Pursuant to Rule 424(b)(3)
File No. 333-29079
PROSPECTUS
Del Monte Corporation
Del Monte Foods Company
Offer to Exchange Series B 12 1/4% Senior Subordinated Notes
due 2007, which have been registered under the Securities
Act of 1933, as amended, for any and all outstanding
12 1/4% Senior Subordinated Notes due 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JULY 31, 1997, UNLESS EXTENDED.
Del Monte Corporation, a New York Corporation ("DMC"),
and Del Monte Foods Company, a Maryland Corporation ("DMFC"),
hereby offer, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal" and such offer being the
"Exchange Offer"), to exchange Series B 12 1/4% Senior
Subordinated Notes due 2007 of DMC (the "New Notes"), which are
guaranteed by DMFC and which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this Prospectus is
a part, for an equal principal amount of outstanding 12 1/4%
Senior Subordinated Notes due 2007 of DMC (the "Old Notes"),
which are guaranteed by DMFC and of which $150,000,000 aggregate
principal amount is outstanding as of the date hereof. The New
Notes and the Old Notes are collectively referred to herein as
the "Notes."
Any and all Old Notes that are validly tendered and
not withdrawn on or prior to 5:00 P.M., New York City time, on
the date the Exchange Offer expires, which will be July 31,
1997 (30 calendar days following the commencement of the Exchange
Offer) unless the Exchange Offer is extended (such date,
including as extended, the "Expiration Date"), will be accepted
for exchange. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 P.M., New York City time on the Expiration Date.
The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions, which
may be waived by DMC or DMFC, and to the terms of the
Registration Rights Agreement, dated as of April 18, 1997, by and
among DMC, DMFC and BT Securities Corporation, Bankers Trust
International plc, BancAmerica Securities, Inc. and Bear, Stearns
& Co. Inc. (the "Initial Purchasers") (the "Registration Rights
Agreement"). Old Notes may be tendered only in integral multiples
of $1,000. See "The Exchange Offer."
The New Notes will be entitled to the benefits of the
same Indenture (as defined herein) that governs the Old Notes and
that will govern the New Notes. The form and terms of the New
Notes are the same in all material respects as the form and terms
of the Old Notes, except that the interest rate step-up
provisions will be inoperative and that the New Notes have been
registered under the Securities Act and therefore will not bear
legends restricting the transfer thereof. See "The Exchange
Offer" and "Description of the New Notes."
The New Notes will be represented by permanent global
notes in fully registered form and will be deposited with, or on
behalf of, The Depository Trust Company ("DTC") and registered in
the name of a nominee of DTC. Beneficial interests in the
permanent global notes will be shown on, and transfers thereof
will be effected through, records maintained by DTC and its
participants.
Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), as set
forth in no-action letters issued to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter
(available May 13, 1988), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991) and Shearman &
Sterling, SEC No-Action Letter (available July 2, 1993)
(collectively, the "Exchange Offer No-Action Letters"), DMC and
DMFC believe that the New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold or otherwise transferred
by each holder (other than a broker-dealer who acquires such New
Notes directly from DMC or DMFC for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under
the Securities Act and other than any holder that is an
"affiliate" (as defined in Rule 405 under the Securities Act) of
DMC or DMFC) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not engaged in, and does not
intend to engage in, a distribution of such New Notes and has no
arrangement with any person to participate in a distribution of
such New Notes. By tendering Old Notes in exchange for New Notes,
each holder, other than a broker-dealer, will represent to DMC
and DMFC that: (i) it is not an affiliate (as defined in Rule 405
under the Securities Act) of DMC or DMFC; (ii) it is not a
broker-dealer tendering Old Notes acquired for its own account
directly from DMC or DMFC; (iii) any New Notes to be received by
it will be acquired in the ordinary course of its business; and
(iv) it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If a
holder of Old Notes is engaged in or intends to engage in a
distribution of New Notes or has any arrangement or understanding
with respect to the distribution of New Notes to be acquired
pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and
must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any
secondary resale transaction.
(continued on next page)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 16 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JULY 1, 1997
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(continued from cover page)
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter" within the meaning
of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making
activities or other trading activities. Pursuant to the
Registration Rights Agreement, DMC and DMFC have agreed that they
will make this Prospectus available to any Participating
Broker-Dealer for a period of time not to exceed 180 days after
the Registration Statement is declared effective (subject to
extension under certain circumstances) for use in connection with
any such resale. See "Plan of Distribution."
Neither DMC nor DMFC will receive any proceeds from
this offering. DMC and DMFC have agreed to pay the expenses of
the Exchange Offer. No underwriter is being utilized in
connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL DMC
OR DMFC ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES
IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES AND BLUE
SKY LAWS OF SUCH JURISDICTION.
The Old Notes have been designated as eligible for
trading in the Private Offerings, Resale and Trading through
Automated Linkages market. Prior to this Exchange Offer, there
has been no public market for the New Notes. If such a market
were to develop, the New Notes could trade at prices that may be
higher or lower than their principal amount. Neither DMC nor DMFC
intends to apply for listing of the New Notes on any securities
exchange or for quotation of the New Notes on The Nasdaq Stock
Market's National Market or otherwise. The Initial Purchasers
have previously made a market in the Old Notes, and DMC and DMFC
have been advised that the Initial Purchasers currently intend to
make a market in the New Notes, as permitted by applicable laws
and regulations, after consummation of the Exchange Offer. The
Initial Purchasers are not obligated, however, to make a market
in the Old Notes or the New Notes and any such market making
activity may be discontinued at any time without notice at the
sole discretion of the Initial Purchasers. There can be no
assurance as to the liquidity of the public market for the New
Notes or that any active public market for the New Notes will
develop or continue. If an active public market does not develop
or continue, the market price and liquidity of the New Notes may
be adversely affected. See "Risk Factors--Absence of a Public
Market for the New Notes."
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AVAILABLE INFORMATION
DMC and DMFC have not been subject to the periodic
reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). DMC and
DMFC became subject to such requirements upon the
effectiveness of the Registration Statement (as defined herein).
Pursuant to the indenture by and among DMC (as issuer), DMFC (as
guarantor) and Marine Midland Bank (as trustee), dated as of
April 18, 1997, DMC has agreed to file with the Commission and
provide to the holders of the Old Notes annual reports and the
information, documents and other reports which are required to be
delivered pursuant to Sections 13 and 15(d) of the Exchange Act.
This Prospectus constitutes a part of a registration
statement on Form S-4 (together with all amendments and exhibits,
the "Registration Statement") filed by DMC and DMFC with the
Commission, through the Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), under the Securities Act, with
respect to the New Notes offered hereby. This Prospectus omits
certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration
Statement for further information with respect to DMC, DMFC and
the securities offered hereby. Although statements concerning and
summaries of certain documents are included herein, reference is
made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.
These documents may be inspected without charge at the office of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained at fees and
charges prescribed by the Commission. Copies of such materials
may also be obtained from the Web site that the Commission
maintains at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and any definitive proxy or information
statements filed by DMC or DMFC pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
New Notes offered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein by
reference, or contained in this Prospectus, shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE
NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED
THROUGHOUT THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE
REQUIRES, "DMC" MEANS DEL MONTE CORPORATION, A NEW YORK
CORPORATION, "DMFC" MEANS DEL MONTE FOODS COMPANY, A MARYLAND
CORPORATION AND THE PARENT OF DMC, AND THE "COMPANY" OR "DEL
MONTE" MEANS DMC AND DMFC, TOGETHER WITH EACH OF THEIR DIRECT AND
INDIRECT SUBSIDIARIES. REFERENCES HEREIN TO FISCAL YEARS AND
QUARTERS ARE TO THE COMPANY'S FISCAL YEAR (WHICH ENDS ON JUNE 30)
AND RELATED FISCAL QUARTERS (WHICH END ON THE LAST SUNDAY OF
SEPTEMBER, DECEMBER AND MARCH). UNLESS OTHERWISE INDICATED,
REFERENCES HEREIN TO U.S. MARKET SHARE DATA ARE TO CASE VOLUME
AND ARE BASED UPON DATA PROVIDED TO THE COMPANY BY A.C. NIELSEN &
CO. ("NIELSEN"), AN INDEPENDENT MARKET RESEARCH FIRM. MARKET
SHARE DATA FOR CANNED VEGETABLES AND CUT TOMATO PRODUCTS INCLUDE
ONLY THOSE CATEGORIES IN WHICH THE COMPANY COMPETES. SUCH DATA
FOR CANNED FRUIT INCLUDE THOSE CATEGORIES IN WHICH THE COMPANY
COMPETES OTHER THAN THE "SPECIALTY" CATEGORY. SEE
"BUSINESS--GENERAL." WITH RESPECT TO MARKET SHARE DATA USED
HEREIN, THE TERM CALENDAR 1996 REFERS TO THE 52-WEEK PERIOD ENDED
DECEMBER 28, 1996.
The Company
General
The Company is the largest producer and distributor of
canned vegetables and canned fruit in the United States with net
sales in excess of $1 billion in fiscal 1996. In calendar 1996,
the Company had domestic market shares of 20.1% of canned
vegetable products and 38.1% of canned fruit products. The
Company's market share in canned vegetables is larger than the
market share of the Company's two largest branded competitors
combined and its market share of canned fruit is larger than the
fruit market share of all other branded competitors combined. In
addition, the Company enjoys strong market shares in various cut
tomato product categories.
The Del Monte brand name, which has been in existence since
1892, is one of the leading brand names in the food industry and
maintains a reputation for premium quality. Del Monte brand
products are found in substantially all chains and independent
grocery stores throughout the United States, with the average
supermarket carrying approximately 100 Del Monte brand items. The
Company estimates that Del Monte brand products are purchased by
over 80% of U.S. households and that the Del Monte brand is
recognized by 96% of all consumers of products in the Company's
categories. The Del Monte brand has the highest unaided brand
awareness of any canned food brand in the United States. As the
brand leader in three major processed food categories (canned
vegetables, fruit and cut tomato products), the Company has a
multi-category presence that management believes provides it with
a competitive advantage in selling to the retail grocery
industry.
The Company sells its products to national chains and
wholesalers through a nationwide sales network consisting
primarily of independent food brokers. The Company's direct sales
force also sells Del Monte products to warehouse club stores
("Warehouse Clubs"), selected mass merchandisers such as Wal-Mart
and Kmart ("Mass Merchandisers") and larger mass merchandising
outlets that include full grocery sections ("Supercenters"). In
addition, the Company sells its products to the foodservice
industry, food processors and the military through different
independent food brokers. The Company also exports a small
percentage of its products to certain foreign countries directly
and through independent exporters based in the United States.
The Company has over 2,500 contracts to purchase vegetables
and fruit from individual growers and cooperatives located in
various geographic regions of the United States, principally the
Midwest, the Northwest, California and Texas. This diversity of
sourcing helps insulate the Company from localized disruptions
during the growing season, such as weather conditions, that can
affect the price and supply of vegetables and fruit.
The Company owns a number of registered and unregistered
trademarks that it uses in conjunction with its business,
including the trademarks Del Monte(R), FreshCut(TM), Snack
Cups(R), Fruit Cup(R), Fruit Naturals(R) and Del Monte LITE(R).
In connection with and subsequent to the acquisition of the
Company from RJR Nabisco Inc. ("RJR Nabisco") in 1990 (the "RJR
Nabisco Sale"), the Company granted various perpetual,
royalty-free licenses for the
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use of the Del Monte name and trademark, generally outside of the
United States. The licensees of the Del Monte name and trademark
include Del Monte Foods International Limited ("Del Monte
Europe"), Kikkoman Corporation ("Kikkoman"), Fresh Del Monte
Produce, N.V. ("Fresh Del Monte"), affiliates of RJR Nabisco and
Yorkshire Dried Fruit & Nuts, Inc. ("Yorkshire"). Neither Del
Monte Europe nor Fresh Del Monte is an affiliate of the Company.
In fiscal 1994, 1995 and 1996, the Company invested an
aggregate of approximately $55 million of capital in its domestic
operating facilities. The Company believes that the efficiency of
its fully-integrated production facilities, its proprietary seed
varieties and its bulk supply agreements make it one of the
lowest-cost producers of canned vegetables, fruit and cut tomato
products in the United States.
DMC was incorporated under the laws of the State of New
York in 1978. DMFC, then known as DMPF Holdings Corp., was
incorporated under the laws of the State of Maryland in 1989. DMC
and DMFC each maintains its principal executive office at One
Market, San Francisco, California 94105, and their telephone
number is (415) 247-3000. DMC is a wholly owned subsidiary of
DMFC.
Competitive Strengths
Management believes that the following elements contribute
to the Company's position as a leading producer and distributor
of canned vegetables, fruit and cut tomato products in the United
States and provide a solid foundation for the Company's business
strategy.
- Significant Market Share and Strong Brand Name
Recognition--In calendar 1996, the Company had domestic
market shares of 20.1% of canned vegetable products and
38.1% of canned fruit products. The Company's market
share in canned vegetables is larger than the market
share of the Company's two largest branded competitors
combined and its market share in canned fruit is larger
than the market share of all other branded competitors
combined. In addition, the Company had a 25.4% market
share in the fastest growing segment of the solid tomato
market, the cut tomato segment. The Del Monte brand name,
which has been in existence since 1892, is one of the
leading brand names in the food industry, and has the highest
unaided brand awareness of any canned food brand in the United
States. As a result of its brand leadership, the Company has
a multi-category presence that management believes provides
it with a competitive advantage in selling to the grocery
industry. Del Monte brand products are found in
substantially all grocery chains in the United States,
with the average supermarket carrying approximately 100
Del Monte brand items. The Company estimates that Del
Monte brand products are purchased by over 80% of U.S.
households and that the Del Monte brand name is
recognized by 96% of all consumers of products in the
Company's categories.
Calendar 1996 Market Share
----------------------------------------------------
Market Next Leading Branded
Category Position(a) Percentage Competitor's Percentage(a)
- -------- ----------- ---------- --------------------------
Canned Vegetables... #1 20.1% 12.5% (Green Giant)
Canned Fruit........ #1 38.1% 12.0% (Libby's)
Canned Cut Tomato
Products............ #1 25.4% 10.8% (Hunt's)
----------------------
(a) Excludes private label.
- Improving EBITDA and EBITDA Margins--The Company's
established market position, strong brand recognition,
pricing strategy and significant cost reduction efforts
have allowed it to achieve consistent and improving
EBITDA (as defined) and EBITDA margins. EBITDA (giving
effect to the sale of the Divested Operations (as
defined)) for fiscal 1994, 1995 and 1996 was $63 million,
$76 million and $92 million, respectively. EBITDA margins
for the same periods were 5.7%, 6.9% and 8.6%,
respectively.
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- Extensive National Sales and Distribution System--The
Company's extensive sales and distribution network, which
is responsible for the distribution of finished goods to
over 2,400 customer destinations nationwide, gives Del
Monte a nationwide presence. The Company's national sales
and distribution network enables it to compete with other
national brands and regional competitors, and to
introduce new products on a regional or national basis.
