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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 May 30, 1999
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)
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PENNSYLVANIA 23-0670710
(State or other jurisdiction of incorporation or organization) (IRS Employer I.D. No.)
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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:
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Name Of Each Exchange On
Title Of Each Class Which Registered
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Class A Nonvoting Common Stock None
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
As of August 10, 1999, the estimated aggregate market value of Class B Voting
Common Stock held by non-affiliates of the Registrant was $582,060. As of August
10, 1999, the estimated aggregate market value of Class A Nonvoting Common Stock
held by non-affiliates of the Registrant was $14,296,740. (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 426,474 shares of
Class B Voting Common Stock outstanding as of August 10, 1999. There were
289,414 shares of Class A Nonvoting Common Stock outstanding as of August 10,
1999.
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PART I
ITEM 1. BUSINESS
Forward Looking Statements
When used in this Annual Report, 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, foreign operations and risks
associated with the Year 2000 Issue. Such factors, which are discussed in the
Annual Report, 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
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 three
(3) operating divisions: Hanover, L. K. Bowman Co., and Bickel's Potato Chip Co.
In addition, the Corporation has five (5) wholly-owned subsidiaries, Tri-Co.
Foods Corp., Consumers Packing Corporation, 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, canned and frozen mushrooms, fresh foods and snack food
products in the eastern United States. The Corporation's raw materials are
readily available, and the Corporation 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. 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, a frozen soft pretzel, refrigerated food, canned, frozen mushrooms and
snack food 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 seven (7) plants in Pennsylvania, one (1)
plant in Delaware, one (1) plant in New Jersey, two (2) plants in Guatemala and
one (1) plant in California.
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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), SPRING GLEN FRESH FOODS, SUNNYSIDE
FOODS, NOTTINGHAM, BICKEL'S and DRAPER KING COLE. 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, canned and frozen mushrooms and potato chips. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Year
Ended May 30, 1999 Results of Operations Compared to Year Ended May 31, 1998" in
the 1999 Annual Report attached hereto as Exhibit 13 (the "Annual Report").
DISTRIBUTION
The Corporation's products are marketed under its brand labels and customer
private labels to the consumer for home use and also to the food service trade
which includes restaurants, fast food chains, hospitals and schools as well as
military and other governmental uses. The Corporation's ten largest customers
account for approximately 35% of the Corporation's net sales for the fiscal year
ended May 30, 1999 and 21% of accounts receivable as of May 30, 1999. No single
customer accounted for more than approximately 10% of net sales for the fiscal
years ended May 30, 1999, May 31, 1998, and June 1, 1997. 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.
The Corporation competes with national processors such as Agrilink Foods and
Campbell Foods and area processors such as Bush.
TRADEMARKS
The Corporation has various registered and unregistered trademarks, service
marks and licenses which are of material importance to the Corporation's
business.
BACKLOG OF ORDERS
The Corporation manufactures against customer forecasts and orders. While at any
given time there may be a backlog of orders, such backlog is not material to
total sales, nor are the changes from time to time significant.
RESEARCH AND DEVELOPMENT
The Corporation engages in research and development of new products and
improvement of existing products as well as the improvement and modernization of
its operating plants and equipment. See Note 1 of the Notes to Consolidated
Financial Statements in the Annual Report.
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.
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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 -
Regulation" and "Legal Proceedings."
ENVIRONMENTAL CONSIDERATIONS
The Corporation continually makes investments to comply with all federal, state
and local laws, environmental rules and regulations. To date, 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. No
supplier provides more than 10% of the raw materials or packaging materials
purchased by the Corporation.
EMPLOYEES
The Corporation, its divisions and subsidiaries currently employ approximately
1,856 employees on a full-time and a seasonal basis. Approximately 1,475
employees are employed in the United States and 390 are employed in Guatemala.
A total of 684 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, 1998 and ending December 31, 2001. 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 3,000 independent farmers in Guatemala for the growing and
harvesting of broccoli, cauliflower, okra and Brussels sprouts. The raw
vegetable product purchased by the Corporation is frozen at one of two
Corporation plants located at San Jose Pinula, Guatemala and Teculutan,
Guatemala.
Sunwise Corporation imports and distributes the Guatemalan product to Hanover
Foods Corporation.
The business of the Corporation in Guatemala is subject to the laws of Guatemala
which may place restrictions and controls on such matters as ownership, imports
and exports, prices, product lines and transfer of funds, and is also subject to
the fluctuating exchange rate between the Guatemalan quetzal and the U.S.
dollar. See "Management's
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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" in the Annual Report.
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Information with respect to the revenue, cost of sales and identifiable assets
for the Corporation's foreign operations is set forth in Note 11 to the
Consolidated Financial Statements entitled "Foreign Operations" in the Annual
Report.
RISK FACTORS
Industry Conditions and Price and Volume Fluctuations
The Corporation's financial performance and growth are related to conditions in
the food 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" in the Annual Report.
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 Corporation are agricultural
crops, production of products using these crops is predominantly seasonal. As a
result, the Corporation 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 Operations" in the Annual Report.
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.
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
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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.
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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 that country. Some
of these are more pronounced in third world countries such as Guatemala. At May
30, 1999, the total assets of the Corporation's foreign operations were
approximately $9.0 million.
Year 2000
As part of its Year 2000 compliance program, the Corporation is contacting and
surveying vendors and customers with whom the Corporation does a material amount
of business to determine whether these parties' systems (to the extent they
relate to the Corporation's business) are subject to Year 2000 issues. The
failure of the Corporation's material vendors or customers to convert their
systems on a timely basis may have a material adverse effect on the
Corporation's operations. The Corporation is in the process of developing a
contingency plan in the event these vendors or customers with which the
Corporation does a material amount of business are not Year 2000 compliant on a
timely basis.
The Corporation has performed a review of its non-information technology and
believes that all such technology is Year 2000 compliant. Currently the
Corporation does not have a contingency plan in the event that correction has
not been timely made.
ITEM 2. PROPERTIES
The following is a list of the Corporation's manufacturing, processing and
warehousing properties. The Corporation owns each of the properties, except as
noted.
UNITED STATES
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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.
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Plumsteadville, PA - Frozen food entrees, meat pies and soups manufacture. Dry and frozen
storage.
Nottingham, PA - Canned mushrooms, dry storage.
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Ephrata, PA - Refrigerated, fresh foods and soups manufacture. Dry, refrigerated and
frozen storage.
Manheim, PA - Potato chip manufacturer, dry storage.
Millville, NJ - Refrigerated, fresh foods and soups manufacture. Dry, refrigerated and
frozen storage. The building and land is leased from Purity Group, Inc.
which lease expires January 15, 2000. All equipment is owned by the
corporation.
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
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) a
count requesting removal of John A. Warehime as the voting trustee of the voting
trusts.
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). The suit also names 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.) 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. An appeal has been filed from the Court's June
24, 1997 Order. On May 12, 1997, a written demand was received by the
Corporation from the attorney for those Class A common stockholders containing
similar allegations and the allegations raised by the Class A common
stockholders were investigated by a special independent committee of the Board
of Directors and found to be without merit.
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, John A. Warehime, in his capacity as voting trustee, and all
certain directors of the Corporation 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.
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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 stockholders), Michael A.
Warehime, John A. Warehime, Sally W. Yelland, J. William Warehime, and Elizabeth
W. Stick (all members of the Warehime family), do not agree in writing to the
composition of the Company's 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 shareholders may become entitled to vote in the manner described in the
Amended and Restated Articles. The Amended and Restated Articles created a
Series C Convertible Preferred Stock, which, in case of a dispute among the
abovementioned members of the Warehime family on Board of Directors composition
or other important matters, would be entitled to 35 votes per share (a total of
350,000 votes based on 10,000 shares of Series C Convertible Preferred Stock
issued to and held by the Trustees of the Company's 401(k) Savings Plan); if the
Series C Convertible Preferred Stock were entitled to vote because of such
dispute, each share of Class A Common Stock would be entitled to 1/10th of a
vote per share.
The Amended and Restated Articles create a Series C Convertible Preferred Stock
and 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 in his capacity as voting trustee) 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 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. Michael A. Warehime has filed an appeal. 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, in his capacity as voting trustee) 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 Corporation Manual.
Michael Warehime filed an appeal from the denial of his motion to enjoin the
previously Amended and Restated Articles and the Amendment thereto. On December
2, 1998, the Pennsylvania Superior Court, in a two to one decision, held that
although John Warehime had acted in good faith and in the best interest of the
Corporation in voting for the Amended and Restated Articles as trustee of the
Warehime voting trust, Mr. Warehime nevertheless breached his fiduciary duty to
the beneficiaries of the Warehime voting trust in so voting. On December 16,
1998, Michael Warehime filed a motion for clarification requesting that the
Pennsylvania Superior Court issue an order invalidating the Amended and Restated
Articles and that motion was denied in banc. On March 10, 1999, John
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Warehime and the other directors filed a petition for allowance of appeal with
the Pennsylvania Supreme Court and no decision has as yet been rendered.
On August 13, 1999, Michael Warehime filed a complaint in equity in the Court of
Common Pleas of York County, Pennsylvania, naming as defendants Arthur S.
Schaier, Cyril T. Noel, Clayton J. Rohrbaugh, Jr., John A. Warehime, and the
Company. The complaint seeks a court order declaring that the September 1999
election for the board of directors of the Company be conducted in accordance
with the Articles of Incorporation of the Company as they existed prior to June
25, 1997, an order declaring that the Series C Convertible Preferred Stock
cannot be voted, and an order that the following candidates for the board of
directors of the Company proposed by Michael Warehime. Sally Yelland, Elizabeth
Stick and J. William Warehime be accepted by the Company and listed on the
ballot to be distributed at the annual meeting of shareholders of the Company to
be held on September 16,1999: Michael Warehime, Daniel Meckley, Michael Stick,
Sonny Bowman, and John Denton. The basis for the complaint was the December 2,
1998 decision of the Pennsylvania Superior Court, which is currently on appeal
to the Pennsylvania Supreme Court, which held that John A. Warehime had breached
his fiduciary duties in voting for the Amended and Restated Articles as trustee
of the Warehime voting trust. The complaint also requested that John A. Warehime
pay all costs incurred by the Company in response to the suit as well as award
Michael Warehime costs and fees and grant such other relief as equity and
justice require.
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
Corporation's consolidated financial position, results of operations or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information contained under the caption "Market for the Registrant's Common
Stock and Related Stockholder Matter" on page 34 of the Corporation's Annual
Report to Shareholders for the year ended May 30, 1999 is incorporated herein by
reference in response to this item.
ITEM 6. SELECTED FINANCIAL DATA
Information contained under the caption "Financial Highlights Five Year" on page
7 of the Corporation's Annual Report to Shareholders for the year ended May 30,
1999 is incorporated herein by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated by reference from the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Corporation's
Annual Report to Shareholders for the year ended May 30, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference from the section entitled Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Corporation's
Annual Report to Shareholders for the year ended May 30, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Financial statements for Hanover Foods Corporation and Subsidiaries are
contained on pages 9 through 33 of the Corporation's Annual Report to
Shareholders for the year ended May 30, 1999, and quarterly financial data is
contained on page 34 of the Corporation's annual report to shareholders for the
year ended May 30, 1999 and are incorporated herein by reference in response to
this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Incorporated by reference from the Corporation's 1999 Proxy Statement which was
previously filed with SEC on August 16, 1999.
(b) EXECUTIVE OFFICERS OF THE CORPORATION WHO ARE NOT ALSO DIRECTORS (AS OF
AUGUST 10, 1999)
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NAME, AGE, AND TERM PRINCIPAL OCCUPATION DURING
OF OFFICE PAST FIVE (5) YEARS
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GARY T. KNISELY, ESQUIRE Executive Vice President - 1995-Present;
Executive Vice President & Secretary Vice President - Administration - 1989-1995;
1995-Present Counsel-1987-Present; Secretary-1987-
Age: 50 Present. Mr. Knisely also acts as Chief
Financial Officer of the Corporation
(January 1996 - Present).
PEITRO D. GIRAFFA, JR. Vice President-Controller-1996-Present;
Vice President-Controller Controller-1984-1996. Mr. Giraffa also
1984-Present Chief Accounting Officer of the Corporation
Age: 53 (1996-Present).
ALAN T. YOUNG Vice President-Transportation-1996-Present;
Vice President-Purchasing & Vice President-Operations-1991-1996;
Transportation Director of Corporate Logistics-1990-1991;
1996-Present Manager of Corporate Systems-1986-1990.
Age: 56
EDWARD L. BOECKEL, JR. Treasurer-July 1997-Present; Banking &
Treasurer Insurance Manager-1995-1997; Vice
1997-Present President CoreStates Bank-1992-1995.
Age: 48
</TABLE>
(d) FAMILY RELATIONSHIPS OF DIRECTORS AND EXECUTIVE OFFICERS
None.
(h) SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
<PAGE> 14
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 the Corporation Class A 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
May 30, 1999, all filing requirements applicable to its directors and
officers were complied with in a timely fashion.
<PAGE> 15
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Corporation's 1999 Proxy Statement which was
previously filed with SEC on August 16, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
CERTAIN SECURITY HOLDERS
Incorporated by reference from the Corporation's 1999 Proxy Statement which was
previously filed with SEC on August 16 , 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Corporation's 1999 Proxy Statement which was
previously filed with SEC on August 16, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Hanover Foods Corporation and Subsidiaries (See Exhibit 13)
2. Financial Statement Schedules
None
All schedules are omitted because they are not applicable or not required, or
because the required information is included in the financial statements or
notes thereto.
3. Exhibits
The following exhibits are filed herein or have been
previously filed with the Securities and Exchange Commission
and are incorporated by reference herein.
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3(a) Registrant's Amended and Restated By-laws enacted
June 24, 1998 it is incorporated by reference to the
form 10-K filed on September 1, 1998, wherein such
Exhibit is designated as 3 (a).
3(b) Registrant's Amended and Restated Articles of
Incorporation is incorporated by reference to the
form 10-K filed on September 1, 1998, wherein such
Exhibit is designated as 3(b).
3(c) Amendment No. 1 to Registrant's Amended and Restated
Articles of Incorporation is incorporated by
reference to the form 10-K filed on September 1,
1998, wherein such Exhibit is designated as 3(c).
Registrants Amended and Restated By-laws enacted
January 15,
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3(d) 1999 is attached as Exhibit 3(d).
4(a) Note Agreement dated as of December 1, 1991, between
the Corporation and Allstate Life Insurance
Corporation, 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 Corporation (the "Note Agreement") and
Waiver of Compliance with Section 5.9 of the Note
Agreement is incorporated herein by reference to the
Form 10-K filed on July 3, 1995, wherein such Exhibit
is designated as 4(b).
4(c) June 24, 1996 waiver to covenants in the December 1,
1991 Note Agreement between the Corporation and
Allstate Life Insurance Corporation (the "Note
Agreement") is incorporated herein by reference to
the Form 10-K filed on July 2, 1996, wherein such
Exhibit is designated as 4(c).
4(d) July 1, 1996 Second Amendment to December 1, 1991
Note Agreement between the Corporation and Allstate
Life Insurance Corporation (the "Note Agreement") is
incorporated by reference to the Form 10-K filed on
August 27, 1997, wherein such Exhibit is designated
as 4(d).
4(e) August 1, 1997 Third Amendment to December 1, 1991
Note Agreement between the Corporation and Allstate
Life Insurance Corporation (the "Note Agreement") is
attached as Exhibit 4(e).
