<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________to _________________________
Commission file number 000-17896
--------------------------------------------------------
HANOVER FOODS CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
PENNSYLVANIA 23-0670710
(State of Incorporation) (IRS Employer I.D. No.)
</TABLE>
P.O. BOX 334, YORK STREET EXTENDED, HANOVER, PENNSYLVANIA 17331-0334
(Address of principal executive offices)
Registrant's telephone number (717) 632-6000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Class A Nonvoting None
Common Stock
</TABLE>
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, 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.
----------
As of June 1, 1996, the estimated aggregate market value of Class B Voting
Common Stock held by non-affiliates of the Registrant was $510,518. (The
exclusion of the market value of shares owned by any person shall not be deemed
an admission that such person is an "affiliate" of the Registrant.) There were
427,350 shares of Class B Voting Common Stock outstanding as of June 1, 1996.
There were 294,834 shares of Class A Nonvoting Common Stock outstanding as of
June 1, 1996.
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PART I
ITEM 1. BUSINESS
Hanover Foods Corporation (as used herein the term "Corporation" refers to
Hanover Foods Corporation and its consolidated subsidiaries) was incorporated
on December 12, 1924 in Harrisburg, Pennsylvania. The Corporation consists of
two (2) operating divisions: Hanover and Myers.
In addition, the Corporation has five (5) wholly-owned subsidiaries, Tri-Co.
Foods Corp., Consumers Packing Company, d/b/a Hanover Foods - Lancaster
Division, Spring Glen Fresh Foods, Inc., Hanover Insurance Corporation, Ltd.,
and Nittany Corporation. Tri-Co. Foods Corp. in turn has two (2) wholly-
owned subsidiaries, Alimentos Congelados Monte Bello, S.A., and Sunwise
Corporation.
Originally, the Corporation was established to provide seasonal packing of
locally grown peas, beans, and other vegetables. From this beginning, the
Corporation has grown to become one of the leading independent processors of
canned vegetables, frozen vegetables, frozen meat products, frozen entrees,
frozen soft pretzels and fresh foods in the eastern United States. This growth
has resulted from the Corporation's extended scope of operations, new product
development and acquisitions. Currently, 60% of the Corporation's sales
volume, primarily frozen sales, is transacted during the third and fourth
quarters of the Corporation's fiscal year and 40% of the Corporation's sales
volume, primarily canned sales, is transacted during the first and second
quarters of the Corporation's fiscal year.
The Corporation is a vertically integrated processor of vegetable products in
one industry segment. It is involved in the growing, processing, canning,
freezing, freeze-drying, packaging, marketing and distribution of its products
under its own trademarks, as well as other branded, customer and private
labels.
The Corporation enjoys its strongest retail sales in the mid-Atlantic states
and Florida. Introduction of frozen ethnic blends, specialty vegetables,
canned pasta, and frozen soft pretzel products has enabled the Corporation to
increase and expand its distribution throughout the eastern seaboard.
Distribution in the remainder of the United States is limited to food service,
military and industrial customers.
OPERATIONS
The Corporation has operations at five (5) plants in Pennsylvania, one (1)
plant in Delaware and two (2) plants in Guatemala.
PRODUCTS
The Corporation markets its products under the brand names HANOVER, HANOVER
FARMS, MYERS, PHILLIPS, GIBBS, SUPERFINE, MARYLAND CHIEF, MITCHELL'S, DUTCH
FARMS, SUNWISE, O&C (jarred onions only), and SPRING GLEN FRESH FOODS.
The products sold by the Corporation under these brand names include canned
vegetables, beans and pasta as well as frozen vegetables, frozen meat products,
food entrees, refrigerated and fresh foods.
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DISTRIBUTION
The Corporation's products are marketed under its brand labels and customer
private labels to the consumer for home use and also to the food service trade
which includes restaurants, fast food chains, hospitals and schools as well as
military and other governmental uses. The Corporation's products are
distributed directly to its customers and indirectly via independent
distributors. Sales activities are conducted via Corporation employed sales
personnel and independent sales brokerage firms. The Corporation also
manufactures private label food products for other food companies.
COMPETITION
The Corporation markets its food products to the retail and food service
sectors in the northeastern, midatlantic, southeastern and midwestern areas of
the United States. The Corporation competes with approximately eleven (11)
national and five (5) regional food processors.
The principal methods of competition within the food processing industry are:
price, promotion, advertising, product quality and service.
TRADEMARKS
The Corporation has various registered and unregistered trademarks, service
marks and licenses which are of material importance to the Corporation's
business.
BACKLOG OF ORDERS
The Corporation manufactures against customer forecasts and orders. While at
any given time there may be a backlog of orders, such backlog is not material
to total sales, nor are the changes from time to time significant.
RESEARCH AND DEVELOPMENT
The Corporation engages in research and development of new products and
improvement of existing products as well as the improvement and modernization
of its operating plants and equipment.
REGULATION
The Corporation's operations, as is the case of all food companies, are subject
to strict regulation by the U.S. Food and Drug Administration (FDA). The
Corporation is also subject to inspection by the Food Safety and Quality
Service Division (USDA), for its meat and poultry products.
FDA regulates the safety of the food product, the identity of the product, its
purity and identification of ingredients therein. USDA establishes grades for
products and regulates sanitation. The appropriate state agencies regulate the
sanitation of the Corporation's plants and the manufacture of food products
utilizing flour in any baking process.
The Corporation is also regulated by many other federal and state governmental
agencies such as the Federal Trade Commission and the U.S. Environmental
Protection Agency.
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ENVIRONMENTAL CONSIDERATIONS
In the past and currently the Corporation is making investments to comply with
all federal, state and local laws, rules and regulations. Such expenditures
have not been material with respect to the Corporation's capital expenditures,
earnings or competitive position, and are not expected to be in the future.
SOURCES OF SUPPLY
The Corporation maintains an intimate involvement in all phases of agricultural
crop production as well as direct procurement of fresh vegetables. The
Corporation procures all of its fresh vegetable requirements through direct
contracts with farmers who cultivate and harvest the crops according to the
Corporation's specifications. In addition, the Corporation directly procures
beans, tomato based products, pasta, herbs and other ingredients, as well as
containers and packaging materials from outside vendors throughout the world.
EMPLOYEES
The Corporation, its divisions and subsidiaries currently employ approximately
1,547 employees on a full- time and a seasonal basis. Approximately 1,271
employees are employed in the United States and 276 are employed in Guatemala.
A total of 682 production workers at the Hanover, PA, Centre Hall, PA and
Clayton, DE plants are members of the United Food and Commercial Workers Union
- - Locals 1776, 72, and 56 respectively. The Hanover and Centre Hall, PA plants
each have their own three (3) year contract beginning January 1, 1994 and
ending December 31, 1996. The Clayton, Delaware plant has its own three (3)
year contract beginning January 1, 1996 and ending December 31, 1998. There
are no union contracts at any other plants or locations of the Corporation.
The Corporation has never had any strikes or labor disputes interfering with
its operations.
FOREIGN OPERATIONS
The Corporation's wholly-owned subsidiary, Tri-Co. Foods Corp., has two (2)
wholly-owned subsidiaries, Alimentos Congelados Monte Bello, S.A., San Jose
Pinula, Guatemala and Sunwise Corporation, Lakeland, Florida.
Alimentos Congelados Monte Bello, S.A. procures, processes and ships vegetables
produced in Guatemala. Alimentos Congelados Monte Bello, S.A. contracts with
approximately 2,000 independent farmers in Guatemala for the growing and
harvesting of broccoli, cauliflower, okra and Brussels sprouts. The raw
vegetable product purchased by the Corporation is frozen at one of two
Corporation plants located at San Jose Pinula, Guatemala and Teculutan,
Guatemala.
Sunwise Corporation imports and distributes the Guatemalan product to Hanover
Foods Corporation.
The business of the Corporation in Guatemala is subject to the laws of
Guatemala which may place restrictions and controls on such matters as
ownership, imports and exports, prices, product lines and transfer of funds,
and is also subject to the fluctuating exchange rate between the Guatemalan
quetzal and the U.S. dollar.
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Information with respect to the revenue, cost of sales and identifiable assets
for the Corporation's foreign operations is set forth in Note 10 to the
Consolidated Financial Statements entitled "Foreign Operations."
WORKING CAPITAL
Information relating to the Corporation's cash and other working capital items
is set forth in Part II hereof on pages 9 through 14 in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 2. PROPERTIES
The following is a list of the Corporation's principal manufacturing and
processing properties. The Corporation owns each of the properties.
UNITED STATES
Hanover, PA - Canned and jarred products,
repackaging of frozen vegetables,
dry and frozen storage. Corporate
research, new product development
and quality assurance laboratory
(corporate headquarters). Note:
The industrial revenue bond
financing by the York County
Industrial Development Authority of
the 18.6 acre site of the wastewater
treatment plant adjacent to the
canning plant was paid in full on
October 1, 1995. The Agreement for
Termination of Loan Documents and
the Mortgage Satisfaction Piece
were recorded on March 19, 1996.
Centre Hall, PA - Frozen vegetables. Dry and frozen
storage. Note: The industrial
revenue bond financing by the
College Township, Centre County
Industrial Development Authority of
the plant was paid in full and title
to the property reverted to the
Corporation by deed dated May 29,
1996 and recorded June 3, 1996.
Lancaster, PA - Frozen mushrooms, peppers, onions
and celery, freeze-dried food and
ice manufacture. Dry and frozen
storage.
Plumsteadville, PA - Frozen food entrees, meat pies and
soups. Dry and frozen storage.
Ephrata, PA - Refrigerated and fresh foods and
soups. Dry, refrigerated and
frozen storage.
Clayton, DE - Frozen vegetables, meat products,
frozen food entrees and meat pies.
Dry and frozen storage.
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GUATEMALA
San Jose Pinula - Frozen vegetables, dry and frozen
storage, research and quality
assurance laboratory.
Teculutan - Frozen vegetables, dry and frozen
storage.
ITEM 3. LEGAL PROCEEDINGS
On February 1, 1995, Michael A. Warehime, J. William Warehime and Elizabeth W.
Stick, three shareholders of the Corporation, filed a Complaint against the
Corporation and its Chairman in the Court of Common Pleas of York County,
Pennsylvania, Civil Action - Equity, No. SU-00471-07. The suit, when filed,
sought various forms of relief including, but not limited to, an order that the
court invalidate the Corporation's October 18, 1994 election of directors and
reinstate the Board of Directors that existed prior to that date. In addition,
the plaintiffs sought all costs and fees incident to bringing suit. On August
16, 1995, the court dismissed J. William Warehime and Elizabeth W. Stick as
plaintiffs and the Corporation as a defendant in this case. The court also
dismissed two of the four counts alleged by the plaintiffs. Subsequently,
Michael A. Warehime, the remaining plaintiff, amended the Complaint to seek a
judgment requiring John A. Warehime to reimburse the Corporation for certain
compensation paid to him by the Corporation under a 1995 employment agreement.
The case is in discovery and no trial date has been set.
In addition, the Corporation is subject to routine claims and litigation
incidental to its ordinary business operations, which in the opinion of
management will not materially affect the Corporation's financial position or
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any class of the
Corporation's capital stock. No class of capital stock is listed or traded on
any stock exchange or with NASDAQ. Since March 1989 there has been limited
trading in the outstanding shares of Class A Nonvoting Common Stock through
stockbrokers. From April 4, 1994 to March 31, 1996, the Class A Nonvoting
Common Stock has traded at prices ranging from $42.00 to $62.00.
Due to the lack of an established public trading market, under certain
circumstances the Corporation has promised to purchase shares of Class A
Nonvoting Common Stock purchased or owned by employees prior to April 20, 1988.
This promise of purchase by the Corporation is for an indefinite period of
time. As of March 31, 1996, there were 11,808 shares outstanding which would
be eligible for this plan. During the fiscal year ended March 31, 1996, the
Corporation purchased 5,789 shares of Class A Common Stock
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at an aggregate cost of $392,000 or an average of approximately $68 per share.
The repurchase price of the stock is the most recent independent appraised
value. The appraisal was performed by Management Planning, Inc., Princeton,
New Jersey.
In addition, on July 27, 1995, the Corporation purchased 5,148 shares of the
Company's Class B Voting Common Stock from Cyril T. Noel, individually, and
Cyril T. Noel and Frances L. Noel, jointly, at $71.40 per share, as per the
appraisal of Management Planning, Inc., Princeton, New Jersey.
On April 1, 1996, the Corporation entered into a stock purchase agreement with
John R. Miller, Jr. to purchase 1,210 shares of the Company's Voting Class B
Common Stock and 5,990 shares of the Company's Nonvoting Class A Common Stock
over a four year period. The agreement provides that John R. Miller, Jr. give
a proxy to John A. Warehime, Chairman, to vote all shares of both classes of
common stock beginning April 1, 1996 and ending March 31, 2001.
The Corporation currently has no outstanding warrants to purchase shares of any
class of its capital stock.
The only securities convertible into common equity of the Corporation are
15,044 outstanding shares of Cumulative Convertible Preferred Stock (Series A
and B). At any time, the holders of this class of stock have the option to
convert their shares to shares of Class A Nonvoting Common Stock based on the
book value of the Common Stock at the time of conversion.
There is no common equity of the Corporation that is being, or has been
proposed to be publicly offered by the Corporation which could have a material
effect on the market price of the Corporation's common equity.
As of June 1, 1996, there were 466 holders of record of Class A Nonvoting
Common Stock and 37 holders of record of Class B Voting Common Stock.
During the two most recent fiscal years ending March 31, 1996 and April 2,
1995, the Corporation paid cash dividends of $1.10 and $1.075 per share
respectively to the Class A and Class B Common stockholders. Dividends of the
Corporation are declared at the discretion of the Board of Directors in
compliance with Pennsylvania law.
The December 1, 1991 $25,000,000 long-term financing agreement between the
Corporation and Allstate Life Insurance Corporation contains certain
restrictions on the Corporation's payment of dividends and purchase of its
stock.
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ITEM 6. SELECTED FINANCIAL DATA
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Summary of Operations
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Fiscal years ended
Dollars in thousands ------------------------------------------------------------------
(except per share data) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales $ 262,920 257,530 235,189 216,701 192,082
- --------------------------------------------------------------------------------------------------
Cost of goods sold 213,515 199,372 179,892 166,728 147,684
Selling expenses 35,067 42,089 32,154 27,236 26,850
Administrative expenses 9,706 9,699 9,525 9,890 9,511
- --------------------------------------------------------------------------------------------------
Operating profit 4,632 6,370 13,618 12,847 8,037
Interest expense 4,639 3,744 3,733 3,637 2,802
Other (income) expenses -
net (640) (60) (343) (58) 190
- --------------------------------------------------------------------------------------------------
Earnings before income taxes
and cumulative effect of
change in accounting
principle 633 2,686 10,228 9,268 5,045
Income taxes 213 798 4,067 3,672 2,199
- --------------------------------------------------------------------------------------------------
Earnings before cumulative
effect of change in
accounting principle 420 1,888 6,161 5,596 2,846
Cumulative effect of change
in accounting principle - - - - 618
- --------------------------------------------------------------------------------------------------
Net earnings $ 420 1,888 6,161 5,596 3,464
- --------------------------------------------------------------------------------------------------
Net earnings applicable to
common stock $ 389 1,855 6,127 5,562 3,430
- --------------------------------------------------------------------------------------------------
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Common Stock Data and Balance Sheet and Financial Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fiscal years ended
Dollars in thousands ------------------------------------------------------------------
(except per share data) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK DATA
Per common share:
Earnings before cumulative
effect of change in
accounting principle $ 0.53 2.53 8.29 7.48 3.70
Net earnings $ 0.53 2.53 8.29 7.48 4.51
Common dividends $ 1.10 1.075 1.00 1.00 1.00
Book value $ 58.27 59.32 57.89 50.59 44.32
Average shares outstanding 729,608 734,252 739,026 743,732 760,534
- --------------------------------------------------------------------------------------------------------------
BALANCE SHEET AND
FINANCIAL DATA
Working capital $ 15,044 19,569 22,279 21,796 20,474
Current ratio 1.25 1.32 1.44 1.52 1.56
Total assets $ 128,368 132,144 124,646 117,834 107,814
Long-term debt $ 18,453 20,658 24,436 31,056 31,262
Capital lease obligations -- long-term $ - 233 578 1,109 1,614
Stockholders' equity $ 42,509 43,920 42,990 37,920 33,557
- --------------------------------------------------------------------------------------------------------------
</TABLE>
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
OVERVIEW OF FISCAL 1996 RESULTS
The results of operations for fiscal 1996 were dramatically impacted by the
presence of intense competition from national branded companies and the need to
manage higher frozen inventory levels which was caused by strong crop yields
and production levels exceeding forecast.
The increased competition and excess production was countered by strong
promotional and discounted sales efforts in fiscal 1996. These programs
generated strong sales volume, but at a much lower profit contribution.
The Corporation and its subsidiaries, in the normal course of business,
purchase and sell goods and services to related parties. The Corporation
believes that the cost of such purchases and sales are competitive with
alternate sources of supply and markets. (See note 5 to the consolidated
financial statements).
1996 RESULTS OF OPERATIONS COMPARED WITH 1995
Net Sales
Consolidated net sales were $262.9 million for fiscal 1996 compared to $257.5
million for fiscal 1995, an increase of $5.4 million or 2.1%. The 2.1%
increase in consolidated net sales is comprised of the following volume and
sales price components:
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<CAPTION>
Year Ended March 31, 1996
Increase (Decrease)
-------------------
Volume Sales Price Combined
------ ----------- --------
<S> <C> <C> <C>
Frozen Sales 2.4% (1.7%) .7%
Canned Sales 3.1% (2.4%) .7%
Prepared Foods .5% .2% .7%
------ ------ ------
6.0% (3.9%) 2.1%
</TABLE>
The increased volume in Frozen Sales was principally due to higher sales levels
in direct retail and foodservice products. The reduction in unit sales price
was caused by intense competition to lower unit prices.
Canned sales also showed a slight increase for fiscal 1996. Increased volume in
foodservice and private label canned sales more than offset decreased volume in
retail sales. The reduction in unit sales price was caused by intense
competition to lower prices in the private label and foodservice sector.
Cost of Goods Sold
Consolidated cost of goods sold was 81.2% of consolidated net sales for fiscal
1996 compared to 77.4% for fiscal 1995. Total consolidated cost of sales
increased $14.1 million over fiscal 1995 of which 92% was due to increased
volume and 8% was due to increased raw material costs and outside frozen
storage costs.
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Selling Expenses
Consolidated selling expenses were 13.3% of consolidated net sales for fiscal
1996 and 16.3% for fiscal 1995. The Corporation's frozen products faced
intense competition in the mid-Atlantic region from national branded companies
attempting to gain market share. Promotion expense for fiscal 1996 was $23.2
million versus $31.9 million for fiscal 1995.
In addition to promotion expense, the Corporation spent approximately $3.6
million in advertising expense, including $2.4 million relating to redeemed
coupons, for fiscal 1996, compared to $3.1 million in advertising, including
$2.0 million relating to redeemed coupons, for fiscal 1995.
Looking to fiscal 1997 and beyond, management has revised market strategy to
direct promotional dollars to value-added items and to geographic market areas
that would be more receptive to its programs. Management is constantly
reviewing the effectiveness of the promotional programs.
Administrative Expenses
Consolidated administrative expenses were $9.7 million in fiscal 1996 or 3.7%
of consolidated net sales versus $9.7 million and 3.8% of consolidated net
sales in 1995. The slight decrease in consolidated administrative expenses as
a percent of net sales was the net result of reductions in personnel costs
offset by increases in other expenses. Included in administrative expenses for
fiscal 1996 are $300,000 in legal fees paid in connection with the litigation
described in Item 3 above and notes 5 and 9 to the Consolidated Financial
Statements.
Interest Expense
Consolidated interest expense for fiscal 1996 was $895,000 higher than fiscal
1995. Average seasonal borrowing was higher for an extended period of time to
fund inventory levels during the fresh pack season and to carry the increased
frozen inventory. The maximum amount of seasonal borrowing was approximately
$45.9 million as compared to the maximum of $31.2 million in fiscal 1995.
The additional expense due to increased average borrowing was partially offset
by reduced cost of funds for short-term borrowings. Approximately $1.8 million
in senior unsecured term debt that carried higher interest rates was repaid in
1996.