The Company operates six strategically-situated
distribution centers offering customers a variety of
services. Management believes that the Company's
distribution system is an important contributor to the
Company's success and provides the Company with a
competitive advantage over regional and private label
competitors.
- Low Cost Producer--Management believes that the Company
is one of the lowest cost producers of canned vegetables,
fruit and cut tomatoes in the United States as a result
of its raw product sourcing diversity, proprietary seed
varieties, modern processing equipment, labeling,
packaging, warehousing and distribution efficiencies and
strategic alliances with suppliers.
- Agricultural Expertise and Grower Relationships--The
Company has developed proprietary vegetable seed
varieties in order to increase agricultural and cannery
yields and to improve product flavor and quality. The
Company contracts with experienced growers who cultivate
these varieties on prime agricultural land proximate to
the Company's processing facilities. In many cases, the
Company has had and continues to have long-term
relationships with such growers.
- Experienced Management Team--In connection with the
Recapitalization (as defined herein), two veteran
managers with extensive food industry experience, Richard
G. Wolford and Wesley J. Smith, joined the Company as
Chief Executive Officer and Chief Operating Officer,
respectively. The Company's prior Co-Chief Executive
Officers will remain with the Company as consultants
during a transition period following the
Recapitalization. Mr. Wolford has 30 years of experience
in the food industry, 20 of which were with Dole Foods.
He was president of Dole Packaged Foods from 1982 to
1987. During Mr. Wolford's tenure at Dole, Dole
experienced increased profitability, sales volume and
market share. Mr. Wolford played a key role in redefining
the Dole brand and expanding the range of products sold
under the brand. From 1988 to 1996, he was Chief
Executive Officer of HK Acquisition Corp. where he
developed food industry investments with venture capital
investors and managed the investor-owned companies. Mr.
Smith has 25 years of experience in the food industry, 23
of which were at Dole Foods, where he oversaw the
building of Dole's domestic fresh pineapple business and
the restructuring of Dole's sizable Hawaiian operations.
In addition, Mr. Smith was responsible for establishing
Dole's juice business with minimal capital investment.
Business Strategy
In fiscal 1996, the Company began development of a new
business strategy designed to improve profitability, enhance the
Company's leadership position in the industry, increase spending
efficiencies and strengthen the Company's ability to manage
anticipated future growth. The key elements of this new business
strategy are discussed below.
- New Pricing--In the retail grocery market, pricing tends
to be set by the branded leader with other brand and
private label price levels being set using the leading
brand as the benchmark. Responding in part to relatively
balanced levels of supply and demand, the Company
increased prices on its core fruit products in fiscal
1996 and on its core vegetable products in fiscal 1996
and 1997. As anticipated, price increases were initially
not matched by competitors, and the Company's market
shares in many of its core product categories were eroded
by both private label and branded competition. Market
shares have now stabilized or improved relative to the
lower levels reached after such price increases.
Specifically, branded fruit competitors have matched the
Company's prices and branded vegetable competitors have
increased their prices to more closely approach the
Company's higher prices. Management believes that its
price levels are sustainable in view of the current price
levels of branded competition.
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- Trade Promotion Programs--Over the last twelve months,
the Company has implemented a significant change in its
trade promotion strategy. Historically, the Company
marketed its products through aggressive periodic trade
promotions that represented discounts off list prices for
retailers. Many of these promotions required little or no
retailer support or performance, resulted in the buildup
of retailers' inventories through advance buying, and
were not regularly passed through to the consumer in
shelf price reductions. Currently, under the Company's
"Go-to-Market" strategy, trade spending is based on
accruals generated by retailers for each case purchased.
These accrued amounts are then paid for retail
merchandising events based on each case actually sold to
the consumer. Management believes that this
performance-based strategy, combined with coordinated
promotional efforts undertaken with the retailer,
provides more efficient spending that to date has
resulted in more efficient merchandising of the Company's
products.
- Consumer Promotion--The Company has also substantially
increased its marketing spending targeted directly at
consumers and expects to spend $56 million on such
marketing in fiscal 1997 (a $44 million increase from
fiscal 1996). This strategy, which primarily takes the
form of free-standing insert couponing, has helped the
Company recapture some of the volume and market share
declines that occurred following the price increases.
- New Product Introductions and Product Line
Extensions--The Company has focused on developing
products designed to take advantage of the Company's
presence in existing categories, emphasize existing
manufacturing capabilities and leverage the Del Monte
brand name. Specifically, the Company recently has
introduced Del Monte D'Italia(TM) pasta sauces, flavored
diced tomatoes and flavored fruits. The Company has also
repositioned certain of its tomato and vegetable products
using its FreshCut brand, which emphasizes the freshness
of the raw ingredients in these products. In fiscal 1997,
the Company introduced the FreshCut line of vegetables
and two new FreshCut tomato products. Management believes
that the FreshCut concept for vegetables has increased
brand perceptions for ingredient freshness, overall
quality and taste. In the future, the Company will seek
to develop value-added products that reflect consumer
demands, such as convenience and quality, and that will
benefit from the Del Monte brand and the Company's
distribution infrastructure.
- Increased Penetration of High-Growth Channels of
Distribution--Changes in the retail grocery environment
have resulted in substantial growth of alternative
retailers such as Warehouse Clubs, Mass Merchandisers and
Supercenters. The Company believes it is well-positioned
to benefit from these changes because these vendors
generally seek brand name products with high turnover
from category leaders. In addition, vendors in this
category generally are attracted to large,
technologically sophisticated suppliers such as the
Company that have the ability to meet their stringent
inventory and shelf management requirements. The Company
believes it is currently the leading supplier of canned
vegetables and fruits to Wal-Mart's Sam's Club, and is a
major supplier to Price/Costco. The Company also believes
it is Wal-Mart Supercenters' leading supplier of canned
vegetables, fruit and cut tomato products as a group.
- Customer Alliances--Competitive pressures in the retail
food industry are causing many retailers to form
alliances with large suppliers such as the Company that
are able to provide sophisticated inventory and category
management programs. Management believes that the Company
is well situated to take advantage of this trend due to
the scope of its product offerings and efficient national
distribution system, as well as its size and
technological capabilities. The Company has formed
technological alliances with several key customers and
intends to pursue additional alliances. To support these
alliances, Del Monte has developed proprietary software
systems and programs in category management which enable
its customers to free shelf space for higher-margin
products, improve inventory management by eliminating
redundant or slow-moving products and optimize product
positioning on store shelves. Substantially all of the
Company's customers that have employed the Company's
category management system have increased the Company
product sales and shelf space while reducing overall
shelf space dedicated to the canned vegetable, fruit and
cut tomato categories as a whole. In addition, the
Company has developed a proprietary vendor-managed
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inventory software system through which the Company
directly manages its customers' inventories of Del Monte
branded products. This inventory software is designed to
reduce customers' overhead and to enable them to achieve
lower average inventory levels while enhancing the
Company's opportunities to sell Del Monte products.
Cost Savings and Inventory Management
In fiscal 1993, the Company instituted a reengineering plan
designed to reduce operating costs and enhance the Company's
ability to produce and distribute its products. The Company
realized approximately $41 million in cumulative cost savings in
fiscal 1994 and 1995, principally as a result of this plan. In
connection with the Recapitalization, the Company has developed a
capital expenditure program that is designed to generate an
additional $29 million in annual cost savings to be achieved over
the next four years as the initiatives discussed below are
completed. In addition, the Company has identified $45 million of
potential inventory reductions that it intends to effect. There
can be no assurance, however, that such cost savings or inventory
reductions will be realized.
- Manufacturing Improvements--Management currently plans to
introduce new processing equipment such as modern
high-speed fillers, optical sorting equipment and
packaging machinery, each of which is intended to
generate cost savings and to help the Company maintain
its position as a low cost producer. Such savings would
result primarily from decreased labor costs and general
production efficiencies.
- Facility Consolidation--The Company closed two vegetable
plants and two distribution centers in fiscal 1994 and
another vegetable plant in fiscal 1995. The Company plans
to close an additional facility by fiscal 1999, which is
expected to generate additional annual savings from
reduced hauling charges, improved recoveries and a
reduction of fixed costs.
- Improved Inventory Management--Keeping inventory levels
as low as possible will be a key strategic focus of the
Company. The Company intends to significantly reduce
excess inventories beginning with the 1997 pack,
primarily by reducing contracted acreage. The Company is
also evaluating a counter-seasonal production strategy
comprised of importing fruits from the Southern
hemisphere during the North American winter and increased
sourcing of vegetables from the Southwest during periods
other than the Midwestern harvest season.
The Recapitalization
Pursuant to the Agreement and Plan of Merger, dated as of
February 21, 1997 and amended and restated as of April 14, 1997
(the "Merger Agreement"), entered into among TPG Partners, L.P.,
a Delaware partnership ("TPG"), TPG Shield Acquisition
Corporation, a Maryland corporation ("Shield"), and DMFC, Shield
merged with and into DMFC (the "Merger"), with DMFC being the
surviving corporation. By virtue of the Merger, shares of DMFC's
preferred stock having an implied value of approximately $14
million held by certain of DMFC's stockholders were cancelled and
were converted into the right to receive common stock of the
surviving corporation. All other shares of DMFC stock were
cancelled and were converted into the right to receive cash
consideration, all as set forth in the Merger Agreement. In
connection with the Merger, DMC repaid substantially all of its
funded debt obligations existing immediately before the closing
of the Merger (the "Debt Retirement"). At March 31, 1997, the
aggregate principal amount of DMC's funded indebtedness was $310
million.
Cash funding requirements for the Recapitalization (which
was consummated on April 18, 1997), including the Initial
Purchasers' discount in connection with the issuance and sale of
the Old Notes and other fees and expenses, totalled $809 million,
and were satisfied through the following: (i) a cash equity
investment by TPG and other investors of $126 million (the
"Common Equity Contribution") in the common stock of Shield; (ii)
a cash equity investment by TPG and other investors of $35
million (the "Preferred Equity Contribution," and together with
the Common Equity Contribution, the "Equity Contribution") in
shares of redeemable preferred stock of Shield (the "Preferred
Stock") having the preferences, rights and other terms described
under "Capital Stock of DMC and
6
<PAGE>
DMFC"; (iii) $380 million of borrowings under a senior secured
term loan facility among the Company, Bank of America National
Trust and Savings Association ("BofA") and Bankers Trust Company
("BTCo.") (the "Term Loan Facility"); (iv) $119 million of
borrowings under a senior secured revolving credit facility among
the Company, BofA and BTCo. (the "Revolving Credit Facility" and,
together with the Term Loan Facility, the "Bank Financing"); (v)
$147 million from the net proceeds of the offering of the Old
Notes (the "Old Note Offering"); and (vi) $2 million of proceeds
from the sale of a surplus property. In the Merger, the common
stock and the Preferred Stock of Shield were converted into new
shares of common stock and preferred stock, respectively, of
DMFC.
The Recapitalization was accounted for as a
recapitalization transaction for accounting purposes. The Merger,
the Debt Retirement, the Equity Contribution, the Bank Financing
and the Old Note Offering are herein referred to collectively as
the "Recapitalization." See "The Recapitalization."
Texas Pacific Group
Texas Pacific Group was founded by David Bonderman, James
G. Coulter and William S. Price in 1993 to pursue public and
private investment opportunities through a variety of methods,
including leveraged buyouts, joint ventures, restructurings,
bankruptcies and strategic public securities investments. Texas
Pacific Group, through TPG and another investment fund, manages
over $3 billion in committed equity capital.
Prior to the formation of TPG, certain of its principals
oversaw the successful investment of more than $1 billion of
equity capital from 1982 to 1992 on behalf of Keystone, Inc.
(formerly the Robert M. Bass Group), including such transactions
as the acquisition of American Savings Bank, Wometco Cable,
National Reinsurance Corp. and Bell & Howell. In addition, TPG's
principals led the $9 billion reorganization of Continental
Airlines in 1993. TPG currently has eleven investments in its
portfolio, which, in addition to Del Monte Foods, includes
America West Airlines, Allied Waste Industries, Beringer Wine
Estates, Favorite Brands International, Denbury Resources, Ducati
Motor, Paradyne and Virgin Cinemas.
The acquisition of the Company was TPG's third major
investment in the food and beverage industry in the last two
years. In September 1995, TPG acquired the North American
marshmallow and confections business of Kraft, which is now
called Favorite Brands International. Since the acquisition,
Favorite Brands International has acquired five other businesses,
quintupling its revenues and making it the fourth largest candy
and confections company in the United States. Additionally, in
January 1996, TPG acquired Beringer Wine Estates from Nestle,
which includes Meridian Vineyards, Napa Ridge and Chateau
Souverain. Subsequently, Beringer acquired Chateau St. Jean and
Stags' Leap Winery, giving Beringer one of the nation's largest
portfolios of premium wineries.
The Exchange Offer
Registration Rights
Agreement.................... The Old Notes were issued on April 18,
1997 to the Initial Purchasers. The
Initial Purchasers placed the Old Notes
with institutional investors. In
connection therewith, DMC, DMFC and
the Initial Purchasers entered into
the Registration Rights Agreement,
providing, among other things, for
the Exchange Offer. See "The
Exchange Offer."
The Exchange Offer........... New Notes are being offered in exchange
for an equal principal amount of Old Notes.
As of the date hereof, $150,000,000
aggregate principal amount of Old Notes
is outstanding. Old Notes may be tendered
only in integral multiples of $1,000.
7
<PAGE>
Resale of New Notes.......... Based on interpretations
by the staff of the
Commission, as set forth in
no-action letters issued to third
parties, including the Exchange
Offer No-Action Letters, DMC and
DMFC believe that the New Notes
issued pursuant to the Exchange
Offer may be offered for resale,
resold or otherwise transferred by
each holder thereof (other than a
broker-dealer who acquires such New
Notes directly from DMC or DMFC for
resale pursuant to Rule 144A under
the Securities Act or any other
available exemption under the
Securities Act and other than any
holder that is an "affiliate" (as
defined under Rule 405 of the
Securities Act) of DMC or DMFC)
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act, provided that such
New Notes are acquired in the
ordinary course of such holder's
business and such holder is not
engaged in, and does not intend to
engage in, a distribution of such
New Notes and has no arrangement
with any person to participate in a
distribution of such New Notes. By
tendering the Old Notes in exchange
for New Notes, each holder, other
than a broker-dealer, will
represent to DMC and DMFC that: (i)
it is not an affiliate (as defined
in Rule 405 under the Securities
Act) of DMC or DMFC; (ii) it is not
a broker-dealer tendering Old Notes
acquired for its own account
directly from DMC or DMFC; (iii)
any New Notes to be received by it
were acquired in the ordinary
course of its business; and (iv) it
is not engaged in, and does not
intend to engage in, a distribution
of such New Notes and has no
arrangement or understanding to
participate in a distribution of
the New Notes. If a holder of Old
Notes is engaged in or intends to
engage in a distribution of the New
Notes or has any arrangement or
understanding with respect to the
distribution of the New Notes to be
acquired pursuant to the Exchange
Offer, such holder may not rely on
the applicable interpretations of
the staff of the Commission and
must comply with the registration
and prospectus delivery
requirements of the Securities Act
in connection with any secondary
resale transaction. Each
Participating Broker-Dealer that
receives New Notes for its own
account pursuant to the Exchange
Offer must acknowledge that it will
deliver a prospectus in connection
with any resale of such New Notes.