4(f) March 15, 1999 Fourth Amendment to December 1, 1991
Note Agreement between the Corporation and Allstate
Life Insurance
4(g) Corporation (the "Note Agreement") is attached as
Exhibit 4(f). July 26, 1999 waiver to covenants in
the December 1, 1991 Note Agreement between the
Corporation and Allstate Life Insurance Corporation
(the "Note Agreement") is attached as Exhibit 4(g).
9(a) April 5, 1988 Voting Trust Agreement is incorporated
herein by reference to the Form 10 filed July 28,
1989, wherein such Exhibit is designated as 9(a).
9(b) December 1, 1988 Voting Trust Agreement is
incorporated herein by reference to the Form 10 filed
July 28, 1989, wherein such Exhibit is designated as
9(b).
9(c) Writing dated April 5, 1988 appointing John A.
Warehime as Successor Voting Trustee under Voting
Trust Agreement dated December 1, 1988, is
incorporated herein by reference to the
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
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 the Form 10-K filed July 3, 1995,
wherein such Exhibit is designated as 10(f).
10(g) June 12, 1995 Employment Agreement between Hanover
Foods Corporation and John A. Warehime is
incorporated herein by reference to the Form 10-K
filed July 3, 1995, wherein such Exhibit is
designated as 10(g). *
10(h) April 4, 1994 Lease Agreement between John A. and
Patricia M. Warehime and Hanover Foods Corporation is
incorporated herein by reference to the Form 10-K
filed July 2, 1996, wherein such Exhibit is
designated as 10(h).
10(i) July 27, 1995 Installment Sales Agreement for the
purchase of 5,148 shares of Hanover Foods Class B
Voting Common Stock
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
from Cyril T. Noel, individually, and Cyril T. Noel
and Frances L. Noel, jointly, is incorporated herein
by reference to the Form 10-K filed July 2, 1996,
wherein such Exhibit is designated as 10(i).
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 the Form
10-K filed July 2, 1996, wherein such Exhibit is
designated as 10(j).
10(k) January 23, 1997 Employment Agreement between Hanover
Foods Corporation and Gary T. Knisely is incorporated
herein by reference to the Form 10-K filed August 27,
1997, wherein such Exhibit is designated 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 incorporated
herein by reference to the Form 10-K filed August 27,
1997, wherein such Exhibit is designated 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 incorporated
herein by reference to the Form 10-K filed August 27,
1997, wherein such Exhibit is designated 10(m).*
10(n) May 21, 1997 Senior Executive Agreement between
Hanover Foods Corporation and Clement A. Calabrese is
incorporated herein by reference to the Form 10-K
filed August 27, 1997, wherein such Exhibit is
designated 10(n). *
10(o) May 21, 1997 Senior Executive Agreement between
Hanover Foods Corporation and Alan T. Young is
incorporated herein by reference to the Form 10-K
filed on August 27, 1997, wherein such Exhibit is
designated 10(o). *
10(p) April 22, 1997 John R. Miller, Jr. Voting Agreement
is incorporated herein by reference to the Form 10-K
filed on August 27, 1997, wherein such Exhibit is
designated as 10(p). *
10(q) Annual Top Management Cash Bonus Program is attached
as Exhibit 10(q). *
13 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following financial statements of Hanover Foods
Corporation and Subsidiaries are incorporated herein
by reference to the Corporation's Annual Report to
Shareholders for the year ended May 30, 1999.
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
Independent Auditors' Report
Consolidated Statements of Earnings for the Years
Ended May 30, 1999, May 31, 1998, and June 1, 1997.
Consolidated Balance Sheets for the Years Ended May
30, 1999 and May 31, 1998.
Consolidated Statements of Comprehensive Income for
the Years Ended May 30, 1999, May 31, 1998, and June
1, 1997.
Consolidated Statements of Cash Flows for the Years
Ended May 30, 1999, May 31, 1998, and June 1, 1997.
Consolidated Statements of Stockholders' Equity for
the Years Ended May 30, 1999, May 31, 1998, and June
1, 1997.
Notes to Consolidated Financial Statements for the
Years Ended May 30, 1999 and May 31, 1998.
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>
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
None.
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 30, 1999.
HANOVER FOODS CORPORATION
By: /s/ John A. Warehime
-----------------------
JOHN A. WAREHIME
Chairman, President and
Chief Executive Officer
<PAGE> 20
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 30, 1999
By: /s/ John A. Warehime By: /s/ Clayton J. Rohrbach, Jr.
------------------------------- ----------------------------
John A. Warehime Clayton J. Rohrbach, Jr.
Chairman, President, Director
Chief Executive Officer and
Director
By: /s/ Gary T. Knisely By: /s/ James G. Sturgill
------------------------------- ----------------------------
Gary T. Knisely James G. Sturgill
Executive Vice President Director
(Chief Financial Officer)
By: /s/ Pietro D. Giraffa, Jr. By: /s/ James A. Washburn
------------------------------- ----------------------------
Pietro D. Giraffa, Jr. James A. Washburn
Vice President - Controller Director
(Chief Accounting Officer)
By: /s/ Arthur S. Schaier By: /s/ Cyril T. Noel
------------------------------- ----------------------------
Arthur S. Schaier Cyril T. Noel
Director Director
By: /s/ T. Edward Lippy
-------------------------------
T. Edward Lippy
Director
<PAGE> 21
HANOVER FOODS CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
3(a) Registrant's Amended and Restated By-laws enacted July 24, 1998 are
incorporated by reference to the Form 10-K filed September 1, 1998,
wherein such Exhibit is designated 3(a).
3(b) Registrant's Amended and Restated Articles of Incorporation are
incorporated herein by reference to the Form 10-K filed August 27,
1997, wherein such Exhibit is designated 3(b).
3(c) Amendment No. 1 to Registrant's Amended and Restated Articles of
Incorporation is incorporated herein by reference to the Form 10-K
filed August 27, 1997, wherein such Exhibit is designated 3(c).
3(d) Registrant's Amended and Restated By-laws enacted January 15, 1999 are
attached as Exhibit 3(d).
4(a) Note Agreement dated as of December 1, 1991, between the Corporation
and Allstate Life Insurance Corporation, 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 incorporated herein by reference to the Form
10-K filed August 27, 1997, wherein such Exhibit is designated 4(a).
4(b) June 20, 1995 First Amendment to December 1, 1991 Note Agreement
between the Corporation and Allstate Life Insurance Corporation (the
"Note Agreement") and Waiver of Compliance with Section 5.9 of the Note
Agreement is incorporated herein by reference to the Form 10-K filed
July 3, 1995, wherein such Exhibit is designated 4(b).
4(c) June 24, 1996 waiver to covenants in the December 1, 1991 Note
Agreement between the Corporation and Allstate Life Insurance
Corporation (the "Note Agreement") is incorporated herein by reference
to the Form 10-K filed July 2, 1996, wherein such Exhibit is designated
4(c).
4(d) July 1, 1996 Second Amendment to December 1, 1991 Note Agreement
between the Corporation and Allstate Life Insurance Corporation (the
"Note Agreement") is incorporated herein by reference to the Form 10-K
filed August 27, 1998, wherein such Exhibit designated 4(d).
4(e) August 1, 1997 Third Amendment to December 1, 1991 Note Agreement
between the Corporation and Allstate Life Insurance Corporation (the
"Note Agreement") is attached as Exhibit 4(e).
</TABLE>
-22-
<PAGE> 22
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
4(f) March 15, 1999 Fourth Amendment to December 1, 1991 Note Agreement
between the Corporation and Allstate Life Insurance Corporation (the
"Note Agreement") is attached as Exhibit 4(f).
July 26, 1999 waiver to covenants in the December 1, 1991 Note
4(g) Agreement between the Corporation and Allstate Life Insurance
Corporation (the "Note Agreement") is attached as Exhibit 4(g).
9(a) April 5, 1988 Voting Trust Agreement is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such Exhibit is
designated as 9(a).
9(b) December 1, 1988 Voting Trust Agreement is incorporated herein by
reference to the Form 10 filed July 28, 1989, wherein such Exhibit is
designated as 9(b).
9(c) Writing dated April 5, 1988 appointing John A. Warehime as Successor
Voting Trustee under Voting Trust Agreement dated December 1, 1988, is
incorporated herein by reference to the Form 8-K filed June 1, 1990,
wherein such Exhibit is designated as 9(c).
9(d) Writing dated December 1, 1988 appointing John A. Warehime as Successor
Voting Trustee under Voting Trust Agreement dated December 1, 1988, is
incorporated herein by reference to the Form 8-K filed June 1, 1990,
wherein such Exhibit is designated as 9(d).
10(a) April 28, 1988 Sublease Agreement between Warehime Enterprises, Inc.
and Hanover Brands, Inc., is incorporated herein by reference to the
Form 10 filed July 28, 1989, wherein such Exhibit is designated as
10(a).
10(b) April 28, 1988 Agreement of Sale between Warehime Enterprises, Inc. and
Hanover Brands, Inc., is incorporated herein by reference to the Form
10 filed July 28, 1989, wherein such Exhibit is designated as 10(b).
10(c) March 3, 1989 Agreement of Sale between Warehime Enterprises, Inc. and
Hanover Brands, Inc., is incorporated herein by reference to the Form
10 filed July 28, 1989, wherein such Exhibit is designated as 10(c).
10(d) 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 the Form 10-K filed July 3, 1995, wherein such
Exhibit is designated 10(f).
</TABLE>
-23-
<PAGE> 23
<TABLE>
<S> <C>
10(g) June 12, 1995 Employment Agreement between Hanover Foods Corporation
and John A. Warehime is incorporated herein by reference to the Form
10-K filed July 3, 1995, wherein such Exhibit is designated 10(g). *
10(h) April 4, 1994 Lease Agreement between John A. and Patricia M. Warehime
and Hanover Foods Corporation is incorporated herein by reference to
the Form 10-K filed July 2, 1996, wherein such Exhibit is designated
10(t).
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 the Form 10-K filed July 2, 1996,
wherein such Exhibit is designated 10(u).
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 the Form 10-K filed July 2,
1996, wherein such Exhibit is designated 10(v).
10(k) January 23, 1997 Employment Agreement between Hanover Foods Corporation
and Gary T. Knisely is incorporated herein by reference to the Form
10-K filed August 27, 1997, wherein such Exhibit is designated 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 incorporated
herein by reference to the Form 10-K filed August 27, 1997, wherein
such Exhibit is designated 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 incorporated
herein by reference to the Form 10-K filed August 27, 1997, wherein
such Exhibit is designated 10(m). *
10(n) May 21, 1997 Senior Executive Agreement between Hanover Foods
Corporation and Clement A. Calabrese is incorporated herein by
reference to the Form 10-K filed August 27, 1997, wherein such Exhibit
is designated 10(n). *
10(o) May 21, 1997 Senior Executive Agreement between Hanover Foods
Corporation and Alan T. Young is incorporated herein by reference to
the Form 10-K filed August 27, 1997, wherein such Exhibit is designated
10(o). *
10(p) April 22, 1997 John R. Miller, Jr. Voting Agreement is incorporated
herein by reference to the Form 10-K filed August 27, 1997, wherein
such Exhibit is designated 10(p). *
10(q) Annual Top Management Cash Bonus Program is attached as Exhibit 10(q).
*
</TABLE>
-24-
<PAGE> 24
-25-
<PAGE> 25
<TABLE>
<S> <C>
13 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following financial statements of Hanover Foods Corporation and
Subsidiaries are incorporated herein by reference to the Corporation's
Annual Report to Shareholders for the year ended May 30, 1999
Independent Auditors' Report
Consolidated Statements of Earnings for the Years Ended May 30, 1999,
May 31, 1998 and June 1, 1997.
Consolidated Balance Sheets for the Years Ended May 30, 1999, May 31,
1998 and June 1, 1997.
Consolidated Statements of Comprehensive Income for the Years Ended May
30, 1999, May 31, 1998 and June 1, 1997.
Consolidated Statements of Cash Flows for the Years Ended May 30, 1999,
May 31, 1998 and June 1, 1997.
Consolidated Statements of Stockholders' Equity for the Years Ended May
30, 1999, May 31, 1998 and June 1, 1997.
Notes to Consolidated Financial Statements for the Years Ended May 30,
1999, May 31, 1998 and June 1, 1997.
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>
* Management contract or compensatory plan or arrangement.
-26-
<PAGE> 1
EXHIBIT 3(d)
HANOVER FOODS CORPORATION
Amended and Restated Bylaws
These Bylaws are supplemental to the Pennsylvania
Business Corporation Law of 1988, as the same shall
from time to time be in effect.
ARTICLE I. GENERAL
Section 1 Office
The principal office of Hanover Foods Corporation (the "Corporation") shall be
in Penn Township, York County, Pennsylvania.
Section 2 Seal
The Corporation shall have a common seal containing the words 'Hanover Foods
Corporation - Pennsylvania" in a circle within which the word 'SEAL" is
contained.
Section 3 Fiscal Year
The fiscal year of the Corporation shall end with the close of business on
Sunday nearest May 3lst.
ARTICLE II. SHAREHOLDERS
Section 1 Place of Shareholders' Meetings.
All meetings of the shareholders shall be held at such place or places, inside
or outside the Commonwealth of Pennsylvania, as determined by the Board of
Directors from time to time.
Section 2 Annual Shareholders' Meeting.
The annual meeting of the shareholders for the election of directors and the
transaction of such other business as may properly come before such meeting
shall be held at such time and place as determined by the Board of Directors.
Any business which is a proper subject for shareholder action may be transacted
at the annual meeting, irrespective of whether the notice of said meeting
contains any reference thereto, except as otherwise provided by applicable law.
-27-
<PAGE> 2
Section 3 Special Meetings of Shareholders.
Special meetings of the shareholders may be called at any time by the Board of
Directors or the Chairman or the Chief Executive Officer or as provided by
applicable law.
Section 4 Conduct of Shareholders' Meetings.
The Chairman shall preside at all shareholders' meetings. In the absence of the
Chairman, the Chief Executive Officer shall preside, or in his absence, the
Secretary shall preside or, in his absence, any officer designated by the Board
of Directors shall preside. The officer presiding over the shareholders' meeting
may establish such rules and regulations for the conduct of the meeting as he or
she may deem to be reasonably necessary or desirable for the orderly and
expeditious conduct of the meeting. Unless the officer presiding over the
shareholders' meeting otherwise requires, shareholders need not vote by ballot
on any questions.
Section 5 Proposals by Shareholders.
Any proposal by a shareholder which is to be submitted for consideration by
shareholders at such meeting must be submitted by June 1 of the year in which
the annual shareholders meeting is to be held All late proposals shall be
disregarded by the Chairman of the meeting. Notwithstanding the foregoing, even
if a shareholder proposal is submitted before the June 1 deadline, the Chairman
of the annual meeting shall not be required to submit the proposal to the
shareholders if the Chairman is advised by legal counsel that such proposal is
not required to be submitted to shareholders under the Pennsylvania Business
Corporation Law of 1988 (which, as amended from time to time, is hereafter
called the "BCL").
ARTICLE III. DIRECTORS
Section 1 Management by Board of Directors.
The business and affairs of the Corporation shall be managed by its Board of
Directors who need not be residents of the Commonwealth of Pennsylvania or
shareholders of the Corporation. The Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute, regulation, the Amended and Restated Articles of Incorporation (the
"Articles") or these Amended and Restated Bylaws (the "Bylaws") directed or
required to be exercised or done by the shareholders.