Income Taxes
The provision for corporate federal and state income taxes for fiscal 1996 was
$213,000 or 34% of pretax earnings as compared to a provision of $798,000 or 30%
of pretax earnings for fiscal 1995. The higher effective rate is due primarily
to proportionately lower non-taxable foreign source earnings in fiscal 1996
offset by a reduction of deferred tax liabilities due to a change in state
income tax rates.
Net Earnings
Consolidated net earnings for fiscal 1996 were $420,000 or .2% of consolidated
net sales. This compares to $1.9 million or .7% of consolidated net sales for
fiscal 1995. The reduced unit sales prices and higher interest expense
described above were the contributing factors to the reduced net earnings.
Earnings Per Share
Earnings per share are computed on the weighted average number of shares
outstanding after providing for preferred stock dividends. During fiscal 1996,
10,937 shares of common stock were redeemed by the
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Corporation compared to 2,152 shares in fiscal 1995. The redemption of these
shares reduces the weighted average number of shares outstanding which is used
in calculation of earnings per share.
1995 RESULTS OF OPERATIONS COMPARED WITH 1994
Net Sales
Consolidated net sales were $257.5 for fiscal 1995 compared to $235.2 million
for fiscal 1994, an increase of $22.3 million or 9.5%. The increase in
consolidated net sales is more significant when taking into consideration that
fiscal 1994 was comprised of fifty-three weeks whereas fiscal 1995 was only
fifty-two weeks. The 9.5% increase in consolidated net sales is comprised of
the following volume and sales price components:
<TABLE>
<CAPTION>
Year Ended April 2, 1995
Increase (Decrease)
-------------------
Volume Sales Price Combined
------ ----------- --------
<S> <C> <C> <C>
Frozen Sales 7.0% (0.6%) 6.4%
Canned Sales .9% 2.0% 2.9%
Prepared Foods .2% 0.0% .2%
------ ----------- ------
8.1% 1.4% 9.5%
</TABLE>
The increased volume in Frozen Sales was principally due to higher sales levels
in direct retail and the sale of excess frozen product. The reduction in unit
sales price was caused by sales of excess frozen product at lower unit prices.
Canned sales showed a slight net increase for fiscal 1995. Increased volume in
the direct and private label canned sales volume more than offset decreased
volume in co-pack sales. The volume shift to direct and private label sales
which carry a higher unit sales price was the key factor in the increase of
sales price variance.
Cost of Goods Sold
Consolidated cost of goods sold was 77.4% of consolidated net sales of fiscal
1995 compared to 76.5% for fiscal 1994. Total consolidated cost of sales
increased $19.5 million over fiscal 1994 of which 75.9% was due to increased
volume and 24.1% was due to increased raw material costs and outside frozen
storage costs.
Selling Expenses
Consolidated selling expenses were 16.3% of consolidated net sales for fiscal
1995 and 13.7% for fiscal 1994. The Corporation's frozen products faced
intense competition in the mid-Atlantic region from national branded companies
attempting to gain market share. Promotion expense for fiscal 1995 was
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<PAGE> 13
$31.9 million versus $21.4 million for fiscal 1994. In order to remain
competitive and retain existing market share, the Corporation offered heavy
promotional allowances commencing in the latter part of the third quarter,
which were accelerated through the fourth quarter of fiscal 1995. Promotional
programs were primarily "off-invoice" and "bill back" allowances granted to the
customer.
The amount of additional expense to reflect the impact of the increased
promotion for fiscal 1995 was approximately $4.2 million. Approximately $1.2
million related to promotions that occurred in the latter part of the third
quarter and approximately $3.0 million for the fourth quarter of fiscal 1995.
The market has demanded promotional programs to move frozen product. Industry
data reveals that over 38% of frozen volume was sold under promotional programs
during the fourth quarter of 1994.
In addition to promotion expense, the Corporation spent approximately $3.1
million in advertising expense, including $2.0 million relating to redeemed
coupons, for fiscal 1995 compared to $2.9 million in advertising, including
$1.6 million relating to redeemed coupons, for fiscal 1994.
Administrative Expenses
Consolidated administrative expenses were $9.7 million in fiscal 1995 or 3.8%
of consolidated net sales versus $9.5 million in fiscal 1994 or 4.0% of
consolidated net sales. The increase in consolidated administrative expenses
was the net result of various increased expenses offset by reduction in other
expenses. During fiscal 1995 legal and outside fees that were principally
involved with ongoing corporate governance and litigation increased $400,000.
Executive and management compensation, which included performance bonuses
increased $390,000. Experimental product development costs relating to the
frozen soft pretzel project, charitable contributions and pension expense each
showed reduced expense for fiscal 1995 that totaled approximately $350,000.
Interest Expense
Consolidated interest expense for fiscal 1995 was slightly higher. Average
seasonal borrowing was higher for an extended period of time to fund inventory
levels during the fresh pack season and to carry the increased frozen
inventory. The maximum amount of seasonal borrowing was approximately $31.2
million as compared to $25.2 million as the maximum level in fiscal 1994.
The additional expense due to increased average borrowing was offset by the
reduced cost of funds. Approximately $2.7 million in term debt that carried
higher interest rates was repaid in fiscal 1995.
Income Taxes
The provision for corporate income taxes for fiscal 1995 was 30% of pretax
earnings. The consolidated provision for corporate taxes was $798,000 or .3%
of consolidated net sales.
Net Earnings
Consolidated net earnings for fiscal 1995 were $1.9 million or .7% of
consolidated net sales. This compares to $6.2 million or 2.6% of consolidated
net sales for fiscal 1994. The increase in expenses and reduced unit sales
prices described above were the contributing factors to the reduced earnings.
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Earnings Per Share
Earnings per share are computed on the weighted average number of shares
outstanding after providing for preferred stock dividends. During fiscal 1995,
2,152 shares of common stock were redeemed by the corporation compared to 5,875
shares in fiscal 1994. The redemption of these shares reduces the average
number of shares outstanding which is used in the calculation of earnings per
share.
LIQUIDITY AND FINANCIAL RESOURCES
The discussion and analysis of the Corporation's liquidity and financial
resources should be read in conjunction with the Consolidated Statement of Cash
Flows.
Net cash provided by operations for fiscal 1996 was $1.4 million, compared to
$10,000 for fiscal 1995. Sources of funds totaled $11.6 million consisting of
net earnings of $420,000, decreased accounts receivable of $388,000, decreased
inventory of $2.8 million, decreased prepaid items of $1.9 million, an increase
in other liabilities of $444,000 and depreciation and amortization of $5.6
million. The funds generated from these sources were applied toward the
reduction in accounts payable and accrued expenses of $9.7 million.
Net cash provided by operations for fiscal 1995 was $10,000, compared to $7.5
million for fiscal 1994. Sources of funds totaled $10.4 million consisting of
net earnings of $1.9 million, increased accounts payable and accrued expenses
of $2.8 million and depreciation and amortization of $5.7 million. The funds
generated from these sources were applied toward the increased inventory levels
of $7.9 million and the increase in prepaid items, principally corporate taxes,
of $2.2 million. The primary components of the increased inventory were $5.8
million in frozen product and $1.7 million in ingredients for new frozen
blends.
Net cash used by investing activities for fiscal 1996 was $6.1 million as
compared to $5.6 million for fiscal 1995. The principal use of funds was the
upgrade and acquisition of property, plant and equipment. During fiscal 1996,
$5.5 million was spent on development and modernization of equipment as
compared to $6.2 million in fiscal 1995. These projects were funded by
internally generated funds and external borrowing. The Corporation also uses
operating leases to meet other equipment needs. The lease expense for
fiscal 1996 was $4.0 million, up $395,000 from fiscal 1995. During the first
quarter for fiscal 1996, the Corporation purchased a facility located in
Teculutan, Guatemala for $250,000 from ARWCO Corporation, a related party,
and purchased a tract of land near the Corporation's Centre Hall,
Pennsylvania plant for $250,000 from Centre Foods Enterprises, Inc., a related
party.
Management anticipates capital expenditures of approximately $5.0 million for
fiscal 1997 which will be funded internally. Additional borrowing is permitted
within parameters prescribed in the existing debt arrangements. On June 1,
1996, the Corporation exercised its unilateral option to purchase land and a
facility located in Hanover, Pennsylvania for $904,000 from Food Service East,
Inc., a related party.
Net cash provided by financing activities was $5.0 million for fiscal 1996
compared to $4.0 million in fiscal 1995. Seasonal borrowing was used
throughout the fiscal year to fund operational needs. Seasonal borrowing, plus
the cash overdraft, was $9.5 million higher at year end, while term debt and
other obligations had been reduced by $3.3 million. Management continues to
monitor and evaluate the most cost effective means to finance its operations.
The weighted average cost of seasonal borrowing was 6.2% for fiscal 1996
compared to 7.5% for fiscal 1995.
-13-
<PAGE> 15
The Corporation has commitments from financial institutions to provide seasonal
lines of credit in the amount of $55 million. Additional borrowing is
permitted within prescribed parameters in existing debt agreements which
contain certain performance covenants. At year end the Corporation requested
and received waivers of compliance for the Interest Coverage Ratio Covenant
from the respective lenders through July 10, 1996. Management and the senior
unsecured lender are currently working towards an amendment to modify the
Interest Charge Coverage Ratio through September 1, 1997 and management expects
to finalize this amendment before the end of the next compliance period.
The Corporation paid dividends of $831,000 during fiscal 1996 compared to
$822,000 in fiscal 1995. This included a 10% increase in common stock dividend
during the second quarter of fiscal 1995 to raise the quarterly dividend per
share from $.025 to $0.275. In addition, the Corporation redeemed 5,789 shares
of Class A Common stock at a cost of $392,000 (see note 9 to the consolidated
financial statements).
IMPACT OF EVENTS AND COMMITMENTS ON FUTURE OPERATIONS
Competition in the Marketplace
The Corporation faced stiff competition from national and regional branded
companies during the entire fiscal 1996 in market areas where competition had
not been as severe in prior years. Management anticipates the competitive
environment will lessen in intensity in fiscal year 1997.
Change in Corporate Year End
Effective June 1, 1996, the Corporation's fiscal year will end at the close of
operations on the Sunday nearest to May 31.
Employees
A total of 682 production workers of the Corporation are covered by collective
bargaining agreements that expire on December 31, 1996 and December 31, 1998.
The Corporation has never had any strikes or labor disputes interfering with
its operations.
Foreign Operations
The Corporation has a foreign subsidiary in Guatemala that produces food
products for export to the United States to be sold principally by the
Corporation to its customers. The Corporation is exposed to foreign exchange
risk and is subject to the laws of Guatemala which may place restrictions and
controls on the Corporation's business. The Corporation contracts with
independent growers to grow crops which are then harvested and sold to the
Corporation.
New Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" in March, 1995 and SFAS No.
123 "Accounting for Stock-Based Compensation" in October, 1995. SFAS No. 121
and 123 are required to be adopted for fiscal years beginning after December 15,
1995, and are not expected to have a significant effect on the Corporation's
financial statements.
-14-
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements Pages
-----
<S> <C>
Financial Statements 16
Report of Independent Certified Public Accountants (KPMG Peat Marwick LLP) 16
Report of Independent Certified Public Accountants (Harry Ness & Company) 17
Consolidated Balance Sheets as of March 31, 1996 and April 2, 1995 18
Consolidated Statements of Earnings for Years Ended March 31, 1996, 20
April 2, 1995 and April 3, 1994
Consolidated Statements of Stockholders' Equity for Years Ended 21
March 31, 1996, April 2, 1995, and April 3, 1994
Consolidated Statements of Cash Flows for Years Ended March 31, 1996, 22
April 2, 1995, and April 3, 1994
Notes to Consolidated Financial Statements 24
Quarterly Financial Data 42
</TABLE>
-15-
<PAGE> 17
[KPMG Peat Marwick LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Hanover Foods Corporation:
We have audited the accompanying consolidated balance sheet of Hanover Foods
Corporation and subsidiaries as of March 31, 1996 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hanover Foods
Corporation and subsidiaries as of March 31, 1996 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
July 2, 1996
-16-
<PAGE> 18
[HARRY NESS & COMPANY LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Hanover Foods Corporation
We have audited the accompanying consolidated balance sheet of Hanover Foods
Corporation and subsidiaries as of April 2, 1995 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
two years in the period ended April 2, 1995. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hanover Foods
Corporation and subsidiaries as of April 2, 1995 and the consolidated results
of their operations and their consolidated cash flows for each of the two
years in the period ended April 2, 1995, in conformity with generally accepted
accounting principles.
/s/ HARRY NESS & COMPANY
York, Pennsylvania
May 26, 1995
-17-
<PAGE> 19
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and April 2, 1995
<TABLE>
<CAPTION>
=====================================================================================================
March 31, April 2,
ASSETS 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 914,000 649,000
Accounts and notes receivable -- net 25,216,000 25,606,000
Accounts receivable from related parties -- net 18,000 16,000
Inventories:
Finished goods 33,930,000 38,292,000
Raw materials and supplies 13,227,000 11,660,000
Prepaid corporate income taxes 541,000 2,224,000
Prepaid expenses 1,294,000 1,558,000
Other current assets -- 263,000
Deferred income taxes 885,000 467,000
- -----------------------------------------------------------------------------------------------------
Total current assets 76,025,000 80,735,000
- -----------------------------------------------------------------------------------------------------
Property, plant, and equipment -- at cost:
Land and buildings 31,847,000 30,945,000
Machinery and equipment 77,210,000 72,622,000
Leasehold improvements 349,000 326,000
- -----------------------------------------------------------------------------------------------------
109,406,000 103,893,000
Less accumulated depreciation and amortization 60,262,000 54,730,000
- -----------------------------------------------------------------------------------------------------
49,144,000 49,163,000
Construction in progress 61,000 88,000
- -----------------------------------------------------------------------------------------------------
49,205,000 49,251,000
- -----------------------------------------------------------------------------------------------------
Other assets:
Intangible assets -- less accumulated amortization
of $2,002,000 and $1,987,000 458,000 473,000
Other assets 2,680,000 1,685,000
- -----------------------------------------------------------------------------------------------------
Total assets $ 128,368,000 132,144,000
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE> 20
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and April 2, 1995
<TABLE>
<CAPTION>
=====================================================================================================
March 31, April 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 24,792,000 33,025,000
Notes payable -- banks 29,421,000 19,926,000
Accrued expenses 3,966,000 4,883,000
Current maturities of long-term debt 1,999,000 2,415,000
Current maturities of long-term debt to related party 500,000 500,000
Current maturities of capital lease obligations 210,000 300,000
Income taxes payable 93,000 117,000
- -----------------------------------------------------------------------------------------------------
Total current liabilities 60,981,000 61,166,000
Long-term debt, less current maturities 18,078,000 19,783,000
Long-term debt to related party, less current maturities 375,000 875,000
Long-term capital lease obligations, less current maturities -- 233,000
Deferred income taxes 5,689,000 5,875,000
Other liabilities 736,000 292,000
- -----------------------------------------------------------------------------------------------------
Total liabilities 85,859,000 88,224,000
- -----------------------------------------------------------------------------------------------------
Stockholders' equity:
8-1/4% cumulative convertible preferred -- $25 par value,
issuable in series -- 120,000 shares authorized, 31,536 in 1996
and 31,816 in 1995 shares issued, 15,044 in 1996 and
15,324 in 1995 shares outstanding 788,000 795,000
Common stock, Class A -- non-voting -- $25 par value,
800,000 shares authorized, 349,210 in 1996 and 349,090 in
1995 shares issued, 295,649 in 1996 and 301,318 in
1995 shares outstanding 8,729,000 8,726,000
Common stock, Class B -- voting -- $25 par value,
880,000 shares authorized, 493,123 shares issued,
427,459 in 1996 and 432,607 in 1995 shares outstanding 12,328,000 12,328,000
Capital paid in excess of par value 1,623,000 1,619,000
Retained earnings 27,026,000 27,437,000
Treasury stock, at cost (7,708,000) (6,948,000)
Other (277,000) (37,000)
- -----------------------------------------------------------------------------------------------------
42,509,000 43,920,000
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 128,368,000 132,144,000
=====================================================================================================
</TABLE>
-19-
<PAGE> 21
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Fiscal years ended March 31, 1996, April 2, 1995,
and April 3, 1994
<TABLE>
<CAPTION>
=========================================================================================================================
Fiscal years ended
-----------------------------------------------------
March 31, April 2, April 3,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 262,920,000 257,530,000 235,189,000
Cost of goods sold 213,515,000 199,372,000 179,892,000
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 49,405,000 58,158,000 55,297,000
Selling expenses 35,067,000 42,089,000 32,154,000
Administrative expenses 9,706,000 9,699,000 9,525,000
- -------------------------------------------------------------------------------------------------------------------------
Operating profit 4,632,000 6,370,000 13,618,000
Interest expense 4,639,000 3,744,000 3,733,000
Other (income) expenses -- net (640,000) (60,000) (343,000)
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 633,000 2,686,000 10,228,000
Income taxes 213,000 798,000 4,067,000
- -------------------------------------------------------------------------------------------------------------------------
Net earnings 420,000 1,888,000 6,161,000
Dividends on preferred stock 31,000 33,000 34,000
- -------------------------------------------------------------------------------------------------------------------------
Net earnings applicable to common stock $ 389,000 1,855,000 6,127,000
=========================================================================================================================
Earnings per common share $ 0.53 2.53 8.29
=========================================================================================================================
Average common shares outstanding 729,608 734,252 739,026
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE> 22
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Fiscal years ended March 31, 1996, April 2, 1995,
and April 3, 1994
<TABLE>
<CAPTION>
===============================================================================================================
Cumulative
convertible preferred stock Common stock
Total Series A and Series B Class A
shareholders' --------------------- ----------------------
equity Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 29, 1993 $ 37,920,000 32,936 $ 823,000 348,515 $ 8,713,000
Net earnings 6,161,000 -- -- -- --
Cash dividends per share:
Preferred -- $2.0625 (34,000) -- -- -- --
Common -- $1.00 (737,000) -- -- -- --
Common stock issuance 3,000 -- -- 46 1,000
Redemption of common stock (388,000) -- -- -- --
Unearned compensation 116,000 -- -- -- --
Unrealized loss on investments (51,000) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Balance, April 3, 1994 42,990,000 32,936 823,000 348,561 8,714,000
Net earnings 1,888,000 -- -- -- --
Cash dividends per share:
Preferred -- $2.0625 annually (33,000) -- -- -- --
Common -- $1.075 annually (789,000) -- -- -- --
Common stock issuance 3,000 -- -- 46 --
Redemption of common stock (142,000) -- -- -- --
Unrealized gain on investments 3,000 -- -- -- --
Conversion of preferred for
Class A common -- (1,120) (28,000) 483 12,000
- ---------------------------------------------------------------------------------------------------------------
Balance, April 2, 1995 43,920,000 31,816 795,000 349,090 8,726,000
Net earnings 420,000 -- -- -- --
Cash dividends per share:
Preferred -- $2.0625 annually (31,000) -- -- -- --
Common -- $1.10 annually (800,000) -- -- -- --
Redemption of common stock --
Class A 5,789 shares,
Class B 5,148 shares (760,000) -- -- -- --
Conversion of preferred for
Class A common -- (280) (7,000) 120 3,000
Minimum pension liability
adjustment (net of taxes
of $235,000) (351,000) -- -- -- --
Unrealized gain on investments 111,000 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 $ 42,509,000 31,536 $ 788,000 349,210 $ 8,729,000
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
Common stock
Class B Capital paid Treasury stock
---------------------- in excess of Retained ----------------------
Shares Amount par value earnings Shares Amount Other
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 29, 1993 493,123 $ 12,328,000 1,601,000 20,981,000 116,757 $ (6,421,000) (105,000)
Net earnings -- -- -- 6,161,000 -- -- --
Cash dividends per share:
Preferred -- $2.0625 -- -- -- (34,000) -- -- --
Common -- $1.00 -- -- -- (737,000) -- -- --
Common stock issuance -- -- 2,000 -- -- -- --
Redemption of common stock -- -- -- -- 5,875 (388,000) --
Unearned compensation -- -- -- -- -- -- 116,000
Unrealized loss on investments -- -- -- -- -- -- (51,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, April 3, 1994 493,123 12,328,000 1,603,000 26,371,000 122,632 (6,809,000) (40,000)
Net earnings -- -- -- 1,888,000 -- -- --
Cash dividends per share:
Preferred -- $2.0625 annually -- -- -- (33,000) -- -- --
Common -- $1.075 annually -- -- -- (789,000) -- -- --
Common stock issuance -- -- -- -- (46) 3,000 --
Redemption of common stock -- -- -- -- 2,152 (142,000) --
Unrealized gain on investments -- -- -- -- -- -- 3,000
Conversion of preferred for
Class A common -- -- 16,000 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, April 2, 1995 493,123 12,328,000 1,619,000 27,437,000 124,738 (6,948,000) (37,000)
Net earnings -- -- -- 420,000 -- -- --
Cash dividends per share:
Preferred -- $2.0625 annually -- -- -- (31,000) -- -- --
Common -- $1.10 annually -- -- -- (800,000) -- -- --
Redemption of common stock --
Class A 5,789 shares,
Class B 5,148 shares -- -- -- -- 10,937 (760,000) --
Conversion of preferred for
Class A common -- -- 4,000 -- -- -- --
Minimum pension liability
adjustment (net of taxes
of $235,000) -- -- -- -- -- -- (351,000)
Unrealized gain on investments -- -- -- -- -- -- 111,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 493,123 $ 12,328,000 1,623,000 27,026,000 135,675 $ (7,708,000) (277,000)
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE> 23
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal years ended March 31, 1996, April 2, 1995,
and April 3, 1994
<TABLE>
<CAPTION>
=========================================================================================================================
Fiscal years ended
--------------------------------------------------
March 31, April 2, April 3,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 420,000 1,888,000 6,161,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,582,000 5,652,000 6,167,000
(Gain) loss on sale of property, plant, and
equipment (25,000) (10,000) 104,000
Deferred income taxes (369,000) 22,000 593,000
Change in assets and liabilities:
Accounts receivable 388,000 187,000 (505,000)
Inventory 2,795,000 (7,887,000) (8,607,000)
Prepaid items 1,947,000 (1,892,000) (231,000)
Accounts payable and accrued expenses (9,736,000) 2,680,000 3,240,000
Dividends payable -- (192,000) (2,000)
Income taxes payable (24,000) (577,000) 398,000
Other liabilities 444,000 139,000 153,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,422,000 10,000 7,471,000
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease (increase) in other current assets 263,000 -- (80,000)
Decrease (increase) in other noncurrent assets, net (884,000) 600,000 436,000
Acquisitions of property, plant, and equipment (5,527,000) (6,235,000) (4,585,000)
Proceeds from dispositions of property, plant,
and equipment 31,000 30,000 234,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,117,000) (5,605,000) (3,995,000)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
-22-
<PAGE> 24
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
=========================================================================================================================
Fiscal years ended
-----------------------------------------------------
March 31, April 2, April 3,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable $ 131,244,000 119,109,000 90,941,000
Payment on notes payable (121,749,000) (107,849,000) (87,570,000)
Payment on long-term debt (2,989,000) (5,838,000) (5,402,000)
Payment on long-term capital lease obligations (323,000) (474,000) (588,000)
Payment of dividends (831,000) (822,000) (771,000)
Common stock redemption (392,000) (142,000) (388,000)
Common stock issuance -- 3,000 3,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,960,000 3,987,000 (3,775,000)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 265,000 (1,608,000) (299,000)
Cash and cash equivalents, beginning of year 649,000 2,257,000 2,556,000
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 914,000 649,000 2,257,000
=========================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 4,660,000 3,721,000 3,838,000
Income taxes 462,000 3,452,000 2,850,000
Non-cash financing activities:
The Corporation entered into a note payable
agreement to purchase 5,148 shares
of Class B common stock for $368,000
from a director of the Corporation.
