, action or proceeding,
except to the extent that the other party has been actually prejudiced as a
result of such failure. If the Indemnitor has notified the Indemnitee within
thirty (30) days from the receipt of the foregoing notice that it wishes to
defend against the claim by the Third Person, then the Indemnitor shall have the
right to assume and control the defense of the claim by appropriate proceedings
with counsel reasonably acceptable to Indemnitee, provided that the assumption
of such defense by the Indemnitor shall constitute an acknowledgment of the
obligation to indemnify the Indemnitee hereunder. The Indemnitee may participate
in the defense, at its sole expense, of any such claim for which the Indemnitor
shall have assumed the defense pursuant to the preceding sentence, provided,
however, that counsel for the Indemnitor shall act as lead counsel in all
matters pertaining to the defense or settlement of such claims, suit or
proceeding other than claims that in Indemnitee's reasonable judgment could have
a material and adverse effect on Indemnitee's business apart from the payment of
money damages. The Indemnitee shall be entitled to indemnification for the
reasonable fees and expenses of its counsel for any period during which the
Indemnitor has not assumed the defense of any claim.
12. Trademarks. Distributor understands and agrees that it has received
no right or license, express or implied, to use in any manner the name "Ben &
Jerry's" or any other trade name or trademark used or owned by Manufacturer now
or in the future with the express written consent of Manufacturer except as set
forth herein. Subject to the terms and conditions of this Agreement and to the
continuing performance by Distributor of its obligations hereunder, Manufacturer
hereby grants Distributor a non-exclusive, non-transferable and personal license
to use Manufacturer's trademarks and logos ("Marks") solely in connection with
the distribution, display and sale of the Products pursuant to this Agreement.
Distributor agrees that such Marks shall be used only in the forms and manners
specified and approved in writing in advance by Manufacturer. All rights granted
to Distributor under this Agreement with respect to the Marks shall immediately
cease and terminate upon the termination of this Agreement. The provisions of
this Section shall survive termination.
13. Standstill. Distributor acknowledges that this Agreement is
extremely important to Manufacturer and will involve dependence of Manufacturer
upon Distributor's distribution of a significant amount of the total revenues of
Manufacturer, and accordingly, the Distributor agrees that until termination of
this Agreement, the Distributor and its affiliates (as such term is defined
under the Securities Exchange Act of 1934, as amended) ("Affiliates" for
purposes of this Agreement) shall not without the consent of Manufacturer (a) in
any manner acquire, agree to acquire or make any proposal to acquire, directly
or indirectly, any securities or property of the Manufacturer or any of its
subsidiaries or divisions, or any rights or options to acquire any such
securities or property (other than purchases of products or other properties in
the ordinary course of business), (b) propose publicly or otherwise to enter
into, directly or indirectly, any merger or
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<PAGE> 18
business combination, recapitalization, restructuring or other extraordinary
transactions involving the Manufacturer or any of its subsidiaries or divisions
or stockholders, (c) otherwise act, alone or in concert with others, to seek to
control or influence the executive management (except with respect to the
distribution relationship created hereby) or Board of Directors of the
Manufacturer, (d) enter into any contract, arrangement or understanding with any
person with respect to any securities of the Manufacturer (or any subsidiary of
the Manufacturer), including but not limited to any joint venture (other than
relating to distribution), loan or option agreement, put or call, guarantee of
loans, guarantee of profits or division of losses or profits, (e) make, or in
any way participate, directly or indirectly, in any "solicitation" of "proxies"
(as such terms are used in the proxy rules of the Securities and Exchange
Commission) or consents to vote, or seek to advise or influence any person with
respect to the voting of, any voting securities of the Manufacturer, (f) form,
join or in any way participate in a "group" (as defined under the Securities
Exchange Act of 1934, as amended) with respect to any acquisition of or other
action relating to securities or properties (other than purchase and sale of
products or properties in the ordinary course) of the Manufacturer, (g) advise,
assist or encourage any other person or group in connection with any of the
foregoing, (h) disclose any intention, plan or arrangement inconsistent with the
foregoing, (i) request the Manufacturer (or its directors, officers, affiliates,
stockholders, employees or agents), directly or indirectly, to amend or waive
any provision of this paragraph (including this provision), or (j) take any
action which might require either party to make a public announcement regarding
the possibility of a business combination, merger or joint venture (other than
relating to distribution) involving the Manufacturer or any of its subsidiaries
or divisions.
The foregoing provisions shall not be applicable to proposals initiated
by or on behalf of Manufacturer.
13.1. The provisions of Section 13 shall not be applicable upon the
earlier of:
(a) the date on which Manufacturer determines to initiate, solicit or
pursue (1) a sale or transfer of all or substantially all of its
assets or common shares representing 50% or more of the then
outstanding common shares or (2) a merger, reorganization,
consolidation or similar transaction between Manufacturer and any
other person in which such person would obtain ownership of 50%
or more of the then outstanding common shares;
(b) the date on which the Board of Directors of Manufacturer approves
of (or approves in principle, by letter of intent, memorandum of
understanding or similar instrument) any transaction referred to
subparagraph (a) hereof; or
(c) the date on which any person not a member of Manufacturer's Board
of Directors at the date hereof acquires common shares if the
effect of such acquisition would be to cause such person to
become the Beneficial Owner of 40% or more of the then
outstanding common shares.
Notwithstanding the foregoing, counsel or other advisors for Distributor
shall be entitled to contact Ropes & Gray, outside counsel for Manufacturer, to
consider whether a proposal by
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<PAGE> 19
Distributor that is prohibited by this Section 13 would, if it were actually
made by Distributor to Manufacturer, require public disclosure by Manufacturer
to Distributor. It is understood that if, in the judgment of Ropes & Gray as
outside counsel for Manufacturer, such a proposal would require such public
disclosure, then such proposal shall continue to be prohibited by this Section
13 and cannot be made. If the judgment is that such proposal would not require
such public disclosure, then such proposal may be made, but no further proposal
(without complying again with this provision) otherwise prohibited by this
Section 13 may be made by Distributor.
The same procedure for advisors for Distributor to contact outside
counsel for Manufacturer may be used in the circumstances in which Distributor
believes that, as a result of prior action taken by the Manufacturer or by a
third party unaffiliated with Distributor, Manufacturer may be considered to be
"in play" in the securities market. The parties also recognize under such
circumstances the Manufacturer may, without being requested to do so, invite a
proposal from the Distributor.
Manufacturer will give Distributor immediate notice of the occurrence of
any of these three events.
The Distributor acknowledges that money damages would not be an adequate
remedy for breach of this Section 13, and accordingly, the Manufacturer shall be
entitled to preliminary and permanent injunctive relief without the need to post
a bond to enforce these provisions.
14. Stipulation of Dismissal With Prejudice. The parties shall deliver a
stipulation of dismissal with prejudice to terminate the case entitled Dreyer's
Grand Ice Cream, Inc. and Edy's Grand Ice Cream v. Ben & Jerry's Homemade, Inc.
pending in the United States District Court, Northern District of California,
Case No. C-98-3357 FMS, in the form of Exhibit I attached hereto. Each party
shall be responsible for their own attorney's fees, costs and expenses relating
to said litigation. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the other
provisions shall nevertheless be in full force and effect without being impaired
or invalidated in any way.
15. Confidential Information. Confidential Information about a party
learned under this Agreement shall not be used during or after the term of this
Agreement except for the purpose of this Agreement and, without limiting the
foregoing, such information as to the Manufacturer may not be used by the
Distributor in connection with the production, marketing, distribution or sale
of Distributor's products. Confidential Information shall, for purposes of this
Agreement, include all information relating to a party, its business and
prospect, disclosed by such party from time to time to the other party in any
manner, whether orally, visually or in tangible form (including, without
limitation, documents, devices and computer readable media) and all copies
thereof, created by either party. The term "Confidential Information" shall be
deemed to include all notes, analyses, compilations, studies, interpretations or
other documents prepared by a party which contain, reflect or are based upon the
information furnished to such party by the other party pursuant hereto.
Confidential Information shall not include any information that:
19
<PAGE> 20
(a) was in a party's possession prior to disclosure by the other
party hereunder, provided such information is not known by such
party to be subject to another confidentiality agreement with or
secrecy obligation to the other party;
(b) was generally known in the ice cream industry at the time of
disclosure to a party hereunder, or becomes so generally known
after such disclosure, through no act of such party;
(c) has come into the possession of a party from a third party who is
not known by such party to be under any obligation to the other
party to maintain the confidentiality of such information; or
(d) was independently developed by a party without the use of any
Confidential Information of the other party, to the extent that
such independent development is reasonably established by such
first party to the other party.
16. Entire Agreement; Survival. This Agreement and the Addendum of even
date herewith (and any documents referred to herein) represents the entire
agreement and understanding of the parties with respect to the distribution,
commencing September 1, 1999, of Products of the Manufacturer by the
Distributor, the standstill provisions of Section 13, and the stipulation of
dismissal with prejudice provided for above, and there are no representations,
warranties or conditions or agreements (other than implementing invoices,
purchase orders and the like necessary to implement this Agreement) not
contained herein (or in any documents not referred to herein) that constitute
any part hereof or that are being relied upon by any party hereunder.
Notwithstanding any termination of this Agreement, all claims arising prior to
such termination for any breach of or for any amount due under this Agreement
(excluding any such claims that have been satisfied, waived or released prior to
such termination) under this Agreement shall survive such termination, and in
addition, the following sections of this Agreement shall survive any termination
of the Agreement: 3.2 (as to Distributor's obligations to pay sums owing for the
period through termination), 8.6, 9 (as to Distributor's obligations to pay sums
owing for the period through termination), 11, 12, 14, 16 and 19.
17. Negotiation of Agreement. Each party and its counsel have cooperated
in the drafting and preparation of this Agreement and the documents referred to
herein, and any and all drafts relating thereto shall be deemed the work product
of the parties and may not be construed against any party by reason of its
preparation. Accordingly, any rule of law or any legal decision that would
require interpretation of any ambiguities in this Agreement against the party
that drafted it is of no application and is hereby expressly waived.
18. Amendment and Non-assignability of Agreement. This Agreement may not
be amended or modified except by an instrument in writing signed by an
authorized officer of each party. It is agreed that neither party shall transfer
or assign this Agreement or any part hereof or any right arising hereunder, by
operation of law or otherwise, without the prior written consent of the other.
Any purported assignment without consent shall be void and of no force or effect
20
<PAGE> 21
or, at the other party's option, shall terminate this Agreement. Subject to the
foregoing, this Agreement shall be binding on the respective parties and their
successors and assigns.
No waiver by either party of any default or breach of any covenant
hereunder shall be implied from any omission by either party to take action on
account of such default if such default persists or is repeated. No express
waiver shall affect any default other than the default specified in the waiver,
and then said waiver shall be operative only for the time and to the extent
therein stated. Waivers by either party of any covenant, term or condition
contained herein shall not be construed as a waiver of any subsequent breach of
the same covenant term or condition. The consent or approval by either party to
or of any act by either party requiring further consent or approval shall not be
deemed to waive or render unnecessary consent or approval to or of any
subsequent similar acts. If any provision of this Amendment is held by a court
of competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
No provision of any other instrument, including purchase orders,
invoices, bills of sale or like instrument which is inconsistent or conflicts
with this Agreement shall control or override any provision of this Agreement.
19. Waiver of Jury Rights; Governing Law; Jurisdiction. Each of the
parties hereto irrevocably waives all rights to a trial by jury with respect to
any dispute relating to this Agreement, the subject matter hereof or the
entering into or termination of this Agreement (a "Dispute"). This Agreement and
all actions related hereto shall be governed by, and any dispute shall be
resolved in accordance with, the laws of the State of New York, excluding its
internal choice of law principles.
In the event of any Dispute, such Dispute, if not resolved in the
ordinary course between representatives of the parties, shall be submitted for
settlement negotiation between the Chief Executive Officer of Manufacturer and
Chief Executive Officer of Distributor, and if such procedure does not resolve
such Dispute within 30 days after a request for such settlement negotiation to
the other party, then and only then shall all such Disputes be resolved
exclusively by the process of litigation in accordance with this Section. If
such litigation is brought by Manufacturer or by Distributor, it shall be
brought in the State of New York, New York City (Manhattan), provided that, if
such dispute relates to Section 13 of this Agreement, it may be brought without
resort to the settlement mechanics described above and it may also be brought by
Manufacturer in the State of Vermont and will be resolved under the laws of the
State of Vermont.
With respect to any litigation relative to any Dispute (other than
disputes arising out of Section 13) that has been commenced in accordance with
the foregoing provisions as to where and when such litigation may be brought,
the parties each hereby: (i) agree that each party has sufficient contacts with
New York City (Manhattan) and Vermont (with respect to disputes relating to
Section 13) to subject it to the personal jurisdiction of the state and federal
courts located in New York City (Manhattan) and Vermont (with respect to
disputes relating to Section 13) for purposes of any such Proper Action (a
"Proper Action"); (ii) agree that venue of any Proper Action properly lies in
New York City (Manhattan)and Vermont (with respect to disputes relating
21
<PAGE> 22
to Section 13); (iii) waives and agrees not to assert in any Proper Action any
claim that it is not subject personally to the jurisdiction of the above-named
courts, such action should be dismissed on grounds of lack of venue or forum non
convenien; should be transferred to any court other than the above-named courts
or should be stayed by reason of the pendency of some other proceeding in any
court other than the above-named courts; (iv) consents and agrees that service
of process in any Proper Action may be made in any manner permitted by law or by
registered or certified mail, return receipt requested, at its principal place
of business, and that service made in accordance with the foregoing is
reasonably calculated to give actual notice of any such action; and (v) waives
and agrees not to assert in any Proper Action any claim that service of process
made in accordance with the foregoing does not constitute good and sufficient
service of process, including upon written notice. Notwithstanding the
foregoing, any proceeding for temporary restraining order or preliminary
injunction may be brought without resort to the settlement mechanics described
but shall only be brought in accordance with the foregoing provisions as to
where litigation with respect to any Dispute may be brought.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE> 23
20. Publicity. Both parties shall agree on a joint initial press release
on the entering into of this Agreement, the entering into of the Letter
Amendment Agreement and on the settlement in full, without any payment, of the
litigation referred to in Section 14.
21. Notices. Any notices to be given by either party to the other shall
be in writing by personal delivery or by mail, registered or certified, postage
prepaid with return receipt requested, or by facsimile (only with receipt
confirmed). Notices shall be addressed to the parties at the addresses set forth
on page one or to said other address as shall have been so notified to the other
party in accordance with this Section 21. Notices to Distributor shall be
addressed to Chief Executive Officer, with a copy to Manwell & Milton, 20
California Street, Third Floor, San Francisco, CA 94111, Attention: Edmund R.
Manwell, Esq. Notices to Manufacturer shall be addressed to Chief Executive
Officer, Ben & Jerry's Homemade, Inc., with a copy to Ropes & Gray, One
International Place, Boston, MA 02110, Attention: Howard K. Fuguet, Esq.
IN WITNESS WHEREOF, Dreyer's Grand Ice Cream, Inc. and Ben & Jerry's
Homemade, Inc., have each executed and delivered this Agreement as of the day
and year first above written.
WITNESSED: DREYER'S GRAND ICE CREAM, INC.
/s/ DENISE B. MILTON By: /s/ THOMAS DELAPLANE
- -------------------------- -------------------------------
Title: V.P. Sales
----------------------------
WITNESSED: BEN & JERRY'S HOMEMADE, INC.
/s/ ANGELO M. PEZZANI By: /s/ PERRY ODAK
- -------------------------- -------------------------------
Date January 14, 1999 Title: CEO
1330 EST ----------------------------
23
<PAGE> 24
LIST OF SCHEDULES AND EXHIBITS
Schedule 2A Distributor Territory
Schedule 2B The Products
Schedule 2C Performance Requirements
Schedule 2D Distribution Policies
Schedule 2.6 List of Authorized Subdistributors (to be provided)
Schedule 3.2 Equivalent Unit (EU) Conversion Chart
Schedule 4.1 Manufacturer's Social Mission
Schedule 4.2 Distributor's Social Activities
Schedule 9.1 Distributor Prices
Exhibit I Stipulation of Dismissal With Prejudice
24
<PAGE> 25
SCHEDULE 2A
DISTRIBUTION TERRITORY
Washington
Illinois
Wisconsin
Colorado
Oregon
Alaska
Arizona
Ohio
North Carolina
South Carolina
Missouri
Oklahoma
Arkansas
Indiana
Tennessee
Iowa
Virginia
Utah
Michigan
Idaho
Nebraska
<PAGE> 26
SCHEDULE 2B
All presently available "Ben & Jerry's" branded frozen desserts, including
pints, quarts, half gallons, bulk, single serve and novelties (including in
each case ice cream, yogurt and sorbet); all presently available Newman's Own
brand quarts and half gallons (including in each case ice cream and yogurt).