-28-
<PAGE> 3
Section 2 Nomination for Directors.
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
Secretary in writing not later than June I of the calendar year in 'which the
meeting to elect the director or directors is to be held. A nomination, other
than those made by or on behalf of the Board of Directors, shall contain or be
accompanied by the following:
(1) The name and address of each proposed nominee;
(2) The qualifications of each proposed nominee;
(3) All other information required by Schedule 14A adopted by
the Securities and Exchange Commission under the Securities
Exchange Act of 1934; and
(4) Written confirmation executed by the proposed nominee that
such proposed nominee has agreed to serve if elected.
Nominations not made in accordance with this Section shall be disregarded by the
Chairman of the meeting and the judge or judges of Election shall disregard all
votes cast for that nominee.
Section 3 Number and Classification of Directors.
The Board of Directors shall consist of not less than seven (7) and not more
than fifteen (15) directors. The Board of Directors may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Articles or by these Bylaws directed or required to be exercised or
done by the shareholders. The Board of Directors shall be divided into four (4)
classes, as described in the Articles.
Section 4 Resignations of Directors.
Any director may resign at any time. Such resignation shall be in writing, but
the acceptance thereof shall not be necessary to make it effective.
Section 5 Compensation of Directors.
No director shall be entitled to any salary, as such, but the Board of Directors
may fix, from time to time, a reasonable annual fee for acting, as a director
and a reasonable fee to be paid each director for his or her services in
attending meetings of the Board or committees thereof.
-29-
<PAGE> 4
Section 6 Regular Meetings.
Regular meetings of the Board of Directors shall be held on such day, at such
hour, and at such place, consistent with applicable law, as the Board shall from
time to time designate or as may be designated in any notice from the Secretary
calling the meeting. The Board of Directors shall meet for reorganization at the
first regular meeting following the annual meetings of shareholders at which the
directors are elected. Notice need not be given of regular meetings of the Board
of Directors which are held at the time and place designated by the Board of
Directors. If a regular meeting is not to be held at the time and place
designated by the Board of Directors, notice of such meeting, which need not
specify the business to be transacted thereat and which may be either oral or
written, shall be given by the Secretary to each member of the Board at least
twenty-four hours before the time of the meeting.
Section 7 Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman and
shall be called whenever a majority of the members of the Board so request in
writing. A special meeting of the Board of Directors shall be deemed to be any
meeting other than the regular meeting of the Board of Directors. Notice of the
time and place of every special meeting, which need not specify the business to
be transacted thereat and which may be either oral or written, shall be given by
the Secretary to each member of the Board at least twenty-four hours before the
time of such meeting.
Section 8 Committees.
The following committees of the Board of Directors may be established by the
Board of Directors in addition to any other committee the Board of Directors may
in its discretion establish: (a) Audit Committee; and (b) Compensation
Committee.
Section 9 Audit Committee.
The Audit Committee shall consist of at least two (2) directors, a majority of
which shall be independent. Meetings of the Audit Committee may be called at any
time by the Chairman of the Audit Committee and shall be called whenever two or
more members of the Committee so request in writing. The Audit Committee shall
have the following authority, powers and responsibilities:
(a) To recommend each year to the Board the independent
accountants to audit the annual financial statements of the Corporation and its
consolidated subsidiaries and to review the fees charged for such audits or for
special engagements given to such accountants;
-30-
<PAGE> 5
(b) To meet with the independent accountants, Chairman, Chief
Executive Officer, Chief Financial Officer and any other Corporation executives
as the Audit Committee deems appropriate at such times as the Audit Committee
shall determine to review: (i) the scope of the audit plan; (ii) the
Corporation's financial statements; (iii) the results of external and internal
audits; (iv) the effectiveness of the Corporation's system of internal controls;
(v) any limitations imposed by Corporation personnel on the independent public
accountants; and (vi) such other matters as the Audit Committee shall deem
appropriate;
(c) To report to the entire Board at such time as the Audit
Committee shall determine; and
(d) To take such other action as the Audit Committee shall
deem necessary or appropriate to assure that the interests of the Corporation
are adequately protected.
Section 10 Compensation Committee.
The Compensation Committee shall consist of at least two (2) directors. Meetings
of the Committee may be called at any time by the Chairman of the Committee and
shall be called whenever two or more members of the Committee so request in-
writing. The Committee shall review compensation of executive officers and make
recommendations to the Board of Directors regarding executive compensation and
shall have such other duties as the Board of Directors prescribes.
Section 11 Appointment of Committee Members.
The Board of Directors shall appoint or shall establish a method of appointing
the members of the Audit and Compensation Committees and of any other committee
established by the Board of Directors, and the Chairman of each such committee,
to serve until the next annual meeting of shareholders.
Section 12 Absentee Participation in Meetings.
A director may participate in a meeting of the Board of Directors or a meeting
of a committee established by the Board of Directors by use of a conference
telephone or similar communications equipment, by means of which all persons
participating in the meeting can hear each other.
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ARTICLE III. OFFICERS
Section 1 Officers.
The officers of the Corporation shall be a Chairman, a Chief Executive Officer,
a President, one or more Vice Presidents, a Secretary, a Treasurer, and such
other officers and assistant officers as the Board of Directors may from time to
time deem advisable. Except for the Chairman, Chief Executive Officer,
President, Secretary and Treasurer, the Board may refrain from filling any of
the said offices at any time and from time to time. The same individual may hold
any two or more offices. The following officers shall be elected by the Board of
Directors at the time, in the manner and for such terms as the Board of
Directors from time to time shall determine: Chairman, Chief Executive Officer,
President, Secretary, and Treasurer. The Chairman may appoint such other
officers and assistant officers as he may deem advisable provided such officers
or assistant officers have a title no higher than Vice President, who shall hold
office for such periods as the Chairman shall determine. Any officer may be
removed at any time, with or without cause, and regardless of the term for which
such officer was elected.
Section 2 Chairman.
The Chairman shall be a member of the Board of Directors and shall preside at
the meetings of the Board and shareholders and perform such other duties as may
be prescribed by the Board of Directors.
Section 3 Chief Executive Officer.
The Chief Executive Officer shall have general supervision of all of the
departments and business of the Corporation; he or she shall prescribe the
duties of the other officers and employees and see to the proper performance
thereof. The Chief Executive Officer shall be responsible for having all orders
and resolutions of the Board of Directors carried into effect. The Chief
Executive Officer shall execute on behalf of the Corporation and may affix or
cause to be affixed a seal to all authorized documents and instruments requiring
such execution, except to the extent that signing and execution thereof shall
have been delegated to some other officer or agent of the Corporation by the
Board of Directors or by the Chief Executive Officer. The Chief Executive
Officer shall be a member of the Board of Directors. In the absence or
disability of the Chairman or his or her refusal to act, the Chief Executive
Officer shall preside at meetings of the Board. In general, the Chief Executive
Officer shall perform all the duties and exercise all the powers and authorities
incident to his or her office or as prescribed by the Board of Directors.
Section 4 President.
The President shall perform such duties as are incident to his or her office or
prescribed by the Board of Directors or the Chief Executive Officer. In the
event of the absence or disability of the Chief Executive Officer or his or her
refusal to act, the President shall perform the duties and have the powers and
authorities of the Chief Executive Officer. The President shall execute on
behalf of the Corporation and may affix or cause to be affixed a seal to all
authorized documents and instruments requiring such execution, except to the
extent that signing and execution thereof shall have been delegated to some
other officer or agent of the Corporation by the Board of Directors or the
President.
Section 5 Vice Presidents.
The Vice Presidents shall perform such duties, do such acts and be subject to
such supervision as may be prescribed by the Board of Directors, the Chief
Executive Officer and President. In the event of the absence or disability of
the Chief Executive Officer and the President or their refusal to act, the Vice
Presidents, in the order of their rank, and within the same rank in the order of
their seniority, shall perform the duties and have the powers and authorities of
the Chief Executive Officer and President, except to the extent inconsistent
with applicable law.
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Section 6 Secretary.
The Secretary shall act under the supervision of the Chief Executive Officer and
President or such other officer as the Chief Executive Officer and President may
designate. Unless a designation to the contrary is made at a meeting, the
Secretary shall attend all meetings of the Board of Directors and all meetings
of the shareholders and record all of the proceedings of such meetings in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required by these Bylaws or otherwise. The Secretary shall keep
a seal of the Corporation, and, when authorized by the Board of Directors, Chief
Executive Officer and President, cause the seal to be affixed to any documents
and instruments requiring it. The Secretary shall perform such other duties as
may be prescribed by the Board of Directors, Chief Executive Officer and
President or such other supervising officer as the Chief Executive Officer and
President may designate.
Section 7 Treasurer.
The Treasurer shall act under the supervision of the Chief Executive Officer and
President or such other officer as the Chief Executive Officer and President may
designate. The Treasurer shall have custody of the Corporation's funds and such
other duties as may be prescribed by the Board of Directors, Chief Executive
Officer and President or such other supervising officer as the Chief Executive
Officer and President may designate.
Section 8 Assistant Officers.
Unless otherwise provided by the Board of Directors, each assistant officer
shall perform such duties as shall be prescribed by the Board of Directors,
Chief Executive Officer and President or the officer to whom he or she is an
assistant. In the event of the absence or disability of an officer or his or her
refusal to act, his or her assistant officers shall, in the order of their rank,
and within the same rank in the order of their seniority, have the powers and
authorities of such officer.
Section 9 General Powers.
The officers are authorized to do and perform such corporate acts as are
necessary in the carrying on of the business of the Corporation, subject always
to the directions of the Board of Directors.
ARTICLE IV. PERSONAL LIABILITY AND INDEMNIFICATION
Section 1 Personal Liability of Directors.
(a) A director of this Corporation shall not be personally
liable, as such, for monetary damages for any action taken, or any failure to
take any action, unless:
(i) the director has breached or failed to perform the
duties of his office under Chapter 17, Subchapter B of the BCL; and
(ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness
(b) This Section I of Article IV shall not apply to a
director's liability for monetary damages to the extent prohibited by Section
1713(b) of the BCL.
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Section 2 Mandatory Indemnification.
The Corporation shall, to the fullest extent permitted by applicable law,
indemnify its directors and officers who were or are a party or are threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (whether or
not such action, suit or proceeding arises or arose by or in the right of the
Corporation or other entity) by reason of the fact that such director or officer
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee, general partner,
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise (including service with respect to employee benefit plans),
against expenses (including, but not limited to, reasonable attorneys' and
investigation fees and costs), judgments, fines (including excise taxes assessed
on a person with respect to any employee benefit plan) and amounts paid in
settlement actually and reasonably incurred by such director or officer in
connection with such action, suit or proceeding, except as otherwise provided in
Section 4 of Article IV hereof. Persons who were directors or officers of the
Corporation prior to the date this Section is approved by members of the
Corporation, but who do not hold such office on or after such date, shall not be
covered by this Section 2 of Article IV. A director or officer of the
Corporation entitled to indemnification under this Section 2 of Article IV is
hereafter called a "person covered by Section 2 of Article IV hereof'.
Section 3 Expenses.
Expenses incurred by a person covered by Section 2 of Article IV hereof in
defending a threatened, pending or completed civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the Corporation, except as
otherwise provided in Section 4 of Article IV.
Section 4 Exceptions.
No indemnification under Section 2 of Article IV or advancement or reimbursement
of expenses under Section 3 of Article IV shall be provided to a person covered
by Section 2 of Article IV hereof: (a) with respect to expenses or the payment
of profits arising from the purchase or sale of securities of the Corporation in
violation of Section 16(b) of the Securities Exchange Act of 1934, as amended;
(b) if a final unappealable judgment or award establishes that such director or
officer engaged in intentional misconduct or a transaction from which the
director or officer derived an improper personal benefit; (c) 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, such person by an insurance carrier under a policy of officers'
and directors' liability insurance whose premiums are paid for by the
Corporation or by an individual or entity other than such director or officer;
and (d) for amounts paid in settlement of any threatened, pending or completed
action, suit or proceeding without the written consent of the Corporation, which
written consent shall not be unreasonably withheld. The Board of Directors of
the Corporation is hereby authorized, at any time by resolution, to add to the
above list of exceptions from the right of indemnification under Section 2 of
Article IV or advancement or reimbursement of expenses under Section 3 of
Article IV, but any such additional exception shall not apply with respect to
any event, act or omission which occurred prior to the date that the Board of
Directors in fact adopts such resolution. Any such additional exception may, at
any time after its adoption, be amended, supplemented, waived or terminated by
further resolution of the Board of Directors of the Corporation.
Section 5 Continuation of Rights.
The indemnification and advancement or reimbursement of expenses provided by, or
granted pursuant to, this Article IV shall continue as to a person who has
ceased to be a member, director or officer of the Corporation, and shall inure
to the benefit of the heirs, executors and administrators of such person.
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Section 6 General Provisions.
(a) The term "to the fullest extent permitted by applicable
law", as used in this Article IV shall mean the maximum extent permitted by
public policy, common law or statute. Any person covered by Section 2 of Article
IV hereof may, to the fullest extent permitted by applicable law, elect to have
the right to indemnification or to advancement or reimbursement of expenses,
interpreted, at such person's option; (i) on the basis of the applicable law on
the date this Section was approved by the shareholders; or (ii) on the basis of
the applicable law in effect at the time of the occurrence of the event, act or
omission giving rise to the action, suit or proceeding, or (iii) on the basis of
the applicable law in effect at the time indemnification is sought.
(b) The right of a person covered by Section 2 of Article IV
hereof to be indemnified or to receive an advancement or reimbursement of
expenses pursuant to Section 3 of Article IV; (i) may be enforced as a contract
right pursuant to which the person entitled thereto may bring suit as if the
provisions hereof were set forth in a separate written contract between the
Corporation and such person; (ii) to the fullest extent permitted by applicable
law, is intended to be retroactive and shall be available with respect to
events, acts or omissions occurring prior to the adoption hereof; and (iii)
shall continue to exist after the rescission or restrictive modification (as
determined by such person) of any provision of this Article IV with respect to
events, acts and omissions occurring before such rescission or restrictive
modification is adopted.
(c) If a request for indemnification or for the advancement or
reimbursement of expenses pursuant hereto is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation together with all supporting information reasonably requested by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim (plus interest at the
prime rate announced from time to time by the Corporation's primary lending
bank) and, if successful in whole or in part, the claimant shall be entitled
also to be paid the expenses (including, but not limited to, attorneys' and
investigation fees and costs) of prosecuting such claim. Neither the failure of
the Corporation (including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such action that
indemnification of or the advancement or reimbursement of expenses to the
claimant is proper in the circumstances, nor an actual determination by the
Corporation (including its Board of Directors or independent legal counsel) that
the claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
(d) The indemnification and advancement or reimbursement of
expenses provided by, or granted pursuant to, this Article IV shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement or reimbursement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.
(e) Nothing contained in this Article IV shall be construed to
limit the rights and powers the Corporation possesses under Chapter 17,
Subchapter D of the BCL, 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.
(f) The provisions of this Article IV may, at any time (and
whether before or after there is any basis for a claim for indemnification or
for the advancement or reimbursement of expenses pursuant hereto), be amended,
supplemented, waived, or terminated, in whole or in part, with respect to any
person covered by Section 2 of Article IV hereof by a written agreement signed
by the Corporation and such person.
(g) The Corporation shall have the right to appoint the
attorney for a person covered by Section 2 of Article IV hereof, provided such
appointment is not unreasonable under the circumstances.