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE> 25
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, April 2, 1995, and April 3, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
DESCRIPTION OF BUSINESS
Hanover Foods Corporation is a processing, manufacturing, and
distribution concern. The Company's principal line of business is the
processing and sales of canned and frozen vegetables, frozen entrees,
and prepared foods primarily in the Eastern United States. The
Company's primary customers include regional grocery and other
wholesale and retail food outlets and other food processors and
distributors. The Company's ten largest customers account for
approximately 40% of the Company's net sales and accounts receivable
with no single customer accounting for more than 10% of net sales for
the fiscal years ended March 31, 1996, April 2, 1995, and April 3,
1994. The Company's raw materials are readily available, and the
Company is not dependent on a single supplier or a few suppliers.
Revenue is recognized from sales when products are shipped.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Hanover Foods Corporation and its subsidiaries, which are
Consumers Packing Company (T/A Hanover Foods - Lancaster Division),
Spring Glen Fresh Foods, Inc., Hanover Insurance Company, Ltd., The
Nittany Corporation, and Tri-Co. Foods Corp. and its subsidiaries -
Alimentos Congelados Monte Bellos, S.A. (ALCOSA) and Sunwise
Corporation, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Corporation to
credit risk consist of trade receivables. Wholesale and retail food
distributors comprise a significant portion of the trade receivables;
collateral is not required. The risk associated with the
concentration is limited due to the large number of wholesalers and
retailers and their geographic dispersion.
CASH AND CASH EQUIVALENTS
Cash equivalents of $796,000 and $327,000 at March 31, 1996 and April
2, 1995, respectively, consist of short-term interest-bearing
investments of less than three months. For purposes of the statements
of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be
cash equivalents.
INVESTMENTS
Investments of $1,195,000 and $1,154,000 at March 31, 1996 and April
2, 1995, respectively, classified as available-for-sale securities,
are included in other noncurrent assets and measured at fair value.
Net unrealized gains and losses are reported as a separate component
of stockholders'equity until realized.
(Continued)
- 24 -
<PAGE> 26
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts and notes
receivable, and accounts payable approximates fair values due to the
short-term maturities of these instruments.
The fair values of each of the Company's long-term debt instruments
are based on the amount of future cash flows associated with each
instrument discounted using the Company's current borrowing rate for
similar debt instruments of comparable maturity. The amount reported
in the consolidated balance sheet for long-term debt approximates fair
value.
INVENTORIES
Inventories are stated at the lower of cost (determined by average
cost which approximates the first-in, first-out method of accounting)
or market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Plant and
equipment under capital leases are stated at the present value of
minimum lease payments. Expenditures for maintenance and repairs are
charged to expense as incurred; additions and betterments that
materially increase the lives of the related assets are capitalized.
Upon retirement, sale, or other disposition of buildings and
equipment, cost and accumulated depreciation are eliminated from the
accounts and gain or loss is included in operations.
Depreciation on property, plant, and equipment is calculated on the
straight-line method over the estimated useful lives of the assets.
Estimated useful lives range from approximately 3 years to 12 years
for equipment and up to 40 years for buildings. Accelerated methods
are used for tax reporting purposes. Plant and equipment held under
capital leases are amortized straight-line over the shorter of the
lease term or estimated useful life of the asset.
INTANGIBLE ASSETS
It is the Corporation's policy to amortize intangible assets,
primarily covenants not to compete, purchased trademarks and goodwill,
over periods not in excess of 40 years. The Company assesses the
recoverability of intangible assets by determining whether the
amortization of the balance over its remaining life can be recovered
through undiscounted future operating cash flows. The amount of
impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability will be
impacted if estimated future operating cash flows are not achieved.
(Continued)
-25-
<PAGE> 27
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) CONTINUED
INSURANCE
The Company, through its wholly-owned insurance subsidiary, is
self-insured with respect to certain general liability and workers'
compensation claims. Excess insurance coverage is maintained for
general liability and workers' compensation claims. Accrued expenses
include provision for unpaid claims reported and claims incurred but
not reported.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development costs amounted to $725,000, $691,000, and $932,000 for the
years ended March 31, 1996, April 2, 1995, and April 3, 1994.
PROMOTIONAL COSTS
Promotional costs are expensed as incurred. Accounts and notes
receivable are presented net of allowances for bad debts and
promotional programs.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Manufacturer coupons are
expensed when payable by the Company (note 9). Advertising expenses
amounted to $3,565,000, $3,122,000, and $3,049,000 for the years ended
March 31, 1996, April 2, 1995, and April 3, 1994, respectively
(including manufacturer coupon expense of $2,407,000, $2,026,000, and
$1,604,000, respectively).
EARNINGS PER SHARE
Earnings per common share are computed on the weighted average number
of common shares outstanding during each period after providing for
preferred stock dividend requirements. The dilutive effect on
earnings per share for conversion of preferred stock is not presented
because it results in either dilution of less than 3% or
anti-dilution.
(Continued)
-26-
<PAGE> 28
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) CONTINUED
FISCAL YEAR END
The Corporation's current and past fiscal years ended at the close of
operations on the Sunday nearest to March 31. The fiscal year ended
April 3, 1994 consisted of 53 weeks and the fiscal years ended April
2, 1995 and March 31, 1996 were comprised of 52 weeks. Effective June
1, 1996 the Corporation's fiscal year will end at the close of
operations on the Sunday nearest to May 31.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior amounts have been reclassified to conform to
classifications adopted in the current year.
(2) NOTES PAYABLE - BANKS
The Corporation maintains short-term unsecured lines of credit with
various banks providing credit availability amounting to $55,000,000,
of which $29,421,000 was borrowed (including an overdraft of
$5,164,000) at March 31, 1996 and $19,926,000 was borrowed (including
an overdraft of $3,318,000) at April 2, 1995. The Corporation borrows
funds under these lines of credit under two methods of cost of funds.
The first method used to price the cost of short-term borrowings is
based upon LIBOR plus sixty to seventy-five basis points. The second
method is based upon the financial institution's "calculated cost of
funds" plus an earnings modification. The weighted-average interest
rate on short-term borrowings at March 31, 1996 and April 2, 1995 was
6.2% and 7.5%, respectively. The maximum amount of borrowings
outstanding under short-term lines of credit at any one time during
the years ended March 31, 1996 and April 2, 1995 was approximately
$45,900,000 and $31,200,000, respectively.
(Continued)
-27-
<PAGE> 29
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(3) LONG-TERM DEBT
The long-term debt of the Corporation and its subsidiaries consists
of:
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
8.74% - 9.24% unsecured senior notes payable to an insurance
company, due fiscal years ending 1996-2007 $ 19,643,000 21,429,000
7.0% and 7.2% installment obligations payable to industrial
development authorities, due fiscal year ending 1995-96 - 454,000
8.5% installment obligation payable to a municipality, due
fiscal years ending 1996-1997 140,000 269,000
Installment obligation payable to a related party, due in
equal annual installments in fiscal years ending 1996-2000, interest
at prime rate (8.25% at March 31, 1996) 294,000 -
6.33% installment obligation payable to a related party, due fiscal
years ending 1996-1998 875,000 1,375,000
Various installment obligations and other notes payable - 46,000
- ------------------------------------------------------------------------------------------------------
Total long-term debt 20,952,000 23,573,000
Less current maturities 2,499,000 2,915,000
- ------------------------------------------------------------------------------------------------------
Long-term debt, excluding current maturities $ 18,453,000 20,658,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
The term loan agreements with the insurance company, seasonal
borrowing with financial institutions (note 2), and installment
agreements with industrial development authorities contain various
restrictive provisions including those relating to mergers and
acquisitions, additional borrowing, guarantee of obligations, lease
commitments, limitations to declare or pay dividends, repurchase
stock, and the maintenance of working capital and certain financial
ratios. Based on the requirements of the agreements, at March 31,
1996, $19,797,000 of retained earnings are restricted from
distribution. The Corporation is in compliance with the restrictive
provisions in the agreements except for the Interest Charge Coverage
Ratio for which the Corporation has received waivers to this provision
through July 10, 1996 from the respective lenders holding debt
outstanding of $49,064,000. The interest rate on the unsecured senior
notes payable has been increased from 8.74% to 9.24% from December 31,
1995 to July 10, 1996. Management and the senior unsecured lender are
currently working towards an amendment to modify the Interest Charge
Coverage Ratio through September 1, 1997 and management expects to
finalize this amendment before the end of the next compliance period.
Property, plant, and equipment at cost of approximately $2,500,000 was
pledged to secure $875,000 of the long-term obligations at March 31,
1996.
(Continued)
-28-
<PAGE> 30
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(3) CONTINUED
The aggregate long-term debt maturing during the next five years is as
follows:
<TABLE>
<CAPTION>
For the fiscal year ending:
<S> <C>
1997 $ 2,499,000
1998 2,234,000
1999 1,859,000
2000 1,859,000
2001 1,786,000
Thereafter 10,715,000
---------------------------------------------
Total $ 20,952,000
---------------------------------------------
</TABLE>
(4) LEASES
The Company is obligated under a noncancelable capital lease for
machinery and equipment that expires in 1997. At March 31, 1996 and
April 2, 1995, the gross amount of plant and equipment and related
accumulated amortization recorded under the capital lease were as
follows:
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 2,383,000 2,383,000
Less accumulated amortization 894,000 695,000
- --------------------------------------------------------------------
$ 1,489,000 1,688,000
- --------------------------------------------------------------------
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
(Continued)
-29-
<PAGE> 31
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(4) CONTINUED
The Company also has several noncancelable operating leases, primarily
for equipment, that expire over the next three years. These leases
generally contain renewal options for periods ranging from three to
five years and require the Company to pay all executory costs such as
maintenance and insurance. Rental expense for operating leases
(except those with lease terms of a month or less that were not
renewed) during the years ended March 31, 1996, April 2, 1995, and
April 3, 1994 consisted of the following:
<TABLE>
<CAPTION>
March 31, April 2, April 3,
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 3,964,000 3,480,000 1,809,000
Contingent rentals - 89,000 498,000
- ----------------------------------------------------------------------
Rental expense $ 3,964,000 3,569,000 2,307,000
- ----------------------------------------------------------------------
</TABLE>
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and
future minimum capital lease payments as of March 31, 1996 are:
<TABLE>
<CAPTION>
Capital Operating
leases leases
---------------------------------------------------------------------------
<S> <C> <C>
For the fiscal year ending:
1997 $ 224,000 1,654,000
1998 - 1,235,000
1999 - 895,000
2000 - 695,000
2001 - 442,000
Thereafter - 271,000
---------------------------------------------------------------------------
Total minimum lease payments 224,000 $ 5,192,000
Less amount representing interest (at 6% rate) 14,000 ============
-------------------------------------------------------------
Present value of net minimum capital
lease payments 210,000
Less current installments of obligations
under capital leases 210,000
-------------------------------------------------------------
Obligations under capital leases,
excluding current installments $ -
-------------------------------------------------------------
</TABLE>
(Continued)
-30-
<PAGE> 32
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(5) RELATED PARTY TRANSACTIONS
The Corporation and its subsidiaries, in the normal course of
business, purchase and sell goods and services to related parties.
The Corporation believes that the cost of such purchases and sales are
competitive with alternative sources of supply and markets.
Transactions with related parties are summarized below:
<TABLE>
<CAPTION>
Fiscal year ended
--------------------------------------------
March 31, April 2, April 3,
1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Food Service East, Inc. $ - 9,000 1,205,000
Corporate charges:
Warehime Enterprises, Inc. 2,000 3,000 2,000
Snyder's of Hanover, Inc. 175,000 337,000 370,000
Expenditures:
The Cannery Press, Inc. 346,000 387,000 455,000
Patti & John's, Inc. 29,000 30,000 26,000
Lippy Brothers, Inc. 752,000 1,350,000 -
James G. Sturgill 65,000 - -
ARWCO Corporation 43,000 - -
Warehime Enterprises, Inc. 227,000 - -
John A. and Patricia M. Warehime 42,000 - -
Snyder's of Hanover, Inc. 17,000 - -
George E. Lawrence 70,000 - -
Accounts receivable:
Snyder's of Hanover, Inc. 24,000 23,000 206,000
Patti & John's, Inc. 3,000 3,000 -
Food Service East Inc. - 3,000 -
Accounts payable:
Warehime Enterprises, Inc. 5,000 - -
The Cannery Press, Inc. 4,000 13,000 7,000
Notes receivable:
Food Service East, Inc. - - 3,253,000
Notes payable:
Warehime Enterprises, Inc. 875,000 1,375,000 1,875,000
Cyril T. Noel 294,000 - -
- ---------------------------------------------------------------------------------
</TABLE>
In April 1994, the notes receivable from Food Service East, Inc. and
subsidiaries for $3,253,000 were assigned to John A. (Chairman) and
Patricia M. Warehime. The notes receivable, classified as a current
asset at April 3, 1994, were paid by John A. and Patricia M. Warehime
in April 1994.
(Continued)
-31-
<PAGE> 33
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(5) CONTINUED
The Corporation purchased the Teculutan, Guatemala plant property from
ARWCO Corporation on April 5, 1995 for $250,000. On June 20, 1995,
the Corporation purchased real estate near the Centre Hall facility
from Centre Foods Enterprises, Inc. for $250,000.
On June 1, 1994, the Corporation entered into a one year lease with
Food Service East, Inc. to lease 20,931 square feet of dry warehouse
and production, refrigerated and frozen storage space. Pursuant to
the lease, the Corporation has two unilateral options to extend the
term of the lease for two successive one year terms or until May 31,
1997 and an option to purchase based on an independent appraisal. On
October 1, 1994 the Corporation increased the rental space to 28,501
square feet for a total annual rent of $96,703. On June 1, 1996, the
Corporation exercised its unilateral option to purchase for $904,000
approximately 10.3 acres of land improved by an office/warehouse
facility free and clear of all liens, encumbrances and security
interests.
In connection with the amended complaint filed by Michael A. Warehime
versus John A. Warehime (note 9), pursuant to applicable state law,
the Corporation has agreed to pay directly all expenses (including
attorney's fees) and costs in advance of the final disposition of the
litigation or any substantially similar or related action, suit, or
proceeding. The Corporation has received an undertaking from John A.
Warehime to repay all costs and expenses if it is ultimately
determined that he is not entitled to be indemnified by the
Corporation. The amount paid and expensed by the Corporation under
this arrangement for the year ended March 31, 1996 was approximately
$300,000.
On April 1, 1996, the Corporation entered into a stock purchase
agreement with John R. Miller, Jr. to purchase 1,210 shares of the
Company's Voting Class B Common Stock and 5,990 shares of the
Company's Nonvoting Class A Common Stock over a four year period. The
agreement provides that John R. Miller, Jr. give a proxy to John A.
Warehime, Chairman, to vote all shares of both classes of common stock
beginning April 1, 1996 and ending March 31, 2001.
A portion of rental expense included in note 4 was paid to ARWCO
Corporation, Warehime Enterprises, Inc., Centre Foods Enterprises,
Inc., and Food Service East, Inc., all of which are related companies
through common control. The amounts were $340,000, $654,000, and
$739,000 for the years ended March 31, 1996, April 2, 1995, and April
3, 1994, respectively. The portion of rental commitments included in
note 4 due these companies is summarized as follows:
<TABLE>
<CAPTION>
For the fiscal years ending:
<S> <C>
1997 $ 215,000
1998 13,236
1999 14,000
2000 15,000
2001 15,000
--------------------------------------------
</TABLE>
(Continued)
-32-
<PAGE> 34
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) BENEFIT PLANS
FROZEN DEFINED BENEFIT RETIREMENT PLANS
The Corporation previously amended its noncontributory defined benefit
plans to freeze benefit accruals effective August 31, 1992 and also
took action to terminate the plans effective August 31, 1992. On
November 12, 1993, the Board of Directors rescinded its previous
action to terminate the plans and has placed the plans in a frozen
status.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheet as of:
<TABLE>
<CAPTION>
March 31, 1996
-----------------------
Fully Under April 2,
funded plan funded plan 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $(623,000) (6,594,000) (6,573,000)
- ------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date (623,000) (6,594,000) (6,573,000)
Plan assets at fair value 669,000 6,508,000 6,784,000
- ------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligation 46,000 (86,000) 211,000
Unrecognized (gains) losses 162,000 586,000 227,000
Adjustment to recognize required minimum liability - (586,000) -
- ------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 208,000 (86,000) 438,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic pension cost (income) included the following components:
<TABLE>
<CAPTION>
March 31, April 2, April 3,
1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest cost $ 496,000 440,000 382,000
Actual return on plan assets (464,000) 80,000 (290,000)
Amortization of transition obligation - - 4,000
Amortization of unrecognized loss 6,000 6,000 -
Deferral of asset loss (15,000) (580,000) (165,000)
- ----------------------------------------------------------------------------------------
Net pension cost (income) $ 23,000 (54,000) (69,000)
- ----------------------------------------------------------------------------------------
</TABLE>
The plans' assets include mutual funds, bonds, cash, and cash
equivalents. The Corporation funding policy is to contribute annually
those amounts necessary to meet ERISA funding requirements.