<PAGE> 27
FINAL
ADDENDUM
Addendum dated as of January 11, 1999 to New Distribution Agreement
dated as of January 11, 1999 by and between Dreyer's Grand Ice Cream, Inc.
("Distributor") and Ben & Jerry's Homemade, Inc. ("Manufacturer").
WHEREAS, the parties wish to confirm that the Distributor shall make an
additional payment or payments to Manufacturer if additional volume is added to
the business carried on by the Distributor under the New Distribution Agreement
by not later than September 30, 2000.
NOW, THEREFORE, in consideration of these premises, the mutual promises
of the parties and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
1. To the extent that Manufacturer adds volume to the business conducted
by the Distributor under said New Distribution Agreement by adding sales of
Manufacturer's products in areas not presently included within the term
"Distributor Territory" as set forth in Schedule 2A to said New Distribution
Agreement, or by adding volume for the Distributor by the addition of Haagen-
Dazs products for distribution within Texas and Los Angeles market by
Distributor (pursuant to agreement with Haagen-Dazs or otherwise), Distributor
will pay Manufacturer the amount required by the formula set forth below in
Paragraph 2. For purposes of this Agreement the additional volume of
Manufacturer's products and Haagen-Dazs products are collectively referred to as
"Replacement Equivalent Units" as the term "Equivalent Unit" ("EU") is defined
in Section 3.2 of the New Distribution Agreement.
2. MULTIPLY by (*) the total sales (in dollars) for the time period
September 1, 1998 through January 4, 1999 ("Said Time Period") of all
Manufacturer's Products sold by Distributor to all customers including (without
duplication) sales by subdistributors (but excluding sales to or by
non-affiliated subdistributors making purchases in smaller quantities (i.e., 10
pallets or less on an occasional basis) up to an aggregate of (*) of
Distributors total sales during Said Time Period). The term "non-affiliated
subdistributors" shall mean subdistributors in which Distributor does not own
more than 20% of the equity interests.
MINUS (*)
The remainder dollar amount is DIVIDED by the total number of
gallons (EU) of Manufacturer's Products sold to Sunbelt and to ICCI for the
calendar year 1998.
The RESULT of this division is the dollar value for each
Replacement Equivalent Unit which Distributor shall pay to Manufacturer for each
Replacement Equivalent Unit that Manufacturer adds as provided in Paragraph 1
above.
By way of illustration only: (*)
- ----------------
This confidential portion has been omitted and
filed separately with the commission.
1
<PAGE> 28
3. Once aggregate payment of an amount equal to the "remainder dollar
amount" (as determined in accordance with Paragraph 2 above) is made by
Distributor, there shall be no further obligation by Distributor to make any
payments under this Addendum. No payments shall be required with respect to any
volume that is added on and after October 1, 2000.
4. Payments due under this Addendum shall be made within 30 days after
the end of a calendar quarter in which an addition of Manufacturer's or
Haagen-Dazs products has first been made.
5. Manufacturer also agrees to provide (*) free goods to Distributor
prior to December 31, 1999.
6. This Addendum shall be in addition to the obligations and duties of
the parties under the New Distribution Agreement. No provision of this Addendum
may be modified or amended except by a written instrument signed by each of
Manufacturer and Distributor.
7. This Addendum shall be binding on the parties and their respective
successors and assigns. This Addendum and all actions related hereto shall be
governed by the laws of the State of New York, excluding its internal choice of
law principles. Any dispute or claim relating to this Addendum or the entering
into of this Addendum shall be submitted to arbitration in Manhattan in the City
of New York, New York conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the Arbitrator(s) may be entered in any court having jurisdiction
thereof. The prevailing party in the arbitration proceeding shall be entitled to
recover from the losing party reasonable attorney's fees and other costs
incurred in the arbitration proceeding.
IN WITNESS WHEREOF, Dreyer's Grand Ice Cream, Inc. and Ben & Jerry's
Homemade, Inc. have each executed and delivered this Addendum as of the day and
year first above written.
DREYER'S GRAND ICE CREAM, INC. BEN & JERRY'S HOMEMADE, INC.
By: /s/ THOMAS DELAPLANE By: /s/ PERRY ODAK
------------------------ --------------------------
Name: Thomas Delaplane Name: Perry Odak
---------------------- -------------------------
Title: Vice President-Sales Title: CEO
---------------------- ------------------------
- ----------------
This confidential portion has been omitted and
filed separately with the commission.
2
<PAGE> 1
EXHIBIT 10.41
SECURED PROMISSORY NOTE
$95,000 Oakland, California
For value received, the undersigned, THOMAS MILLER DELAPLANE, an adult
individual ("Maker"), promises to pay to DREYER'S GRAND ICE CREAM, INC., a
Delaware corporation ("Payee"), or to order, at such place as Payee may
designate by written notice to Maker from time to time, the principal sum of
ninety-five thousand dollars ($95,000), together with interest on the principal
amount, from the date of this Note until this Note is paid in full, at the rate
of six and one-half percent (6 1/2%) per annum, such principal and interest
payable in full on the earliest to occur of: (i) the date of the sale, transfer,
assignment or other disposition of the primary residence of Maker (such
residence located at 1085 Via Media, City of Lafayette, County of Contra Costa,
State of California 94549); or (ii) the date upon which Maker ceases to be an
employee of Payee for any reason, or (iii) the second anniversary date of this
Note. Time is of the essence for every obligation under this Note.
All payments to be made hereunder shall be made in coin or currency of
the United States of America, which at the time of payment shall be legal tender
for the payment of public and private debts. If any payment hereunder shall
become due or payable on a Saturday, Sunday or public holiday, the maturity
thereof shall be extended to the next succeeding business day.
Maker may prepay any and all of the principal amount due hereunder at
any time or from time to time without penalty. No such partial prepayment shall
relieve Maker of its obligation to make succeeding payments of the remaining
unpaid principal and interest accrued thereon at the time and in the manner
provided in this Note.
This Note is secured pursuant to a pledge agreement dated as of
October 5, 1998 (the "Pledge Agreement") for the benefit of Payee, creating a
possessory first security interest in the pledged property described therein
(the "Collateral"). Reference is made to such document for a description of the
nature and extent of the security afforded thereby, the rights of the Payee with
respect to such security and the terms and conditions upon which this Note is
secured. Payee is entitled to the benefits of the Pledge Agreement and may
enforce the agreements of Maker contained therein and exercise the remedies
provided therein or otherwise in respect thereof, all in accordance with the
terms thereof.
Upon the occurrence of either of the following described events (an
"Event of Default"), or an Event of Default as defined in the Pledge Agreement,
the entire unpaid principal balance, together with all accrued and unpaid
interest payable under this Note, shall, at the option of the Payee, become
immediately due and payable without notice to Maker:
<PAGE> 2
(a) Failure shall occur in the payment of any installment or other
payment of principal or interest on this Note when the same shall have become
due, and such default shall continue for more than five (5) business days; or
(b) Bankruptcy, assignment for the benefit of creditors,
insolvency proceedings, or other proceedings for relief under any bankruptcy or
similar laws are instituted by Maker.
Maker expressly waives presentment for payment, demand for payment,
notice of dishonor, protest and notice of protest, or other notice of dishonor
and any right to cure, to the fullest extent permitted by law. To the extent
permitted by law, Maker hereby waives and releases all errors, defects and
imperfections of the Pledge Agreement, as well as all benefit that might accrue
to Maker by virtue of any present or future laws exempting the Collateral, or
any of its other property, real or personal, or any part of the proceeds arising
from any sale or any such property, from attachment, levy or sale under
execution, or providing for any stay of execution, exemption from civil process
or extension of time for payment.
Maker agrees to pay the reasonable costs of collection and attorneys'
fees paid or incurred by Payee in connection with the collection or enforcement
of this Note, whether or not suit is filed or the mater is settled. The remedies
provided herein and in the Pledge Agreement shall be cumulative and concurrent
and may be pursued successively or concurrently against Borrower and/or the
Collateral securing this Note. No failure in exercising any right or remedy
hereunder or under the Pledge Agreement shall operate as a waiver or release
thereof, nor shall any single partial exercise of any such right or remedy
preclude any other future exercise thereof or the exercise of any other right or
remedy hereunder or under the Pledge Agreement.
This Note may not be waived, changed, modified or discharged, except by
an agreement in writing which is signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
If any term or provision of this Note shall be held to be invalid,
illegal or unenforceable, the validity of the other terms and provisions hereof
shall in no way be affected thereby. This Note shall be governed by and
construed in accordance with the laws of the State of California without
reference to its choice of law provisions.
Dated: October 5, 1998
"Maker"
/s/ THOMAS MILLER DELAPLANE
-----------------------------------------------
Thomas Miller Delaplane, an adult individual
<PAGE> 3
SECURED PROMISSORY NOTE
$186,000 Oakland, California
For value received, the undersigned, THOMAS MILLER DELAPLANE, an adult
individual ("Maker"), promises to pay to DREYER'S GRAND ICE CREAM, INC., a
Delaware corporation ("Payee"), or to order, at such place as Payee may
designate by written notice to Maker from time to time, the principal sum of one
hundred eighty-six thousand dollars ($186,000), together with interest on the
principal amount, from the date of this Note until this Note is paid in full, at
the rate of six and one-half percent (6 1/2%) per annum, such principal and
interest payable in full on the earliest to occur of: (i) the date of the sale,
transfer, assignment or other disposition of the primary residence of Maker
(such residence located at 1085 Via Media, City of Lafayette, County of Contra
Costa, State of California 94549); or (ii) the date upon which Maker ceases to
be an employee of Payee for any reason, or (iii) the second anniversary date of
this Note. Time is of the essence for every obligation under this Note.
All payments to be made hereunder shall be made in coin or currency of
the United States of America, which at the time of payment shall be legal tender
for the payment of public and private debts. If any payment hereunder shall
become due or payable on a Saturday, Sunday or public holiday, the maturity
thereof shall be extended to the next succeeding business day.
Maker may prepay any and all of the principal amount due hereunder at
any time or from time to time without penalty. No such partial prepayment shall
relieve Maker of its obligation to make succeeding payments of the remaining
unpaid principal and interest accrued thereon at the time and in the manner
provided in this Note.
This Note is secured pursuant to a pledge agreement dated as of
October 5, 1998 (the "Pledge Agreement") for the benefit of Payee, creating a
possessory first security interest in the pledged property described therein
(the "Collateral"). Reference is made to such document for a description of the
nature and extent of the security afforded thereby, the rights of the Payee with
respect to such security and the terms and conditions upon which this Note is
secured. Payee is entitled to the benefits of the Pledge Agreement and may
enforce the agreements of Maker contained therein and exercise the remedies
provided therein or otherwise in respect thereof, all in accordance with the
terms thereof.
Upon the occurrence of either of the following described events (an
"Event of Default"), or an Event of Default as defined in the Pledge Agreement,
the entire unpaid principal balance, together with all accrued and unpaid
interest payable under this Note, shall, at the option of the Payee, become
immediately due and payable without notice to Maker:
<PAGE> 4
(a) Failure shall occur in the payment of any installment or other
payment of principal or interest on this Note when the same shall have become
due, and such default shall continue for more than five (5) business days; or
(b) Bankruptcy, assignment for the benefit of creditors,
insolvency proceedings, or other proceedings for relief under any bankruptcy or
similar laws are instituted by Maker.
Maker expressly waives presentment for payment, demand for payment,
notice of dishonor, protest and notice of protest, or other notice of dishonor
and any right to cure, to the fullest extent permitted by law. To the extent
permitted by law, Maker hereby waives and releases all errors, defects and
imperfections of the Pledge Agreement, as well as all benefit that might accrue
to Maker by virtue of any present or future laws exempting the Collateral, or
any of its other property, real or personal, or any part of the proceeds arising
from any sale or any such property, from attachment, levy or sale under
execution, or providing for any stay of execution, exemption from civil process
or extension of time for payment.
Maker agrees to pay the reasonable costs of collection and attorneys'
fees paid or incurred by Payee in connection with the collection or enforcement
of this Note, whether or not suit is filed or the mater is settled. The remedies
provided herein and in the Pledge Agreement shall be cumulative and concurrent
and may be pursued successively or concurrently against Borrower and/or the
Collateral securing this Note. No failure in exercising any right or remedy
hereunder or under the Pledge Agreement shall operate as a waiver or release
thereof, nor shall any single partial exercise of any such right or remedy
preclude any other future exercise thereof or the exercise of any other right or
remedy hereunder or under the Pledge Agreement.
This Note may not be waived, changed, modified or discharged, except by
an agreement in writing which is signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
If any term or provision of this Note shall be held to be invalid,
illegal or unenforceable, the validity of the other terms and provisions hereof
shall in no way be affected thereby. This Note shall be governed by and
construed in accordance with the laws of the State of California without
reference to its choice of law provisions.
Dated: December 18, 1998
"Maker"
/s/ THOMAS MILLER DELAPLANE
-----------------------------------------------
Thomas Miller Delaplane, an adult individual
<PAGE> 5
PLEDGE AGREEMENT
This Pledge Agreement ("Agreement") is entered into as of the 5th day of
October, 1998, by and between THOMAS MILLER DELAPLANE, as Trustee of The
Delaplane Family Trust UAD 6/22/95 ("Pledgor"), and DREYER'S GRAND ICE CREAM,
INC., a Delaware corporation ("Lender").
RECITALS
A. Pledgor has agreed to mortgage and pledge certain stock to
Lender as security for the performance of Thomas Miller Delaplane's
("Delaplane") obligations to repay in full all sums due in connection with the
loan by Lender to Delaplane in the aggregate principal amount of up to Three
Hundred Thousand Dollars ($300,000) (the "Loan"), as evidenced by one (1) or
more secured promissory notes in substantially the form attached hereto as
Exhibit A (the "Notes") (collectively, the "Secured Obligations"), by conveying
to Lender a valid first and prior lien on the Pledged Stock (as hereinafter
defined). Pledgor hereby acknowledges that it has derived or expects to derive a
financial or other advantage from each and every obligation incurred by
Delaplane to Lender. Pledgor agrees that its obligations hereunder are absolute,
unconditional and irrevocable, and shall be binding upon Pledgor and its
successors and assigns.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, the parties hereto agree as follows:
Section 1. Pledge. As security for the due, punctual and full
performance of the Secured Obligations, Pledgor hereby grants to Lender for its
benefit, a security interest in, and pledges, hypothecates, assigns, transfers,
sets over and delivers to Lender, Thirty Thousand (30,000) shares of Common
Stock of Dreyer's Grand Ice Cream, Inc., One Dollar ($1.00) par value,
registered in the name of Pledgor and more specifically identified and described
in Exhibit B attached hereto (the "Pledged Stock"). The certificates
representing the Pledged Stock shall be registered in the name of Pledgor but
shall be retained by Lender pursuant to the pledge made herein. Pledgor also
hereby delivers to Lender a duly executed stock power in substantially the form
attached hereto as Exhibit C, duly endorsed in blank by Pledgor and in proper
form for transfer. Receipt of such stock power and the Pledged Stock is hereby
acknowledged by Lender.
Section 2. Voting Rights; Dividends.
(a) So long as no Event of Default (as defined in Section 3
hereof) shall have occurred and be continuing:
i. Pledgor shall be entitled to exercise any and
all voting and consensual rights and powers relating, or pertaining to the
Pledged Stock or any part thereof; and
1
<PAGE> 6
ii. Pledgor shall be entitled to any and all cash
dividends made on or in respect of the Pledged Stock.
(b) Any and all non-cash dividends, whether in the form of
stock or property or other distributions made on or in respect of the Pledged
Stock, whether resulting from a subdivision, combination, redemption or
reclassification of the outstanding capital stock of Lender or received in
exchange for the Pledged Stock or any part thereof or as a result of any merger,
consolidation, acquisition or other exchange of assets to which Lender may be a
party or otherwise, shall be and become part of the Pledged Stock and shall be
delivered by Pledgor to, and held by Lender subject to the terms of this Pledge
Agreement.
(c) Upon the occurrence of an Event of Default, all rights
of Pledgor to exercise the voting and consensual rights and powers which it is
entitled to exercise pursuant to Section 2(a)(i), and all rights of Pledgor to
receive cash dividends pursuant to Section 2(a)(ii) shall cease, and all such
rights shall thereupon become vested in Lender, and Lender shall have the sole
and exclusive right and authority to exercise such voting and consensual rights
and powers and receive such dividends. Thereafter, any and all money and other
property paid over to or received by Lender pursuant to the provisions of
Section 2(c) shall be retained by Lender and applied in accordance with the
provisions of Sections 5 and 6 hereof.