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Section 7 Optional Indemnification.
The Corporation may, to the fullest extent permitted by applicable law,
indemnify, and advance or reimburse expenses for, persons in all situations
other than that covered by Section 2 of Article IV.
ARTICLE V. SHARES OF CAPITAL STOCK
Section 1 Authority to Sign Share Certificate.
Every share certificate of the Corporation shall be signed by the Chairman,
Chief Executive Officer or the President and by the Secretary or one of the
Assistant Secretaries. If the certificate is signed by a transfer agent or
registrar, the signature of any officer of the Corporation on the certificate
may be facsimile, engraved or printed.
Section 2 Lost or Destroyed Certificates.
Any person claiming a share certificate to be lost, destroyed or wrongfully
taken shall receive a replacement certificate if such shareholder: (a) requests
such replacement certificate before the Corporation has notice that the shares
have been acquired by a bona fide purchaser; and (b) satisfies any other
reasonable requirements as may be fixed by the Board of Directors.
ARTICLE VI. GENERAL
Section 1 Record Date.
The Board of Directors may fix any time prior to the date of any meeting of
shareholders as a record date for the determination of shareholders entitled to
notice of, or to vote at, the meeting, which time, except in the case of an
adjourned meeting, shall be not more than ninety (90) days prior to the date of
the meeting of shareholders. The Board of Directors may (without limiting the
right of the Board of Directors to establish a record date for other purposes)
fix any time whatsoever (whether or not the same is more than ninety (90) days)
prior to the date for the payment of any dividend, or distribution, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of shares will be made or will go into effect, as a record date for the
determination of the shareholders entitled to receive payment of any such
dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect to any such change, conversion or exchange of
shares.
Section 2 Emergency Bylaws.
In the event of any emergency resulting from an attack on the United States, a
nuclear disaster or another catastrophe as a result of which a quorum cannot be
readily assembled and during the continuance of such emergency, the following
Bylaw provisions shall be in effect, notwithstanding any other provisions of
these Bylaws.
(a) A meeting of the Board of Directors or of any committee
thereof may be called by any officer or director upon one hour's notice to all
persons entitled to notice whom, in the sole judgment of the notifier, it is
feasible to notify;
(b) The director or directors in attendance at the meeting of
the Board of Directors or of any committee thereof shall constitute a quorum;
and
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(c) These Bylaws may be amended or repealed, in whole or in
part, by a majority vote of the directors attending any meeting of the Board of
Directors, provided such amendment or repeal shall only be effective for the
duration of such emergency.
Section 3 Severability.
If any provision of these Bylaws is illegal or unenforceable as such, such
illegality or unenforceability shall not affect any other provision of these
Bylaws and such other provisions shall continue in full force and effect.
ARTICLE VII. AMENDMENTS
Section 1 Amendments.
These Bylaws may be amended or repealed, in whole or In part, by the affirmative
vote of a majority of the members of the Board of Directors at any regular or
special meeting; subject, however, to the power of the shareholders to amend or
repeal the bylaws at any annual or special meeting duly convened after notice of
that purpose.
Section 2 Recording Amendments.
The text of all amendments to these Bylaws shall be attached hereto, and a
notation of the date of its adoption and a notation of whether it was adopted by
the directors or the shareholders shall be made in Section 2 of Article VIH
hereof.
ARTICLE VIII. ADOPTION OF BYLAWS AND RECORD
OF AMENDMENTS THERETO
Section 1 Adoption and Effective Date.
These Bylaws have been adopted and approved by the Board of Directors of the
Corporation on January 15, 1999. These Bylaws shall be effective as of January
15, 1999.
Section 2 Amendments to Bylaws.
Section Amended Date Amended Adopted B
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Exhibit 4(e)
HANOVER FOODS CORPORATION
THIRD AMENDMENT
Dated as of August 1, 1997
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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THIRD AMENDMENT TO NOTE AGREEMENT
THIS THIRD AMENDMENT to Note Agreement dated as of August 1, 1997 (the or this
Third Amendment"), is entered into between Hanover Foods Corporation, a
Pennsylvania corporation (the "Corporation"), and Allstate Life Insurance
Company (the "Purchaser").
RECITALS:
A. The Corporation and the Purchaser have heretofore entered into the
Note Agreement dated as of December 1, 1991 (the "Original Note Agreement"), the
First Amendment to the Note Agreement dated as of June 20, 1995 (the "First
Amendment" and the Second Amendment dated as of July 1, 1996 (the "Second
Amendment") (the Original Note Agreement, as amended by the First Amendment and
the Second Amendment, is hereinafter referred to as the "Note Agreement").
B. The Corporation and the Purchaser now desire to amend certain of the
terms of the Note Agreement in order to reduce the rate of interest that the
Corporation must pay on the Notes.
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 Third Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.
NOW, THEREFORE, the Corporation and the Purchaser, in consideration of good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, do hereby agree as follows:
SECTION 1 AMENDMENT.
Section 1.1 From and after January 1, 1996 through and including March
15, 1997 interest on the Notes shall accrue at a rate per annum equal to the
rate set forth in the Notes and the Note Agreement plus 0.50%. From and after
March 16, 1997 interest on the Notes shall accrue at a rate per annum equal to
the rate set forth in the Notes and the Note Agreement.
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
Section 2.1 To induce the Purchaser to execute and deliver this Third
Amendment, the Corporation represents and warrants to the Purchaser (which
representations shall survive the execution and deliver of this Third Amendment)
that:
(a) this Third Amendment has been duly authorized, executed
and delivered by it and this Third Amendment constitutes the legal, valid and
binding obligation, contract and agreement of the Corporation 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 Third Amendment,
constitutes the legal, valid and binding obligation, contract and agreement of
the Corporation 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;
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(c) the execution, delivery and performance by the Corporation
of this Third 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
Third Amendment, no Default or Event of Default has occurred which is
continuing.
SECTION 3 CONDITIONS TO EFFECTIVENESS OF THIRD AMENDMENT.
Section 3.1 This Third 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 Third Amendment, duly
executed by the Corporation and the Purchaser, shall have been delivered to the
Purchaser; and
(b) the representations and warranties of the Corporation set
forth in Section 2 hereof shall be true and correct on and with respect to the
date hereof.
Upon receipt of all of the foregoing, this Third Amendment shall become
effective.
SECTION 4 PAYMENT OF PURCHASER'S COUNSEL FEES AND EXPENSES.
Section 4.1 The Corporation 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
Third Amendment.
SECTION 5 MISCELLANEOUS.
Section 5.1 Except as modified and expressly amended by this Third
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
Third Amendment may refer to the Note Agreement without making specific
reference to this Third Amendment but nevertheless all such references shall
include this Third Amendment unless the context otherwise requires.
Section 5.3 This Third Amendment shall be governed by and construed in
accordance with the laws of the State of Pennsylvania.
Section 5.4 This Third Amendment may be executed and delivered in any
number of counterparts, each of such counterparts constituting an original, but
all together only one Third Amendment.
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IN WITNESS WHEREOF, the Corporation 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/ Illegible
------------------------------------
Executive Vice President
Accepted and Agreed to:
ALLSTATE LIFE INSURANCE COMPANY
By /s/ Illegible
------------------------------------
By /s/ Illegible
------------------------------------
Authorized Signatories
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Exhibit 4(f)
HANOVER FOODS CORPORATION
FOURTH AMENDMENT
RE: NOTE AGREEMENT DATED AS OF DECEMBER 1, 1991
Dated as of
March 15, 1999
Allstate Life Insurance Company
3075 Sanders Road, Suite G5A Northbrook, Illinois 60062
Attention: Private Placement Department
Ladies and Gentlemen:
Reference is made to the Note Agreement, dated as of December 1, 1991 (the "Note
Agreement"), pursuant to which Hanover Foods Corporation, a Pennsylvania
corporation (the "Corporation"), issued $25,000,000 principal amount of its
Senior Notes due March 15, 2007. Capitalized terms used herein and not otherwise
defined shall have the meanings given thereto in the Note Agreement.
The Corporation requests that you amend certain provisions of the Note Agreement
to read as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and sufficient
consideration, the Corporation agrees with you as follows:
SECTION 1 AMENDMENT OF SECTION 5.19 OF THE NOTE AGREEMENT
Section 5.19 of the Note Agreement is hereby amended to read as follows:
"Section 5.19. Maintenance of bank Facilities. The Corporation will, at all
times, keep and maintain committed credit facilities from one or more financial
institutions aggregating at any one time not less than $30,000,000, each in form
and substance reasonably satisfactory to the holders of the Notes."
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SECTION 2 REPRESENTATIONS AND WARRANTIES
The Corporation hereby represents and warrants that no Default or Event of
Default has occurred and is continuing.
SECTION 3 MISCELLANEOUS
3.1. Headings. The headings of the sections of this Fourth Amendment
are for purposes of convenience only and shall not be construed to affect the
meaning or construction of any of the provisions hereof
3.2. Governing Law. This Fourth Amendment shall be governed by and
construed in accordance with the laws of the State of Pennsylvania.
3.3. References to Note Agreement. Any and all notices, requests,
certificates, and other instruments executed concurrently with or after the
execution of the Fourth Amendment may refer to the Note Agreement without making
specific reference to this Fourth Amendment, but nevertheless all such
references shall be deemed to include this Fourth Amendment unless the context
shall otherwise require.
5.4. Ratification. Except to the extent expressly hereby modified or
amended, the Note Agreement is in all respects hereby ratified, confirmed, and
approved by the parties hereto.
5.5. Effective Date of Fourth Amendment. This Fourth Amendment shall be
effective when signed and delivered by the parties hereto.
Please signify your consent to this amendment of the Note Agreement between you
and the Corporation by signing and returning this Fourth Amendment.
HANOVER FOODS CORPORATION
By _____________________________________
Its Executive Vice President
Accepted as of the date first above written.
ALLSTATE LIFE INSURANCE COMPANY
By______________________________________
By______________________________________
Authorized Signature
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Exhibit 4(g)
HANOVER FOODS CORPORATION
WAIVER
RE: NOTE AGREEMENT DATED AS OF DECEMBER 1, 1991
Dated as of
July 26, 1999
Allstate Life Insurance Company
3075 Sanders Road, Suite G3B
Northbrook, Illinois 60062
Attention: Private Placement Department
Ladies and Gentlemen:
Reference is made to the Note Agreement, dated as of December 1, 1991, as
amended (the "Note Agreement"), pursuant to which Hanover Foods Corporation, a
Pennsylvania corporation (the "Corporation"), issued $25,000,000 principal
amount of its Senior Notes due March 15, 2007. Capitalized terms used herein and
not otherwise defined shall have the meanings given thereto in the Note
Agreement.
The Corporation requests that you waive compliance with a certain provision of
the Note Agreement.
NOW, THEREFORE, in consideration of the premises and other good and sufficient
consideration, the Corporation agrees with you as follows:
SECTION 1 WAIVER OF COMPLIANCE WITH SECTION 5.6(a) OF THE NOTE AGREEMENT
The Corporation is currently in noncompliance with Section 5.6(a) of the Note
Agreement that requires the Corporation, at the end of each fiscal year, keep
and maintain the ratio of Consolidated Current Assets to Consolidated Current
Liabilities at not less than 1.25 to 1.00. As of May 31, 1999, the ratio of
Consolidated Current Assets to Consolidated Current Liabilities was 1.15 to
1.00. The Corporation hereby requests that you waive such noncompliance for the
fiscal year ending May 31, 1999 and you hereby consent to such waiver.
SECTION 2 REPRESENTATIONS AND WARRANTIES
The Corporation hereby represents and warrants that, other than the Event of
Default specifically waived herein, no Default or Event of Default has occurred
and is continuing
SECTION 3 MISCELLANEOUS
3.1 Headings. The headings of the sections of this Waiver are for
purposes of convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
3.2 Governing Law. This Waiver shall be governed by and construed in
accordance with the laws of the State of Pennsylvania.
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3.3 Ratification. Except to the extent expressly hereby modified or
amended, the Note Agreement is in all respects hereby ratified, confirmed, and
approved by the parties hereto.
3.4 Effective Date of Waiver. This Waiver shall be effective when
signed and delivered by the parties hereto.
Please signify your consent to this Waiver of the Note Agreement between you and
the Corporation by signing and returning this Waiver.
HANOVER FOODS CORPORATION
By /s/ Illegible
-------------------------------
Executive Vice President
Accepted as of the date first above written.
ALLSTATE, LIFE INSURANCE COMPANY
By /s/ Illegible
-------------------------------
By /s/ Illegible
-------------------------------
Authorized Signatories
-45-
<PAGE> 1
EXHIBIT 10(q)
ANNUAL TOP MANAGEMENT CASH BONUS PROGRAM
The Corporation maintains a cash bonus plan whereby the executive officers 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 Corporation. 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 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
When used in this Annual Report, 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, foreign operations and risks
associated with the Year 2000 Issue. Such factors, which are discussed in the
Annual Report, could affect the Corporation's financial performance and could
cause the Corporation's actual result 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.
Description of Business
The Corporation is a vertically integrated processor of vegetable products in
one industry segment. The Corporation is involved in the growing, processing,
canning, freezing, freeze-drying, packaging, marketing and distribution of its
products under its own trademarks as well as other branded, customer and private
labels. The Corporation has operations in seven plants in Pennsylvania, one
plant in Delaware, one plant in New Jersey and two plants in Guatemala.
The Corporation and its subsidiaries, in the normal course of business, purchase
and sell goods and services to related parties. The Corporation believes that
the cost of such purchases and sales are competitive with alternate sources of
supply and markets. See Note 6 to the Consolidated Financial Statements.
The Corporation's fiscal year ends at the close of operations on the Sunday
nearest to May 31. Accordingly, the following discussion compares the results of
operations for the fiscal year ended May 30, 1999 to the year ended May 31,
1998, and the fiscal year ended May 31, 1998 to the year ended June 1, 1997.
Year Ended May 30, 1999 Results Of Operations
Compared To Year Ended May 31, 1998
Net Sales
Consolidated net sales were $287.2 million for fiscal 1999 compared to $260.6
million for fiscal 1998, an increase of $26.6 million, or 10.2%. The increase in
consolidated net sales was comprised of the following volume and sales price
components:
Year Ended May 30, 1999
Increase (Decrease)
<TABLE>
<CAPTION>
Volume Sales Price Combined
<S> <C> <C> <C>
Frozen Sales (.5)% (1.1)% (1.6)%
Canned Sales 5.3% 2.7% 8.0%
Prepared/Snack Foods 4.6% (.8)% 3.8%
---- ---- ----
9.4% .8% 10.2%
==== ==== ====
</TABLE>
The decreased volume in frozen sales was principally due to lower sales levels
in the industrial division due to the loss of a major meat customer in October
1998. This decrease in volume was partially offset by an increase in the food
service product sales.
-47-
<PAGE> 2
Canned sales showed an increase in fiscal 1999 due to increased volume and
average selling price, resulting from L.K. Bowman, a new acquisition in May
1998, and increased canned sales in Food Service Sales. These two areas
accounted for 80% of the increase in canned sales.
Prepared foods and snacks showed an increase in sales due to the acquisition of
Sunnyside Fresh Foods in January 1998 and the acquisition of Bickel's Potato
Chip Co. in October 1998. These two acquisitions accounted for principally all
of the increase.
