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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
For the fiscal year ended June 1, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-17896
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HANOVER FOODS CORPORATION
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-0670710
(State or other jurisdiction) (IRS Employer I.D. No.)
P.O. BOX 334, YORK STREET EXTENDED, HANOVER, PENNSYLVANIA 17331-0334
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code (717) 632-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name Of Each Exchange On
Title Of Each Class Which Registered
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Class A Nonvoting Common None
Stock
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. X
------
As of August 10, 1997, the estimated aggregate market value of Class B Voting
Common Stock held by non-affiliates of the Registrant was $510,518. As of
August 10, 1997, the estimated aggregate market value of Class A Nonvoting
Common Stock held by non-affiliates of the Registrant was $8,547,167. (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
427,058 shares of Class B Voting Common Stock outstanding as of August 10,
1997. There were 292,354 shares of Class A Nonvoting Common Stock outstanding
as of August 10, 1997.
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PART I
ITEM 1. BUSINESS
OVERVIEW
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. The
Company's raw materials are readily available, and the Company is not dependent
on a single supplier or a few suppliers. This growth has resulted from the
Corporation's extended scope of operations, new product development and
acquisitions. Currently, 52% of the Corporation's sales volume, primarily
frozen sales, is transacted during the third and fourth quarters of the
Corporation's fiscal year and 48% of the Corporation's sales volume, primarily
canned sales, is transacted during the first and second quarters of the
Corporation's fiscal year. See "Risk Factors - Industry Conditions and Price
and Volume Fluctuations."
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. "See Risk Factors - General Risks of the Food Industry."
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
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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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Year Ended June 1,
1997 Results of Operations Compared to Year Ended June 2, 1996."
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 Company's ten largest customers
account for approximately 45% 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 June 1, 1997, March 31, 1996 and April 2, 1995. 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, mid-Atlantic, southeastern and midwestern areas of
the United States. See "Risk Factors - Competition."
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
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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. See Note 1 of the Notes to Consolidated
Financial Statements.
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 Occupational Safety and Health Administration (OSHA), Federal
Trade Commission and U.S. Environmental Protection Agency. See "Risk Factors -
Regulations" and "Legal Proceedings."
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.
See "Risk Factors - Environmental Risks" and "Legal Proceedings."
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
1,512 employees
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on a full-time and a seasonal basis. Approximately 1,332 employees are
employed in the United States and 180 are employed in Guatemala.
A total of 714 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, 1997
and ending December 31, 1999. The Clayton, DE 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. Management considers labor relations to be excellent.
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 2,500 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. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Impact of Events and
Commitment of Future Operations" and "Risk Factors - Risks Associated With
Foreign Operations."
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."
RISK FACTORS
Industry Conditions and Price and Volume Fluctuations
The Corporation's financial performance and growth are related to conditions in
the food
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processing industry. The United States food processing industry is a mature
industry. The Corporation's net sales are a function of product availability
and market pricing. In the food processing industry, product availability and
market prices tend to have an inverse relationship: market prices tend to
decrease as more product is available, whereas if less product is available,
market prices tend to increase. Product availability is a direct result of
plantings, growing conditions, crop yields and inventories, all of which vary
from year to year. In addition, price can be affected by the planting,
inventory level and individual pricing decisions of the three or four largest
processors in the industry. Generally, the market prices in the food
processing industry tend to adjust more quickly to variations in product
availability than an individual processor can adjust its cost structure; thus,
in an over-supply situation, a processor's margins likely will weaken, as
suppliers generally are not able to adjust their cost structure as rapidly as
market prices adjust for the over-supply. The Corporation typically has
experienced lower margins during times of industry over-supply. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Seasonality and Quarterly Fluctuations
The Corporation's operations are affected by the growing cycle of the
vegetables it processes. The Corporation's business can be positively or
negatively affected by weather conditions nationally and the resulting impact
on crop yields. Favorable weather conditions can produce high crop yields and
an oversupply situation in a given year. This oversupply typically will result
in depressed selling prices and reduced profitability to the Corporation on the
inventory produced from that year's crops. Excessive rain or drought
conditions can produce low crop yields and a shortage situation. This shortage
typically will result in higher selling prices and increased profitability to
the Corporation. While the national supply situation controls the pricing, the
supply can differ regionally because of variations in weather.
Because many of the raw materials processed by the Company are agricultural
crops, production of products using these crops is predominantly seasonal. As
a result, the Company needs access to working capital financing to meet its
production requirements during these periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
Competition
All of the Corporation's products compete with those of other national, major
and small regional food processing companies under highly competitive
conditions. Many of the Corporation's major competitors in the market are
larger and have greater financial and marketing resources than the Corporation.
Continued industry consolidation also may increase the market strength of the
Corporation's larger competitors.
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Regulation
United States and foreign governmental laws, regulations and policies directly
affect the agricultural industry and food processing industry. The Corporation
is subject to regulation by the FDA, the USDA, the Federal Trade Commission,
the Environmental Protection Agency and various state agencies with respect to
production, packaging, labeling and distribution of its food products. The
application or modification of existing, or the adoption of new, laws,
regulations or policies could have an adverse effect on the Corporation's
business and results of operations.
General Risks of the Food Industry
Food processors are subject to the risks of adverse changes in general economic
conditions; evolving consumer preferences and nutritional and health-related
concerns; changes in food distribution channels and increasing buying power of
large supermarket chains and other retail outlets that tend to resist price
increases; federal, state and local food processing controls; consumer product
liability claims; and risks of product tampering.
Environmental Risks
The disposal of solid and liquid waste material resulting from the preparation
and processing of foods are subject to various federal, state and local laws
and regulations relating to the protection of the environment. Such laws and
regulations have had an important effect on the food processing industry as a
whole, requiring substantially all firms in the industry to incur material
expenditures for modification of existing processing facilities and for
construction of upgraded or new waste treatment facilities.
The Corporation cannot predict what environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations will
be administered or interpreted or what environmental conditions may be found to
exist. Enactment of more stringent laws or regulations or more strict
interpretation of existing laws and regulations may require additional
expenditures by the Corporation, some of which could be material.
Risks Associated with Foreign Operations
Foreign operations generally involve greater risks than doing business in the
United States. Foreign economies differ favorably or unfavorably from the
United States' economy in such respects as the level of inflation and debt,
which may result in fluctuations in the value of the country's currency and
real property. Further, there may be less government regulation in various
countries, and difficulty in enforcing legal rights outside the United States.
Additionally, in some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of property
or other assets, political or social instability or diplomatic developments
which could affect the operations and assets of U.S. companies doing business
in
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that country. Some of these are more pronounced in third world countries such
as Guatemala. At June 1, 1997, the Corporation had $10.0 million in assets
invested in its foreign operations.
ITEM 2. PROPERTIES
The following is a list of the Corporation's manufacturing, processing and
warehousing properties. The Corporation owns each of the properties.
UNITED STATES
Hanover, PA - Canned and jarred products
processing, repackaging of frozen
vegetables, frozen soft pretzels
manufacture, dry and frozen storage.
Corporate research, new product
development and quality assurance
laboratory (corporate headquarters).
Centre Hall, PA - Frozen vegetable processing. Dry
and frozen storage.
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 manufacture. Dry and frozen
storage.
Ephrata, PA - Refrigerated, fresh foods and soups
manufacture. Dry, refrigerated and
frozen storage.
Clayton, DE - Frozen vegetables, meat products,
frozen food entrees and meat pies
manufacture. Dry and frozen
storage.
GUATEMALA
San Jose Pinula - Frozen vegetable processing, dry and
frozen storage, research and quality
assurance laboratory.
Teculutan - Frozen vegetable processing, dry and
frozen storage.
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ITEM 3. LEGAL PROCEEDINGS
1995 Warehime Family Litigation
On February 1, 1995, Michael A. Warehime, J. William Warehime and Elizabeth W.
Stick, three Class B shareholders of the Corporation, filed a complaint in the
Court of Common Pleas of York County, Pennsylvania against the Corporation and
John A. Warehime (Chairman of the Corporation), in his capacity as voting
trustee of two voting trusts entitling him to vote approximately 52% of the
Class B common stock. The Court has dismissed various claims and parties in
the lawsuit and the only remaining parties are Michael A. Warehime as
plaintiff and John A. Warehime as defendant. The only remaining claims are (i)
a claim for breach of fiduciary duty based on exercise of powers beyond those
granted by certain voting trust agreements; (ii) a claim for breach of
fiduciary duty for use of the voting trusts in a manner harmful to their
beneficiaries, (iii) and a court requesting removal of John A. Warehime as the
voting trustee of the voting trusts.
Derivative Action
On September 13, 1996, certain Class A common stockholders filed a complaint in
equity against six of the Corporation's directors and the estate of a former
director in the Court of Common Pleas of York County, Pennsylvania. The suit
also named the Corporation as a nominal defendant. The suit sought various
forms of relief including, but not limited to, rescission of the board's April
28, 1995 approval of John A. Warehime's 1995 Employment Agreement and the
board's February 10, 1995 adjustment of directors' fees. (Since the filing of
this lawsuit, John A. Warehime's 1995 Employment Agreement was amended. See
Note 6 to Consolidated Financial Statements.) In addition, the plaintiffs
sought costs and fees incident to bringing suit. On November 4, 1996, the
complaint was amended to add additional plaintiffs. On June 24, 1997, the Court
dismissed the amended complaint for failure to make a prior demand. On May 12,
1997, a written demand was received by the Corporation from the attorney for
these Class A common stockholders containing similar allegations and these
allegations are currently being investigated by a special committee of the
Board of Directors.
1997 Warehime Family Litigation
On February 21, 1997, Michael A. Warehime, a Class B shareholder, and certain
Class A shareholders filed motions for a preliminary injunction against the
Corporation and John A. Warehime, in his capacity as voting trustee, in the
Court of Common Pleas of York County, Pennsylvania against a proposal of the
Board of Directors to amend and restate the Corporation's Articles of
Incorporation in the manner hereafter described.
On February 13, 1997, the Board of Directors proposed an amendment and
restatement of the Corporation's Articles of Incorporation (the "Amended and
Restated Articles") which provides that if all of the following Class B
shareholders (or their Estates upon the death of such
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stockholders) do not agree in writing to the composition of the Board of
Directors or other important matters specified below on or after the 1998
annual shareholders meeting, the trustees of the Corporation's 401(k) Savings
Plan (or a similar employee benefit plan), acting as fiduciaries for the
employees who participate in the Plan, and the Class A shareholder may become
entitled to vote in the manner described below: Michael A. Warehime, John A.
Warehime, Sally W. Yelland, J. William Warehime and Elizabeth W. Stick.
The Amended and Restated Articles create a Series C Convertible Preferred Stock
and authorize the Board of Directors to issue up to 10,000 shares of such stock
to the trustees of the Corporation's 401(k) Savings Plan (or a similar employee
benefit plan). At least a majority of the trustees of the Corporation's 401(k)
Savings Plan (or similar employee benefit plan), who are appointed by the Board
of Directors, must be "disinterested directors" of the Corporation. If the
Class B shareholders named above cannot unanimously agree in writing on the
composition of the Board of Directors or on other important matters specified
below, the Amended and Restated Articles permit each of the 10,000 shares of
Series C Convertible Preferred Stock the right to cast 35 votes in the election
of directors, and each share of Class A Common Stock would have one-tenth
(1/10) of a vote per share, thereby enabling them to influence the ultimate
result of the election by the Cass B shares. The Amended and Restated Articles
also permit the trustees and the Class A shareholders to similarly vote on
proposals to remove directors, and in connection with any proposal (not
previously approved by the Board of Directors) to further amend the Articles of
Incorporation or By-laws or to effectuate a merger, consolidation, division, or
sale of substantially all of the assets of the Corporation. The voting power
of the Series C Convertible Preferred Stock would cease five (5) years after
its issuance. Under the Amended and Restated Articles, each of the shares of
Series C Convertible Preferred Stock is convertible into one share of Class A
Common Stock and is not entitled to vote except in the event that members of
the Warehime family previously named cannot agree in writing on the composition
of the Board of Directors or on other important matters specified above.
The Amended and Restated Articles also classified the terms of the Board of
Directors commencing with the election at the 1997 annual shareholders meeting
and permit directors to be elected for four year terms as permitted by
Pennsylvania law.
The motions for a preliminary injunction were dismissed by the Court on June
24, 1997. The Class B shareholders on June 25, 1997 approved the Amended and
Restated Articles (John A. Warehime being the sole Class B shareholder voting
affirmatively) and the Amended and Restated Articles became effective June 25,
1997. Appeals have been filed from the denial of the plaintiffs' motion for a
preliminary injunction.
In August 1997, the Board of Directors proposed a further amendment (the
"Amendment") to the Amended and Restated Articles to expand the definition of
"disinterested directors" in the manner described below, and to approve certain
performance based compensation for John A. Warehime solely for the purpose of
making the Corporation eligible for a federal income tax deduction pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as amended. A
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special meeting was scheduled for August 14, 1997 (the "Special Meeting") to
vote on these proposals. On August 8, 1997, Michael A. Warehime filed a
motion in the Court of Common Pleas of York County, Pennsylvania to prevent
John A. Warehime, in his capacity as voting trustee from voting on these
proposals. This motion was denied on August 11, 1997. The Amendment and the
proposal under Section 162(m) were approved by Class B Shareholders (John A.
Warehime was the sole Class B shareholder to vote affirmatively) on August 14,
1997 and the Amendment became effective on August 14, 1997.
Under the Amendment, the definition of "disinterested directors" means the
person who, in the opinion of counsel for the Corporation, meet any of the
following criteria: (i) disinterested directors as defined in Section 1715(e)
of the Pennsylvania Business Corporation Law of 1988, as amended; (ii) persons
who are not "interested" directors as defined in Section 1.23 of The American
Law Institute "Principles of Corporate Governance: Analysis and
Recommendations" (1994); or (iii) persons who qualify as members of the Audit
Committee pursuant to Section 303.00 of the New York Stock Exchange's Listed
Company Manual.
Other Litigation
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 has performed 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.
On December 12, 1996, OSHA cited the Corporation with two violations of OSHA
regulations arising out of accidents which occurred at its Clayton, Delaware
plant. The proposed penalty for each violation is $70,000. On December 18,
1996, the Corporation filed its Notice of Contest, contesting both alleged
violations and the proposed penalties.
On March 24, 1997, OSHA cited the Corporation with twenty-two violations of
OSHA regulations arising out of plant inspections which occurred at its
Clayton, Delaware plant. The proposed penalty for said violations is $498,000.
On April 11, 1997, the Corporation filed its Notice of Contest, contesting all
of the alleged violations and the proposed penalties.
The Corporation 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.
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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 March 31, 1996 to August 10, 1997, the Class A Nonvoting
Common Stock has traded at prices ranging from $31.00 to $42.00.
Due to the lack of an established public trading market, under certain
circumstances the Corporation agreed to repurchase shares of Class A Nonvoting
Common Stock purchased or owned by employees prior to April 20, 1988. This
repurchase agreement by the Corporation is for an indefinite period of time.
As of June 1, 1997, there were 10,557 shares outstanding which would be
eligible for repurchase. During the fiscal year ended June 1, 1997, the
Corporation purchased 1,251 shares of Class A Common Stock at an aggregate cost
of $85,068 or an average of approximately $68.00 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, an
independent appraisal firm. See Note 9 of the Notes to the Consolidated
Financial Statements.
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 Corporation's Voting Class
B Common Stock and 5,990 shares of the Corporation's Nonvoting Class A Common
Stock over a four year period. On April 22, 1997, John R. Miller, Jr. entered
into a Voting Agreement with the Corporation's Board of Directors whereby Mr.
Miller agrees to vote all shares of the Corporation's stock held by him as
directed by the Board of Directors, provided that a majority of Directors
Rohrbach, Schaier and Noel vote in favor of the direction. The term of the
Voting Agreement is for a period of four years commencing April 1, 1997 and
ending on March 31, 2001.
The Corporation currently has no outstanding warrants to purchase shares of any
class of its capital stock.
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The only securities convertible into common equity of the Corporation are
15,044 outstanding shares of Cumulative Convertible Preferred Stock (Series A
and B). Subsequent to the end of fiscal 1997, the Company amended its Articles
of Incorporation to authorize Series C Convertible Preferred Stock, which is
convertible to Class A Nonvoting Common Stock at the option of the holder. As
of the date hereof, no shares of Series C Convertible Preferred Stock have been
issued. 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 Class A Nonvoting Common Stock at the time of conversion.
As of August 10, 1997, there were 427 holders of record of Class A Nonvoting
Common Stock and 41 holders of record of Class B Voting Common Stock.
During the two most recent fiscal years ending June 1, 1997 and March 31, 1996,
the Corporation paid cash dividends of $1.10 and $1.10 per share respectively
to the Class A and Class B Common stockholders. Dividends of the Corporation
are declared at the sole discretion of the Board of Directors and will depend
upon, among other things, the Corporation's earnings, capital requirements,
financial condition and 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
The consolidated financial information set forth below should be read in
conjunction with the more detailed consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
Summary of Operations
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Fiscal years ended
Dollars in thousands --------------------------------------------------------------------------------
(except per share data) Proforma
June 1, June 2, March 31, April 2, April 3, March 28,
1997 1996 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $259,439 $260,694 $262,920 $257,530 $235,189 $216,701
- -----------------------------------------------------------------------------------------------------------------------
Cost of goods sold 195,086 213,234 213,515 199,372 179,892 166,728
Selling expenses 37,453 33,443 35,067 42,089 32,154 27,236
Administrative expenses 12,158 9,250 9,706 9,699 9,525 9,890
- -----------------------------------------------------------------------------------------------------------------------
Operating profit 14,742 4,767 4,632 6,370 13,618 12,847
Interest expense 3,666 4,651 4,639 3,744 3,733 3,637
Other (income) expense - net 89 (516) (640) (60) (343) (58)
- -----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 10,987 632 633 2,686 10,228 9,268
Income taxes 4,281 219 213 798 4,067 3,672
- -----------------------------------------------------------------------------------------------------------------------
Net earnings 6,706 413 420 1,888 6,161 5,596
- -----------------------------------------------------------------------------------------------------------------------
Net earnings applicable to common 6,675 374 389 1,855 6,127 5,562
stock
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Effective June 1, 1996, the Corporation's fiscal year ends at the close
of operations on the Sunday nearest to May 31. The Corporation's past fiscal
years ended at the close of operations on the Sunday nearest to March 31.
-13-
<PAGE> 15
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) June 1, March 31, April 2, April 3, March 28,
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK DATA
Net earnings $9.26 $0.53 $2.53 $8.29 $7.48
Common dividends $1.10 $1.10 $1.075 $1.00 $1.00
Book value $65.00 $58.27 $59.32 $57.89 $50.59
Average shares outstanding 720,811 729,608 734,252 739,026 743,732
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEET AND
FINANCIAL DATA
Working capital $17,122 $15,044 $19,569 $22,279 $21,796
Current ratio 1.32 1.25 1.32 1.44 1.52
Total assets $124,031 $128,368 $132,144 $124,646 $117,834
Long-term debt $16,219 $18,453 $20,658 $24,436 $31,056
Capital lease obligations - long-term - - $233 $578 $1,109
Stockholders' equity $47,157 $42,509 $43,920 $42,990 $37,920
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
When used in this Annual Report on Form 10-K, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"projected," or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including but not limited to quarterly fluctuations in operating results,
competition, state and federal regulation, environmental considerations and
foreign operations. Such factors, which are discussed in the Annual Report on
Form 10-K, could affect the Corporation's financial performance and could cause
the Corporation's actual results for future periods to differ materially from
any opinion or statements expressed herein with respect to future periods. As
a result, the Corporation wishes to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made.
OVERVIEW OF FISCAL 1997 RESULTS
The results of operations for fiscal 1997 were impacted by lower operating
expenses, increased selling prices and improved inventory management. See
"Risk Factors."
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 purchase and sales are competitive with
alternate sources of supply and markets. See Note 5 to the Consolidated
Financial Statements.
Effective June 1, 1996, the Corporation's fiscal year ends at the close of
operations on the Sunday nearest to May 31. The Corporation's past fiscal
years ended at the close of operations on the Sunday nearest to March 31.
Accordingly, the following discussion compares the results of operations for
the fiscal year ended June 1, 1997 to the proforma year ended June 2, 1996, the
nine weeks ended June 2, 1996 to the nine weeks ended June 4, 1995 and the
fiscal year ended March 31, 1996 to the fiscal year ended April 2, 1995.
YEAR ENDED JUNE 1, 1997 RESULTS OF OPERATIONS COMPARED TO YEAR ENDED JUNE 2,
1996
Net Sales
Consolidated net sales were $259.4 million for fiscal 1997 compared to $260.7
million for the proforma year ended June 2, 1996, a decrease of $1.3 million or
0.5%. The 0.5% decrease in consolidated net sales was comprised of the
following volume and sales price components:
-15-
<PAGE> 17
<TABLE>
<CAPTION>
Year Ended June 1, 1997
Increase (Decrease)
-------------------
Volume Sales Price Combined
------ ----------- --------
<S> <C> <C> <C>
Frozen Sales (5.9)% 4.2% (1.7)%
Canned Sales (2.1)% 2.7% 0.6%
Prepared Foods 0.8% (0.2)% 0.6%
------- ------ -------
(7.2)% 6.7% (0.5)%
</TABLE>
The decreased volume in frozen sales was principally due to lower sales levels
in food service products due to management's decision to improve profit margins
by increasing unit sales prices. The decrease in volume was partially offset by
an increase in unit sales prices.
Canned sales also showed a slight decrease in fiscal 1997 due to decreased
volume in bid business. The decrease in volume was offset by the increase in
unit sales price, which increase in sales price was planned by management to
improve profit margins.
Prepared foods showed a slight increase.
Cost of Goods Sold
Consolidated cost of goods sold represented 75.2% of consolidated net sales for
fiscal 1997 compared to 81.8% for fiscal 1996. The consolidated cost of sales
decreased $18.1 million from fiscal 1996 to fiscal 1997 of which 68% was due to
decreased volume and 32% was due to lower operating costs and lower outside
storage costs.
Selling Expenses
Consolidated selling expenses represented 14.4% of consolidated net sales for
fiscal 1997 and 12.8% for fiscal 1996. Promotion expense for fiscal 1997 was
$26.8 million as compared to $20.9 million for fiscal 1996. The Corporation
spent additional promotion dollars to gain additional market share in both the
mid-Atlantic and southern region for its branded business.
In addition to promotion expense, the Corporation spent approximately $2.2
million on advertising, including $1.7 million relating to redeemed coupons,
for fiscal 1997, compared to $3.6 million in advertising, including $2.4
million for redeemed coupons, for fiscal 1996.
Management intends to continue to direct promotional dollars to gain additional
market share and increased distribution of its brand. Management is constantly
reviewing the effectiveness of its retail promotional program in an effort to
increase profitable sales.
-16-
<PAGE> 18
Administrative Expenses
Consolidated administrative expenses were $12.2 million in fiscal 1997, or 4.7%
of consolidated net sales versus $9.3 million, or 3.5% of consolidated net
sales in 1996. The increase in consolidated administrative expenses as a
percent of net sales was the result of bonuses and outside legal and financial
services. Included in administrative expenses for fiscal 1997 were $1.2
million in legal fees paid in connection with the litigation described under
"Legal Proceedings" in Note 9 to the Consolidated Financial Statements.
Interest Expense
Consolidated interest expense for fiscal 1997 was $985,000 lower than fiscal
1996. Average seasonal borrowing was lower for an extended period of time to
fund lower inventory levels during the pack season and to carry reduced canned
and frozen inventory levels. The maximum amount of seasonal borrowing was
approximately $35.0 million as compared to the maximum of $45.9 million in
fiscal 1996. In addition, approximately $1.8 million in senior unsecured term
debt that carried higher interest rates was repaid in fiscal 1997 which
contributed to the reduction of the Corporation's interest expense for fiscal
1997.
Other Expense
Consolidated other expenses increased $605,000 for fiscal 1997 as compared to
fiscal 1996. Additional value added tax and foreign exchange and translation
adjustment losses during fiscal 1997 accounted for 41% of this additional
expense. Interest income was reduced during fiscal 1997 which accounted for
25% of the additional charges.
Income Taxes
The provision for corporate federal and state income taxes for fiscal 1997 was
$4.3 million or 39% of pretax earnings as compared to a provision of $219,000
or 35% of pretax earnings for fiscal 1996. The higher effective rate was due
primarily to proportionately higher domestic pretax income versus non-taxable
foreign earnings in fiscal 1997 compared to 1996.
Net Earnings
Consolidated net earnings for fiscal 1997 were $6.7 million, or 2.6% of
consolidated net sales. This compared to $413,000, or 0.2% of consolidated net
sales for fiscal 1996. Lower operating expenses, interest expenses and
increased unit sales prices were the contributing factors to the increased net
earnings.
Earnings Per Share
Earnings per share are computed on the weighted average number of shares
outstanding after
-17-
<PAGE> 19
providing for preferred stock dividends. During fiscal 1997, 2,343 shares of
common stock were repurchased by the Corporation compared to 11,465 shares in
fiscal 1996. The repurchase of these shares reduced the weighted average
number of shares outstanding which is used in the calculation of earnings per
share.
NINE WEEKS ENDED JUNE 2, 1996 RESULTS OF OPERATIONS COMPARED TO NINE WEEKS
ENDED JUNE 4, 1995
Net Sales
Consolidated net sales were $34.6 million for the nine week period ended June
2, 1996. This represents a decrease of 6.0% over the nine week period ended
June 4, 1995 consolidated net sales of $36.8 million. The decrease of $2.2
million was primarily due to decreased canned and frozen retail sales offset by
increases in private label sales and was consistent with the Corporation's
business plan.