Section 3. Representations and Warranties of Pledgor. Pledgor represents
and warrants to Lender that:
(a) This Agreement constitutes the legal, valid and binding
obligation of Pledgor, in accordance with the terms hereof, and Pledgor has good
and lawful right and authority to execute the pledge provided for herein and to
pledge the Pledged Stock; and
(b) As to each share of the Pledged Stock at any time
pledged or required to be pledged hereunder:
i. the Pledgor is the sole legal, record and
beneficial owner thereof, and the Pledgor has good and marketable title thereto,
ii. the Stock is and will remain free and clear of
all security interests, pledges, liens or other encumbrances, and restrictions
on the transfer and assignment thereof, except pursuant to this Agreement and
those permitted in writing by Lender, and
iii. there are no outstanding options, warrants or
other requirements with respect to the Pledged Stock; and
(c) The representations and warranties of Pledgor herein
shall survive the date hereof.
2
<PAGE> 7
Section 4. Event of Default. "Event of Default" shall mean the
occurrence of any of the following events:
(a) the failure of Pledgor to make payment of principal and
interest on the Note when and as the same shall become due and payable, and such
failure continues for more than five (5) business days, or
(b) the breach of any representation, warranty, or covenant
of Pledgor contained herein or in the Note, or
(c) the Bankruptcy, assignment for the benefit of creditors,
insolvency proceedings, or other proceedings for relief under any bankruptcy or
similar laws being instituted by or against Pledgor.
Section 5. Remedies Upon Default.
(a) In case an Event of Default shall have occurred, Lender
shall be entitled to exercise all of the rights, powers and remedies (whether
vested in it by this Agreement or by law or otherwise, including, without
limitation, those of a secured party under the Uniform Commercial Code) for the
protection and enforcement of its rights in respect of the Pledged Stock, and
the Lender shall be entitled, without limitation:
i. to receive all amounts payable in respect of the
Pledged Stock, otherwise payable under Section 2(a) to Pledgor;
ii. to transfer and register all or any part of the
Pledged Stock into the Lender's name or the name of its nominee or nominees;
iii. to vote all or any part of the Pledged Stock
(whether or not transferred or registered into the name of the Lender) and give
all consents, waivers and ratifications in respect thereof and otherwise act
with respect to the Pledged Stock as though it were the outright owner thereof
pursuant to Section 2(c) hereof;
iv. to sell on a recognized market without liability
for any diminution in price which may have occurred, all of the Pledged Stock in
such manner, whether in one lot as an entirety, or in separate portions, and for
such price and other terms and conditions as are available on such market.
(b) Upon any sale or other disposition, the Lender shall
have the right to deliver, assign and transfer to the purchaser thereof the
Pledged Stock so sold or disposed of. Each purchaser at any such sale or other
disposition (including the Lender) shall hold the Pledged Stock free from any
claim or right of whatever kind, including any equity or right of redemption of
the Pledgor. The Pledgor specifically waives all rights of redemption, stay or
appraisal which it had or may have under any rule of law or statute now existing
or hereafter adopted.
3
<PAGE> 8
(c) Lender shall not be obligated to make any sale or other
disposition, unless the terms thereof shall be satisfactory to it. The Lender
may, without notice or publication, adjourn any sale, and, may thereafter sell
the Pledged Stock at any time or place on a recognized market. In case of any
sale of all the Pledged Stock, on credit or future delivery, the Pledged Stock
so sold may be retained by the Lender until the selling price is paid by the
purchaser thereof, but the Lender shall incur no liability in case of the
failure of such purchaser to take up and pay for the Pledged Stock so sold and,
in case of any such failure, such Pledged Stock may again be sold as hereinabove
provided.
Section 6. Application of Proceeds.
(a) The proceeds of any sale of the Pledged Stock pursuant
to the provisions of Section 5 hereof shall be applied in the following order of
priority:
i. first, to the payment of the reasonable expenses
of holding, preparing for sale, selling, and to the extent not prohibited by
law, the reasonable attorney's fees and legal expenses incurred by Lender;
ii. second, to the payment of all amounts owing by
Pledgor to Lender for the Secured Obligations; and
iii. third, to Pledgor or as a court of competent
jurisdiction may direct.
(b) If the proceeds of the sale are insufficient to cover
the Secured Obligations plus the expenses described in Section 6(i) above,
Pledgor shall remain liable to the Lender for any deficiency, in accordance with
the provisions set forth in the Uniform Commercial Code. No payment of proceeds
pursuant to the provisions of Section 6(iii) above shall be made until such time
as all of Pledgor's obligations which are secured hereunder are discharged in
full; until such time, all proceeds not disposed of as provided in Section 6(i)
and (ii) above shall be held by Lender subject to the terms of this Pledge
Agreement.
Section 7. Remedies Cumulative. Each right, power and remedy of Lender
provided for in this Agreement or in the Notes, now or hereafter existing at law
or in equity or by statute or otherwise, shall be cumulative and concurrent and
shall be in addition to every other such right, power or remedy. The exercise or
beginning of the exercise by Lender of any one or more of the rights, powers or
remedies provided for in this Agreement or in the Notes, now or hereafter
existing at law or in equity or by statute or otherwise, shall not preclude the
simultaneous or later exercise by Lender of all such other rights, powers or
remedies, and no failure or delay on the part of Lender to exercise any such
right, power or remedy shall operate as a waiver thereof.
Section 8. Pledgor's Obligations Absolute. The obligations of Pledgor
under this Agreement shall be absolute and unconditional and shall remain in
full force and effect without regard to, and shall not be released, suspended,
discharged, terminated, lessened or otherwise
4
<PAGE> 9
affected by any circumstance or occurrence whatsoever, including, without
limitation: (a) any renewal, extension, substitution, amendment or modification
of or addition or supplement to or deletion from the Notes or this Agreement, or
any assignment or transfer thereof; (b) any waiver, consent, extension,
indulgence or other action or inaction under or in respect of the Notes or this
Agreement, or any exercise or nonexercise or any right, remedy, power or
privilege under or in respect of the Notes or this Agreement; (c) any furnishing
of any additional collateral or security to Lender or its assignee or any
acceptance thereof or any release of any collateral or security in whole or in
part by Lender or its assignee under this Agreement or otherwise; (d) any
limitation on any party's liability or obligations under the Notes, or under
this Agreement or any invalidity or unenforceability, in whole or in part, of
any such instrument or any term thereof; (e) any bankruptcy, insolvency,
adjustment or other like proceeding relating to the Pledgor, or any action taken
with respect to this Agreement or the Notes by any trustee or receiver, or by
any court, in any such proceeding; or (f) any other circumstances; whether or
not the Pledgor shall have notice or knowledge of any of the foregoing.
Section 9. Assignment; Successors and Assigns.
(a) Lender may at any time or from time to time sell, assign
or transfer to any person all or any part of the obligations of Pledgor under
the Note, and the related Secured Obligations. Upon any such sale, assignment or
transfer, Lender may sell, assign or transfer this Agreement and all or any part
of the Pledged Stock, and Lender shall be fully discharged thereafter from all
liability and responsibility with respect to such Pledged Stock as transferred,
and the transferee or transferees shall be vested with all the rights, powers
and remedies of Lender hereunder with respect to the Pledged Stock transferred.
(b) All the terms, provisions, conditions and covenants
herein contained shall be binding upon and shall inure to the benefit of the
respective successors, assigns, heirs, estates, executors, administrators, legal
representatives and devices of Pledgor and Lender.
Section 10. Further Assurances. Pledgor agrees to do such further acts
and to execute and deliver such additional agreements and instruments as Lender
may at any time reasonably request in connection with the administration or
enforcement of this Pledge Agreement or related to the Pledged Stock or any part
thereof or in order better to assure and confirm unto Lender its rights, powers
and remedies hereunder.
Section 11. Termination. Upon the payment in full of all sums which may
become due under the Notes, and the payment of all other sums payable hereunder
(including without limitation, the reasonable expenses and disbursements of
Lender), this Agreement shall terminate and Lender, at the request and expense
of Pledgor, will execute and deliver to Pledgor a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to Pledgor such of the Pledged Shares
as have not theretofore been sold or otherwise applied or released pursuant to
this Agreement, together with any moneys at the time held by Lender hereunder.
5
<PAGE> 10
Section 12. Amendment. This Agreement may be amended, modified, waived,
discharged or terminated only by an instrument in writing signed by the party
against whom enforcement of such is sought. No waiver by Lender of any breach or
default by Pledgor hereunder shall be deemed a waiver of any other breach or
default.
Section 13. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original but all of
which together shall be deemed for all purposes one and the same instrument.
Section 14. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of California, without
reference to its choice of law provisions.
Section 15. Section Headings. The Section headings in this Agreement are
for convenience only and shall not affect the construction hereof.
Section 16. Notices. All notices and other communications given in
connection with this Agreement shall be in writing and shall be conclusively
deemed to have been duly given:
(a) when hand delivered to the other party; or
(b) three (3) business days after deposit in a United States
post office with first class or certified mail, return receipt requested,
postage prepaid and addressed to the other party as set out below; or
(c) the next business day after deposit with a national
overnight delivery service reasonably approved by the parties (Federal Express
and DHL WorldWide Express being deemed approved by the parties), addressed to
the other party as set out below with next-business-day delivery requested,
provided that the sending party receives a confirmation of delivery from the
delivery service provider. A party may change or supplement the addresses given
below for purposes of this Section by giving the other party written notice of
the new address in the manner set forth above.
If to Pledgor, to:
Thomas Miller Delaplane, Trustee
The Delaplane Family Trust,
c/o Dreyer's Grand Ice Cream, Inc.
5929 College Avenue
Oakland, California 94618
If to Lender, to:
Dreyer's Grand Ice Cream, Inc.
5929 College Avenue
Oakland, CA 94618-1397
Attention: William C. Collett
6
<PAGE> 11
with a copy to:
Manwell & Milton
20 California Street, 3rd Floor
San Francisco, CA 94111
Attention: Edmund R. Manwell
Section 17. Severability. If any term or provision of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity of the other
terms and provisions hereof shall in no way be affected thereby.
Section 18. Language. The language of this Agreement shall be construed
as a whole and in accordance with the fair meaning of the language used. The
parties acknowledge and agree that any ambiguities in the language of this
Agreement shall not be strictly construed or resolved against either party based
upon the fact that either party drafted or was principally responsible for
drafting this Agreement or any specific term or condition hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
fully executed and delivered as of the day and year first written above.
PLEDGOR: LENDER:
DREYER'S GRAND ICE CREAM, INC.,
a Delaware corporation
/s/ THOMAS MILLER DELAPLANE
- ----------------------------------
THOMAS MILLER DELAPLANE, Trustee,
The Delaplane Family Trust
UAD 6/22/95
By: /s/ TIMOTHY F. KAHN
-------------------------------------
Its: TIMOTHY F. KAHN, CFO
7
<PAGE> 12
EXHIBIT A
TO PLEDGE AGREEMENT
SECURED PROMISSORY NOTE
$ _____________ Oakland, California
For value received, the undersigned, THOMAS MILLER DELAPLANE, an adult
individual ("Maker"), promises to pay to DREYER'S GRAND ICE CREAM, INC., a
Delaware corporation ("Payee"), or to order, at such place as Payee may
designate by written notice to Maker from time to time, the principal sum of
______________________________ dollars ($__________), together with interest on
the principal amount, from the date of this Note until this Note is paid in
full, at the rate of six and one-half percent (6 1/2%) per annum, such principal
and interest payable in full on the earliest to occur of: (i) the date of the
sale, transfer, assignment or other disposition of the primary residence of
Maker (such residence located at 1085 Via Media, City of Lafayette, County of
Contra Costa, State of California 94549); or (ii) the date upon which Maker
ceases to be an employee of Payee for any reason, or (iii) the second
anniversary date of this Note. Time is of the essence for every obligation under
this Note.
All payments to be made hereunder shall be made in coin or currency of
the United States of America, which at the time of payment shall be legal tender
for the payment of public and private debts. If any payment hereunder shall
become due or payable on a Saturday, Sunday or public holiday, the maturity
thereof shall be extended to the next succeeding business day.
Maker may prepay any and all of the principal amount due hereunder at
any time or from time to time without penalty. No such partial prepayment shall
relieve Maker of its obligation to make succeeding payments of the remaining
unpaid principal and interest accrued thereon at the time and in the manner
provided in this Note.
This Note is secured pursuant to a pledge agreement dated as of
October 5, 1998 (the "Pledge Agreement") for the benefit of Payee, creating a
possessory first security interest in the pledged property described therein
(the "Collateral"). Reference is made to such document for a description of the
nature and extent of the security afforded thereby, the rights of the Payee with
respect to such security and the terms and conditions upon which this Note is
secured. Payee is entitled to the benefits of the Pledge Agreement and may
enforce the agreements of Maker contained therein and exercise the remedies
provided therein or otherwise in respect thereof, all in accordance with the
terms thereof.
Upon the occurrence of either of the following described events (an
"Event of Default"), or an Event of Default as defined in the Pledge Agreement,
the entire unpaid principal balance, together with all accrued and unpaid
interest payable under this Note, shall, at the option of the Payee, become
immediately due and payable without notice to Maker:
8
<PAGE> 13
(a) Failure shall occur in the payment of any installment or other
payment of principal or interest on this Note when the same shall have become
due, and such default shall continue for more than five (5) business days; or
(b) Bankruptcy, assignment for the benefit of creditors, insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar
laws are instituted by Maker.
Maker expressly waives presentment for payment, demand for payment,
notice of dishonor, protest and notice of protest, or other notice of dishonor
and any right to cure, to the fullest extent permitted by law. To the extent
permitted by law, Maker hereby waives and releases all errors, defects and
imperfections of the Pledge Agreement, as well as all benefit that might accrue
to Maker by virtue of any present or future laws exempting the Collateral, or
any of its other property, real or personal, or any part of the proceeds arising
from any sale or any such property, from attachment, levy or sale under
execution, or providing for any stay of execution, exemption from civil process
or extension of time for payment.
Maker agrees to pay the reasonable costs of collection and attorneys'
fees paid or incurred by Payee in connection with the collection or enforcement
of this Note, whether or not suit is filed or the mater is settled. The remedies
provided herein and in the Pledge Agreement shall be cumulative and concurrent
and may be pursued successively or concurrently against Borrower and/or the
Collateral securing this Note. No failure in exercising any right or remedy
hereunder or under the Pledge Agreement shall operate as a waiver or release
thereof, nor shall any single partial exercise of any such right or remedy
preclude any other future exercise thereof or the exercise of any other right or
remedy hereunder or under the Pledge Agreement.
This Note may not be waived, changed, modified or discharged, except by
an agreement in writing which is signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
If any term or provision of this Note shall be held to be invalid,
illegal or unenforceable, the validity of the other terms and provisions hereof
shall in no way be affected thereby. This Note shall be governed by and
construed in accordance with the laws of the State of California without
reference to its choice of law provisions.
Dated: ______________________
"Maker"
--------------------------------------------
Thomas Miller Delaplane, an adult individual
9
<PAGE> 14
EXHIBIT B
TO PLEDGE AGREEMENT
LIST OF STOCK CERTIFICATES
<TABLE>
<CAPTION>
Certificate Number Registered Name Number of Shares
- ------------------ --------------- ----------------
<S> <C> <C>
SFU 34248 Thomas M. Delaplane & Linda Delaplane Tr UA 30,000
06 22 95 Delaplane Family Trust
</TABLE>
10
<PAGE> 15
EXHIBIT C
TO PLEDGE AGREEMENT
STOCK POWER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________, ______________________ (_______)
shares of the common stock, par value of $1.00, of Dreyer's Grand Ice Cream,
Inc., a Delaware corporation (the "Corporation"), represented by Certificate(s)
No(s). ___________________, standing in the undersigned's name on the books of
said Corporation, and does hereby irrevocably constitute and appoint
_________________ as attorney to transfer said shares on said books of the
Corporation with full power of substitution in the premises.
Dated: ____________, 1998
X_______________________________
Name: __________________________
The signature(s) on this assignment must correspond with the name(s) on the face
of the certificate in every particular, without alteration or enlargement, or
any change.