Cost of Goods Sold
Consolidated cost of goods sold represented 74.8% of consolidated net sales for
fiscal 1999 compared to 74.2% for fiscal 1998. The consolidated cost of sales
increased $21.5 million to $214.9 million in fiscal 1999 as compared to $193.4
million in fiscal 1998. The additions of our new acquisitions, L. K. Bowman,
Sunnyside Fresh Foods, and Bickel's Potato Chip Co., accounted for 100% of the
dollar increase. The increase in cost of goods sold as a percentage of net sales
for the current fiscal year resulted primarily from the increase in the cost of
frozen operations, due to the reduction in industrial volume, partially off-set
by the reduction in the cost of operations in canning and prepared foods, as
well as the loss of an industrial meat customer, whose sales were at higher than
average cost.
Selling Expenses
Consolidated selling expenses represented 14.7% of consolidated net sales for
fiscal 1999 and 14.8% for fiscal 1998. Promotion expense increased $1.3 million
to $29.3 million for fiscal 1999 as compared to $28.0 million for fiscal 1998 as
the Corporation spent additional promotion dollars to maintain market share in
the mid-Atlantic region and to increase market share in the south for its
branded business.
In addition to promotion expense, the Corporation spent $1,897,000 on
advertising, including $1,235,000 relating to coupons, for fiscal 1999, compared
to $659,000 in advertising, including $228,000 for coupons for fiscal 1998.
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.
Administrative Expense
Consolidated administrative expenses were $12.6 million in fiscal 1999, or 4.4%
of consolidated net sales, as compared to $12.3 million, or 4.7% of consolidated
net sales in 1998. The increase in dollars was attributed to increased
expenditures in outside consulting services for the Corporation's year 2000
remediation efforts and administrative expenses as a result of the acquisitions
of L. K. Bowman, Sunnyside Fresh Foods and Bickel's Potato Chip Co. These
increased expenses were partially offset by the reduction in pension plan
expense due to the termination of the defined benefit pension plans in fiscal
1998.
Interest Expense
Consolidated interest expense for fiscal 1999 increased $1,000 to $3,021,000 in
fiscal 1999 compared to $3,020,000 in fiscal 1998. Seasonal borrowings increased
in the current fiscal year but the impact on interest expense was totally offset
by the lower borrowing rates, and the reduction of $1.5 million in long-term
debt. Seasonal borrowing rate reductions reduced interest expense by $117,000,
and interest paid on long-term debt decreased $154,000 during the current fiscal
year.
-48-
<PAGE> 3
Other Income (Expense)
Consolidated other income increased $282,000 to $844,000 for fiscal 1999 as
compared to other income of $562,000 for fiscal 1998. Higher gain on the sales
of fixed assets accounted for $273,000 of this increase. Gain on the sale of
securities during fiscal 1999 increased $183,000. Offsetting the positive income
items was increased foreign exchange loss of $50,000 during fiscal 1999.
Income Taxes
The provision for corporate federal and state income taxes for fiscal 1999 was
$5.9 million or 38.2% of pretax earnings, as compared to $5.4 million or 38.9%
of pretax earnings for 1998. The decrease in the effective rate was due to
increased earnings in foreign jurisdictions with lower tax rates during the
current fiscal year as compared to the prior fiscal year.
Net Earnings
Consolidated net earnings for fiscal 1999 were $9.5 million, or 3.3% of
consolidated net sales as compared to $8.4 million or 3.2% of consolidated net
sales for fiscal 1998. Positive profit performance of the new acquisitions, L.
K. Bowman, Sunnyside Fresh Foods and Bickel's Potato Chip Co., as well as the
Corporation's food service products were the major contributing factors to the
increased net earnings.
Year Ended May 31, 1998 Results Of Operations
Compared To Year Ended June 1, 1997
Net Sales
Consolidated net sales were $260.6 million for fiscal 1998 compared to $259.4
million for fiscal 1997, an increase of $1.2 million, or 0.5%. The increase in
consolidated net sales was comprised of the following volume and sales price
components:
Year Ended May 31, 1998
Increase (Decrease)
<TABLE>
<CAPTION>
Volume Sales Price Combined
<S> <C> <C> <C>
Frozen Sales (2.1)% (0.2)% (2.3)%
Canned Sales 2.1% (0.7)% 1.4%
Prepared Foods 1.7% (0.3)% 1.4%
---- ------- ----
1.7% (1.2)% 0.5%
==== ======= ====
</TABLE>
The decreased volume in frozen sales was principally due to lower sales levels
in retail branded products due to competition from national and regional branded
companies. This decrease in volume was partially offset by increases in food
service product sales.
Canned sales also showed an increase in fiscal 1998 due to increased volume in
government bid business. This increase in volume was partially offset by the
decrease in retail branded products.
Prepared foods showed an increase in sales due to the acquisition of Sunnyside
Foods in January 1998 which accounted for 97% of the increase.
Cost of Goods Sold
Consolidated cost of goods sold represented 74.2% of consolidated net sales for
fiscal 1998 compared to 75.2% for fiscal 1997. The consolidated cost of sales
decreased $1.7 million to $193.4 million in fiscal 1998 as compared to $195.1
million in fiscal 1997 which was due to lower operating costs, principally
related to raw material, overhead and packaging.
-49-
<PAGE> 4
Selling Expense
Consolidated selling expenses represented 14.8% of consolidated net sales for
fiscal 1998 and 14.4% for fiscal 1997. Promotion expense increased $1.5 million
to $28.3 million for fiscal 1998 as compared to $26.8 million for fiscal 1997,
as the Corporation spent additional promotion dollars to maintain market share
in both the mid-Atlantic and southern region for its branded business.
In addition to promotion expense, the Corporation spent approximately $659,000
on advertising, including $228,000 relating to coupons, for fiscal 1998,
compared to $2.2 million in advertising, including $1.7 million for coupons, for
fiscal 1997.
Administrative Expenses
Consolidated administrative expenses were $12.3 million in fiscal 1998, or 4.7%
of consolidated net sales, as compared to, $12.2 million, or 4.7% of
consolidated net sales in 1997. The increase in consolidated administrative
expenses was the result of increased pension plan expense partially offset by
decreases in outside legal services. Included in administrative expenses for
fiscal 1998 were $296,000 in legal fees paid in connection with the litigation
described under "Legal Matters" in Note 10 to the Consolidated Financial
Statements.
Interest Expense
Consolidated interest expense for fiscal 1998 decreased $646,000 to $3,020,000
in fiscal 1998 compared to $3,666,000 in fiscal 1997. The decrease resulted from
average seasonal borrowing being lower for an extended period of time to fund
lower inventory levels during the pack season. The maximum amount of seasonal
borrowing was approximately $28.0 million as compared to the maximum of $35.0
million in fiscal 1997. In addition, approximately $1.8 million in senior
unsecured term debt that carried higher interest rates was repaid in fiscal 1998
which contributed to the reduction of the Corporation's interest expense for
fiscal 1998.
Other Income (Expense)
Consolidated other income increased $646,000 to $562,000 for fiscal 1998 as
compared to expense of $84,000 for fiscal 1997. Foreign exchange and translation
adjustment gains during fiscal 1998 accounted for 24% of this additional income.
Gain on the sale of securities during fiscal 1998 accounted for 36% of the
additional income. Reduced value added tax accounted for 14% of the change.
Income Taxes
The provision for corporate federal and state income taxes for fiscal 1998 was
$5.4 million, or 38.9% of pretax earnings, as compared to a provision of $4.3
million, or 39.0% of pretax earnings for fiscal 1997.
Net Earnings
Consolidated net earnings for fiscal 1998 were $8.4 million, or 3.2% of
consolidated net sales as compared to $6.7 million, or 2.6% of consolidated net
sales, for fiscal 1997. Lower operating expenses, interest expense and decreased
outside legal fees were the contribution factors to the increased net earnings.
Liquidity And Capital Resources
The discussion and analysis of the Corporation's liquidity and capital resources
should be read in conjunction with the Consolidated Statements of Cash Flows,
contained elsewhere herein.
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<PAGE> 5
Net working capital was $11.3 million at May 30, 1999 and $16.8 million at May
31, 1998. The current ratios were 1.15 and 1.31 on May 30, 1999 and May 31, 1998
respectively.
Net cash provided by operations for the fiscal year ended May 30, 1999 was $5.3
million, compared to $22.5 million for the fiscal year ended May 31, 1998.
Sources of net cash provided by operations consisted principally of net earnings
of $9.5 million and non-cash depreciation and amortization expense of $6.4
million The use of net cash for operations consisted primarily of increased
inventory of $8.8 million and decreased accounts payable and accrued expenses of
$1.5 million.
Net cash provided by operations for the fiscal year ended May 31, 1998 was $22.5
million, compared to $13.1 million for the fiscal year ended June 1, 1997.
Sources of net cash provided by operations consisted principally of net earnings
of $8.4 million, non-cash depreciation and amortization expense of $5.9 million,
decreased inventory of $2.8 million, increased accounts payable and accrued
expenses of $2.5 million, increased income taxes payable and other liabilities
of $1.5 million, and decreased accounts receivable of $1.9 million.
Net cash used by investing activities for the fiscal year ended May 30, 1999 was
$22.3 million as compared to $13.8 million for the fiscal year ended May 31,
1998. The principal use of funds was the upgrade and acquisition of property,
plant, equipment and the purchase of businesses. During the period ended May 30,
1999, $14.7 million was spent on development and modernization of equipment as
compared to $8.1 million in the fiscal year ended May 31, 1998. During the year
ended May 30, 1999, $7.8 million was spent for the acquisition of other
businesses. These projects were funded by internally generated funds and short
term debt. The Corporation also uses operating leases to meet other equipment
needs. The lease expense for the fiscal year ended May 30, 1998 was $3.6
million, up $300,000 from the fiscal year ended May 31, 1998.
Net cash used by investing activities for the fiscal year ended May 31, 1998 was
$13.8 million as compared to $7.3 million for the fiscal year ended June 1,
1997. The principal use of funds was the upgrade and acquisition of property,
plant, equipment and the purchase of businesses. During the period ended May 31,
1998, $8.1 million was spent on development and modernization of equipment as
compared to $6.6 million in the fiscal year ended June 1, 1997. During the year
ended May 31, 1998, $5.6 million was spent for the acquisition of other
businesses. 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 May 31, 1998 was $3.3 million, down $300,000
from the fiscal year ended June 1, 1997.
Net cash from financing activities was $16.9 million for the fiscal year ended
May 30, 1999, compared to cash used for financing activities of $9.6 million for
the fiscal year ended May 31, 1998. Seasonal borrowing amounting to $249.3
million was used throughout the fiscal year to fund operational needs. Seasonal
borrowing, plus the cash overdraft, increased by $19.8 million at May 30, 1999
compared to May 31, 1998. Payments on long-term debt were $1.9 million.
Management continues to monitor and evaluate the most cost effective means to
finance its operations. The weighted average cost of seasonal borrowings was
5.35% for the fiscal year ended May 30, 1999 compared to 6.1% for the fiscal
year ended May 31, 1998.
Net cash used for financing activities was $9.6 million for the fiscal year
ended May 31, 1998, compared to cash used for financing activities of $3.6
million for the fiscal year ended June 1, 1997. Seasonal borrowing amounting to
$144.3 million was used throughout the fiscal year to fund operational needs.
Seasonal borrowing, plus the cash overdraft, decreased by $4.2 million at May
31, 1998 compared to June 1, 1997. Payments on long-term debt were $5.2 million.
The weighted average cost of seasonal borrowing was 6.1% for the fiscal year
ended May 31, 1998 and the fiscal year ended June 1, 1997.
-51-
<PAGE> 6
At May 30, 1999 the Corporation has commitments from financial institutions to
provide seasonal lines of credit in the amount of $65 million. Additional
borrowing is permitted within prescribed parameters in existing debt agreements
which contain certain performance covenants. At May 30, 1999, the Corporation
was in compliance with all the provisions of its debt agreements as amended or
waived.
The Corporation paid dividends of $951,000 during fiscal 1999 compared to
$828,000 in fiscal 1998. In addition, the Corporation repurchased 1,738 shares
of Class A and Class B Common Stock at a cost of $83,000 during the year ended
May 30, 1999.
The Corporation believes that it has sufficient working capital and availability
from seasonal lines of credit to meet its cash flow needs.
Market Risks
The Corporation is subject to market risk associated with changes in interest
rates. To manage the risk of fluctuations in interest rates, the Corporation's
borrowings are a mix of fixed and floating rate obligations. This includes the
$14.3 million of unsecured senior notes payable that bear interest at an 8.74%
fixed rate and are due in 2007. The Corporation also maintains short-term
unsecured lines of credit that bear interest at floating rates.
The following table presents the expected maturity and effective interest rates
of the Corporation's debt obligations (dollars in thousands):
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
<S> <C> <C> <C> <C> <C> <C>
Fixed Rate
Unsecured senior notes $ 1,786 $1,786 $1,786 $1,786 $1,786 $5,356
Effective interest rates 8.74% 8.74% 8.74% 8.74% 8.74% 8.74%
Variable Rate
Lines of Credit $39,629 -- -- -- -- --
Effective Interest Rate 5.35% -- -- -- -- --
</TABLE>
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 year 1999 in all of its market areas and
management anticipates this competitive environment to continue throughout
fiscal year 2000.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes comprehensive
accounting and reporting standards for derivative instruments and hedging
activities that require a corporation to record the derivative instruments at
fair value in the balance sheet. Furthermore, the derivative instrument must
meet specific criteria or the change in its fair value is to be recognized in
earnings in the period of change. To achieve hedge accounting treatment the
derivative instrument needs to be part of a well-documented hedging strategy
that describes the exposure to be hedged, the objective of the hedge and a
measurable definition of its effectiveness in hedging the exposure. This
Statement is effective as of the beginning of the first quarter of the fiscal
year beginning after June 15, 2000. Adoption of this Statement is not expected
to have a material effect on the Corporation's financial statements, as the
Corporation currently does not enter into any derivative instrument or hedging
activities.
-52-
<PAGE> 7
Impact of Inflation and Changing Prices
The changes in cost and prices within the Corporation'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.
Year 2000
Many existing computer programs, including those utilized by the Corporation,
use only two digits to identify a year in the date field. These programs were
designed and developed without considering the impact of the upcoming change in
the century. If not corrected, any computer applications could fail or create
erroneous results by or at the Year 2000 (the "Year 2000 Issue"). The
Corporation has retained an outside consultant to manage the Corporation's
efforts to bring its computer system into Year 2000 compliance. The Corporation
has contacted its customers, key suppliers and its equipment manufacturers in an
attempt to ensure third party compliance.
In 1997, the Corporation established a management team to assess the
Corporation's Year 2000 issues and to implement the Corporation's Year 2000
compliance program. The management team includes members of the Corporation's
Management Information, Accounting and Finance Departments and certain officers
of the Corporation. The Corporation has completed the majority of its
implementation and testing program and currently anticipates having all of its
information technology systems as well as non-information technology systems
(which include the Corporation's telecommunications systems and food processing
equipment) Year 2000 compliant by the end of the first quarter of Fiscal Year
2000. The Corporation is also in the process of developing a contingency plan in
the event its systems are not Year 2000 compliant on a timely basis. The
Corporation currently estimates the total costs associated with addressing the
Year 2000 Issue to be approximately $490,000 with $98,000 remaining to be
incurred subsequent to May 30, 1999 and anticipates that such costs will not
materially affect the Corporation's future financial results.