(Continued)
-33-
<PAGE> 35
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) CONTINUED
Assumptions used in accounting for the pension plans as of March 31,
1996 and April 2, 1995 were:
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Discount rates 7.25 % 7.75 %
Expected long-term rate of return on assets 7.0 8.0
- ---------------------------------------------------------------------------------------
</TABLE>
The assumed rates used above have a significant effect on the amounts
reported. For example, decreasing the assumed discount rates by one
percentage point at March 31, 1996 would increase the projected
benefit obligation and the additional minimum liability by
approximately $1,024,000.
DEFINED CONTRIBUTION PLAN
The Corporation offers a 401(k) plan covering certain of its
employees. Effective January 1, 1993, the Corporation has agreed to
contribute an amount equal to 100% of each employee's deferral up to
5%.
The Corporation's contribution to the 401(k) plan for the fiscal years
ended March 31, 1996, April 2, 1995, and April 3, 1994 was $539,000,
$506,000, and $543,000, respectively.
(Continued)
-34-
<PAGE> 36
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) CONTINUED
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain employees receive postretirement benefits other than pensions.
This plan is currently not funded. The Company accounts for these
costs by accruing for them over the employee service period. The
status of the plan, based on the most recent measurement dates, is as
follows:
<TABLE>
<CAPTION>
January 1, January 2,
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Actives eligible to retire $ (117,000) (98,000)
Other actives (254,000) (192,000)
- -------------------------------------------------------------------------------------------------------------
Total actives (371,000) (290,000)
Current retirees and disables (1,306,000) (1,295,000)
- -------------------------------------------------------------------------------------------------------------
Total obligation (1,677,000) (1,585,000)
Plan assets at fair value - -
- -------------------------------------------------------------------------------------------------------------
Funded status (1,677,000) (1,585,000)
Unrecognized net (gain) loss (75,000) (91,000)
Unrecognized transition liability, amortized over 20 years 1,311,000 1,384,000
- -------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (441,000) (292,000)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
A discount rate of 7.25%, 8.5%, and 7.50% for January 1, 1996, January
2, 1995, and January 3, 1994, respectively, was used in determining
the actuarial present value of the accumulated postretirement benefit
obligation.
The cost of postretirement benefits other than pensions consisted of
the following components:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 16,000 20,000 11,000
Interest cost 121,000 124,000 124,000
Amortization of transition obligation 73,000 73,000 73,000
- ----------------------------------------------------------------------------------------------
$ 210,000 217,000 208,000
- ----------------------------------------------------------------------------------------------
</TABLE>
(Continued)
-35-
<PAGE> 37
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) CONTINUED
The assumed postretirement health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 9% for
fiscal year March 31, 1996, decreasing each year to an ultimate rate
of 5% in 2002 and thereafter over the projected payout period of
benefits.
The health care cost trend rate assumption has a significant effect on
the amounts reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of March 31, 1996
by $110,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year
ended March 31, 1996 by $8,000.
EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS
Effective April 4, 1994, the Corporation entered into an employment
contract with the Chief Executive Officer which contains self-
renewing terms of five years (evergreen). The agreement provides for
payment of the stipulated compensation over no more than the remaining
term in the event of death, disability, or termination. In addition,
the agreement also provides for the annual reimbursement of certain
expenses. As of March 31, 1996, the estimated aggregate liability for
the next five years could be $3,300,000, excluding annual performance
bonuses. Annual performance bonuses are based upon attaining
prescribed pre-tax earnings levels and can be paid in cash or Class
B-Common (voting) stock at the option of the officer. For the years
ended March 31, 1996 and April 2, 1995, the performance bonus
recognized under this agreement was $0 and $659,500, respectively.
Effective April 3, 1995, the agreement was amended to also provide a
deferred compensation program for the Chief Executive Officer. The
deferred compensation program provides for payment to commence upon
termination, death, or disability and is payable during the lives of
the officer and/or his spouse. The agreement provides for the annual
deferred compensation to be based upon 60% of the average of the
latest three years of total compensation (including performance
bonuses). The net present value of the cost of providing this future
benefit is recognized over the remaining expected years of service.
The expense recognized under this agreement was approximately $295,000
for the year ended March 31, 1996. Based on the estimated present
value of the deferred compensation, the estimated present value at
retirement (assuming retirement at age seventy) could amount to
approximately $9,700,000.
The Corporation is also committed to another employee, Patricia H.
Townsend, under a previous employment contract, which provides for
minimum salary levels, annual adjustments, as well as incentive
bonuses and expires in March 2004. Provisions contained in the
agreement provide for continuation of the remuneration in the event of
termination, incapacity, death, or disability. The estimated
commitment for future salaries through the duration of the agreement
as of March 31, 1996 was approximately $480,000.
(Continued)
-36-
<PAGE> 38
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) INCOME TAXES
Total income taxes (benefit) for the year ended March 31, 1996, April
2, 1995, and April 3, 1994, were attributable to the following:
<TABLE>
<CAPTION>
March 31 April 2, April 3,
1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from operations $ 213,000 798,000 4,067,000
Minimum pension liability adjustment (235,000) - -
- ----------------------------------------------------------------------------------------
$ (22,000) 798,000 4,067,000
- ----------------------------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) attributable to income from operations
consists of:
<TABLE>
<CAPTION>
Fiscal years ended
---------------------------------------------------------------------------
March 31, 1996 April 2, 1995 April 3, 1994
-------------------------- ---------------------- ----------------------
Federal State Federal State Federal State
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current $ 448,000 134,000 696,000 80,000 2,867,000 806,000
Deferred (205,000) (164,000) 86,000 (64,000) 334,000 60,000
- ----------------------------------------------------------------------------------------
$ 243,000 (30,000) 782,000 16,000 3,201,000 866,000
- ----------------------------------------------------------------------------------------
</TABLE>
There is no income tax attributable to the income from foreign
subsidiaries since the foreign entities were not subject to taxes on
income in 1996, 1995, and 1994.
The significant components of deferred income tax expense attributable
to income from operations for the years ended March 31, 1996, April 2,
1995, and April 3, 1994 are as follows:
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------------------
March 31 April 2, April 3,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation expense $ 20,000 84,000 168,000
Package design expense (95,000) - 71,000
Inventory valuation 6,000 (134,000) 20,000
Group insurance expense (245,000) 25,000 (22,000)
Compensated absences (20,000) 174,000 (35,000)
Pension and postretirement benefits (88,000) 57,000 (21,000)
Effect of change in state tax rate on deferred taxes (121,000) - -
Other, net 174,000 (184,000) 213,000
- ------------------------------------------------------------------------------------------------------
$ (369,000) 22,000 394,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
-37-
<PAGE> 39
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) (CONTINUED)
A reconciliation of the Corporation's effective tax rate to the amount
computed by applying the federal income tax rate of 34% to income
before taxes expressed in percentages, follows:
<TABLE>
<CAPTION>
Fiscal year ended
-----------------------------------------
March 31 April 2, April 3,
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 34.0 % 34.0 % 34.0 %
Increase (decrease) in taxes:
State taxes - net of federal tax 9.5 3.4 5.6
Effect of change in state tax rate
on deferred taxes (12.6) - -
Loss (income) in foreign subsidiary
with no current tax 2.8 (10.9) (2.5)
Other items - net (0.1) 3.2 2.7
- ---------------------------------------------------------------------------------------------
Effective income tax rate 33.6 % 29.7 % 39.8 %
- ---------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at March
31, 1996, April 2, 1995, and April 3, 1994, are as follows:
<TABLE>
<CAPTION>
March 31 April 2, April 3,
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation $ (5,630,000) (5,334,000) (5,250,000)
Employee benefit obligations (146,000) (183,000) (126,000)
Capital lease obligations (519,000) (432,000) (338,000)
Other (147,000) (591,000) (592,000)
- ---------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (6,442,000) (6,540,000) (6,306,000)
- ---------------------------------------------------------------------------------------------
Deferred tax assets:
Package design costs 185,000 93,000 71,000
Inventory valuation 102,000 112,000 20,000
Group insurance expense 400,000 162,000 86,000
Compensated absences 229,000 213,000 304,000
Pension and postretirement benefits 420,000 123,000 38,000
Compensation expense 236,000 405,000 -
Other 66,000 24,000 401,000
- ---------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,638,000 1,132,000 920,000
- ---------------------------------------------------------------------------------------------
Net deferred tax liability $ (4,804,000) (5,408,000) (5,386,000)
- ---------------------------------------------------------------------------------------------
</TABLE>
(Continued)
- 38 -
<PAGE> 40
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) (CONTINUED)
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company
will realize the benefits of these deductible differences. The amount
of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.
The Company has not recognized a deferred tax liability for the
undistributed earnings and tax basis differences of its investment in
foreign subsidiaries since the earnings and investment are considered
to be permanently invested in the businesses and, under the tax laws,
are not subject to such taxes until distributed. The accumulated
amount of such undistributed earnings was approximately $3,076,000 at
March 31, 1996.
(8) CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Company has outstanding 15,044 shares of cumulative convertible
preferred stock. Cumulative dividends of $.515625 per share are
payable quarterly. Each share of preferred stock may be converted at
the option of the holder into Class A common stock based on the book
value of the common stock at the time of the conversion. At March 31,
1996, the outstanding preferred stock could be converted into 6,454
shares of common stock.
(9) COMMITMENTS AND CONTINGENCIES
LETTER OF CREDIT
As of March 31, 1996, the Corporation's wholly-owned reinsurance
company had outstanding a letter of credit in the sum of $1,200,000
which is secured by its investment assets of the same amount.
(Continued)
- 39 -
<PAGE> 41
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) CONTINUED
LEGAL MATTERS
On February 1, 1995, Michael A. Warehime, J. William Warehime, and
Elizabeth W. Stick, three shareholders of the Corporation, filed a
Complaint against the Corporation and its Chairman in the Court of
Common Pleas of York County, Pennsylvania. The suit, when filed,
sought various forms of relief including, but not limited to, an order
that the court invalidate the Corporation's October 18, 1994 election
of directors and reinstate the Board of Directors that existed prior
to that date. In addition, the plaintiffs sought all costs and fees
incident to bringing suit. On August 16, 1995, the court dismissed J.
William Warehime and Elizabeth W. Stick as plaintiffs and the
Corporation as a defendant in this case. The court also dismissed two
of the four counts alleged by the plaintiffs. Subsequently, Michael
A. Warehime, the remaining plaintiff, amended the complaint to seek a
judgment requiring John A. Warehime to reimburse the Corporation for
certain compensation paid to him by the Corporation under its
employment agreement (note 6). The case is in discovery and no trial
date has been set.
On April 29, 1996 the Corporation settled out of court with federal
and Delaware environmental authorities regarding investigations of
alleged violations of environmental laws at its Clayton, Delaware
facility. As a result of the settlement the Company paid $60,000 in
civil penalties and agreed to undertake certain tasks within eighteen
months including upgrading its refrigeration system and providing
refrigeration training to its personnel. The approximate cost for
training and capital expenditure is $400,000. The Company has made
substantially all of the required capital expenditures to upgrade the
refrigeration system and is performing the required refrigeration
training at its Delaware facility. The Corporation's actions taken as
a result of this settlement are subject to the review of the
environmental authorities.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
MANUFACTURER COUPONS
The Corporation is contingently liable for unredeemed manufacturer
coupons on various products at March 31, 1996 which will expire during
1996.
STOCK REPURCHASE PLAN
The Corporation has agreed to purchase Hanover Foods Corporation Class
A Common Stock purchased or owned by employees prior to April 20,
1988. This guarantee of repurchase by Hanover Foods Corporation is
for an indefinite period of time. As of March 31, 1996, there are
11,808 shares outstanding which would be eligible for this plan. The
maximum commitment, if requested, for all eligible shares would be
approximately $803,000, based on the most recent appraised value per
share.
(Continued)
- 40 -
<PAGE> 42
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) FOREIGN OPERATIONS AND EXCHANGE RESTRICTIONS
FOREIGN OPERATIONS
The Corporation's foreign subsidiary, Alimentos Congelados Monte
Bello, S.A.. (ALCOSA) produces food products in Guatemala which are
sold to Sunwise Corporation in the United States. The revenues
generated by the operations in Guatemala and the assets employed in
generating those revenues are as follows:
<TABLE>
<CAPTION>
March 31, April 2, April 3,
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 18,155,000 20,320,000 15,781,000
Cost of goods sold 17,311,000 17,674,000 13,784,000
Assets 10,756,000 10,760,000 8,884,000
- -------------------------------------------------------------------------------
</TABLE>
ALCOSA maintains its accounting records in quetzales, although, for
financial reporting purposes, the accounting records have been
remeasured to be expressed in U.S. dollars. The financial statements
of ALCOSA have been translated to their U.S. dollar equivalents prior
to being consolidated. Assets and liabilities have been translated to
their U.S. dollar equivalents based on rates of exchange prevailing at
the end of the period except for inventories, fixed assets, deferred
and prepaid expenses, and other assets, which have been translated at
historical rates. Revenue and expense accounts have been translated
at average exchange rates during the period except for depreciation of
fixed assets, which is based on the historical rate. The aggregate
exchange gains and losses arising from the translation of foreign
assets and liabilities and from foreign currency transactions are
included in income under the caption of Other Expenses, Net and amount
to a loss of $190,000, a gain of $9,000, and a loss of $49,000 for the
years ended March 31, 1996, April 2, 1995, and April 3, 1994,
respectively. At March 31, 1996, the prevailing exchange rate was Q
6.10 to U.S. $1.00.
- --------------------------------------------------------------------------------
-41-
<PAGE> 43
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Quarterly Financial Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Dollars in thousands First Second Third Fourth
(except per share) quarter (1) quarter (1) quarter (2) quarter (3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net sales $ 52,306 58,847 75,093 76,674
Gross profit 11,030 12,140 11,874 14,361
Net earnings (loss) (1,351) 205 1,397 169
Net earnings (loss) per common share (1.84) .28 1.91 0.18
Cash dividends per common share .275 .275 .275 .275
- --------------------------------------------------------------------------------------------------------
1995
Net sales $ 50,045 54,163 70,075 83,247
Gross profit 11,486 13,389 16,553 16,730
Net earnings (loss) 360 695 2,030 (897)
Net earnings (loss) per common share .48 .93 2.75 (1.64)
Cash dividends per common share .25 .275 .275 .275
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) First and second quarter amounts for fiscal 1996 are restated to correct
recognition of certain expenses principally related to promotional
programs. Net earnings for the first quarter of fiscal 1996 were
previously reported as $411,000, and earnings per share for the quarter
were $.55 per share. The second quarter of fiscal 1996 previously reported
a loss of $940,000 or $1.29 per share.
(2) Third quarter amounts for fiscal 1995 are restated to record the
promotional expense for the programs offered during the latter part of the
third quarter. The adjustment of $1.2 million represents "billbacks" on
sales in November and December 1994 that were not processed until the early
part of the fourth quarter. Net earnings for the third quarter of fiscal
1995 were previously reported as $2.8 million, and earnings per share for
the quarter were $3.83 per share.
(3) Fourth quarter results for fiscal 1995 include the additional promotional
expense for the period of $3.0 million and the sale of excess frozen
inventory.
-42-
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 13, 1995 at the annual meeting of the Class B Common stockholders, KPMG
Peat Marwick LLP, Certified Public Accountants, were appointed auditors for the
Corporation for the fiscal year ended March 31, 1996. There were no
disagreements between the Corporation and its prior auditor regarding any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure.
-43-
<PAGE> 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CORPORATION
(a) DIRECTORS OF THE CORPORATION (AS OF JUNE 24, 1996)
<TABLE>
<CAPTION>
NAME, AGE AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE (5) YEARS
- ---------------------------- -----------------------------------------------
<S> <C>
JOHN A. WAREHIME Chairman - 1989 to Present; Director - 1985-Present;
Director - 1985-Present; Mr. Warehime has 45 years' experience in the food
Chairman - 1989-Present processing industry.
Age: 58
CLAYTON J. ROHRBACH, JR. Retired Businessman; Vice President - Marketing - CPC
Director - 1984-Present International - 1984-1985
Age: 76
JAMES G. STURGILL, CPA Managing Partner - Sturgill & Associates - 1993-
Director - 1994-Present Present; 1980-1993 - Sturgill, Rager & Lehman -
Age: 55 Chartered and Consultants
ARTHUR S. SCHAIER Owner/Vice President and General Manager - Earnhardt's
Director - 1994-Present Gilbert Dodge, Inc. - 1981-Present
Age: 54
T. EDWARD LIPPY Vice President - Lippy Brothers, Inc., Hampstead, MD -
Director 1994-Present, President - 1992-1994; Vice Chairman &
Age: 66 Director - Farmers & Merchants Bank - 1989-Present;
Director - Ag First Farm Credit Bank - 1988-Present;
Chairman - Baltimore Farm Credit Bank - 1990-1992;
Chairman - Farm Credit Council, Washington, D.C. -
1993-Present
CYRIL T. NOEL Retired Businessman; Vice President - Finance - Hanover
Director Foods - 1985-1991
Age: 71
JAMES A. WASHBURN President & Chief Executive Officer - Park 100 Foods,
Director (Elected April 26, 1996) Tipton, IN - 1991-Present; President & Chief Executive
Age: 46 Officer - Hamilton Medaris Corporation, Fishers, IN;
President & Chief Executive Officer - H.M.C.
Transportation, Fishers, IN
</TABLE>
-44-
<PAGE> 46
(b) EXECUTIVE OFFICERS OF THE CORPORATION (AS OF JUNE 24, 1996)
<TABLE>
<CAPTION>
NAME, AGE AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE (5) YEARS
- ---------------------------- -----------------------------------------------
<S> <C>
JOHN A. WAREHIME Chairman - 1989 to Present; Director -1985-Present; Mr.
Chairman - 1989-Present Warehime has 45 years' experience in the food
Director - 1985-Present processing industry.
Age: 58
GARY T. KNISELY, ESQUIRE Executive Vice President - 1995-Present; Vice President
Executive Vice President & Secretary - Administration - 1989-1995; Counsel - 1987-Present;
1995-Present Secretary - 1987-Present
Age: 47
CLEMENT A. CALABRESE Vice President - Sales & Trade Marketing - 1995-
Vice President - Sales & Trade Marketing Present; Vice President - Sales - American Home Foods,
1995-Present Inc. - 1993-1995; Vice President - Retail Sales -
Age: 53 Sunshine Biscuits, Inc. - 1988-1993
PIETRO D. GIRAFFA Vice President - Controller - 1996-Present; Controller
Vice President - Controller - 1984-1996
1984-Present
Age: 50
WHITNEY J. COOMBS Vice President - Marketing - 1987-Present; Vice
Vice President - Marketing President of Marketing - Progresso Foods Division -
1987-Present Ogden Foods, Inc. - 1984-1987; Mr. Coombs has 16 years
Age: 55 of marketing experience in the food processing
industry.
BERKLEY F. CONE President - Clayton Foods Division - 1995-Present;
President - Clayton Division President - Alimentos Congelados Monte Bello, S.A. -
1996-Present 1991-Present
President - Alimentos Congelados Monte
Bello S.A.