11
<PAGE> 1
EXHIBIT 13
15
<TABLE>
<CAPTION>
Financial content
<S> <C>
Consolidated statement of operations 16
Consolidated balance sheet 17
Consolidated statement of changes in stockholders' equity 18
Consolidated statement of cash flows 19
Notes to consolidated financial statements 20
Report of independent accountants 32
Five-year summary of significant financial data 33
Management's discussion and analysis 34
</TABLE>
<PAGE> 2
16
Consolidated statement of operations
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
($ in thousands, except per share amounts) Dec. 26, 1998 Dec. 27, 1997 Dec. 28, 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales $ 1,022,335 $ 970,097 $ 791,841
Other income 3,653 2,994 4,354
----------- ----------- -----------
1,025,988 973,091 796,195
----------- ----------- -----------
Costs and expenses:
Cost of goods sold 827,862 764,551 629,285
Selling, general and administrative 212,151 183,390 146,003
Impairment of long-lived assets 44,564
Restructuring charges 3,300
Interest, net of interest capitalized 13,006 10,695 9,548
----------- ----------- -----------
1,100,883 958,636 784,836
----------- ----------- -----------
(Loss) income before income taxes and cumulative effect of change
in accounting principle (74,895) 14,455 11,359
Income tax (benefit) provision (28,385) 5,681 4,362
----------- ----------- -----------
(Loss) income before cumulative effect of change in accounting principle (46,510) 8,774 6,997
Cumulative effect of change in accounting principle 746
----------- ----------- -----------
Net (loss) income (46,510) 8,028 6,997
----------- ----------- -----------
Accretion of preferred stock to redemption value 424 424 424
Preferred stock dividends 696 3,636 4,573
----------- ----------- -----------
Net (loss) income applicable to common stock $ (47,630) $ 3,968 $ 2,000
=========== =========== ===========
Net (loss) income per common share:
Basic:
(Loss) income before cumulative effect of change in accounting principle $ (1.75) $ .18 $ .08
Cumulative effect of change in accounting principle .03
----------- ----------- -----------
Net (loss) income per common share $ (1.75) $ .15 $ .08
=========== =========== ===========
Diluted:
(Loss) income before cumulative effect of change in accounting principle $ (1.75) $ .17 $ .07
Cumulative effect of change in accounting principle .03
----------- ----------- -----------
Net (loss) income per common share $ (1.75) $ .14 $ .07
=========== =========== ===========
</TABLE>
See accompanying Notes to consolidated financial statements
<PAGE> 3
17
Consolidated balance sheet
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) Dec. 26, 1998 Dec. 27, 1997
--------- ---------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,171 $ 3,626
Trade accounts receivable, net of allowance for doubtful accounts
of $5,710 in 1998 and $710 in 1997 83,053 82,011
Other accounts receivable 29,165 16,527
Inventories 49,472 49,720
Prepaid expenses and other 13,271 14,416
--------- ---------
Total current assets 176,132 166,300
Property, plant and equipment, net 207,772 232,826
Goodwill and distribution rights, net 67,226 89,932
Other assets 12,050 13,740
--------- ---------
Total assets $ 463,180 $ 502,798
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 87,273 $ 57,037
Accrued payroll and employee benefits 19,545 22,323
Current portion of long-term debt 8,255 8,364
--------- ---------
Total current liabilities 115,073 87,724
Long-term debt, less current portion 169,781 165,913
Deferred income taxes 16,039 40,591
--------- ---------
Total liabilities 300,893 294,228
--------- ---------
Commitments and contingencies
Redeemable convertible preferred stock, $1 par value--1,008,000 shares authorized;
1,008,000 shares issued and outstanding in 1998 and 1997 99,654 99,230
--------- ---------
Stockholders' Equity:
Preferred stock, $1 par value--8,992,000 shares authorized;
no shares issued or outstanding in 1998 and 1997
Common stock, $1 par value--60,000,000 shares authorized; 27,312,000 shares
and 27,020,000 shares issued and outstanding in 1998 and 1997, respectively 27,312 27,020
Capital in excess of par 46,722 42,822
(Accumulated deficit) retained earnings (11,401) 39,498
--------- ---------
Total stockholders' equity 62,633 109,340
--------- ---------
Total liabilities and stockholders' equity $ 463,180 $ 502,798
========= =========
</TABLE>
See accompanying Notes to consolidated financial statements
<PAGE> 4
18
Consolidated statement of changes in
stockholders' equity
<TABLE>
<CAPTION>
(Accumulated
Capital Deficit)
Common Stock in Excess Retained
(In thousands) Shares Amount of Par Earnings Total
------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 30, 1995 12,929 $ 12,929 $ 39,370 $ 39,964 $ 92,263
Net income for 1996 6,997 6,997
Accretion of preferred stock to redemption value (424) (424)
Preferred stock dividends declared (4,573) (4,573)
Common stock dividends declared (3,202) (3,202)
Issuance of common stock under employee stock plans 105 105 2,359 2,464
Repurchases and retirements of common stock (9) (9) (253) (262)
Common stock issued in acquisition of
M-K-D Distributors, Inc. 320 320 10,480 10,800
------ --------- --------- --------- ---------
Balance at December 28, 1996 13,345 13,345 51,956 38,762 104,063
Net income for 1997 8,028 8,028
Accretion of preferred stock to redemption value (424) (424)
Preferred stock dividends declared (3,636) (3,636)
Common stock dividends declared (3,232) (3,232)
Issuance of common stock under employee stock plans 177 177 4,639 4,816
Repurchases and retirements of common stock (7) (7) (268) (275)
Common stock split 13,505 13,505 (13,505)
------ --------- --------- --------- ---------
Balance at December 27, 1997 27,020 27,020 42,822 39,498 109,340
Net loss for 1998 (46,510) (46,510)
Accretion of preferred stock to redemption value (424) (424)
Preferred stock dividends declared (696) (696)
Common stock dividends declared (3,269) (3,269)
Issuance of common stock under employee stock plans 298 298 4,038 4,336
Repurchases and retirements of common stock (6) (6) (138) (144)
------ --------- --------- --------- ---------
Balance at December 26, 1998 27,312 $ 27,312 $ 46,722 $ (11,401) $ 62,633
====== ========= ========= ========= =========
</TABLE>
See accompanying Notes to consolidated financial statements
<PAGE> 5
19
Consolidated statement of cash flows
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
($ in thousands) Dec. 26, 1998 Dec. 27, 1997 Dec. 28, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(46,510) $ 8,028 $ 6,997
Adjustments to reconcile net (loss) income to cash flows from operations:
Depreciation and amortization 36,176 31,946 27,549
Deferred income taxes (26,612) 1,846 2,364
Impairment of long-lived assets 44,564
Loss on disposal of property, plant and equipment 5,317
Reserve for independent distributor receivable 5,000
Reserve for restructuring charges 3,147
Cumulative effect of change in accounting principle 746
Changes in assets and liabilities, net of amounts acquired:
Trade accounts receivable (6,042) (8,958) (7,664)
Other accounts receivable (12,783) (2,889) 809
Inventories (1,137) (8,960) (5,389)
Prepaid expenses and other 3,192 3,545 3,116
Accounts payable and accrued liabilities 27,662 9,611 6,555
Accrued payroll and employee benefits (2,778) 4,125 (1,077)
-------- -------- --------
29,196 39,040 33,260
-------- -------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (35,078) (38,470) (58,470)
Retirement of property, plant and equipment 284 677 2,152
Increase in goodwill and distribution rights (311) (146) (772)
Increase in other assets (547) (947) (3,600)
-------- -------- --------
(35,652) (38,886) (60,690)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 12,400 11,700 76,000
Repayments of long-term debt (8,641) (9,070) (43,858)
Issuance of common stock under employee stock plans 4,336 4,816 2,464
Repurchases and retirements of common stock (144) (275) (262)
Cash dividends paid (3,950) (7,833) (5,831)
-------- -------- --------
4,001 (662) 28,513
-------- -------- --------
(Decrease) increase in cash and cash equivalents (2,455) (508) 1,083
Cash and cash equivalents, beginning of year 3,626 4,134 3,051
-------- -------- --------
Cash and cash equivalents, end of year $ 1,171 $ 3,626 $ 4,134
======== ======== ========
Supplemental Cash Flow Information--
Cash paid during the year for:
Interest (net of amounts capitalized) $ 12,785 $ 10,634 $ 8,856
Income taxes (net of refunds) 881 1,070 398
Non-cash transactions:
Acquisition of M-K-D Distributors, Inc. 10,800
======== ======== ========
</TABLE>
See accompanying Notes to consolidated financial statements
<PAGE> 6
20
Notes to consolidated financial statements
Note 1 Operations
- --------------------------------------------------------------------------------
Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the Company) is a single
segment industry company engaged in manufacturing and distributing premium ice
cream and other frozen dessert products to grocery and convenience stores,
foodservice accounts and independent distributors in the United States.
The Company accounts for its operations geographically for management
reporting purposes. These geographic segments have been aggregated for financial
reporting purposes due to similarities in the economic characteristics of the
geographic segments and the similar nature of the products, production
processes, customer types and distribution methods throughout the United States.
The Company's products are also segregated between sales
of company branded products (company brands) and sales of other companies'
branded products (partner brands) for management reporting purposes. Sales of
company brands were $647,745,000, $618,401,000 and $493,625,000 in 1998, 1997
and 1996, respectively. Sales of partner brands were $374,590,000, $351,696,000
and $298,216,000 in 1998, 1997 and 1996, respectively. The Company had one
customer in 1998 that comprised 10 percent of sales and no customers accounted
for 10 percent or more of sales in 1997 or 1996.
Note 2 Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Consolidation
The consolidated financial statements include the accounts of Dreyer's Grand Ice
Cream, Inc. and its subsidiaries. All intercompany transactions have been
eliminated.
Fiscal Year
The Company's fiscal year is a fifty-two or fifty-three week period ending on
the last Saturday in December. Fiscal years 1998, 1997 and 1996 each consisted
of fifty-two weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company classifies financial instruments as cash equivalents if the original
maturity of such investments is three months or less.
Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Cost includes materials, labor and manufacturing
overhead.
Property, Plant and Equipment
The cost of additions and major improvements and repairs to property, plant and
equipment are capitalized, while maintenance and minor repairs are charged to
expense as incurred. Depreciation of property, plant and equipment is computed
using the straight-line method over the assets' estimated useful lives,
generally ranging from two to thirty-five years. Interest costs relating to
capital assets under construction are capitalized.
Goodwill and Distribution Rights
Goodwill and distribution rights are amortized using the straight-line method
over thirty to thirty-six years. Accumulated amortization was $30,212,000 and
$19,817,000 at December 26, 1998 and December 27, 1997, respectively.
Preoperating Costs
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP
98-5 requires that the costs of start-up activities, including preoperating
costs, be expensed as incurred. This new accounting standard is effective for
financial statements for periods beginning after December 15, 1998. The Company
has capitalized preoperating costs such as those incurred during both the
construction and start-up of new manufacturing and distribution facilities and
introductory allowances paid to customers. These costs are amortized over one to
three years. As a result of adopting SOP 98-5, the Company will expense
unamortized preoperating costs in the first quarter of 1999 as a cumulative
effect of a change in accounting principle. The Company's unamortized
preoperating cost balances were $987,000 and $1,623,000 at December 26, 1998 and
December 27, 1997, respectively.
During 1996, the Company capitalized $2,710,000 of preoperating costs associated
with the start-up of its Houston, Texas manufacturing facility. The unamortized
balance of $1,205,000 as of December 26, 1998 was determined to be unrecoverable
and was charged to expense. The charge is included in impairment of long-lived
assets on the Consolidated statement of operations (See Note 3).
<PAGE> 7
21
Notes to consolidated financial statements
Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles,
including goodwill and distribution rights, 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 will be recorded, measured by the
amount of the difference between the carrying value and the fair value of the
asset. Assets to be disposed of are recorded at the lower of carrying amount or
fair value less costs to sell. Such assets are not depreciated while held for
sale.
Advertising Costs
The Company defers production costs for media advertising and expenses these
costs in the period the advertisement is first run. All other advertising costs
are expensed as incurred. Advertising expense, including consumer promotion
spending, was $22,188,000, $28,849,000 and $28,770,000 in 1998, 1997 and 1996,
respectively.
Income Taxes
Income taxes are accounted for using the liability method. Under this method,
deferred tax assets and liabilities are recognized for the tax consequences of
temporary differences between the financial reporting basis and tax basis of
assets and liabilities.
Accounting for Stock-Based Compensation
The Company measures compensation cost for employee stock options and similar
equity instruments using the intrinsic value-based method of accounting.
Cumulative Effect of Change in Accounting Principle
On November 20, 1997, the Financial Accounting Standards Board's Emerging Issues
Task Force issued a pronouncement requiring that reengineering costs be expensed
as incurred. Furthermore, the pronouncement required that all previously
unamortized capitalized reengineering costs be written off and treated as a
cumulative effect of a change in accounting principle as of the beginning of the
quarter including November 20, 1997. In connection with this pronouncement, the
Company recorded an after-tax charge of $746,000 during the fourth quarter of
1997.
Net (Loss) Income Per Common Share
Basic net (loss) income per common share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted net
(loss) income per common share reflects the additional dilutive effect of the
Company's potentially dilutive securities, which include stock options, stock
warrants and redeemable convertible preferred stock.
The Company's potentially dilutive securities were anti-dilutive during 1998
due to the Company's net loss. Accordingly, 1998 basic and diluted net loss per
common share are computed using the same denominator of 27,189,000 shares. The
1997 and 1996 net income per common share calculations are as follows:
<TABLE>
<CAPTION>
Income Shares Per Share
(In thousands, except per share amounts) (Numerator) (Denominator) Amount
- ---------------------------------------- ----------- ------------- ------
<S> <C> <C> <C>
1997:
Income before cumulative
effect of change in
accounting principle $8,774
Less: Preferred stock
dividends and accretion 4,060
------
Basic: Income applicable to
common stock $4,714 26,872 $ .18
=======
Effect of dilutive securities:
Stock options 1,096
Stock warrants 500
------
Diluted: Income applicable to
common stock $4,714 28,468 $ .17
====== ====== =======
1996:
Income before cumulative
effect of change in
accounting principle $6,997
Less: Preferred stock
dividends and accretion 4,997
------
Basic: Income applicable to
common stock $2,000 26,496 $ .08
=======
Effect of dilutive securities:
Stock options 214
------
Diluted: Income applicable to
common stock $2,000 26,710 $ .07
====== ====== =======
</TABLE>
Excluded from the above calculations of diluted net (loss) income per common
share are the following potentially dilutive securities as their inclusion would
have an anti-dilutive effect. These securities, stated in equivalent shares of
common stock, consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------- ---- ---- ----
<S> <C> <C> <C>
Stock options 4,361 925
Stock warrants 2,000 4,000
Preferred stock 5,800 5,800 5,800
</TABLE>
<PAGE> 8
22
Notes to consolidated financial statements
Note 3 Restructuring Program and Other Actions
- --------------------------------------------------------------------------------
Background
In 1994 the Company adopted a strategic plan to accelerate the sales of its
brand throughout the country (the Strategic Plan). The key elements of this plan
are: 1) to build high margin brands with leading market shares through effective
consumer marketing activities, 2) to expand the Company's direct-store-delivery
distribution network to national scale and enhance this capability with
sophisticated information and logistics systems and 3) to introduce innovative
new products.
In accordance with the Strategic Plan, the Company embarked on an aggressive
national expansion. This expansion involved the entry into 34 new markets, which
included the opening of a major manufacturing and distribution center in Texas,
a significant increase in marketing spending and the introduction of several new
products. At the same time, the Company invested in its soft-serve equipment
manufacturing business (Grand Soft). The investments required to fund the brand
building actions and national expansion and to support the Grand Soft business
substantially increased the Company's cost structure.
Beginning in late 1997 and continuing into 1998, the cost of dairy, the
primary ingredient in ice cream, increased significantly. These costs peaked in
1998 at a rate more than double that experienced in the prior year. This
increase reduced the Company's 1998 gross margin by approximately $22,000,000
when compared to 1997. Aggressive discounting by the Company's competitors made
it difficult to raise prices by an amount sufficient to compensate for these
higher dairy costs. During this same period, sales volumes of the Company's
"better for you" products continued the significant decline that began in 1997,
consistent with an industry-wide trend. These "better for you" products enjoy a
higher margin than the Company's classic ice cream and the volume decline had a
significant impact on the Company's profitability in 1998. Finally, in August
1998, Ben & Jerry's Homemade, Inc. (Ben & Jerry's) informed the Company of its
intention to terminate its distribution contract. Subsequent negotiations with
Ben & Jerry's yielded revisions to the original contract terms which will reduce
the Company's distribution gross margin of Ben & Jerry's products by
approximately 54 percent starting September 1, 1999. The Company estimates that
the markets where it will stop distributing Ben & Jerry's products contributed
approximately 6 percent of its gross margin, or $13,000,000, in 1998.