As part of its Year 2000 compliance program, the Corporation is contacting and
surveying vendors and customers with whom the Corporation does a material amount
of business to determine whether these parties' systems (to the extent they
relate to the Corporation's business) are subject to Year 2000 issues. The
failure of the Corporation's material vendors or customers to convert their
systems on a timely basis may have a material adverse effect on the
Corporation's operations. The Corporation is in the process of developing a
contingency plan in the event these vendors or customers with which the
Corporation does a material amount of business are not Year 2000 compliant on a
timely basis.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the Corporation's financial statements, the notes
thereto, and the independent auditors report included in the Corporation's
Annual Report to Shareholders for the year ended May 31, 1999.
-53-
<PAGE> 8
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 May 30, 1999 and May 31, 1998, and the
related consolidated statements of earnings, comprehensive income, cash flows,
and stockholders' equity for each of the years in the three-year period ended
May 30, 1999. 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 May 30, 1999 and May 31, 1998 and the results
of their operations and their cash flows for each of the years in the three-year
period ended May 30, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Harrisburg, Pennsylvania
July 9, 1999
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<PAGE> 9
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended May 30, 1999, May 31, 1998, and June 1, 1997
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
<S> <C> <C> <C>
Net sales $ 287,237,000 260,621,000 259,439,000
Cost of goods sold 214,943,000 193,357,000 195,086,000
------------- ------------ -----------
Gross profit 72,294,000 67,264,000 64,353,000
Selling expenses 42,091,000 38,656,000 37,453,000
Administrative expenses 12,583,000 12,346,000 12,163,000
------------- ------------ -----------
Operating profit 17,620,000 16,262,000 14,737,000
Interest expense 3,021,000 3,020,000 3,666,000
Other (income) expenses - net (844,000) (562,000) 84,000
------------- ------------ -----------
Earnings before income taxes 15,443,000 13,804,000 10,987,000
Income taxes 5,904,000 5,367,000 4,281,000
------------- ------------ -----------
Net earnings 9,539,000 8,437,000 6,706,000
Dividends on preferred stock 44,000 37,000 31,000
------------- ------------ -----------
Net earnings applicable to
Common stock $ 9,495,000 8,400,000 6,675,000
============= ============ ===========
Basic earnings per common share $ 13.24 11.69 9.26
============= ============ ===========
Diluted earnings per common share $ 13.03 11.62 9.22
============= ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 10
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
May 30, 1999 and May 31, 1998
<TABLE>
<CAPTION>
MAY 30, MAY 31,
ASSETS 1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,214,000 2,337,000
Accounts and notes receivable - net 26,281,000 23,429,000
Accounts receivable from related parties - net 242,000 389,000
Inventories:
Finished goods 39,199,000 31,185,000
Raw materials and supplies 14,510,000 11,777,000
Prepaid expenses 1,733,000 2,244,000
Deferred income taxes 917,000 365,000
------------ -----------
Total current assets 85,096,000 71,726,000
------------ -----------
Property, plant, and equipment - at cost:
Land and buildings 44,006,000 35,171,000
Machinery and equipment 93,585,000 86,965,000
Leasehold improvements 383,000 374,000
------------ -----------
137,974,000 122,510,000
Less accumulated depreciation and amortization 78,573,000 72,641,000
------------ -----------
59,401,000 49,869,000
Construction in progress 6,591,000 4,411,000
------------ -----------
65,992,000 54,280,000
------------ -----------
Other assets:
Intangible assets - less accumulated amortization of
$2,348,000 and $2,054,000 2,293,000 2,323,000
Other assets 3,860,000 2,678,000
------------ -----------
Total assets $157,241,000 131,007,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 11
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets - continued
May 30, 1999 and May 31, 1998
<TABLE>
<CAPTION>
MAY 30, MAY 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
Current liabilities:
Accounts payable $ 22,813,000 23,979,000
Notes payable - banks 39,629,000 19,874,000
Accrued expenses 7,433,000 7,717,000
Current maturities of long-term debt 1,859,000 1,859,000
Income taxes payable 2,103,000 1,498,000
------------- ------------
Total current liabilities 73,837,000 54,927,000
------------- ------------
Long-term debt, less current maturities 12,500,000 14,359,000
Deferred income taxes 4,331,000 4,686,000
Other liabilities 2,119,000 1,565,000
------------- ------------
Total liabilities 92,787,000 75,537,000
------------- ------------
Stockholders' equity:
Series A and B 8-1/4% cumulative convertible preferred stock 788,000 788,000
Series C cumulative convertible preferred stock 250,000 250,000
Common stock, Class A - non-voting 8,729,000 8,729,000
Common stock, Class B - voting 12,328,000 12,328,000
Capital paid in excess of par value 2,143,000 2,143,000
Retained earnings 47,767,000 39,179,000
Treasury stock, at cost (8,076,000) (7,993,000)
Accumulated other comprehensive income 525,000 46,000
------------- ------------
64,454,000 55,470,000
------------- ------------
Total liabilities and stockholders' equity $ 157,241,000 131,007,000
============= ============
</TABLE>
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<PAGE> 12
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive
Income Years ended May 30, 1999, May 31, 1998, and June 1, 1997
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
<S> <C> <C> <C>
Net earnings $ 9,539,000 8,437,000 6,706,000
----------- ---------- ---------
Other comprehensive income
Unrealized gain (loss) on securities, net of
Reclassification adjustments 479,000 (118,000) 88,000
Minimum pension liability adjustment (net of
taxes of $0, $106,000, and $129,000) -- 158,000 193,000
----------- ---------- ---------
----------- ---------- ---------
Other comprehensive income 479,000 40,000 281,000
----------- ---------- ---------
Comprehensive income $10,018,000 8,477,000 6,987,000
=========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-58-
<PAGE> 13
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended May 30, 1999, May 31, 1998, and June 1, 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 9,539,000 8,437,000 6,706,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,366,000 5,939,000 5,595,000
Gain on sale of property, plant, and equipment (279,000) (6,000) (21,000)
Gain on sale of investments (418,000) (235,000) (35,000)
Deferred income taxes (907,000) (120,000) 156,000
Change in assets and liabilities:
Accounts and notes receivable (668,000) 1,856,000 (6,534,000)
Inventories (8,763,000) 2,774,000 5,643,000
Prepaid expenses and other assets 736,000 (113,000) 1,176,000
Accounts payable and accrued expenses (1,450,000) 2,467,000 (226,000)
Income taxes payable 605,000 1,140,000 248,000
Other liabilities 554,000 339,000 421,000
------------- ------------ ------------
Net cash provided by operating activities 5,315,000 22,478,000 13,129,000
------------- ------------ ------------
Cash flows from investing activities:
Purchases of business, net of cash acquired (7,833,000) (5,578,000) --
Purchase of investments (2,201,000) (1,970,000) (1,044,000)
Sale of investments 1,877,000 1,827,000 235,000
Acquisitions of property, plant, and equipment (14,697,000) (8,133,000) (6,565,000)
Proceeds from dispositions of property, plant, and 554,000 15,000 35,000
equipment
------------- ------------ ------------
Net cash used in investing activities (22,300,000) (13,839,000) (7,339,000)
------------- ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 249,269,000 144,289,000 220,739,000
Payment on notes payable (229,514,000) (148,529,000) (220,722,000)
Payment on long-term debt (1,859,000) (5,210,000) (2,499,000)
Payment on long-term capital lease obligations -- -- (152,000)
Payment of dividends (951,000) (828,000) (824,000)
Common stock redemptions (83,000) (106,000) (132,000)
Preferred stock issuance -- 770,000 --
------------- ------------ ------------
Net cash provided by (used in) financing activities 16,862,000 (9,614,000) (3,590,000)
------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents (123,000) (975,000) 2,200,000
Cash and cash equivalents, beginning of year 2,337,000 3,312,000 1,112,000
------------- ------------ ------------
Cash and cash equivalents, end of year $ 2,214,000 2,337,000 3,312,000
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-59-
<PAGE> 14
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended May 30, 1999, May 31, 1998, and June 1, 1997
<TABLE>
<CAPTION>
CUMULATIVE
CONVERTIBLE CUMULATIVE
PREFERRED CONVERTIBLE
STOCK PREFERRED COMMON COMMON
TOTAL SERIES A STOCK STOCK STOCK
STOCKHOLDERS' AND B SERIES C CLASS A CLASS B
EQUITY SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 2, 1996 $ 41,126,000 31,536 $788,000 -- $ -- 349,120 $8,729,000 493,123
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) -- -- -- -- -- -- --
Other comprehensive income 281,000 -- -- -- -- -- -- --
------------ -------- -------- ------- -------- ------- ---------- -------
Balance, June 1, 1997 $ 47,157,000 31,536 $788,000 -- $ -- 349,120 8,729,000 493,123
Net earnings -- -- -- -- -- -- -- --
Cash dividends per share:
Preferred - $2.0625 annually (37,000) -- -- -- -- -- -- --
Common - $1.10 annually (791,000) -- -- -- -- -- -- --
Issuance of preferred stock 770,000 -- -- 10,000 250,000 -- -- --
Redemption of common stock-
Class A 1,882 shares,
Class B 365 shares (106,000) -- -- -- -- -- -- --
Other comprehensive income 40,000 -- -- -- -- -- -- --
------------ -------- -------- ------- -------- ------- ---------- -------
Balance, May 31, 1998 $ 55,470,000 31,536 $788,000 10,000 250,000 349,120 8,729,000 493,123
Net earnings 9,539,000 -- -- -- -- -- -- --
Cash dividends per share:
Preferred - $2.0625 annually (44,000) -- -- -- -- -- -- --
Common - $1.2650 annually (907,000) -- -- -- -- -- -- --
Redemption of common stock -
Class A 1,446 shares,
Class B 292 shares (83,000) -- -- -- -- -- -- --
Other comprehensive income 479,000 -- -- -- -- -- -- --
------------ -------- -------- ------- -------- ------- ---------- -------
Balance, May 30, 1999 $ 64,454,000 31,536 $788,000 10,000 $250,000 349,120 $8,729,000 493,123
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL PAID TREASURY OTHER
IN EXCESS OF RETAINED STOCK COMPREHENSIVE
AMOUNT PAR VALUE EARNINGS SHARES AMOUNTS INCOME
<S> <C> <C> <C> <C> <C> <C>
Balance, June 2, 1996 12,328,000 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) --
Other comprehensive income -- -- -- -- -- 281,000
------------ --------- --------- ------- ----------- --------
Balance, June 1, 1997 12,328,000 1,623,000 31,570,000 138,952 $(7,887,000) 6,000
Net earnings -- -- 8,437,000 -- -- --
Cash dividends per share:
Preferred - $2.0625 annually -- -- (37,000) -- -- --
Common - $1.10 annually -- -- (791,000) -- -- --
Issuance of preferred stock -- 520,000 -- -- -- --
Redemption of common stock-
Class A 1,882 shares,
Class B 365 shares -- -- -- 2,247 (106,000) --
Other comprehensive income -- -- -- -- -- 40,000
------------ --------- --------- ------- ----------- --------
Balance, May 31, 1998 12,328,000 2,143,000 39,179,000 141,199 $(7,993,000) 46,000
Net earnings -- -- 9,539,000 -- -- --
Cash dividends per share:
Preferred - $2.0625 annually -- -- (44,000) -- -- --
Common - $1.2650 annually -- -- (907,000) -- -- --
Redemption of common stock -
Class A 1,446 shares,
Class B 292 shares -- -- -- 1,738 (83,000) --
Other comprehensive income -- -- -- -- -- 479,000
------------ --------- --------- ------- ----------- --------
Balance, May 30, 1999 12,328,000 2,143,000 47,767,000 142,937 (8,076,000) 525,000
</TABLE>
See accompanying notes to consolidated financial statements.
-60-
<PAGE> 15
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 30, 1999 and May 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Hanover Foods Corporation (the Company) is a vertically integrated processor of
vegetable products in one industry segment. The Company is involved in the
growing, processing, canning, freeze-drying, packaging, marketing, and
distribution of its products under its own trademarks as well as other branded,
customer, and private labels. The Company has operations in five plants in
Pennsylvania, one plant in Delaware, one plant in New Jersey, and two plants in
Guatemala. The Company's ten largest customers accounted for approximately 35%,
42%, and 45% of the Company's net sales for the years ended May 30, 1999, May
31, 1998, and June 1, 1997, respectively. The Company's ten largest customers
account for approximately 21% and 27% of the Company's accounts receivable as of
May 30, 1999 and May 31, 1998, respectively. No single customer accounted for
more than 10% of net sales for the years ended May 30, 1999, May 31, 1998, and
June 1, 1997. 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.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Hanover Foods Corporation and its subsidiaries, which are Consumers Packing
Corporation (T/A Hanover Foods - Lancaster Division), Spring Glen Fresh Foods,
Inc., Hanover Insurance Corporation, 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. During the year
ended May 30, 1999, the Company purchased certain assets of Bickel's Potato Chip
Co., Inc. and Draper-King Cole, Inc. and Draper Canning Corporation, which are
included as part of Hanover Foods. During the year ended May 31, 1998, the
Company purchased L. K. Bowman, Inc. and L. K. Bowman Pacific, Inc., which are
included as part of Hanover Foods, and purchased certain assets of Sunnyside
Foods, which are included in Spring Glen Fresh Foods, Inc. All significant
intercompany balances and transactions have been eliminated.
(c) Concentration of Credit Risk
Financial instruments that potentially subject the Company 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.
(d) Cash and Cash Equivalents
Cash equivalents of $449,000 and $707,000 at May 30, 1999 and May 31, 1998,
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.
8
<PAGE> 16
(e) Investments
Investments of $3,668,000 and $2,447,000, at May 30, 1999 and May 31, 1998,
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 accumulated other comprehensive income
until realized. Net unrealized gains were $525,000, $46,000, and $164,000 at May
30, 1999, May 31, 1998, and June 1, 1997, respectively.
The reconciliation of the reclassification adjustments related to unrealized
gains and losses on securities included in comprehensive income for the
respective fiscal year are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Unrealized holding gains arising during
period $ 897,000 117,000 123,000
Reclassification adjustments for gains
included in net income (418,000) (235,000) (35,000)
--------- --------- ---------
Net unrealized gain (loss) on securities $ 479,000 (118,000) 88,000
========= ========= =========
</TABLE>
(f) 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.
(g) Inventories
Inventories are stated at the lower of cost (determined by average cost which
approximates the first-in, first-out method) or market.
(h) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Expenditures for maintenance
and repairs are expensed 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.
-9-
<PAGE> 17
(i) Intangible Assets
The Company amortizes intangible assets, primarily covenants not to compete,
purchased trademarks and goodwill, over periods ranging from 3 to 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.
(j) 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.
Reinsurance premiums assumed are taken to income in the accounting period in
which they are reported to the Company by the primary insurer on an earned
basis.
Outstanding claims include a provision for claims reported as advised to the
Company by the primary insurer and a provision for incurred but not reported
claims based upon the advice of the primary insurer on the ultimate liability of
the Company under the reinsurance assumed or, in the absence of such an
evaluation, the provision is based upon the best estimate of the ultimate
liability of the Company.
(k) 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.
(l) Research and Development
Research and development costs are expensed as incurred. Research and
development costs amounted to $612,000, $588,000, and $622,000, for the years
ended May 30, 1999, May 31, 1998, and June 1, 1997, respectively.
(m) Promotional Costs
Promotional costs are expensed as incurred. Accounts and notes receivable are
presented net of allowances for bad debts and promotional programs.