1991-Present
Age: 47
LESLIE GENSON Vice President - Manufacturing - hired June 24, 1996;
Vice President - Manufacturing Director of Operations - Seneca Foods Corp. - Marion,
(Hired - June 24, 1996) NY - 1995-1996; Director of Operations - Seneca Foods
Age: 41 Corp. - Glencoe, MN; Manufacturing Planning Manager -
Pillsbury Co. - 1991-1995
ALAN T. YOUNG Vice President - Transportation - 1996-Present; Vice
Vice President - Transportation President - Operations - 1991-1996; Director of
1996-Present Corporate Logistics - 1990-1991; Manager of Corporate
Age: 53 Systems - 1986-1990
</TABLE>
-45-
<PAGE> 47
<TABLE>
<CAPTION>
NAME, AGE AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE (5) YEARS
- ---------------------------- -----------------------------------------------
<S> <C>
JACK A. BROWN Vice President - Treasury Services & Treasurer -
Vice President - Treasury Services 1991-Present; Treasurer - 1987-Present; Director of
and Treasurer Administration - 1987-1988; Manager of Employee
1991-Present Benefits and Compensation - 1988-1990
Age: 66
</TABLE>
(d) FAMILIAL RELATIONSHIPS OF DIRECTORS AND EXECUTIVE OFFICERS
None.
(h) SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires that
directors and certain officers of the Corporation file reports of
ownership and changes in ownership with the Securities and Exchange
Commission as to the shares of Corporation Common Stock beneficially
owned by them.
Based solely on its review of copies of such forms received by it, the
Corporation believes that during the Corporation's fiscal year ended
March 31, 1996, all filing requirements applicable to its directors
and officers were complied with in a timely fashion.
ITEM 11. EXECUTIVE COMPENSATION
(b) The following table shows, for the fiscal years ended April 3, 1994,
April 2, 1995 and March 31, 1996, the cash compensation paid or
accrued, as well as certain other compensation paid or accrued, to the
Chief Executive Officer, and the next four highly compensated
executive officers of the Corporation in all capacities in which they
served.
Summary Compensation Table - See Next Page
-46-
<PAGE> 48
Table 1: Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Year Salary ($'s) Bonus ($'s) Other Annual Restricted Stock All Other
Position Compensation ($'s) Awards ($'s) Compensation ($'s)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
John A. Warehime 95-96 614,600(2)(10) -0- 62,146(11) $332,983(4)(9)
Chairman 94-95 650,000(2) 659,500(1)(2) 33,982(4)(9)
93-94 350,000 122,500 8,994
- ------------------------------------------------------------------------------------------------------------------------------------
Berkley F. Cone 95-96 156,800 - 0- -0- 9,391(5)
President - Clayton 94-95 144,000 52,624(1) 3,000(3) 7,500(5)
Division; President - 93-94 139,000 50,050 3,000 7,994
Alimentos Congelados
Monte Bello, S.A.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary T. Knisely 95-96 129,900 -0- 7,416(6)
Executive Vice 94-95 117,000 18,428(1) 7,500(6)
President, 93-94 110,400 38,640 7,263
Secretary & Counsel
- ------------------------------------------------------------------------------------------------------------------------------------
Alan T. Young 95-96 113,800 -0- 6,531(7)
Vice President - 94-95 106,700 16,805 6,887(7)
Transportion 93-94 95,617 31,850 6,165
- ------------------------------------------------------------------------------------------------------------------------------------
Whitney J. Coombs 95-96 113,700 -0- 6,634(8)
VP Marketing 94-95 120,600 18,995(1) 7,500(8)
93-94 113,800 39,830 7,555
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-47-
<PAGE> 49
FOOTNOTES:
(1) Reflects bonus earned during the fiscal year and paid
during the next fiscal year computed on fiscal 1995
pre-tax earnings prior to taking into account the
accounting charge for expanded promotion expenses.
(2) Pursuant to the June 12, 1995 Employment Agreement
between the Corporation and John A. Warehime,
Chairman, and the resolution of the Board of
Directors adopted April 28, 1995.
(3) Pursuant to an Employment Agreement which is further
discussed on page 49, Mr. Cone has been issued 297
shares of Class A Nonvoting Common Stock to date.
Mr. Cone receives dividends on said stock.
(4, 5, 6, 7, 8) Corporate matching contributions to the Corporation's
401(k) Savings Plan.
(9) Corporation's payment for premiums of $27,160 for
Split-Dollar life insurance policy and the accrual of
$295,000 for deferred compensation to be paid
pursuant to the June 12, 1995 Employment Agreement.
(10) John A. Warehime voluntarily reduced his salary for
fiscal 1996 by 10% from October, 1995 through May,
1996. Mr. Warehime believed that this reduction was
appropriate given the demands on the Corporation's
employees during this period.
(11) Legal and accounting fees in the amount of $49,865
and other perquisites paid pursuant to the June 12,
1995 Employment Agreement.
-48-
<PAGE> 50
(f) COMPENSATION PURSUANT TO PLANS
(1) RETIREMENT BENEFITS
The Corporation currently provides retirement benefits via a
frozen non-contributory defined benefit pension plan ("Pension
Plan") and a 401(k) defined contribution benefit plan.
PENSION PLAN
On June 5, 1992, the Corporation amended its Pension Plan to
freeze benefit accruals effective August 31, 1992 and also
took action to terminate the Pension Plan effective August 31,
1992. On November 12, 1993 the Board of Directors rescinded
its previous action to terminate the Pension Plan. The
Pension Plan continues to be maintained as a frozen plan with
benefits frozen as of August 31, 1992. The frozen Pension
Plan provides for the payment of a retirement benefit upon
attainment of the normal retirement age of 65 and actual
retirement from the Corporation. The normal form of benefit
under the frozen Pension Plan is a qualified joint and
survivor annuity for a married participant and a single life
annuity for an unmarried participant. Certain optional
methods of payment are also available. If a participant dies
after having met the service requirements for a vested
retirement benefit, a survivor benefit is payable under
certain conditions. The executive officers of the Corporation
listed in the Summary Compensation Table have the following
frozen credited years of service and frozen accrued benefits
(single life) under the frozen Pension Plan:
<TABLE>
<CAPTION>
YEARS OF ACCRUED
CREDITED MONTHLY
EXECUTIVE OFFICER SERVICE BENEFITS
----------------- ------- --------
<S> <C> <C>
John A. Warehime 22.67 $ 4,629
Whitney J. Coombs 6.92 773
Berkley F. Cone 3.00 346
Gary T. Knisely 12.00 1,457
Alan T. Young 6.50 638
</TABLE>
401(k) PLAN
The 401(k) defined contribution benefit plan, known as the
Corporation's Retirement Savings Plan, was instituted on April
2, 1990, and amended June 5, 1992, April 4, 1994, and April
28, 1995. Certain full-time domestic employees are
eligible to participate after completion of one (1) year of
service. Each eligible employee has the option to defer up to
sixteen (16%) percent of his or her total annual cash
compensation per year. On December 31st of each year, the
Corporation makes a one hundred (100%) percent matching
contribution to each contributing employee's account for the
first five (5%) percent deferred by each employee. Each
employee has various investment options. The Plan does not
permit any loans or early withdrawals.
-49-
<PAGE> 51
(g) DIRECTOR FEES
During fiscal year 1995-1996, the policy of Board compensation
was as follows: the directors of the Corporation are paid an
annual retainer of $12,000 payable in equal monthly
installments of $1,000 and a fee of $1,500 for each quarterly
Board Meeting attended, plus an annual fee of $1,000 per year
for service as a committee chairman and a fee of $1,000 for
each Committee Meeting attended (if the Committee Meeting is
held on a different day than the Board Meeting). The amounts
paid to a director for attendance at Board or Committee
Meetings shall not exceed in the aggregate $10,000 in any
calendar year.
The directors of the Corporation were paid $150,729 as a group
for fiscal year 1995-1996 for attendance at thirteen (13)
meetings of the Board and Board Committees, including
reimbursement for air travel.
(h) EMPLOYMENT AGREEMENTS
The August 3, 1989 Employment Agreement between the
Corporation and Berkley F. Cone, President of Alimentos
Congelados Monte Bello, S.A., Guatemala City, Guatemala
provided for annual salary, housing, schooling and car
allowances. In addition, Mr. Cone has received $15,000 of
Class A Nonvoting Common Stock.
The June 12, 1995 Employment Agreement between the Corporation
and John A. Warehime, Chairman, provides for a base salary of
$650,000; a five-year annually self-renewing term; a
performance bonus of increasing percentages of pre-tax
earnings in excess of $5,000,000; deferred compensation of 60%
of the average of the latest 3 years of total compensation
commencing on death, disability or termination of employee;
and additional benefits.
The November 14, 1986 Employment Agreement between the
Corporation and Patricia H. Townsend, Assistant Secretary,
provides for a base salary of $40,000 for the period from
November 14, 1986 up to and including March 31, 2004.
(j) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James G. Sturgill and the late George E. Lawrence each served
as members of the Compensation Committee at various times
during the fiscal year. During the 1996 fiscal year, the
Corporation retained James G. Sturgill and the late George E.
Lawrence as financial and sales consultants, respectively.
See "Certain Relationships and Related Transactions -
Transactions with Management and Others."
(k) (1) COMPENSATION POLICY
Compensation for Officers other than the Chairman is
recommended by the Chairman and approved by the Compensation
Committee and the full Board of Directors. Compensation for
the Chairman is proposed by the Compensation Committee and
approved by the full Board of Directors.
The Corporation's executive compensation program, particularly
the annual bonus, is designed to be closely linked to
corporate performance and returns to shareholders. The
overall objectives of
-50-
<PAGE> 52
this strategy are to attract and retain the best possible
executive talent, to motivate these executives to achieve the
goals inherent in the Corporation's business strategy, to link
executive and shareholder interests through plans and finally
to provide a compensation package that recognizes individual
contributions as well as overall business results.
(2) Prior to Mr. Lawrence's death, the Compensation Committee
approved the recommendations of the Chairman for compensation
of other officers after giving consideration to the overall
objectives of the Corporation's compensation program for
executives. The Chairman's compensation was pursuant to the
June 12, 1995 Employment Agreement.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITY HOLDERS
The following table sets forth information regarding beneficial ownership of
all classes of capital stock of the Corporation by the directors, executive
officers, and owners of five (5%) percent or more of any class of capital
stock, as well as any future rights of ownership by such individuals, as of
June 24, 1996.
AS OF JUNE 24, 1996
(a) BENEFICIAL OWNERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT &
CLASS OF BENEFICIAL OWNER NATURE OF BENEFICIAL INTEREST % OF CLASS
- ----- ------------------- ----------------------------- ----------
<S> <C> <C> <C>
Common A J. William Warehime 8,834 3.0%
Common B 257 Frederick Street 78,408 18.3%
Hanover, Pennsylvania 17331
Common A Elizabeth W. Stick 15,002 5.0%
Common B 35 Peyton Road 44,244 10.3%
York, Pennsylvania 17403
Common A Centre Foods Enterprises, Inc. 19,607 6.6%
120 Paul Street
Hanover, Pennsylvania 17331
Common A Meta L. Frey 3,872 1.3%
Common B 425 Westminster Avenue, Cottage 22 27,720 6.5%
Hanover, Pennsylvania 17331
Common A Heartland Advisors, Inc. 40,000 13.3%
790 N. Milwaukee Street
Milwaukee, WI 53202
</TABLE>
-51-
<PAGE> 53
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT &
CLASS OF BENEFICIAL OWNER NATURE OF BENEFICIAL INTEREST % OF CLASS
- ----- ------------------- ----------------------------- ----------
<S> <C> <C> <C>
(b) MANAGEMENT
----------
DIRECTORS
- ---------
Common A John A. Warehime 44 .01%
Common B RD 3, Box 481 223,079(1) 52.2%
Hanover, Pennsylvania 17331
Common A Clayton J. Rohrbach, Jr. 88 .03%
The Barclay, Apartment 724
3546 South Ocean Boulevard
Palm Beach, Florida 33480
Common A Cyril T. Noel 301 .10%
344-1/2 North Street
McSherrystown, Pennsylvania 17344
Common A T. Edward Lippy 385 .13%
209 Lees Mill Road
Hampstead, Maryland 21074
Common A Arthur S. Schaier 500 .17%
1301 N. Arizona Avenue
Gilbert, Arizona 85234
None James G. Sturgill
4833 Wentz Road
Manchester, Maryland 21102
None James A. Washburn
12643 Royce Court
Carmel, Indiana 46033
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS (NOT DIRECTORS)
- ----------------------------------
<S> <C> <C> <C>
Common A Gary T. Knisely, Esq. 1,688 .5%
Executive Vice President
1051 Cherry Orchard Road
Dover, Pennsylvania 17315
None Pietro D. Giraffa, Jr.
Vice President - Controller
281 Mt. Pleasant Road
Hanover, Pennsylvania 17331
</TABLE>
-52-
<PAGE> 54
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT &
CLASS OF BENEFICIAL OWNER NATURE OF BENEFICIAL INTEREST % OF CLASS
- ----- ------------------- ----------------------------- ----------
<S> <C> <C> <C>
None Clement A. Calabrese
V.P. Sales & Trade Marketing
24 Meadow Lane
Pennington, New Jersey 08534
Common A Whitney J. Coombs 451 .15%
V.P. Marketing
86 Roberts Road
Littlestown, Pennsylvania 17340
Common A Jack A. Brown 820 .28%
Common B V.P. Treasury Services 154 .04%
120 Paul Street
Hanover, Pennsylvania 17331
Common A Berkley F. Cone 297 .1%
President - Clayton Division
President - Alimentos Congelados
Monte Bello S.A.
153 Dewberry Drive
Ramsey Ridge
Hockessin, Delaware 19707
None Leslie Genson
V.P. Manufacturing
P.O. Box 334
Hanover, Pennsylvania 17331
None Alan T. Young
V.P. Transportation
21 Laurel Woods
Hanover, Pennsylvania 17331
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS AS A GROUP
- ---------------------------------
<S> <C> <C>
Common A 4,277 1.45%
Common B 223,233 52.24%
</TABLE>
Footnote:
(1) Currently, John A. Warehime owns directly 8,558 shares or 2.0% of
the Class B Common Voting Stock. Mr. Warehime is Sole Voting Trustee with
regard to the balance of Class B Common Stock shares listed (214,521) (50.2%),
pursuant to Voting Trust Agreements dated April 5, 1988 and December 1, 1988,
respectively, copies of which are incorporated herein by reference as Exhibits
9(a) and 9(b). Said trusts expire April 5, 1998 and December 1, 1998
respectively.
-53-
<PAGE> 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During the fiscal year ended March 31, 1996, the Corporation and its
subsidiaries, in the normal course of business sold finished goods, provided
administrative and manufacturing services to, and leased buildings, equipment
and land, purchased contracted vegetables and received printing, travel and
restaurant services from related companies. These transactions are as follows:
1. The Corporation received printing and travel services
from The Cannery Press, Inc. in the amount of $346,000
for fiscal year 1995-1996. The Corporation also
received restaurant services from Patti & John's, Inc.
in the amount of $29,000 for fiscal year 1995-1996.
2. The Corporation stored raw potatoes at its Centre Hall,
Pennsylvania plant for Snyder's of Hanover, Inc.,
Hanover, Pennsylvania, for a total rental of $175,000.
3. On April 28, 1988, the Corporation entered into an
Agreement of Sale with Warehime Enterprises, Inc. to
purchase a frozen food facility for the total sum of
$2,500,000. Effective March 1, 1993, the Corporation is
obligated to make twenty (20) quarterly principal
payments in the amount of $125,000. Interest at the
greater of the prime rate or the imputed interest of the
Internal Revenue Service accrues on the unpaid balance
and is paid monthly.
4. During fiscal year 1995-1996 the Corporation rented
equipment from two related parties, ARWCO Corporation
and Warehime Enterprises, Inc. The rental payments
pursuant to such lease agreements totaled $270,000 for
fiscal year 1995-1996.
5. On June 1, 1994, the Corporation entered into a one (1)
year lease with Food Service East, Inc., Hanover, PA,
for 20,931 square feet of dry warehouse, production,
refrigerated and frozen storage space at Smith Station
Road and Route 116, Hanover, PA. Pursuant to the lease,
the Corporation has two unilateral options to extend the
term of the lease for two (2) successive one (1) year
terms or until May 31,1997 and an option to purchase
based on an independent appraisal. On October 1, 1994
the Corporation increased the rental space to 28,501
square fee for a total annual rent of $96,703. On June
1, 1996, the Corporation exercised its unilateral option
to purchase for $904,058 approximately 10.3 acres of
land improved by an office/warehouse facility free and
clear of all liens, encumbrances and security interests.
6. On April 5, 1995, the Corporation purchased a facility
located in Teculutan, Guatemala, for $250,000 from ARWCO
Corporation. A deed of transfer dated October 13, 1995
was recorded March 21, 1996.
7. During fiscal year 1996, the Corporation leased a two
story farm house, adjoining one story guest house and
adjoining ground located on Trolley Road, R.D. #3,
Hanover, Heidelberg Township, Pennsylvania, for customer
housing
-54-
<PAGE> 56
and entertainment and temporary new employee housing
from John A. and Patricia M. Warehime for a total of
$42,000.
8. Pursuant to the March 3, 1989 Agreement of Sale (Exhibit
10(c)), the Corporation purchased 71.8 acres of real
estate located in Penn Township, York County, from
Warehime Enterprises, Inc. The total consideration,
$460,000, had been paid in full as of April 1, 1993.
The Corporation acquired title to the property by deed
dated June 13, 1995 and recorded July 7, 1995.
9. During the fiscal year 1996, the Corporation purchased
$752,000 of contracted vegetables from Lippy Brothers,
Inc.
10. During the fiscal year 1996, the Corporation retained
director James G. Sturgill, as a financial consultant
and paid him a total of $65,000 in fees plus reimbursable
expenses. Prior to his death in December, 1995,
director George E. Lawrence was paid $70,000 as a sales
consultant.
11. The Corporation repurchased 5,148 shares of the
Corporation's Class B Common Stock from Cyril T. Noel,
individually, and from Cyril T. Noel and Frances L.
Noel, jointly, for $367,567. See "Security Ownership
of Management and Certain Security Holders."
12. During the fiscal year 1996, the Corporation sold
$536,388 of frozen food products to Park 100 Foods,
Tipton, Indiana. (See pages 43 and 55)
NOTE: The following executive officers, directors or
beneficial owners of more than five (5%) percent of the
Corporation's Class B Voting Common Stocks are also
beneficial owners of the following related parties with
which the Corporation has and currently does business:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING STOCK/
BENEFICIAL INTEREST
OF RELATED PARTY
RELATED PARTY JUNE 1, 1996
------------- ------------
<S> <C> <C>
1. ARWCO CORPORATION
-----------------
John A. Warehime . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.3%
2. CENTRE FOODS ENTERPRISES, INC.
------------------------------
ARWCO Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.0%
John R. Miller, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.0%
3. PATTI & JOHN'S, INC.
--------------------
John A. & Patricia M. Warehime . . . . . . . . . . . . . . . . . . . . . 100.0%
</TABLE>
-55-
<PAGE> 57
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING STOCK/
BENEFICIAL INTEREST
OF RELATED PARTY
RELATED PARTY JUNE 1, 1996
------------- ------------
<S> <C> <C>
4. FOOD SERVICE EAST, INC. AND SUBSIDIARIES (1)
----------------------------------------
John A. & Patricia M. Warehime . . . . . . . . . . . . . . . . . . . . . 100.0%
5. SNYDER'S OF HANOVER, INC.
-------------------------
J. William Warehime . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7%
Jane Elizabeth Stick . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0%
John A. & Patricia M. Warehime . . . . . . . . . . . . . . . . . . . . . . 7.2%
6. WAREHIME ENTERPRISES, INC.
--------------------------
J. William Warehime . . . . . . . . . . . . . . . . . . . . . . . . . . 44.4%
John A. Warehime . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8%
7. LIPPY BROTHERS, INC.
--------------------
T. Edward Lippy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.0%
8. PARK 100 FOODS
--------------
James A. Washburn . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70.0%
</TABLE>
(1) Food Service East filed for bankruptcy under Chapter
11 of the U.S. Bankruptcy Code on April 22, 1994.
This bankruptcy was subsequently converted to Chapter
7 on October 11, 1994.
-56-
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. All Financial Statements
Hanover Foods Corporation and Subsidiaries
(See Part II, Item 8, Pages 16 through 42)
2. Financial Statement Schedules
None
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the financial
statements or notes thereto.
3. Exhibits
The following exhibits are filed herein or have been
previously filed with the Securities and Exchange Commission
and are incorporated by reference herein.
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3(a) The Registrant's Articles of Incorporation, as amended, are
incorporated by reference to Exhibit 3(a) of the Form 10-Q
filed for the quarterly period ended October 2, 1994.