The Letter of Transmittal states
that by so acknowledging and by
delivering a prospectus, a
Participating Broker-Dealer will
not be deemed to admit that it is
an "underwriter" within the meaning
of the Securities Act. This
Prospectus, as it may be amended or
supplemented from time to time, may
be used by a Participating
Broker-Dealer in connection with
resales of New Notes received in
exchange for Old Notes where such
Old Notes were acquired by such
Participating Broker-Dealer as a
result of market-making activities
or other trading activities. DMC
and DMFC have agreed that they will
make this Prospectus available to
any Participating Broker-Dealer for
a period of time not to exceed 180
days after the Registration
Statement is declared effective
(subject to extension under certain
circumstances) for use in
connection with any such resale.
See "Plan of Distribution." To
comply with the securities laws of
certain jurisdictions, it may be
8
<PAGE>
necessary to qualify for sale or
register the New Notes prior to
offering or selling such New Notes.
DMC and DMFC have agreed, pursuant
to the Registration Rights
Agreement and subject to certain
specified limitations therein, to
register or qualify the New Notes
for offer or sale under the
securities or "blue sky" laws of
such jurisdictions as may be
necessary to permit the holders of
New Notes to trade the New Notes
without any restrictions or
limitations under the securities
laws of the several states of the
United States.
Consequences of Failure to
Exchange Old Notes........... Upon consummation of the Exchange Offer,
subject to certain exceptions, holders of
Old Notes who do not exchange their Old
Notes for New Notes in the Exchange
Offer will no longer be
entitled to registration rights and
will not be able to offer or sell
their Old Notes, unless such Old Notes
are subsequently registered
under the Securities Act (which,
subject to certain limited
exceptions, the Company will have
no obligation to do), except
pursuant to an exemption from, or
in a transaction not subject to,
the Securities Act and applicable
state securities laws. See "Risk
Factors--Risk Factors Relating to the
Notes and the Old Note
Offering--Consequences of Failure to Exchange"
and "The Exchange Offer--Terms of the
Exchange Offer."
Expiration Date.............. 5:00 p.m., New York City time, on July 31,
1997 (30 calendar days following the
commencement of the Exchange Offer), unless
the Exchange Offer is extended, in which case
the term "Expiration Date" means the latest
date and time to which the
Exchange Offer is extended.
Interest on the New Notes.... The New Notes will accrue
interest at the applicable
per annum rate set forth
on the cover page of this
Prospectus, from (A) the later of
(i) the last interest payment date
on which interest was paid on the
Old Notes surrendered in exchange
therefor or (ii) if the Old Notes
are surrendered for exchange on a
date subsequent to the record date
for an interest payment date to
occur on or after the date of such
exchange and as to which interest
will be paid, the date of such
interest payment or (B) if no
interest has been paid on the Old
Notes, from the Issue Date (as
defined herein) of such Old Notes.
Interest on the New Notes is
payable on April 15 and October 15
of each year.
Conditions to the
Exchange Offer................The Exchange Offer is not conditioned
upon any minimum principal amount of Old
Notes being tendered for exchange.
However, the Exchange Offer is
subject to certain customary
conditions, which may be waived by
DMC or DMFC. See "The Exchange
Offer--Conditions." Except for the
requirements of applicable federal
and state securities laws, there
are no federal or state regulatory
requirements to be complied with or
obtained by DMC or DMFC in
connection with the Exchange Offer.
9
<PAGE>
Procedures for Tendering
Old Notes.....................Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign
and date the Letter of Transmittal,
or a facsimile thereof, in
accordance with the instructions
contained herein and therein, and
mail or otherwise deliver such
Letter of Transmittal, or such
facsimile, together with the Old
Notes to be exchanged and any other
required documentation to the
Exchange Agent (as defined herein)
at the address set forth herein or
effect a tender of Old Notes
pursuant to the procedures for
book-entry transfer as provided for
herein. See "The Exchange
Offer--Procedures for Tendering"
and "--Book Entry Transfer."
Guaranteed Delivery
Procedures....................Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot
deliver their Old Notes and a
properly completed Letter of
Transmittal or any other documents
required by the Letter of
Transmittal to the Exchange Agent
prior to the Expiration Date may
tender their Old Notes according to
the guaranteed delivery procedures
set forth in "The Exchange
Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights............ Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date. To withdraw
a tender of Old Notes, a written or
facsimile transmission notice of
withdrawal must be received by the
Exchange Agent at its address set
forth herein under "The Exchange
Offer--Exchange Agent" prior to
5:00 p.m., New York City time, on
the Expiration Date.
Acceptance of Old Notes
and Delivery of
New Notes.................... Subject to certain conditions, any and
all Old Notes that are properly tendered
in the Exchange Offer prior to 5:00
p.m., New York City time, on the
Expiration Date will be accepted
for exchange. The New Notes issued
pursuant to the Exchange Offer will
be delivered promptly following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange
Offer."
Certain Tax Considerations... The exchange of New Notes for Old Notes
should not be a sale or exchange or
otherwise a taxable event for
Federal income tax purposes. See
"Certain U.S. Federal Income Tax
Considerations."
Exchange Agent............... Bankers Trust Company is serving as exchange
agent (the "Exchange Agent") in connection
with the Exchange Offer.
Fees and Expenses............ All expenses incident to consummation
of the Exchange Offer and
compliance with the Registration
Rights Agreement will be borne by
DMC and DMFC. See "The Exchange
Offer--Fees and Expenses."
Use of Proceeds.............. There will be no cash proceeds payable
to DMC or DMFC from the issuance of
the New Notes pursuant to the
Exchange Offer. See "Use of
Proceeds."
10
<PAGE>
Summary of Terms of New Notes
The Exchange Offer relates to the exchange of up to
$150,000,000 aggregate principal amount of Old Notes for up to an
equal aggregate principal amount of New Notes. The New Notes will
be entitled to the benefits of the same Indenture that governs
the Old Notes and that will govern the New Notes. The form and
terms of the New Notes are the same in all material respects as
the form and terms of the Old Notes, except that interest rate
step-up provisions will be inoperative and that the New Notes
have been registered under the Securities Act and therefore will
not bear legends restricting the transfer thereof. See
"Description of the New Notes."
Maturity Date............. April 15, 2007.
Interest Rate and
Payment Date ............. The New Notes will bear interest at a
rate of 12 1/4% per annum. Interest will
be payable semi-annually on each April
15 and October 15.
Optional Redemption....... The New Notes will be redeemable, in whole
or in part, at the option of DMC on
or after April 15, 2002 at the
redemption prices set forth herein,
plus accrued and unpaid interest to
the date of redemption. In
addition, prior to April 15, 2000,
DMC, at its option, may redeem up
to 35% of the aggregate principal
amount of the New Notes originally
issued with the net cash proceeds
of one or more Public Equity
Offerings (as defined herein) at
the redemption price equal to
112.625% of the principal amount
thereof, plus accrued and unpaid
interest to the date of redemption;
provided that at least 65% of the
aggregate principal amount of the
New Notes originally issued remains
outstanding immediately after any
such redemption. See "Description
of the New Notes--Redemption."
Change of Control......... Upon a Change of Control (as defined
herein), (i) DMC will have the option,
at any time on or prior to April 15,
2002, to redeem the New Notes, in
whole but not in part, at a
redemption price equal to 100% of
the principal amount thereof, plus
the Applicable Premium (as defined
herein), together with accrued and
unpaid interest, if any, to the
date of redemption, and (ii) if DMC
does not so redeem the New Notes or
if such Change of Control occurs
after April 15, 2002, each holder
of the New Notes will have the
right to require DMC to repurchase
such holder's New Notes at a price
equal to 101% of the principal
amount thereof plus accrued and
unpaid interest to the date of
repurchase. See "Description of the
New Notes--Certain
Covenants--Purchase of Notes Upon a
Change of Control Triggering
Event."
Ranking................... The New Notes will be general
unsecured obligations of DMC and
will be subordinated in right of
payment to all existing and future
Senior Debt (as defined herein) of
DMC. The New Notes will rank pari
passu with any present and future
senior subordinated indebtedness of
DMC and will rank senior to all
other subordinated indebtedness of
DMC. See "Description of the New
Notes." As of March 31, 1997, on a
pro forma basis and after giving
effect to the Recapitalization, DMC
would have had approximately $511
million of Senior Debt outstanding
(exclusive of unused commitments of
$194 million).
11
<PAGE>
Covenants................. The Indenture under which the New Notes
will be issued will contain certain
covenants that limit the ability of
DMC and its subsidiaries to, among
other things, incur additional
indebtedness, pay dividends or make
certain other restricted payments,
consummate certain asset sales,
enter into certain transactions
with affiliates, incur indebtedness
that is subordinate in right of
payment to any Senior Debt and
senior in right of payment to the
New Notes, incur liens, impose
restrictions on the ability of a
subsidiary to pay dividends or make
certain payments to DMC and its
subsidiaries, merge or consolidate
with any other person or sell,
assign, transfer, lease, convey or
otherwise dispose of all or
substantially all of the assets of
DMC. See "Description of the New
Notes--Certain Covenants."
Use of Proceeds
There will be no cash proceeds payable to DMC or DMFC from
the issuance of the New Notes pursuant to the Exchange Offer. The
proceeds from the sale of the Old Notes were used for the
retirement of debt, to consummate the other components of the
Recapitalization and to pay related fees and expenses. See "Use
of Proceeds" and "The Recapitalization."
Risk Factors
See "Risk Factors" for a discussion of certain factors that
should be considered in evaluating an investment in the Notes.
12
<PAGE>
Summary Historical Financial Data
The following table presents summary historical
consolidated financial data of the Company. The historical
unaudited financial data presented below as of March 31, 1996 and
1997 and for the nine months then ended was derived from interim
consolidated financial statements of the Company as of such dates
which, in the opinion of management, reflect all adjustments,
consisting of only normal, recurring adjustments, necessary for a
fair presentation of such data and which have been prepared in
accordance with the same accounting principles followed in the
presentation of the Company's audited financial statements for
the fiscal year ended June 30, 1996. Operating results for the
nine months ended March 31, 1997 are not necessarily indicative
of results to be expected for the full fiscal year. The summary
historical consolidated financial data presented below as of June
30, 1992, 1993, 1994, 1995 and 1996 and for the twelve months
then ended were derived from the June 30, 1996 and prior fiscal
years' audited consolidated financial statements of the Company
and should be read in conjunction with, and are qualified by
reference to, the information set forth under "Selected
Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and the
related notes thereto, in each case included elsewhere in this
Prospectus.
Nine Months
Ended
March 31,
Fiscal Year Ended June 30, (unaudited)
1992 1993 1994
(Dollars in millions, except per share amounts)
Statement of Operations
Data:
Net sales........... $1,431 $1,555 $1,499
Cost of sales....... 1,180 1,326 1,275
------ ----- -----
Gross profit........ 251 229 224
Selling, advertising,
administrative
and general expenses 173 172 157
Special charges(a).. 15 140 --
---- ---- ----
Operating income(loss) 63 (83) 67
Other (income) expense (7) 4 8
Loss (gain) on sale of
assets(b)........... -- (13) (13)
Interest expense.... 74 68 61
--- --- ---
Income (loss) before
income taxes, minority
interest, extraordinary
item and cumulative
effect of accounting
change(c)(d)........ (4) (142) 11
Provision for
income taxes........ 10 10 3
Minority interest in
earnings of
subsidiary.......... 9 8 5
--- --- ---
Income (loss)
before extraordinary
item and cumulative
effect of accounting
change(c)(d)........ (23) (160) 3
Extraordinary loss(c) 35 -- --
Cumulative effect of
accounting change(d) -- 28 --
--- --- ---
Net income (loss)... $(58) $(188) $3
=== ==== ===
Income (loss) per
common share:
Income (loss) before
extraordinary
item and cumulative
effect of
accounting change
per common
share(e)......... $(159.99) $(504.36) $(143.08)
Extraordinary loss.. (82.65) -- --
Cumulative effect
of accounting
change............ -- (67.34) --
---- ------ ----
Net income (loss)
per common
share............. $(242.64) $(571.70) $(143.08)
======== ======= =========
1995 1996 1996 1997
(Dollars in millions, except per share amounts)
Statement of Operations
Data:
Net sales........... $1,526 $1,304 $1,018 $934
Cost of sales....... 1,289 1,084 858 733
----- ----- ---- ---
Gross profit........ 237 220 160 201
Selling, advertising,
administrative
and general expenses 157 138 116 132
Special charges(a).. -- -- -- --
---- ---- ---- ---
Operating income(loss) 80 82 44 69
Other (income) expense (11) 3 1 --
Loss (gain) on sale of
assets(b)........... -- (107) (107) 5
Interest expense.... 76 67 54 37
--- --- --- ---
Income (loss) before
income taxes, minority
interest, extraordinary
item and cumulative
effect of accounting
change(c)(d)........ 15 119 96 27
Provision for
income taxes........ 2 11 13 2
Minority interest in
earnings of
subsidiary.......... 1 3 3 --
--- --- --- ---
Income (loss)
before extraordinary
item and cumulative
effect of accounting
change(c)(d)........ 12 105 80 25
Extraordinary loss(c) 7 10 9 4
Cumulative effect of
accounting change(d) -- 7 3 --
--- --- --- ---
Net income (loss)... $5 $88 $68 $21
=== === === ===
Income (loss) per
common share:
Income (loss) before
extraordinary
item and cumulative
effect of
accounting change
per common
share(e)......... $(145.35) $559.40 47.75 $(117.36)
Extraordinary loss.. (18.34) (26.39) (22.17) (9.77)
Cumulative effect
of accounting
change............ -- (18.14) (7.60) --
------- ----- ---- -----
Net income (loss)
per common
share............. $(163.69) $14.87 $17.98 $(127.13)
========== ======= ======= =========
13
<PAGE>
Nine Months
Ended
March 31,
Fiscal Year Ended June 30, (unaudited)
1992 1993 1994 1995 1996 1996 1997
(Dollars in millions)
Other Data:
EBITDA(f)........... $79 $ 62 $63 $76 $92 $51 $87
Depreciation and
amortization (g).... 55 59 35 35 26 19 18
Capital expenditures 42 34 36 24 16 8 12
Selected Ratios:
Ratio of earnings
to fixed charges(h)
.................... -- -- 1.2x 1.2x 2.6x 2.6x 1.6x
Deficiency of earnings to cover
fixed charges(h).. $4 $142 -- -- -- -- --
At March 31,
(unaudited)
At June 30,
1992 1993 1994 1995 1996 1996 1997
(Dollars in millions)
Balance Sheet Data:
Working capital.... $135 $ 92 $88 $99 $207 $186 $184
Total assets....... 1,215 1,066 936 960 736 763 739
Total debt, including
current maturities.. 653 624 569 576 373 396 310
Redeemable preferred
stock............... 216 216 215 215 213 213 213
Redeemable common
stock............... 2 2 2 2 2 2 2
Stockholders' equity
(deficit)........... (195) (385) (384) (393) (304) (324) (257)
- ----------------------
(a) In March 1992, the Company discontinued its Vegetable
Classics line resulting in a $15 million charge to
operations. In June 1993, the Company recorded special
charges of $140 million, which included $115 million for
permanent impairment of acquisition-related intangible
assets, including goodwill, and $25 million for facility
consolidations.