-10-
<PAGE> 18
(n) Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses amounted to
$1,897,000, $659,000, and $2,184,000 for the years ended May 30, 1999, May 31,
1998, and June 1, 1997, respectively (including manufacturer coupon expense of
$1,235,000, $228,000, and $1,655,000, respectively).
(o) Earnings per Share
The Company adopted the provisions of SFAS No. 128, Earnings per Share, during
the year ended May 31, 1998. SFAS No. 128 requires dual presentation of basic
and diluted earnings per share on the face of the income statement for all
entities with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation.
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. SFAS No. 128
requires restatement of all prior-period earnings per share data presented
(p) Fiscal Year End
The Company's fiscal year ends at the close of operations on the Sunday nearest
to May 31. The fiscal years ended May 30, 1999, May 31, 1998, and June 1, 1997,
were comprised of 52 weeks.
(q) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues 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.
(r) Reclassifications
Certain prior amounts have been reclassified to conform to classifications
adopted in the current year.
-11-
<PAGE> 19
(2) NOTES PAYABLE - BANKS
The Company maintains short-term unsecured lines of credit with various banks
providing credit availability amounting to $65,000,000, of which $39,629,000 was
borrowed (including an overdraft of $2,127,000) at May 30, 1999 and $19,874,000
was borrowed (including an overdraft of $2,108,000) at May 31, 1998. The Company
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 May
30, 1999 and May 31, 1998, was 5.35% and 6.1%, respectively. The maximum amount
of borrowings outstanding under short-term lines of credit at any one time
during the years ended May 30, 1999 and May 31, 1998 and June 1, 1997 was
approximately $39,629,000, $27,999,000, and $35,024,000.
(3) LONG-TERM DEBT
The long-term debt of the Company and its subsidiaries consists of:
<TABLE>
<CAPTION>
MAY 30, 1999 MAY 31, 1998
----------- -----------
<S> <C> <C>
8.74% unsecured senior notes payable to
an insurance company, due through 2007 $14,285,000 16,071,000
Installment obligation payable to a related party, due in
equal annual installments through 2000; interest at
prime rate (7.75% at May 30, 1999) 74,000 147,000
----------- -----------
Total long-term debt 14,359,000 16,218,000
Less current maturities 1,859,000 1,859,000
----------- -----------
Long-term debt, excluding current maturities $12,500,000 14,359,000
=========== ===========
</TABLE>
The term loan agreements with the insurance corporation 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 May 30, 1999,
$35,419,000 of retained earnings are restricted from distribution. The Company
is in compliance with the restrictive provisions in the agreements as amended or
waived as of May 30, 1999.
-12-
<PAGE> 20
The aggregate long-term debt maturities follow:
FOR THE FISCAL YEAR ENDING:
<TABLE>
<S> <C>
2000 $ 1,859,000
2001 1,786,000
2002 1,786,000
2003 1,786,000
2004 1,786,000
Thereafter 5,356,000
------------
Total $14,359,000
============
</TABLE>
(4) LEASES
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 May 30, 1999, May 31, 1998, and June 1, 1997,
amounted to $3,591,000, $3,330,000, and $3,586,000, respectively.
Future minimum lease payments under noncancelable operating leases (with initial
or remaining lease terms in excess of one year) as of May 30, 1999 are:
<TABLE>
<CAPTION>
OPERATING
FOR THE FISCAL YEAR ENDING: LEASES
------------
<S> <C>
2000 $ 850,000
2001 710,000
2002 491,000
2003 262,000
Thereafter 65,000
------------
Total minimum lease payments $ 2,378,000
============
</TABLE>
(5) CAPITAL STOCK
The Company's capital stock consists of Class A Nonvoting Common Stock, Class B
Voting Common Stock, 8 1/4% Series A and B Cumulative Convertible Preferred
Stock, and Series C Convertible Preferred Stock. Holders of Class B Common Stock
have one vote per share. No other classes of stock have voting rights except as
discussed below.
-13-
<PAGE> 21
The Company's Amended and Restated Articles of Incorporation authorize the Board
of Directors to issue up to 10,000 shares of Series C Convertible Preferred
Stock to the trustees of the Company's 401(k) Savings Plan (or a similar
employee benefit plan). At least a majority of the trustees of the Company's
401(k) Savings Plan (or similar employee benefit plan), who are appointed by the
Board of Directors, must be "disinterested directors" of the Company. If the
Class B shareholders 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 Class B shareholders. 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 Company. The voting power of the
Series C Convertible Preferred Stock ceases five (5) years after its issuance in
1998. 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 the Class B
shareholders cannot agree in writing on the composition of the Board of
Directors or on other important matters specified above.
The following summarizes the Company's capital stock at May 30, 1999 and May 31,
1998:
<TABLE>
<CAPTION>
MAY 30, 1999 MAY 31, 1998
------------------------------ ------------------------------
ISSUED OUTSTANDING ISSUED OUTSTANDING
------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Series A 8 1/4% cumulative
convertible preferred stock - $25
par value, 60,000 shares authorized 15,268 6,548 15,268 6,548
Series B 8 1/4% cumulative
convertible preferred stock - $25
par value, 60,000 shares authorized 16,268 8,496 16,268 8,496
Series C cumulative convertible
preferred stock - $25 par value,
10,000 shares authorized 10,000 10,000 10,000 10,000
Class A nonvoting common stock-
$25 par value, 800,000 shares
authorized 349,210 289,414 349,210 290,860
Class B voting common stock-
$25 par value, 880,000 shares
authorized 493,123 426,474 493,123 426,766
</TABLE>
At any time, the holders of the Series A and B Cumulative Convertible Preferred
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. At May 30, 1999, the outstanding Series A and B
Preferred Stock could be converted into 4,236 shares of Class A Common Stock.
-14-
<PAGE> 22
(6) RELATED PARTY TRANSACTIONS
The Company and its subsidiaries, in the normal course of business, purchase and
sell goods and services to related parties. The Company 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>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
Park 100 Foods, Inc. $2,627,000 4,365,000 3,155,000
Corporate charges:
Snyder's of Hanover, Inc. 188,000 181,000 175,000
Expenditures:
Lippy Brothers, Inc. 956,000 304,000 1,044,000
James G. Sturgill 48,000 68,000 135,000
ARWCO Corporation 15,000 33,000 29,000
Warehime Enterprises, Inc. 78,000 125,000 177,000
John A. and Patricia M. Warehime 58,000 56,000 52,000
Park 100 Foods, Inc. 85,000 209,000 283,000
The Cannery Press, Inc. -- -- 14,000
Patti & John's, Inc. -- -- 10,000
Accounts receivable:
Snyder's of Hanover, Inc. 32,000 48,000 15,000
Warehime Enterprises -- 3,000 --
Park 100 Foods, Inc. 210,000 346,000 906,000
Accounts payable:
Warehime Enterprises, Inc. -- -- 1,000
Park 100 Foods, Inc. -- -- 30,000
James G. Sturgill -- 7,000 --
ARWCO Corporation -- 1,000 --
Notes payable:
Warehime Enterprises, Inc. -- -- 375,000
Cyril T. Noel 74,000 147,000 221,000
</TABLE>
-15-
<PAGE> 23
In connection with the amended complaint filed by Michael A. Warehime versus
John A. Warehime (note 10), pursuant to applicable state law, the Company 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 Company 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 Company. The amount
paid and expensed by the Company under this arrangement for the years ended May
30, 1999, May 31, 1998, and June 1, 1997 was approximately $72,000, $37,000, and
$303,000, respectively.
On April 1, 1996, the Company 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 Non-voting Class A Common Stock over a
four-year period. The April 22, 1997 Voting Agreement provides that John R.
Miller, Jr. will vote all shares of the Company Common Stock, which he is
entitled to vote as directed by the Board of Directors, provided Clayton J.
Rohrbach, Jr., Arthur S. Schaier, and Cyril T. Noel, or a majority of them, vote
in favor of the matter to vote all shares of both classes of common stock
beginning April 1, 1996 and ending March 31, 2001. At May 30, 1999, the Company
has purchased 985 shares of the Company's Voting Class B Common Stock for
approximately $72,000 and 4,924 shares of the Company's Non-voting Class A
Common Stock for approximately $207,000.
A portion of rental expense included in note 4 was paid to ARWCO Corporation;
Park 100 Foods, Inc.; Warehime Enterprises, Inc.; Centre Foods Enterprises,
Inc.; and Food Service East, Inc., all of which are related companies through
common control. The amounts were $169,000, $149,000, and $307,000 for the years
ended May 30, 1999, May 31, 1998, and June 1, 1997, 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>
2000 $ 15,000
2001 15,000
</TABLE>
(7) BENEFIT PLANS
(a) Defined Contribution Plan
The Company offers a 401(k) plan covering certain of its employees. The Company
contributes an amount equal to 100% of each employee's deferral up to 5%.
Effective July 25, 1997, the plan was amended to permit matching contributions
to be made in cash and/or securities of the Company (see note 5). The Company's
contribution to the 401(k) plan for the periods ended May 30, 1999, May 31,
1998, and June 1, 1997, was $576,000, $583,000, and $557,000, respectively.
-16-
<PAGE> 24
(b) Frozen Defined Benefit Retirement Plans
The Company 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. During September 1997, the Company terminated the
plans and distributed substantially all net assets to the participants.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
MAY 31, JUNE 1,
1998 1997
----------- ----------
<S> <C> <C>
Interest cost $ 555,000 520,000
Actual return on plan assets
(gain) loss (362,000) (1,330,000)
Amortization of unrecognized loss 5,000 11,000
Deferral of asset gain (loss) and
other costs 736,000 823,000
---------- ----------
Net pension cost $ 934,000 24,000
========== ==========
</TABLE>
Net pension cost for the year ended May 31, 1998 includes loss on termination of
the Plans and adjustment of prior year additional minimum pension liability.
Assumptions used in accounting for the pension plans included discount rates
ranging from 7.09% to 7.25% and an expected long-term rate of return on assets
of 7.0%.
-17-
<PAGE> 25
(c) 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>
MAY 30, MAY 31,
1999 1998
------------- ------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $(2,591,000) (1,574,000)
Service cost (117,000) (16,000)
Interest cost (243,000) (177,000)
Amortization of transition obligation (73,000) (73,000)
Plan assumptions 129,000 (894,000)
Change in plan (977,000) --
Benefits paid 127,000 163,000
Other 97,000 (20,000)
----------- -----------
Benefit obligation at end of year (3,648,000) (2,591,000)
----------- -----------
Change in plan assets
Fair value of plan assets at beginning of year -- --
Contributions 127,000 163,000
Benefits paid (127,000) (163,000)
----------- -----------
Fair value of plan assets at end of year -- --
----------- -----------
Funded status:
Unrecognized net (gain) loss 574,000 745,000
Unrecognized prior service cost 916,000 --
Unrecognized transition liability, amortized over 20 years 1,080,000 1,153,000
----------- -----------
Accrued postretirement benefit cost $(1,078,000) (693,000)
=========== ===========
</TABLE>
A discount rate of 7.25%, and 7.00% for May 30, 1999 and May 31, 1998,
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>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost $117,000 16,000 22,000
Interest cost 243,000 177,000 113,000
Amortization of transition obligation 73,000 73,000 73,000
Other amortization and deferral 79,000 20,000 (1,000)
-------- -------- --------
$512,000 286,000 207,000
======== ======== ========
</TABLE>
-18-
<PAGE> 26
The assumed postretirement health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 8.5% for fiscal year May 30,
1999, decreasing each year to an ultimate rate of 5.0% in 2004 and thereafter.
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 May 30, 1999 by $698,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended May 30, 1999 by $92,000.
(d) Employment and Deferred Compensation Agreements
On June 12, 1995, the Company 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 Company 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 Company 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 1999 and 1998 was
$606,000 and $578,000, respectively. 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 Company 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 Company. 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.
-19-
<PAGE> 27
The annual bonus payable to the employee under the Amended Employment Agreement
is equal to $100,000 plus 10% of the Company's pretax earnings over $5.0 million
provided that no annual bonus is payable if pretax earnings of the Company 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
(non-voting) Stock at the option of the employee. For the years ended May 30,
1999, May 31, 1998, and June 1 ,1997, the bonus accrued under this agreement was
$394,000, $422,000, and $450,000, respectively.
The Amended Employment Agreement also provides for the annual payment of a
long-term performance bonus based upon the Company'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 formula being recommended by an
independent management consulting firm retained by the Company and approved by
the Compensation Committee of the Board of Directors. For the years ended May
30, 1999, May 31, 1998, and June 1, 1997, the long-term performance bonus
accrued under this agreement was $108,000, $162,000, and $175,000, respectively.
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 Company over the remaining expected
years of service. The expense recognized under this agreement was approximately
$624,000, $411,000, and $350,000, for the years ended May 30, 1999, May 31,
1998, and June 1, 1997, respectively. The projected benefit obligation was
approximately $1,747,000 and $1,123,000 at May 30, 1999 and May 31, 1998,
respectively.
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.
On January 23, 1997, the Company entered into a five-year employment agreement
with Gary T. Knisely, Executive Vice President, Secretary, and Counsel of the
Company, 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 May 31, 1999, the aggregate liability of the Company under this agreement for
the next five years is estimated to be $1,173,000, 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.
-20-
<PAGE> 28
The Knisely 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 Company
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 Company over Mr. Knisely's expected remaining years of service. The
expense recognized for supplemental pension benefits under this agreement was
approximately $81,000, $60,000, and $47,000 for the years ended May 30, 1999,
May 31, 1998, and June 1, 1997, respectively. The projected benefit obligation
was approximately $188,000 and $107,000 at May 30, 1999 and May 31, 1998,
respectively.
The Company also entered into a change in control severance agreement with Alan
T. Young, which provides for termination compensation if Mr. Young's employment
is terminated: (i) involuntarily or (ii) involuntarily, following a reduction in
base salary, duties, and responsibilities, within 24 months of a change in
control. A "change in control" shall be deemed to occur if John A, Warehime
ceases to be Chief Executive Officer of the Company or ceases to have the power
and authority of the Chief Executive Officer. Pursuant to the terms of this
agreement, any payment due thereunder shall be made over a two year period no
less frequently than monthly and all payments during any twelve month period
shall not in the aggregate exceed the officer's total cash compensation (salary
and bonus) received from the Company during fiscal 1997.
All payments made pursuant to this agreement are subject to the further
conditions that: (i) the officer maintain the confidentiality of the Company's
trade secrets, customer lists, and other proprietary information of the Company;
(ii) for a period of two years following the termination of the officer, neither
the officer or his employer or business associate shall enter into or attempt to
enter into any business relationship, solicit for employment or employ any
person, employed by the Company or its affiliates at any time within the six
months prior to the officer's termination; and (iii) for a period of two years
following the termination, the officer shall not directly or indirectly own,
manage, operate, join, or participate in any capacity, any entity which is
primarily engaged in a business which competes with any significant business of
the Company or its affiliates. If Mr. Young was terminated on May 30, 1999 under
circumstances entitling him to severance payments pursuant to this agreement,
the aggregate amount due to Mr. Young under this agreement was $387,000.
The Company 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 May 30, 1999 was
approximately $345,000.