3(b) Registrant's Amended and Restated By-laws enacted April 28,
1995 are incorporated by reference to Exhibit 3(b) of the Form
10-K filed July 3, 1995.
3(c) Registrant's Amended and Restated By-laws enacted April 26,
1996 and June 26, 1996 are attached as Exhibit 3(c).
4(a) Note Agreement dated as of December 1, 1991, between the
Corporation and Allstate Life Insurance Company, with regard to
the Corporation's $25,000,000, 8.74% Senior Notes Due March 15,
2007, is incorporated herein by reference to the Form 10-K
filed June, 1992 wherein such Exhibit is designated as 4.
4(b) June 20, 1995 First Amendment to December 1, 1991 Note
Agreement between the Corporation and Allstate Life Insurance
Company (the "Note Agreement") and Waiver of Compliance with
Section 5.9 of the Note Agreement is incorporated herein by
reference to Exhibit 4(b) of the Form 10-K filed on July 3,
1995.
</TABLE>
-57-
<PAGE> 59
<TABLE>
<S> <C>
4(c) June 24, 1996 waiver to covenants in the December 1, 1991 Note
Agreement between the Corporation and Allstate Life Insurance
Company (the "Note Agreement") is attached as Exhibit 4(c).
9(a) April 5, 1988 Voting Trust Agreement is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 9(a).
9(b) December 1, 1988 Voting Trust Agreement is incorporated herein
by reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 9(b).
9(c) Writing dated April 5, 1988 appointing John A. Warehime as
Successor Voting Trustee under Voting Trust Agreement dated
December 1, 1988, is incorporated herein by reference to the
Form 8-K filed June 1, 1990, wherein such Exhibit is designated
as 9(c).
9(d) Writing dated December 1, 1988 appointing John A. Warehime as
Successor Voting Trustee under Voting Trust Agreement dated
December 1, 1988, is incorporated herein by reference to the
Form 8-K filed June 1, 1990, wherein such Exhibit is designated
as 9(d).
10(a) April 28, 1988 Sublease Agreement between Warehime Enterprises,
Inc. and Hanover Brands, Inc., is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(a).
10(b) April 28, 1988 Agreement of Sale between Warehime Enterprises,
Inc. and Hanover Brands, Inc., is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(b).
10(c) March 3, 1989 Agreement of Sale between Warehime Enterprises,
Inc. and Hanover Brands, Inc., is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(c).
10(d) April 1, 1985 Lease Agreement between ARWCO Corporation and
Alimentos Congelados Monte Bello S.A., is incorporated herein
by reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(d).
10(i) November 14, 1986 Employment Agreement between Hanover Brands,
Inc., and Patricia H. Townsend is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(i).
</TABLE>
-58-
<PAGE> 60
<TABLE>
<S> <C>
10(j) August 3, 1989 Employment Agreement between Hanover Brands,
Inc. and Berkley F. Cone, is incorporated herein by reference
to the Form 8 Amendment to the July 28, 1989 Form 10, which
Amendment was filed on November 17, 1989, wherein such
Exhibit is designated as 10(j).
10(k) May 10, 1991 Amendment to April 28, 1988 Agreement of Sale
between Warehime Enterprises, Inc. and Hanover Brands, Inc.,
is incorporated herein by reference to the Form 10-K filed
June 29, 1991, wherein such Exhibit is designated as 10(k).
10(l) November 26, 1990 Deed conveying title to real estate known as
Unit #720, Century I Condominium, Ocean City, Maryland from
Estate of Alan R. Warehime to Hanover Foods Corporation, is
incorporated herein by reference to the Form 10-K filed on June
29, 1991, wherein such Exhibit is designated as 10(l).
10(m) Bill of Sale conveying title to furniture and furnishings to
Unit #720, Century I Condominium, Ocean City, Maryland from
Estate of Alan R. Warehime to Hanover Foods Corporation, is
incorporated herein by reference to the Form 10-K filed on June
29, 1991, wherein such Exhibit is designated as 10(m).
10(n) October 31, 1993 Severance Agreement and Release between John
E. Denton and Hanover Foods Corporation is incorporated herein
by reference to the Form 10-Q filed on February 9, 1994,
wherein such Exhibit is designated as 10(n).
10(o) June 1, 1994 Lease Agreement with unilateral option to purchase
between Hanover Foods Corporation and Food Service East, Inc.
is incorporated herein by reference to the Form 10-K filed on
June 30, 1994, wherein such Exhibit is designated as 10(o).
10(p) October 1, 1994 Amendment to the June 1, 1994 Lease Agreement
between Hanover Foods Corporation and Food Service East, Inc.
is incorporated herein by reference to Exhibit 10(p) of the
Form 10-K filed on July 3, 1995.
10(q) April 4, 1994 Agreement of Sale between ARWCO Corporation and
Alimentos Congelados Monte Bello, S.A. is incorporated herein
by reference to Exhibit 10(q) of the Form 10-K filed on July 3,
1995.
</TABLE>
-59-
<PAGE> 61
<TABLE>
<S> <C>
10(r) June 12, 1995 Employment Agreement between Hanover Foods
Corporation and John A. Warehime is incorporated herein by
reference to Exhibit 10(r) of the Form 10-K filed on July 3,
1995.
10(s) June 20, 1995 Deed conveying title to real estate from Centre
Foods Enterprises, Inc. to Hanover Foods Corporation is
incorporated herein by reference to Exhibit 10(s) of the Form
10-K filed on July 3, 1995.
10(t) April 4, 1994 Lease Agreement between John A. and Patricia M.
Warehime and Hanover Foods Corporation is attached as
Exhibit 10(t).
10(u) July 27, 1995 Installment Sales Agreement for the purchase of
5,148 shares of Hanover Foods Class B Voting Common Stock from
Cyril T. Noel, individually, and Cyril T. Noel and Frances L.
Noel, jointly, is attached at Exhibit 10(u).
10(v) April 1, 1996 Installment Sales Agreement for the purchase of
1,210 shares of Hanover Foods Class B Voting Common Stock and
5,990 shares of Hanover Foods Class A Nonvoting Common Stock
from John R. Miller, Jr. is attached as Exhibit 10(v).
10(w) June 1, 1996 letter to Food Service East, Inc. exercising
Hanover Foods' unilateral option to purchase real estate from
Food Service East, Inc. is attached as Exhibit 10(w).
11 Computation of Earnings Per Share is attached as Exhibit 11.
21 A list setting forth subsidiaries of the Registrant is attached
as Exhibit 21.
27 The Financial Data Schedule is attached as Exhibit 27.
99 Annual Top Management Cash Bonus Program is attached as
Exhibit 99.
</TABLE>
(b) Reports on Form 8-K
Form 8-K relating to the change in the Corporation's fiscal year was
filed on May 3, 1996.
-60-
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of Hanover Foods
Corporation in the capacity and on the date indicated.
DATE: JUNE 28, 1996
HANOVER FOODS CORPORATION
BY: /s/ JOHN A. WAREHIME
-------------------------
JOHN A. WAREHIME
CHAIRMAN
-61-
<PAGE> 63
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Hanover
Foods Corporation and in the capacities and on the date indicated.
DATE: JUNE 28, 1996
<TABLE>
<S> <C>
By: /s/John A. Warehime By: /s/Cyril T. Noel
---------------------------------------------- ----------------------------------------------
John A. Warehime Cyril T. Noel
Chairman, Director Director
(Chief Executive Officer)
By: /s/Gary T. Knisely By: /s/T. Edward Lippy
---------------------------------------------- ----------------------------------------------
Gary T. Knisely T. Edward Lippy
Executive Vice President and Director
Chief Financial Officer
By: /s/Pietro D. Giraffa By: /s/Clayton J. Rohrbach, Jr .
---------------------------------------------- ---------------------------------------------
Pietro D. Giraffa Clayton J. Rohrbach, Jr.
Vice President - Controller Director
(Chief Accounting Officer)
By: /s/Jack A. Brown By: /s/James G. Sturgill
---------------------------------------------- ---------------------------------------------
Jack A. Brown James G. Sturgill
Vice President - Treasury Services Director
and Treasurer
By: /s/Arthur S. Schaier By: /s/James A. Washburn
---------------------------------------------- --------------------------------------------
Arthur S. Schaier James A. Washburn
Director Director
</TABLE>
-62-
<PAGE> 64
HANOVER FOODS CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Number Description
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
3(a) The Registrant's Articles of Incorporation, as amended, are
incorporated by reference to Exhibit 3(a) of the Form 10-Q
filed for the quarterly period ended October 2, 1994.
- ------------------------------------------------------------------------------------------------------------------------
3(b) Registrant's Amended and Restated By-Laws enacted April 28,
1995 are incorporated by reference to Exhibit 3(b) of the Form
10-K filed July 3, 1995.
- ------------------------------------------------------------------------------------------------------------------------
3(c) Registrant's Amended and Restated By-Laws enacted April 26,
1996 and June 26, 1996 are attached as Exhibit 3(c).
- ------------------------------------------------------------------------------------------------------------------------
4(a) Note Agreement dated as of December 1, 1991, between the
Corporation and Allstate Life Insurance Company, with regard to
the Corporation's $25,000,000, 8.74% Senior Notes Due March 15,
2007, is incorporated herein by reference to the Form 10-K
filed June, 1992 wherein such Exhibit is designated as 4.
- ------------------------------------------------------------------------------------------------------------------------
4(b) June 20, 1995 First Amendment to December 1, 1991 Note
Agreement between the Corporation and Allstate Life Insurance
Company (the "Note Agreement") and Waiver of Compliance with
Section 5.9 of the Note Agreement is attached as Exhibit 4(b)
of the Form 10-K filed on July 3, 1995.
- ------------------------------------------------------------------------------------------------------------------------
4(c) June 24, 1996 waiver to covenants in the December 1, 1991 Note
Agreement between the Corporation and Allstate Life Insurance
Company (the "Note Agreement") is attached as Exhibit 4(c).
- ------------------------------------------------------------------------------------------------------------------------
9(a) April 5, 1988 Voting Trust Agreement is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 9(a).
- ------------------------------------------------------------------------------------------------------------------------
9(b) December 1, 1988 Voting Trust Agreement is incorporated herein
by reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 9(b).
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
-63-
<PAGE> 65
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Number Description
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
9(c) Writing dated April 5, 1988 appointing John A. Warehime as
Successor Voting Trustee under Voting Trust Agreement dated
December 1, 1988, is incorporated herein by reference to the
Form 8-K filed June 1, 1990, wherein such Exhibit is designated
as 9(c).
- ------------------------------------------------------------------------------------------------------------------------
9(d) Writing dated December 1, 1988 appointing John A. Warehime as
Successor Voting Trustee under Voting Trust Agreement dated
December 1, 1988, is incorporated herein by reference to the
Form 8-K filed June 1, 1990, wherein such Exhibit is designated
as 9(d).
- ------------------------------------------------------------------------------------------------------------------------
10(a) April 28, 1988 Sublease Agreement between Warehime Enterprises,
Inc. and Hanover Brands, Inc., is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(a).
- ------------------------------------------------------------------------------------------------------------------------
10(b) April 28, 1988 Agreement of Sale between Warehime Enterprises,
Inc. and Hanover Brands, Inc., is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(b).
- ------------------------------------------------------------------------------------------------------------------------
10(c) March 3, 1989 Agreement of Sale between Warehime Enterprises,
Inc. and Hanover Brands, Inc., is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(c).
- ------------------------------------------------------------------------------------------------------------------------
10(d) April 1, 1985 Lease Agreement between ARWCO Corporation and
Alimentos Congelados Monte Bello S.A., is incorporated herein
by reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(d).
- ------------------------------------------------------------------------------------------------------------------------
10(i) November 14, 1986 Employment Agreement between Hanover Brands,
Inc., and Patricia H. Townsend is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
Exhibit is designated as 10(i).
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
-64-
<PAGE> 66
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Number Description
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
10(j) August 3, 1989 Employment Agreement between Hanover Brands,
Inc. and Berkley F. Cone, is incorporated herein by reference
to the Form 8 Amendment to the July 28, 1989 Form 10, which
Amendment was filed on November 17, 1989, wherein such
Exhibit is designated as 10(j).
- ------------------------------------------------------------------------------------------------------------------------
10(k) May 10, 1991 Amendment to April 28, 1988 Agreement of Sale
between Warehime Enterprises, Inc. and Hanover Brands, Inc.,
is incorporated herein by reference to the Form 10-K filed
June 29, 1991, wherein such Exhibit is designated as 10(k).
- ------------------------------------------------------------------------------------------------------------------------
10(l) November 26, 1990 Deed conveying title to real estate known as
Unit #720, Century I Condominium, Ocean City, Maryland from
Estate of Alan R. Warehime to Hanover Foods Corporation, is
incorporated herein by reference to the Form 10-K filed on June
29, 1991, wherein such Exhibit is designated as 10(l).
- ------------------------------------------------------------------------------------------------------------------------
10(m) Bill of Sale conveying title to furniture and furnishings to
Unit #720, Century I Condominium, Ocean City, Maryland from
Estate of Alan R. Warehime to Hanover Foods Corporation, is
incorporated herein by reference to the Form 10-K filed on June
29, 1991, wherein such Exhibit is designated as 10(m).
- ------------------------------------------------------------------------------------------------------------------------
10(n) October 31, 1993 Severance Agreement and Release between John
E. Denton and Hanover Foods Corporation is incorporated herein
by reference to the Form 10-Q filed on February 9, 1994,
wherein such Exhibit is designated as 10(n).
- ------------------------------------------------------------------------------------------------------------------------
10(o) June 1, 1994 Lease Agreement with unilateral option to purchase
between Hanover Foods Corporation and Food Service East, Inc.
is incorporated herein by reference to the Form 10-K filed on
June 30, 1994, where such Exhibit is designated as
Exhibit 10(o).
- ------------------------------------------------------------------------------------------------------------------------
10(p) October 1, 1994 Amendment to the June 1, 1994 Lease Agreement
between Hanover Foods Corporation and Food Service East, Inc. is
incorporated herein by reference to Exhibit 10(p) of the Form 10-K
filed on July 3, 1995.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
-65-
<PAGE> 67
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Number Description
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
10(q) April 4, 1994 Agreement of Sale between ARWCO Corporation and
Alimentos Congelados Monte Bello, S.A. is incorporated herein
by reference to Exhibit 10(q) of the Form 10-K filed on July 3,
1995.
- ------------------------------------------------------------------------------------------------------------------------
10(r) June 12, 1995 Employment Agreement between Hanover Foods
Corporation and John A. Warehime is incorporated herein by
reference to Exhibit 10(r) of the Form 10-K filed on July 3,
1995.
- ------------------------------------------------------------------------------------------------------------------------
10(s) June 20, 1995 Deed conveying title to real estate from Centre
Foods Enterprises, Inc. to Hanover Foods Corporation is
incorporated herein by reference to Exhibit 10(s) of the Form
10-K filed on July 3, 1995.
- ------------------------------------------------------------------------------------------------------------------------
10(t) April 4, 1994 Lease Agreement between John A. and Patricia M.
Warehime and Hanover Foods Corporation is attached as
Exhibit 10(t).
- ------------------------------------------------------------------------------------------------------------------------
10(u) July 27, 1995 Installment Sales Agreement for the purchase of
5,148 shares of Hanover Foods Class B Voting Common Stock from
Cyril T. Noel, individually, and Cyril T. Noel and Frances L.
Noel, jointly, is attached as Exhibit 10(u).
- ------------------------------------------------------------------------------------------------------------------------
10(v) April 1, 1996 Installment Sales Agreement for the purchase of
1,210 shares of Hanover Foods Class B Voting Common Stock and
5,990 shares of Hanover Foods Class A Nonvoting Common Stock
from John R. Miller, Jr. is attached as Exhibit 10(v).
- ------------------------------------------------------------------------------------------------------------------------
10(w) June 1, 1996 letter to Food Service East, Inc. exercising
Hanover Foods' unilateral option to purchase real estate from
Food Service East, Inc. is attached as Exhibit 10(w).
- ------------------------------------------------------------------------------------------------------------------------
11 Computation of Earnings Per Share is attached as Exhibit 11.
- ------------------------------------------------------------------------------------------------------------------------
21 A list setting forth subsidiaries of the Registrant is attached
as Exhibit 21.
- ------------------------------------------------------------------------------------------------------------------------
27 The Financial Data Schedule is attached as Exhibit 27
- ------------------------------------------------------------------------------------------------------------------------
99 Annual Top Management Cash Bonus Program is attached as
Exhibit 99.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
-66-
<PAGE> 1
EXHIBIT 3(c)
AMENDED AND RESTATED
BY-LAWS OF HANOVER FOODS CORPORATION
These Bylaws are adopted by this Corporation and are
supplemental to the Pennsylvania Business Corporation Law of
1988 as it may from time to time be amended.
ARTICLE I. GENERAL
Section 1. Office
The principal office of Hanover Foods Corporation (the "Company") shall be in
Penn Township, York County, Pennsylvania. (Post Office Hanover, Pa.)
Section 2. Seal
The Company shall have a common seal containing the words "Hanover Foods
Corporation - Pennsylvania" in a circle within which the word "SEAL" is
contained.
Section 3. Fiscal Year
The fiscal year of the Company shall end with the close of business on the
Sunday nearest May 31st.
ARTICLE II. SHAREHOLDERS
Section 1. Place of Meetings
All meetings of the shareholders shall be held at the principal office of the
Company or at any other place, within or without the Commonwealth of
Pennsylvania, designated in the notice of the meeting.
Section 2. Annual Meeting
The annual meeting of the shareholders shall be held each year on a date and at
the time and place set by the Board of Directors; or if no date or time is set,
on the third Friday of August at 10:00 a.m.
<PAGE> 2
Section 3. Special Meetings
Special meetings of the shareholders may be called at any time by the Chairman,
or at the request of either a majority of the directors, or shareholders
representing twenty percent (20%) of the issued and outstanding Class B Common
Stock or that higher percentage prescribed by the Articles. At any time, upon
written request of any person entitled to call a special meeting, the Secretary
shall call a special meeting of the shareholders to be held at the time as the
Secretary may fix, not less than five (5) nor more than sixty (60) days after
the receipt of the request. If the Secretary does not call the meeting, the
person making the request may do so.
Section 4. Notice of Meetings
The Secretary shall give written notice of shareholders meetings to
shareholders of record entitled to vote at the meeting, at least five (5) days
prior to the date fixed for the meeting unless a greater period of notice in a
particular case is required by law. Ten (10) days notice shall be given if it
is a special meeting called to elect directors. Notice may be given either
personally or by mail, telegram, or facsimile to each shareholder at his
address appearing on the books of the Company. The notice shall specify the
place, day, and hour of the meeting and, in the case of a special meeting, the
general nature of the business to be transacted. No notice of an adjourned
meeting or of the business to be transacted at an adjourned meeting need be
given other than by announcement at the meeting at which adjournment is taken.
Section 5. Waiver of Notice
A waiver of notice in writing signed by the person entitled to notice, whether
before or after the time stated for the meeting, shall be deemed equivalent to
the giving of notice. Attendance of a person either in person or by proxy at
any meeting shall constitute a waiver of notice of the meeting, except where
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened.
-2-
<PAGE> 3
Section 6. Quorum
The presence in person or by proxy at a shareholders' meeting of a majority of
all votes entitled to be cast with respect to each class of stock shall
constitute a quorum. Shareholders present at a duly organized meeting can
continue to do business until adjournment, notwithstanding the withdrawal of
shareholders which leaves less than a quorum.
Section 7. Adjournment of Meeting
If a meeting cannot be organized because a quorum has not attended, those
present may adjourn the meeting to any time and place they determine. In the
case of any meeting called for the election of directors, those present at the
adjourned meeting and who attend the second of any adjourned meetings, although
less than a quorum, shall nevertheless constitute a quorum for the purpose of
electing directors. Any meeting at which directors are to be elected shall be
adjourned only from day to day until the directors have been elected.
Section 8. Voting Power
All voting power incident to the Company's stock shall be vested in the holders
of the Class B common stock. The holders of the Class A common stock shall
have no right to vote at any meeting of shareholders, except as may be
specifically required by law or the Articles of the Company. All questions
shall be decided by the vote of the holders of shares constituting a majority
of the voting power of all shares represented and entitled to vote at any
meeting unless otherwise specifically provided by law or by the Articles of the
Company.