(b) The Company sold its equity investment in Del Monte Europe
in the fiscal quarter ended March 31, 1993 and recognized
a $13 million gain. The Company sold its can manufacturing
operations in the fiscal quarter ended December 31, 1993 and
recognized a $13 million gain. In November 1995, the Company sold
its pudding business for $89 million, net of $4 million of
related transaction fees. The sale resulted in a gain of $71
million. In March 1996, the Company sold its 50.1% ownership
interest in Del Monte Pacific Resources, Ltd. ("Del Monte
Philippines") for $100 million, net of $2 million of related
transaction fees. The sale resulted in a gain of $52 million, of
which $16 million was deferred and $36 million was recognized in
fiscal 1996. The purchase price included a premium paid to the
Company as consideration for an eight-year supply agreement. The
gain associated with the value of the premium was deferred and
will be amortized over the term of the agreement. In the fiscal
quarter ended December 1996, the Company sold its Mexican
subsidiary, Productos Del Monte, S.A. de C.V. and its Central
American and Caribbean subsidiaries (collectively, "Del Monte
Latin America"). The combined sales price of $50 million, reduced
by $1 million of related transaction expenses, resulted in a loss
of $5 million. The sales price for Del Monte Latin America is
subject to adjustment based on the final balance sheet. The
amount of any adjustment to the purchase price is currently in
dispute but is not expected to be material. See "Business--Legal
Proceedings."
(c) In August 1991, the Company refinanced its then-outstanding
term loan and senior subordinated increasing rate note
debt. In conjunction with the debt retirement, capitalized
debt issue costs of $35 million were written off and
accounted for as an extraordinary loss. In June 1995, the
Company refinanced its then-outstanding revolving credit
facility, term loan and senior secured floating rate notes.
In conjunction
14
<PAGE>
with this debt retirement, capitalized debt issue costs of
$7 million were written off and accounted for as an
extraordinary loss. In December 1995 and April 1996, the
Company prepaid part of its term loan and senior secured
notes. In conjunction with that early debt retirement, the
Company recorded an extraordinary loss of $10 million for
the early retirement of debt. The extraordinary loss
consisted of a $5 million prepayment premium and a $5
million write-off of capitalized debt issue costs related
to the early retirement of debt. In September 1996, the
Company repurchased its outstanding Subordinated Guaranteed
PIK Notes due 2002 (the "PIK Notes") in an aggregate
principal amount of $102 million and concurrently exchanged
essentially all remaining PIK Notes for new notes in an
aggregate principal amount of $156 million (the "1996 PIK
Notes"). In conjunction with this repurchase and exchange,
capitalized debt issue costs of $4 million, net of a
discount on the PIK Notes, were written off and accounted
for as an extraordinary loss.
(d) Effective July 1, 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Post-Retirement Benefits Other
Than Pensions." The Company elected to recognize this
change in accounting on the immediate recognition basis.
The cumulative effect of adopting SFAS No. 106 resulted in
a charge to fiscal 1993 net earnings of $28 million.
Effective July 1, 1995, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The cumulative effect
of adopting SFAS No. 121 resulted in a charge to fiscal
1996 net earnings of $7 million, of which $3 million had
been recognized through March 31, 1996.
(e) Net income (loss) attributed to common shares is computed
as net income (loss) reduced by the cash and in-kind
dividends for the period on redeemable preferred stock.
(f) EBITDA represents income (loss) before provision for income
taxes, minority interest, extraordinary item, and cumulative
effect of accounting change, plus interest expense and
special charges, depreciation and amortization expense and other
one-time and non-cash charges, less gains (losses) on sales of
assets and the results of the Divested Operations (as defined).
EBITDA is not presented as an alternative measure of operating
income or cash flow from operations (both as determined in
accordance with generally accepted accounting principles) but
rather to provide additional information related to the ability
of the Company to service debt. In fiscal 1992, other one-time
and non-cash charges included $9 million related to insurance
settlement proceeds and $18 million of amortization associated
with intangible assets subsequently written off. In fiscal 1993,
non-cash charges of $19 million represented amortization of
intangible assets subsequently written off. In fiscal 1994, other
one-time and non-cash charges included $1 million of fees related
to a terminated transaction, $1 million related to write-offs of
labels due to new labeling laws and $6 million of benefit plan
charges. For fiscal 1995, EBITDA excludes $26 million received in
connection with a terminated transaction, $4 million paid by the
Company to terminate its alliance with Pacific Coast Producers
("PCP") and $7 million related to the termination of a management
equity plan. For fiscal 1996 and for the nine months ended March
31, 1996, other one-time charges included $3 million for
relocation costs and $6 million of costs associated with a
significant headcount reduction.
(g) Depreciation and amortization exclude amortization of $5
million, $8 million, $5 million, $5 million and $5 million
of deferred debt issue costs for fiscal 1992, 1993, 1994,
1995 and 1996, respectively. Depreciation and amortization
exclude amortization of $4 million of deferred debt issue
costs in both of the nine-month periods ended March 31,
1996 and 1997. Depreciation and amortization for the
nine-month period ended March 31, 1996 and for the year
ended June 30, 1996 excludes $5 million in depreciation with
respect to Del Monte Philippines, one of the Divested Operations.
(h) For purposes of determining the ratio of earnings to fixed
charges and the deficiency of earnings to cover fixed
charges, earnings are defined as income (loss) before
extraordinary item, cumulative effect of accounting change,
minority interest and provision for income taxes, plus
fixed charges. Fixed charges consist of interest expense on
all indebtedness (including amortization of deferred debt
issue costs) and the interest component of rent expense.
15
<PAGE>
RISK FACTORS
Prospective purchasers of the New Notes should carefully
review the information contained and incorporated by reference in
this Prospectus and should particularly consider the following
matters:
Risk Factors Relating to the Company
Substantial Leverage
DMC is highly leveraged. In connection with the
Recapitalization, DMC incurred a significant amount of additional
indebtedness. As of March 31, 1997, on a pro forma basis and
after giving effect to the Recapitalization, DMC would have had
approximately $658 million of indebtedness and its stockholders'
equity (deficit) would have been $(418) million excluding the
Preferred Equity Contribution attributable to Preferred Stock. In
addition, subject to the restrictions in the Bank Financing and
the Indenture, DMC may incur additional senior or other
indebtedness from time to time to finance acquisitions or capital
expenditures or for other general corporate purposes. As a result
of seasonal working capital requirements, DMC's borrowings under
the Revolving Credit Facility will fluctuate significantly during
the year, generally peaking in September and October. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
The degree to which DMC is leveraged could have important
consequences to the holders of the New Notes, including, but not
limited to, the following: (i) DMC's ability to obtain additional
financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a significant portion of DMC's
cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the
funds available to DMC for its operations; (iii) significant
amounts of DMC's borrowings, including all borrowings under the
Bank Financing, will be at variable rates of interest, which
could result in higher interest expense in the event of increases
in interest rates; (iv) the Indenture and the Bank Financing
contain financial and restrictive covenants, the failure to
comply with which may result in an event of default which, if not
cured or waived, could have a material adverse effect on DMC; (v)
the indebtedness outstanding under the Bank Financing is secured
and matures prior to the maturity of the New Notes; (vi) DMC may
be substantially more leveraged than certain of its competitors,
which may place DMC at a competitive disadvantage; and (vii)
DMC's substantial degree of leverage may limit its flexibility to
adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a
downturn in general economic conditions or its business. See "The
Bank Financing" and "Description of the New Notes."
Ability to Service Debt
DMC's ability to make scheduled payments or to refinance
its debt obligations will depend upon its future financial and
operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors,
certain of which are beyond its control. There can be no
assurance that DMC's operating results, cash flow and capital
resources will be sufficient for payment of its indebtedness in
the future. In the absence of such operating results and
resources, DMC could face substantial liquidity problems and
might be required to dispose of material assets or operations to
meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that DMC
could realize therefrom. In addition, because DMC's obligations
under the Bank Financing bear interest at floating rates, an
increase in interest rates could adversely affect, among other
things, DMC's ability to meet its debt service obligations. DMC
will be required to make scheduled principal payments under the
Bank Financing commencing in the third quarter of fiscal 1998. If
DMC is unable to service its indebtedness, it will be forced to
adopt an alternative strategy that may include actions such as
reducing or delaying planned expansion and capital expenditures,
selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There can be no assurance that
any of these strategies could be effected on satisfactory terms,
if at all.
16
<PAGE>
Pricing Strategy
In fiscal 1996, the Company began the implementation of a
significant change in its pricing and promotional strategies.
These new strategies were designed to allow the Company to
achieve generally higher list prices for many of its products and
increased funding for consumer promotion activities (such as
couponing and advertising). The success of these new approaches
will depend in large part on the actions of the Company's branded
and private label competitors. See "Business--Business Strategy."
In implementing the Company's new pricing strategy, the
Company increased prices for many of its fruit and vegetable
products. Certain key competitors initially elected not to
increase their prices on competing products. As a result, the
difference between the Company's prices and those of its
competitors became significantly higher than it had been in
recent years. The Company's sales volume in the affected product
categories dropped significantly. Market shares in these
categories also fell. While key competitors subsequently
increased their prices and the Company's market share stabilized
for fruits and vegetables, there can be no assurance that
competitors will maintain their prices or will increase their
prices in response to, or in anticipation of, future Del Monte
price increases. Additionally, even if recent and future price
increases are maintained across the industry, there can be no
assurance that the Company's sales volume or market shares would
not be adversely affected by negative consumer reaction to higher
prices, nor can there be any assurance that the Company's sales
volumes or market shares will not be adversely impacted as a
result of its pricing actions. In addition, there can be no
assurance that consumer demand will remain at existing levels
given higher industry pricing as compared to prior years, or that
supply factors, such as crop supply levels and processing
capacity, will not change so as to create an imbalance of supply
and demand in future periods. If the Company is unable to
maintain its current pricing levels, there can be no assurance
that it will be able to generate gross profit consistent with
historical levels, or that it will be able to deliver positive
earnings over future periods. Any significant reduction in
profitability could have a material adverse impact on the Company
and its ability to meet its debt service requirements.
Risks Relating to Implementation of Business Strategy
The Company currently intends to pursue a business strategy
of increasing cash flow and revenue through a combination of cost
savings, consumer-focused promotions, marketing efforts and
expansion of certain markets and lines of business. No assurance
can be given that the Company will be successful in implementing
this strategy or that if implemented, such strategy will generate
the intended results. See "Business--Business Strategy." While
acquisitions are not a part of the Company's current core
business strategy, that strategy may change or the Company may be
presented with acquisition opportunities in the future that it
will decide to pursue. There can be no assurance that the Company
will pursue any such acquisitions or that, if undertaken, they
will be successful.
Adverse Weather Conditions
Severe weather conditions, such as floods, droughts or
frosts, may affect the supply of one or more of the Company's
products. Competing manufacturers of canned vegetable, fruit or
tomato products may be affected differently, however, depending
on the location of their principal sources of supply. If the
supply of any of the Company's products is adversely affected by
adverse weather conditions, there can be no assurance that the
Company will be able to obtain sufficient supplies from other
sources.
Competition
While many companies compete in the domestic canned
vegetable, fruit and cut tomato product categories, market share
is concentrated among a small number of well-established
companies that operate on both a national and a regional basis
with single or multiple branded product lines. The Company faces
substantial competition throughout its product lines from these
companies. Certain of these competitors have greater financial
resources and flexibility than the Company. Several product lines
are sensitive to competition from regional brands and many Del
Monte product lines compete with private label products and fresh
alternatives. While no single private label competitor has
greater market share than the Company in its principal product
categories, in calendar 1996, as a
17
<PAGE>
group private label competition represented 42.2%, 43.7% and
30.3% of the markets for canned vegetables, fruit and cut tomato
products, respectively. See "Business--Competition."
Governmental Regulation; Environmental Compliance
As a result of its agricultural, food processing and
canning activities, the Company is subject to numerous foreign
and domestic environmental laws and regulations. Many of these
laws and regulations, both foreign and domestic, are becoming
increasingly stringent and compliance with them is becoming
increasingly expensive. See "Business--Environmental Compliance."
The Company has been named as a potentially responsible party
("PRP") and may be liable for environmental investigation and
remediation costs at certain designated "Superfund Sites" under
the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") or under similar state laws.
There can be no assurance that the Company's defenses will
prevail in any litigation with respect to the foregoing, that the
Company's financial condition will not be adversely affected by
the imposition of liability for Superfund or contaminated sites
for which the Company has been named as a PRP or that the Company
will not be identified as a PRP at additional sites in the future
or that additional remediation requirements will not be imposed
on properties currently owned or operated by the Company. In
addition, there can be no assurance that other sites to which the
Company has sent waste will not be identified for investigation
or proposed for listing under CERCLA or similar state laws. In
addition, the U.S. Environmental Protection Agency (the "EPA")
has been involved in a number of actions relating to the use of
pesticides in the food industry, and there can be no assurance
that the effect of such actions and any future actions on the
availability of pesticides would not have a material adverse
impact on the Company's financial position or results of
operations. See "Business--Governmental Regulation" and
"Environmental Compliance."
Control of the Company
TPG and its affiliates, through their ownership of the
voting stock or through other contractual arrangements, control
the Company and have the power to elect all directors of the
Company, approve all amendments to the Company's charter
documents and effect fundamental corporate transactions such as
mergers and asset sales. See "Capital Stock of DMC and DMFC."
Risk Factors Relating to the Notes and the Old Note Offering
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes
for New Notes pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. To
the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected.
Absence of a Public Market for the New Notes
Prior to the Exchange Offer, there has been no public
market for the New Notes. If such a market were to develop, the
New Notes could trade at prices that may be higher or lower than
their principal amount. Neither DMC nor DMFC intends to apply for
listing of the New Notes on any securities exchange or for
quotation of the New Notes on The Nasdaq Stock Market's National
Market or otherwise. DMC and DMFC have been advised by the
Initial Purchasers that they currently intend to make a market in
the New Notes, as permitted by applicable laws and regulations,
after consummation of the Exchange Offer. The Initial Purchasers
are not obligated, however, to make a market in the New Notes,
and any such market making activity may be discontinued at any
time without notice at the sole discretion of the Initial
Purchasers. There can be no assurance as to the liquidity of the
public market for the
18
<PAGE>
New Notes or that any active public market for the New Notes will
develop or continue. If an active public market does not develop
or continue, the market price and liquidity of the New Notes may
be adversely affected.