Cost of Goods Sold
Cost of goods sold were $28.8 million, or 83.3% of consolidated net sales in
the nine week period ended June 2, 1996 and $29.1 million, or 79.1%, of
consolidated net sales for the corresponding period in 1995. The increase in
cost of goods sold as a percentage of net sales resulted primarily from a
decrease in the average selling prices per case of product in the nine week
period ended June 2, 1996 compared to the same period in 1995 due to continued
intense competition in retail sales.
Selling Expenses
Selling expenses were $5.5 million or 15.8% of consolidated net sales for the
nine week period ended June 2, 1996 as compared to $7.1 million, or 19.3% of
consolidated net sales during the corresponding period in 1995. The decrease
in selling expenses as a percentage of net sales reflects the lower expenses
related to promotional programs, advertising and customer allowances in the
nine week period ended June 2, 1996 compared to 1995.
Administrative Expenses
Administrative expenses as a percentage of consolidated net sales were 4.1% for
the nine week period ended June 2, 1996 compared to 5.1% for the corresponding
period of 1995. This decrease was attributed to reductions in personnel
related costs.
Interest Expense
Interest expense was $596,000 for the nine week period ended June 2, 1996 as
compared to $584,000 for the same period in 1995. The increase in interest was
primarily due to higher
-18-
<PAGE> 20
average borrowings during the 1996 period as compared to the prior period.
YEAR ENDED MARCH 31, 1996 RESULTS OF OPERATIONS COMPARED TO YEAR ENDED APRIL 2,
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 was comprised of the following volume and
sales price components:
<TABLE>
<CAPTION>
Year Ended March 31, 1996
Increase (Decrease)
-------------------
Volume Sales Price Combined
------ ----------- --------
<S> <C> <C> <C>
Frozen Sales 2.4% (1.7)% 0.7%
Canned Sales 3.1% (2.4)% 0.7%
Prepared Foods 0.5% 0.2% 0.7%
------ ------- ------
6.0% (3.9)% 2.1%
</TABLE>
The increased volume in frozen sales was principally due to higher sales levels
in direct retail and food service products. The reduction in unit sales prices
was caused by intense competition to lower unit prices.
Canned sales also showed a slight increase for fiscal 1996. Increased volume
in food service 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 food service
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.
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
-19-
<PAGE> 21
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 on advertising, including $2.4 million relating to redeemed coupons,
for fiscal 1996, compared to $3.1 million in advertising, including $2.0
million to redeemed coupons, for fiscal 1995.
Administrative Expenses
Consolidated administrative expenses were $9.7 million in fiscal 1996, or 3.7%
of consolidated net sales versus $9.7 million, or 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 increased for fiscal 1996 $895,000 as compared to
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
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 was 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 0.2% of consolidated
net sales as compared to $1.9 million or 0.7% 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.
-20-
<PAGE> 22
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 repurchased by the Corporation compared to
2,152 shares in fiscal 1995. The repurchase of these shares reduces the
weighted 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 Statements of
Cash Flows.
Net cash provided by operations for the fiscal year ended June 1, 1997 was
$12.3 million, compared to $4.8 million for the proforma year ended June 2,
1996. Sources of funds totaled $19.1 million consisting of net earnings of
$6.7 million, decreased inventory of $5.6 million, decreased prepaid items of
$0.3 million, decreased deferred income taxes of $0.2 million, an increase in
tax and other liabilities of $0.7 million and depreciation and amortization of
$5.6 million. The funds generated from these sources were applied towards the
increase in accounts receivable of $6.6 million and the reduction in accounts
payable and accrued expenses of $0.2 million.
Net cash provided by operations for the fiscal year ended March 31, 1996 was
$1.4 million, compared to $10,000 for the fiscal year ended April 2, 1995.
Sources of funds totaled $11.6 million consisting of net earnings of $0.4
million, decreased accounts receivable of $0.4 million, decreased inventory of
$2.8 million, decreased prepaid items of $1.9 million, an increase in other
liabilities of $0.4 million and depreciation and amortization of $5.6 million.
The funds generated from these sources were applied towards the reduction in
accounts payable and accrued expenses of $9.7 million.
Net cash used by investing activities for the fiscal year ended June 1, 1997
was $6.5 million as compared to $4.8 million for the fiscal year ended June 2,
1996. The principal use of funds was the upgrade and acquisition of property,
plant and equipment. During the period ended June 1, 1997, $6.6 million was
spent on development and modernization of equipment as compared to $4.7 million
in the fiscal year ended June 2, 1996. These projects were funded by
internally generated funds. The Corporation also uses operating leases to meet
other equipment needs. The lease expense for the fiscal year ended June 1, 1997
was $3.6 million, down $0.4 million from the fiscal year ended June 2, 1996.
Net cash used by investing activities for the fiscal year ended March 31, 1996
was $6.1 million as compared to $5.6 million for the fiscal year ended April 2,
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
-21-
<PAGE> 23
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 $0.4
million 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 $250,00 from Centre Foods
Enterprises, Inc., a related party. See "Transactions With Management and
Others" and Note 5 of the Notes to the Consolidated Financial Statements.
Net cash used for financing activities was $3.6 million for the fiscal year
ended June 1, 1997, compared to cash provided by financing activities of
$154,000 for the fiscal year ended June 2, 1996. Seasonal borrowing amounting
to $220.7 million was used throughout the fiscal year to fund operational
needs. Seasonal borrowing, plus the cash overdraft, did not increase during
the fiscal year, while term debt and other obligations had been reduced by $2.7
million. Management continues to monitor and evaluate the most cost effective
means to finance its operations. The weighted average cost of seasonal
borrowings was 6.1% for the fiscal year ended June 1, 1997 compared to 6.2% for
the fiscal year ended June 2, 1996.
Net cash provided by financing activities was $5.0 million for the fiscal year
ended March 31, 1996 compared to $4.0 million for the fiscal year ended April
2, 1995. Seasonal borrowing was used throughout the period 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. The weighted average cost of seasonal borrowing was 6.2% for the
fiscal year ended March 31, 1996 compared to 7.5% for the fiscal year ended
April 2, 1995. See Notes 2 and 3 of the Notes to Consolidated Financial
Statements.
At June 1, 1997 the Corporation has commitments from financial institutions to
provide seasonal lines of credit in the amount of $80 million. Additional
borrowing is permitted within prescribed parameters in existing debt agreements
which contain certain performance covenants. At June 1, 1997 the Corporation
was in compliance with all the provisions of its debt agreements.
The Corporation paid dividends of $824,000 during fiscal 1997 compared to
$831,000 in fiscal 1996. In addition, the Corporation repurchased 2,343 shares
of Common Stock at a cost of $132,000 during the year ended June 1, 1997.
IMPACT OF EVENTS AND COMMITMENTS OF FUTURE OPERATIONS
Competition in the Marketplace
The Corporation faced stiff competition from national and regional branded
companies during the entire fiscal 1997 in all of its market areas, and
management anticipates this competitive environment to continue throughout
fiscal year 1998. See "Risk Factors - Competition."
-22-
<PAGE> 24
New Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share" which establishes standards for computing and presenting earnings per
share and will be effective for periods ending after December 15, 1997. Also
in February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" and establishes standards for disclosing information
about a company's capital structure, including pertinent rights and privileges
of various securities outstanding and will be effective for periods ending
after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These statements establish standards for reporting and display
of comprehensive income and its components and for reporting information about
business segments and products in financial statements and are effective for
years beginning after December 15, 1997.
Adoption of the above standards is not expected to have a material effect on
the Corporation's financial statements.
Impact of Inflation and Changing Prices
The changes in cost and prices within the Company's business due to inflation
were not significantly different from inflation in the United States economy as
a whole. Levels of capital investment, pricing and inventory investment were
not materially affected by the moderate inflation.
-23-
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Pages
-----
Financial Statements
Reports of Independent Certified Public Accountants 26
Consolidated Balance Sheets as of June 1, 1997, June 2, 1996
and March 31, 1996 28
Consolidated Statements of Earnings for Year Ended June 1, 1997,
Nine Weeks Ended June 2, 1996, Years Ended March 31, 1996 and
April 2, 1995 and Proforma Year Ended June 2, 1996 (unaudited) 29
Consolidated Statements of Stockholders' Equity for Year Ended
June 1, 1997, Nine Weeks Ended June 2, 1996 and the Years Ended
March 31, 1996 and April 2, 1995 30
Consolidated Statements of Cash Flows for Year Ended June 1, 1997,
Nine Weeks Ended June 2, 1996, Years Ended March 31, 1996 and
April 2, 1995 and Proforma Year Ended June 2, 1996 (unaudited) 32
Notes to Consolidated Financial Statements 34
Quarterly Financial Data (Unaudited) 57
-24-
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Hanover Foods Corporation:
We have audited the accompanying consolidated balance sheets of Hanover Foods
Corporation and subsidiaries as of June 1, 1997, June 2, 1996, and March 31,
1996 and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the year ended June 1, 1997, the nine-week period ended June
2, 1996, and the year ended March 31, 1996. 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hanover Foods
Corporation and subsidiaries as of June 1, 1997, June 2, 1996, and March 31,
1996 and the results of their operations and their cash flows for the year
ended June 1, 1997, the nine-week period ended June 2, 1996, and the year ended
March 31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- -------------------------------
Harrisburg, Pennsylvania
July 24, 1997
<PAGE> 27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Hanover Foods Corporation
We have audited the consolidated statements of earnings, stockholders' equity
and cash flows of Hanover Foods Corporation and subsidiaries for the year ended
April 2, 1995. These financial statements are the responsibiity of the
Corporation's management. Our responsibility is to express an opinion on these
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 statements referred to above present fairly, in all
material respects, the consolidated results of operations of Hanover Foods
Corporation and subsidiaries and their consolidated cash flows for the year
ended April 2, 1995, in conformity with generally accepted accounting
principles.
Harry Ness & Company
York, Pennsylvania
May 26, 1995
<PAGE> 28
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 1, 1997, June 2, 1996, and March 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
June 1, June 2, March 31,
ASSETS 1997 1996 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,312,000 1,112,000 914,000
Accounts and notes receivable - net 22,954,000 17,249,000 25,216,000
Accounts receivable from related parties - net 890,000 61,000 18,000
Inventories:
Finished goods 27,446,000 31,506,000 33,930,000
Raw materials and supplies 13,978,000 15,561,000 13,227,000
Prepaid corporate income taxes - 581,000 541,000
Prepaid expenses 2,064,000 1,796,000 1,294,000
Deferred income taxes 733,000 885,000 885,000
- -------------------------------------------------------------------------------------------------------
Total current assets 71,377,000 68,751,000 76,025,000
- -------------------------------------------------------------------------------------------------------
Property, plant, and equipment - at cost:
Land and buildings 33,398,000 32,115,000 31,847,000
Machinery and equipment 82,037,000 77,399,000 77,210,000
Leasehold improvements 349,000 349,000 349,000
- -------------------------------------------------------------------------------------------------------
115,784,000 109,863,000 109,406,000
Less accumulated depreciation and amortization 66,822,000 61,273,000 60,262,000
- -------------------------------------------------------------------------------------------------------
48,962,000 48,590,000 49,144,000
Construction in progress 760,000 176,000 61,000
- -------------------------------------------------------------------------------------------------------
49,722,000 48,766,000 49,205,000
- -------------------------------------------------------------------------------------------------------
Other assets:
Intangible assets - less accumulated amortization
of $2,019,000, $2,004,000, and $2,002,000 441,000 456,000 458,000
Other assets 2,491,000 2,407,000 2,680,000
- -------------------------------------------------------------------------------------------------------
Total assets $ 124,031,000 120,380,000 128,368,000
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 29
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
June 1, June 2, March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable $21,038,000 23,916,000 24,792,000
Notes payable - banks 24,114,000 24,097,000 29,421,000
Accrued expenses 6,511,000 4,052,000 3,966,000
Current maturities of long-term debt 2,234,000 2,499,000 2,499,000
Current maturities of capital lease obligations - 152,000 210,000
Income taxes payable 358,000 110,000 93,000
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 54,255,000 54,826,000 60,981,000
Long-term debt, less current maturities 16,219,000 18,453,000 18,453,000
Deferred income taxes 5,174,000 5,170,000 5,689,000
Other liabilities 1,226,000 805,000 736,000
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 76,874,000 79,254,000 85,859,000
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
8-1/4% cumulative convertible preferred - $25 par value,
issuable in series; 120,000 shares authorized; 31,536
at June 1, 1997, June 2, 1996, and March 31, 1996
shares issued; 15,044 at June 1, 1997, June 2, 1996,
and March 31, 1996 shares outstanding 788,000 788,000 788,000
Common stock, Class A - non-voting - $25 par value;
800,000 shares authorized; 349,210 at June 1, 1997,
June 2, 1996, and March 31, 1996 shares issued;
292,600 at June 1, 1997, 294,824 at June 2, 1996,
and 295,649 at March 31, 1996 shares outstanding 8,729,000 8,729,000 8,729,000
Common stock, Class B - voting - $25 par value;
880,000 shares authorized; 493,123 at June 1, 1997,
June 2, 1996, and March 31, 1996 shares issued;
427,131 at June 1, 1997, 427,350 at June 2, 1996,
and 427,459 at March 31, 1996 shares outstanding 12,328,000 12,328,000 12,328,000
Capital paid in excess of par value 1,623,000 1,623,000 1,623,000
Retained earnings 31,570,000 25,688,000 27,026,000
Treasury stock, at cost (7,887,000) (7,755,000) (7,708,000)
Other 6,000 (275,000) (277,000)
- ---------------------------------------------------------------------------------------------------------------------
47,157,000 41,126,000 42,509,000
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $124,031,000 120,380,000 128,368,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 30
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Fiscal years ended June 1, 1997, March 31, 1996, and April 2, 1995 and
the nine weeks ended June 2, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
Nine weeks Proforma
Year ended ended Year ended Year ended year ended
June 1, June 2, March 31, April 2, June 2,
1997 1996 1996 1995 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 259,439,000 34,569,000 262,920,000 257,530,000 260,694,000
Cost of goods sold 195,086,000 28,805,000 213,515,000 199,372,000 213,234,000
- ------------------------------------------------------------------------------------------------------------------------
Gross profit 64,353,000 5,764,000 49,405,000 58,158,000 47,460,000
Selling expenses 37,453,000 5,465,000 35,067,000 42,089,000 33,443,000
Administrative expenses 12,158,000 1,433,000 9,706,000 9,699,000 9,250,000
- ------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 14,742,000 (1,134,000) 4,632,000 6,370,000 4,767,000
Interest expense 3,666,000 596,000 4,639,000 3,744,000 4,651,000
Other (income) expenses - net 89,000 (66,000) (640,000) (60,000) (516,000)
- ------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 10,987,000 (1,664,000) 633,000 2,686,000 632,000
Income taxes 4,281,000 (533,000) 213,000 798,000 219,000
- ------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 6,706,000 (1,131,000) 420,000 1,888,000 413,000
Dividends on preferred stock 31,000 8,000 31,000 33,000 39,000
- ------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to
common stock $ 6,675,000 (1,139,000) 389,000 1,855,000 374,000
- ------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share $ 9.26 (1.58) 0.53 $2.53 0.51
- ------------------------------------------------------------------------------------------------------------------------
Average common shares
outstanding 720,811 722,667 729,608 734,252 728,677
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 31
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Fiscal years ended June 1, 1997, March 31, 1996, and April 2, 1995 and
the nine weeks ended June 2, 1996
<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, 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, 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>
(Continued)
5
<PAGE> 32
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative
convertible preferred stock Common stock Common stock
Total Series A and Series B Class A Class B
shareholders' --------------------------- ------------------------- ----------------------
equity Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $42,509,000 31,536 $788,000 349,210 $8,729,000 493,123 $12,328,000
Net earnings (loss) (1,131,000) - - - - - -
Cash dividends per share:
Preferred - $.515 (8,000) - - - - - -
Common - $.275 (199,000) - - - - - -
Redemption of common stock -
Class A 825 shares,
Class B 109 shares (47,000) - - - - - -
Unrealized gain on investments 2,000 - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 2, 1996 41,126,000 31,536 788,000 349,210 8,729,000 493,123 12,328,000
Net earnings 6,706,000 - - - - - -
Cash dividends per share:
Preferred - $2.0625 annually (31,000) - - - - - -
Common - $1.10 annually (793,000) - - - - - -
Redemption of common stock -
Class A 2,124 shares,
Class B 219 shares (132,000) - - - - - -
Minimum pension liability
adjustment (net of taxes
of $129,000) 193,000 - - - - - -
Unrealized gain on investments 88,000 - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 1, 1997 $47,157,000 31,536 $788,000 349,210 $8,729,000 493,123 $12,328,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Capital paid Treasury stock
in excess of Retained ----------------------------
par value earnings Shares Amount Other
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $1,623,000 $27,026,000 135,675 $ (7,708,000) $ (277,000)
Net earnings (loss) - (1,131,000) - - -
Cash dividends per share:
Preferred - $.515 - (8,000) - - -
Common - $.275 - (199,000) - - -
Redemption of common stock -
Class A 825 shares,
Class B 109 shares - - 934 (47,000) -
Unrealized gain on investments - - - - 2,000
- -----------------------------------------------------------------------------------------------------------------
Balance, June 2, 1996 1,623,000 25,688,000 136,609 (7,755,000) (275,000)
Net earnings - 6,706,000 - - -
Cash dividends per share:
Preferred - $2.0625 annually - (31,000) - - -
Common - $1.10 annually - (793,000) - - -
Redemption of common stock -
Class A 2,124 shares,
Class B 219 shares - - 2,343 (132,000) -
Minimum pension liability
adjustment (net of taxes
of $129,000) - - - - 193,000
Unrealized gain on investments - - - - 88,000
- -----------------------------------------------------------------------------------------------------------------
Balance, June 1, 1997 $1,623,000 $31,570,000 138,952 ($7,887,000) $6,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 33
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal years ended June 1, 1997, March 31, 1996, and April 2, 1995 and the nine
weeks ended June 2, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Nine weeks Proforma
Year ended ended Year ended Year ended year ended
June 1, June 2, March 31, April 2, June 2,
1997 1996 1996 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $6,706,000 (1,131,000) 420,000 1,888,000 413,000
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,595,000 1,013,000 5,582,000 5,652,000 5,666,000
(Gain) loss on sale of
property, plant, and
equipment (21,000) - (25,000) (10,000) (25,000)
Deferred income taxes 156,000 (519,000) (369,000) 22,000 (319,000)
Change in assets and liabilities:
Accounts receivable (6,534,000) 7,924,000 388,000 187,000 2,335,000
Inventory 5,643,000 90,000 2,795,000 (7,887,000) 3,414,000
Prepaid items 313,000 (542,000) 1,947,000 (1,892,000) 3,737,000
Accounts payable and
accrued expenses (226,000) (790,000) (9,736,000) 2,680,000 (10,838,000)
Dividends payable - - - (192,000) -
Income taxes payable 248,000 17,000 (24,000) (577,000) (23,000)
Other liabilities 421,000 69,000 444,000 139,000 479,000
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating
activities 12,301,000 6,131,000 1,422,000 10,000 4,839,000
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease (increase) in other current
assets - - 263,000 - 263,000
Decrease (increase) in other
noncurrent assets, net 19,000 275,000 (884,000) 600,000 (373,000)
Acquisitions of property, plant, and
equipment (6,565,000) (572,000) (5,527,000) (6,235,000) (4,683,000)
Proceeds from dispositions of
property, plant, and equipment 35,000 - 31,000 30,000 31,000
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,511,000) (297,000) (6,117,000) (5,605,000) (4,762,000)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
7
<PAGE> 34
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Nine weeks Proforma
Year ended ended Year ended Year ended year ended
June 1, June 2, March 31, April 2, June 2,
1997 1996 1996 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable $220,739,000 - 131,244,000 119,109,000 126,545,000
Payment on notes payable (220,722,000) (5,324,000) (121,749,000) (107,849,000) (121,749,000)
Payment on long-term debt (2,499,000) - (2,989,000) (5,838,000) (2,989,000)
Payment on long-term capital
lease obligations (152,000) (58,000) (323,000) (474,000) (202,000)
Payment of dividends (824,000) (207,000) (831,000) (822,000) (1,038,000)
Common stock redemptions (132,000) (47,000) (392,000) (142,000) (413,000)
Common stock issuance - - - 3,000 -
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (3,590,000) (5,636,000) 4,960,000 3,987,000 154,000
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 2,200,000 198,000 265,000 (1,608,000) 231,000
Cash and cash equivalents, beginning
of period 1,112,000 914,000 649,000 2,257,000 881,000
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end
of period $3,312,000 1,112,000 914,000 649,000 1,112,000
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $3,653,000 310,000 4,660,000 3,721,000 4,386,000
Income taxes 3,134,000 16,000 462,000 3,452,000 416,000
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 during the
year ended March 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 35
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 1, 1997, June 2, 1996 and March 31, 1996
- --------------------------------------------------------------------------------
(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 45% 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 June 1, 1997, March 31, 1996, and April 2, 1995.
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 $1,028,000, $392,000, and $796,000 at June 1, 1997,
June 2, 1996, and March 31, 1996, respectively, consist of short-term
interest-bearing investments with maturities 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 $2,187,000, $1,255,000, and $1,195,000 at June 1, 1997,
June 2, 1996, and March 31, 1996, 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, and amount to gains of $164,000, $76,000, and $74,000 at June
1, 1997, June 2, 1996, and March 31, 1996, respectively.
(Continued)
9
<PAGE> 36
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, accounts payable and notes 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)
10
<PAGE> 37
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 $728,000, $134,000, $725,000, $691,000,
and $716,000 (unaudited) for the periods ended June 1, 1997, June 2,
1996, March 31, 1996, April 2, 1995, and the pro forma year ended June
2, 1996, respectively.
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 $2,181,000, $842,000, $3,565,000, $3,122,000, and
$3,580,000 (unaudited) for the periods ended June 1, 1997, June 2,
1996, March 31, 1996, April 2, 1995, and the pro forma year ended June
2, 1996, respectively (including manufacturer coupon expense of
$1,655,000, $542,000, $2,407,000, $2,026,000, and $2,358,000
(unaudited), respectively).
(Continued)
11
<PAGE> 38
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) CONTINUED
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.
FISCAL YEAR END
Effective June 1, 1996 the Corporation's fiscal year ends at the close
of operations on the Sunday nearest to May 31.
The Corporation's past fiscal years ended at the close of operations on
the Sunday nearest to March 31. The fiscal years ended June 1, 1997,
March 31, 1996, and April 2, 1995 and the proforma unaudited results
for the year ended June 2, 1996 were comprised of 52 weeks.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities, revenue
and expenses, 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 $80,000,000,
of which $24,114,000 was borrowed (including an overdraft of
$1,413,000) at June 1, 1997 $24,097,000 was borrowed at June 2, 1996,
and $29,421,000 was borrowed (including an overdraft of $5,164,000) at
March 31, 1996. 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 fifty
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 June 1, 1997, June 2, 1996, and March 31, 1996 was 6.2%,
6.1%, and 6.2%, respectively. The maximum amount of borrowings
outstanding under short-term lines of credit at any one time during the
years ended June 1, 1997 and March 31, 1996 was approximately
$35,024,000 and $45,900,000, respectively, and $29,400,000 for the
nine-week period ended June 2, 1996.
(Continued)
12
<PAGE> 39
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>
June 1, June 2, March 31,
1997 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8.74% - 9.24% unsecured senior notes payable to
an insurance company, due fiscal years
ending 1997-2007 $17,857,000 19,643,000 19,643,000
8.5% installment obligation payable to a municipality,
due fiscal year ending 1997 - 140,000 140,000
Installment obligation payable to a related party, due in
equal annual installments in fiscal years
ending 1996-2000; interest at prime rate (8.5% at
June 1, 1997) 221,000 294,000 294,000
6.33% installment obligation payable to a related party,
due fiscal years ending 1997-1998 375,000 875,000 875,000
- -------------------------------------------------------------------------------------------------------------
Total long-term debt 18,453,000 20,952,000 20,952,000
Less current maturities 2,234,000 2,499,000 2,499,000
- -------------------------------------------------------------------------------------------------------------
Long-term debt, excluding current maturities $16,219,000 18,453,000 18,453,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The term loan agreements with the insurance company and seasonal
borrowing with financial institutions (note 2), 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 June 1, 1997,
$23,499,000 of retained earnings are restricted from distribution. The
Corporation is in compliance with the restrictive provisions in the
agreements.
Property, plant, and equipment at cost of approximately $2,500,000 was
pledged to secure $375,000 of the long-term obligations at June 1,
1997.