Section 9. Proxies
Every shareholder may vote either in person or by proxy. Every proxy shall be
executed in writing by the shareholder or by his duly authorized attorney in
fact and filed with the Secretary of the Company. A proxy, unless coupled with
an interest, shall be revocable at will, notwithstanding any other agreement or
any provision in the proxy to the contrary, but the revocation of a proxy shall
not be effective until notice thereof has been given
-3-
<PAGE> 4
to the Secretary of the Company. No unrevoked proxy shall be valid after
eleven (11) months from the date of its execution.
Section 10. Determination of Shareholders of Record
The Board of Directors may set, in advance, a record date for the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or to receive payment of any dividend or to make a determination
of shareholders for any other proper purpose. The date, in any case, shall not
be prior to the close of business on the day the record date is fixed and shall
be not more than sixty (60) days, and in the case of a meeting of shareholders
not less than ten (10) days, before the date on which the meeting or particular
action requiring the determination of shareholders is to be held or taken.
In lieu of fixing a record date, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period but not longer than
twenty (20) days. If the stock transfer books are closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, the books shall be closed for at least ten (10) days before the
date of the meeting.
Section 11. Voting Lists
The officer or agent having charge of the transfer books for shares of the
Company shall make a complete list of the shareholders entitled to vote at each
meeting of shareholders. The list shall be produced and kept open at the time
and place of the meeting, and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The list shall be arranged
in alphabetical order with the address of and the number of shares held by each
shareholder.
Section 12. Presiding Officer
All meetings of the shareholders shall be called to order and presided over by
the Chairman, or in his absence, by the Secretary, or if neither of them is
present, by a chairman elected by the shareholders.
-4-
<PAGE> 5
ARTICLE III. DIRECTORS
Section 1. Number
The business and affairs of the Company shall be managed by a Board of
Directors, who need not be residents of the Commonwealth of Pennsylvania or
shareholders of the Company. The Board of Directors shall have the power to
fix the number of directors and, from time to time, by proper resolution, to
increase or decrease the number without a vote of the shareholders, provided
that the number so determined shall not be less than seven (7) nor more than
fifteen (15).
Section 2. Election and Term
The board of directors shall be classified into three annual classes, with
three directors in class 1, two directors in class 2, and two directors in
class 3. In the first year of such classification, class 1 directors shall be
elected for a one year term, class 2 directors shall be elected for a two year
term and class three directors shall be elected for a three year term.
Following this initial election, each class of directors shall be elected for
terms of three years. Each term shall continue for the number of years stated
and until their successors are elected and have qualified. Their terms of
office shall begin immediately after election. The directors shall be elected
at the annual meeting of shareholders, or if not so elected, at a special
meeting of shareholders called for that purpose. Each director shall hold
office until his term is ended and his successor is elected, or until his
resignation, removal from office, or death, whichever is earlier.
Section 3. Nominations
Nominations for election to the Board of Directors may be made by the Board of
Directors or by any shareholder of a class of stock entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of
the Board of Directors, shall be made in writing, and shall be delivered to the
Chairman, at least three (3) days prior to the date of the meeting at which the
directors are to be elected. A nomination shall contain the following
information to the extent known to the shareholder:
(a) The name and address of each proposed nominee;
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<PAGE> 6
(b) The qualifications of each proposed nominee;
(c) Confirmation that the proposed nominee has agreed to serve if
elected.
Nominations not made in accordance with this Section may be disregarded by the
Chairman of the meeting and upon his instructions, the judges of elections may
disregard all votes cast for that nominee.
Section 4. Vacancies
Vacancies in the Board of Directors shall be filled by a majority vote of the
remaining members of the Board even though less than a quorum, and each person
so elected shall serve until his successor is elected. Any vacancy, including
vacancies resulting from death, resignation or an increase in the number of
directors may be filled by the vote of a majority of the remaining directors
though less than a quorum.
Section 5. Regular Meetings
The Board of Directors shall hold an annual meeting within two (2) days after
the annual meeting of the shareholders and may hold other meetings at any time
and place the Board may determine.
Section 6. Special Meetings
The Board of Directors may hold special meetings called by the Chairman, the
Secretary or a majority of the directors. Each meeting shall be held at a time
and place designated in the notice of the meeting.
Section 7. Notice of Meetings
Written notice of all meetings except the annual meeting of the Board of
Directors shall be given by, or at the direction of, the person calling the
meeting at least one (1) day prior to the day named for the meeting.
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Section 8. Quorum
A majority of the directors in office shall constitute a quorum for the
transaction of business and the acts of a majority of the directors present at
a meeting at which a quorum is present shall be the acts of the Board of
Directors. If all directors consent in writing to any action to be taken by
the Company, that action shall be as valid a corporate action as though it had
been authorized at a meeting of the Board of Directors. The consent signed by
all directors shall be filed with the Secretary.
Section 9. Powers of Board of Directors
Except as otherwise provided by law or by the Articles or by-laws of the
Company, all general and special powers of the Company shall be exercised by or
under the authority of the Board of Directors of the Company. The Board of
Directors may from time to time adopt regulations with respect to the powers
and duties of the officers of the Company and the conduct and management of the
Company's business as the Board deems proper.
Section 10. Financial Report to Shareholders
The Board of Directors shall cause a financial report as of the closing date of
the preceding fiscal year to be sent to the shareholders within 120 days after
the close of the Company's fiscal year. The report shall give a full, clear
and complete statement of the business and conditions of the Company. The
report shall set forth a balance sheet as of the closing date of the preceding
fiscal year together with a statement of income and profit and loss for the
year ended on that date prepared in the form ordinarily used by accountants for
the particular kind of business carried on by the Company. All reports shall
be verified by a certified public accountant who is not a director or full time
employee of the Company or by a firm of practicing public accountants, at least
one member of which is a certified public accountant.
Section 11. Committees
The Board of Directors may from time to time appoint standing or special
committees as it may deem for the best interests of the
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<PAGE> 8
Company. No committee shall have any powers except that expressly conferred
upon it by the Board of Directors.
Section 12. Personal Liability of Directors
A Director of this Company shall not be personally liable as such for monetary
damages for any action taken, or any failure to take any action, unless: (1)
the Director has breached or failed to perform the duties of his office in good
faith, in a manner he reasonably believes to be in the best interests of the
Company, and with that care, including reasonable inquiry, skill and diligence,
a person of ordinary prudence would use under similar circumstances; and (2)
the breach or failure to perform constitutes self-dealing, willful misconduct
or recklessness.
This section shall not limit a Director's liability for monetary damages to the
extent prohibited by the Pennsylvania Business Corporation Law of 1988.
Section 13. Mandatory Indemnification of Directors, and Officers
The Company shall indemnify any person who is or was a director or officer, or
is or was serving at the request of the company as a director or officer of
another corporation, or fiduciary of an employee benefit plan or trust
("Indemnified Person"), for direct third-party actions and derivative and
corporate actions to the maximum extent permitted by the Pennsylvania Business
Corporation Law of 1988 (as amended from time to time), the Directors Liability
Act or otherwise.
Expenses incurred in defending a civil or criminal action, suit or proceeding
shall be paid by the Company, in advance of the final disposition of any
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the Indemnified Person to repay the amount if it is ultimately determined that
he is not entitled to be indemnified by the Company.
Persons who were directors or officers of the Company prior to the date these
by-laws are approved by the Board of Directors of the Company, but who do not
hold that office on or after such date, shall not be covered by this Section.
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<PAGE> 9
No indemnification or advancement or reimbursement of expenses shall be
provided to an Indemnified Person (a) for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, and amounts paid
in settlement) which have been paid directly to, or for the benefit of, the
Indemnified Person by an insurance carrier under a policy of officers' and
directors' liability insurance whose premiums are paid by the Company or by an
individual or entity other than the Indemnified Person; and (b) for amounts
paid in settlement of any threatened, pending or completed action, suit or
proceeding without the written consent of the Company, which shall not be
unreasonably withheld.
The right of an Indemnified Person to be indemnified or to receive an
advancement or reimbursement of expenses (i) may be enforced as a contract
right pursuant to which the Indemnified Person may bring suit as if the right
were set forth in a separate written contract between the Corporation and the
Indemnified Person, (ii) to the fullest extent permitted by applicable law, is
intended to be retroactive and shall be available with respect to events
occurring prior to the adoption of this Article, and (iii) shall continue to
exist after the rescission or restrictive modification (as determined by the
Indemnified Person) of this Article with respect to events, acts or omissions
occurring before the rescission or restrictive modification is adopted.
If a request for indemnification or for the advancement or reimbursement of
expenses is not paid in full by the Corporation within sixty (60) days after a
written claim has been received by the Corporation together with all supporting
information reasonably requested by the Corporation, the Indemnified Person may
thereafter bring suit to recover the unpaid amount of the claim (plus interest
at the prime rate announced from time to time by the Corporation's primary
banker) and, if successful, the expenses (including, but not limited to,
attorney's fees) of prosecuting the claim.
Nothing contained in this Article shall be construed to limit the rights and
powers the Corporation possesses under the Pennsylvania Business Corporation
Law of 1988 (as amended from time to time), the Directors' Liability Act or
otherwise, including, but not limited to, the powers to purchase and maintain
insurance, create funds to secure or insure its
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<PAGE> 10
indemnification obligations, and any other rights or powers the Corporation may
otherwise have under applicable law.
Section 14. Telephone Meetings
Members of the Board of Directors and its committees may participate in
meetings by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 15. Compensation
Directors may receive an annual fee for their services as directors. In
addition, a fixed sum and expenses of attendance, if any, may be allowed to
directors for attendance at each meeting of the Board of Directors or of any
committee. The amount of the fee, if any, shall be fixed by the Board of
Directors. A director shall not be precluded from serving the Company in any
other capacity and receiving compensation in that capacity.
ARTICLE IV. OFFICERS
Section 1. Election of Officers and Agents
At its annual meeting, the Board of Directors shall elect a Chairman, a
President, one or more Vice Presidents as from time to time may be fixed by the
Board of Directors, a Secretary, a Treasurer, and one or more other officers as
the Board may deem proper. Any two or more offices may be held by the same
person.
Section 2. Term and Compensation
All officers shall be elected for the term and receive compensation as the
Board of Directors may determine. Unless the Board of Directors shall
authorize or approve a written contract for a longer term, each officer shall
hold office until the next annual meeting of the Board of Directors and until
his successor is elected and qualified. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interest of the
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Company will be served, but removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 3. Chairman
The Chairman shall be the chief executive officer of the Company. He shall
preside at all meetings of shareholders and directors at which he is present.
He shall be ex-officio a member of all standing committees. He shall make
reports of the Company's business to the Board of Directors as the Board may
require. He shall have the duties and authority incident to the office of
Chairman.
Section 4. President
In the event of the incapacity of the Chairman to act, his duties shall be
performed by the President. The President shall have the duties and authority
assigned by the Chairman or the Board of Directors.
Section 5. Vice-Presidents
The Vice-Presidents shall have the duties and authority assigned to each of
them by the Chairman or the Board of Directors.
Section 6. Secretary
The Secretary shall attend the meetings of the shareholders and of the
directors and keep minutes thereof in suitable books. Unless some other person
is delegated to give notice, the Secretary shall send out notices of all
meetings of shareholders and of directors which may be called or held in
accordance with the provisions of the law and these by-laws. He shall perform
all the usual duties incident to the office of Secretary. He shall have
custody of the corporate seal.
Section 7. Treasurer
The Treasurer shall have custody of the corporate funds of the Company and
keep, or cause to be kept, accurate accounts of all receipts and payments made
in books kept for that purpose. He shall deposit all money received in the
name and to the credit of the Company in depositories the Board of Directors
may designate.
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<PAGE> 12
He shall give bond for the faithful discharge of his duties in an amount and
with sureties as the Board of Directors may require. He shall perform the
duties assigned to him by the Chairman or the officer designated by the Board
of Directors as the Chief Financial Officer of the Company.
ARTICLE V. EXECUTION OF DOCUMENTS
Section 1. Checks, Notes, Etc.
The Board of Directors shall from time to time designate the officers or agents
of the Company who shall have power, in its name, to sign and endorse checks
and other negotiable instruments and to borrow money for the Company, and in
its name, to make notes or other evidences of indebtedness.
Section 2. Other Documents
Unless otherwise authorized by the Board of Directors, all contracts, leases,
deeds, deeds of trust, mortgages, powers of attorney to transfer stock and for
other purposes, and all other documents requiring the seal of the Company shall
be executed for and on behalf of the Company by the Chairman, the President or
any Vice President, all of which shall be attested to by the Secretary, and the
corporate seal shall be affixed at his direction.
ARTICLE VI. SHARE CERTIFICATES AND TRANSFERS
Section 1. Share Certificates
Share certificates of the Company shall be in the form that the Board of
Directors may from time to time determine. Every share certificate shall be
signed by the Chairman, or in the absence of the Chairman, by the President, or
any other officer designated by the Board of Directors, and shall be
countersigned by the Secretary, or in the absence of the Secretary, by the
Treasurer, and sealed with the corporate seal.
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<PAGE> 13
Section 2. Transfer of Shares
The shares of the capital stock of the Company shall, upon the surrender and
cancellation of the certificate or certificates representing the same, be
transferred upon the books of the Company at the request of the holder named in
the surrendered certificate in person or by his legal representatives or
attorney duly authorized by a written power of attorney filed with the
Company's transfer agent.
Section 3. Loss or Destruction of Share Certificate
In case of loss or destruction of a share certificate, another may be issued in
lieu thereof in the manner and upon those terms as the Board of Directors shall
authorize in each particular case.
Section 4. Transfer Agents and Registrars
The Board of Directors may appoint an incorporated bank or trust company to act
as registrar of transfers, and also an incorporated bank or trust company to
act as transfer agent. In that event no share certificate thereafter issued
shall be valid or binding upon the Company unless registered by one of the
Company registrars or countersigned by the Company transfer agent before being
issued by one of such registrars.
ARTICLE VII. AMENDMENTS
These by-laws may be altered or amended by a vote of a majority of the members
of the Board of Directors at any regular or special meeting duly convened after
notice of that purpose; subject, however, to the power of the shareholders to
change or repeal the by-laws at any annual or special meeting duly convened
after notice of that purpose.
Hanover, Pennsylvania
DATE: June 26, 1996
---------------
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<PAGE> 14
I hereby certify that the foregoing is a true and correct copy of the by-laws
(as amended) of Hanover Foods Corporation, a Pennsylvania corporation, and that
the by-laws are in full force and effect as of this date.
/s/ Gary T. Knisely
-----------------------------
Gary T. Knisely, Secretary
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<PAGE> 1
EXHIBIT 4(c)
June 24, 1996
Hanover Foods Corporation
1486 York Road
P. O. Box 334
Hanover, Pennsylvania 17331
Re: Waiver
$25,000,000 8.74% Senior Notes
Due March 15, 2007
of
Hanover Foods Corporation
Ladies and Gentlemen:
Reference is hereby made to that certain Note Agreement dated as of
December 1, 1991, as amended by the First Amendment dated as of June 20, 1995
(collectively, the "Note Agreement") between Hanover Foods Corporation, a
Pennsylvania corporation (the "Company"), and Allstate Life Insurance Company
("Allstate"). Capitalized terms used herein that are not otherwise defined
shall have the meanings assigned thereto in the Note Agreement.
You have advised us that the following Event of Default has occurred:
As of September 31, 1995 and to and including the date hereof,
default has occurred in the observance of the covenant contained in
Section 5.9 of the Note Agreement which requires the Company to maintain a
minimum ratio, as set forth therein, of Net Income Available for Interest
Charges to Interest Charges for each period of four consecutive fiscal
quarters most recently ended.
By its execution hereof the Company hereby represents and warrants
that other than the default specified above, no Default or Event of Default
exists.
The Company also agrees that from and after December 31, 1995 to July
10, 1996, interest on the Note shall accrue at a rate per annum equal to 9.24%.
Upon the execution by the financial institutions which are parties to
the credit agreements (the "Bank Agreements") with the Company of waivers of
any defaults or events of default thereunder and upon the execution of this
letter, Allstate hereby waives the default specified above; provided however,
that such waiver shall be effective only until the earliest of the following to
occur: (i) July 10, 1996, (ii) the occurrence of any default or event of
default under the Bank Agreements, (iii) the expiration or termination of any
waiver of any defaults under the Bank Agreements, or (iv) the termination or
material modification of the Bank Agreements.
<PAGE> 2
The Company further understands and agrees that such waiver
pertains only to the matters and to the extent herein described and not to
any other actions of the Company or to any other rights of the
undersigned.
The Waiver shall be governed by and construed in accordance with
Pennsylvania law.
Very truly yours,
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ Patricia W. Wilson
---------------------------------
Authorized Officer
By:/s/ Steven M. Loude
---------------------------------
Authorized Officer
Agreed to and acknowledged by:
HANOVER FOODS CORPORATION
By: /s/ Gary T. Knisely
---------------------------------
Gary T. Knisely
Executive Vice President
<PAGE> 1
EXHIBIT 10(t)
LEASE AGREEMENT
THIS AGREEMENT, made this 4th day of April 1994, by and between JOHN A.
WAREHIME and PATRICIA M. WAREHIME, husband and wife, R.D. #3, Hanover,
Pennsylvania, hereinafter referred to as "LESSOR"; and HANOVER FOODS
CORPORATION, a duly organized Pennsylvania corporation, having its principal
office located at 1486 York Street, Hanover, Pennsylvania, hereinafter referred
to as "LESSEE".
W I T N E S S E T H:
1. Leased Premises
LESSOR does hereby lease to LESSEE and LESSEE does hereby lease from
LESSOR one two story stone farm house and adjoining one story guest
house located on Trolley Road, R.D. #3, Hanover, Heidelberg Township,
Pennsylvania.
2. Term of Lease
The term of this lease shall be from April 1, 1994 to March 31, 1995.
Said lease shall automatically renew from year to year on the same
terms and conditions unless either party gives the other party at least
thirty (30) days written notice prior to the end of the term of this
Lease Agreement.
<PAGE> 2
3. Rent
LESSEE shall pay rent for the use of the demised premises at the rate
of Four Thousand Five Hundred ($4,500.00) Dollars per month due on or
before the 10th of the month for the month of use. (One Thousand
($1,000.00) Dollars per month to be retained for escrow.)
4. Real Estate Taxes, Insurance, Utilities
LESSOR shall be responsible for all real estate taxes and owner's fire,
casualty and liability insurance on said demised premises. LESSEE shall
be responsible for the payment of all utility bills incurred in
LESSEE's use of the demised premises. LESSEE shall be responsible for
any insurance necessary to protect any LESSEE's personal property
located on the demised premises. LESSEE shall carry general liability
insurance on said demised premises in the minimum amount of $500,000
per occurrence and $1,000,000 per aggregate.
5. Repairs and Maintenance
LESSEE shall be responsible and pay the cost of all repairs necessary
to maintain the premises, except major structural repairs which will be
the obligation of the LESSOR. LESSEE shall be responsible for all snow
removal on adjoining walkways to said demised premises.
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<PAGE> 3
IN WITNESS WHEREOF, the parties to this Agreement have hereunto set
their hands and seals, the date above written.
/s/ Patricia H. Townsend /s/ John A. Warehime
- ------------------------------ ------------------------------------
WITNESS JOHN A. WAREHIME, LESSOR
/s/ Patricia H. Townsend /s/ Patricia M. Warehime
- ------------------------------ -----------------------------------
WITNESS PATRICIA M. WAREHIME, LESSOR
ATTEST: HANOVER FOODS CORPORATION
/s/ Gary T. Knisely /s/ David M. Suchniak
- ------------------------------ ------------------------------------
GARY T. KNISELY DAVID M. SUCHNIAK
SECRETARY VICE PRESIDENT - FINANCE & CFO
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<PAGE> 1
EXHIBIT 10(u)
INSTALLMENT SALES AGREEMENT
THIS AGREEMENT, made this 27th day of July, 1995, by and
between HANOVER FOODS CORPORATION, a duly organized Pennsylvania corporation
having its principal office located at 1486 York Street, Hanover, Pennsylvania
17331, hereinafter referred to as "HANOVER", and CYRIL T. NOEL and FRANCES L.