Subordination of Notes; Asset Encumbrance
The New Notes will be subordinated in right of payment to
all existing and future Senior Debt of DMC, including the Bank
Financing. In the event of bankruptcy, liquidation or
reorganization of DMC, the assets of DMC will be available to pay
obligations on the New Notes only after all Senior Debt has been
paid in full, and there may not be sufficient assets remaining to
pay amounts due on any or all of the New Notes then outstanding.
In addition, under certain circumstances, no payments may be made
with respect to principal of or interest on the New Notes if a
default exists with respect to Senior Debt. In addition,
indebtedness outstanding under the Bank Financing is secured by
substantially all of the assets of DMC. As of March 31, 1997, on
a pro forma basis and after giving effect to the
Recapitalization, DMC would have had approximately $511 million
of Senior Debt (exclusive of unused commitments of $194 million).
Additional Senior Debt may be incurred by DMC from time to time
subject to certain restrictions contained in the Bank Financing
and the Indenture. See "--Restrictive Debt Covenants," "The Bank
Financing" and "Description of the New Notes."
Certain Fraudulent Conveyance Considerations
If a court, in a lawsuit brought by an unpaid creditor or
representative of creditors, such as a trustee in bankruptcy or
DMC as a debtor in possession, were to find that, either (a) DMC
incurred indebtedness with the intent of hindering, delaying or
defrauding creditors or (b) DMC received less than a reasonably
equivalent value or fair consideration for incurring
indebtedness, and DMC (i) was insolvent or rendered insolvent by
reason of such transactions, (ii) was engaged, or about to
engage, in a business or transaction for which its assets
constituted unreasonably small capital or (iii) intended to
incur, or believed that it would incur, debts beyond its ability
to pay as they matured (as the foregoing terms are defined in or
interpreted under the applicable fraudulent conveyance statutes),
such court could, subject to applicable statutes of limitation,
subordinate the Old Notes to presently existing and future
indebtedness of DMC or take other action detrimental to the
holders of the Old Notes, including, in certain circumstances,
invalidating the Old Notes.
The measure of insolvency for purposes of the foregoing
considerations will vary depending upon the federal or local law
that is being applied in any such proceeding. Generally, however,
DMC would be considered insolvent if, at the time DMC incurred or
incurs the indebtedness constituting the Old Notes, either (i)
the fair market value (or fair saleable value) of the assets of
DMC was or is less than the amount required to pay the probable
liability on their total existing liabilities (including
contingent liabilities) as they become absolute and matured or
(ii) DMC was or is incurring obligations beyond its ability to
pay as such obligations mature.
DMC believes that the indebtedness evidenced by the Old
Notes was incurred for proper purposes and in good faith, that it
received reasonably equivalent value or fair consideration for
the Old Notes and that at the time of the incurrence of such
indebtedness, DMC was solvent, had sufficient capital to carry on
its business and did not intend to incur or believe that it would
incur debts beyond its ability to pay as they mature or become
due. In reaching the foregoing conclusions, DMC has relied upon
its analyses of internal cash flow projections and estimated
value of assets and liabilities of DMC. No assurance can be
given, however, that a court would concur with such beliefs.
A holder of Old Notes cannot eliminate or reduce the
exposure to the fraudulent conveyance risks set forth above by
participating in the Exchange Offer. If a holder of Old Notes
participates in the Exchange Offer and receives New Notes in
exchange for Old Notes, a court could take action detrimental to
such holder of New Notes, based on the fraudulent conveyance
considerations set forth above, to the same extent that a court
could take action detrimental to any holder of Old Notes.
19
<PAGE>
Restrictive Debt Covenants
The Indenture and the Bank Financing contain a number of
significant covenants that, among other things, restrict the
ability of DMC and its subsidiaries to dispose of assets, incur
additional indebtedness, incur guarantee obligations, repay other
indebtedness or amend other debt instruments, pay dividends,
create liens on assets, enter into leases, make investments,
loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures, engage in certain
transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. In addition, under the Bank
Financing, DMC is required to comply with specified financial
ratios and tests, including minimum EBITDA, minimum net worth,
minimum fixed charge coverage and maximum leverage ratios. See
"The Bank Financing" and "Description of the New Notes."
DMC's ability to comply with such agreements may be
affected by events beyond its control, including prevailing
economic, financial and industry conditions. The breach of any of
such covenants or restrictions could result in a default under
the Bank Financing and/or the Indenture, which would permit the
senior lenders, or the holders of the New Notes, or both, as the
case may be, to declare all amounts borrowed thereunder to be due
and payable, together with accrued and unpaid interest, and the
commitments of the senior lenders to make further extensions of
credit under the Bank Financing could be terminated. If DMC were
unable to repay its indebtedness to its senior lenders, such
lenders could proceed against the collateral securing such
indebtedness as described under "The Bank Financing." See
"--Subordination of Notes; Asset Encumbrance."
Limitation on Change of Control
Upon a Change of Control, (i) DMC will have the option, at
any time on or prior to April 15, 2002, to redeem the New Notes,
in whole but not in part, at a redemption price equal to 100% of
the principal amount thereof plus the Applicable Premium,
together with accrued and unpaid interest through the date of
redemption, and (ii) if DMC does not so redeem the New Notes or
if such Change of Control occurs after April 15, 2002, each
holder of the New Notes will have the right to require DMC to
repurchase such holder's New Notes at a price equal to 101% of
the principal amount thereof to the date of repurchase plus
accrued and unpaid interest, if any. The Change of Control
purchase feature of the New Notes may in certain circumstances
discourage or make more difficult a sale or takeover of DMC. In
particular, a Change of Control may cause an acceleration of, or
require an offer to repurchase under, the Bank Financing and
other indebtedness, if any, of DMC and its subsidiaries, in which
case such indebtedness would be required to be repaid in full
before repurchase of the New Notes. See "The Bank Financing" and
"Description of the New Notes--Change of Control." The inability
to repay such indebtedness, if accelerated, and to purchase all
of the tendered New Notes would constitute an event of default
under the Indenture. There can be no assurance that DMC will have
funds available to repurchase the New Notes upon the occurrence
of a Change of Control.
20
<PAGE>
THE RECAPITALIZATION
Pursuant to the Merger Agreement, entered into among TPG,
Shield and DMFC, Shield merged with and into DMFC, with DMFC
being the surviving corporation. By virtue of the Merger, shares
of DMFC's preferred stock having an implied value of
approximately $14 million held by certain of DMFC's stockholders
were cancelled and were converted into the right to receive
common stock of the surviving corporation. All other shares of
DMFC stock were cancelled and were converted into the right to
receive cash consideration, all as set forth in the Merger
Agreement. In connection with the Merger, DMC repaid
substantially all of its funded debt obligations existing
immediately before the closing of the Merger. At March 31, 1997,
the aggregate principal amount of DMC's funded indebtedness was
$310 million.
Cash funding requirements for the Recapitalization,
including the Initial Purchasers' discount in connection with the
issuance and sale of the Notes and other fees and expenses,
totalled $809 million, and were satisfied through the following:
(i) the Common Equity Contribution of $126 million by TPG and
other investors; (ii) the Preferred Equity Contribution by TPG
and other investors of $35 million; (iii) $380 million of
borrowings under the Term Loan Facility; (iv) $119 million of
borrowings under the Revolving Credit Facility; (v) $147 million
from the net proceeds of the Old Note Offering; and (vi) $2
million of proceeds from the sale of a surplus property. In the
Merger, the common stock and the Preferred Stock of Shield were
converted into new shares of common stock and preferred stock,
respectively, of DMFC.
The Recapitalization was accounted for as a
recapitalization transaction for accounting purposes. All of the
components of the Recapitalization were effected on the same day.
21
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from
the issuance of the New Notes pursuant to the Exchange Offer. In
consideration for issuing the New Notes as contemplated in this
Prospectus, the Company will receive in exchange Old Notes in
like principal amount, the terms of which are identical in all
material respects to the New Notes. The Old Notes surrendered in
exchange for the New Notes will be retired and cancelled and
cannot be reissued. Accordingly, the issuance of the New Notes
will not result in any increase in the indebtedness of the
Company.
TEXAS PACIFIC GROUP
Texas Pacific Group was founded by David Bonderman, James
G. Coulter and William S. Price in 1993 to pursue public and
private investment opportunities through a variety of methods,
including leveraged buyouts, joint ventures, restructurings,
bankruptcies and strategic public securities investments. Texas
Pacific Group, through TPG and another investment fund, manages
over $3 billion in committed equity capital.
Prior to the formation of TPG, certain of its principals
oversaw the successful investment of more than $1 billion of
equity capital from 1982 to 1992 on behalf of Keystone, Inc.
(formerly the Robert M. Bass Group), including such transactions
as the acquisition of American Savings Bank, Wometco Cable,
National Reinsurance Corp. and Bell & Howell. In addition, TPG's
principals led the $9 billion reorganization of Continental
Airlines in 1993. TPG currently has eleven investments in its
portfolio, which, in addition to Del Monte Foods, includes
America West Airlines, Allied Waste Industries, Beringer Wine
Estates, Favorite Brands International, Denbury Resources, Ducati
Motor, Paradyne and Virgin Cinemas.
The acquisition of the Company was TPG's third major
investment in the food and beverage industry in the last two
years. In September 1995, TPG acquired the North American
marshmallow and confections business from Kraft, which is now
called Favorite Brands International. Since the acquisition,
Favorite Brands International has acquired five other businesses,
quintupling its revenues and making it the fourth largest candy
and confections company in the United States. Additionally, in
January 1996, TPG acquired Beringer Wine Estates from Nestle,
which includes Meridian Vineyards, Napa Ridge and Chateau
Souverain. Beringer subsequently acquired Chateau St. Jean and
Stags' Leap Winery, giving Beringer one of the nation's largest
portfolios of premium wineries.
The principal executive office of TPG is located at 201
Main Street, Suite 2420, Fort Worth, Texas 76102 and its
telephone number is (817) 871-4000.
22
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited capitalization
of the Company on a pro forma basis giving effect to the
Recapitalization as if it had occurred on March 31, 1997. This
table should be read in conjunction with the "Selected
Consolidated Financial Data" and "Unaudited Pro Forma Financial
Data" included elsewhere in this Prospectus. For a description of
the capital stock of DMFC, see "Capital Stock of DMC and DMFC."
Since the Recapitalization, DMFC does not have any material
indebtedness other than intercompany liabilities and guarantees
of the obligations of the Company under the Bank Financing and
the Notes.
Pro Forma
March 31, 1997
(Dollars in millions)
Total Debt:
Revolving Credit Facility(a)....................... $130
Term Loan Facility................................. 380
Old Notes.......................................... 147
Other.............................................. 1
---
Total indebtedness............................... 658
Preferred Stock(b).................................. 32
Stockholders' equity (deficit)(b)................... (418)
----
Total capitalization................................ $272
====
- ----------------------
(a) Reflects borrowings under the Revolving Credit Facility in
the amounts necessary to consummate the other components of
the Recapitalization as if the Recapitalization had
occurred on March 31, 1997. The total capacity under the
Revolving Credit Facility is $350 million. See "Unaudited
Pro Forma Financial Data" and "The Bank Financing."
(b) The Preferred Equity Contribution resulted in the issuance
of 35,000 shares of preferred stock and the receipt of
warrants to purchase shares of DMFC common stock
representing 2% of the outstanding shares of DMFC common
stock on a fully diluted basis. A value of $3 million was
placed on the warrants, and such amount is reflected in the
paid-in-capital within stockholders' equity. The remaining
$32 million is reflected as preferred stock.
23
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance
Sheet as of March 31, 1997 was prepared as if the
Recapitalization had occurred on such date. The following
Unaudited Pro Forma Statements of Operations were prepared as if
the Recapitalization and the divestiture of the Divested
Operations had occurred as of the beginning of the fiscal period
presented. The Unaudited Pro Forma Consolidated Statements of
Operations do not purport to represent what the Company's results
of operations actually would have been if the Recapitalization
had occurred and the Divested Operations had been divested as of
the dates indicated or what such results will be for any future
periods.
The unaudited pro forma financial data are based on the
historical financial statements of the Company and the
assumptions and adjustments described in the accompanying notes.
The Company believes that such assumptions are reasonable. The
unaudited pro forma financial data should be read in conjunction
with the consolidated financial statements of the Company and the
accompanying notes thereto appearing elsewhere in this
Prospectus.
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<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1997
Recapitalization
Historical Adjustments Pro Forma
(Dollars in millions)
ASSETS
Current Assets:
Cash and cash equivalents ........ $ 6 $ 6
Restricted Cash .................. 2 (2)(a) --
Trade accounts receivable,
net of allowance.................. 84 84
Other receivables................. 3 3
Inventories....................... 381 381
Prepaid expenses and
other current assets.............. 4 4
-- -- ---
TOTAL CURRENT ASSETS 480 (2) 478
Property, plant and
equipment, net..................... 229 229
Other assets....................... 30 (c) 30
--- --- ---
TOTAL ASSETS $739 $(2) $737
==== === ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued expenses.................. $238 $(1)(a) $237
Short-term borrowings............... 42 88 (a) 130
Current portion of long-term debt 16 (15)(a) 1
--- --- ---
TOTAL CURRENT LIABILITIES 296 72 368
Long-term debt...................... 252 275(a) 527
Other noncurrent liabilities........ 233 (5)(a),(b) 228
Redeemable common stock............. 2 (2)(b) --
Redeemable preferred stock.......... 213 (213)(b) --
Preferred Stock..................... 32 (b) 32
Stockholders' equity:
Common stock........................ --
Paid-in capital..................... 3 126 (b) 129
Retained earnings (deficit)........ (260) (287)(b) (547)
---- ---- ----
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) (257) (161) (418)
---- ---- ----
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $739 $(2) $737
==== === ====
See accompanying notes.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The unaudited Pro Forma Consolidated Balance Sheet reflects
the Recapitalization as if it had occurred as of March 31, 1997.
(a) Reflects the issuance of the Old Notes and the Bank
Financing, as well as the repayment of the existing bank debt and
1996 PIK Notes:
(Dollars
in millions)
------------
Issuance of Old Notes..................... $147
Bank Financing............................ 510
Proceeds of asset sale.................... 2
Existing bank debt........................ (154)
1996 PIK Notes............................ (155)
Accrued short-term interest............... (1)
Accrued long-term interest................ (2)
---
$347
(b) Represents the following redeemable stock and equity
transactions, or transactions affecting retained earnings
(deficit) or noncurrent liabilities related to the
Recapitalization:
(Dollars
in millions)
------------
Equity purchase price..................... $(422)
Recapitalization expenses................. (45)
Accrued long-term compensation payments... (3)
Write-off of deferred financing fees...... (19)
Term loan make-whole and 1996 PIK
Note premium ........................... (19)
Preferred Equity Contribution-preferred
stock .................................. 32
Preferred Equity Contribution-warrants.... 3
Common Equity Contribution................ 126
----
$(347)
====
Recapitalization expenses include $20 million for
management incentive payments and $25 million in other
transaction fees and expenses.