(Continued)
13
<PAGE> 40
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(3) CONTINUED
The aggregate long-term debt maturities follow:
<TABLE>
<CAPTION>
For the fiscal year ending:
<S> <C>
1998 $ 2,234,000
1999 1,859,000
2000 1,859,000
2001 1,786,000
2002 1,786,000
Thereafter 8,929,000
-------------------------------------------------------------
Total $ 18,453,000
-------------------------------------------------------------
</TABLE>
(4) LEASES
The Company was obligated under a noncancelable capital lease for
machinery and equipment that expired in 1997. At June 2, 1996 and March
31, 1996, the gross amount of plant and equipment and related
accumulated amortization recorded under the capital lease were as
follows:
<TABLE>
<CAPTION>
June 2, March 31,
1996 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 2,383,000 2,383,000
Less accumulated amortization 918,000 894,000
- -------------------------------------------------------------------------------------
$ 1,465,000 1,489,000
- -------------------------------------------------------------------------------------
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
(Continued)
14
<PAGE> 41
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(4) CONTINUED
The Company 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 periods ended June 1, 1997, June 2, 1996, March 31, 1996, and April
2, 1995 consisted of the following:
<TABLE>
<CAPTION>
(Unaudited)
proforma
June 1, June 2, March 31, April 2, June 2,
1997 1996 1996 1995 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Minimum rentals $3,586,000 653,000 3,964,000 3,480,000 3,997,000
Contingent rentals - - - 89,000 -
- ------------------------------------------------------------------------------------------------
Rental expense $3,586,000 653,000 3,964,000 3,569,000 3,997,000
- ------------------------------------------------------------------------------------------------
</TABLE>
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) as of
June 1, 1997 are:
<TABLE>
<CAPTION>
Operating
leases
---------------------------------------------------------------
<S> <C>
For the fiscal year ending:
1998 $ 1,184,000
1999 877,000
2000 671,000
2001 385,000
2002 178,000
Thereafter 36,000
---------------------------------------------------------------
Total minimum lease payments $ 3,331,000
---------------------------------------------------------------
</TABLE>
(Continued)
15
<PAGE> 42
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>
(Unaudited)
Nine-weeks proforma
Year ended ended Year ended Year ended Year ended
June 1, June 2, March 31, April 2, June 2,
1997 1996 1996 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Food Service East, Inc. $ - - - 9,000 -
Park 100 Foods, Inc. 3,155,000 118,000 - - 118,000
Corporate charges:
Warehime Enterprises, Inc. - - 2,000 3,000 2,000
Snyder's of Hanover, Inc. 175,000 29,000 175,000 337,000 148,000
Expenditures:
The Cannery Press, Inc. 14,000 14,000 346,000 387,000 296,000
Patti & John's, Inc. 10,000 4,000 29,000 30,000 28,000
Lippy Brothers, Inc. 1,044,000 - 752,000 1,350,000 749,000
James G. Sturgill 135,000 15,000 65,000 - 80,000
ARWCO Corporation 29,000 24,000 43,000 - 34,000
Warehime Enterprises, Inc. 177,000 1,000 227,000 - 192,000
John A. and Patricia M.
Warehime 52,000 7,000 42,000 - 39,000
Snyder's of Hanover, Inc. - - 17,000 - -
George E. Lawrence - - 70,000 - 65,000
Park 100 Foods, Inc. 283,000 - - - -
Accounts receivable:
Snyder's of Hanover, Inc. 15,000 11,000 24,000 23,000
Patti & John's, Inc. - 4,000 3,000 3,000
Food Service East Inc. - - - 3,000
Park 100 Foods, Inc. 906,000 56,000 - -
Accounts payable:
Warehime Enterprises, Inc. 1,000 - 5,000 -
The Cannery Press, Inc. - 4,000 4,000 13,000
Pattie & John's, Inc. - 6,000 - -
Park 100 Foods, Inc. 30,000 - - -
Notes payable:
Warehime Enterprises, Inc. 375,000 875,000 875,000 1,375,000
Cyril T. Noel 221,000 294,000 294,000 -
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
16
<PAGE> 43
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.
In 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 years ended June 1, 1997 and March 31, 1996 was approximately
$303,000 and $300,000, respectively.
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. At June 1, 1997, the
Corporation has purchased 328 shares of the Company's Voting Class B
Common Stock for $25,000 and 1,720 shares of the Company's Nonvoting
Class A Common Stock for $72,000.
(Continued)
17
<PAGE> 44
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(5) CONTINUED
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 $307,000, $340,000, and
$654,000 for the years ended June 1, 1997, March 31, 1996, and April 2,
1995, 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>
1998 $ 24,000
1999 14,000
2000 15,000
2001 15,000
------------------------------------------------------
</TABLE>
(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.
(Continued)
18
<PAGE> 45
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) CONTINUED
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheet as of:
<TABLE>
<CAPTION>
June 1, 1997 June 2, 1996 March 31, 1996
----------------------------------------------------------------------
Fully Under Fully Under Fully Under
funded funded funded funded funded funded
plan plan plan plan plan plan
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit
obligation:
Vested $(7,168,000) (655,000) (628,000) (6,621,000) (623,000) (6,594,000)
- -----------------------------------------------------------------------------------------------------------------
Projected benefit obligation
for service rendered to
date $(7,168,000) (655,000) (628,000) (6,621,000) (623,000) (6,594,000)
Plan assets at fair value 7,750,000 598,000 631,000 6,526,000 669,000 6,508,000
- -----------------------------------------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 582,000 (57,000) 3,000 (95,000) 46,000 (86,000)
Unrecognized (gains) losses 140,000 262,000 230,000 586,000 162,000 586,000
Adjustment to recognize
required minimum
liability - (264,000) - (586,000) - (586,000)
- -----------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension
cost $722,000 (59,000) 233,000 (95,000) 208,000 (86,000)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic pension cost (income) included the following components:
<TABLE>
<CAPTION>
Nine-week
Year ended period ended Year ended Year ended
June 1, June 2, March 31, April 2,
1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest cost $520,000 205,000 496,000 440,000
Actual return on plan assets (gain) loss (1,330,000) (156,000) (464,000) 80,000
Amortization of unrecognized loss 11,000 1,000 6,000 6,000
Deferral of asset gain (loss) 823,000 (42,000) (15,000) (580,000)
- ----------------------------------------------------------------------------------------------------------------
Net pension cost (income) $24,000 8,000 23,000 (54,000)
- ----------------------------------------------------------------------------------------------------------------
</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)
19
<PAGE> 46
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) CONTINUED
Assumptions used in accounting for the pension plans as of June 1,
1997, June 2, 1996, and March 31, 1996 were:
<TABLE>
<CAPTION>
June 1, June 2, March 31,
1997 1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rates 7.09 % 7.25 % 7.25 %
Expected long-term rate of return on assets 7.0 7.0 7.0
- ---------------------------------------------------------------------------------------------
</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 June 1, 1997 would increase the projected benefit
obligation by approximately $1,113,000.
DEFINED CONTRIBUTION PLAN
The Corporation offers a 401(k) plan covering certain of its employees.
The Corporation contributes an amount equal to 100% of each employee's
deferral up to 5%. The Corporation's contribution to the 401(k) plan
for the periods ended June 1, 1997, June 2, 1996, March 31, 1996, and
April 2, 1995 was $557,000, $90,000, $539,000, and $506,000,
respectively.
(Continued)
20
<PAGE> 47
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>
June 1, June 2, March 31,
1997 1996 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Actives eligible to retire $ (129,000) $ (123,000) $ (117,000)
Other actives (271,000) (228,000) (254,000)
- ----------------------------------------------------------------------------------------------
Total actives (400,000) (351,000) (371,000)
Current retirees and disableds (1,174,000) (1,214,000) (1,306,000)
- ----------------------------------------------------------------------------------------------
Total obligation (1,574,000) (1,565,000) (1,677,000)
Plan assets at fair value - - -
- ----------------------------------------------------------------------------------------------
Funded status (1,574,000) (1,565,000) (1,677,000)
Unrecognized net (gain) loss (222,000) (189,000) (75,000)
Unrecognized transition liability,
amortized over 20 years 1,226,000 1,299,000 1,311,000
- ----------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (570,000) $ (455,000) $ (441,000)
- ----------------------------------------------------------------------------------------------
</TABLE>
A discount rate of 7.50%, 7.50%, and 7.25% for June 1, 1997, June 2,
1996, and March 31, 1996, 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>
Nine-week
Year ended period ended Year ended Year ended
June 1, June 2, March 31, April 2,
1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 22,000 4,000 16,000 20,000
Interest cost 113,000 19,000 121,000 124,000
Amortization of transition
obligation 73,000 12,000 73,000 73,000
Other amortization and deferral (1,000) - - -
- ----------------------------------------------------------------------------------------------------------
$ 207,000 35,000 210,000 217,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The assumed postretirement health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 8.3%
for fiscal year June 1, 1997, decreasing each year to an ultimate rate
of 5% in 2002 and thereafter.
(Continued)
21
<PAGE> 48
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) CONTINUED
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 June 1, 1997 by
$61,000 and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year ended June 1,
1997 by $4,000.
EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS
On June 12, 1995, the Corporation entered into a five year employment
agreement with its Chief Executive Officer, John A Warehime, at an
annual base salary of $650,000 with such compensation payable
retroactively from April 1, 1994 (the "1995 Employment Agreement"). The
1995 Employment Agreement was amended on February 13, 1997 (the
"Amended Employment Agreement") to, among other things, reduce the
annual base salary payable under the agreement to $498,866, which
modification was applied retroactively to April 1, 1994 (the effective
date of the 1995 Employment Agreement) and modified the method of
calculating bonuses payable to the employee under such agreement. As a
result of these retroactive changes, Mr. Warehime is required to
reimburse the Corporation for $83,024 in excess compensation previously
paid to him through the deduction of such amount from annual base
salary increases provided for under the terms of the Amended Employment
Agreement and to waive accrued bonuses payable for fiscal 1997 under
the 1995 Employment Agreement which would have equaled $2,250,000. The
principal terms of Mr. Warehime's employment arrangements with the
Corporation as amended by the Amended Employment Agreement are set
forth below.
The Amended Employment Agreement provides for annual increases (but not
decreases) in the employee's annual salary equal to the greater of 5%
of the prior year's salary or the annual percentage increase in the
Consumer Price Index (CPI). Mr. Warehime's annual base salary for
fiscal 1997 was $550,000. Unless terminated by either party, the
Amended Employment Agreement automatically renews annually on each
anniversary date so that five years always remain on the term of the
agreement. In the event the employee is terminated without cause, or in
the event the employee terminates his employment after a reduction
(without his written consent) of his duties or authority, compensation,
or similar events, the Amended Employment Agreement provides for the
payment of the salary and bonus (including all other benefits) over the
remaining term of the agreement. In the event of termination due to
death or disability, the Amended Employment Agreement provides for the
same payment to the employee (or in the event of the death of the
employee, his spouse, or descendants) for one year and thereafter the
payment of supplemental pension benefits as described below. In
addition, the Amended Employment Agreement provides for the
reimbursement by the Corporation of the employee's legal and accounting
fees up to $75,000 per year and reasonable business expenses incurred
by the employee in connection with the business of the Corporation. The
Amended Employment Agreement also provides the employee with various
other benefits including the use of an automobile, disability and life
insurance, and a club membership.
(Continued)
22
<PAGE> 49
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) CONTINUED
The annual bonus payable to the employee under the Amended Employment
Agreement is equal to $100,000 plus 10% of the Corporation's pretax
earnings over $5.0 million provided that no annual bonus is payable if
pretax earnings of the Corporation are less than $5.0 million. The
Amended Employment Agreement limits salary and the annual bonus payment
described above to an aggregate of not more than $1.0 million annually.
Annual bonuses can be paid in cash or Class A Common (nonvoting) stock
at the option of the employee. For the periods ended June 1, 1997,
March 31, 1996, and April 2, 1995, the bonus accrued under this
agreement was $450,000, $0, and $659,000, respectively.
The Amended Employment Agreement also provides for the annual payment
of a long-term performance bonus based upon the Corporation's
performance over the prior five year period as measured by its average
sales growth and average increase in operating profits as compared to
an industry peer group over the same period. The bonus payable is
calculated based upon a formula matrix set forth in the Amended
Employment Agreement, with such calculations performed by an
independent management consulting firm retained by the Corporation. For
the period ended June 1, 1997, the long-term performance bonus accrued
under this agreement was $175,000.
The Amended Employment Agreement provides for annual supplemental
pension benefits, commencing upon the earlier of (a) five years after
termination of the employee (or one year following his death or
disability) or (b) the date of retirement, payable during the life of
the employee and upon his death for the life of his spouse. Such annual
supplemental pension benefits are equal to 60% of average total
compensation (including bonuses) over the latest three year period
prior to retirement, assuming retirement at age 65 or later.
Supplemental pension benefits are reduced based upon an established
formula to the extent the employee retires prior to age 65. The net
present value of the cost of providing this future benefit is
recognized by the Corporation over the remaining expected years of
service. The expense recognized under this agreement was approximately
$350,000 and $295,000 for the years ended May 31, 1997 and March 31,
1996, respectively, and $67,000 for the nine-week period ended May 31,
1996. Based on the estimated present value of the deferred
compensation, the estimated present value at retirement (assuming
retirement at age seventy) is approximately $9,800,000.
(Continued)
23
<PAGE> 50
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) CONTINUED
On January 23, 1997, the Corporation entered into a five year
employment agreement with Gary T. Knisely, Executive Vice President,
Secretary, and Counsel of the Corporation, at an annual salary of
$175,000 with such compensation payable retroactively from June 1, 1996
(the "Knisely Agreement"). Unless terminated by either party, the
Knisely Agreement automatically renews annually on each anniversary
date so that five years always remain on the term of the agreement. The
Knisely Agreement provides for annual salary increases (but not
decreases) equal to the greater of 5% of the prior year's salary or the
annual percentage increase in the CPI, as well as incentive bonuses and
various other benefits. As of June 1, 1997, the aggregate liability of
the Corporation under this agreement for the next five years is
estimated to be $1,000,000, excluding annual performance bonuses. In
the event the employee is terminated without cause, or in the event the
employee terminates his employment after a reduction (without his
written consent) of his duties or authority, compensation, or similar
events, the Knisely Agreement provides for the payment of the salary
and bonus (including all other benefits) over the remaining term of the
agreement. In the event of termination due to death or disability, the
Knisely Agreement provides for the payment of salary and bonus
(including all other benefits) to the employee (or his spouse or other
descendants in the event of the employee's death) for the later of one
year from the date of such termination or the death of the employee.
The agreement also provides for annual supplemental pension benefits
equal to 60% of the employee's average annual compensation (including
bonuses but excluding other benefits) over the three most recent fiscal
years prior to the employee's termination if the employee is no longer
employed by the Corporation and the employee has attained the age of
55. Such annual supplemental pension benefits are payable for the
remainder of the lifetime of the employee. The net present value of the
cost of providing this future pension benefit is recognized by the
Corporation over Mr. Knisely's expected remaining years of service. The
expense recognized for supplemental pension benefits under this
agreement was approximately $47,000 for the year ended June 1, 1997.
Based on the estimated present value of the supplemental pension
benefit, the estimated present value at retirement (assuming retirement
at age sixty-five) could amount to approximately $3,100,000.
The Corporation also entered into change in control severance
agreements with Clement A. Calabrese and Alan T. Young, which provide
termination compensation to the employees upon the occurrence of
certain events.
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 for a term which ends in March 2004. Provisions contained in the
agreement provide for continuation of the remuneration for the
remainder of the term of the agreement in the event of termination,
incapacity, death, or disability. The estimated commitment for future
salaries through the duration of the agreement as of June 1, 1997 was
approximately $480,000.
(Continued)
24
<PAGE> 51
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) INCOME TAXES
Total income taxes (benefit) for the year ended June 1, 1997, the
nine-week period ended June 2, 1996, the year ended March 31, 1996 and
April 2, 1995, were attributable to the following:
<TABLE>
<CAPTION>
June 1, June 2, March 31, April 2,
1997 1996 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income from operations $ 4,281,000 (533,000) 213,000 798,000
Minimum pension liability
adjustment 129,000 - (235,000) -
- ----------------------------------------------------------------------------------------
$ 4,410,000 (533,000) (22,000) 798,000
- ----------------------------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) attributable to income from operations
consists of:
<TABLE>
<CAPTION>
Years ended
Year ended Nine-weeks ended -------------------------------------------
June 1, 1997 June 2, 1996 March 31, 1996 April 2, 1995
---------------------- --------------------- --------------------- ---------------------
Federal State Federal State Federal State Federal State
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current $ 3,644,000 610,000 (14,000) - 448,000 134,000 696,000 80,000
Deferred 47,000 (20,000) (464,000) (55,000) (205,000) (164,000) 86,000 (64,000)
- -----------------------------------------------------------------------------------------------------------
$ 3,691,000 590,000 (478,000) (55,000) 243,000 (30,000) 782,000 16,000
- -----------------------------------------------------------------------------------------------------------
</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 1997, 1996, and 1995.
The significant components of deferred income tax expense attributable
to income (loss) from operations for the year ended June 1, 1997, the
nine-week period ended June 2, 1996, the years ended March 31, 1996 and
April 2, 1995 are as follows:
<TABLE>
<CAPTION>
Nine-week Year ended
Year ended period ended ----------------------
June 1, June 2, March 31, April 2,
1997 1996 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax expense (exclusive of the effects
of other components below) $ 27,000 (519,000) (248,000) 22,000
Effect of change in state tax rate on deferred taxes - - (121,000) -
- -----------------------------------------------------------------------------------------------------------------
$ 27,000 (519,000) (369,000) 22,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
25
<PAGE> 52
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
(loss) before taxes expressed in percentages, follows:
<TABLE>
<CAPTION>
Nine-week Year ended
Year ended period ended --------------------------
June 1, June 2, March 31, April 2,
1997 1996 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal income tax rate 34.0 % (34.0) % 34.0 % 34.0 %
Increase (decrease) in taxes:
State taxes - net of federal tax 3.5 - 9.5 3.4
Effect of change in state tax rate
on deferred taxes - - (12.6) -
Loss (income) in foreign subsidiary
with no current tax (1.7) 2.0 2.8 (10.9)
Other items - net 3.2 - (0.1) 3.2
- -----------------------------------------------------------------------------------------------------
Effective income tax rate 39.0 % (32.0) % 33.6 % 29.7 %
- -----------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at June 1,
1997, June 2, 1996, March 31, 1996, and April 2, 1995, are as follows:
<TABLE>
<CAPTION>
June 1, June 2, March 31, April 2,
1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Depreciation $ (5,836,000) (5,576,000) (5,630,000) (5,334,000)
Employee benefit obligations (115,000) (129,000) (146,000) (183,000)
Capital lease obligations (510,000) (529,000) (519,000) (432,000)
Other (172,000) (159,000) (147,000) (591,000)
- ------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (6,633,000) (6,393,000) (6,442,000) (6,540,000)
- ------------------------------------------------------------------------------------------------------
Deferred tax assets:
Package design costs 182,000 190,000 185,000 93,000
Inventory valuation 41,000 102,000 102,000 112,000
Group insurance expense 358,000 462,000 400,000 162,000
Compensated absences 205,000 200,000 229,000 213,000
Pension and postretirement benefits 215,000 371,000 420,000 123,000
Compensation expense 498,000 327,000 236,000 405,000
Net operating loss and credit
carryforwards 539,000 398,000 - -
Other 154,000 58,000 66,000 24,000
- ------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 2,192,000 2,108,000 1,638,000 1,132,000
- ------------------------------------------------------------------------------------------------------
Net deferred tax liability $ (4,441,000) (4,285,000) (4,804,000) (5,408,000)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
26
<PAGE> 53
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 $2,840,000 at June 1,
1997.
(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 June 1, 1997, the
outstanding preferred stock could be converted into 5,786 shares of
common stock.
(Continued)
27
<PAGE> 54
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) COMMITMENTS AND CONTINGENCIES
LETTER OF CREDIT
As of June 1, 1997, the Corporation's wholly-owned reinsurance company
had outstanding two letters of credit in the amount of $1,150,000 and
$728,000 as security for the reimbursement of losses arising from the
reinsurance assumed by the company.
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.
On September 13, 1996, certain Class A common stockholders filed a
complaint in equity against six of the Corporation's directors and the
estate of a former director in the Court of Common Pleas of York
County, Pennsylvania (the complaint). This suit also names the
Corporation as a nominal defendant. The suit seeks various forms of
relief including, but not limited to, rescission of the board's April
28, 1995 approval of John A. Warehime's 1995 Employment Agreement and
the board's February 10, 1995 adjustment of directors' fees. (Since the
filing of this lawsuit, John A. Warehime's 1995 Employment Agreement
was amended. See note 6). In addition, the plaintiffs seek costs and
fees incident to bringing suit. On November 4, 1996, the complaint was
amended to add additional plaintiffs. On June 24, 1997, the Court
dismissed the Complaint as amended for failure to make a prior demand.
However, on May 12, 1997, a written demand was received by the
Corporation from the attorney for these Class A common stockholders
containing similar allegations and these allegations are currently
being investigated by a committee of the Board of Directors.
(Continued)
28
<PAGE> 55
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) CONTINUED
On February 21, 1997, certain holders of the Corporation's common stock
filed motions for a preliminary injunction in the Court of Common Pleas
of York County, Pennsylvania against a proposal of the Board of
Directors to amend and restate the Corporation's Articles of
Incorporation to, among other things, establish a procedure for
electing the Corporation's Board of Directors on or after the 1998
annual meeting in the event designated members of the Warehime family
who are Class B common stockholders do not agree on the Board's
composition (the "Proposed Amendments"). The motions were dismissed by
the Court on June 24, 1997 and the Proposed Amendments became effective
June 25, 1997. Appeals have been filed from the denial of the
plaintiff's motion for a preliminary injunction.
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 Corporation 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 Corporation has made
substantially all of the required capital expenditures to upgrade the
refrigeration system and has performed 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.
On December 12, 1996, the Occupational Safety and Health Administration
(OSHA) cited the Corporation with two violations of OSHA regulations
arising out of accidents which occurred at its Clayton, Delaware plant.
The proposed penalty for each violation is $70,000. On December 18,
1996 the Corporation filed its Notice of Content, contesting both
alleged violations and the proposed penalties. On March 24, 1997, the
Occupational Safety and Health Administration (OSHA) cited the
Corporation with twenty-two violations of OSHA regulations arising out
of plant inspections which occurred at its Clayton, Delaware plant. The
proposed penalty for said violations is $498,000. On April 11, 1997,
the Corporation filed its Notice of Contest, contesting all of the
alleged violations and the proposed penalties. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Corporation's consolidated financial
position, results of operations or liquidity.
The Corporation is involved in various other claims and legal actions
including environmental matters 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
Corporation's consolidated financial position, results of operations or
liquidity.
(Continued)
29
<PAGE> 56
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) CONTINUED
MANUFACTURER COUPONS
The Corporation is contingently liable for unredeemed manufacturer
coupons on various products at June 1, 1997 which will expire during
1997.
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. Shares repurchased under this plan amounted
to 1,251; 5,789; and 2,152 during the years ended June 1, 1997, March
31, 1996, and April 2, 1995, respectively. As of June 1, 1997, there
are 10,557 shares outstanding which would be eligible for this plan.
The maximum commitment, if requested, for all eligible shares would be
approximately $718,000, based on the most recent appraised value per
share.
(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>
June 1, June 2, March 31, April 2,
1997 1996 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 13,991,000 1,442,000 18,155,000 20,320,000
Cost of goods sold 12,162,000 1,686,000 17,311,000 17,674,000
Assets 9,968,000 10,734,000 10,756,000 10,760,000
- ---------------------------------------------------------------------------------------
</TABLE>
(Continued)
30
<PAGE> 57
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) CONTINUED
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 $78,000, a gain of $44,000, a loss of $190,000, and a gain
of $9,000 for the periods ended June 1, 1997, June 2, 1996, March 31,
1996, and April 2, 1995, respectively. At June 1, 1997, the prevailing
exchange rate was Q6.00 to U.S. $1.00.
- --------------------------------------------------------------------------------
31
<PAGE> 58
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Quarterly Financial Data
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands First Second Third Fourth
(except per share) quarter quarter quarter quarter
- ---------------------------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C>
Net sales $56,119 $69,036 $65,780 $68,504
Gross profit 12,879 17,582 15,067 18,825
Net earnings 1,251 2,314 1,474 1,667
Net earnings per common share 1.72 3.21 2.03 2.30
Cash dividends per common share 0.275 0.275 0.275 0.275
- ---------------------------------------------------------------------------------------------------------------------------------
1996
Net sales $51,717 $74,850 $70,365 $63,762
Gross profit 11,017 11,981 12,789 11,673
Net earnings (loss) (79) 703 657 (868)
Net earnings (loss) per common share (0.12) 0.95 0.89 (1.21)
Cash dividends per common share 0.275 0.275 0.275 0.275
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Effective June 1, 1996, the Corporation's fiscal year ends at the close
of operations on the Sunday nearest to May 31.
-57-
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-58-
<PAGE> 60
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CORPORATION
(a) DIRECTORS OF THE CORPORATION (AS OF AUGUST 10, 1997)
<TABLE>
<CAPTION>
NAME, AGE AND TERM PRINCIPAL OCCUPATION DURING
OF OFFICE PAST FIVE (5) YEARS
- ------------------ ---------------------------
<S> <C>
JOHN A. WAREHIME Chairman - 1989 to Present; Director - 1985-Present. Mr.
Director - 1985-Present; Warehime has 46 years' experience in the food processing
Chairman - 1989-Present industry.
Age: 59
CLAYTON J. ROHRBACH, JR. Retired Businessman; Vice President - Marketing - CPC
Director - 1984-Present International - 1984-1985
Age: 77
JAMES G. STURGILL, CPA Managing Partner - Sturgill & Associates - 1993- Present;
Director - 1994-Present 1980-1993 - Sturgill, Rager & Lehman - Chartered and
Age: 56 Consultants
ARTHUR S. SCHAIER Owner/Vice President and General Manager - Earnhardt's Gilbert
Director - 1994-Present Dodge, Inc. - 1981-Present
Age: 55
T. EDWARD LIPPY Vice President - Lippy Brothers, Inc., Hampstead, MD -
Director 1994-Present, President - 1992-1994; Vice Chairman & Director
Age: 67 - 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 Foods
Director - 1985-1991
Age: 72
JAMES A. WASHBURN Chairman & Chief Executive Officer - Park 100 Foods, Tipton,
Director IN - 1991-Present; President & Chief Executive Officer -
Age: 47 Hamilton Medaris Corporation, Fishers, IN; President & Chief
Executive Officer - H.M.C. Transportation, Fishers, IN
</TABLE>
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<PAGE> 61
(b) EXECUTIVE OFFICERS OF THE CORPORATION WHO ARE NOT ALSO DIRECTORS (AS
OF AUGUST 10, 1997)
<TABLE>
<CAPTION>
NAME, AGE AND TERM PRINCIPAL OCCUPATION DURING
OF OFFICE PAST FIVE (5) YEARS
- ------------------ ---------------------------
<S> <C>
GARY T. KNISELY, ESQUIRE Executive Vice President - 1995-Present; Vice President -
Executive Vice President & Secretary Administration - 1989-1995; Counsel - 1987-Present; Secretary
1995-Present - 1987-Present. Mr. Knisely also acts as Chief Financial
Age: 48 Officer of the Corporation (January 1996-Present).