The above factors: the higher dairy costs; the decline in "better for you"
volumes; and the reduction in future Ben & Jerry's sales; had and will have a
negative effect on the Company's gross margin and its ability to successfully
implement the Strategic Plan. The Company, therefore, concluded that a thorough
reassessment of its cost structure and strategy was necessary. This reassessment
yielded a restructuring program designed to improve profitability and accelerate
cost reductions by increasing focus on the core elements of the Strategic Plan.
The reassessment also addressed the need to review the valuation of certain
assets unfavorably impacted by Ben & Jerry's decision to change its distribution
agreement with the Company. On October 16, 1998, the board of directors approved
the restructuring program.
Revision of Ben & Jerry's Distribution Agreement
During the third quarter of 1998, Ben & Jerry's notified the Company of its
intention to terminate the distribution contract between the Company and Ben &
Jerry's. The Company subsequently entered into negotiations with Ben & Jerry's
to resolve issues associated with the pending termination. In the first quarter
of 1999, the companies announced that they reached a resolution regarding these
issues by amending the existing distribution agreement and entering into a new
distribution agreement. As a result, the Company will continue to distribute Ben
& Jerry's products until August 31, 1999 in all existing markets, except the New
York metropolitan area (discussion follows in Restructuring Program and Other
Actions), and on terms and conditions different in some respects from those in
place prior to the amendment. The Company will stop distributing Ben & Jerry's
products in New York on April 1, 1999. Starting September 1, 1999, the Company's
distribution gross margin of Ben & Jerry's products will be reduced by
approximately 54 percent under the new distribution agreement. Additionally, Ben
& Jerry's notified the Company of its intention to terminate its separate
distribution agreement with the Company's independent distributor in Texas
(discussion follows in Restructuring Program and Other Actions).
In 1998, the distribution margin on Ben & Jerry's products contributed just
over 11 percent of the Company's total gross margin. The Company estimates that
the distribution gross margin in the markets where it will stop distributing Ben
& Jerry's products later in 1999 represented approximately 6 percent, or
$13,000,000, of its total gross margin in 1998.
<PAGE> 9
23
Notes to consolidated financial statements
Restructuring Program and Other Actions
The implementation of the restructuring program and other actions resulted in a
pre-tax charge to earnings of $59,114,000 in 1998. This includes $10,590,000
recorded in the third quarter which related primarily to Ben & Jerry's actions
that occurred in September 1998 and to a severance program, which management had
already begun in advance of board approval of the remainder of the restructuring
program. The remainder of the charges, $48,524,000, was recorded in the fourth
quarter of 1998.
The five key elements of the restructuring program and other actions are as
follows:
- - The Company decided to exit the equipment manufacturing business associated
with its Grand Soft ice cream unit. The Grand Soft business consists of both ice
cream sales and equipment manufacturing operations. The Company will remain in
the profitable ice cream portion of this business, while exiting the
unprofitable equipment manufacturing operation. In the fourth quarter of 1998,
the Company recorded $8,696,000 in asset impairment charges and $2,258,000 in
estimated closing costs associated with the withdrawal from this business.
The Company expects to exit the equipment manufacturing operation by June 1999.
The $8,696,000 charge is included in impairment of long-lived assets in the
Consolidated statement of operations and is comprised of $5,714,000 of goodwill,
$1,956,000 of property, plant and equipment and $1,026,000 of inventory and
other assets. The remaining assets of Grand Soft total $1,762,000 and consist
primarily of trade accounts receivable, which are fully recoverable. The assets
were written down to net realizable value based on an estimate of what an
independent third party would pay for the assets of the business. The charge of
$2,258,000 for closing costs is included in restructuring charges in the
Consolidated statement of operations and a $2,258,000 liability is included in
accounts payable and accrued liabilities in the Consolidated balance sheet, as
no closing costs were paid in 1998. The closing costs are based on estimates of
legal fees, employee separation payments and expected settlements. The closing
costs include $576,000 of severance related costs for the 23 employees, from all
areas of responsibility, who were notified of their pending termination prior to
fiscal year end. The Grand Soft manufacturing operations generated revenues of
$3,093,000, $3,346,000 and $6,007,000 and incurred pre-tax operating losses of
$(2,335,000), $(2,274,000) and $(1,628,000) in 1998, 1997 and 1996,
respectively.
- The Company has implemented a program designed to reduce operating expenses
in manufacturing, sales and distribution and administration. Core pieces of this
program include outsourcing of certain non-strategic activities, consolidation
of warehouse facilities and selected reductions in sales and distribution
staffing. These actions were completed in the fourth quarter.
As part of this program, the Company reviewed operations at all of its
manufacturing facilities in order to identify and dispose of under-utilized
assets. As a result of this review, the Company recorded a charge to cost of
goods sold of $5,317,000 in the fourth quarter, related primarily to the write
down of manufacturing assets.
In connection with reducing operating expenses for sales and distribution,
the Company recorded $1,042,000 of severance and related charges in the fourth
quarter that are included in restructuring charges in the Consolidated statement
of operations. A total of 38 sales and distribution employees were to be
terminated under this program. Of this total, 16 were terminated in 1998 and
paid $153,000 in severance benefits. The remaining 22 employees were notified of
their pending termination prior to fiscal year end. An accrual for severance
benefits of $889,000 was outstanding at year end. The Company also recorded a
$933,000 charge to cost of goods sold in the third quarter for severance actions
begun in advance of board approval of the remainder of the restructuring
program. The Company paid $514,000 of these severance benefits in 1998, leaving
a liability of $419,000 at year end, which is included in accounts payable and
accrued liabilities in the Consolidated balance sheet.
In addition, the Company charged to expense $4,478,000 of previously
capitalized costs classified as property, plant and equipment associated with
the expansion of its headquarters, as the expansion plan was canceled in an
effort to reduce future administration costs. The $4,478,000 charge was based on
a third party independent appraisal of the fair market value of the related real
property and is included in impairment of long-lived assets in the Consolidated
statement of operations.
- - The Company, in carrying out its national expansion program, made significant
investments to support an aggressive expansion in Texas. These investments,
while building sales volume, delivered results below expectations. The Company
is now modifying this expansion strategy in order to concentrate on more
profitable opportunities. The objective in Texas will be to preserve volumes
while seeking margin improvement. As a result of this change in strategy, the
Company will realize substantially lower production volumes over the remaining
useful life of its Texas manufacturing plant than originally contemplated. The
Company has therefore concluded that its investment in the Texas plant is
non-recoverable and has recorded an impairment charge of $16,200,000 in the
<PAGE> 10
24
Notes to consolidated financial statements
fourth quarter to reduce the net book value of the plant to its estimated fair
market value. The $16,200,000 impairment charge was based on a third party
independent appraisal and is included in impairment of long-lived assets in the
Consolidated statement of operations.
- - As previously mentioned, Ben & Jerry's indicated its intent to terminate its
separate distribution agreement with the Company's independent distributor in
Texas, (the Texas Distributor), in which the Company has a 16 percent minority
equity interest. Ben & Jerry's action placed at significant risk the
recoverability of the Company's equity investment, distribution rights, and
trade receivables relating to this distributor. In the third quarter of 1998,
the Company recorded a bad debt provision of $5,000,000 relating to the trade
receivables, when originally notified of the Ben & Jerry's decision. The
$5,000,000 bad debt provision is included in selling, general and administrative
expenses in the Consolidated statement of operations. In light of Ben & Jerry's
plans to terminate its relationship with the Texas Distributor and the
previously noted change in the Company's Texas strategy, the Company evaluated
the recoverability of all assets associated with the Texas Distributor.
Accordingly, in addition to the accounts receivable reserve recorded in the
third quarter, the Company recorded additional charges of $10,533,000 in the
fourth quarter related to the impairment of its minority equity investment and
distribution rights associated with the Company's contract with the Texas
Distributor. The Company concluded that these assets were unrecoverable due to
the substantially reduced profits and cash flow resulting from Ben & Jerry's
decision to terminate the Texas Distributor's distribution agreement. The
$10,533,000 charge is comprised of $9,449,000 of distribution rights and
$1,084,000 of the equity investment and is included in impairment of long-lived
assets in the Consolidated statement of operations.
- - Due to the notice of termination from Ben & Jerry's, the Company charged to
expense $4,657,000 of the unamortized portion of distribution rights related to
the acquisition of the Ben & Jerry's New York distributor. The Company acquired
this business in 1989, in the development of its long-standing relationship with
Ben & Jerry's. The other tangible assets of this business have been merged with
the Company's New York operations and are fully recoverable. This charge was
recorded in the third quarter of 1998 and is included in impairment of
long-lived assets in the Consolidated statement of operations.
The following table summarizes the classification of the charges in the
Consolidated statement of operations related to the restructuring program and
other actions:
<TABLE>
<CAPTION>
1998
----------------------------------------------
(In thousands) Third Quarter Fourth Quarter Full Year
------------- -------------- ---------
<S> <C> <C> <C>
Restructuring charges:
Grand Soft $ $ 2,258 $ 2,258
Sales and distribution
severance 1,042 1,042
------- ------- -------
3,300 3,300
------- ------- -------
Impairment of long-lived assets:
Grand Soft 8,696 8,696
Texas plant 16,200 16,200
Texas independent
distributor 10,533 10,533
Ben & Jerry's revision 4,657 4,657
Headquarters' expansion 4,478 4,478
------- ------- -------
4,657 39,907 44,564
------- ------- -------
Other charges:
Texas independent
distributor 5,000 5,000
Sales and distribution
severance 933 933
Asset disposals 5,317 5,317
------- ------- -------
5,933 5,317 11,250
------- ------- -------
$10,590 $48,524 $59,114
======= ======= =======
</TABLE>
The following table summarizes the accruals included in accounts payable and
accrued liabilities in the Consolidated balance sheet related to the
restructuring program and other actions:
<TABLE>
<CAPTION>
(In thousands) 1998
- -------------- ----
<S> <C>
Restructuring accruals:
Grand Soft $2,258
Sales and distribution severance 889
------
3,147
------
Other accruals:
Sales and distribution severance 419
------
$3,566
======
</TABLE>
<PAGE> 11
25
Notes to consolidated financial statements
Note 4 Inventories
- --------------------------------------------------------------------------------
Inventories at December 26, 1998 and December 27, 1997 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
------- -------
<S> <C> <C>
Raw materials $ 4,840 $ 7,411
Finished goods 44,632 42,309
------- -------
$49,472 $49,720
======= =======
</TABLE>
Note 5 Property, Plant and Equipment
- --------------------------------------------------------------------------------
Property, plant and equipment at December 26, 1998 and December 27, 1997
consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
-------- --------
<S> <C> <C>
Machinery and equipment $198,122 $181,628
Buildings and improvements 92,287 84,409
Capital leased assets 16,836 18,993
Office furniture and fixtures 6,672 6,484
-------- --------
313,917 291,514
Less: Accumulated depreciation
and amortization 129,782 112,839
-------- --------
184,135 178,675
Land 15,436 11,838
Construction in progress 8,201 42,313
-------- --------
$207,772 $232,826
======== ========
</TABLE>
Accumulated amortization of the Company's capital leased assets was
$8,118,000 and $5,837,000 at December 26, 1998 and December 27, 1997,
respectively.
Interest capitalized was $1,244,000, $2,254,000 and $2,627,000 in 1998, 1997
and 1996, respectively.
Depreciation expense for property, plant and equipment, including
amortization expense for capital leased assets, was $32,375,000, $27,799,000 and
$23,510,000 in 1998, 1997 and 1996, respectively.
Construction in progress at December 26, 1998 included $3,513,000 of costs
associated with the upgrade of the Company's computer systems and at December
27, 1997 included $29,130,000 of costs associated with the expansion of
manufacturing and distribution capacity.
Note 6 Goodwill and Distribution Rights
- --------------------------------------------------------------------------------
On March 27, 1996, the Company acquired the remaining 50.3 percent of the
outstanding common stock of M-K-D Distributors, Inc. (M-K-D) for 320,000 newly
issued shares of the Company's common stock* having a value of $10,800,000. The
acquisition was accounted for as a purchase and the amount by which the purchase
price exceeded the fair value of the net identifiable assets acquired of
$8,144,000 was recorded as goodwill and distribution rights. The Company
consolidated the results of operations of M-K-D since the beginning of fiscal
1996. That portion of M-K-D's 1996 pre-acquisition earnings before income taxes,
which was attributable to the former stockholders' interest, approximately
$148,000, was recorded as a charge to selling, general and administrative
expenses.
Note 7 Income Taxes
- --------------------------------------------------------------------------------
The (benefit) provision for federal and state income taxes consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ (2,147) $ 3,644 $ 1,683
State 374 191 315
-------- -------- --------
(1,773) 3,835 1,998
-------- -------- --------
Deferred:
Federal (24,218) 1,267 2,003
State (2,394) 579 361
-------- -------- --------
(26,612) 1,846 2,364
-------- -------- --------
$(28,385) $ 5,681 $ 4,362
======== ======== ========
</TABLE>
The 1997 cumulative effect of change in accounting principle
of $746,000 is net of an income tax benefit of $484,000, comprised of federal
and state income taxes, which is not reflected in the above table.
* The share information is presented before the effect of the 1997 common
stock split. (See Note 11.)
<PAGE> 12
26
Notes to consolidated financial statements
The net deferred income tax liability as of December 26, 1998 and December
27, 1997 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss (NOL)
carryforwards $ 1,770 $
Tax credit carryforwards 6,732
-------- --------
8,502
-------- --------
Deferred tax liabilities:
Intangible assets and related
amortization (10,249) (15,773)
Depreciation (9,248) (19,814)
Deferred costs (4,657) (4,063)
Other (387) (941)
-------- --------
(24,541) (40,591)
-------- --------
$(16,039) $(40,591)
======== ========
</TABLE>
The federal statutory income tax rate is reconciled to the Company's effective
income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Federal statutory
income tax rate (35.0)% 35.0% 35.0%
Tax credits (1.9)
State income taxes, net
of federal tax benefit (1.8) 3.5 3.9
Reversal of income taxes
provided in prior periods (3.7)
Other 0.8 0.8 3.2
----- ---- ----
(37.9)% 39.3% 38.4%
===== ==== ====
</TABLE>
As of December 26, 1998, the Company had deferred tax assets relating to NOL
carryforwards, alternative minimum tax and research credit carryforwards. The
pre-tax federal NOL carryforwards of $3,647,000 expire in 2018. The research
credit carryforwards of $2,334,000 expire between 2012 and 2018. The alternative
minimum tax carryforwards of $4,398,000 can be carried forward indefinitely, as
they do not expire. Utilization of these carryforwards may be limited in the
event of a change in ownership of the Company. No valuation allowance for these
assets has been recorded because the Company believes that it is more likely
than not that these carryforwards will be used in future years to offset taxable
income.
Note 8 Long-Term Debt
- --------------------------------------------------------------------------------
Long-term debt at December 26, 1998 and December 27, 1997 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
-------- --------
<S> <C> <C>
Revolving line of credit with banks,
due 2000 with interest payable
at three different rate options $ 99,800 $ 87,400
Senior notes, with principal due through
2008 and interest payable semi-
annually at rates ranging from
7.68 percent to 8.34 percent 50,000 50,000
Capital lease obligation, with payments
due through 2000 and interest
payable quarterly at a floating rate 13,136 18,177
Senior notes, with principal due
through 2001 and interest payable
semiannually at 9.3 percent 10,600 14,200
Industrial revenue bonds, with principal
due through 2001 and interest
payable quarterly at a floating rate
based upon a tax-exempt note index 4,500 4,500
-------- --------
178,036 174,277
Less: Current portion 8,255 8,364
-------- --------
$169,781 $165,913
======== ========
</TABLE>
The aggregate annual maturities of long-term debt, including the capital
lease obligation, as of December 26, 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------
<S> <C>
Year ending:
1999 $ 8,255
2000 119,024
2001 15,043
2002 7,143
2003 2,143
Later years 26,428
--------
$178,036
========
</TABLE>
<PAGE> 13
27
Notes to consolidated financial statements
Line of Credit
The Company has a credit agreement with certain banks for a total revolving line
of credit of $175,000,000. The total available under the line decreases to
$149,286,000 on December 31, 1999 and the line expires on December 31, 2000.