The Preferred Equity Contribution resulted in the issuance
of 35,000 shares of preferred stock and the receipt of warrants
to purchase shares of DMFC common stock representing 2% of the
outstanding shares of DMFC common stock on a fully diluted basis.
A value of $3 million was placed on the warrants, and such amount
is reflected in the paid-in-capital within stockholders' equity.
The remaining $32 million is reflected as preferred stock.
(c) The write-off of deferred debt issue costs on existing bank
debt was offset by the capitalization of debt issue costs related
to the Recapitalization. Accordingly, no adjustment to "other
assets" is reflected under Recapitalization Adjustments.
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
Divested Recapital-
Operations ization
Adjust- Adjust-
Historical ments(a) ments(b) Pro Forma
---------- ---------- -------- ---------
(Dollars in millions, except per share amounts)
Net sales.................... $1,304 $(233) $1,071
Cost of sales................ 1,084 (195) 889
----- ----- ------
Gross profit.............. 220 (38) 182
Selling, advertising,
administrative and general
expenses................... 138 (17) 121
----- ----- ------
OPERATING INCOME......... 82 (21) 61
Other expense................ 3 (1) 2
Gain on sale of
divested assets............. (107) 107 --
Interest expense............. 67 (15)(c) $ 16(c) 68
----- ----- ----- ------
INCOME (LOSS) BEFORE INCOME
TAXES, MINORITY INTEREST,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.......... 119 (112) (16) (9)
Provision for income taxes... 11 (11) --
Minority interest in
earnings of subsidiary..... 3 (3) --
----- ----- ----- ------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.......... $105 $ (98) $ (16) $ (9)
===== ===== ===== ======
Net income (loss) per share.. $59.40 $(101.16)
====== =========
Weighted average number
of common shares
outstanding................ 391,806 140,000
======= =======
Other Data:
EBITDA(d):
Operating income........... $ 82 $ 61
Other expense.............. (3) (2)
Depreciation and
amortization(e).......... 26 24
One-time and non-cash
charges.................. 9 9
Other(g)................... 5 --
------ ------
$ 119 $ 92
====== ======
Ratio of earnings to
fixed charge.............. 2.6x --
Deficiency of earnings to
cover fixed charges(f).... -- $ 9
See accompanying notes.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996
Divested Recapital-
Operations ization
Adjust- Adjust-
Historical ments(a) ments(b) Pro Forma
---------- ----------- -------- ---------
(Dollars in millions, except per share amounts)
Net sales..................... $1,018 $(209) $809
Cost of sales................. 858 (175) 683
------ ----- ----
Gross profit............... 160 (34) 126
Selling, advertising,
administrative and general
expenses.................... 116 (14) 102
------ ----- ----
OPERATING INCOME.............. 44 (20) 24
Other expense................. 1 (1) --
Gain on sale of divested
assets...................... (107) 107 --
Interest expense.............. 54 (14)(c) $11(c) 51
------ ----- ----
INCOME (LOSS) BEFORE INCOME
TAXES, MINORITY INTEREST,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE........... 96 (112) (11) (27)
Provision for income taxes.... 13 (13) --
Minority interest in
earnings of subsidiary...... 3 (3) --
------ ----- ----
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE........... $ 80 $(96) $(11) $(27)
====== ===== ====
Net income (loss) per share... $47.75 $(227.18)
====== ========
Weighted average number
of common shares
outstanding................. 394,790 140,000
======= =======
Other Data:
EBITDA(d):
Operating income............ $ 44 $ 24
Other expense............... (1) -
Depreciation and
amortization(e)........... 19 18
One-time and non-cash
charges................... 9 9
Other (g)................... 5 -
------ ----
$ 76 $51
======= =======
Ratio of earnings to
fixed charges(f)............ 2.6x --
Deficiency of earnings
to cover fixed charges(f)... - $27
See accompanying notes.
28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997
Divested Recapital-
Operations ization
Adjust- Adjust-
Historical ments(a) ments(b) Pro Forma
---------- ----------- -------- ---------
(Dollars in millions, except per share amounts)
Net sales................... $934 $(43) $891
Cost of sales............... 733 (40) 693
------ ------ ------
Gross profit............. 201 (3) 198
Selling, advertising,
administrative and general
expenses.................. 132 (3) 129
------ ------ ------
OPERATING INCOME......... 69 -- 69
- --
Other expense............... -- -- --
Loss on sale of divested
assets.................... 5 (5) --
Interest expense............ 37 (1)(c) $15(c) 51
------ ------ ------ ------
INCOME (LOSS) BEFORE
INCOME TAXES, MINORITY
INTEREST, EXTRAORDINARY
ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE.................... 27 6 (15) 18
Provision for income taxes.. 2 -- 2
------ ------ ------ ------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE......... $25 $ 6 $(15) $ 16
====== ====== ====== ======
Net income (loss) per
share.................... $(117.36) $101.39
====== ======
Weighted average number
of common shares
outstanding.............. 382,854 140,000
======= =======
Other Data:
EBITDA(d):
Operating income......... $ 69 $ 69
Depreciation and
amortization(e)........ 18 18
------- ------
$87 $ 87
======= =======
Ratio of earnings to
fixed charges(f)......... 1.6x 1.3x
See accompanying notes.
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The Pro Forma Consolidated Statements of Operations reflect
the adjustments for the Recapitalization and the Divested
Operations as if such events had occurred as of the beginning of
the fiscal period presented. Net proceeds from sales of assets of
certain Divested Operations are reflected as reductions of
indebtedness at the beginning of the fiscal period presented.
(a) Divested Operations adjustments include the results of
operations and gain or loss from sale of the Divested
Operations.
(b) Excludes one-time charges related to the Recapitalization
of $20 million for management incentive payments and $25
million in other transaction fees and expenses. In
addition, the write-off of $19 million of deferred debt
issue costs related to the existing debt and the term loan
make-whole and 1996 PIK Note premium of $19 million are
classified as extraordinary items and, accordingly, are
excluded.
(c) Represents interest adjustments due to the absence of
direct interest expense related to the Divested Operations,
pro forma interest adjustments related to the
Recapitalization and application of asset sale proceeds.
(d) EBITDA represents income (loss) before provision for
income taxes, minority interest, extraordinary item and
cumulative effect of accounting change, plus interest expense and
special charges, depreciation and amortization expense and other
one-time and non-cash charges, less gains (losses) on sales of
assets and the results of the Divested Operations. Pro forma
EBITDA represents income (loss) before provision for income
taxes, extraordinary item and cumulative effect of accounting
change, plus interest expense and special charges, depreciation
and amortization expense and other one-time and non-cash charges,
less gains (losses) on sales of assets, the results of the
Divested Operations and any charges resulting from the
Recapitalization. EBITDA is not presented as an alternative
measure of operating income or cash flow from operations (both as
determined in accordance with generally accepted accounting
principles) but rather to provide additional information related
to the ability to service debt. For the nine-month period ended
March 31, 1996 and fiscal 1996, other one-time charges included
$3 million for relocation costs and $6 million of costs
associated with a significant headcount reduction.
(e) Historical depreciation and amortization exclude
amortization of $5 million of deferred debt issue costs for
fiscal 1996. Historical depreciation and amortization exclude
amortization of $4 million of deferred debt issue costs in both
of the nine-month periods ended March 31, 1996 and 1997.
Historical depreciation and amortization for the year ended June
30, 1996 and the nine-month period ended March 31, 1997, exclude
$5 million in each period with respect to Del Monte Philippines,
one of the Divested Operations. Pro forma depreciation and
amortization exclude amortization of $3 million of pro forma
deferred debt issue costs for fiscal 1996 and $2 million of pro
forma deferred debt issue costs in both of the nine-month periods
ended March 31, 1996 and 1997.
(f) For purposes of determining the ratio of earnings to fixed
charges and the deficiency of earnings to cover fixed
charges, earnings are defined as income (loss) before
extraordinary items, minority interest, cumulative effect
of accounting change and provision for income taxes plus
fixed charges. Fixed charges consist of interest expense on
all indebtedness (including amortization of deferred debt
issue costs) and the interest component of rent expense.
(g) Represents depreciation expense associated with Del Monte
Philippines. This expense was included as a component of
operating income. The Company's basis in its investment in
Del Monte Philippines was adjusted to include a reduction
due to this depreciation expense thereby increasing the
gain on sale and resulting in an offset to net income.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated
financial information of the Company. The historical unaudited
financial data presented below as of March 31, 1996 and 1997 and
for the nine months then ended were derived from interim
consolidated financial statements of the Company as of such dates
which, in the opinion of management, reflect all adjustments,
consisting of only normal, recurring adjustments, necessary for a
fair presentation of such data and which have been prepared in
accordance with the same accounting principles followed in the
presentation of the Company's audited financial statements for
the fiscal year ended June 30, 1996. Operating results for the
nine months ended March 31, 1997 are not necessarily indicative
of results to be expected for the full fiscal year. The statement
of operations data for each of the fiscal years in the five-year
period ended June 30, 1996 and the balance sheet data as of June
30, 1992, 1993, 1994, 1995 and 1996 have been derived from
consolidated financial statements of the Company audited by Ernst
& Young LLP, independent auditors. The table should be read in
conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the consolidated
financial statements of the Company and related notes and other
financial information included elsewhere in this Prospectus.
Nine Months
Ended
March 31,
Fiscal Year Ended June 30, (unaudited)
-------------------------- -----------
1992 1993 1994
---- ---- ----
(Dollars in millions, except per share amounts)
Statement of Operations
Data:
Net sales........... $1,431 $1,555 $1,499
Cost of sales....... 1,180 1,326 1,275
------ ----- -----
Gross profit........ 251 229 224
Selling, advertising,
administrative
and general expenses 173 172 157
Special charges(a).. 15 140 --
---- ---- ----
Operating income(loss) 63 (83) 67
Other (income) expense (7) 4 8
Loss (gain) on sale of
assets(b)........... -- (13) (13)
Interest expense.... 74 68 61
--- --- ---
Income (loss) before
income taxes, minority
interest, extraordinary
item and cumulative
effect of accounting
change(c)(d)........ (4) (142) 11
Provision for
income taxes........ 10 10 3
Minority interest in
earnings of
subsidiary.......... 9 8 5
--- --- ---
Income (loss)
before extraordinary
item and cumulative
effect of accounting
change(c)(d)........ (23) (160) 3
Extraordinary loss(c) 35 -- --
Cumulative effect of
accounting change(d) -- 28 --
--- --- ---
Net income (loss)... $(58) $(188) $3
=== ==== ===
Income (loss) per
common share:
Income (loss) before
extraordinary
item and cumulative
effect of
accounting change
per common
share(e)......... $(159.99) $(504.36) $(143.08)
Extraordinary loss.. (82.65) -- --
Cumulative effect
of accounting
change............ -- (67.34) --
---- ------ ----
Net income (loss)
per common
share............. $(242.64) $(571.70) $(143.08)
======== ======= =========
Other Data:
Gross margin........ 17.5% 14.7% 14.9%
EBITDA(f)........... $ 79 $ 62 $ 63
Selected Ratios:
Ratio of earnings
to fixed
charges(g)......... -- -- 1.2x
Deficiency of
earnings to cover
fixed charges(g).. $ 4 $ 142 --
1995 1996 1996 1997
---- ---- ---- ----
(Dollars in millions, except per share amounts)
Statement of Operations
Data:
Net sales........... $1,526 $1,304 $1,018 $934
Cost of sales....... 1,289 1,084 858 733
----- ----- ---- ---
Gross profit........ 237 220 160 201
Selling, advertising,
administrative
and general expenses 157 138 116 132
Special charges(a).. -- -- -- --
---- ---- ---- ---
Operating income(loss) 80 82 44 69
Other (income) expense (11) 3 1 --
Loss (gain) on sale of
assets(b)........... -- (107) (107) 5
Interest expense.... 76 67 54 37
--- --- --- ---
Income (loss) before
income taxes, minority
interest, extraordinary
item and cumulative
effect of accounting
change(c)(d)........ 15 119 96 27
Provision for
income taxes........ 2 11 13 2
Minority interest in
earnings of
subsidiary.......... 1 3 3 --
--- --- --- ---
Income (loss)
before extraordinary
item and cumulative
effect of accounting
change(c)(d)........ 12 105 80 25
Extraordinary loss(c) 7 10 9 4
Cumulative effect of
accounting change(d) -- 7 3 --
--- --- --- ---
Net income (loss)... $5 $88 $68 $21
=== === === ===
Income (loss) per
common share:
Income (loss) before
extraordinary
item and cumulative
effect of
accounting change
per common
share(e)......... $(145.35) $59.40 47.75 $(117.36)
Extraordinary loss.. (18.34) (26.39) (22.17) (9.77)
Cumulative effect
of accounting
change............ -- (18.14) (7.60) --
------- ----- ---- -----
Net income (loss)
per common
share............. $(163.69) $14.87 $17.98 $(127.13)
========== ======= ======= =========
Other Data:
Gross margin........ 15.5% 16.9% 15.7% 21.5%
EBITDA(f)........... $ 76 $ 92 $ 51 $ 87
Selected Ratios:
Ratio of earnings
to fixed
charges(g)......... 1.2x 2.6x 2.6x 1.6x
Deficiency of
earnings to cover
fixed charges(g)... -- -- -- --
31
<PAGE>
Nine Months Ended
March 31,
Fiscal Year Ended June 30, (unaudited)
1992 1993 1994 1995 1996 1996 1997
(Dollars in millions)
Balance Sheet Data:
Working capital.. $135 $ 92 $ 88 $99 $ 207 $186 $184
Total assets.....1,215 1,066 936 960 736 763 739
Total debt....... 653 624 569 576 373 396 310
Redeemable
preferred
stock............ 216 216 215 215 213 213 213
Redeemable
common stock..... 2 2 2 2 2 2 2
Stockholders'
equity
(deficit) ....... (195) (385) (384) (393) (304) (324) (257)
Cash Flow Data:
Depreciation
and
amortization .... $60 $ 67 $ 40 $40 $31 $23 $22
Capital
expenditures .... 42 34 36 24 16 8 12
Other non-cash
charges:
Extraordinary
loss from debt
retirement(c) ... $35 -- -- $ 7 $ 5 $ 9 $ 4
Special
charges(a) ...... 15 $140 -- -- -- -- --
Cumulative
effect of
accounting
change(d) ....... -- 28 -- -- 7 3 --
Other(h) ........ 5 19 $12 9 5 4 4
--- ---- ------ --- --- --- ---
Total other
non-cash
charges ......... $55 $187 $ 12 $16 $ 17 $16 $ 8
=== ==== === === === === ===
- ----------------------
(a) In March 1992, the Company discontinued its Vegetable
Classics line resulting in a $15 million charge to
operations. In June 1993, the Company recorded special
charges of $140 million, which included $115 million for
permanent impairment of acquisition-related intangible
assets, including goodwill, and $25 million for facility
consolidations.