CLEMENT A. CALABRESE Vice President - Sales & Trade Marketing - 1995- Present; Vice
Vice President - Sales & Trade Marketing President - Sales - American Home Foods, Inc. - 1993-1995;
1995-Present Vice President - Retail Sales - Sunshine Biscuits, Inc. -
Age: 54 1988-1993
PIETRO D. GIRAFFA, JR. Vice President - Controller - 1996-Present; Controller -
Vice President - Controller 1984-1996. Mr. Giraffa also acts as Chief Accounting Officer
1984-Present of the Corporation (1996- Present).
Age: 51
WHITNEY J. COOMBS Vice President - Marketing - 1987-Present; Vice President of
Vice President - Marketing Marketing - Progresso Foods Division - Ogden Foods, Inc. -
1987-Present 1984-1987; Mr. Coombs has 17 years of marketing experience in
Age: 56 the food processing industry.
ALAN T. YOUNG Vice President - Transportation - 1996-Present; Vice President
Vice President - Purchasing & Transportation - Operations - 1991-1996; Director of Corporate Logistics -
1996-Present 1990-1991; Manager of Corporate Systems - 1986-1990
Age: 54
EDWARD L. BOECKEL, JR. Treasurer - July 1997-Present; Banking & Insurance Manager -
Treasurer (Elected July 25, 1997) 1995-1997; Vice President - CoreStates Bank - 1992-1995
1997-Present
Age: 46
</TABLE>
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<PAGE> 62
(d) FAMILY RELATIONSHIPS OF DIRECTORS AND EXECUTIVE OFFICERS
None.
(h) SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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
June 1, 1997, 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 2, 1995,
March 31, 1996 and June 1, 1997, 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.
-61-
<PAGE> 63
Table 1: Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (i)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal Other Annual All Other
Name and Principal Position Year Salary ($'s) Bonus ($'s) Compensation ($'s) Compensation ($'s)
- -------------------------------------------------------------------------------------------------------------------------------
John A. Warehime 1997 633,348 (1) 625,000 (11) 86,269 (8) 389,120 (7)
Chairman 1996 650,000 -0- 62,146 332,983
1995 350,000 659,500 -0- 32,982
- -------------------------------------------------------------------------------------------------------------------------------
Gary T. Knisely 1997 171,250 (2) 175,000 -0- 54,729 (3)(9)
Executive Vice President, 1996 129,900 -0- -0- 7,191
Secretary & Counsel 1995 117,000 18,428 -0- 7,700
- -------------------------------------------------------------------------------------------------------------------------------
Clement A. Calabrese (10) 1997 140,969 180,000 -0- -0- (4)
V.P. - Sales & Trade 1996 67,346 -0- -0- -0-
Marketing 1995 -0- -0- -0- -0-
- -------------------------------------------------------------------------------------------------------------------------------
Alan T. Young 1997 115,240 115,240 -0- 5,762 (5)
V.P. - Purchasing & 1996 113,800 -0- -0- 6,424
Transportation 1995 106,700 16,805 -0- 6,887
- -------------------------------------------------------------------------------------------------------------------------------
Pietro D. Giraffa, Jr. 1997 95,000 95,000 -0- 4,472 (6)
V.P. - Controller 1996 89,948 -0- -0- 4,458
1995 78,500 8,831 -0- 5,299
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-62-
<PAGE> 64
FOOTNOTES:
<TABLE>
<S> <C>
(1) Pursuant to the June 12, 1995 Employment Agreement, as amended
February 13, 1997 and August 1, 1997, between the Corporation and John
A. Warehime, Chairman.
(2) Pursuant to the January 23, 1997 Employment Agreement between the
Corporation and Gary T. Knisely.
(3) (4) (5) (6) Represents corporate matching contributions to the Corporation's 401(k)
Savings Plan.
(7) Represents Corporation's payment for premiums of $29,620 for Split-
Dollar life insurance policy and the accrual of $350,000 for deferred
compensation to be paid pursuant to the June 12, 1995 Warehime
Employment Agreement, as amended February 13, 1997.
(8) Legal and accounting fees in the amount of $86,269 and other perquisites
paid pursuant to the June 12, 1995 Employment Agreement.
(9) Accrual of $47,000 for deferred compensation to be paid pursuant to the
Knisely January 23, 1997 Employment Agreement.
(10) Compensation information is not provided for fiscal year 1995 as Mr.
Calabrese was not employed by the Corporation at that time.
(11) See "Employment Agreements."
</TABLE>
-63-
<PAGE> 65
(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 and is not subject to offset
by Social Security benefits. 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
Gary T. Knisely 12.00 1,457
Clement A. Calabrese -0- -0-
Alan T. Young 6.50 638
Pietro D. Giraffa, Jr. 18.33 1,637
</TABLE>
On January 23, 1997, the Board of Directors took action to
terminate its Pension Plan, effective April 15, 1997. The
frozen accrued benefits of the participants are calculated as
of August 31, 1992. On June 26, 1997, Internal Revenue
Service
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<PAGE> 66
issued a determination letter indicating that the termination
of the Pension Plan does not adversely affect its
qualification for federal tax purposes. Distribution of the
plan assets is anticipated in September 1997.
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, April
28, 1995 and July 25, 1997. 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 in cash and or securities of the Corporation 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 permit loans but does not
permit early withdrawals.
(g) DIRECTOR FEES
During fiscal year 1997, 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 in person or $750
by telephone 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 in person or $500 by telephone
for each Committee Meeting attended.
The directors of the Corporation were paid $195,755 as a
group for fiscal year 1997 for attendance at fifteen (15)
meetings of the Board and Board Committees, including
reimbursement for air travel.
(h) EMPLOYMENT AGREEMENTS
On June 12, 1995, the Corporation entered into a five year
employment agreement with its Chief Executive Officer, John
A. Warehime, at an annual base salary of $650,000 with such
compensation payable retroactively from April 1, 1994 (the
"1995 Employment Agreement"). The 1995 Employment Agreement
was amended on February 13, 1997 (the "Amended Employment
Agreement") to, among other things, reduce the annual base
salary payable under the agreement to $498,866, which
modification was applied retroactively to April 1, 1994 (the
effective date of the 1995 Employment Agreement) and modified
the method of calculating bonuses payable to the employee
under such agreement. As a result of these retroactive
changes, Mr. Warehime is required to reimburse the
Corporation
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<PAGE> 67
for $83,024 in excess compensation previously paid to him
through the deduction of such amount from annual base salary
increases provided for under the terms of the Amended
Employment Agreement and to waive accrued bonuses payable for
fiscal 1997 under the 1995 Employment Agreement which would
have equaled $2,250,000. The principal terms of Mr.
Warehime's employment arrangements with the Corporation as
amended by the Amended Employment Agreement are set forth
below.
The Amended Employment Agreement provides for annual
increases (but not decreases) in the employee's annual salary
equal to the greater of 5% of the prior year's salary or the
annual percentage increase in the Consumer Price Index (CPI).
Mr. Warehime's annual base salary for fiscal 1997 was
$550,000. Unless terminated by either party, the Amended
Employment Agreement automatically renews annually on each
anniversary date so that five years always remain on the term
of the agreement. In the event the employee is terminated
without cause, or in the event the employee terminates his
employment after a reduction (without his written consent) of
his duties or authority, compensation or similar events, the
Amended Employment Agreement provides for the payment of the
salary and bonus (including all other benefits) over the
remaining term of the agreement. In the event of termination
due to death or disability, the Amended Employment Agreement
provides for the same payment to the employee (or in the
event of the death of the employee, his spouse or
descendants) for one year and thereafter the payment of
supplemental pension benefits as described below. In
addition, the Amended Employment Agreement provides for the
reimbursement by the Corporation of the employee's legal and
accounting fees up to $75,000 per year and reasonable
business expenses incurred by the employee in connection with
the business of the Corporation. The Amended Employment
Agreement also provides the employee with various other
benefits including the use of an automobile, disability and
life insurance and a club membership.
The annual bonus payable to the employee under the Amended
Employment Agreement is equal to $100,000 plus 10% of the
Corporation's pretax earnings over $5.0 million provided that
no annual bonus is payable if pretax earnings of the
Corporation are less than $5.0 million. The Amended
Employment Agreement limits salary and the annual bonus
payment described above to an aggregate of not more than $1.0
million annually. Annual bonuses can be paid in cash or
Class A Common (nonvoting) stock at the option of the
employee. For the periods ended June 1, 1997, March 31, 1996
and April 2, 1995, the bonus accrued under this agreement was
$450,000, $0 and $659,000, respectively.
The Amended Employment Agreement also provides for the annual
payment of a long-term performance bonus based upon the
Corporation's performance over the prior five year period as
measured by its average sales growth and average
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<PAGE> 68
increase in operating profits as compared to an industry peer
group over the same period. The bonus payable is calculated
based upon a formula matrix set forth in the Amended
Employment Agreement, with such calculation performed by an
independent management consulting firm retained by the
Corporation. For the period ended June 1, 1997, the
long-term performance bonus accrued under this agreement was
$175,000.
The Amended Employment Agreement was revised effective as of
August 1, 1997 to make certain clarifying changes and to
require that bonus payments to Mr. Warehime in any taxable
year in excess of $1.0 million would be subject to
shareholder approval. At a meeting of the Class B
Shareholders held on August 14, 1997, John A. Warehime, in
his capacity as voting trustee of approximately 52% of the
Class B Common Stock, approved such bonus payments.
The Amended Employment Agreement provides for annual
supplemental pension benefits, commencing upon the earlier of
(a) five years after termination of the employee (or one year
following his death or disability) or (b) the date of
retirement, payable during the life of the employee and upon
his death, for the life of his spouse. Such annual
supplemental pension benefits are equal to 60% of average
total compensation (including bonuses) over the latest three
year period prior to retirement, assuming retirement at age
65 or later. Supplemental pension benefits are reduced based
upon an established formula to the extent the employee
retires prior to age 65. The net present value of the cost
of providing this future benefit is recognized by the
Corporation over the remaining expected years of service.
The expense recognized under this agreement was approximately
$350,000 and $295,000 for the years ended June 1, 1997 and
March 31, 1996, respectively, and $67,000 for the nine-week
period ended May 31, 1996. Based on the estimated present
value of the deferred compensation, the estimated present
value at retirement (assuming retirement at age seventy) is
approximately $9,800,000.
On January 23, 1997, the Corporation entered into a five year
employment agreement with Gary T. Knisely, Executive Vice
President, Secretary and Counsel of the Corporation, at an
annual salary of $175,000 with such compensation payable
retroactively from June 1, 1996 (the "Knisely Agreement").
Unless terminated by either party, the Knisely Agreement
automatically renews annually on each anniversary date so
that five years always remain on the term of the agreement.
The Knisely Agreement provides for annual salary increases
(but not decreases) equal to the greater of 5% of the prior
year's salary or the annual percentage increase in the CPI,
as well as incentive bonuses and various other benefits. As
of June 1, 1997, the aggregate liability of the Corporation
under this agreement for the next five years is estimated to
be $1,000,000, excluding annual performance bonuses. In the
event the employee is terminated without cause, or
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<PAGE> 69
in the event the employee terminates his employment after a
reduction (without his written consent) of his duties or
authority, compensation or similar events, the Knisely
Agreement provides for the payment of the salary and bonus
(including all other benefits) over the remaining term of the
agreement. In the event of termination due to death or
disability, the Knisely Agreement provides for the payment of
salary and bonus (including all other benefits) to the
employee (or his spouse or other descendants in the event of
the employee's death) for the later of one year from the date
of such termination or the death of the employee.
The agreement also provides for annual supplemental pension
benefits equal to 60% of the employee's average annual
compensation (including bonuses but excluding other benefits)
over the three most recent fiscal years prior to the
employee's termination if the employee is no longer employed
by the Corporation and the employee has attained the age of
55. Such annual supplemental pension benefits are payable
for the remainder of the lifetime of the employee. The net
present value of the cost of providing this future pension
benefit is recognized by the Corporation over Mr. Knisely's
expected remaining years of service. The expense recognized
for supplemental pension benefits under this agreement was
approximately $47,000 for the year ended June 1, 1997. Based
on the estimated present value of the supplemental pension
benefit, the estimated present value at retirement (assuming
retirement at age sixty-five) could amount to approximately
$3,100,000.
The Corporation also entered into change in control severance
agreements with Clement A. Calabrese and Alan T. Young,
which provide termination compensation to the employees upon
the occurrence of certain events.
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 for a term which ends in
March 2004. Provisions contained in the agreement provide
for continuation of the remuneration for the remainder of the
term of the agreement in the event of termination,
incapacity, death or disability. The estimated commitment
for future salaries through the duration of the agreement as
of June 1, 1997 was approximately $480,000.
(j) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James G. Sturgill served as a member of the Compensation
Committee until January 1997. During the 1997 fiscal year,
the Corporation retained James G. Sturgill as a financial
consultant. See "Certain Relationships and Related
Transactions - Transactions with Management and Others."
-68-
<PAGE> 70
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 August 10,
1997.
AS OF AUGUST 10, 1997
(a) BENEFICIAL OWNERS
<TABLE>
<CAPTION>
AMOUNT & NATURE
NAME AND ADDRESS OF OF BENEFICIAL % OF
CLASS BENEFICIAL OWNER INTEREST CLASS
- ----- ---------------- -------- -----
<S> <C> <C> <C>
Common A J. William Warehime 8,834 3.0%
Common B 257 Frederick Street 78,408 18.4%
Hanover, Pennsylvania 17331
Common A Elizabeth W. Stick 15,002 5.1%
Common B 35 Peyton Road 44,244 10.4%
York, Pennsylvania 17403
Common A Centre Foods Enterprises, Inc. 19,607 6.7%
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. 50,500 17.2%
790 N. Milwaukee Street
Milwaukee, WI 53202
</TABLE>
(b) MANAGEMENT
<TABLE>
<CAPTION>
DIRECTORS
- ---------
<S> <C> <C> <C>
Common A John A. Warehime 44 .01%
Common B RD 3, Box 281 223,079(1) 52.2%
Hanover, Pennsylvania 17331
</TABLE>
-69-
<PAGE> 71
<TABLE>
<CAPTION>
AMOUNT & NATURE
NAME AND ADDRESS OF OF BENEFICIAL % OF
CLASS BENEFICIAL OWNER INTEREST CLASS
- ----- ---------------- -------- -----
<S> <C> <C>
Common A Clayton J. Rohrbach, Jr. 88(2) .03%
The Barclay, Apartment 724
3546 South Ocean Boulevard
Palm Beach, Florida 33480
Common A Cyril T. Noel 301(2) .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(2) .17%
890 West San Marcos Drive
Chandler, Arizona 85224
None James G. Sturgill 0 0
4833 Wentz Road
Manchester, Maryland 21102
None James A. Washburn 0 0
12643 Royce Court
Carmel, Indiana 46033
EXECUTIVE OFFICERS (NOT DIRECTORS)
- ----------------------------------
Common A Gary T. Knisely, Esq. 1,688 .6%
Executive Vice President
1051 Cherry Orchard Road
Dover, Pennsylvania 17315
None Pietro D. Giraffa, Jr. 0 0
Vice President - Controller
281 Mt. Pleasant Road
Hanover, Pennsylvania 17331
None Clement A. Calabrese 0 0
V.P. Sales & Trade Marketing
2199 Wyndtree Lane
Malvern, Pennsylvania 19355
</TABLE>
-70-
<PAGE> 72
<TABLE>
<CAPTION>
AMOUNT & NATURE
NAME AND ADDRESS OF OF BENEFICIAL % OF
CLASS BENEFICIAL OWNER INTEREST CLASS
- ----- ---------------- -------- -----
<S> <C> <C>
Common A Whitney J. Coombs 451 .15%
V.P. Marketing
86 Roberts Road
Littlestown, Pennsylvania 17340
None Alan T. Young 0 0
V.P. Purchasing & Transportation
21 Laurel Woods
Hanover, Pennsylvania 17331
None Edward L. Boeckel, Jr. 0 0
434 Estelle Drive
Lancaster, PA 17601
DIRECTORS AND OFFICERS AS A GROUP (13 PERSONS)
- ----------------------------------------------
Common A 3,457 1.20%
Common B 223,079 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. See "Legal
Proceedings."
(2) Does not include 809 shares of the Corporation's Class B Voting Common
Stock and 4,490 shares of the Corporation's Class A Nonvoting Common
Stock held by John R. Miller, Jr. which are subject to the April 22,
1997 Voting Agreement. See "Market for the Corporation's Common Stock
and Related Stockholder Matters."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During the fiscal year ended June 1, 1997, 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 travel
-71-
<PAGE> 73
services from related companies. These transactions are as follows:
1. The Corporation received travel services from The Cannery
Press, Inc., doing business as New Horizons Travel, in the
amount of $14,000 for fiscal year 1997.
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 1996-1997, the Corporation rented
equipment from two related parties, ARWCO Corporation and
Warehime Enterprises, Inc. The rental payments pursuant to
such lease agreements totaled $206,000 for fiscal year 1996-
1997.
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 feet 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 1997, 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 and
entertainment and temporary new employee housing from John A.
and Patricia M. Warehime for a total of $52,000.
8. Pursuant to the March 3, 1989 Agreement of Sale (Exhibit
10(c)), the Corporation
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<PAGE> 74
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 1997, the Corporation purchased
$1,044,000 of contracted vegetables from Lippy Brothers, Inc.
10. During the fiscal year 1997, the Corporation retained
director James G. Sturgill as a financial consultant and paid
him a total of $135,000 in fees, including reimbursable
expenses.
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 1997, the Corporation sold $3,155,000
of frozen food products to Park 100 Foods, Tipton, Indiana.
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 AUGUST 10, 1997
------------- ---------------
<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. FOOD SERVICE EAST, INC. AND SUBSIDIARIES (1)
----------------------------------------
John A. & Patricia M. Warehime.........................................100.0%
</TABLE>
-73-
<PAGE> 75
<TABLE>
<S> <C> <C>
4. SNYDER'S OF HANOVER, INC.
-------------------------
J. William Warehime.....................................................13.7%
Jane Elizabeth Stick.....................................................7.0%
John A. & Patricia M. Warehime...........................................7.2%
5. WAREHIME ENTERPRISES, INC.
--------------------------
J. William Warehime.....................................................44.4%
John A. Warehime........................................................14.8%
6. LIPPY BROTHERS, INC.
--------------------
T. Edward Lippy.........................................................37.0%
7. PARK 100 FOODS
--------------
James A. Washburn.......................................................80.0%
</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.
For additional information regarding related party transactions, see
Note 5 to the Notes to the Consolidated Financial Statements.
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 _______)
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.
-74-
<PAGE> 76
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) Registrant's Amended and Restated By-laws, enacted April 25,
1997, are attached as Exhibit 3(a).
3(b) Registrant's Amended and Restated Articles of Incorporation
are attached as Exhibit 3(b).
3(c) Amendment No. 1 to Registrant's Amended and Restated Articles
of Incorporation is 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(a).
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.
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 incorporated herein by
reference to Exhibit 4(c) of the Form 10-K filed on July 2,
1996.
4(d) July 1, 1996 Second Amendment to December 1, 1991 Note
Agreement between the Corporation and Allstate Life Insurance
Company (the "Note Agreement") is attached as Exhibit 4(d).
</TABLE>
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<PAGE> 77
<TABLE>
<CAPTION>
Number DESCRIPTION
- ------ -----------
<S> <C>
9(a) April 5, 1988 Voting Trust Agreement is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such
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).
</TABLE>
-76-
<PAGE> 78
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
10(d) 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).
May 10, 1991 Amendment to April 28, 1988 Agreement of Sale
10(e) 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(f) 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(g) 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(h) April 4, 1994 Lease Agreement between John A. and Patricia M.
Warehime and Hanover Foods Corporation is incorporated herein
by reference to Exhibit 10(t) of the Form 10-K filed on July
2, 1996.
10(i) 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 incorporated herein by reference to Exhibit
10(u) of the Form 10-K filed on July 2, 1996.
10(j) 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 incorporated herein by reference
to Exhibit 10(v) of the Form 10-K filed on July 2, 1996.
</TABLE>
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<PAGE> 79
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
10(k) January 23, 1997 Employment Agreement between Hanover Foods
Corporation and Gary T. Knisely is attached as Exhibit 10(k).
10(l) February 13, 1997 Amendment No. 1 to June 12, 1995 Employment
Agreement between Hanover Foods Corporation and John A.
Warehime is attached as Exhibit 10(l).
10(m) August 1, 1997 Amendment No. 2 to June 12, 1995 Employment
Agreement between Hanover Foods Corporation and John A.
Warehime is attached as Exhibit 10(m).
10(n) May 21, 1997 Senior Executive Agreement between Hanover Foods
Corporation and Clement A. Calabrese is attached as Exhibit
10(n).
10(o) May 21, 1997 Senior Executive Agreement between Hanover Foods
Corporation and Alan T. Young is attached as Exhibit 10(o).
10(p) April 22, 1997 John R. Miller, Jr. Voting Agreement is
attached as Exhibit 10(p).
10(q) Annual Top Management Cash Bonus Program is attached as
Exhibit 10(q).
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.
</TABLE>
(b) Reports on Form 8-K
None.
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<PAGE> 80
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 and in the capacity and on the date indicated.
DATE: AUGUST 29, 1997
HANOVER FOODS CORPORATION
By: /s/ John A. Warehime
-----------------------------
JOHN A. WAREHIME
CHAIRMAN
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<PAGE> 81
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: AUGUST 29, 1997
By: /s/ John A. Warehime By: /s/ T. Edward Lippy
----------------------------------- -------------------------------
John A. Warehime T. Edward Lippy
Chairman, Director Director
(Chief Executive Officer)
By: /s/ Gary T. Knisely By: /s/ Clayton J. Rohrbach, Jr.
----------------------------------- -------------------------------
Gary T. Knisely Clayton J. Rohrbach, Jr.
Executive Vice President Director
(Chief Financial Officer)
By: /s/ Pietro D. Giraffa, Jr. By: /s/ James G. Sturgill
----------------------------------- -------------------------------
Pietro D. Giraffa, Jr. James G. Sturgill
Vice President - Controller Director
(Chief Accounting Officer)
By: /s/ Arthur S. Schaier By: /s/ James A. Washburn
----------------------------------- -------------------------------
Arthur S. Schaier James A. Washburn
Director Director
By: /s/ Cyril T. Noel
-----------------------------------
Cyril T. Noel
Director
-80-
<PAGE> 82
HANOVER FOODS CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
3(a) Registrant's Amended and Restated By-laws, enacted April 25, 1997, are attached
as Exhibit 3(a).
3(b) Registrant's Amended and Restated Articles of Incorporation are attached as
Exhibit 3(b).
3(c) Amendment No. 1 to Registrant's Amended and Restated Articles of Incorporation
is 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(a).
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.
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
incorporated herein by reference to Exhibit 4(c) of the Form 10-K filed on July
2, 1996.
4(d) July 1, 1996 Second Amendment to December 1, 1991 Note Agreement between the
Corporation and Allstate Life Insurance Company (the "Note Agreement") is
attached as Exhibit 4(d).
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>
-81-
<PAGE> 83
<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) 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).
10(e) 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(f) 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(g) 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.
</TABLE>
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<PAGE> 84
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
10(h) April 4, 1994 Lease Agreement between John A. and Patricia M. Warehime and
Hanover Foods Corporation is incorporated herein by reference to Exhibit 10(t)
of the Form 10-K filed on July 2, 1996.
10(i) 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 incorporated herein by reference
to Exhibit 10(u) of the Form 10-K filed on July 2, 1996.
10(j) 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 incorporated herein
by reference to Exhibit 10(v) of the Form 10-K filed on July 2, 1996.
10(k) January 23, 1997 Employment Agreement between Hanover Foods Corporation and Gary
T. Knisely is attached as Exhibit 10(k).
10(l) February 13, 1997 Amendment No. 1 to June 12, 1995 Employment Agreement between
Hanover Foods Corporation and John A. Warehime is attached as Exhibit 10(l).
10(m) August 1, 1997 Amendment No. 2 to June 12, 1995 Employment Agreement between
Hanover Foods Corporation and John A. Warehime is attached as Exhibit 10(m).
10(n) May 21, 1997 Senior Executive Agreement between Hanover Foods Corporation and
Clement A. Calabrese is attached as Exhibit 10(n).
10(o) May 21, 1997 Senior Executive Agreement between Hanover Foods Corporation and
Alan T. Young is attached as Exhibit 10(o).
10(p) April 22, 1997 John R. Miller, Jr. Voting Agreement is attached as Exhibit
10(p).
10(q) Annual Top Management Cash Bonus Program is attached as Exhibit 10(q).
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.
</TABLE>
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<PAGE> 1
EXHIBIT 3(a)
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 with 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.
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<PAGE> 2
Section 3. Special Meetings
Special meetings of the shareholders may be called at anytime 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 the 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.
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 anytime 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
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<PAGE> 3
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, not withstanding 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 to the Secretary of
the Company. No revoked 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
shareholder, or to receive payment of any dividend or to make a determination
of shareholders for any other 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
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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 meeting of the shareholders shall be called to order and presiding 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.
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 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 the next meeting of shareholders at which 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;
(b) The qualifications of each proposed nominee;
(c) Confirmation that the proposed nominee has agreed to serve
if elected.
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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.
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
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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 Reports 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 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.
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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 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.
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 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 indemnification obligations,
and any other rights or powers the Corporation may otherwise have under
applicable law.
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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
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. Terms 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 y the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interest of the 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.