(8) INCOME TAXES
Total income taxes for the years ended May 30, 1999, May 31, 1998, and June 1,
1997 were attributable to the following:
<TABLE>
<CAPTION>
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income from operations $5,904,000 5,367,000 4,281,000
Minimum pension liability
adjustment -- 106,000 129,000
---------- ---------- ----------
$5,904,000 5,473,000 4,410,000
========== ========== ==========
</TABLE>
-21-
<PAGE> 29
Income tax expense (benefit) attributable to income from operations
consists of:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 30, 1999 MAY 31, 1998 JUNE 1, 1997
----------------------------- ---------------------------- ---------------------------
FEDERAL STATE FEDERAL STATE FEDERAL STATE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current $ 5,602,000 986,000 4,866,000 905,000 3,644,000 610,000
Deferred (532,000) (152,000) (311,000) (93,000) 47,000 (20,000)
----------- ----------- ----------- ----------- ----------- -----------
$ 5,070,000 834,000 4,555,000 812,000 3,691,000 590,000
=========== =========== =========== =========== =========== ===========
</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 1999, 1998,
and 1997.
A reconciliation of the Company's effective tax rate to the amount computed by
applying the federal income tax rate of 35% to income before taxes expressed in
percentages, follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes:
State taxes - net of federal tax 3.4 3.9 3.5
Income in foreign subsidiary with no current tax (1.3) (0.3) (1.7)
Other items - net 1.1 0.3 2.2
---- ---- ----
Effective income tax rate 38.2% 38.9% 39.0%
==== ==== ====
</TABLE>
-22-
<PAGE> 30
The tax effects of temporary differences that give rise to significant portions
of deferred tax liabilities and deferred tax assets at May 30, 1999 and May 31,
1998, follow:
<TABLE>
<CAPTION>
MAY 30, MAY 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $(5,539,000) (5,875,000)
Employee benefit obligations -- (217,000)
Other (149,000) (208,000)
----------- -----------
Total gross deferred tax liabilities (5,688,000) (6,300,000)
----------- -----------
Deferred tax assets:
Inventory costs 195,000 172,000
Accrued expenses and other liabilities 1,298,000 1,016,000
Pension and postretirement benefits 380,000 298,000
Net operating loss carryforwards 287,000 371,000
Other 114,000 122,000
----------- -----------
Total gross deferred tax assets 2,274,000 1,979,000
----------- -----------
Net deferred tax liability $(3,414,000) (4,321,000)
=========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
The Company has not recognized a deferred tax liability for the undistributed
earnings and tax basis differences of its investment in foreign subsidiaries
since the earnings and investment are considered to be permanently invested in
the businesses and, under the tax laws, are not subject to such taxes until
distributed. The accumulated amount of such undistributed earnings was
approximately $3,475,000 at May 30, 1999.
Acquisitions
During the year ended May 30, 1999, the Company purchased certain assets of
Bickel's Potato Chip Co. Inc. (Bickel's) and Draper-King Cole, Inc. and Draper
Canning Corporation (collectively "Draper"). During the year ended May 31, 1998,
the Company purchased assets and assumed certain liabilities of L. K. Bowman,
Inc. and L.K. Bowman Pacific, Inc. (collectively "Bowman") and purchased certain
assets of Sunnyside Foods. All of these acquisitions were accounted for under
the purchase method and were not considered to be material to the Company's
results of operations for the years ended May 30, 1999 and May 31, 1998,
respectively. The allocation of purchase price is as follows:
-23-
<PAGE> 31
(a) Acquisitions made during the year ended May 30, 1999
<TABLE>
<S> <C>
Accounts receivable $2,032,000
Inventory 1,984,000
Other current assets 13,000
Property, plant and equipment 3,704,000
Goodwill 100,000
----------
Total purchase price $7,833,000
==========
</TABLE>
(b) Acquisitions made during the year ended May 31, 1998
<TABLE>
<S> <C>
Accounts receivable $ 1,830,000
Inventory 4,312,000
Other current assets 41,000
Property, plant and equipment 2,373,000
Intangible assets 300,000
Goodwill 1,535,000
Accounts payable (1,838,000)
Debt (2,975,000)
-----------
Total purchase price $ 5,578,000
===========
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
(a) Letter of Credit
As of May 30, 1999, the Company's wholly-owned reinsurance corporation had
outstanding two letters of credit in the amount of $400,000 and $1,206,000 as
security for the reimbursement of losses arising from the reinsurance assumed by
the Company.
(b) Legal Matters
On February 1, 1995, Michael A. Warehime, J. William Warehime, and Elizabeth W.
Stick, three Class B shareholders of the Company, filed a Complaint in the Court
of Common Pleas of York County, Pennsylvania against the Company and John A.
Warehime (Chairman of the Company), 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; and (iii) a count requesting
removal of John A. Warehime as the voting trustee of the voting trusts.
-24-
<PAGE> 32
On September 13, 1996, certain Class A common stockholders filed a complaint in
equity against six of the Company'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 Company 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 7.) 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 complaint as
amended for failure to make a prior demand. An appeal has been filed from the
Court's June 24, 1997 Order. On May 12, 1997, a written demand was received by
the Company from the attorney for those Class A common stockholders containing
similar allegations and the allegations raised by the Class A common
stockholders were investigated by a special independent committee of the Board
of Directors and found to be without merit.
On February 21, 1997, Michael A. Warehime, a Class B shareholder, and certain
Class A shareholders filed motions for a preliminary injunction against the
Company, John A Warehime, in his capacity as a voting trustee, and all certain
directors of the Company in the Court of Common Pleas of York County,
Pennsylvania against a proposal of the Board of Directors to amend and restate
the Company's Articles of Incorporation in the manner hereafter described.
On February 13, 1997, the Board of Directors proposed an amendment and
restatement of the Company's Articles of Incorporation (the "Amended and
Restated Articles") which provides that if all of the following Class B
shareholders (or their Estates upon death of such stockholders) Michael A.
Warehime, John A. Warehime, Sally W. Yelland, J. William Warehime, and Elizabeth
W. Stick (all members of the Warehime family), do not agree in writing to
composition of the Company's Board of Directors or other important matters
specified below on or after the 1998 annual shareholders' meeting, the trustees
of the Company'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 shareholders may become entitled to vote in the manner described Amended
and Restated Articles.
The Amended and Restated Articles created a Series C Convertible Preferred Stock
(see note 5) and 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, in his capacity as voting trustee) 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 Company eligible for a federal income tax deduction pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as amended. A 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. Michael A. Warehime has filed an appeal. 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, in his capacity as voting trustee) on August 14, 1997 and the
Amendment became effective on August 14, 1997.
-25-
<PAGE> 33
Under the Amendment, the definition of "disinterested directors" means the
person who, in the opinion of counsel for the Company, 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 of 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.
Michael Warehime filed an appeal from the denial of his motion to enjoin the
previously described Amended and Restated Articles and the Amendment thereto. On
December 2, 1998, the Pennsylvania Superior Court, in a two to one decision,
held that although John Warehime had acted in good faith and in the best
interest of the Company in voting for the Amended and Restated Articles as
trustee of the Warehime voting trust, Mr. Warehime nevertheless breached his
fiduciary duty to the beneficiaries of the Warehime voting trust in so voting.
On December 16, 1998, Michael Warehime filed a motion for clarification
requesting that the Pennsylvania Superior Court issue an order invalidating the
Amended and Restated Articles and that motion was denied in banc. On March 10,
1999, John Warehime and the other directors filed a petition for allowance of
appeal with the Pennsylvania Supreme Court and no decision has as yet been
rendered.
The Company 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 Company's consolidated financial position,
results of operations or liquidity.
(c) Stock Repurchase Plan
The Company has agreed to purchase the Company's Class A Common Stock purchased
or owned by employees prior to April 20, 1988. This guarantee of repurchase by
the Company is for an indefinite period of time. No shares were repurchased
under this plan for the year ended May 31, 1998. Shares repurchased under this
plan amounted to 22 and 1,251 during the years ended May 30, 1999 and June 1,
1997, respectively. As of May 30, 1999, there are 10,557 shares outstanding that
would be eligible for this plan. The maximum commitment, if requested, for all
eligible shares would be approximately $1,119,000, based on the most recent
appraised value per share as of May 30, 1999.
-26-
<PAGE> 34
(11) FOREIGN OPERATIONS
The Company'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>
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Revenues $15,213,000 11,190,000 13,991,000
Cost of goods sold 13,963,000 10,433,000 12,162,000
Assets 8,942,000 9,344,000 9,968,000
</TABLE>
ALCOSA maintains its accounting records in quetzales, although, for financial
reporting purposes, the accounting records have been remeasured to be expressed
in U.S. dollars. The financial statements of ALCOSA have been translated to
their U.S. dollar equivalents prior to being consolidated. Assets and
liabilities have been translated to their U.S. dollar equivalents based on rates
of exchange prevailing at the end of the period except for inventories, fixed
assets, deferred and prepaid expenses, and other assets, which have been
translated at historical rates. Revenue and expense accounts have been
translated at average exchange rates during the period except for depreciation
of fixed assets, which is based on the historical rate. The aggregate exchange
gains and losses arising from the translation of foreign assets and liabilities
and from foreign currency transactions are included in income under the caption
of Other (income) expenses - net and amount to a gain of $13,000, a gain of
$73,000, and a loss of $78,000, for the years ended May 30, 1999, May 31, 1998,
and June 1, 1997, respectively. At May 30, 1999, the prevailing exchange rate
was Q 6.85 to U.S. $1.00.
-27-
<PAGE> 35
(12) RECONCILIATION OF NUMERATOR AND DENOMINATOR FOR BASIC AND DILUTED
EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Numerator for basic earnings per share:
Net earnings applicable to
common stock $9,495,000 8,400,000 6,675,000
---------- ---------- ----------
Effect of dilutive securities:
8 1/4% cumulative convertible
preferred stock 31,000 31,000 31,000
4.40% cumulative convertible
preferred stock 13,000 6,000 --
---------- ---------- ----------
Net earnings assuming dilution $9,539,000 8,437,000 6,706,000
========== ========== ==========
Denominator:
Basic weighted-average shares 716,974 718,712 720,811
Effect of dilutive securities:
8 1/4% cumulative convertible
preferred stock 4,921 5,786 6,604
4.40% cumulative convertible
preferred stock 10,000 1,603 --
---------- ---------- ----------
Diluted weighted-
average shares 731,895 726,101 727,415
========== ========== ==========
Basic earnings per share $ 13.24 11.69 9.26
Diluted earnings per share 13.03 11.62 9.22
========== ========== ==========
</TABLE>
(13) STATEMENT OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 30, MAY 31, JUNE 1,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosure of cash paid for:
Interest $3,061,000 2,979,000 3,653,000
Income taxes 5,983,000 4,594,000 3,134,000
========== ========== ==========
Non-cash investing activities, acquisition of business:
Fair value of assets acquired $7,833,000 10,391,000 --
Cash paid 7,833,000 5,578,000 --
---------- ---------- ----------
Liabilities assumed $ -- 4,813,000 --
========== ========== ==========
</TABLE>
-28-
<PAGE> 36
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Dollars in thousands First Second Third Fourth
(except per share) quarter quarter quarter quarter
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net sales $ 58,538 $ 80,705 $ 72,946 $ 75,048
Gross profit 14,613 20,223 18,219 19,239
Net earnings 1,636 3,242 1,885 2,776
Net earnings per common share - Basic 2.26 4.51 2.61 3.86
Net earnings per common share - Diluted 2.23 4.43 2.56 3.81
Cash Dividends per common share 0.44 0.275 0.275 0.275
- -------------------------------------------------------------------------------------------------------------
1998
Net sales $ 55,892 $ 68,110 $ 67,923 $ 68,696
Gross profit 13,199 16,925 17,388 19,752
Net earnings 1,527 2,512 2,156 2,242
Net earnings per common share - Basic 3.48 2.98 3.10 2.11
Net earnings per common share - Diluted 3.47 2.96 3.08 2.11
Cash Dividends per common share 0.275 0.275 0.275 0.275
- -------------------------------------------------------------------------------------------------------------
</TABLE>
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Although the Corporation's Class A. Common Stock is currently traded on the
NASDAQ Bulletin Board under the symbol "HNFSA," trading in the Class A Common
Stock is very sporadic. As a result of the limited market for Class A Common
Stock, shareholders are cautioned not to place undue reliance on bid prices
contained herein as indicators of the true value of the shares of Class A Common
Stock.
The following table sets forth the high and low bid prices per share of the
Class A Common Stock on a quarterly basis of the past two fiscal years as
provided by NASDAQ, as well as dividends paid per share.
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends
------------- ---- --- ---------
<S> <C> <C> <C>
March 2, 1997 $ 35.00 $ 31.00 $ 0.275
June 1, 1997 36.00 34.00 0.275
August 31, 1997 41.50 35.50 0.275
November 30, 1997 44.00 36.75 0.275
March 1, 1998 43.50 43.50 0.275
May 31, 1998 53.00 43.50 0.275
August 30, 1998 56.25 56.25 0.440
November 29, 1998 57.125 57.00 0.275
February 28, 1999 58.50 58.50 0.275
May 30, 1999 60.75 59.50 0.275
</TABLE>
As of May 30, 1999 there were 395 record holders and approximately 550
beneficial holders of the Class A Common Stock.
-29-
<PAGE> 37
DIVIDEND POLICY
The Company has maintained a policy of paying a quarterly dividend of $0.275 per
share. In addition, on August 15, 1998, the Company paid a special 15% dividend
or $0.165 per share. The continuing payment by the Company of dividends in the
future is the sole discretion of its Board of Directors and will depend, among
other things, upon the Company's earnings, its capital requirements and
financial condition, as well as other relevant factors.
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 4:00 p.m., September 16,
1999, at the offices of the Company located at 1486 York Street, Hanover,
Pennsylvania.
ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-K for its fiscal
year ended May 30, 1999, with the Securities and Exchange Commission. Copies of
the Form 10-K annual report and the Company's quarterly reports may be obtained
without charge by contacting:
Gary T. Knisely
Hanover Foods Corporation
1486 York Road
P.O. Box 334
Hanover, PA 17331
717-632-6000
-30-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY 1 STATE OF INCORPORATION
- --------------------- ----------------------
<S> <C>
Tri-Co. Foods Corp. Pennsylvania
Spring Glen Fresh Foods, Inc. Pennsylvania
Consumers Packing Corporation Pennsylvania
d/b/a Hanover Foods - Lancaster Division
Hanover Insurance Corporation Ltd Grand Cayman, B.W.I.
Nittany Corporation Delaware
Pennsylvania
NOTE: Tri-Co. Foods Corporation has two wholly-owned subsidiaries:
Alimentos Congelados Monte Bello S.A. Republic of Guatemala
Sunwise Corporation Florida
1: 100% owned by Parent
</TABLE>
-31-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-30-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-30-1999
<CASH> 2,214
<SECURITIES> 0
<RECEIVABLES> 26,523
<ALLOWANCES> 0
<INVENTORY> 53,709
<CURRENT-ASSETS> 85,096
<PP&E> 137,974
<DEPRECIATION> 78,573
<TOTAL-ASSETS> 157,241
<CURRENT-LIABILITIES> 73,837
<BONDS> 14,359
1,038
0
<COMMON> 21,057
<OTHER-SE> 42,359
<TOTAL-LIABILITY-AND-EQUITY> 157,241
<SALES> 287,237
<TOTAL-REVENUES> 287,237
<CGS> 214,943
<TOTAL-COSTS> 214,943
<OTHER-EXPENSES> 54,674
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,021
<INCOME-PRETAX> 15,443
<INCOME-TAX> 5,904
<INCOME-CONTINUING> 9,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,539
<EPS-BASIC> 13.24
<EPS-DILUTED> 13.03
</TABLE>