NOEL, husband and wife, residing at 344 1/2 North Street, McSherrystown,
Pennsylvania 17344, hereinafter referred to as "NOEL".
WHEREAS, NOEL desires to sell Five Thousand One Hundred
Forty-Eight (5,148) shares of HANOVER Class B Common Stock currently owned by
Cyril T. Noel individually, and Cyril T. Noel and Frances L. Noel, jointly;
WHEREAS, HANOVER is willing to repurchase said shares of Class
B Common Stock from NOEL;
WITNESSETH:
NOW THEREFORE, in consideration of the mutual covenants
hereinafter contained, the parties hereto, intending to be legally bound, do
hereby agree as follows:
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<PAGE> 2
1. On July 27, 1995, NOEL shall convey and transfer all legal
title and right to the Five Thousand One Hundred Forty-Eight (5,148) shares of
HANOVER Class B Common Stock by endorsing and surrendering the following stock
certificates owned by the following individuals to HANOVER:
<TABLE>
<CAPTION>
Stock
Certificate Number
Number Name of Shares
------ ---- ---------
<S> <C> <C>
852 Cyril T. Noel 80
891 Cyril T. Noel 8
853 Cyril T. Noel and Frances L. Noel 4,600
892 Cyril T. Noel and Frances L. Noel 460
-----
Total 5,148
</TABLE>
2. Pursuant to its employee stock repurchase plan, HANOVER
agrees to repurchase the Five Thousand One Hundred Forty-Eight (5,148) shares of
HANOVER Class B Common Stock from NOEL at the most recently appraised value of
Seventy-One Dollars and Forty Cents ($71.40) per share as per Management
Planning, Inc., Princeton, New Jersey, for a total consideration of Three
Hundred Sixty-Seven Thousand Five Hundred Sixty-Seven Dollars and Twenty Cents
($367,567.20).
3. The total consideration shall be paid in five (5) equal
annual installments
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<PAGE> 3
each in the amount of Seventy-Three Thousand Five Hundred Thirteen Dollars and
Forty-Four Cents ($73,513.44). The first payment shall be paid on January 1,
1996 and on January 1st of each year thereafter with the final payment made on
January 1, 2000. Interest at the prime rate of CoreStates Bank. The interest
rate for each calendar year shall be the rate as of January 1st of the
applicable year and shall be paid quarterly on the outstanding unpaid principal
balance. HANOVER reserves the right to prepay the unpaid principal balance and
accrued interest at any time upon providing thirty (30) days prior notice to
NOEL. However, HANOVER shall pay five (5%) percent of the outstanding unpaid
principal as a prepayment penalty.
4. NOEL agrees to deliver and transfer the aforesaid Five
Thousand One Hundred Forty-Eight (5,148) shares of HANOVER Class B Common Stock
to HANOVER on July 27, 1995. HANOVER agrees to execute and deliver to NOEL a
collateral judgment note to secure the balance of the payments, and which note
shall not be entered of record unless default occurs.
5. NOEL shall not be entitled to any dividends on said shares
of stock effective upon execution of this Agreement.
6. On July 27, 1995, HANOVER agrees to transfer and deliver to
NOEL a Promissory Note to secure the balance of payments of principal and
accrued interest, and which
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<PAGE> 4
note shall not be entered of record unless default occurs. A copy of said
Promissory Note is attached hereto and made a part hereof, marked Exhibit A.
7. A cash payment schedule specifying the required payments of
principal and interest is attached hereto and made a part hereof, marked Exhibit
B. The installment cash payments for the purchase of said stock shall be applied
in the following order: first to the purchase of the shares held in the name of
Cyril T. Noel; and second to the purchase of the shares in the name of Cyril T.
Noel and Frances L. Noel, jointly.
8. To the best of the parties' knowledge and belief, HANOVER
Class A Common Stock is not traded on any stock exchange or established
securities market.
9. This Agreement represents the entire agreement between the
parties and supersedes any prior or contemporaneous oral or written
understandings and representations between the parties regarding this matter.
This Agreement may not be modified except in a written document signed by both
parties.
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<PAGE> 5
IN WITNESS WHEREOF, the parties have set their hands and seals
the day and year first above written intending to bind themselves, their heirs,
executors, administrators, successors and assigns.
ATTEST: HANOVER FOODS CORPORATION
/s/ Gary T. Kinsely By: /s/ John A. Warehime
- --------------------------------- -----------------------------------
Gary T. Knisely John A. Warehime
Secretary Chairman
/s/ Patricia A. Hagerman /s/ Cyril T. Noel
- --------------------------------- ------------------------------------
Cyril T. Noel
/s/ Patricia A. Hagerman /s/ Frances L. Noel
- --------------------------------- ------------------------------------
Frances L. Noel
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<PAGE> 6
PROMISSORY NOTE
$367,567.20 July 27, 1995
Hanover, Pennsylvania
The undersigned, HANOVER FOODS CORPORATION, a corporation organized and
existing under the laws of the Commonwealth of Pennsylvania ("HANOVER") promises
to pay to the order of CYRIL T. NOEL and FRANCES L. NOEL, husband and wife, of
344 1/2 North Street, McSherrystown, Pennsylvania 17344 ("NOEL") the principal
amount of Three Hundred Sixty-Seven Thousand Five Hundred Sixty-Seven Dollars
and Twenty Cents ($367,567.20). The unrepaid balance of the principal amount
outstanding will bear interest at the prime rate of CoreStates Bank. The
interest rate for each calendar year shall be the rate as of January 1 of the
applicable year.
The principal of this note shall be paid in five (5) equal, annual
installments in the amount of Seventy-Three Thousand Five Hundred Thirteen
Dollars and Forty-Four Cents ($73,513.44) each beginning January 1, 1996 and on
January 1 each year thereafter with the fifth payment on January 1, 2000.
Interest on the outstanding unpaid balance shall be paid quarterly on April 1,
July 1, October 1 and January 1. HANOVER shall have the right to prepay the
unpaid principal balance and accrued interest at any time, upon providing thirty
(30) days prior notice to NOEL. However, HANOVER shall pay five (5%) percent of
the outstanding unpaid
EXHIBIT A
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<PAGE> 7
principal as a prepayment penalty.
This Note is given as collateral security for an Agreement, dated July
27, 1995, where Cyril T. Noel and Frances L. Noel, individually and jointly
agreed to sell to HANOVER Five Thousand One Hundred Forty-Eight (5,148) shares
of HANOVER's Class B Common Stock. NOEL agrees to not enter this Note of Record
unless HANOVER defaults. In the event of default in the payments herein required
to be made, HANOVER does hereby authorize and empower any attorney of any Court
of Record in Pennsylvania or elsewhere, to appear for it at any time and confess
judgment for release of errors, without stay of execution, and with fifteen
percent (15%) added for collection fees, and also waives the right of
inquisition on any real estate that may be levied upon to collect this Note, and
do hereby voluntarily condemn the same and authorize the Prothonotary to enter
upon the writ of execution, said voluntary condemnation; and further agrees that
said estate may be sold on a writ of execution, and hereby waives and releases
all relief from any and all appraisement, stay or exemption laws of the State
now in force or hereinafter to be passed; and also waives the benefit of the
present and any future bankruptcy law that may be passed by the United States.
All matters pertaining to this Note will be governed by the laws of
Pennsylvania.
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<PAGE> 8
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
undersigned has executed this Promissory Note under seal.
ATTEST: HANOVER FOODS CORPORATION
/s/ Gary T. Knisely By: /s/ David M. Suchniak
- ---------------------------------- --------------------------------
Gary T. Knisely David M. Suchniak
Secretary Vice President - Finance and
Chief Financial Officer
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<PAGE> 9
Cash Payment Schedule (assuming prime at 8.75%)
---------------------------------
<TABLE>
<S> <C> <C> <C>
5,148 shares $71.40 $367,567.20 Total Consideration
Interest 10-1-95 5,639.39
Interest 1-1-96 8,106.62
Principal (1)
1-1-96 73,513.44
------------
294,053.76
Interest 4-1-96 6,432.43
Interest 7-1-96 6,432.43
Interest 10-1-96 6,432.43
Interest 1-1-97 6,432.43
Principal (2)
1-1-97 73,513.44
------------
220,540.32
Interest 4-1-97 4,824.32
Interest 7-1-97 4,824.32
Interest 10-1-97 4,824.32
Interest 1-1-98 4,824.32
Principal (3)
1-1-98 73,513.44
------------
147,026.88
Interest 4-1-98 3,216.21
Interest 7-1-98 3,216.21
Interest 10-1-98 3,216.21
Interest 1-1-99 3,216.21
Principal (4)
1-1-98 73,513.44
------------
73,513.44
Interest 4-1-99 1,608.11
Interest 7-1-99 1,608.11
Interest 10-1-99 1,608.11
Interest 1-1-2000 1,608.11
Principal (5)
1-1-2000 73,513.44
------------
Balance 0.00
</TABLE>
EXHIBIT B
<PAGE> 1
EXHIBIT 10(v)
INSTALLMENT SALES AGREEMENT
THIS AGREEMENT, made this 1st day of April, 1996, by and
between HANOVER FOODS CORPORATION, a duly organized Pennsylvania corporation
having its principal office located at 1486 York Street, Hanover, Pennsylvania
17331, hereinafter referred to as "HANOVER", and JOHN R. MILLER, JR., residing
at 1115 Outer Drive, State College, Pennsylvania 16801, hereinafter referred to
as "MILLER".
WHEREAS, MILLER desires to sell One Thousand Two Hundred Ten
(1,210) shares of HANOVER Class B Voting Common Stock and Five Thousand Nine
Hundred Ninety (5,990) shares of HANOVER Class A Nonvoting Common Stock;
WHEREAS, HANOVER is willing to repurchase said shares of
HANOVER Class B and A Common Stock from MILLER;
WITNESSETH:
NOW THEREFORE, in consideration of the mutual covenants
hereinafter contained, the parties, intending to be legally bound, agree as
follows:
-1-
<PAGE> 2
1. During term from March 29, 1996 up to and including March
1, 2000 as per Exhibit A, HANOVER agrees to repurchase: (1) One Thousand Two
Hundred Ten (1,210) shares of HANOVER Class B Common Stock from MILLER at the
most recently appraised value of Seventy-One Dollars and Forty Cents ($71.40)
per share as per Management Planning, Inc., Princeton, New Jersey, for a total
consideration of Eighty-Six Thousand Three Hundred Ninety- Four Dollars
($86,394.00); and (2) Five Thousand Nine Hundred Ninety (5,990) shares of
HANOVER Class A Common Stock for the price of Forty-Two Dollars ($42.00) per
share for a total consideration of Two Hundred Fifty-One Thousand Five Hundred
Eighty Dollars ($251,580.00).
2. MILLER shall convey and transfer all legal title and right
to the One Thousand Two Hundred Ten (1,210) shares of HANOVER Class B Common
Stock and Five Thousand Nine Hundred Ninety (5,990) shares of HANOVER Class A
Common Stock as payment is received per Exhibit A.
3. MILLER shall continue to receive dividends on all shares of
common stock until purchased by HANOVER. MILLER shall execute the proxy attached
as Exhibit B granting to John A. Warehime the right to vote the shares of
HANOVER Common Stock, Class A and Class B, owned by MILLER and which is the
subject of this Agreement.
-2-
<PAGE> 3
4. To the best of the parties' knowledge and belief, HANOVER
Class A and Class B Common Stock are not traded on any stock exchange or
established securities market.
5. This Agreement represents the entire agreement between the
parties and supersedes any prior or contemporaneous oral or written
understandings and representations between the parties regarding this matter.
This Agreement may not be modified except in a written document signed by both
parties.
IN WITNESS WHEREOF, the parties have set their hands and seals
the day and year first above written intending to bind themselves, their heirs,
executors, administrators, successors and assigns.
WITNESS HANOVER FOODS CORPORATION
/s/ JoAnn Gabrovsek By: /s/ Gary T. Knisely (SEAL)
- --------------------------------- ------------------------
Gary T. Knisely
Executive Vice President
/s/ Joann Gabrovsek /s/ John R. Miller, Jr.
- --------------------------------- -----------------------------(SEAL)
John R. Miller, Jr.
-3-
<PAGE> 4
JOHN R. MILLER, JR. / HANOVER FOODS CORPORATION
HANOVER CLASS B AND CLASS A COMMON STOCK
REPURCHASE SCHEDULE
-------------------
<TABLE>
<CAPTION>
# Shares Per Share Total # Shares Per Share Total
-------- --------- ----- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
April 1, 1996 36 B $71.40 $ 2,570.40 1998
296 A $42.00 $12,432.00 March 1 73 B $71.40 $ 5,212.20
========== 356 A $42.00 $14,952.00
$15,002.40 ==========
$20,164.20
16 Quarterly Installments
- -------------------------
June 1 73 B $71.40 $5,212.20
1996 356 A $42.00 $14,952.00
- ---- ==========
June 1 73 B $71.40 $5,212.20 $20,164.20
356 A $42.00 $14,952.00
========== September 1 73 B $71.40 $5,212.20
$20,164.20 356 A $42.00 $14,952.00
==========
September 1 73 B $71.40 $5,212.20 $20,164.20
356 A $42.00 $14,952.00
========== December 1 73 B $71.40 $5,212.20
$20,164.20 356 A $42.00 $14,952.00
==========
December 1 73 B $71.40 $5,212.20 $20,164.20
356 A $42.00 $14,952.00
========== 1999
$20,164.20 March 1 73 B $71.40 $5,212.20
356 A $42.00 $14,952.00
1997 ==========
March 1 73 B $71.40 $5,212.20 $20,164.20
356 A $42.00 $14,952.00
========== June 1 73 B $71.40 $5,212.20
$20,164.20 356 A $42.00 $14,952.00
==========
June 1 73 B $71.40 $5,212.20 $20,164.20
356 A $42.00 $14,952.00
========== September 1 73 B $71.40 $5,212.20
$20,164.20 356 A $42.00 $14,952.00
==========
September 1 73 B $71.40 $5,212.20 $20,164.20
356 A $42.00 $14,952.00
========== December 1 73 B $71.40 $5,212.20
$20,164.20 356 A $42.00 $14,952.00
==========
December 1 73 B $71.40 $5,212.20 $20,164.20
356 A $42.00 $14,952.00
========== 2000
$20,164.20 March 1 79 B $71.40 $5,640.60
354 A $42.00 $14,868.00
==========
$20,508.60
TOTAL $337,974.00
</TABLE>
EXHIBIT A
<PAGE> 5
HANOVER FOODS CORPORATION
FIVE-YEAR PROXY
The undersigned stockholder of Hanover Foods Corporation, a
Pennsylvania corporation (the "Corporation"), appoints John A. Warehime, as the
proxy of the undersigned, for the five-year period beginning on April 1, 1996
and ending on March 31, 2001, with full power of substitution, to attend all
meetings of the stockholders of the Corporation and to vote any and all shares
of stock of the Corporation at the time standing in the name of the undersigned,
at any and all meetings of the stockholders or adjournment of the meetings. The
undersigned revokes any proxy previously given with respect to that stock, and
authorizes the above-named proxy to vote in the proxy's discretion upon any
business as may properly be brought before the meetings.
/s/ John R. Miller
------------------------------------
John R. Miller, Jr.
Dated: April 4, 1996
-------------
EXHIBIT B
<PAGE> 1
[HANOVER LETTERHEAD] EXHIBIT 10(w)
June 1, 1996
Food Service East, Inc.
c/o Steven M. Carr, Esquire, Trustee
Thompson & Carr
11 E. Market Street
York, PA 17401-1249
RE: REAL PROPERTY LOCATED AT SMITH STATION ROAD AND ROUTE 116
IN HEIDELBERG TOWNSHIP, YORK COUNTY, PENNSYLVANIA
Gentlemen:
Pursuant to Paragraph 14 of the Lease Agreement dated June 1, 1994, by and
between Hanover Foods Corporation ("Hanover") and Food Service East, Inc.
(Debtor in Possession) ("FSE") as amended October 1, 1994, Hanover hereby
exercises its unilateral option to purchase all of the real estate currently
owned by FSE located at Smith Station Road and Route 116 (Tax Map Parcel DE-75A)
in Heidelberg Township, York County, Pennsylvania, comprised of approximately
10.3 acres of land and improved by an office/warehouse facility, free and clear
of all liens, encumbrances, and security interests whatsoever for $904,058.22.
The closing of this transaction shall occur on the latter of thirty (30) days
from the date of this letter or completion of a comprehensive title search
concerning the property.
If you have any questions, please call me.
Very truly yours,
/s/ Gary T. Knisely
Gary T. Knisely, Esq.
Executive Vice President
GTK:dcb
cc: Robert M. Hankin, Esquire
John A. Warehime
<PAGE> 1
Exhibit 11
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Computations of Per Share Earnings
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Fiscal years ended
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary:
Net earnings $ 420,000 1,888,000 6,161,000
Preferred stock dividends (31,000) (33,000) (34,000)
- ---------------------------------------------------------------------------------------------
Net earnings applicable to common stock $ 389,000 1,855,000 6,127,000
- ---------------------------------------------------------------------------------------------
Shares:
Weighted average number of
shares outstanding 729,608 734,252 739,026
- ---------------------------------------------------------------------------------------------
Primary earnings per share $ 0.53 2.53 8.29
- ---------------------------------------------------------------------------------------------
Fully diluted:
Net earnings $ 420,000 1,888,000 6,161,000
- ---------------------------------------------------------------------------------------------
Shares:
Weighted average number of shares
outstanding 729,608 734,252 739,026
Assuming conversion of preferred
stock into common stock 6,340 6,458 7,100
- ---------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 735,948 740,710 746,126
- ---------------------------------------------------------------------------------------------
Earnings per share assuming full
dilution $ 0.57 2.55 8.26
- ---------------------------------------------------------------------------------------------
</TABLE>
This calculation is submitted in accordance with Regulation S-K item 601(b)(11)
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15
because it results in dilution of less than 3% or in anti-dilution
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
<S> <C>
- - Tri-Co. Foods Corp. Pennsylvania
- - Spring Glen Fresh Foods, Inc. Pennsylvania
- - Consumers Packing Company Pennsylvania
d/b/a Hanover Foods - Lancaster Division
- - Hanover Insurance Company Ltd. Grand Cayman, B.W.I.
- - Nittany Corporation Delaware
NOTE: Tri-Co. Foods Corporation has two wholly-owned subsidiaries:
- - Alimentos Congelados Monte Bello S.A. Republic of Guatemala
- - Sunwise Corporation Florida
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-03-1995
<PERIOD-END> MAR-31-1996
<CASH> 914
<SECURITIES> 0
<RECEIVABLES> 25,216
<ALLOWANCES> 0
<INVENTORY> 47,157
<CURRENT-ASSETS> 76,025
<PP&E> 109,406
<DEPRECIATION> 60,262
<TOTAL-ASSETS> 128,368
<CURRENT-LIABILITIES> 60,981
<BONDS> 20,952
0
788
<COMMON> 21,057
<OTHER-SE> 20,664
<TOTAL-LIABILITY-AND-EQUITY> 128,368
<SALES> 262,920
<TOTAL-REVENUES> 262,920
<CGS> 213,515
<TOTAL-COSTS> 213,515
<OTHER-EXPENSES> 44,133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,639
<INCOME-PRETAX> 633
<INCOME-TAX> 213
<INCOME-CONTINUING> 420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 420
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
<PAGE> 1
EXHIBIT 99
ANNUAL TOP MANAGEMENT CASH BONUS PROGRAM
The Company maintains a cash bonus plan whereby the executive officers and
salaried marketing department personnel are eligible to receive cash bonuses
equal to a percentage of the executive officer's base salary if certain
corporate pretax profit objectives are achieved. The executive officers
selected each year to participate in the cash bonus plan, as well as the
performance targets on which the cash bonuses are based and the amount of the
cash bonuses are determined each year at the discretion of the Chairman and the
Board of Directors.
Specifically, the Chairman recommends to the Board of Directors certain
executive officers who will participate in the plan each year. Such executive
officers who will participate in the plan as evidenced by written notice from
the Company. The amount of the actual cash bonus paid to the various executive
officers participating in the cash bonus plan is calculated based on the
attainment of the corporate pretax profit objectives for domestic operations
only set at the commencement of each fiscal year.
The cash bonuses are normally paid within the sixty (60) days after the end of
the fiscal year.