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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 its 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. 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
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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.
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 incorporate 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,
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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: April 25, 1997
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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EXHIBIT 3(b)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
HANOVER FOODS CORPORATION
1. Name
The name of the Corporation is:
Hanover Foods Corporation
2. Registered Office
The location and post office address of its current
registered office in the Commonwealth of Pennsylvania is:
1486 York Street
P.O. Box 334
Hanover, PA 17331
3. Purpose
The purpose or purposes for which the Corporation is
incorporated are:
To have unlimited power to engage in and do any
lawful act concerning any or all lawful business for which
corporations may be incorporated under the provisions of the
Business Corporation Law of 1988, as amended, of the
Commonwealth of Pennsylvania.
4. Term
The term for which the Corporation is to exist is perpetual.
5. Capital Stock
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is one million, eight-hundred
thousand (1,800,000), consisting of one million, six-hundred and eighty
thousand (1,680,000) shares of common stock, par value $25.00 per share
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(the "Common Stock"), and one hundred and twenty thousand (120,000) shares of
preferred stock, par value $25.00 per share (the "Preferred Stock").
The Common Stock shall consist of eight-hundred thousand (800,000)
shares of Class A Common Stock (the "Class A Common Stock") and eight hundred
and eighty thousand (880,000) shares of Class B Common Stock (the "Class B
Common Stock"). All shares of the Class A Common Stock and the Class B Common
Stock shall be identical and shall entitle the holders thereof to the same
rights and privileges with respect thereto, except that the holders of the
Class B Common Stock shall have voting power for the election of directors and
on all other corporate matters, and the holders of the Class A Common Stock
shall have no voting power with respect to shares of said stock held by them,
except as otherwise required by the Pennsylvania Business Corporation Law of
1988 as amended and except as follows: (i) in the event of a proposed amendment
to these Amended and Restated Articles of Incorporation which shall affect
adversely the holders of the Class A Common Stock, the holders thereof shall
have the right, as a separate class, to one vote on such amendment for each
share of such stock held and no such amendment shall be adopted without the
affirmative vote of the holders of a majority of the shares of the Class A
Common Stock; (ii) if no dividend be paid on shares of the Class A Common Stock
for three (3) consecutive fiscal years, the holders thereof shall have the
right to one vote for each share of such stock held until such time as the
payment of dividends is resumed; and (iii) in the event any shares of the
Series C Convertible Preferred Stock are issued and outstanding and become
entitled to vote or consent on a matter which involves a Disputed Change of
Board Control (as hereafter defined), each share of Class A Common Stock shall
be entitled to one-tenth (1/10) of a vote per share with respect to such matter
involving a Disputed Change of Board Control (as hereafter defined), and, in
such event, the shares of Class A Common Stock shall vote together with the
shares of Class B Common Stock and shares of Series C Convertible Preferred
Stock as a single class of stock, and not as a separate class.
The Preferred Stock shall consist of fifteen thousand, two hundred and
sixty-eight (15,268) shares of Series A Cumulative Preferred Stock (the "Series
A Preferred Stock"), sixteen thousand, two hundred and sixty-eight (16,268)
shares of Series B Cumulative Preferred Stock (the "Series B Preferred Stock"),
(the Series A Preferred Stock and the Series B Preferred Stock, collectively,
the "Cumulative Preferred Stock"), ten thousand (10,000) shares of Series C
Convertible Preferred Stock, and such other shares of Preferred Stock as the
Board of Directors may issue up to the total amount authorized.
Holders of Preferred Stock shall have the option to convert, without
consideration, any or all such shares held to shares of Class A Common Stock on
an equitable basis, which equitable basis shall, in the case of Series C
Convertible Preferred Stock, be deemed to be a conversion of one share of
Series C Convertible Preferred Stock for one share of Class A Common Stock.
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CUMULATIVE PREFERRED STOCK
The Cumulative Preferred Stock may be issued in series, each series to
be so designated as to distinguish the shares thereof from the shares of all
other series and classes. The Board of Directors of the Corporation shall have
authority, by resolution, to divide any or all of the shares of Cumulative
Preferred Stock into one or more series and, with respect to each series so
established and prior to the issue thereof to fix and determine a
distinguishing designation therefor and the relative rights and preferences
thereof with respect to (a) the rate of dividends, and the date from which such
dividends shall be cumulative upon all shares of such series issued prior to
the record date for the initial dividend thereon, (b) the price at which shares
of such series may be redeemed, and (c) the amounts payable thereon in event of
voluntary or involuntary liquidation.
The holders of Cumulative Preferred Stock shall be entitled to receive
and the Corporation shall be obliged to pay, but only when and as declared by
its Board of Directors and only out of its surplus or net profits, cash
dividends at such rate per share per annum for each particular series as shall
have been fixed as aforesaid by the Board of Directors, and no more, payable
quarterly on the first day of each January, April, July, and October. Such
dividends shall be cumulative from the dates as follows: (a) in the case of
shares issued prior to the record date for the initial dividend on shares of
the series of which such shares shall constitute a part, then from the date
fixed as aforesaid for such purpose by the Board of Directors; (b) if issued
during the period commencing immediately after the record date for a dividend
on shares of such series and terminating at the close of the payment date for
such dividend, then from such dividend payment date; and (c) otherwise from the
dividend payment date next preceding the date of issue of such shares.
The Statement of Amendments filed on September 30, 1971 and on June
25, 1973 under Section 602 of the Business Corporation Law approved the 5th day
of May, 1933, P.L. 364, as amended, which created 8 1/4% Cumulative Preferred
Stock, Series A, and 8 1/4% Cumulative Preferred Stock, Series B, respectively,
shall continue in full force and effect hereafter, subject to the provisions of
Section 1522 of the Pennsylvania Business Corporation Law of 1988 as amended,
and subject to an adjustment of the redemption price and liquidation amount to
$25.25 and $25.00 per share, respectively, to reflect a four-for-one stock
split pursuant to the Certificate of Amendment filed on January 15, 1988.
Nothing contained herein shall be construed to adversely affect any share of
Cumulative Preferred Stock which is outstanding on the effective date of these
Amended and Restated Articles of Incorporation.
So long as any of the Cumulative Preferred Stock shall remain
outstanding, no dividend (other than dividends payable in Class A Common Stock
or Class B Common Stock, or both) shall be paid on shares of any class which,
with respect to payment of dividends or distributions in liquidation, shall
rank junior to the Cumulative Preferred Stock, unless all dividends on all
outstanding Cumulative Preferred Stock for all past quarterly dividend periods
shall have been
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paid and full dividends thereon for the then current quarterly dividend period
declared and a sum sufficient for the payment thereof set apart.
The Corporation, at the option of the Board of Directors, may redeem
all or any of the outstanding Cumulative Preferred Stock upon payment in cash
in respect of the shares so redeemed of the redemption price fixed as aforesaid
by the Board of Directors in respect of the series of which such shares shall
constitute a part, plus an amount equal to all accumulated and unpaid dividends
thereon to the date of redemption, whether or not such dividends shall have
been earned or declared. Any such redemption shall be in such amount, at such
place and in such manner as the Board of Directors may determine. In the case
of a redemption of less than all the outstanding Cumulative Preferred Stock,
the particular shares to be so redeemed shall be selected by lot. At least 30
days prior to the date fixed for such redemption, written notice thereof shall
be mailed by the Corporation to the holders of record of the Cumulative
Preferred Stock to be so redeemed, at their respective addresses as the same
appear upon the books of the Corporation. From and after the date fixed in any
such notice as the date of redemption (unless default shall be made by the
Corporation in providing moneys at the time and place specified for the payment
of the redemption price pursuant to said notice) all dividends on the
Cumulative Preferred Stock thereby called for redemption shall cease to accrue
and all rights of the holders thereof as stockholders in the Corporation,
except the right to receive the redemption price, shall cease and determine,
and such Cumulative Preferred Stock shall not be deemed outstanding for any
purpose. All Cumulative Preferred Stock so redeemed shall be canceled and
shall not be reissued.
On any voluntary or involuntary liquidation of the Corporation, before
any payment or distribution shall be made to the holders of any Class A Common
Stock or Class B Common Stock, the holders of the outstanding Cumulative
Preferred Stock shall be entitled to be paid the liquidation price fixed at $25
per share, plus an amount equal to all accumulated and unpaid dividends thereon
to the date of such payment, whether or not such dividends shall have been
earned or declared.
After such payment shall have been made in full to the holders of
Cumulative Preferred Stock, they shall be entitled to no further payment or
distribution.
A consolidation or merger of the Corporation with any other
corporation or corporations shall not be deemed a liquidation within the
meaning of this subdivision.
Holders of Cumulative Preferred Stock shall have no voting power in
respect to shares of such stock held by them, except as otherwise provided by
the Pennsylvania Business Corporation Law of 1988 as amended and except as
follows: (i) in the event of a proposed amendment to these Amended and Restated
Articles of Incorporation which shall affect adversely the holders of
Cumulative Preferred Stock, the holders thereof shall have the right to one
vote on such amendment for each share of such stock held and no such amendment
shall be adopted without the affirmative vote of the holders of a majority of
the outstanding shares of Cumulative
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Preferred Stock, and (ii) if no dividend be paid on shares of Cumulative
Preferred Stock for three (3) consecutive fiscal years, the holders thereof
shall have the right to one vote for each share of such stock held until such
time as the payment of dividends on such stock is resumed.
SERIES C CONVERTIBLE PREFERRED STOCK
A total of 10,000 shares of Preferred Stock is hereby designated as
Series C Convertible Preferred Stock and shall have the following rights and
privileges:
(i) Such shares may be issued only to trusts which
satisfy both of the following conditions:
(A) the trust must be an employee
benefit plan trust of the Corporation which is intended to qualify under the
provisions of Section 401 et seq. of the Internal Revenue Code of 1986, as
amended, including, but not limited to, the trust which has been established
under the so-called Hanover Foods Corporation 401(k) Savings Plan; and
(B) at least a majority of the trustees of
the trust must be persons who qualify as "disinterested directors" of the
Corporation under Section 1715(e) of the Pennsylvania Business Corporation Law
of 1988, as amended, in the opinion of counsel for the Corporation;
(ii) Each share of Series C Convertible Preferred Stock
shall be convertible into one share of Class A Common Stock of the Corporation
(subject to proportional adjustment in the event of a stock split, stock
dividend or other recapitalization of the Class A Common Stock) at the option
of the holder thereof, except that such conversion shall automatically occur
upon the distribution of the shares of Series C Convertible Preferred Stock to
beneficiaries of the employee benefit plan trusts if and when such distribution
is made by such trusts. Any shares of Class A Common Stock of the Corporation
which are received upon conversion of the Series C Convertible Preferred Stock
shall be issued out of the authorized but unissued shares of Class A Common
Stock;
(iii) Each share of Series C Convertible Preferred Stock
shall be entitled to the same dividends or other distributions which are paid
per share by the Corporation to holders of Class A Common Stock;
(iv) Each share of Series C Convertible Preferred Stock
shall be entitled to a liquidation preference equal to the par value of $25.00
per share which shall be paid in full prior to a liquidation distribution to the
holders of Common Stock. A "merger" or "consolidation" of the Corporation
shall not be deemed to be a liquidation.
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(v) So long as at least a majority of the trustees of
the trust are persons who qualify as Disinterested Directors (as defined below),
each share of Series C Convertible Preferred Stock shall be entitled to 35
votes per share (subject to proportional adjustment in the event of a stock
split, stock dividend or other recapitalization of the Class B Common Stock)
with respect to any matter presented to the holders of Class B Common Stock for
a vote or consent which involves a Disputed Change of Board Control (as
hereafter defined), but shall not be entitled to vote on any other matter
presented to the holders of the Class B Common Stock for a vote or consent.
The voting rights of the Series C Convertible Preferred Stock set forth in the
immediately preceding sentence shall expire five (5) years after the date on
which any of such shares are first issued by the Corporation. The shares of
Series C Convertible Preferred Stock shall vote together with the shares of
Class B Common Stock and shares of Class A Common Stock as a single class of
stock, and not as a separate class. The shares of Series C Convertible
Preferred Stock shall not otherwise be entitled to vote in matters presented to
holders of the Class B Common Stock. In no event shall the Series C
Convertible Preferred Stock be entitled to vote on matters presented to holders
of the Class A Common Stock other than a matter which involves a Disputed
Change of Board Control as provided herein. Notwithstanding anything to the
contrary contained herein, Series C Convertible Preferred Stock shall not be
entitled to vote on any proposal (whether or not such proposal involves a
Disputed Change of Board Control) if shares of Class A Common Stock are
entitled to vote as a separate class on such proposal (except that if a single
proposal involves both (A) matters on which the Class A Common Stock is
entitled to vote as a separate class and (B) matters on which Class A Common
Stock is not so entitled, the single proposal shall be divided into two
proposals, on the first of which the Class A Common Stock is entitled to vote
as a separate class and the second of which the Class A Common Stock is not
entitled to vote as a separate class, and the Series C Convertible Preferred
Stock shall be entitled to vote on the second proposal); if no dividend is paid
on shares of Class A Common Stock for three (3) consecutive years, Series C
Convertible Preferred Stock shall not be entitled to vote until such time as
the payment of dividends is resumed.
The term "Disputed Change of Board Control" refers to any of the
following:
(A) any election of directors of the
Corporation in which the slate of directors nominated for election by
Disinterested Directors (as hereafter defined) of the Corporation is contested
by other nominees, unless the nominees contesting the nominees of the
Disinterested Directors are unanimously supported in writing by all of the
following persons (or their estates, if they are deceased) so long as such
persons continue to individually own of record at least 10,000 shares of Class
B Common Stock of the Corporation: Michael A. Warehime, John A. Warehime,
Sally W. Yelland, J. William Warehime and Elizabeth W. Stick.
(B) any proposal to remove one or more
directors of the Corporation which has not been previously approved by the
Board of Directors of the Corporation, unless the proposal is unanimously
supported in writing by all of the following persons (or their estates, if they
are deceased) so long as such persons continue to individually own of record at
least 10,000
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<PAGE> 7
shares of Class B Common Stock of the Corporation: Michael A. Warehime, John
A. Warehime, Sally W. Yelland, J. William Warehime and Elizabeth W. Stick.
(C) any proposal, which has not been previously
approved by the Board of Directors of the Corporation, to amend these Amended
and Restated Articles of Incorporation or the By-laws of the Corporation, or to
effectuate a merger, consolidation, division, or sale of substantially all of
the assets of the Corporation, unless the proposal is unanimously supported in
writing by all of the following persons (or their estates, if they are
deceased) so long as such persons continue to individually own of record at
least 10,000 shares of Class B Common Stock of the Corporation: Michael A.
Warehime, John A. Warehime, Sally W. Yelland, J. William Warehime and Elizabeth
W. Stick.
If Michael A. Warehime, John A. Warehime, Sally W. Yelland, J. William
Warehime or Elizabeth W. Stick (or their estates, if they are deceased) cease
to individually own of record at least 10,000 shares of Class B Common Stock of
the Corporation, such persons shall be excluded from the list of persons whose
unanimous support in writing is required in clauses (A), (B) and (C) above, but
unanimous support in writing of the remaining persons shall still be required.
If Michael A. Warehime, John A. Warehime, Sally W. Yelland, J. William Warehime
and Elizabeth W. Stick (and their estates, if they are deceased) all cease to
individually own of record at least 10,000 shares of Class B Common Stock of
the Corporation, each share of Series C Convertible Preferred Stock shall
automatically be converted into Class A Common Stock of the Corporation.
The term "Disinterested Directors" refers to directors of the
Corporation who are considered to be "disinterested directors" under Section
1715(e) of the Pennsylvania Business Corporation Law of 1988, as amended, in
the opinion of counsel for the Corporation.
In the event of a dispute as to whether a matter constitutes a
"Disputed Change of Board Control," the decision by the Disinterested Directors
as to whether or not the matter constitutes a Disputed Change of Board Control
shall be final and conclusive in the absence of proof by clear and convincing
evidence of bad faith by such Disinterested Directors. A Disinterested
Director may abstain on any decision. A decision by a majority of the
Disinterested Directors who actually vote on a matter shall be considered to be
the decision of the Disinterested Directors.
REMAINING AUTHORIZED SHARES OF PREFERRED STOCK
The remaining authorized shares of Preferred Stock may be issued in
series, each series to be so designated as to distinguish the shares thereof
from the shares of all other series and classes. The Board of Directors of the
Corporation shall have authority, by resolution, to divide any or all of the
shares of Preferred Stock into one or more series and, with respect to each
series so established and prior to the issue thereof to fix and determine a
distinguishing designation therefor and the relative rights and preferences
thereof with respect to (a) the rate of dividends, and the date from which such
dividends shall be cumulative upon all shares of such series issued
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prior to the record date for the initial dividend thereon,
(b) the price at which shares of such series may be redeemed, and (c) the
amounts payable thereon in event of voluntary or involuntary liquidation.
6. No Cumulative Voting
The holders of Common Stock of the Corporation shall not have
the right to cumulate their votes for the election of directors of the
Corporation.
7. Classification of the Board of Directors
Effective at the annual shareholders meeting to be held in
1997, the Board of Directors shall be divided into four (4) classes, as nearly
as equal in number as possible, known as Class A, consisting of one (1)
director, Class B, consisting of one (1) director, Class C, consisting of two
(2) directors, and Class D, consisting of two (2) directors. The Class A
director shall serve until the annual meeting of shareholders to be held in
1998. At the annual meeting of shareholders to be held in 1998, the Class A
director shall be elected for a term of four (4) years and, after expiration of
such term, shall thereafter be elected every four (4) years for four (4) year
terms. The Class B director shall serve until the annual meeting of
shareholders to be held in 1999. At the annual meeting of shareholders to be
held in 1999, the Class B director shall be elected for a term of four (4)
years and, after the expiration of such term shall thereafter be elected every
four (4) years for four (4) year terms. The Class C directors shall serve
until the annual meeting of shareholders to be held in 2000. At the annual
meeting of shareholders to be held in 2000, the Class C directors shall be
elected for a term of four (4) years and, after the expiration of such term,
shall thereafter be elected every four (4) years for four (4) year terms. The
Class D directors shall serve until the annual meeting of shareholders to be
held in 2001. At the annual meeting of shareholders to be held in 2001, the
Class D directors shall be elected for a term of four (4) years and, after the
expiration of such term, shall thereafter be elected every four (4) years for
four (4) year terms. Each director shall serve until his successor shall have
been elected and shall qualify, even though his term of office as herein
provided has otherwise expired, except in the event of his earlier death,
resignation, removal or disqualification. This Article 7, or any portion
thereof, may be changed by a by-law amendment which is adopted by all of the
then members of the Board of Directors of the Corporation.
8. Severability
If any provision contained in these Amended and Restated Articles of
Incorporation requires the affirmative vote of the holders of a majority of
Class A Common Stock in order to permit such provision to become legally
effective, such provision shall not be deemed legally effective until such
affirmative vote is obtained; however, the remaining provisions of these
Amended and Restated Articles of Incorporation shall nevertheless continue in
full force and effect and shall be enforced to the maximum extent permitted by
law.
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EXHIBIT 3(c)
AMENDMENT NO. 1 TO AMENDED AND RESTATED ARTICLES
OF INCORPORATION OF HANOVER FOODS CORPORATION
RESOLVED, that the following provisions of Article 5 of the Amended
and Restated Articles of Incorporation of Hanover Foods Corporation, under the
heading Series C Convertible Preferred Stock, shall be amended to read in full
as follows, but in all other respects Article 5 shall remain unchanged:
Change subclause (i)(B), which presently reads:
(B) at least a majority of the trustees of the trust must be persons
who qualify as "disinterested directors" of the Corporation under Section
1715(e) of the Pennsylvania Business Corporation Law of 1988, as amended, in
the opinion of counsel for the Corporation;
to read:
(B) at least a majority of the trustees of the trust must be persons
who qualify, in the opinion of counsel for the Corporation, as "Disinterested
Directors" of the Corporation, as hereafter defined.
Change the definition of "Disinterested Directors," which presently
reads:
The term "Disinterested Directors" refers to directors of the
Corporation who are considered to be "disinterested directors" under Section
1715(e) of the Pennsylvania Business Corporation Law of 1988, as amended, in
the opinion of counsel for the Corporation.
to read:
The term "Disinterested Directors" refers to directors of the
Corporation who are considered, in the opinion of counsel for the Corporation,
to meet any of the following criteria: persons who qualify as "disinterested
directors" as defined in Section 1715(e) of the Pennsylvania Business
Corporation Law of 1988, as amended; persons who are not "interested" directors
as defined in Section 1.23 of The American Law Institute "Principles of
Corporate Governance: Analysis and Recommendations" (1994); or persons who
qualify as members of an Audit Committee pursuant to Section 303.00 of the New
York Stock Exchange's Listed Company Manual. The opinion of counsel for the
Corporation as to who is a "Disinterested Director," if rendered in good faith
by competent counsel who is not an employee of the Corporation, shall be
final, binding and conclusive.
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EXHIBIT 4(d)
- -------------------------------------------------------------------------------
HANOVER FOODS CORPORATION
SECOND AMENDMENT
Dated as of July 1, 1996
To
NOTE AGREEMENT
Dated as of December 1, 1991
Re: $25,000,000 8.74 Senior Notes,
Due March 15, 2007
- -------------------------------------------------------------------------------
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<PAGE> 2
SECOND AMENDMENT TO NOTE AGREEMENT
THIS SECOND AMENDMENT to Note Agreement dated as of July 1, 1996 (the
or this "Second Amendment"), is entered into between Hanover Foods Corporation,
a Pennsylvania corporation (the "Company"), and Allstate Life Insurance Company
(the "Purchaser").
RECITALS:
A. The Company and the Purchaser have heretofore entered into
the Note Agreement dated as of December 1, 1991 and the First Amendment to Note
Agreement dated as of June 20, 1995 (as amended, the "Note Agreement").
B. The Company and the Purchaser now desire to amend certain of
the terms of the Note Agreement in order to reduce the level of financial
performance that the Company must achieve for the next year.
C. Capitalized terms used herein shall have the respective
meanings ascribed thereto in the Note Agreement unless herein defined or the
context shall otherwise require.
D. All requirements of law have been fully complied with and all
other acts and things necessary to make this Second Amendment a valid, legal
and binding instrument according to its terms for the purposes herein expressed
have been done or performed.
NOW, THEREFORE, the Company and the Purchaser, in consideration of
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, do hereby agree as follows:
SECTION 1. AMENDMENT.
Section 1.1. Section 5.8(a)(3) of the Note Agreement shall be and
is hereby amended in its entirety to read as follows:
"(3) additional Funded Debt of the Company; provided
that at the time of creation, issuance, assumption, guarantee, or
incurrence thereof and after giving effect thereto and to the
application of the proceeds thereof:
(i) Consolidated Funded Debt would not exceed
an amount equal to the relevant percentage of Consolidated
Total Capitalization (determined as of the end of the most
recent quarter) hereinafter specified during the applicable
period set forth below:
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<PAGE> 3
<TABLE>
<CAPTION>
If Funded Debt Maximum Percentage
is Incurred of Consolidated
During the Period: Total Capitalization:
------------------ ---------------------
<S> <C>
Closing Date to and including 55%
December 1, 1996
December 2, 1996 to 52%
March 2, 1997
March 3, 1997 to 51%
June 1, 1997
June 2, 1997 and thereafter 50%
</TABLE>
and
(ii) in the case of the incurrence of any
Funded Debt of the Company secured by Liens permitted by
Section 5.10(g), the aggregate amount of all Consolidated
Funded Debt secured by Liens permitted by Sections 5.10(f)
and (g) would not exceed 15% of Consolidated Tangible Net
Worth."
Section 1.2. Section 5.8(a)(4) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
(4) Current Debt of the Company; provided that for purposes
of determining whether additional Funded Debt may be incurred pursuant
to Section 5.8(a)(3), if there shall not have been a period of at least
60 consecutive days during the twelve-month period immediately
preceding the date of such determination during which no Current Debt
of the Company shall have been outstanding, then the daily average
outstanding balance of the Company's Current Debt during any period of
60 consecutive days selected by the Company occurring during such
twelve-month period shall be deemed to constitute Funded Debt for
purposes of such determination; and
Section 1.3. Section 5.9 of the Note Agreement shall be and is hereby
amended in its entirety to read as follows:
"Section 5.9. Interest Charges Coverage Ratio. The Company
will keep and maintain the ratio of Net Income Available for Interest
Charges to Interest Charges for each period of four consecutive fiscal
quarters most recently ended at not less than: (a) 1.10 to 1.00 at all
times during the period from and including the Closing Date to, but
not including, December 1, 1996, (b) 1.15 to 1.00 at all times during
the period from and including December 1, 1996 to, but not including,
March 2, 1997, (c) 1.40 to 1.00 at all times during the period from
and including March 2, 1997 to, but not including June 2, 1997, (d)
2.40 to 1.00 at all times during the period from and including June 2,
1997 to,
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<PAGE> 4
but not including, August 31, 1997, (e) 2.65 to 1.00 at all times
during the period from and including August 31, 1997 to, but not
including, November 30, 1997 and (f) 2.75 to 1.00 at all times from
and after November 30, 1997."
Section 1.4. A new Section 5.19 of the Note Agreement shall be added
as follows:
"Section 5.19. Maintenance of Bank Facilities. The Company
will, at all times, keep and maintain committed credit facilities from
one or more financial institutions aggregating at any one time not
less than $60,000,000, each in form and substance reasonably
satisfactory to the holders of the Notes."