This line is available at three different interest rate options, which are
defined as the agent bank's offshore rate, same day funding rate plus an
applicable margin, or the bank's reference rate. The interest rate on the line
of credit was 6.20 percent at December 26, 1998.
Senior Notes
On June 6, 1996, the Company completed a private placement of $50,000,000 of
senior notes, due 2000 through 2008. Proceeds from the senior notes were used to
repay a portion of existing bank borrowings under the Company's line of credit
and to fund capital expenditures.
Lease Transaction
On March 29, 1996, the Company entered into a capital lease transaction
involving the majority of its direct-store-delivery truck fleet. The $26,000,000
proceeds received by the Company from the lease transaction were used to both
repay a portion of existing borrowings under the Company's line of credit and to
fund capital expenditures. The interest rate on the capital lease obligation was
6.06 percent at December 26, 1998. The four-year lease has been classified as a
capital lease and the related assets are recorded in property, plant and
equipment.
The excess of the lease transaction proceeds over the carrying value of the
fleet of approximately $9,095,000 was deferred and netted against the carrying
value of the capital leased assets. This deferred gain is being credited to
income in proportion to the amortization of the capital leased assets.
Fair Value of Financial Instruments
As of December 26, 1998 and December 27, 1997, the fair value of the Company's
long-term debt was determined to approximate the carrying amount. The fair value
was based on quoted market prices for the same or similar issues or on the
current rates offered to the Company for a term equal to the same remaining
maturities. It is not practicable to estimate the fair value of the redeemable
convertible preferred stock due to the unique terms and conditions of this
security.
The Company is subject to the requirements of various financial covenants,
including dividend restrictions, under its long-term debt obligations.
Note 9 Leasing Arrangements
- --------------------------------------------------------------------------------
The Company conducts certain of its operations from leased facilities, which
include land and buildings, production equipment and certain vehicles. All of
these leases, except one that has 89 years remaining, including renewal options,
expire within a period of twenty-four years, including renewal options. Certain
of these leases include non-bargain purchase options.
The minimum rental payments required under non-cancelable leases at December
26, 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands) Capital Operating
------- -------
<S> <C> <C>
Year ending:
1999 $ 5,383 $ 2,872
2000 8,624 2,524
2001 1,979
2002 1,613
2003 1,536
Later years 4,348
------- -------
14,007 $14,872
=======
</TABLE>
<TABLE>
<S> <C>
Less: Amounts representing interest 871
-------
Present value of minimum lease payments 13,136
Less: Current portion 4,655
-------
$ 8,481
=======
</TABLE>
Rental expense for operating leases was $12,447,000, $13,994,000 and
$11,665,000 in 1998, 1997 and 1996, respectively.
Note 10 Redeemable Convertible Preferred Stock
- --------------------------------------------------------------------------------
On October 3, 1997, the Company's Series B preferred stock was converted into a
total of 1,008,000 shares of redeemable convertible Series A preferred stock
(Series A), redeemable on June 30, 2001. The Series A preferred stock is
convertible, under certain conditions, at an initial conversion price of $17.37
into a total of 5,800,000 shares of common stock.
In preference to shares of common stock, the Series A preferred stockholders
are entitled to receive cumulative cash dividends, payable quarterly in arrears.
Dividends on the Series A preferred stock are payable at a dividend rate equal
to the amount that would be received as if the shares were converted into
comparable shares of common stock. Series A preferred stockholders have common
stock voting rights equal to the number of common shares into which their
preferred stock is convertible. The Company is recording accretion to increase
the carrying value to the redemption value of $100,752,000 by June 30, 2001.
<PAGE> 14
28
Notes to consolidated financial statements
Note 11 Common Stock
- --------------------------------------------------------------------------------
The Company paid a regular quarterly dividend of $.03 per share of common stock
for each quarter of 1998, 1997 and 1996.
During 1987, the Board of Directors declared a dividend of one Preferred
Stock Purchase Right (the Rights) for each outstanding share of common stock.
Under certain conditions, the Rights become exercisable for the purchase of the
Company's preferred or common stock.
Common Stock Split
On November 18, 1997, the Company issued shares of common stock to holders of
record on October 30, 1997 to effect a two-for-one common stock split. An amount
equal to the par value of the common stock issued was transferred from capital
in excess of par to common stock to reflect this split. Additionally, the number
of shares, stock price per share, and earnings and dividends per share
information appearing in these consolidated financial statements were restated
to reflect this stock split on a retroactive basis unless otherwise indicated.
Nestle Equity Issuance
Pursuant to a 1994 equity transaction (the Nestle Agreement), an affiliate of
Nestle USA, Inc. (Nestle) purchased 6,000,000 newly issued shares of common
stock and warrants to purchase an additional 4,000,000 shares at an exercise
price of $16 per share. Warrants for 2,000,000 shares expired unexercised on
June 14, 1997. Warrants for the other 2,000,000 shares are exercisable at any
time prior to their expiration on June 14, 1999.
The Company has the right to cause Nestle to exercise the remaining warrants
at any time through the warrant expiration date at $16 per share, if the average
trading price of the common stock exceeds $30 during a 130 trading day period
preceding the exercise, subject to certain conditions. Furthermore, if the
average trading price of the common stock equals or exceeds $30 during a 130
trading day period before June 14, 1999, Nestle will be required to pay an
additional $1 for each share purchased and each share purchased upon exercise of
the warrants.
In connection with the Nestle Agreement, the Company entered into a
distribution agreement with Nestle Ice Cream Company to distribute Nestle's
frozen novelty and ice cream products in certain markets.
Note 12 Employee Benefit Plans
- --------------------------------------------------------------------------------
The Company maintains a defined contribution retirement plan (pension plan) for
employees not covered by a collective bargaining agreement. The plan provides
retirement benefits based upon the assets of the plan held by the trustee. The
Company amended its pension plan during 1998 to reduce the percentage of
eligible participants' annual compensation it contributes to the plan from 7
percent to 5 percent. The Company also maintains a salary deferral plan (401(k)
plan) under which it may make a matching contribution of a percentage of each
participant's deferred salary amount.
Pension expense and 401(k) matching contributions under these plans were
$5,411,000, $7,500,000 and $7,683,000 in 1998, 1997 and 1996, respectively. The
Company's liability for accrued pension contributions and 401(k) matching
contributions was $5,648,000 and $7,841,000 at December 26, 1998 and December
27, 1997, respectively.
Pension expense for employees covered by multi-employer retirement plans
under collective bargaining agreements was $981,000, $1,056,000 and $956,000 in
1998, 1997 and 1996, respectively.
Note 13 Employee Stock Plans
- --------------------------------------------------------------------------------
The Company offers to certain employees various stock option plans, a Section
423 employee stock purchase plan and an employee secured stock purchase plan.
Stock Option Plans
The Company has three stock option plans under which options may be granted for
the purchase of the Company's common stock at a price not less than 100 percent
of the fair market value at the date of grant. The incentive stock option plan
(the 1982 Plan) provides that options are not exercisable until after two years
from the date of grant and generally expire six years from the date of grant.
The non-qualified stock option plan (the 1992 Plan) provides that options are
not exercisable until after two years from the date of grant and expire upon
death or termination of employment. In 1994, the stockholders approved an
additional stock option plan (the 1993 Plan) under which granted options may be
either incentive stock options or non-qualified stock options. This plan
provides that options expire no later than ten years from the date of grant.
This plan also provides that most of the terms of the options, such as vesting,
are within the discretion of the compensation committee, composed of certain
members of the Company's board of directors.
<PAGE> 15
29
Notes to consolidated financial statements
No compensation expense has been recognized for these stock option plans. If
compensation expense for these plans had been determined based on the estimated
fair value at the grant dates, the Company's net (loss) income applicable to
common stock and net (loss) income per common share on a pro forma basis would
have been as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1998 1997 1996
---------- --------- -------
<S> <C> <C> <C>
Net (loss) income applicable
to common stock $ (50,530) $ 1,757 $ 249
Net (loss) income per
common share:
Basic (1.86) .07 .01
Diluted (1.86) .06 .01
</TABLE>
The Company used the Black-Scholes option pricing model to estimate the fair
value of options granted during 1998, 1997 and 1996. The assumptions used to
compute compensation expense in the above pro forma presentation and to estimate
the weighted average fair market value of options granted are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Risk-free interest rate 5.74% 6.59% 5.96%
Dividend yield .53% .78% .75%
Volatility 32.29% 31.51% 33.62%
Expected term (years) 5.9 5.7 4.5
Weighted average
fair market value $ 9.10 $ 6.07 $ 6.17
</TABLE>
Stock options exercisable were 2,196,000, 1,719,000 and 1,236,000 at years
ended 1998, 1997 and 1996, respectively. These stock options were exercisable at
weighted average option prices of $13.69, $13.15 and $13.06 for 1998, 1997 and
1996, respectively.
The activity in the three stock option plans for each of the three years in
the period ended December 26, 1998 is summarized below.
<TABLE>
<CAPTION>
Options Weighted
Available Options Average Price
(In thousands, except per share amounts) for Grant Outstanding Per Share
--------- ----------- -------------
<S> <C> <C> <C>
Balance, December 30, 1995 920 2,730 $ 12.55
Authorized 2,000
Granted (902) 902 15.75
Exercised (106) 8.87
Canceled 106 (106) 13.46
------ ----- ---------
Balance, December 28, 1996 2,124 3,420 13.49
Granted (932) 932 15.35
Exercised (243) 12.58
Canceled 143 (143) 14.32
------ ----- ---------
Balance, December 27, 1997 1,335 3,966 13.97
Granted (714) 714 22.72
Exercised (181) 11.99
Canceled 138 (138) 16.42
------ ----- ---------
Balance, December 26, 1998 759 4,361 $ 15.41
====== ===== =========
</TABLE>
Significant option groups outstanding at December 26, 1998 and related
weighted average price per share and life information follows:
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- -----------------------------------
Exercise Options Weighted Average Weighted Average Options Weighted Average
Price Range Outstanding Exercise Price Remaining Life(Years) Exercisable Exercise Price
- ----------- ----------- -------------- --------------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.75-14.06 1,856 $ 12.58 5.2 1,461 $ 12.58
14.63-19.75 1,835 15.52 7.4 704 15.50
22.88-25.38 670 22.95 9.2 31 24.57
----- --------- --- ----- ---------
4,361 $ 15.41 2,196 $ 13.69
===== ========= ===== =========
</TABLE>
<PAGE> 16
30
Notes to consolidated financial statements
Section 423 Employee Stock Purchase Plan
Under the section 423 employee stock purchase plan, employees may authorize
payroll deductions of up to 10 percent of their compensation for the purpose of
acquiring shares at 85 percent of the market price determined at the beginning
of a specified twelve month period. Under this plan, employees purchased 34,000
shares at prices ranging from $13.15 to $19.87 per share in 1998, 30,000 shares*
at prices ranging from $24.65 to $25.93 per share* in 1997 and 24,000 shares* at
prices ranging from $22.00 to $32.94 per share* in 1996. Compensation expense
based on the fair value of the employees' purchase rights was not material in
1998, 1997 and 1996.
Employee Secured Stock Purchase Plan
Under the employee secured stock purchase plan, on specified dates, employees
may purchase shares at fair market value by paying 20 percent of the purchase
price in cash and the remaining 80 percent of the purchase price in the form of
a non-recourse promissory note with a term of 30 years. Under this plan,
employees purchased 83,000 shares at prices ranging from $13.38 to $20.13 per
share in 1998, 20,000 shares* at prices ranging from $30.25 to $48.25 per share*
in 1997 and 28,000 shares* at prices ranging from $28.50 to $31.75 per share* in
1996.
Note 14 Insurance Settlements and Trademark Sale
- --------------------------------------------------------------------------------
During 1998, 1997 and 1996, the Company recorded several gains relating to
claims filed under its insurance policies. These claims resulted from accidents
that contaminated certain finished goods inventories. Under the Company's
insurance policies, the Company is entitled to receive the value of the affected
finished goods inventories at their normal selling price, plus expenses incurred
in recovering from these accidents. These claims resulted in gains of
$1,300,000, $2,355,000 and $2,100,000 in 1998, 1997 and 1996, respectively,
which were recorded as reductions in cost of goods sold.
In December 1996, the Company sold trademark rights for the People's Republic
of China, Hong Kong and Macau to a third-party independent distributor for
$2,600,000. Also in December 1996, the Company recorded $1,043,000 of gross
margin relating to the sale of a three to five month supply of its products to
this same distributor.
In 1998, insurance claims decreased 1998 net loss by $807,000, or $0.03 per
diluted common share. In 1997, insurance claims increased 1997 net income by
$1,430,000, or $0.05 per diluted common share. The 1996 transactions, including
gains from insurance claims, increased 1996 net income by $3,538,000, or $0.13
per diluted common share.
Note 15 Contingencies
- --------------------------------------------------------------------------------
The Company is engaged in various legal actions as both plaintiff and defendant.
Management believes that the outcome of these actions, either individually or in
the aggregate, will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
* The share information is presented before the effect of the 1997 common
stock split. (See Note 11.)
<PAGE> 17
Notes to consolidated financial statements
Note 16 Selected Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Loss) Income Before
Cumulative Effect Cumulative Effect Net (Loss) Income Price Range Per
(In thousands, except per Gross of Change in of Change in Applicable to Common Share
share amounts) Sales Margin Accounting Principle(1) Accounting Principle Common Stock (NASDAQ)(2)
- ------------------------- ---------- --------- -------------------- -------------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1998
1st Quarter $ 215,082 $ 36,114 $ (5,905) $ (5,905) $20.00-25.38
2nd Quarter 280,273 62,502 4,255 4,255 19.38-26.75
3rd Quarter 302,972 64,054 (6,261) (6,261) 9.44-21.50
4th Quarter 224,008 31,803 (39,719) (39,719) 9.00-17.38
---------- -------- -------- -------- ------------
$1,022,335 $194,473 $(47,630) $(47,630)
========== ======== ======== ========
1997
1st Quarter $ 200,438 $ 38,187 $ (1,300) $ (1,300) $14.50-17.25
2nd Quarter 271,972 59,255 4,937 4,937 14.88-20.13
3rd Quarter 286,256 65,641 3,715 3,715 18.75-27.50
4th Quarter 211,431 42,463 (2,638) $ 746 (3,384) 18.50-26.50
---------- -------- -------- -------- -------- ------------
$ 970,097 $205,546 $ 4,714 $ 746 $ 3,968
========== ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Basic Net (Loss) Income Per Common Share(2) Diluted Net (Loss) Income Per Common Share(2)
------------------------------------------------ --------------------------------------------------
(Loss) Income (Loss) Income
Before Cumulative Cumulative Before Cumulative Cumulative
Effect of Change Effect of Change Effect of Change Effect of Change
in Accounting in Accounting Net (Loss) in Accounting in Accounting Net (Loss)
Principle(3) Principle Income(3) Principle(3) Principle Income(3)
----------------- ---------------- ----------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998
1st Quarter $ (.22) $ (.22) $ (.22) $ (.22)
2nd Quarter .16 .16 .13 .13
3rd Quarter (.23) (.23) (.23) (.23)
4th Quarter (1.45) (1.45) (1.45) (1.45)
1997
1st Quarter $ (.05) $ (.05) $ (.05) $ (.05)
2nd Quarter .18 .18 .18 .18
3rd Quarter .14 .14 .13 .13
4th Quarter (.10) $ (.03) (.13) (.10) $ (.03) (.13)
</TABLE>
(1) (Loss) income has been reduced by preferred stock dividends and accretion
of preferred stock to redemption value.
(2) Retroactively restated to reflect the effects of the common stock split in
1997.
(3) The number of weighted average shares outstanding used in the computation
of net (loss) income per common share increases and decreases as shares are
issued and repurchased during the year. For this reason, the sum of net
(loss) income per common share for the quarters may not be the same as the
net (loss) income per common share for the year.