(b) The Company sold its equity investment in Del Monte
Europe in the fiscal quarter ended March 31, 1993 and recognized
a $13 million gain. The Company sold its can manufacturing
operations in the fiscal quarter ended December 31, 1993 and
recognized a $13 million gain. In November 1995, the Company sold
its pudding business for $89 million, net of $4 million of
related transaction fees. The sale resulted in a gain of $71
million. In March 1996, the Company sold its 50.1% ownership
interest in Del Monte Philippines for $100 million, net of $2
million of related transaction fees. The sale resulted in a gain
of $52 million of which $16 million was deferred and $36 million
was recognized in fiscal 1996. The purchase price included a
premium paid to the Company as consideration for an eight year
supply agreement. The gain associated with the value of the
premium was deferred and will be amortized over the term of the
agreement. In the fiscal quarter ended December 1996, the Company
sold Del Monte Latin America. The combined sales price of $50
million, reduced by $1 million of related transaction expenses,
resulted in a loss of $5 million. The sales price for Del Monte
Latin America is subject to adjustment based on the final balance
sheet. The amount of any adjustment to the purchase price is
currently in dispute but is not expected to be material. See
"Business--Legal Proceedings."
(c) In August 1991, the Company refinanced its
then-outstanding term loan and senior subordinated increasing
rate note debt. In conjunction with the debt retirement,
capitalized debt issue costs of $35 million were written off and
accounted for as an extraordinary loss. In June 1995, the Company
refinanced its then-outstanding revolving credit facility, term
loan and senior secured floating rate notes. In conjunction with
this debt retirement, capitalized debt issue costs of $7 million
were written off and accounted for as an extraordinary loss. In
December 1995 and April 1996, the Company prepaid part of its
term loan and senior secured notes. In conjunction with the early
debt retirement, the Company recorded an extraordinary loss of
$10 million for the early retirement of debt. The extraordinary
loss consisted of a $5 million prepayment premium and a $5
million write-off of capitalized debt issue costs related to the
early
32
<PAGE>
retirement of debt. In September 1996, the Company
repurchased PIK Notes in an aggregate principal amount of
$102 million and, concurrently, exchanged essentially all
remaining PIK Notes for 1996 PIK Notes. In conjunction with
this repurchase and exchange, capitalized debt issue costs
of $4 million, net of a discount on the PIK Notes, were
written off and accounted for as an extraordinary loss.
(d) Effective July 1, 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Post-Retirement Benefits Other
Than Pensions." The Company elected to recognize this
change in accounting on the immediate recognition basis.
The cumulative effect of adopting SFAS No. 106 resulted in
a charge to fiscal 1993 net earnings of $28 million.
Effective July 1, 1995 the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The cumulative effect
of adopting SFAS No. 121 resulted in a charge to fiscal
1996 net earnings of $7 million, of which $3 million had
been recognized through March 31, 1996.
(e) Net income (loss) attributed to common shares is computed
as net income (loss) reduced by the cash and in-kind
dividends for the period on redeemable preferred stock.
(f) EBITDA represents income (loss) before provision for income
taxes, minority interest, extraordinary item and cumulative
effect of accounting change, plus interest expense and
special charges, depreciation and amortization expense and
other one-time and non-cash charges, less gains (losses) on
sales of assets and the results of the Divested Operations.
EBITDA is not presented as an alternative measure of operating
income or cash flow from operations (both as determined in
accordance with generally accepted accounting principles)
but rather to provide additional information related to the
ability to service debt. In fiscal 1992, other one-time and
non-cash charges included $9 million related to insurance
settlement proceeds and $18 million of amortization
associated with intangible assets subsequently written off.
In fiscal 1993, non-cash charges of $19 million represent
amortization of intangible assets subsequently written off.
In fiscal 1994, other one-time and non-cash charges
included $1 million of fees related to a terminated
transaction, $1 million related to write-offs of labels due
to new labeling laws and $6 million of benefit plan
charges. For fiscal 1995, EBITDA excludes $26 million
received in connection with a terminated transaction, $4
million paid by the Company to terminate its alliance with
PCP and $7 million related to the termination of a
management equity plan. For fiscal 1996 and for the nine
months ended March 31, 1996, other one-time charges
included $3 million for relocation costs and $6 million of
costs associated with a significant headcount reduction.
(g) For purposes of determining the ratio of earnings to fixed
charges and the deficiency of earnings to cover fixed
charges, earnings are defined as income (loss) before
extraordinary item, cumulative effect of accounting change
and provision for income taxes plus fixed charges. Fixed
charges consist of interest expense on all indebtedness
(including amortization of deferred debt issue costs) and
the interest component of rent expense.
(h) Represents non-cash charges related to the RJR Nabisco Sale
and non-cash accretions for Postretirement Benefits Other
Than Pensions. Also included are non-cash charges for
certain employee benefits and amortization of deferred debt
issue costs.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes the significant factors
affecting the consolidated operating results, financial condition
and liquidity of the Company during the nine-month periods ended
March 31, 1996 and 1997, and the three-year period ended June 30,
1996. This discussion should be read in conjunction with the
unaudited consolidated financial statements of the Company for
the nine-month periods ended March 31, 1996 and 1997 and the
audited consolidated financial statements of the Company for the
three-year period ended June 30, 1996 and notes thereto included
elsewhere in this Prospectus.
General
The Company reports its financial results on a July 1 to
June 30 fiscal year basis to coincide with its business cycle,
which is highly seasonal. Raw product is harvested and packed
primarily in the months of June through October, during which
time inventories rise to their highest levels. At the same time,
consumption of canned products drops, reflecting, in part, the
availability of fresh alternatives. This situation impacts
operating results as sales volumes, revenues and profitability
decline during this period. Results over the remainder of the
fiscal year are impacted by many factors including industry
supply and the Company's share of that supply.
The annual production volume of fruits and vegetables is
impacted by general seasonal fluctuations primarily due to
weather and overall growing conditions. During the early 1990s,
the markets for the Company's principal products of canned
vegetables and canned fruit were in a position of stable demand
and excess supply. This excess supply primarily resulted from
overplanting and abundant harvests of raw product, combined with
processing overcapacity. During such periods of industry
oversupply, pressure was placed on absolute volumes and gross
margins. The Company, as well as certain of its competitors,
implemented vegetable plant closures in an attempt to reduce
processing overcapacity. The summer 1993 pack and the summer 1995
pack were reduced by weather related fluctuations. Yields from
the summer 1993 pack were lower than normal due to flooding in
the Midwest. However, the overall industry supply situation
remained in excess due to higher than usual inventories
attributable to the summer 1992 pack. The summer 1995 pack was
below average for both vegetables and fruit due to flooding in
the Midwest and heavy rains in California during the winter and
spring of 1995. As a result, inventory levels during fiscal 1996
were lower than in previous years, leaving industry supply for
vegetables and fruit in a balanced-to-tight position. The summer
1996 pack was slightly below average for both vegetables and
fruit, while tomato production was slightly higher than expected.
Vegetable production was below average due to adverse weather,
while heavy rains in the Northwest significantly reduced the pear
crop. Inventory supplies of vegetables, fruit and tomatoes are
expected to be sufficient to meet demand during fiscal 1997.
The weather conditions which existed during the summer of
1995 resulted in reduced acreage yields and production recoveries
of fruits and vegetables which negatively impacted the Company's
gross margin in fiscal 1996. During fiscal 1996, the Company's
management developed a strategy to increase prices. These price
increases resulted in volume and market share decreases for the
Company during fiscal 1996 as competitors sold greater volume
because their prices remained below the Company's. Despite the
reduced market share, the Company's profitability was
significantly higher in the fourth quarter as a result of higher
net selling prices.
In fiscal 1996, the Company also developed a new marketing
strategy which emphasizes consumption-driven trade promotion
programs as well as consumer-targeted promotions such as
advertising and coupons in an effort to build brand preference
and stimulate consumption. This strategy encourages retailers to
use ad displays and consumer-targeted promotions and discourages
the use of periodic price-only promotions. Historically, the
Company has relied primarily upon periodic price-only trade
promotions, rather than consumer promotion.
Beginning in fiscal 1993, the Company has taken various
actions to reduce its operating costs while enhancing its ability
to produce and distribute its products. Among these actions were
the closing of production plants and distribution centers,
changes in selection of freight carriers and reduction in can
sizes for certain fruit and vegetable products. Management
believes that these cost reduction initiatives have generated
cost savings that have
34
<PAGE>
enhanced the Company's competitive position within the industry.
Since fiscal 1993, management estimates that the Company's
production costs have experienced a cumulative increase of less
than 2% through fiscal 1996. The Company is continuing to
evaluate cost saving initiatives as it reviews its operations.
In fiscal 1995, Del Monte terminated an exclusive supply
agreement with PCP to purchase substantially all of PCP's tomato
and fruit production. During fiscal 1996 and the first half of
fiscal 1997, the Company sold its pudding business, its 50.1%
interest in Del Monte Philippines and all of its interest in Del
Monte Latin America. At the end of fiscal 1997, a distribution
agreement under which Del Monte sold certain products for
Yorkshire at cost will expire.
Results of Operations
The following table sets forth, for the periods indicated,
certain items from the Company's consolidated statements of
operations, expressed as percentages of the Company's net sales
for such fiscal period:
Fiscal Year Nine Months Ended
Ended June 30, March 31,
------------------ ------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
Net sales ............... 100% 100% 100% 100% 100%
Cost of sales ........... 85 85 83 84 78
--- --- --- --- ---
Gross margin .......... 15 15 17 16 22
Selling, advertising,
administrative and
general expenses ...... 11 10 11 12 14
--- --- --- --- ---
Operating income ...... 4% 5% 6% 4% 8%
=== === === === ===
Interest expense ........ 4% 5% 5% 5% 4%
=== === === === ===
35
<PAGE>
The following table sets forth, for the periods indicated, the
Company's net sales by product categories, expressed in dollar
amounts and as a percentage of the Company's total net sales for
such period:
Fiscal Year Nine Months Ended
Ended June 30, March 31,
------------------ ------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Dollars in millions)
Net Sales:
Canned vegetables(a) $ 427 $440 $401 $306 $336
Canned fruit(a) 401 394 367 276 334
Tomato products(a) 194 211 217 160 168
Canned pineapple(a) 68 66 72 55 50
Other(b) 230 219 89 83 32
----- ----- ----- ----- -----
Subtotal domestic 1,320 1,330 1,146 880 920
Latin America 69 65 55 40 17
Philippines 162 180 142 136 --
Intercompany sales (52) (49) (39) (38) (3)
----- ----- ----- ----- -----
Total Net Sales $1,499 $1,526 $1,304 $1,018 $934
===== ===== ===== ===== =====
As a Percentage of
Net Sales:
Canned vegetables(a) 28% 29% 31% 30% 36%
Canned fruit(a) 27 26 28 27 36
Tomato products(a) 13 14 16 16 18
Canned pineapple(a) 5 4 6 6 5
Other(b) 15 14 7 8 3
----- ----- ----- ----- -----
Subtotal domestic 88 87 88 87 98
Latin America 5 4 4 4 2
Philippines 11 12 11 13 --
Intercompany sales (4) (3) (3) (4) --
----- ----- ----- ----- -----
Total 100% 100% 100% 100% 100%
===== ===== ===== ===== =====
- ----------------------
(a) Includes sales of the entire product line across each
channel of distribution, including sales to grocery chains,
Warehouse Clubs, Supercenters, Mass Merchandisers and other
grocery retailers, as well as the Company's foodservice,
food ingredients, export and vegetable private label
businesses and military sales.
(b) Includes dried fruit, gel and pudding cups, and certain
other retail products, as well as the Company's private
label fruit and tomato businesses which were discontinued
in fiscal 1995 with the termination of the alliance with
PCP.
Nine Months Ended March 31, 1997 vs. Nine Months Ended March 31, 1996
Net Sales. Consolidated net sales for the nine months ended
March 31, 1997 decreased by $84 million compared to the prior
year period. This decrease was attributable to the absence of the
Divested Operations. Net sales for the domestic operations, after
adjusting for the effect of the Divested Operations, were $891
million for the nine months ended March 31, 1997 as compared to
$809 million for the nine months ended March 31, 1996. The
increase of $82 million was due primarily to higher prices across
all product lines. The retail vegetable and fruit businesses led
with increased prices in the second half of fiscal 1996. The
export and foodservice businesses each increased fruit prices at
the beginning of fiscal 1997. Generally balanced industry
supplies of fruit and vegetables and the Company's emphasis on
consumer promotions were contributing factors towards realizing
the higher prices. Volume increases in the fruit business have
been slightly offset by volume decreases in the vegetable
business. The volume decrease in the Company's vegetable business
reflects an overall decline in canned vegetable consumption.
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Cost of Sales and Gross Profit. Gross profit for the nine
months ended March 31, 1997 increased by $41 million from the
prior year period despite the absence of $31 million of gross
profit contributed by the Divested Operations. Domestic gross
profit for the continuing businesses increased by $72 million and
gross margin increased from 15.6% to 22.2%. The increase in gross
profit and gross margin is due to the price increases discussed
above coupled with relatively flat costs.
During fiscal 1996, the Company implemented a new marketing
strategy which is aimed at improving profitability by raising
product prices, structuring consumption-driven trade promotion
programs and increasing the number of consumer promotions to
build brand preference and stimulate consumption. The Company
believes that the increase in gross margin is in part due to this
marketing strategy.
Selling, Advertising, Administrative and General Expenses.
Selling, advertising, administrative and general expenses
increased by $16 million ($27 million after adjusting for the
absence of the Divested Operations) versus the prior year period.
Administrative and general expenses have decreased by almost $14
million compared to the same period in the prior year due to a
reduction in employee headcount during the last half of fiscal
1996. Marketing spending increased by approximately $41 million
as the Company began placing more emphasis on consumer promotion
programs.
Loss (Gain) on Sale of Assets. The sale of the Company's
Mexican subsidiary for $38 million was completed on October 28,
1996 and the sale of the Central American and Caribbean
subsidiaries for $12 million was completed on November 13, 1996.
The sales price for the Mexican subsidiary is subject to
adjustment based on the final balance sheet. The amount of any
adjustment to the purchase price is currently in dispute but is
not expected to be material. See "Business--Legal Proceedings."
The combined sales prices of $50 million, reduced by $1 million
of related transaction expenses, resulted in a loss of $5
million.
Interest Expense. Interest expense has decreased by $17
million as compared to the prior year nine month period due to
lower outstanding debt balances resulting from the application of
proceeds from asset sales to reduce debt and the absence of
interest expense related to the Divested Operations.
Fiscal 1996 vs. Fiscal 1995 vs. Fiscal 1994
Net Sales. Consolidated net sales for fiscal 1996 decreased
$222 million or 15% from the prior year due to lower volumes in
domestic operations. Net sales for the domestic operations, after
adjusting for the effect of Divested Operations, were $1,071
million for fiscal 1996 as compared to $1,109 million for fiscal
1995, a decrease of $38 million or 3%. The Company increased
retail fruit and vegetable prices. However, these price increases
were not immediately followed by the competition and resulted in
lower sales volumes as compared to the prior year. In fiscal
1996, the Company's market share for Del Monte branded vegetables
was 20.4% versus 24.1% for the previous year and the Company's
market share for Del Monte branded fruit was 35.6% versus 38.8%
for the previous year.