Section 1.5. Section 6.1(d) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
"(d) Default shall occur in the observance or performance of
any covenant or agreement contained in Section 5.6 through Section
5.13 or Section 5.19; or"
Section 1.6. Section 6.1(f) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
"(f) Default shall be made in the payment when due (whether
by lapse of time, by declaration, by call for redemption or otherwise)
of the principal of or interest on any Funded Debt or Current Debt
(other than the Notes) of the Company or any Restricted Subsidiary in
the aggregate unpaid principal amount of $1,000,000 or more and such
default shall continue beyond the period of grace, if any, allowed
with respect thereto (whether or not any default resulting from such
failure shall have been waived by the holders of such Current Debt or
Funded Debt); or"
Section 1.7. Section 6.1(g) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
"(g) Default or the happening of any event shall occur under
any indenture, agreement or other instrument under which any Funded
Debt or Current Debt of the Company or any Restricted Subsidiary in
the aggregate unpaid principal amount of $1,000,000 or more may be
issued and such default or event shall continue for a period of time
sufficient to permit the acceleration of the maturity of any Funded
Debt or Current Debt of the Company or any Restricted Subsidiary
outstanding thereunder (whether or not any default resulting from such
failure shall have been waived by the holders of such Current Debt or
Funded Debt); or"
Section 1.8. From and after January 1, 1996 until November 30, 1997
interest on the Notes shall accrue at a rate per annum equal to the rate set
forth in the Notes or the Note Agreement, plus 0.50%.
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<PAGE> 5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 2.1. To induce the Purchaser to execute and deliver this
Second Amendment, the Company represents and warrants to the Purchaser (which
representations shall survive the execution and delivery of this Second
Amendment) that:
(a) this Second Amendment has been duly authorized, executed
and delivered by it and this Second Amendment constitutes the legal,
valid and binding obligation, contract and agreement of the Company
enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or
limiting creditors' rights generally;
(b) the Note Agreement, as amended by this Second Amendment,
constitutes the legal, valid and binding obligation, contract and
agreement of the Company enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally;
(c) the execution, delivery and performance by the Company of
this Second Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body
or agency, and (iii) will not (A) violate (1) any provision of law,
statute, rule or regulation or its certificate of incorporation or
bylaws, (2) any order of any court or any rule, regulation or order of
any other agency or government binding upon it, or (3) any provision
of any material indenture, agreement or other instrument to which it
is a party or by which its properties or assets are or may be bound,
or (B) result in a breach or constitute (alone or with due notice or
lapse of time or both) a default under any indenture, agreement or
other instrument referred to in clause (iii)(A)(3) of this Section
2.1(c); and
(d) as of the date hereof and after giving effect to this
Second Amendment, no Default or Event of Default has occurred which is
continuing.
SECTION 3. CONDITIONS TO EFFECTIVENESS OF SECOND AMENDMENT.
Section 3.1. This Second Amendment shall not become effective until,
and shall become effective when, each and every one of the following conditions
shall have been satisfied:
(a) executed counterparts of this Second Amendment, duly
executed by the Company and the Purchaser, shall have been delivered
to the Purchaser;
(b) the Purchaser shall have received a fee equal to $10,000;
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<PAGE> 6
(c) the Purchaser shall have received a copy of the
resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance by the Company of this Second
Amendment, certified by its Secretary or an Assistant Secretary;
(d) the representations and warranties of the Company set
forth in Section 2 hereof shall be true and correct on and with
respect to the date hereof;
(e) the Purchaser shall have received the favorable opinion of
counsel to the Company as to the matters set forth in Sections 2.1(a),
2.1(b) and 2.1(c) hereof, which opinion shall be in form and substance
satisfactory to the Purchaser; and
(f) executed counterparts of Credit Agreements, duly executed
by the Company and the Banks, which Credit Agreements shall be in form
and substance satisfactory to the Purchaser, shall have been delivered
to the Purchaser.
Upon receipt of all of the foregoing, this Second Amendment shall become
effective.
SECTION 4. PAYMENT OF PURCHASER'S COUNSEL FEES AND EXPENSES.
Section 4.1 The Company agrees to pay upon demand, the reasonable
fees and expenses of Chapman and Cutler, counsel to the Purchaser, in connection
with the negotiation, preparation, approval, execution and delivery of this
Second Amendment.
SECTION 5. MISCELLANEOUS.
Section 5.1. Except as modified and expressly amended by this Second
Amendment, the Note Agreement is in all respects ratified, confirmed and
approved and all of the terms, provisions and conditions thereof shall be and
remain in full force and effect.
Section 5.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Second Amendment may refer to the Note Agreement without making specific
reference to this Second Amendment but nevertheless all such references shall
include this Second Amendment unless the context otherwise requires.
Section 5.3. This Second Amendment shall be governed by and construed
in accordance with the laws of the State of Pennsylvania.
Section 5.4. This Second Amendment may be executed and delivered in
any number of counterparts, each of such counterparts constituting an original,
but all together only one Second Amendment.
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<PAGE> 7
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
instrument to be executed, all as of the day and year first above written.
HANOVER FOODS CORPORATION
By /s/ Gary T. Knisely
----------------------------
Its Executive Vice President
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<PAGE> 8
Accepted and Agreed to:
ALLSTATE LIFE INSURANCE COMPANY
By /s/
--------------------------
Authorized Officer
By /s/
--------------------------
Authorized Officer
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<PAGE> 1
EXHIBIT 10(k)
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), is made this 23rd day of
January 1997, but effective as of June 1, 1996, by and between HANOVER FOODS
CORPORATION, a Pennsylvania corporation (the "Employer"), and Gary T. Knisely
(the "Employee").
BACKGROUND
The Employer is one of the leading independent
processors of canned vegetables, frozen meat products, frozen
entrees and fresh foods in the eastern United States.
The Employee is presently employed by the Employer
as its Executive Vice President and General Counsel.
The parties desire to enter into a written agreement
setting forth the terms and conditions of the Employee's
continued employment by the Employer.
NOW, THEREFORE, the parties, intending legally to be bound,
agree as follows:
1. DEFINITIONS. See Addendum No. 1 for definitions of various
terms used in this Agreement.
2. EMPLOYMENT. The Employee shall continue to be employed by
the Employer upon the terms and conditions set forth in this Agreement.
3. TERM. The initial Contract Period of the Employee's
employment is five (5) years beginning on June 1, 1996. If Employee continues
in the employ of the Employer on a full-time basis after June 1, 1997 or each
June 1 thereafter without a new written agreement, the Contract Period shall be
automatically renewed and the Employee's employment shall continue for the new
Contract Period subject to the terms of this Agreement until terminated
pursuant to Section 18 of this Agreement.
4. DUTIES.
4.1 The Employee shall be the Executive Vice President,
Secretary and General Counsel of the Employer, and in those positions, the
Employee's duties shall include, but not be limited to, the duties of those
positions described in the By-laws of the Employer.
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<PAGE> 2
4.2 The Board of Directors through the Chief Executive
Officer shall direct, control and supervise the work of the Employee.
4.3 All duties assigned to the Employee shall be fully and
faithfully performed, and the Employee's best efforts shall be devoted on
behalf of the Employer.
4.4 The Employee shall work for the Employer for the
amount of time commensurate with his position.
4.5 If elected, the Employee shall serve as a director of
the Employer or as an officer or director of any Related Companies. His
compensation for serving in those offices will be established by the Board of
Directors.
5. COMPENSATION.
5.1 Salary. For the services to be rendered by the Employee
during the Term, the Employee shall be paid in arrears, in equal monthly
installments, or more often if the Employer elects, the following amounts (the
"Salary"):
5.1.1 During the Initial Contract Year from June 1,
1996 to May 31, 1997, at the rate of One Hundred Seventy-Five Thousand Dollars
($175,000) per annum.
5.1.2 During each Contract Year thereafter, at an
annual rate equal to the greater of (i) the Salary being paid during the
preceding Contract Year multiplied by a fraction, the numerator of which is the
Index on June 1 of the new Contract Year, and the denominator of which is the
Index on June 1 of the preceding Contract Year, or (ii) the Salary being paid
during the preceding Contract Year multiplied by 1.05. If the Index ceases to
be published at intervals other than monthly, the Employer shall select another
reasonable method of adjusting the Salary to reflect changes in the cost of
living.
6. INCENTIVE COMPENSATION SYSTEM. The Employee shall
participate in the Annual Top Management Cash Bonus Program and in any
incentive stock option plan or phantom stock plan established during the Term
by the Employer for its executive employees.
7. WITHHOLDING. The Employer shall withhold from the Salary
and bonuses, all sums authorized by the Employee or required to be withheld by
law or court decree, including (but not limited to) income taxes, employment
taxes, and employee contributions to benefit plans sponsored by the Employer.
8. FRINGE BENEFITS. If eligible, the Employee shall
participate in any fringe benefits, disability benefits, medical expense or
insurance plans, or qualified retirement
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<PAGE> 3
plan or plans the Employer from time to time provides to its executive and
management employees.
9. VACATIONS. The Employee may take as much vacation as he
desires up to a maximum of four weeks per calendar year if it does not
interfere with the performance of the Employee's duties.
10. DISABILITY INSURANCE. So long as the Employee is insurable
at standard rates at the times applications are made, the Employer shall
purchase and maintain disability insurance, in an amount equal to 60% of the
Salary for each Contract Year during the Term as part of its group disability
plan.
11. LIFE INSURANCE FOR EMPLOYER'S BENEFIT. If the Employer
decides to purchase and be the beneficiary of insurance on the Employee's life,
the Employee shall complete whatever applications and submit to whatever
examinations are necessary to enable the Employer to obtain this insurance.
12. AUTOMOBILE. The Employee may be required to use an
automobile for the performance of the Employee's duties. In that event, the
Employer shall reimburse the Employee for all use authorized by the Employer at
a rate per mile established from time to time by the Employer and for parking,
tolls, and other expenses from time to time authorized by the Employer.
13. BUSINESS EXPENSES. The Employee is expected to incur
ordinary, necessary and reasonable expenses for the business of the Employer.
The Employer shall reimburse the Employee for these expenses upon
substantiation that they are bona fide business expenses.
14. TAXABILITY OF FRINGE BENEFITS. The Employer shall, for
income tax purposes, report as additional compensation or as a taxable fringe
benefit, as appropriate, any benefit which is not otherwise deductible by the
Employer as a business expense for income tax purposes.
15. RESTRICTIONS ON OUTSIDE ACTIVITIES. During the Term:
15.1 The Employee shall not provide personal services to
others or engage in any other business without the Employer's prior written
consent. If the Employer consents to the provision of services to others or to
the Employee's engaging in any other business, all compensation received by the
Employee shall be paid to the Employer, unless the Employer waives its right to
receive these amounts.
15.2 Except with respect to investments of the Employee
existing as of the date of this Agreement, unless approved by the Board of
Directors, the Employee shall not
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<PAGE> 4
invest in any stock, bond, real estate, commodity or other form of investment,
if the investment is in a corporation, firm, or other entity which competes
directly or indirectly with the Employer.
15.3 Except positions held by the Employee as of the
date of this Agreement, the Employee shall not serve as an officer or director
for any corporation or other entity (regardless of whether a "for profit" or
"not-for-profit" entity) without obtaining the prior written consent of the
Board of Directors. This prohibition shall not be deemed to prevent the
Employee from serving as a trustee of any trust created by the Employee or any
trust created for the benefit of employees of the Employer.
15.4 Whenever the prior written consent of the Employer
is required under the terms of this Section, the consent of the Employer shall
not be unreasonably withheld, but the Board of Directors may impose one or more
conditions to the granting of its consent.
16. CONFIDENTIALITY OBLIGATIONS.
16.1 Property of the Employer. All Trade Secrets,
Confidential Information and all books, documents, lists, and records
pertaining to the Confidential Information of the Employer's business
(collectively, "Records"), whether the Records are written, typed, printed,
contained on microfilm, computer disc tape, or in some other medium of
expression, are the sole and exclusive property of the Employer. The Employee
shall not copy or remove any Records from the Employer's premises without the
prior written consent of the Chief Executive Officer of the Employer. Upon the
termination of the Employee's employment, he shall promptly return to the
Employer all Records and copies which are either in the Employee's possession
or which the Employee has removed from the Employer's premises.
16.2 Misappropriation Not Permitted. During and after
the period of the Employee's employment with the Employer, the Employee shall
not (i) divulge, furnish or make accessible to anyone or in any way or use, for
his own benefit or for the benefit of any other individual, firm or entity
(other than in the ordinary course of the Employer's business), any Trade
Secret or Confidential Information; (ii) take or permit any action to be taken
which would reduce the value of the Trade Secrets or Confidential Information
to the Employer; or (iii) otherwise misappropriate or suffer the
misappropriation of the Trade Secrets or the Confidential Information, within
the meaning of the Act.
16.3 Trade Secrets and Confidential Information Defined.
The term "Trade Secrets," as used in this Section 16 includes, without
limitation, the Employer's (i) pricing to its customers and all other
information concerning pricing practices and procedures, (ii) personnel
compensation, (iii) sources of supply and prices of inventory and other items,
(iv) list of customers and any other customer information, (v) all formulae,
patterns, compilations, programs, devices, lists, methods, techniques or
processes and (vi) other information that would be deemed to be "trade secrets"
within the meaning of the model Uniform Trade Secrets Act (the "Act"). Any
other information not qualifying as a Trade Secret but
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relating to the business of the Employer, which is disclosed by the Employer to
the Employee, or is discovered by the Employee in the course of employment, is
Confidential Information. The Trade Secrets and the Confidential Information
relate to the conduct of the Employer's business, are of independent economic
value to the Employer because they are not generally known, and are the subject
of efforts by the Employer to maintain their secrecy. The disclosure, or
improper use, of Trade Secrets or Confidential Information by the Employee will
cause irreparable harm to Employer.
16.4 Information Which is Publicly Known.
Notwithstanding anything to the contrary, the obligations of secrecy and
confidentiality set forth shall not apply to any information which is now or
which subsequently becomes generally publicly known other than as a direct or
indirect result of the breach of this Agreement by the Employee.
17. SUSPENSION. The Employer, upon five (5) days' prior written
notice, may suspend the Employee's employment with the Employer, with full
compensation and benefits, if the Employee is charged with a felony which in
the reasonable judgment of the Board of Directors reflects adversely on the
Employer. The suspension shall terminate upon any judgment of acquittal by a
court of competent jurisdiction.
18. TERMINATION.
18.1 By Employer:
18.1.1 Termination By Employer Without Cause. The
Employer may terminate the Employees employment without cause by giving at
least two (2) months' notice to the Employee on or before June 1 of any year of
the Contract Period. The Employer may not terminate the Employee's employment
under this Section 18.1.1 during any Disability Period.
18.1.2 Constructive Termination by Employer. The
Employer shall have constructively terminated the Employee, if, without
Employee's written consent, (i) the nature and scope of Employee's duties and
authority or his responsibilities with Employer, Related Company or any
surviving or acquiring entity are reduced to a level below that which he enjoys
on the date of this Agreement, (ii) his compensation is reduced to a level
below that provided in Section 5 of this Agreement, (iii) the fringe benefits
provided to the Employee on the date of this Agreement are materially reduced,
(iv) Employee's position or title with Employer or Related Company or any
surviving or acquiring entity is reduced from his current position or title, or
(v) Employee's principal place of employment is changed to a location greater
than forty (40) miles from his current principal place of employment. The
Employee shall give Employer twenty (20) days written notice of his intention
to claim that the Employer has constructively terminated his employment
pursuant to this Section 18.1.2, specifying the reason(s) for such termination.
If the Employer has not cured or remedied the reason(s) specified in that
notice
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prior to the expiration of ten (10) days after notice, the constructive
termination shall be effective at the end of that period.
18.1.3 Termination by Employer With Cause. The
Employer may, at its option, terminate the Employee's employment upon
twenty-one (21) days' prior written notice, if the Employee:
18.1.3.1 refuses to faithfully and
diligently perform his usual and customary duties for the Employer or to comply
with the provisions of this Agreement (unless the refusal is due to the
Employee being Disabled);
18.1.3.2 refuses to comply materially
with the reasonable written policies, standards and regulations established by
the Board of Directors of the Employer from time to time (unless the refusal is
due to the Employee being Disabled);
18.1.3.3 is found guilty of
unprofessional, unethical, immoral, or fraudulent conduct by any board,
institution, organization, or professional society having the right to pass
upon the conduct of the Employee, or if the Employee resigns from any
professional organization, institution or society under threat of disciplinary
action for that conduct;
18.1.3.4 willfully or intentionally and
materially injures the Employer or its assets;
18.1.3.5 breaches any negative covenant
in this Agreement; or
18.1.3.6 is convicted of a felony, which
in the reasonable judgment of the Board of Directors, reflects adversely on the
Employer.
18.1.4 Effect of Termination. If the Employee's
employment is terminated during the Term pursuant to Sections 18.1.1 or 18.1.2:
18.1.4.1 The Employer shall pay the
Employee the Salary and bonuses described in Section 5 and Section 6 and
continue all other benefits to which the Employee is entitled under this
Agreement until the end of the then existing Contract Period as if the Employee
were still employed by the Employer.
18.1.4.2 For the first two (2) Contract
Years following the date of termination, if the termination occurs pursuant to
Section 18.1.1, or for two (2) calendar years from the date of a constructive
termination, if the termination occurs pursuant to Section 18.1.2, the Employee
shall assist the Employer to the fullest extent possible to retain its
customers and shall render to the Employer advisory or consulting services
which the Employer
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reasonably requests, so that the Employer may continue to benefit from the
Employee's experience, knowledge, reputation, and contacts. The Employee shall
be available in person or by telephone to provide the advisory or consulting
services. After the age of sixty-five (65), the Employee shall not be required
to render services to the extent that the Employee would not be eligible for
full Social Security benefits.
18.1.4.3 The payments required by Section
18.1.4.1 shall not be offset or reduced by any income or earnings received from
any other employment or other activity the Employee may engage in during the
Contract Period. The Employee shall have no duty to mitigate damages.
18.1.5 Effect of Termination For Cause. If
Employee's employment with Employer is terminated for cause pursuant to Section
18.1.3, Employer shall not be obligated to make any further payments to the
Employee.
18.2 By Death or Disability.
18.2.1 Automatic. The employment of the Employee
by the Employer will terminate automatically and immediately upon the death of
the Employee.
18.2.2 Termination Because of Disability. If any
Disability Period continues for six (6) months, the Employer may terminate the
Employee's employment by sending thirty (30) days' notice to him, provided he
is still Disabled at the time the notice is sent.
18.2.3 Effect of Termination. If the Employee dies
or Employee's employment with Employer is terminated because he is Disabled for
six (6) months, the Employer shall pay or provide to the Employee, the
Employee's surviving spouse, or if there is no surviving spouse, to the
Employee's surviving descendants, per stirpes, the Salary described in Section
5, and all benefits to which the Employee is entitled under this Agreement
until the later of (i) one (1) year from the date of termination, or (ii) the
death of the Employee.
18.3 Termination by Employee.
18.3.1 By Employee. The Employee may terminate his
employment by giving at least two (2) months' notice to the Employer on or
before June 1 of any year of the Contract Period.
18.3.2 Effect of Termination. If Employee
terminates his employment under Section 18.3.1, the Employer shall not be
obligated to make any further payments to the Employee after the end of the
current Contract Year.
19. RETIREMENT. At any time after the age of fifty-five (55), the
Employee may retire from the employ of the Employer if, at least six (6) months
before the intended date of
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retirement, the Employee gives the Employer written notice specifying the
intended date of retirement. After the Employee retires, the Employee shall
assist the Employer to the fullest extent possible to retain its customers and
shall render to the Employer advisory or consulting services which the Employer
reasonably requests, so that the Employer may continue to benefit from the
Employee's experience, knowledge, reputation, and contacts. The Employee shall
be available in person or by telephone to provide those services. In no event,
however, shall the Employee be required to render services to the extent that
the Employee would not be eligible for full Social Security benefits.
20. SUPPLEMENTAL PENSION BENEFIT.
20.1 Benefit. If the Employee is no longer employed by
the Employer and the Employee has attained the age of fifty-five (55), the
Employee may elect (the "Election"), by written notice to the Employer to
receive a supplemental pension benefit (as defined below) in consideration of
Employee's past services. Commencing not later than thirty (30) days after the
date of the Election, Employer shall pay a supplemental pension benefit (the
"Benefit") to Employee for his lifetime at a per annum rate equal to 60% of the
amount of the Employee's Average Annual Compensation during the Measurement
Period, subject to reduction pursuant to Section 20.2. The Benefit shall be
adjusted each year, beginning one (1) year from the effective date of the
Election, by multiplying the Benefit by a fraction, the numerator of which is
the Index on each anniversary of the effective date of the Election, and the
denominator of which is the Index on the effective date of the Election.
Employer shall make the benefit payment on the first day of each month
following the effective date of the Election in an amount equal to 1/12 of the
Benefit. The Employee shall not be entitled to receive Benefit payments if
compensation required under Section 18.1 is being paid. The Benefit shall not
be offset or reduced by any income or earnings received from any other
employment or other activity of the Employee during the time the Employee is
receiving the Benefit under this Section 20.1. Employee shall have no duty to
mitigate damages.
20.2 Benefit Reduction Calculation. If the Employee
elects to receive the Benefit prior to attaining the age of sixty-five (65),
the Benefit shall be reduced by five-ninths of one percent (5/9%) for each of
the first sixty (60) calendar months by which the effective date of the
Election precedes the Employee attaining the age of sixty-five (65), and by
five-eighteenths of one percent (5/18%) for each calendar month in excess of
sixty (60) by which the effective date of the Election precedes the Employee
attaining the age of sixty-five (65).
21. RESTRICTIVE COVENANT.
21.1 Restrictions. For a period of two (2) years
immediately following the Termination Date, the Employee shall not, directly or
indirectly, for himself, or on behalf of any other person, firm, corporation or
other entity (except the Employer or Related Company), whether as principal,
agent, employee, stockholder, partner, officer, member, director, sole
proprietor, or otherwise:
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21.1.1 Customers or Prospective Customers. Solicit
the sale or sell to any Customer or Prospective Customer of frozen or canned
fruits or vegetables, or other products or services identical or similar to the
products or services sold or in the process of being developed by the Employer.
21.1.2 Other Employees. Hire, engage, solicit,
participate in or promote the solicitation of any person who was employed by
the Employer or Related Company at any time during the Pretermination Period to
leave the employ of the Employer.
21.1.3 Disparaging Remarks. Make any disparaging
remarks about the Employer's business, products, services or personnel.
21.1.4 Interference. Interfere in any way with the
Employer's business, prospects or personnel.
21.1.5 Modification. The Employee acknowledges
that the covenants contained in this Section 21.1 are necessary in order to
protect the goodwill of the Employer's business and that these covenants are
reasonable. However, if any court determines that any restriction set forth in
this Section 21.1 is unenforceable in accordance with its terms regarding
duration, or scope of prohibited activity, the covenant shall not terminate.
Instead, with respect to its operation in the jurisdiction of the court which
makes the adjudication, the covenant shall be deemed to have been amended to
the extent required to render it valid and enforceable. The adjudication shall
not be deemed to affect the validity or enforceability of the covenant in any
jurisdiction other than the one in which the adjudication is made.
21.2 Extension. If the Employee violates the restrictions
set forth in Section 21.1, the Employer shall not be deprived of the full
benefit of the period of the covenant. Accordingly, the duration of that
covenant shall be extended by the period of any violation of that covenant.
22. REMEDIES - RESTRICTIVE COVENANT, TRADE SECRETS AND
CONFIDENTIAL INFORMATION.
22.1 The Employer shall be entitled to injunctive or
other equitable relief because a breach of the provisions of Sections 16 or 21
will cause irreparable injury and damage. The right to injunctive relief shall
include the right to both preliminary and permanent injunctions. The Employer
shall not be required to post a bond or other similar assurance if it brings an
action to enforce the provisions of either Section 16 or 21. The Employer's
right to equitable relief shall not preclude any other rights or remedies which
the Employer may have, all of which rights and remedies are cumulative.
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22.2 If the Employer files suit to enforce its rights
under Sections 16 or 21:
22.2.1 The Employer shall be entitled to recover
from the Employee all expenses incurred by it, including, but not limited to,
investigative costs, court costs and reasonable attorney's fees.
22.2.2 While the case is pending, the Employer may
stop payments of Salary, bonuses and Benefits until a Court of competent
jurisdiction determines whether the Employer is entitled to the relief it
seeks.
22.2.3 If a Court of competent jurisdiction
determines that the Employee has violated either of Sections 16 or 21, the
Employer shall be released from any obligation to pay future Benefits.
23. ACCELERATION. If the Employer fails to pay the Employee any
compensation or benefits, including supplemental pension benefits, due to him
under this Agreement, within thirty (30) days after written notice from the
Employee of such failure to pay, the Employee shall have the right to
accelerate future payments of all sums due to Employee under this Agreement.
24. NOTICES.
24.1 How Sent. All notices, requests, demands,
acceptances, and other communications pursuant to this Agreement ("Notices")
shall be in writing and either delivered personally or sent by telecopier or
facsimile, overnight delivery, express mail, or certified mail, postage
prepaid, return-receipt requested. Notices to the Employer shall be delivered
personally to its Chief Executive Officer or sent to his attention.
24.2 Where Sent. If sent by mail, a Notice shall be
addressed (i) to the Employer at P.O. Box 334, Hanover, Pennsylvania 17331 or
(ii) to the Employee or his surviving spouse at the last known address shown on
the records of the Employer. Copies of all Notices shall be sent to Robert M.
Hankin, Esq., Weinberg & Green LLC, 100 South Charles Street, Baltimore,
Maryland 21201. If sent by telecopier or facsimile, a Notice shall be sent
(i) to the Employer at (717)-632-6000 or (ii) to the Employee at his telecopier
number on file with the Employer.
24.3 When Effective. A Notice delivered personally shall
be deemed to have been delivered when personally delivered but shall be
effective only if the delivery is acknowledged in writing by the party to whom
given. A Notice sent by telecopier shall be deemed to have been delivered when
transmitted, provided that the sender receives written acknowledgment of its
receipt. A Notice sent by overnight delivery or express mail shall be deemed to
have been delivered twenty-four (24) hours after having been sent. A Notice
that is
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properly addressed and is sent by certified mail with postage fully prepaid
will be deemed to have been delivered when it is deposited in the U.S. mail.