<PAGE> 18
32
Report of independent accountants
To the Board of Directors and Stockholders of
Dreyer's Grand Ice Cream, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Dreyer's Grand Ice Cream, Inc. and its subsidiaries at December 26, 1998 and
December 27, 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 26, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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 2 to the consolidated financial statements, the Company
changed its method of accounting for reengineering costs in the fourth quarter
of 1997.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
February 22, 1999
<PAGE> 19
33
Five-year summary of significant financial data
<TABLE>
<CAPTION>
Fiscal Year Ended December
-------------------------------------------------------------------------
(In thousands, except per share amounts) 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operations:
Sales and other income $ 1,025,988 $ 973,091 $ 796,195 $ 681,052 $ 566,602
(Loss) income before cumulative effect of
change in accounting principle (46,510) 8,774 6,997 (1,524) 1,001
Net (loss) income (46,510) 8,028 6,997 (1,524) 1,001
Net (loss) income applicable to common stock (47,630) 3,968 2,000 (3,496) 1,001
Per Common Share:
Basic:
(Loss) income before cumulative effect of
change in accounting principle(1) (1.75) .18 .08 (.13) .03
Net (loss) income(1) (1.75) .15 .08 (.13) .03
Diluted:
(Loss) income before cumulative effect of
change in accounting principle(1) (1.75) .17 .07 (.13) .03
Net (loss) income(1) (1.75) .14 .07 (.13) .03
Dividends declared(1) .12 .12 .12 .12 .12
Balance Sheet:
Total assets 463,180 502,798 478,907 414,105 362,026
Working capital 61,059 78,576 70,136 69,361 48,403
Long-term debt, including convertible
subordinated debentures 169,781 165,913 163,135 134,000 146,852
Redeemable convertible preferred stock 99,654 99,230 98,806 98,382
Stockholders' equity 62,633 109,340 104,063 92,263 135,921
</TABLE>
(1) Retroactively restated to reflect the effects of the common stock split in
1997.
<PAGE> 20
34
Management's discussion and analysis
Results of Operations
- --------------------------------------------------------------------------------
Forward-Looking Statements
The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases and in reports to
stockholders. The Private Securities Litigation Reform Act of 1995 contains a
"safe harbor" for forward-looking statements upon which the Company relies in
making such disclosures. In accordance with this "safe harbor" provision, we
have identified that forward-looking statements are contained in this Annual
Report. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect subsequent events or circumstances.
Also, in connection with this "safe harbor" provision, the Company identifies
important factors that could cause the Company's actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of the Company. Those factors include but are not limited to those
discussed in the section Risks and Uncertainties in Management's discussion and
analysis. Any such statement is qualified by reference to the cautionary
statements set forth in the section Risks and Uncertainties and in the Company's
other filings with the Securities and Exchange Commission.
Financial Summary
The Company recorded a net loss applicable to common stock of $(47,630,000), or
$(1.75) per common share for fiscal 1998. These results represent a substantial
decrease from the net income applicable to common stock of $3,968,000, or $0.14
per diluted common share reported for fiscal 1997. Consolidated net sales
increased 5 percent over fiscal 1997 to $1,022,335,000, surpassing $1 billion
for the first time in the Company's history. The results for fiscal 1998 reflect
the effects of the Company's previously announced restructuring program and
other actions, and certain charges related to changes in its distribution
arrangement with Ben & Jerry's Homemade, Inc. (Ben & Jerry's).
Background
In fiscal 1994 the Company adopted a strategic plan to accelerate
the sales of its brand throughout the country (the Strategic Plan). The key
elements of this plan are: 1) to build high margin brands with leading market
shares through effective consumer marketing activities, 2) to expand the
Company's direct-store-delivery distribution network to national scale and
enhance this capability with sophisticated information and logistics systems and
3) to introduce innovative new products. The potential benefits of the Strategic
Plan are increased market share and future earnings above those levels that
would be attained in the absence of the Strategic Plan.
In accordance with the Strategic Plan, the Company embarked on an aggressive
national expansion. This expansion involved the entry into 34 new markets, which
included the opening of a major manufacturing and distribution center in Texas,
a significant increase in marketing spending and the introduction of several new
products. At the same time, the Company invested in its soft-serve equipment
manufacturing business (Grand Soft). The investments required to fund the brand
building actions and national expansion and to support the Grand Soft business
substantially increased the Company's cost structure.
Beginning in late fiscal 1997 and continuing into fiscal 1998, the cost of
dairy, the primary ingredient in ice cream, increased significantly. These costs
peaked in fiscal 1998 at a rate more than double that experienced in the prior
year. This increase reduced the Company's fiscal 1998 gross margin by
approximately $22,000,000 when compared to fiscal 1997. Aggressive discounting
by the Company's competitors made it difficult to raise prices by an amount
sufficient to compensate for these higher dairy costs. During this same period,
sales volumes of the Company's "better for you" products continued the
significant decline that began in fiscal 1997, consistent with an industry-wide
trend. These "better for you" products enjoy a higher margin than the Company's
classic ice cream and the volume decline had a significant impact on the
Company's profitability in 1998. Finally, in August 1998, Ben & Jerry's informed
the Company of its intention to terminate its distribution contract. Subsequent
negotiations with Ben & Jerry's yielded revisions to the original contract terms
which will reduce the Company's distribution gross margin of Ben & Jerry's
products by approximately 54 percent starting September 1, 1999. The Company
estimates that the markets where it will stop distributing Ben & Jerry's
products contributed approximately 6 percent of its gross margin, or
$13,000,000, in fiscal 1998.
The above factors: the higher dairy costs; the decline in "better for you"
volumes; and the reduction in future Ben & Jerry's sales; had and will have a
negative effect on the Company's gross margin and its ability to successfully
implement the Strategic Plan. The Company, therefore, concluded that a thorough
reassessment of its cost structure and strategy was necessary. This reassessment
yielded a restructuring program designed to improve profitability and accelerate
cost reductions by increasing focus on the core elements of the Strategic Plan.
The reassessment also addressed the need to review the valuation of certain
assets unfavorably impacted by Ben & Jerry's decision to change its distribution
agreement with the Company. On October 16, 1998, the board of directors approved
the restructuring program.
<PAGE> 21
35
Management's discussion and analysis
Revision of Ben & Jerry's Distribution Agreement
During the third quarter of fiscal 1998, Ben & Jerry's notified the Company of
its intention to terminate the distribution contract between the Company and Ben
& Jerry's. The Company subsequently entered into negotiations with Ben & Jerry's
to resolve issues associated with the pending termination. In the first quarter
of fiscal 1999, the companies announced that they reached a resolution regarding
these issues by amending the existing distribution agreement and entering into a
new distribution agreement. As a result, the Company will continue to distribute
Ben & Jerry's products until August 31, 1999 in all existing markets, except the
New York metropolitan area (discussion follows in Restructuring Program and
Other Actions), and on terms and conditions different in some respects from
those in place prior to the amendment. The Company will stop distributing Ben &
Jerry's products in New York on April 1, 1999. Starting September 1, 1999, the
Company's distribution gross margin of Ben & Jerry's products will be reduced by
approximately 54 percent under the new distribution agreement. Additionally, Ben
& Jerry's notified the Company of its intention to terminate its separate
distribution agreement with the Company's independent distributor in Texas
(discussion follows in Restructuring Program and Other Actions).
In 1998, the distribution margin on Ben & Jerry's products contributed just
over 11 percent of the Company's total gross margin. The Company estimates that
the distribution gross margin in the markets where it will stop distributing Ben
& Jerry's products later in fiscal 1999 represented approximately 6 percent, or
$13,000,000, of its total gross margin in fiscal 1998. Ultimately the Company
expects to recoup this lost margin through the introduction of its own, higher
margin branded products. The Company does anticipate some transitional negative
financial impact in late fiscal 1999 as the Ben & Jerry's relationship changes
and the Company incurs costs associated with launching its own new products.
Restructuring Program and Other Actions
The implementation of the restructuring program and other actions resulted in a
pre-tax charge to earnings of $59,114,000 in fiscal 1998. This includes
$10,590,000 recorded in the third quarter which related primarily to Ben &
Jerry's actions that occurred in September 1998 and to a severance program,
which management had already begun in advance of board approval of the remainder
of the restructuring program. The remainder of the charges, $48,524,000, was
recorded in the fourth quarter of fiscal 1998.
The five key elements of the restructuring program and other actions are as
follows:
- - The Company decided to exit the equipment manufacturing business associated
with its Grand Soft ice cream unit. The Grand Soft business consists of both ice
cream sales and equipment manufacturing operations. The Company will remain in
the profitable ice cream portion of this business, while exiting the
unprofitable equipment manufacturing operation. In the fourth quarter of fiscal
1998, the Company recorded $8,696,000 in asset impairment charges and $2,258,000
in estimated closing costs associated with the withdrawal from this business.
The Company expects to exit the equipment manufacturing operation by June 1999.
The $8,696,000 charge is included in impairment of long-lived assets in the
Consolidated statement of operations and is comprised of $5,714,000 of goodwill,
$1,956,000 of property, plant and equipment and $1,026,000 of inventory and
other assets. The remaining assets of Grand Soft total $1,762,000 and consist
primarily of trade accounts receivable, which are fully recoverable. The assets
were written down to net realizable value based on an estimate of what an
independent third party would pay for the assets of the business. The charge of
$2,258,000 for closing costs is included in restructuring charges in the
Consolidated statement of operations and a $2,258,000 liability is included in
accounts payable and accrued liabilities in the Consolidated balance sheet, as
no closing costs were paid in fiscal 1998. The closing costs are based on
estimates of legal fees, employee separation payments and expected settlements.
The closing costs include $576,000 of severance related costs for the 23
employees, from all areas of responsibility, who were notified of their pending
termination prior to fiscal year end. The Grand Soft manufacturing operations
generated revenues of $3,093,000, $3,346,000 and $6,007,000 and incurred pre-tax
operating losses of $(2,335,000), $(2,274,000) and $(1,628,000) in fiscal years
1998, 1997 and 1996, respectively.
- - The Company has implemented a program designed to reduce operating expenses
in manufacturing, sales and distribution and administration. Core pieces of this
program include outsourcing of certain non-strategic activities, consolidation
of warehouse facilities and selected reductions in sales and distribution
staffing. The Company completed these actions in the fourth quarter, and
believes that they will improve operating margins without sacrificing market
coverage or sales effectiveness.
- As part of this program, the Company reviewed operations at all of its
manufacturing facilities in order to identify and dispose of under-utilized
assets. As a result of this review, the Company recorded a charge to cost of
goods sold of $5,317,000 in the fourth quarter, related primarily to write down
of manufacturing assets.
In connection with reducing operating expenses for sales and distribution,
the Company recorded $1,042,000 of severance and related charges in the fourth
quarter that are included in the restructuring charges in the Consolidated
statement of operations. A total
<PAGE> 22
36
Management's discussion and analysis
of 38 sales and distribution employees were to be terminated under this program.
Of this total, 16 were terminated in fiscal 1998 and paid $153,000 in severance
benefits. The remaining 22 employees were notified of their pending termination
prior to fiscal year end. An accrual for severance benefits of $889,000 was
outstanding at year end. The Company also recorded a $933,000 charge to cost of
goods sold in the third quarter for severance actions begun in advance of board
approval of the remainder of the restructuring program. The Company paid
$514,000 of these severance benefits in fiscal 1998, leaving a liability of
$419,000 at fiscal year end which is included in accounts payable and accrued
liabilities in the Consolidated balance sheet.
In addition, the Company charged to expense $4,478,000 of previously
capitalized costs classified as property, plant and equipment associated with
the expansion of its headquarters, as the expansion plan was canceled in an
effort to reduce future administration costs. The $4,478,000 charge was based on
a third party independent appraisal of the fair market value of the related real
property and is included in impairment of long-lived assets on the Consolidated
statement of operations.
- - The Company, in carrying out its national expansion program, made significant
investments to support an aggressive expansion in Texas. These investments,
while building sales volume, delivered results below expectations. The Company
is now modifying this expansion strategy in order to concentrate on more
profitable opportunities. The objective in Texas will be to preserve volumes
while seeking margin improvement. As a result of this change in strategy, the
Company will realize substantially lower production volumes over the remaining
useful life of its Texas manufacturing plant than originally contemplated. The
Company has therefore concluded that its investment in the Texas plant is
non-recoverable and has recorded an impairment charge of $16,200,000 in the
fourth quarter to reduce the net book value of the plant to its estimated fair
market value. The $16,200,000 impairment charge was based on a third party
independent appraisal and is included in impairment of long-lived assets in the
Consolidated statement of operations.
- - Ben & Jerry's indicated its intent to terminate its separate distribution
agreement with the Company's independent distributor in Texas, (the Texas
Distributor), in which the Company has a 16 percent minority equity interest.
Ben & Jerry's action placed at significant risk the recoverability of the
Company's equity investment, distribution rights, and trade receivables relating
to this distributor. In the third quarter of fiscal 1998, the Company recorded a
bad debt provision of $5,000,000 relating to the trade receivables, when
originally notified of the Ben & Jerry's decision. The $5,000,000 bad debt
provision is included in selling, general and administrative expenses in the
Consolidated statement of operations. In light of Ben & Jerry's plans to
terminate its relationship with the Texas Distributor and the previously noted
change in the Company's Texas strategy, the Company evaluated the recoverability
of all assets associated with the Texas Distributor. Accordingly, in addition to
the accounts receivable reserve recorded in the third quarter, the Company
recorded additional charges of $10,533,000 in the fourth quarter related to the
impairment of its minority equity investment and distribution rights associated
with the Company's contract with the Texas Distributor. The Company concluded
that these assets were unrecoverable due to the substantially reduced profits
and cash flow resulting from Ben & Jerry's decision to terminate the Texas
Distributor's distribution agreement. The $10,533,000 charge is comprised of
$9,449,000 of distribution rights and $1,084,000 of the equity investment and is
included in impairment of long-lived assets in the Consolidated statement of
operations.
- - Due to the notice of termination from Ben & Jerry's, the Company charged to
expense $4,657,000 of unamortized portion of distribution rights related to the
acquisition of the Ben & Jerry's New York distributor. The Company acquired this
business in fiscal 1989, in the development of its long-standing relationship
with Ben & Jerry's. The other tangible assets of this business have been merged
with the Company's New York operations and are fully recoverable. This charge
was recorded in the third quarter of fiscal 1998 and is included in impairment
of long-lived assets in the Consolidated statement of operations.
<PAGE> 23
37
Management's discussion and analysis
The following table summarizes the classification of the charges in the
Consolidated statement of operations related to the restructuring program and
other actions:
<TABLE>
<CAPTION>
1998
--------------------------------------------
(In thousands) Third Quarter Fourth Quarter Full Year
------------- -------------- ---------
<S> <C> <C> <C>
Restructuring charges:
Grand Soft $ $ 2,258 $ 2,258
Sales and distribution
severance 1,042 1,042
------- ------- -------
3,300 3,300
------- ------- -------
Impairment of long-lived assets:
Grand Soft 8,696 8,696
Texas plant 16,200 16,200
Texas independent
distributor 10,533 10,533
Ben & Jerry's revision 4,657 4,657
Headquarters' expansion 4,478 4,478
------- ------- -------
4,657 39,907 44,564
------- ------- -------
Other charges:
Texas independent
distributor 5,000 5,000
Sales and distribution
severance 933 933
Asset disposals 5,317 5,317
5,933 5,317 11,250
------- ------- -------
$10,590 $48,524 $59,114
======= ======= =======
</TABLE>
The following table summarizes the accruals included in accounts payable and
accrued liabilities in the Consolidated balance sheet related to the
restructuring program and other actions:
<TABLE>
<CAPTION>
(In thousands) 1998
------
<S> <C>
Restructuring accruals:
Grand Soft $2,258
Sales and distribution severance 889
------
3,147
------
Other accruals:
Sales and distribution severance 419
------
$3,566
======
</TABLE>
The Company anticipates an improvement in pre-tax income of approximately
$14,000,000 in fiscal 1999 as a result of the restructuring program and other
actions. The $14,000,000 will be realized through reduced depreciation and
amortization expense of approximately $5,300,000 and reduced salaries and
operating expenses of approximately $9,700,000. In addition, the Company
anticipates that cash inflows from tax deductions and proceeds from asset sales
will more than offset the cash costs of the restructuring program and other
actions.
Risks and Uncertainties
Certain statements contained in this Annual Report are forward-looking
statements made pursuant to the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve known and unknown risks and
uncertainties, which may cause the Company's actual actions or results to differ
materially from those contained in the forward-looking statements.
The Company believes that the benefits under the Strategic Plan will be
realized in future years, although no assurance can be given that the
expectations relative to future market share and earnings benefits of the
strategy will be achieved. Specific factors that might cause such a difference
include, but are not limited to, the Company's ability to achieve the cost
reductions anticipated from its restructuring program and to achieve
efficiencies in its manufacturing and distribution operations without negatively
affecting sales, the cost of dairy and other commodities used in the Company's
products, competitors' marketing and promotion responses, market conditions
affecting the price of the Company's products, the Company's ability to increase
sales of its own branded products, and responsiveness of the trade and consumers
to the Company's new products and increased marketing and promotional expenses.
Adoption of New Accounting Standard
The Company is required to adopt the Accounting Standards Executive Committee's
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP
98-5) in the first quarter of fiscal 1999. SOP 98-5 requires that the costs of
start-up activities, including preoperating costs, should be expensed as
incurred. The Company has capitalized preoperating costs such as those incurred
during the construction and start-up of new manufacturing and distribution
facilities and introductory allowances paid to customers. These costs are
amortized over one to three years. As a result of adopting SOP 98-5, the Company
will expense unamortized preoperating costs in the first quarter of fiscal 1999
as a cumulative effect of a change in accounting principle. The Company does not
expect the adoption of SOP 98-5 to have a material adverse effect on its
financial position.
<PAGE> 24
38
Management's discussion and analysis
Fiscal 1998 Compared with Fiscal 1997
Consolidated sales for fiscal 1998 increased 5 percent, or $52,238,000, to
$1,022,335,000 from $970,097,000 for fiscal 1997. Sales of the Company's branded
products were 5 percent, or $29,344,000, higher than fiscal 1997, as a result of
higher unit sales and increased selling prices. The products that led this
increase were Dreyer's and Edy's Homemade Ice Cream and Dreyer's and Edy's Grand
Ice Cream, offset by significant declines in the Company's "better for you"
frozen yogurt, sugar free, reduced fat and fat free products. The higher sales
were due in part to the effect of a significant increase in trade promotion
spending. The average national dollar market share of the Company's Dreyer's and
Edy's branded products was 15.5 percent, in the final quarters of 1998 and 1997.
Sales of other companies' branded products (partner brands) increased 7 percent,
led by Ben & Jerry's Homemade(R) superpremium products. Sales of partner brands
represented 37 percent of consolidated sales in fiscal 1998 compared with 36
percent in fiscal 1997. Wholesale prices for the Company's branded products
increased approximately 2 percent, before the effect of increased trade
promotion expense. The effect of price increases for partner brands was
approximately 4 percent.
Other income increased $659,000, or 22 percent, due to higher earnings from a
joint venture accounted for under the equity method.
Cost of goods sold increased $63,311,000, or 8 percent, over fiscal 1997,
while the overall gross margin decreased from 21.2 percent to 19.0 percent. The
gross margin decreased due to dairy costs that were approximately $22,000,000
higher than fiscal 1997 dairy costs.
Selling, general and administrative expenses increased from 19 percent of
sales for fiscal 1997 to 21 percent of sales for fiscal 1998. The increase of
$28,761,000, or 16 percent in fiscal 1998 compared with fiscal 1997, related
primarily to both significantly higher trade promotion and the establishment of
a $5,000,000 reserve for trade receivables relating to an independent
distributor. (See Note 3 of Notes to consolidated financial statements.)
Interest expense was $2,311,000, or 22 percent, higher in fiscal 1998 than
fiscal 1997, due primarily to higher average borrowings on the Company's line of
credit.
Fiscal 1997 Compared with Fiscal 1996
Consolidated sales for fiscal 1997 increased 23 percent, or $178,256,000, to
$970,097,000 from $791,841,000 for fiscal 1996. Sales of the Company's branded
products were 25 percent, or $124,776,000, higher than fiscal 1996 and accounted
for the majority of the overall sales increase. The increase in sales of the
Company's branded products related primarily to higher unit sales in all
markets. The products that led this increase were Dreyer's and Edy's Grand Ice
Cream, Dreyer's and Edy's Homemade Ice Cream, Starbucks(R) Ice Cream, and
Dreyer's and Edy's Grand Light(R) Ice Cream. These higher sales were due in part
to the effect of a significant increase in trade promotion spending. The average
national dollar market share of the Company's Dreyer's and Edy's branded
products increased to 15.5 percent in the final quarter of 1997 from 13.3
percent for the same period in 1996. Sales of other companies' branded products
(partner brands) increased 18 percent, led by Healthy Choice(R) low fat ice
cream from Con Agra, Inc., Ben & Jerry's Homemade(R) superpremium products, and
frozen novelty and ice cream products from Nestle Ice Cream Company. Sales of
partner brands represented 36 percent of consolidated sales in fiscal 1997
compared with 38 percent in fiscal 1996. Wholesale prices for the Company's
branded products increased approximately 3 percent, before the effect of
increased trade promotion expense. The effect of price increases for partner
brands was not significant.
Other income decreased $1,360,000, or 31 percent, due to the sale of
trademark rights for the People's Republic of China, Hong Kong and Macau to a
third-party distributor for $2,600,000 in fiscal 1996 (see Note 14 of Notes to
consolidated financial statements), partially offset in fiscal 1997 by higher
earnings from a joint venture accounted for under the equity method.
Cost of goods sold increased $135,266,000, or 22 percent, over fiscal 1996,
while the overall gross margin increased to 21.2 percent from 20.5 percent. The
gross margin increased due to higher margins on Company's branded products, and
a comparatively higher proportion of those sales (which carry a higher margin
than partner brands), offset slightly by a decrease in partner brand gross
margin due to changes in product mix. The improvement in the gross margin on the
Company's branded products was due to lower dairy costs in fiscal 1997 as
compared to fiscal 1996. The Company recorded a pre-tax gain of $2,355,000
resulting from various insurance claims during fiscal 1997, which was recorded
as a reduction in cost of goods sold. (See Note 14 of Notes to consolidated
financial statements.) These insurance gains are largely non-recurring and as
such may not be available in future periods.
Selling, general and administrative expenses increased from 18 percent of
sales for fiscal 1996 to 19 percent of sales for fiscal 1997. The increase of
$37,387,000, or 26 percent, related primarily to significantly higher trade
promotion expenses in fiscal 1997 compared with fiscal 1996.
Interest expense was $1,147,000, or 12 percent, higher in fiscal 1997 than
fiscal 1996 due primarily to additional interest expense from the issuance of
senior notes in the second quarter of fiscal 1996, partially offset by a
reduction in interest expense on the Company's line of credit due to lower
average borrowings.
<PAGE> 25
39
Management's discussion and analysis
Tax Provisions
The Company's income tax provisions differ from tax provisions calculated using
the federal statutory tax rate primarily due to tax credits, state income taxes
and the reversal of income taxes provided in prior periods. (See Note 7 of Notes
to consolidated financial statements.)
Seasonality
The Company experiences more demand for its products during the spring and
summer than during the fall and winter. (See Note 16 of Notes to consolidated
financial statements.)
Effects of Inflation and Changing Prices
The largest component of the Company's cost of production is raw materials,
principally dairy products and sugar. Historically, the Company has been able to
compensate for increases in the price level of these commodities through
manufacturing and distribution operating efficiencies. However, in fiscal 1998,
unusually high dairy costs negatively impacted the Company's gross margin by
approximately $22,000,000 as compared to fiscal 1997. In fiscal 1997, dairy
prices decreased resulting in an improvement in gross margin of approximately
$3,800,000 when compared to fiscal 1996. Other cost increases such as labor and
general administrative costs have been offset by productivity gains and other
operating efficiencies.
Market Risk
The Company has long-term debt with both fixed and variable interest rates. As a
result, the Company is exposed to market risk caused by fluctuations in interest
rates. The following summarizes the Company's long-term debt interest rates at
December 26, 1998:
<TABLE>
<CAPTION>
Balance at Interest
($ in thousands) Dec. 26, 1998 Rates
- ---------------- ------------- -----
<S> <C> <C>
Fixed Interest Rates:
Senior notes $50,000 7.68-8.34%
Senior notes 10,600 9.3%
Variable Interest Rates:
Revolving line of credit $99,800 6.20%
Capital lease obligation 13,136 6.06%
Industrial revenue bonds 4,500 3.40%
=======
</TABLE>
If interest rates increased ten percent, the Company's annual interest
expense would increase approximately $714,000.
The Company does not have short-term or long-term investments. Additionally,
the Company does not transact business in foreign currencies. As such, the
Company is not at risk due to fluctuations in foreign exchange rates.
Financial Condition
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's operations provided cash flow of $29,196,000 during fiscal 1998
compared with $39,040,000 and $33,260,000 provided in fiscal 1997 and fiscal
1996, respectively. Working capital of the Company decreased to $61,059,000 in
fiscal 1998 compared with $78,576,000 and $70,136,000 during fiscal 1997 and
fiscal 1996, respectively.
The Company continued to expand its manufacturing capacity and
direct-store-delivery distribution system through investments of $35,078,000 in
property, plant and equipment during fiscal 1998 compared with $38,470,000 and
$58,470,000 during fiscal 1997 and fiscal 1996, respectively. The Company plans
to spend approximately $17,000,000 during fiscal 1999 on property, plant and
equipment primarily for further expansion of its manufacturing capacity,
construction of distribution facilities and replacement of delivery vehicles. It
is anticipated that these additions will be largely financed through internally
generated funds and borrowings.
The Company's financing activities provided cash of $4,001,000 during fiscal
1998 compared with cash used of $662,000 during fiscal 1997 and cash provided of
$28,513,000 during fiscal 1996. During fiscal 1998, borrowings of $12,400,000 on
the Company's line of credit and cash flows from operations were used to both
make $8,641,000 of scheduled payments on the Company's other debt and to pay
$3,950,000 in cash dividends to common and preferred stockholders. During fiscal
1997, borrowings of $11,700,000 on the Company's line of credit and cash flows
from operations were used to both make $9,070,000 of scheduled payments on the
Company's other debt and $7,833,000 in cash dividends to common and preferred
stockholders. During fiscal 1996, $50,000,000 of proceeds from the issuance of
senior notes and the completion of a $26,000,000 lease transaction involving the
majority of its direct-store-delivery truck fleet provided cash used for both
investments in property, plant and equipment and to reduce borrowings on the
Company's long-term line of credit. (See Note 8 of Notes to consolidated
financial statements.)
Refer to the Consolidated statement of cash flows for the components of
increases and decreases in cash and cash equivalents for the three year period
ended December 26, 1998.
On October 3, 1997, the Company converted its redeemable convertible Series B
preferred stock to redeemable convertible Series A preferred stock. (See Note 10
of Notes to consolidated financial statements.)
On November 18, 1997, the Company issued shares of common stock to holders of
record on October 30, 1997 to effect a two-for
<PAGE> 26
40
Management's discussion and analysis
one common stock split. (See Note 11 of Notes to consolidated financial
statements.)
Nestle has stock warrants to purchase 2,000,000 shares of common stock at $16
per share, exercisable at any time prior to their expiration on June 14, 1999.
During fiscal 1996, the Company acquired the remaining 50.3 percent of the
outstanding common stock of M-K-D for 320,000 newly issued shares of its common
stock* having a value of $10,800,000. (See Note 6 of Notes to consolidated
financial statements.)
As of December 26, 1998, the Company had deferred tax assets relating to net
operating losses (NOL) carryforwards, alternative minimum tax and research tax
credit carryforwards. The pre-tax federal NOL carryforwards $3,647,000 expire in
2018. The research tax credit carryforwards of $2,334,000 expire between 2012
and 2018. The alternative minimum tax carryforwards of $4,398,000 can be carried
forward indefinitely, as they do not expire. Utilization of these carryforwards
may be limited in the event of a change in ownership of the Company. No
valuation allowance for these assets has been recorded because the Company
believes that it is more likely than not that these carryforwards will be used
in future years to offset taxable income. (See Note 7 of Notes to consolidated
financial statements.)
The Company's inventory is maintained at the same general level relative to
sales throughout the year by adjusting production and purchasing schedules to
meet demand. The ratio of inventory to sales typically does not vary
significantly from year to year.
The Company reviewed its restructuring program and other actions with its
various banks and private lenders and secured modifications to its debt
agreements required as a result of the restructuring program. These
modifications will result in higher interest rates on certain debt securities
during fiscal 1999, which the Company believes will be more than offset by lower
borrowings.
The Company anticipates that the restructuring program and other actions will
enhance its cash flow, both through short-term tax benefits, which will more
than offset any pre-tax cash outflows, and through longer-term savings in its
cost structure. The Company also has completed a phase of capital investment
required to support geographical expansion, and will reduce its capital spending
in fiscal 1999.
The Company's Series A redeemable convertible preferred stock, par value
$100,752,000, is convertible at any time at the option of the holder into
5,800,000 newly issued shares of common stock of the Company. The holder may
instead redeem the issue for cash at par value on June 30, 2001. The Company
presently anticipates that it would fund such a redemption from operating cash
flows, borrowings or other financing sources.
As of fiscal year-end 1998, the Company had $1,171,000 in cash and cash
equivalents, and an unused credit line of $75,200,000. (See Note 8 of Notes to
consolidated financial statements.) The current credit line expires on December
31, 2000. The Company believes that its credit line, along with its liquid
resources, internally generated cash and financing capacity are adequate to meet
anticipated operating and capital requirements.
Year 2000 Compliance
The Company is in the process of addressing its Year 2000 compliance. Critical
centralized information systems (software and hardware) are either being
upgraded or enhanced for Year 2000 compliance. The Company expects to complete
the upgrades or enhancements to its centralized information systems by June
1999. Embedded chip technology used in the Company's manufacturing systems is
also being reviewed to determine if upgrades or enhancements are necessary. The
Company expects to complete the embedded chip review process by March 1999. The
Company is also surveying key customers and suppliers to determine the status of
their Year 2000 compliance programs. The survey process is scheduled for
completion by mid-year 1999.
The Company believes the Year 2000 issue does not pose a significant
operational or financial risk. The Company has only one customer comprising 10
percent of sales. The Company also has a broad base of suppliers with multiple
sourcing options for all purchases. Nevertheless, the Company is in the process
of developing appropriate contingency plans in an attempt to minimize the effect
of any issues that may arise from the failure of the Company, its suppliers or
its customers to complete Year 2000 compliance work. The Company believes that
it will complete the contingency plan by the third quarter of fiscal 1999.
The Company's assessment of the Year 2000 issue is based upon certain
assumptions that may later prove to be inaccurate. The greatest potential risks
relate to those situations beyond the Company's control, particularly the
inability of suppliers and customers to be Year 2000 compliant, which would
cause disruptions in the manufacturing and distribution operations.
Additionally, customers' inability to pay in a timely manner and the disruption
of electronic invoicing and payment systems could cause financial risk and
losses to the Company. The Company expects to be able to more fully enumerate
the operational and financial risks from the Year 2000 issue upon completion of
the reviews discussed above.
The total cost for the Company's Year 2000 initiatives is estimated to be
$6,000,000 of which $3,500,000 was incurred during fiscal 1998 and $2,500,000
will be incurred during fiscal 1999. The majority of these costs relate to the
accelerated replacement of capitalized hardware and software systems. The
Company's cost estimates do not include costs that may result from the failure
of third parties to be Year 2000 compliant or the costs to implement contingency
plans. The Company does not expect the cost of Year 2000 compliance to have a
material impact on the Company's financial position, results of operations or
cash flows.
* The share information is presented before the effect of the 1997 common stock
split. (See Note 11.)
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF DREYER'S GRAND ICE CREAM, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION
---- ------------
<S> <C>
Edy's Grand Ice Cream................................... California
*Edy's of Illinois, Inc. ................................ Illinois
Dreyer's International, Inc. ........................... U.S. Virgin Islands
Grand Soft Capital Company.............................. California
Grand Soft Equipment Company............................ Kentucky
(formerly Polar Express Systems International, Inc.)
Portofino Company....................................... California
</TABLE>
- ---------------
* Subsidiary of Edy's Grand Ice Cream
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-7350, 33-8418, 33-35561, 33-36092, 33-40275,
33-56417, 33-56411, 33-56413 and 33-16701) of Dreyer's Grand Ice Cream, Inc. of
our report dated February 22, 1999 appearing in the 1998 Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> DEC-26-1998
<CASH> 1,171
<SECURITIES> 0
<RECEIVABLES> 88,763
<ALLOWANCES> 5,710
<INVENTORY> 49,472
<CURRENT-ASSETS> 176,132
<PP&E> 337,554
<DEPRECIATION> (129,782)
<TOTAL-ASSETS> 463,180
<CURRENT-LIABILITIES> 115,073
<BONDS> 169,781
99,654
0
<COMMON> 27,312
<OTHER-SE> 35,321
<TOTAL-LIABILITY-AND-EQUITY> 463,180
<SALES> 1,022,335
<TOTAL-REVENUES> 1,025,988
<CGS> 827,862
<TOTAL-COSTS> 827,862
<OTHER-EXPENSES> 253,517
<LOSS-PROVISION> 6,498
<INTEREST-EXPENSE> 13,006
<INCOME-PRETAX> (74,895)
<INCOME-TAX> (28,385)
<INCOME-CONTINUING> (46,510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,510)
<EPS-PRIMARY> (1.75)
<EPS-DILUTED> (1.75)
</TABLE>