24.4 Change in Addressees or Addresses. Either party may
designate substitute addressees, addresses or telecopier numbers for Notices
and copies, and thereafter, Notices and copies are to be directed to those
substitute addressees or addresses or telecopier numbers.
25. COSTS OF LITIGATION. If either party files suit to enforce
its or his rights under this agreement, the prevailing party is entitled to
recover from the other party all expenses incurred in preparing for and in
trying the case, including, but not limited to, investigative costs, court
costs and reasonable attorneys' fees. For this purpose the "prevailing party"
is the plaintiff if (i) in a case where only damages are sought, 51% or more of
the damages sought are awarded, (ii) in a case where only equitable relief is
sought, the relief sought is granted (each application for equitable relief
being considered for these purposes as a separate action) or (iii) in a case
where both damages and equitable relief are sought, either fifty-one percent
(51%) or more of the damages sought are awarded or the equitable relief sought
is granted; otherwise, the defendant is the "prevailing party."
26. SECURITY.
26.1 In order to secure Employer's obligations to
Employee and his surviving spouse under this Agreement, Employer shall, if and
when requested by the Employee or his surviving spouse, and provided that the
cost does not exceed $10,000 per annum, cause a reputable bank reasonably
acceptable to Employee to issue a Letter of Credit, in the face amount of at
least twice the Employee's base annual salary on the date of termination and in
the form attached as Exhibit "A" ("Letter of Credit"), to be issued to the
Employee or his surviving spouse as beneficiary. In lieu thereof, the parties
may establish a mutually acceptable escrow arrangement. The Letter of Credit
shall not expire sooner than one year and thirty (30) days after the date of
its issuance. Employer shall maintain the Letter of Credit in effect at all
times during the Term and any other period of time during which the Employee is
entitled to any benefits under this Agreement.
26.2 Employee will not present a draft under the Letter
of Credit for payment unless (i) he shall have first made written demand on
Employer for direct payment of the amount sought and Employer has not made full
payment in cash to the Employee as required by this Agreement within thirty
(30) days after notice of the written demand or (ii) a renewed Letter of Credit
is not provided to the Employer at least thirty (30) days prior to the
expiration date of the existing Letter of Credit. Employee shall not draw any
funds under the Letter of Credit with respect to costs or expenses already
reimbursed to him by Employer.
27. MISCELLANEOUS.
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27.1 Governing Law. The laws of the Commonwealth of
Pennsylvania applicable to contracts made to be performed in Pennsylvania will
govern the validity and construction of this Agreement.
27.2 Consent to Jurisdiction. The parties submit to the
jurisdiction and venue of the courts of the Commonwealth of Pennsylvania.
27.3 NO JURY TRIAL. NEITHER PARTY SHALL ELECT A TRIAL BY
JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THIS AGREEMENT.
27.4 Confidentiality. Neither party shall disclose the
contents of this Agreement or of any other contemporaneous agreement to any
person, firm or entity, except the agents or representatives of the parties, or
except as required by law.
27.5 Word Forms. Whenever used, the singular shall
include the plural and vice versa. The use of any gender, tense or conjugation
shall include all genders, tenses and conjugations.
27.6 Headings. The Section headings have been included
for convenience only, are not part of this Agreement, and are not to be used to
interpret any provision hereof.
27.7 Amendments and Modifications. This Agreement may be
amended, waived, changed, modified or discharged only by a writing signed by
the party against whom the modification is sought to be enforced.
27.8 Binding Effect and Benefit. This Agreement shall be
binding upon and inure to the benefit of the parties, their successors, heirs,
personal representatives and other legal representatives. This Agreement may be
assigned by the Employer to any entity which acquires substantially all of the
Employer's assets. However, the Employee may not assign this Agreement.
27.9 Entire Agreement. This Agreement constitutes the
entire agreement between the parties.
27.10 Separability. The covenants contained in this
Agreement are separable, and if any court of competent jurisdiction declares
any of them to be invalid or unenforceable, that declaration of invalidity or
unenforceability shall not affect the validity or enforceability of any of the
other covenants, each of which shall remain in full force and effect.
27.11 Consent or Approval. Whenever under the terms of
this Agreement the approval or consent of the Employer is required or the
Employer must make any
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determination, the Employer, unless this Agreement specifically requires
otherwise, may withhold or delay that consent or approval or may make that
determination, as the case may be, in the Employer's sole and absolute
discretion.
27.12 Background. The Background is a part of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
ATTEST: HANOVER FOODS CORPORATION
/s/ Patricia H. Townsend By: /s/ John A. Warehime (SEAL)
- ----------------------------- ------------------------------------
Patricia Townsend, John A. Warehime, Chairman
Assistant Secretary
WITNESS: EMPLOYEE:
/s/ Diane C. Beaver /s/ Gary T. Knisely (SEAL)
- ----------------------------- ----------------------------------------
Gary T. Knisely
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<PAGE> 14
Exhibit A
NAME AND ADDRESS OF BANK
ISSUING IRREVOCABLE LETTER OF CREDIT
DATE: _________________
NON-NEGOTIABLE
Expires:
--------------------
Irrevocable Letter of Credit No.
---------------
Amount: $
-----------------
To: Gary T. Knisely, or his surviving
spouse
---------------------------------
---------------------------------
You are hereby irrevocably authorized to draw at sight on the
undersigned, for the account of Hanover Foods Corporation, up to an aggregate
of [________________] ($[____________________]), by one or more drafts, payable
to your order, each draft bearing the clause "Drawn under (Name of Undersigned)
Letter of Credit No. ............................" and accompanied by the
following Document (together with the required supporting attachment): A sworn
statement executed by you, in the form attached hereto as Document No. 1 (the
"Affidavit"), with the appropriate blanks completed and with a copy attached of
the notice referred to in paragraph C of the Affidavit.
No draft will be honored (i) if the draft is not accompanied
by the aforesaid Document (together with the required supporting attachment) or
(ii) if the aggregate amount drawn by you, taking into consideration the
subject draft, would exceed the face amount of this Letter of Credit.
No draft will be honored unless it is drawn and presented for
payment on or after the date hereof and no later than the expiration date.
The undersigned hereby agrees that a draft drawn under this
Letter of Credit and in compliance with the foregoing will be duly honored
during the period stated above on due presentation to the undersigned in
compliance with the terms of this Letter of Credit by you.
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The amount of each draft must be noted on this
Letter of Credit. The original of this Letter of Credit will be retained by
the undersigned for the purpose of making such notations.
Yours very truly,
NAME OF ISSUING BANK
By:
-------------------------
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LETTER OF CREDIT NO.___________
DOCUMENT NO. 1
Affidavit
STATE OF )
) ss.
COUNTY OF )
[_______________________], being duly sworn according to law,
hereby deposes and says that:
A. The draft which this Affidavit accompanies
(hereinafter called the "Draft ") is for payment to the undersigned of monies
owed the undersigned pursuant to that certain Agreement dated
[________________], 1997 (the "Agreement") by and between Hanover Foods
Corporation ("Hanover") and Gary T. Knisely.
B. The amount of the Draft does not exceed the
aggregate of the amounts specified in the Agreement which are owed to the
undersigned by Hanover for which the Letter of Credit is intended as security
and which Hanover has not already directly paid to the undersigned.
C. A true and correct copy of the written demand on
Hanover for direct payment of the amount sought in the Draft is attached hereto
and Hanover has not made full payment in cash to the undersigned as required by
the Agreement within thirty (30) days after said written notice was delivered
to Hanover.
Dated:
-----------------
---------------------------------
Signature of Drawing Beneficiary
Subscribed and sworn to before me this ___ day of
__________, 1995.
Notary Public in and for said County/State of _______.
-------------------------------
Notary Public
My Commission Expires:
---------------------
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<PAGE> 17
Addendum No. 1
1.1 "Average Annual Compensation" shall mean the
Employee's average annual cash compensation during the Measurement Period,
including cash bonuses under the Employer's bonus plans, but excluding other
fringe benefits.
1.2 "Board of Directors" means the board of
directors of the Employer.
1.3 "Contract Period" means each five (5) year
period of the Employee's employment by the Employer beginning on June 1, 1996
and June 1 of subsequent years.
1.4 "Contract Year" means each twelve (12)
month period of the Employee's employment by the Employer beginning on June 1,
1996 and June 1 of each subsequent year.
1.5 "Customer" means any Person to which the
Employer has sold products or rendered services at any time during the
Pretermination Period.
1.6 "Disability Period" means the time during
which the Employee is Disabled.
1.7 "Disabled" means the first to occur of:
1.7.1 The Employee being declared legally
incompetent under the laws of the Commonwealth of Pennsylvania, in which event
the date the Employee becomes Disabled shall be deemed to be the date of such
declaration.
1.7.2 The Employer receiving a written
opinion from a physician designated by the Employer to the effect that the
Employee has incurred a mental or physical condition that can reasonably be
expected to prevent the Employee from carrying out the Employee's material
duties for the Employer for a period of six (6) months or longer from the date
of the examination of the Employee, in which event the date the Employee shall
be deemed Disabled to be the date of the physician's examination. The Employee
shall cooperate with any physician designated by the Employer to determine
whether the Employee has become Disabled, provided that any physician
designated by the Employer shall consult with any physician designated by, or
on behalf of, the Employee.
1.7.3 The Employer or Employee being
entitled to receive a payment under any disability policy withrespect to the
Employee, in which event the Employee
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shall be deemed Disabled on the date which the Employee was first found to be
disabled pursuant to the disability policy.
1.8 "Index" means the Consumer Price Index, All
Cities Average (1982-84 = 100), published by the U.S. Department of Labor,
Bureau of Labor Statistics.
1.9 "Initial Contract Year" means the period
from June 1, 1996 to May 31, 1997.
1.10 "Measurement Period" means the most recent
three (3) fiscal years of the Employer ending prior to the date of termination
of the Employee.
1.11 "Person" means an individual, corporation or
any officer, director or employee or a partnership, any partner or employee of
which the Employee had any contact with during the Pretermination Period.
1.12 "Pretermination Period" means the 12-month
period immediately preceding the Termination Date.
1.13 "Prospective Customer" means any Person which
has been actively solicited to purchase products or services from the Employer
at any time during the Pretermination Period.
1.14 "Related Company" means any corporation,
partnership, limited liability company, business association, business
organization, or other form of entity now or in the future controlled by the
Employer and/or controlled by any of the equityholders of the Employer and the
equityholders of any of the controlled entities, separately or collectively.
1.15 "Term" means the entire period of the
Employee's employment.
1.16 "Termination Date" means the date on which the
Employee ceases to be employed by the Employer.
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EXHIBIT 10(l)
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT BETWEEN
HANOVER FOODS CORPORATION AND JOHN A. WAREHIME
This document, dated as of February 13, 1997, shall constitute
Amendment No. 1 to an Employment Agreement dated as of June 12, 1995 (the
"Employment Agreement") between Hanover Foods Corporation (the "Employer")and
John A. Warehime (the "Employee).
Background
As of June 12, 1995, Employer and Employee entered into the Employment
Agreement. The parties desire to amend the Employment Agreement as set forth
herein.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Definitions
The definitions contained in the Employment Agreement shall
apply to this Amendment No. 1.
2. Amendments
The following provisions of the Employment Agreement shall be
amended as follows:
Section 4.1.1 Change this Section to
read in full as follows, effective retroactively as if such change were
originally contained in the Employment Agreement:
"4.1.1 During the initial Contract Year of the Term from
April 1, 1994 to April 1, 1995, at the rate of Four Hundred and Ninety-eight
Thousand, Eight Hundred and Sixty-six ($498,866) Dollars per annum."
Section 7.: Change this Section to read in full as
follows, effective retroactively as if such change were originally contained in
the Employment Agreement:
"7. BONUSES The Employer shall pay an annual bonus in
cash or Class A common stock of the Employer of equal value, at the sole option
of the Employee.
"7.1 The bonus shall be equal to the sum of
the following:
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"7.1.1 if Pre-tax Earnings of the Employer
are $5 million or more in any Contract Year of the Term, the bonus shall equal
$100,000 plus ten (10%) percent of Pre-tax Earnings over $5 million, but in no
event shall the total bonus payable under this Section 7.1.1, plus the total
amount payable under Section 4 hereof, exceed $1 million in any Contract Year;
if Pre-tax Earnings of the Employer are below $5 million in any Contract Year
of the Term, no bonus is payable under this Section 7.1.1.
Plus
"7.1.2 a bonus equal to the gross
dollar value (if any) of 1,500 performance units which shall be valued at the
end of each Contract Year of the Term as set forth in Addendum No. 2 hereto.
The bonus computed pursuant to Addendum No. 2 is based upon the relative prior
five-year performance of the Employer (using the five-year average sales growth
and operating profits) as compared to an industry peer group. The industry peer
group shall consist of the following companies: Curtice Burns Foods (Rochester,
NY), Seneca Foods Corp. (Pittsford, NY), Stokely USA, Inc. (Green Bay, WI),
United Foods, Inc. (Bells, TN) and Dean Foods (Franklin Park, IL). It is the
intention of the parties that the industry peer group data will be appropriately
and fairly adjusted to provide, to the extent feasible, a consistent method of
comparing the performance of the Employee against the performance of top
management in the industry peer group. In the case of any dispute concerning the
interpretation of Addendum No. 2, the firm of Towers Perrin shall resolve such
dispute and their determination shall be final, binding and conclusive upon the
Employer and the Employee.
"7.2 For purposes of determining the Employee's bonuses under this
Section 7, the Pre-Tax Earnings of the Employer shall be adjusted to account
for the impact of any changes in accounting methods and to eliminate the effect
of any unusual or non-recurring items."
The Employee hereby agrees to waive any accrued rights he may have
under the unamended Employment Agreement to a bonus for the Contract Year
beginning April 1, 1996, which bonus the Employee and Employer acknowledge
could amount, based upon the projected Pre-tax Earnings of the Employer, to
over $2 million, and, instead, Employee hereby agrees to accept the bonus
formula set forth in this Amendment No. 1 for the Contract Year beginning April
1, 1996.
The Employee shall repay to the Employer the amount of the net excess
compensation overpayment for Contract Years beginning prior to April 1, 1996 as
a result of the changes made in this Amendment No. 1 to Section 4 and Section 7
of the Employment Agreement, which changes are retroactive to the date of the
Employment Agreement; such repayment to the Employer shall be made without
interest. It is agreed that the amount of the repayment due from the Employee
to the Employer for such net excess compensation overpayment with respect to
Contract Years beginning prior to April 1, 1996 is $83,024. The $83,024 shall
be repaid by the Employee to the Employer solely out of the amount of the
Salary increases hereafter due to the
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<PAGE> 3
Employee for Contract Years beginning on and after April 1, 1997 by reason of
the provisions of Section 4.1.2, and the Employee shall have no other liability
for such repayment.
Section 9.1: Add the following sentence to the end
of Section 9.1:
"Notwithstanding the foregoing, if the
Employer, acting through its Board of Directors (provided that a majority of
its members were also directors on January 1, 1997), at any time after January
1, 1998, requests that the Employee cease to be Chairman of the Board and
Chairman of the Employer, but continue as Chief Executive Officer and President
of the Employer, the Employee shall relinquish his title as Chairman of the
Board and Chairman of the Employer, but shall continue as Chief Executive
Officer and President of the Employer with all of the powers, duties and
authorities normally associated with those positions; in such event, the
By-Laws of the Employer shall be amended to reflect that the Chief Executive
Officer need not be Chairman of the Board or Chairman of the Employer."
Section 12: Add the following sentence to the end
of Section 12:
"Notwithstanding the foregoing, in no
event may the total vacation time exceed six weeks during any Contract Year."
Section 22.5: Change the words "termination
pay" to "supplemental pension payments" in Section 22.5 and change the words
"termination benefits" to "supplemental pension benefits."
Section 22.5.1.1 Change the words in Section
22.5.1.1 from "Without cause; or" to "Without cause by the Employer; or"
Section 23: Change the first sentence to
read in full as follows: "At any time after January 1, 1998, the Employee may
retire from the employ of the Employer if the Employee, at least thirty (30)
days before the intended date of retirement, gives the Employer written notice
specifying the intended date of retirement." Add the following sentence at the
end of Section 23: "If the Employee elects to retire prior to the age of 65,
the supplemental pension payments provided for in Section 24 shall be reduced
by using the following formula: for each of the first sixty (60) calendar
months by which the retirement date precedes the age of 65, the supplemental
pension payments shall be reduced by five-ninths (5/9) of one percent and for
each such calendar month in excess of sixty (60) calendar months the
supplemental pension payments shall be reduced by five-eighteenths (5/18) of
one percent.
Section 24: Change the first sentence of
this Section to read in full as follows: "Commencing not later than thirty
(30) days after the applicable Triggering Date or, if earlier, the date the
Employee elects to retire, and in consideration of Employee's past services,
Employer shall pay compensation to Employee or to his surviving spouse at a per
annum rate equal to 60% of the amount of the Employee's Average Annual
Compensation during the
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<PAGE> 4
Measurement Period, subject to reduction pursuant to Section 23 in the event
the Employee elects to retire prior to age 65."
Section 25: Change the words "termination
benefits" to "supplemental pension benefits" in Section 25.
Section 25.1.2: Delete this provision.
Section 25.2: Delete this provision.
Section 25.3: Delete this provision.
Section 25.4: Delete this provision.
Section 26: Change the title of Section 26
from "Security" to "Security and Acceleration." Change
Section 26 to read in full as follows:
"26.1 In order to secure Employer's obligations to Employee and his
surviving spouse under this Agreement, Employer shall, if and when requested by
the Employee or his surviving spouse at any time after January 1, 1998, and
provided that the cost does not exceed $25,000 per annum, cause a reputable
bank reasonably acceptable to Employee to issue a Letter of Credit, in the face
amount designated by Employee and in the form attached as Exhibit "A" ("Letter
of Credit"), to be issued to the Employee or his surviving spouse as
beneficiary, or, in lieu thereof, establish a mutually acceptable escrow
arrangement. The Letter of Credit shall not expire sooner than one year and
thirty (30) days after the date of its issuance. Employer shall maintain the
Letter of Credit in effect at all times during the Term and any other period of
time during which the Employee is entitled to any payments or benefits under
Sections 22.5, 24 or 25 of this Agreement.
"26.2 Employee will not present a draft under the Letter of Credit
for payment unless (i) he shall have first made written demand on Employer for
direct payment of the amount sought and Employer has not made full payment in
cash to the Employee as required by this Agreement within thirty (30) days
after the date of delivery of the written demand or (ii) a renewed Letter of
Credit is not provided to the Employer at least thirty (30) days prior to the
expiration date of the existing Letter of Credit. Employee shall not draw any
funds under the Letter of Credit with respect of costs or expenses already
reimbursed to him by Employer.
"26.3 If the Employer fails to pay the Employee any of the
compensation or benefits (including, but not limited to, the supplemental
pension payments and benefits) due to him under this Agreement, within thirty
(30) days after having received written notice from the Employee of such
failure to pay, the Employee shall have the right to accelerate future payments
of all sums due to Employee under this Agreement."
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<PAGE> 5
3. Amended Employment Agreement Continues in Full Force and Effect.
There are no amendments to the Employment Agreement except as
specified herein. The Employment Agreement, as amended hereby, shall continue
in full force and effect and constitutes the entire understanding of the
parties with respect to its subject matter. Employee agrees that the
compensation set forth in this Amendment No. 1 for the Contract Year of the
Term beginning April 1, 1996 shall constitute his sole compensation due from
the Employer with respect to such Contract Year, and hereby waives any rights
to additional compensation for any period prior to the date of this Amendment
No. 1.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
ATTEST/WITNESS: HANOVER FOODS CORPORATION
/s/ Patricia H. Townsend By: /s/ Gary T. Knisely (SEAL)
- ------------------------------- ------------------------------
WITNESS/ATTEST: EMPLOYEE:
/s/ Diane C. Beaver /s/ John A. Warehime (SEAL)
- ------------------------------- ----------------------------------
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<PAGE> 6
HANOVER FOODS CORPORATION APPENDIX NO. 2
CEO INCENTIVE ALTERNATIVES
LONG TERM COMPONENT
Features:
At the beginning of each year, 1,500 performance units are granted to the CEO.
Units valued at the end of the year based on performance relative to industry
peers.
Performance measures are five year average Sales Growth and Pre-Tax Earnings.
No cap on unit values.
Unit values at different performance levels are represented in matrix form as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
110% 0 90 108 116 124 132 140 148
109% 0 86 104 112 120 128 136 144
108% 0 82 100 108 116 124 132 140
107% 0 78 96 104 112 120 128 136
106% 0 74 92 100 108 116 124 132
105% 0 70 88 96 104 112 120 128
104% 0 66 84 92 100 108 116 124
103% 0 62 80 88 96 104 112 120
Average 102% 0 58 76 84 92 100 108 116
Sales 101% 0 54 72 80 88 96 104 112
Growth 100% 0 50 68 76 84 92 100 108
99% 0 46 64 72 80 88 96 104
98% 0 42 60 68 76 84 92 100
97% 0 38 56 64 72 80 88 96
96% 0 34 52 60 68 76 84 92
95% 0 30 48 56 64 72 80 88
94% 0 26 44 52 60 68 76 84
93% 0 22 40 48 56 64 72 80
92% 0 18 36 44 52 60 68 76
91% 0 14 32 40 48 56 64 72
90% 0 10 18 26 34 42 50 58
- -----------------------------------------------------------------------------------------------------------------------------------
0 0 0 0 0 0 0 0
90% 92% 94% 96% 98% 100% 102%
Average Earnings
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
110% 156 164 172 180
109% 152 160 168 176
108% 148 156 164 172
107% 144 152 160 168
106% 140 148 156 164
105% 136 144 152 160
104% 132 140 148 156
103% 128 136 144 152
Average 102% 124 132 140 148
Sales 101% 120 128 136 144
Growth 100% 116 124 132 140
99% 112 120 128 136
98% 108 116 124 132
97% 104 112 120 128
96% 100 108 116 124
95% 96 104 112 120
94% 92 100 108 116
93% 88 96 104 112
92% 84 92 100 108
91% 80 88 96 104
90% 66 74 82 90
- -------------------------------------------------------------------------------------
0 0 0 0
104% 106% 108% 110%
Average Earnings
</TABLE>
Average Sales Growth = Hanover Sales Growth (5 year average)/ Industry 5 year
average.
Average earnings = Hanover 5 year average earnings(%)/ Industry average 5 year
earnings(%)
Formula to calculate awards on either axis = {[(Actual Hanover/Actual Industry)
- - 90%] x 400} + 10
Total value/unit = (Sales Growth Formula Calculation + Earnings Formula
Calculation)
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<PAGE> 7
February 13, 1997
Mr. John A. Warehime, Chairman & CEO
Hanover Foods Corporation
P.O. Box 334
1486 York Street
Hanover, PA 17331
Dear Mr. Warehime:
To induce John A. Warehime to execute Amendment No. 1 of even date
herewith ("Amendment No. 1") his Employment Agreement dated as of June 12, 1995
with Hanover Foods Corporation, Hanover Foods Corporation agrees to defend,
indemnify and hold harmless John A. Warehime and his estate and surviving
spouse from any claim, loss, damage, liability or expense (including, but not
limited to, investigative costs, court costs and reasonable attorney's fees)
arising, directly or indirectly, out of (a) the execution or delivery of such
Amendment No. 1, or (b) the Employment Agreement as amended by Amendment No. 1
including, but not limited to, any claims which have been or may in the future
be brought against John A. Warehime in his capacity as a voting trustee or as a
director, officer or shareholder of Hanover Foods Corporation.
Hanover Foods Corporation shall be entitled to designate counsel for
John A. Warehime provided such designation is reasonable.
HANOVER FOODS CORPORATION
BY:/s/ Clayton J. Rohrbach, Jr.
--------------------------------
Clayton J. Rohrbach, Jr.
/s/ Gary T. Knisely
--------------------------------
Gary T. Knisely, Esq.
Agreed:
/s/ John A. Warehime
- --------------------------------
John A. Warehime
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<PAGE> 1
EXHIBIT 10(m)
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT BETWEEN
HANOVER FOODS CORPORATION AND JOHN A. WAREHIME
This document, dated as of August 1, 1997, shall constitute Amendment
No. 2 to an Employment Agreement dated as of June 12, 1995 (the "Employment
Agreement") between Hanover Foods Corporation (the "Employer")and John A.
Warehime (the "Employee).
Background
As of June 12, 1995, Employer and Employee entered into the Employment
Agreement, which Employment Agreement was amended by Amendment No. 1 dated as
of February 13, 1997. The term "amended Employment Agreement" refers to the
Employment Agreement dated as of June 12, 1995 and amended by Amendment No. 1
dated February 13, 1997. The parties desire to further amend the Employment
Agreement as set forth herein.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Change to April 1. Effective as of the first date of
Employer's fiscal year which began in 1996 and ended in 1997 and for each of
the Employer's fiscal years thereafter, all references in the amended
Employment Agreement to "April 1" (including, but not limited to, references to
April 1 in Section 3 of the amended Employment Agreement and the definitions of
"Contract Period" and "Contract Year" contained in the amended Employment
Agreement) shall refer instead to the first day of the Employer's then
applicable fiscal year.
2. Amendment to Section 7.1.2. Amend the second sentence of
Section 7.1.2 of the amended Employment Agreement to change the parenthetical
phrase "(using the five-year average sales growth and operating profits)" to
read: "(using the five-year average sales growth percentage and five-year
average percentage of operating profits to sales)."
3. Class B Shareholder Approval. To the extent that the bonus
payments set forth in Section 7 of the amended Employment Agreement for the
fiscal year of the Employer ended in 1997 and for fiscal years thereafter shall
cause the "applicable employee remuneration" (as defined in Section 162(m) of
the Internal Revenue Code of 1986, as amended) to exceed $1 million for any
taxable year of the Employer, such bonus payments shall be subject to, and are
contingent upon, approval by a majority vote of the holders of Class B Common
Stock of the Employer at a meeting to be held on or before August 15, 1997.
4. Amended Employment Agreement Continues in Full Force and
Effect.
There are no amendments to the Employment Agreement, as previously
amended by Amendment No. 1 dated as of February 13, 1997, except as specified
herein. The amended
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<PAGE> 2
Employment Agreement, as further amended hereby, shall continue in full force
and effect and constitutes the entire understanding of the parties with respect
to its subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
ATTEST/WITNESS: HANOVER FOODS CORPORATION
/s/ Gary T. Knisely By: /s/ Cyril T. Noel (SEAL)
- ---------------------------- -------------------------------------
WITNESS/ATTEST: EMPLOYEE:
/s/ Gary T. Knisely /s/ John A. Warehime (SEAL)
- ---------------------------- ---------------------------------------
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<PAGE> 1
EXHIBIT 10(n)
SENIOR EXECUTIVE AGREEMENT
AGREEMENT dated as of May 21, 1997 between Hanover Foods
Corporation (the "Company") and Clement A. Calabrese ("Executive").
BACKGROUND
Executive is employed by the Company in the position of Vice
President - Sales and Trade Marketing of the Company. In consideration of
Executive's past and present services to the Company, Company desires to
provide for the payment of termination compensation to Executive upon the
occurrence of certain circumstances specified in Section 3 of this Agreement,
but not under any other circumstances.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. TERM AND TERMINATION. This Agreement will commence
on the date hereof and terminate on the earlier of the following dates (herein
called the "Term"): (a) ten years from the date hereof; (b) Executive's
removal or resignation from his position with the Company as stated above for
any reason whatsoever and whether with or without cause (unless Executive
continues to be employed by the Company or an affiliate in an equal or higher
position) if such resignation or removal occurs prior to a change of control as
defined in Section 2 hereof; (c) the death or permanent disability of
Executive, whether during or after his employment by the Company or any
affiliate; (d) the Executive's reaching his 65th birthday; or (e) mutual
written agreement of Executive and Company.
2. CHANGE OF CONTROL. A change of control of the
Company shall be deemed to have occurred if, during the Term, John A. Warehime
for any reason ceases to hold the position of Chief Executive Officer of the
Company or ceases to have the powers and authority of the Chief Executive
Officer of the Company.
3. TRIGGERING EVENTS.
(a) If, within twenty-four (24) months after the
occurrence of a change of control of the Company,
(i) Executive's base salary, responsibilities
or duties are reduced and Executive terminates his employment by voluntary
resignation during the Term and during continuance of any of the foregoing
conditions (provided such resignation gives at least one month written notice
of intent to terminate employment), or
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<PAGE> 2
(ii) Executive's employment is involuntarily
terminated during the Term by the Company for reasons other than the
Executive's gross misconduct, then
Executive shall become entitled to receive the
payments and benefits specified in Section 4 of this Agreement.
(b) The date on which Executive's employment ceases as
specified in Section 3(a) is hereinafter referred to as the "Triggering Event."
4. PAYMENTS AND BENEFITS.
(a) Commencing not later than thirty (30) days after the
Triggering Event, and subject to Executive's compliance with Section 7 of this
Agreement, the Company shall pay to Executive, in installments no less
frequently than monthly, during the two year period following the Triggering
Event (but not later than the last day of the Term of this Agreement), a
monthly amount equal to one-twelfth (1/12) of Executive's total cash
compensation received from the Company during calendar year 1997 (including
both base annual salary and bonus, if any).
The foregoing payments shall be reduced, to the extent
necessary, so that the sum of payments made pursuant to this Section 4(a), when
added to the total cash compensation to which the Executive is then entitled by
virtue of other employment, will not exceed, for any twelve (12) month period,
the Executive's total cash compensation received from the Company during
calendar year 1997 (including both base annual salary and bonus, if any).
(b) During the period that payments are due to Executive
pursuant to Section 4(a), and subject to Executive's compliance with Section 7
of this Agreement, Executive shall be entitled to the health, life and
disability insurance benefits which are no less, in the aggregate, than the
amount of the benefits to which the Executive is entitled on the date of this
Agreement. Notwithstanding the foregoing, if the Executive obtains other
full-time employment, which employment provides equivalent health, life and
disability insurance benefits, the benefits described in this Section 4(b)
shall cease.
(c) The Company may withhold from any payments or
benefits due under this Agreement all federal, state, city, or other taxes as
shall be required pursuant to any law or governmental regulation or ruling. In
no event shall the Company be obligated to make any payment or provide any
benefits pursuant to Section 4(a) or 4(b) hereof after the last day of the Term
of this Agreement.
(d) In the event Executive becomes entitled to receive
the payments or benefits specified in this Agreement, he will be deemed to have
waived the right to receive any severance pay to which he might otherwise be
entitled under the present or any future severance benefit policy of the
Company or any affiliate.
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<PAGE> 3
5. SOURCE OF PAYMENT. All payments provided under
this Agreement shall be paid in cash from the general funds of the Company and
no special or separate fund shall be required to be established. Executive
shall have no right, title or interest whatever in or to any investment which
the Company may make to aid the Company in meeting its obligations hereunder.
Nothing contained in this Agreement, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind or a
fiduciary relationship between the Company and Executive or any other person.
6. ASSIGNMENT OR OTHER ALIENATION.
(a) Neither this Agreement nor any right or interest
hereunder shall be assignable by Executive or his legal representatives without
the Company's prior written consent.
(b) Except as required by law, the right to receive
payments under this Agreement shall not be subject to anticipation, sale,
encumbrance, charge, levy, or similar process or assignment by operation of
law.
7. COVENANTS. All payments to Executive under this
Agreement shall be subject to Executive's compliance with the provisions of
this Section 7. If Executive fails to comply with such provisions, the right
of Executive and all other persons to any future payments under this Agreement
shall terminate and the Company's obligations under this Agreement to make such
payments and provide such benefits shall cease.
(a) Executive shall not, directly or indirectly, at any
time, during or after his employment by the Company, disclose, use or knowingly
permit the use of any trade secrets, customer lists, or other proprietary
information relating to the Company or its affiliates except pursuant to the
lawful order of any judicial or administrative agency of government.
(b) For a period of two years after the Triggering
Event, neither Executive nor any employer or business associate of Executive
shall enter into any business arrangement with, or solicit for employment or
employ in any capacity, any person who was an employee of the Company or any of
its affiliates at any time within six months prior to Executive's Triggering
Event, or attempt to enter into any business arrangement with or employ any
such person, or induce or attempt to induce any such person to leave his or her
employment with the Company for any reason.
(c) For a period of two years after the Triggering
Event, Executive shall not directly or indirectly own, manage, operate, join,
control, or participate in or be connected with (whether as an officer,
employee, partner, stockholder, consultant or in any other capacity) any
individual proprietorship, partnership, business trust, limited liability
company, corporation or other entity or business which is engaged principally
or significantly in a business which competes with any significant business of
the Company or its affiliates. This provision shall not apply, however, to
Executive's acquiring or holding less than 1% of the securities of any entity
whose securities are listed on a national securities exchange or traded on
NASDAQ.
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<PAGE> 4
(d) Promptly upon commencing new employment, and
thereafter, Executive shall keep the Company advised of the cash compensation
to which he is entitled by virtue of such employment. Not later than February
15 of each year after the Triggering Event, Executive shall provide to the
Company (Attention: Chief Financial Officer) copies of all W-2 forms relating
to income paid to Executive during the prior calendar year.
8. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing
in this Agreement shall preclude the Company from consolidating or merging into
or with or transferring all or substantially all of its assets to another
corporation. In that event, such other corporation shall assume this Agreement
and all obligations of the Company hereunder. Upon such a consolidation,
merger, or transfer of assets and assumption, the term "the Company" as used
herein, shall mean such other corporation and this Agreement shall continue in
full force and effect.
9. ACCELERATION. If the Company fails to pay the
Executive any of the amounts due to him under Section 4(a) hereof, thirty (30)
days after having received written notice from the Executive of such failure to
pay, the Executive shall have the right to accelerate future payments of all
sums due the Executive under Section 4(a) hereof, without discount.
10. REIMBURSEMENT. If the Company fails to pay the
Executive any of the amounts due to him under Section 4(a) hereof or fails to
provide the Executive with any of the benefits due to him under Section 4(b)
hereof, thirty (30) days after having received written notice from the
Executive of such failure, the Executive shall be entitled to full
reimbursement from the Company for all costs and expenses (including reasonable
attorneys' fees) incurred by the Executive in enforcing his rights under this
Agreement, plus interest at the rate of 9% per annum on the improperly withheld
amounts or improperly withheld benefits due to the Executive under Section 4(a)
hereof or Section 4(b) hereof, respectively.
11. MISCELLANEOUS.
(a) This Agreement shall not limit or infringe upon the
right of the Company or any affiliate to terminate the employment of Executive
at any time for any reason whatsoever, nor upon the right of Executive to
terminate his employment by the Company or any affiliate. Nothing contained
herein shall confer upon Executive the right to continue as an employee of the
Company or any affiliate.
(b) This Agreement contains the entire agreement between
Executive and Company regarding the subject matter hereof and supersedes any
prior oral or written understanding.
(c) This Agreement may not be amended or supplemented,
nor may any provision be waived, except by an instrument in writing signed by
the parties hereto. This Agreement shall be binding upon and inure to the
benefit of the Executive and his personal representatives, executors,
administrators and heirs; provided, however, no payment shall be due hereunder
after the death or permanent disability of Executive.
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<PAGE> 5
(d) If any provision of this Agreement shall be held
invalid in part, such invalidity shall in no way affect the rest of such
provisions not held so invalid. The rest of such provision, together with all
other provisions of this Agreement, shall to the full extent consistent with
law continue in full force and effect.
(e) The headings of the Sections of this Agreement are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
(f) This Agreement has been executed and delivered in
the Commonwealth of Pennsylvania and its validity, interpretation, performance,
and enforcement shall be governed by the internal laws of such Commonwealth,
without regard to any conflict of laws principles. The principle of
construction that ambiguities are construed against the draftsperson shall not
apply to this document.
(g) Any dispute or disagreement between Executive and
the Company with respect to any portion of this Agreement or its validity,
construction, meaning, performance or Executive's rights hereunder shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association or its successor, as amended from time to
time. However, prior to submission to arbitration Executive will attempt to
resolve any disputes or disagreements with the Company over this option
amicably and informally, in good faith, for a period not to exceed two weeks.
Thereafter, the dispute or disagreement will be submitted to arbitration. At
any time prior to a decision from the arbitrator(s) being rendered, Executive
and the Company may resolve the dispute by settlement. Executive and the
Company shall equally share the costs charged by the American Arbitration
Association or its successor, but Executive and the Company shall otherwise be
solely responsible for their own respective counsel fees and expenses. The
decision of the arbitrator(s) shall be made in writing, setting forth the
award, the reasons for the decision and award and shall be binding and
conclusive on Executive and the Company. Further, neither Executive nor the
Company shall appeal any such award. Judgment of a court of competent
jurisdiction may be entered upon the award and may be enforced as such in
accordance with the provisions of the award.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
HANOVER FOODS CORPORATION
/s/ Clement A. Calabrese (SEAL) By: /s/ John A. Warehime
- ------------------------------- ----------------------------------
Clement A. Calabrese John A. Warehime, Chairman
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<PAGE> 1
EXHIBIT 10(o)
SENIOR EXECUTIVE AGREEMENT
AGREEMENT dated as of May 21, 1997 between Hanover Foods
Corporation (the "Company") and Alan T. Young ("Executive").
BACKGROUND
Executive is employed by the Company in the position of Vice
President - Purchasing and Transportation of the Company. In consideration of
Executive's past and present services to the Company, Company desires to
provide for the payment of termination compensation to Executive upon the
occurrence of certain circumstances specified in Section 3 of this Agreement,
but not under any other circumstances.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. TERM AND TERMINATION. This Agreement will commence
on the date hereof and terminate on the earlier of the following dates (herein
called the "Term"): (a) ten years from the date hereof; (b) Executive's
removal or resignation from his position with the Company as stated above for
any reason whatsoever and whether with or without cause (unless Executive
continues to be employed by the Company or an affiliate in an equal or higher
position) if such resignation or removal occurs prior to a change of control as
defined in Section 2 hereof; (c) the death or permanent disability of
Executive, whether during or after his employment by the Company or any
affiliate; (d) the Executive's reaching his 65th birthday; or (e) mutual
written agreement of Executive and Company.
2. CHANGE OF CONTROL. A change of control of the
Company shall be deemed to have occurred if, during the Term, John A. Warehime
for any reason ceases to hold the position of Chief Executive Officer of the
Company or ceases to have the powers and authority of the Chief Executive
Officer of the Company.
3. TRIGGERING EVENTS.
(a) If, within twenty-four (24) months after the
occurrence of a change of control of the Company,
(i) Executive's base salary, responsibilities
or duties are reduced and Executive terminates his employment by voluntary
resignation during the Term and during continuance of any of the foregoing
conditions (provided such resignation gives at least one month written notice
of intent to terminate employment), or
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<PAGE> 2
(ii) Executive's employment is involuntarily
terminated during the Term by the Company for reasons other than the
Executive's gross misconduct, then
Executive shall become entitled to receive the
payments and benefits specified in Section 4 of this Agreement.
(b) The date on which Executive's employment ceases as
specified in Section 3(a) is hereinafter referred to as the "Triggering Event."
4. PAYMENTS AND BENEFITS.
(a) Commencing not later than thirty (30) days after the
Triggering Event, and subject to Executive's compliance with Section 7 of this
Agreement, the Company shall pay to Executive, in installments no less
frequently than monthly, during the two year period following the Triggering
Event (but not later than the last day of the Term of this Agreement), a
monthly amount equal to one-twelfth (1/12) of Executive's total cash
compensation received from the Company during calendar year 1997 (including
both base annual salary and bonus, if any).
The foregoing payments shall be reduced, to the extent
necessary, so that the sum of payments made pursuant to this Section 4(a), when
added to the total cash compensation to which the Executive is then entitled by
virtue of other employment, will not exceed, for any twelve (12) month period,
the Executive's total cash compensation received from the Company during
calendar year 1997 (including both base annual salary and bonus, if any).
(b) During the period that payments are due to Executive
pursuant to Section 4(a), and subject to Executive's compliance with Section 7
of this Agreement, Executive shall be entitled to the health, life and
disability insurance benefits which are no less, in the aggregate, than the
amount of the benefits to which the Executive is entitled on the date of this
Agreement. Notwithstanding the foregoing, if the Executive obtains other
full-time employment, which employment provides equivalent health, life and
disability insurance benefits, the benefits described in this Section 4(b)
shall cease.
(c) The Company may withhold from any payments or
benefits due under this Agreement all federal, state, city, or other taxes as
shall be required pursuant to any law or governmental regulation or ruling. In
no event shall the Company be obligated to make any payment or provide any
benefits pursuant to Section 4(a) or 4(b) hereof after the last day of the Term
of this Agreement.
(d) In the event Executive becomes entitled to receive
the payments or benefits specified in this Agreement, he will be deemed to have
waived the right to receive any severance pay to which he might otherwise be
entitled under the present or any future severance benefit policy of the
Company or any affiliate.
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<PAGE> 3
5. SOURCE OF PAYMENT. All payments provided under
this Agreement shall be paid in cash from the general funds of the Company and
no special or separate fund shall be required to be established. Executive
shall have no right, title or interest whatever in or to any investment which
the Company may make to aid the Company in meeting its obligations hereunder.
Nothing contained in this Agreement, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind or a
fiduciary relationship between the Company and Executive or any other person.
6. ASSIGNMENT OR OTHER ALIENATION.
(a) Neither this Agreement nor any right or interest
hereunder shall be assignable by Executive or his legal representatives without
the Company's prior written consent.
(b) Except as required by law, the right to receive
payments under this Agreement shall not be subject to anticipation, sale,
encumbrance, charge, levy, or similar process or assignment by operation of
law.
7. COVENANTS. All payments to Executive under this
Agreement shall be subject to Executive's compliance with the provisions of
this Section 7. If Executive fails to comply with such provisions, the right
of Executive and all other persons to any future payments under this Agreement
shall terminate and the Company's obligations under this Agreement to make such
payments and provide such benefits shall cease.
(a) Executive shall not, directly or indirectly, at any
time, during or after his employment by the Company, disclose, use or knowingly
permit the use of any trade secrets, customer lists, or other proprietary
information relating to the Company or its affiliates except pursuant to the
lawful order of any judicial or administrative agency of government.
(b) For a period of two years after the Triggering
Event, neither Executive nor any employer or business associate of Executive
shall enter into any business arrangement with, or solicit for employment or
employ in any capacity, any person who was an employee of the Company or any of
its affiliates at any time within six months prior to Executive's Triggering
Event, or attempt to enter into any business arrangement with or employ any
such person, or induce or attempt to induce any such person to leave his or her
employment with the Company for any reason.
(c) For a period of two years after the Triggering
Event, Executive shall not directly or indirectly own, manage, operate, join,
control, or participate in or be connected with (whether as an officer,
employee, partner, stockholder, consultant or in any other capacity) any
individual proprietorship, partnership, business trust, limited liability
company, corporation or other entity or business which is engaged principally
or significantly in a business which competes with any significant business of
the Company or its affiliates. This provision shall not apply, however, to
Executive's acquiring or holding less than 1% of the securities of any entity
whose securities are listed on a national securities exchange or traded on
NASDAQ.
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<PAGE> 4
(d) Promptly upon commencing new employment, and
thereafter, Executive shall keep the Company advised of the cash compensation
to which he is entitled by virtue of such employment. Not later than February
15 of each year after the Triggering Event, Executive shall provide to the
Company (Attention: Chief Financial Officer) copies of all W-2 forms relating
to income paid to Executive during the prior calendar year.
8. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing
in this Agreement shall preclude the Company from consolidating or merging into
or with or transferring all or substantially all of its assets to another
corporation. In that event, such other corporation shall assume this Agreement
and all obligations of the Company hereunder. Upon such a consolidation,
merger, or transfer of assets and assumption, the term "the Company" as used
herein, shall mean such other corporation and this Agreement shall continue in
full force and effect.
9. ACCELERATION. If the Company fails to pay the
Executive any of the amounts due to him under Section 4(a) hereof, thirty (30)
days after having received written notice from the Executive of such failure to
pay, the Executive shall have the right to accelerate future payments of all
sums due the Executive under Section 4(a) hereof, without discount.
10. REIMBURSEMENT. If the Company fails to pay the
Executive any of the amounts due to him under Section 4(a) hereof or fails to
provide the Executive with any of the benefits due to him under Section 4(b)
hereof, thirty (30) days after having received written notice from the
Executive of such failure, the Executive shall be entitled to full
reimbursement from the Company for all costs and expenses (including reasonable
attorneys' fees) incurred by the Executive in enforcing his rights under this
Agreement, plus interest at the rate of 9% per annum on the improperly withheld
amounts or improperly withheld benefits due to the Executive under Section 4(a)
hereof or Section 4(b) hereof, respectively.
11. MISCELLANEOUS.
(a) This Agreement shall not limit or infringe upon the
right of the Company or any affiliate to terminate the employment of Executive
at any time for any reason whatsoever, nor upon the right of Executive to
terminate his employment by the Company or any affiliate. Nothing contained
herein shall confer upon Executive the right to continue as an employee of the
Company or any affiliate.
(b) This Agreement contains the entire agreement between
Executive and Company regarding the subject matter hereof and supersedes any
prior oral or written understanding.
(c) This Agreement may not be amended or supplemented,
nor may any provision be waived, except by an instrument in writing signed by
the parties hereto. This Agreement shall be binding upon and inure to the
benefit of the Executive and his personal representatives, executors,
administrators and heirs; provided, however, no payment shall be due hereunder
after the death or permanent disability of Executive.
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<PAGE> 5
(d) If any provision of this Agreement shall be held
invalid in part, such invalidity shall in no way affect the rest of such
provisions not held so invalid. The rest of such provision, together with all
other provisions of this Agreement, shall to the full extent consistent with
law continue in full force and effect.
(e) The headings of the Sections of this Agreement are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
(f) This Agreement has been executed and delivered in
the Commonwealth of Pennsylvania and its validity, interpretation, performance,
and enforcement shall be governed by the internal laws of such Commonwealth,
without regard to any conflict of laws principles. The principle of
construction that ambiguities are construed against the draftsperson shall not
apply to this document.
(g) Any dispute or disagreement between Executive and
the Company with respect to any portion of this Agreement or its validity,
construction, meaning, performance or Executive's rights hereunder shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association or its successor, as amended from time to
time. However, prior to submission to arbitration Executive will attempt to
resolve any disputes or disagreements with the Company over this option
amicably and informally, in good faith, for a period not to exceed two weeks.
Thereafter, the dispute or disagreement will be submitted to arbitration. At
any time prior to a decision from the arbitrator(s) being rendered, Executive
and the Company may resolve the dispute by settlement. Executive and the
Company shall equally share the costs charged by the American Arbitration
Association or its successor, but Executive and the Company shall otherwise be
solely responsible for their own respective counsel fees and expenses. The
decision of the arbitrator(s) shall be made in writing, setting forth the
award, the reasons for the decision and award and shall be binding and
conclusive on Executive and the Company. Further, neither Executive nor the
Company shall appeal any such award. Judgment of a court of competent
jurisdiction may be entered upon the award and may be enforced as such in
accordance with the provisions of the award.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
HANOVER FOODS CORPORATION
/s/ Alan T. Young (SEAL) By: /s/ John A. Warehime
- ------------------------------ -----------------------------------
Alan T. Young John A. Warehime, Chairman
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<PAGE> 1
EXHIBIT 10(p)
HANOVER FOODS CORPORATION
VOTING AGREEMENT
John R. Miller, Jr. hereby agrees that, for a four (4) year period
beginning on April 1, 1997 and ending on March 31, 2001, he will vote all
shares of stock (whether Class A, Class B or otherwise) of Hanover Foods
Corporation (a Pennsylvania corporation) which he is entitled to vote (whether
at shareholders meetings or otherwise) as directed by the Board of Directors of
the Hanover Foods Corporation, provided that Clayton J. Rohrbach, Jr., Arthur
S. Schaier, Cyril T. Noel, or a majority of them, vote in favor of the
direction. John R. Miller, Jr. agrees that this Voting Agreement shall be
binding upon him and upon his estate, heirs, executors, administrators and
other representatives and he intends to be legally bound hereby. John R.
Miller Jr. hereby revokes any proxy previously given with respect to the shares
of stock of Hanover Foods Corporation. This Voting Agreement may not be
amended, supplemented, waived or terminated except by a written instrument
executed by John R. Miller, Jr. and Hanover Foods Corporation, acting through
its Board of Directors. This Voting Agreement is executed pursuant to Section
1768(b) of the Pennsylvania Business Corporation Law of 1988 as amended and
shall be governed by the laws of the Commonwealth of Pennsylvania applicable to
contracts made and to performed solely in Pennsylvania.
/s/ John R. Miller Jr. (SEAL)
--------------------------------
JOHN R. MILLER, JR.
DATED: April 22, 1997
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<PAGE> 1
EXHIBIT 10(q)
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 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.
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<PAGE> 1
EXHIBIT 11
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Computations of Per Share Earnings
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Nine weeks
Fiscal years ended ended
------------------ -------
Proforma
June 1, June 2, March 31, April 2, June 2,
1997 1996 1996 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary:
Net earnings (loss) $6,706,000 $413,000 $420,000 $1,888,000 ($1,131,000)
Preferred stock dividends (31,000) (39,000) (31,000) (33,000) (8,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to 6,675,000 374,000 389,000 1,855,000 (1,139,000)
common stock
- ---------------------------------------------------------------------------------------------------------------------------------
Shares:
Weighted average number of shares
outstanding 720,811 728,677 729,608 734,252 722,667
- ---------------------------------------------------------------------------------------------------------------------------------
Primary earnings (loss) per share $9.26 $0.51 $0.53 $2.53 ($1.58)
- ---------------------------------------------------------------------------------------------------------------------------------
Fully diluted:
Net earnings (loss) $6,706,000 $413,000 $420,000 $1,888,000 ($1,131,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Shares:
Weighted average number of shares
outstanding 720,811 728,677 729,608 734,252 722,667
Assuming conversion of preferred
stock into common stock 6,604 6,340 6,340 6,458 6,454
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 727,415 735,017 735,948 740,710 729,121
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share assuming $9.22 $0.56 $0.57 $2.55 ($1.55)
full dilution
- ---------------------------------------------------------------------------------------------------------------------------------
</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.
151
<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>
-152-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 3,312
<SECURITIES> 0
<RECEIVABLES> 22,954
<ALLOWANCES> 0
<INVENTORY> 41,424
<CURRENT-ASSETS> 71,377
<PP&E> 115,784
<DEPRECIATION> 66,822
<TOTAL-ASSETS> 124,031
<CURRENT-LIABILITIES> 54,255
<BONDS> 18,453
788
0
<COMMON> 21,057
<OTHER-SE> 25,312
<TOTAL-LIABILITY-AND-EQUITY> 124,031
<SALES> 259,439
<TOTAL-REVENUES> 259,439
<CGS> 195,086
<TOTAL-COSTS> 195,086
<OTHER-EXPENSES> 49,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,666
<INCOME-PRETAX> 10,987
<INCOME-TAX> 4,281
<INCOME-CONTINUING> 6,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,706
<EPS-PRIMARY> 9.26
<EPS-DILUTED> 9.26
</TABLE>