Del Monte Philippines' net sales for the first nine months
of fiscal 1996, until the Company's sale of its interest in this
joint venture, accounted for 8% of consolidated net sales for the
year ended June 30, 1996. Del Monte Latin America's net sales for
fiscal 1996 (4% of consolidated sales in fiscal 1996) decreased
$10 million or 15% even though volumes were at approximately the
same level as the prior year period. This decrease was primarily
due to the significant Mexican peso devaluation.
Consolidated net sales for fiscal 1995 increased by $27
million or 2% from the prior fiscal year. Domestic net sales
(adjusted for the absence of the Divested Operations) increased
$9 million to $1,109 million in fiscal 1995 from $1,100 million
in fiscal 1994 due primarily to volume growth within vegetables
and tomatoes, partially offset by lower fruit cup volume and
lower pricing on vegetables and fruit. Vegetable case volume
experienced growth of 5% related directly to an increased supply
of corn and other vegetable products compared to a previous short
crop year when flooding in the Midwest resulted in a decline in
production. Within the tomato segment, revised pricing strategies
on ketchup and sauce, along with the national launch of the
chunky spaghetti sauce line extension and regional introduction
of salsa/picante sauces, resulted in a 13% growth in volume. The
growth in the vegetable and
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tomato businesses was partially offset by the volume decline in
fruit cups due to pricing competition from private label as well
as branded products. The lower pricing on vegetables in fiscal
1995 resulted from aggressive, competitive pricing while lower
fruit pricing was closely related to the industry oversupply. In
fiscal 1995, the Company's market share for Del Monte branded
vegetables was 24.1% versus 25.6% in the previous year, while the
Company's market share for Del Monte branded fruit was 38.8%
compared to 40.2% for the previous year.
Net sales by Del Monte Philippines and Del Monte Latin
America accounted for 14% of consolidated net sales in fiscal
1995. Sales by Del Monte Philippines increased by 11% from fiscal
1994 primarily due to a favorable sales mix which was partially
offset by lower export prices. Sales by Del Monte Latin America
decreased by 6%. Although Del Monte Latin America's sales in
pesos increased, the growth was eliminated when measured in
dollars due to the significant devaluation of the Mexican peso in
the last half of the fiscal year.
Cost of Sales and Gross Profit. Gross margin was 16.9%,
15.5% and 14.9% in fiscal 1996, 1995 and 1994, respectively.
Domestic gross margin (adjusted for the absence of the Divested
Operations) was 17.0%, 16.8% and 15.3% in fiscal 1996, 1995 and
1994, respectively. Higher manufacturing costs and introductory
allowances incurred to expand Del Monte salsa distribution
nationally were more than offset by price increases across all
major product lines in fiscal 1996. Higher net pricing in the
solid tomato and pineapple businesses in fiscal 1995 contributed
to the improvement over fiscal 1994, but the primary reason for
the higher margin was the Company's cost reduction efforts. The
Company believes significant cost savings were realized in fiscal
1995 through the closing of one vegetable plant and the
downsizing of two other facilities and downsizing vegetable
containers. Also, further savings were achieved in the area of
logistics in fiscal 1995.
Del Monte Philippines' gross margins were 17.4%, 11.8% and
19.8% in fiscal 1996, 1995 and 1994, respectively. The 1995
decrease was attributable to lower sales prices and higher
production costs as compared to fiscal 1994. Gross margins for
Del Monte Latin America were 24.3%, 23.8% and 20.3% in fiscal
1996, 1995 and 1994, respectively. The increases in fiscal 1996
resulted primarily from opportunistic price increases due to
inflationary conditions in Mexico with a lag in increases of cost
of goods sold due to seasonal packing.
Selling, Advertising, Administrative and General Expenses.
Selling, advertising, administrative and general expense as a
percentage of net sales (excluding the Divested Operations) were
11.3%, 12.2% and 12.1% in fiscal 1996, 1995 and 1994,
respectively.
Included in general and administrative expenses are
research and development costs of $6 million, $6 million and $5
million for fiscal 1996, 1995 and 1994, respectively. Research
and development spending in fiscal 1996, 1995 and 1994 remained
focused on strategic spending to maintain the existing business
and to develop product line extensions.
Interest Expense. The 12% decrease in interest expense for
fiscal 1996 compared to fiscal 1995 resulted from lower net
borrowings under the Company's revolving credit facility and
lower outstanding debt balances resulting in part from the sale
of the Divested Operations. The 25% increase in the Company's
interest expense from fiscal 1994 to fiscal 1995 was due to
higher interest rates and higher revolver borrowings due to a
return to normal processed tonnage for canned vegetables.
Other (Income) Expense. Other income for fiscal 1995
reflects the Company's receipt of the proceeds of a $30 million
letter of credit (reduced by $4 million of related transaction
expenses) as a result of the termination of the merger agreement
with Grupo Empacador de Mexico, S.A. de C.V. in September 1994.
Provision for Income Taxes. The tax provision increased to
$11 million in fiscal 1996 from $2 million in fiscal 1995
primarily due to alternative minimum tax and state income tax as
a result of the sales of divested assets. As of June 30, 1996,
the Company had $45 million in net operating loss carryforwards
for tax purposes, which will expire between 2008 and 2010. The
Company has deferred tax assets of $98 million which have been
fully-offset by a valuation allowance.
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Extraordinary Loss. The net proceeds of the pudding business sale
and proceeds of the Del Monte Philippines sale were used for the
early retirement of debt. In conjunction with this early debt
retirement, in the second and fourth quarters of fiscal 1996, $5
million in capitalized debt issue costs were written off and $5
million primarily related to a prepayment premium was charged to
income, both of which have been accounted for as an extraordinary
item. In June 1995, the Company refinanced its outstanding
revolving credit facility, term loan and senior notes. In
conjunction with the debt retirement, capitalized debt issue
costs of $7 million were written off and accounted for as an
extraordinary loss as required by generally accepted accounting
principles.
Cumulative Effect of Accounting Change. Effective July 1,
1995, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." The cumulative effect of adopting SFAS No. 121
resulted in a charge to fiscal 1996 net earnings of $7 million.
Liquidity and Capital Resources
The Company's primary cash requirements are to fund debt
service, finance seasonal working capital needs and make capital
expenditures. Internally generated funds and amounts available
under its revolving credit and other short-term borrowing
facilities are the Company's primary sources of liquidity.
Historical
On September 11, 1996, the Company repurchased the
outstanding PIK Notes in an aggregate principal amount of $102
million for a cash payment of $100 million and, concurrently,
exchanged essentially all remaining PIK Notes for 1996 PIK Notes
in an aggregate principal amount of $156 million. Funding for the
exchange offer was accomplished through the application of $30
million from a collateral account held by certain lenders,
additional borrowing in an aggregate amount of $55 million under
the then existing term loan, and borrowing of approximately $36
million from the then existing revolving credit facility. In
addition, $13 million senior notes outstanding were repaid. In
conjunction with the exchange offer, capitalized debt issue costs
of approximately $4 million, net of a discount on the PIK Notes,
were charged to net income and accounted for as an extraordinary
loss.
In June 1995, the Company refinanced its term loan, senior
secured floating rate notes and revolving credit facility with a
new term loan, new senior notes and a new revolving credit
facility (all such indebtedness hereinafter collectively the
"1995 Senior Debt" and such agreements collectively the "1995
Senior Debt Agreements"). The refinancing provided the Company
with increased liquidity through reduced principal repayments on
outstanding debt and reduced cash interest payments. The 1995
Senior Debt Agreements require prepayments and redemptions in the
case of certain events, including the purchase or issuance of
subordinated indebtedness. The 1995 Senior Debt was repaid in
full in the Recapitalization from the proceeds of, and was
replaced by, the Bank Financing and the Notes.
The working capital position of the Company is seasonally
affected by the growing cycle of the vegetables, fruit and
tomatoes it processes. Substantially all inventories are produced
during the harvesting and packing months of June through October
and depleted through the remaining seven months. Accordingly,
working capital requirements fluctuate significantly. The Company
has used funds from a 1995 revolving credit facility, which
provided for a $400 million line of credit, and expects to use
funds from the Revolving Credit Facility, which replaced the 1995
revolving credit facility, as part of the Recapitalization. The
Revolving Credit Facility provides for a $350 million line of
credit to finance the seasonal working capital needs of the
Company and other general corporate purposes. Consistent with its
seasonal cycle, inventories increased during fiscal 1996 from
$302 million at June 30, 1995 to $564 million at September 30,
1995 and thereafter decreased to $291 million at June 30, 1996.
Borrowings under the Company's revolving credit facility followed
a similar pattern in fiscal 1996, rising from $121 million at
June 30, 1995 to $252 million at September 30, 1995 and
thereafter declining to $43 million at June 30, 1996.
The increase in inventories at March 31, 1997 from June 30,
1996 reflects seasonal inventory buildup. The increase in
accounts payable and accrued expenses from June 30, 1996 to March
31, 1997 primarily reflects accrued
39
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expenses resulting from higher levels of consumer and trade
promotions. As of March 31, 1997, $42 million was outstanding
under the 1995 revolving credit facility, compared to $43 million
at June 30, 1996. The outstanding balance on the 1995 revolving
credit facility at March 31, 1997 reflects the application of the
proceeds of the sale of Del Monte Latin America.
The Company earned net income of $21 million for the
nine-month period ended March 31, 1997. This amount includes
noncash expenses of $31 million, including depreciation and
amortization of $22 million, loss on sale of divested assets of
$5 million, and an extraordinary loss from the PIK Note exchange
offer of $4 million. This income, when combined with the changes
in working capital accounts, resulted in cash provided by
operating activities of $19 million. The Company generated cash
proceeds of $51 million principally from the sale of Del Monte
Latin America. These asset sales, coupled with capital
expenditures of $12 million, resulted in net cash provided from
investing activities of $39 million. Net cash used in financing
activities of $58 million reflects scheduled principal payments
of $12 million, borrowings of $929 million and repayments of $930
million under the Company's 1995 revolving credit facility.
Included in net financing was the refinancing activity related to
the PIK Note exchange offer whereby an additional $55 million of
debt was incurred under an amendment to the 1995 term loan, $30
million of Del Monte Philippines sale proceeds from a specific
collateral account were applied, and $102 million aggregate value
of PIK Notes were redeemed for a cash payment of $100 million. In
addition, the remaining balance of $13 million in senior notes
was repaid. Proceeds from the sale of Del Monte Latin America
were used to repay $10 million of the 1996 PIK Notes. Industrial
development revenue bonds in the amount of $5 million were
redeemed. Proceeds of $2 million from the sale of a surplus
property were deposited into a collateral account pending final
application.
The Company earned net income of $88 million for the fiscal
year ended June 30, 1996. This amount includes noncash expenses
of $45 million, including depreciation and amortization of $31
million, a cumulative effect of accounting change of $7 million,
and an extraordinary loss from early debt retirement of $5
million. This income, when combined with the changes in working
capital accounts, resulted in cash provided by operating
activities of $53 million. The Company generated cash proceeds of
$186 million principally from the sale of its pudding business
($85 million) and the sale of its interest in Del Monte
Philippines ($98 million). These asset sales, coupled with
capital expenditures of $16 million, resulted in a net source of
cash from investing activities of $170 million. Net cash used in
financing activities of $217 million reflects principal payments
of $108 million, borrowings of $1,276 million and repayments of
$1,354 million under the revolving credit facility, the deposit
of $30 million of Del Monte Philippines sale proceeds into a
collateral account until agreement was reached with certain
lenders as to final application, and a repurchase of common and
preferred shares totaling $1 million.
The Company earned net income of $5 million for the fiscal
year ended June 30, 1995. Included in this amount are noncash
expenses of $51 million, including depreciation and amortization
of $40 million and an extraordinary loss on the refinancing of
debt of $7 million. This income, when combined with the changes
in the working capital accounts which included the capitalization
of $23 million in fees paid by the Company to refinance its
existing debt, as discussed above, resulted in net cash generated
from operations of $39 million. Net cash used in investing
activities was $21 million resulting from $24 million in capital
expenditures offset by proceeds from sales of fixed assets. Net
cash used in financing activities of $20 million reflects
principal payments of $50 million, borrowings of $1,901 million
and repayments of $1,867 million under the Company's short-term
borrowing facilities, and dividends paid to a minority
stockholder in Del Monte Philippines of $1 million, as well as
redemptions of preferred stock in Del Monte Philippines of $3
million. Included in net financing was the refinancing activity
consisting of the issuance of $188 million in a new term loan and
senior notes in order to repay $188 million of a term loan,
senior floating rate notes and a capital lease.
The Company earned net income of $3 million for the fiscal
year ended June 30, 1994. This amount includes noncash expenses,
including depreciation and amortization of $40 million and other
non-cash charges of $11 million. This income, when combined with
the changes in the working capital accounts, resulted in cash
generated from operating activities of $28 million. The Company
realized $91 million from the proceeds of divested assets;
principally the sale of the Company's can manufacturing and dried
fruit operations. These asset sales, when combined with capital
expenditures of $36 million, resulted in a net source of cash
from investing activities during fiscal 1994 of $55 million. The
Company used borrowings under its revolving credit facility and
other short-term
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borrowings to finance its daily operations including its annual
pack. The Company borrowed and subsequently repaid $909 million
under its short-term borrowing facilities during the year. During
fiscal 1994, the combined impact of principal payments on
long-term debt of $78 million, and dividends paid to a minority
stockholder by, and redemptions of preferred stock in, Del Monte
Philippines of $5 million, resulted in net cash used in financing
activities of $83 million.
After the Recapitalization
Concurrent with the Recapitalization, the Company entered
into the Credit Agreement (as defined) with respect to the Bank
Financing. The Term Loan Facility provides for term loans in the
aggregate amount of $380 million, consisting of a Tranche A term
loan of $200 million and a Tranche B term loan of $180 million.
The Revolving Credit Facility will provide for revolving loans in
an aggregate amount of $350 million, including a $70 million
Letter of Credit subfacility. The Revolving Credit Facility will
expire in fiscal 2003, the Tranche A term loan will mature in
fiscal 2003, and the Tranche B term loan will mature in fiscal
2005. Scheduled principal payments on the Tranche A term loan
begin in the first quarter of fiscal 1999 and continue quarterly
through maturity. Initial quarterly amortization of Tranche A is
approximately $7.5 million per quarter, rising periodically at
approximately $1.25 million per quarter to a final quarterly
amortization, beginning in the first quarter of fiscal 2003, of
approximately $17 million through maturity. Scheduled principal
payments on the Tranche B term loan begin in the third quarter of
fiscal 1998 and continue quarterly through maturity. Initial
quarterly amortization is nominal, amounting to approximately
$1.8 million per year. Substantial amortization begins in the
fourth quarter of fiscal 2004, with quarterly amortization of
approximately $42 million. In conjunction with the Bank
Financing, previously capitalized debt issue costs of
approximately $19 million and a 1996 PIK Note premium and a term
loan make-whole aggregating $19 million were charged to net
income and accounted for as an extraordinary loss.
Management believes that after the Recapitalization, cash
flow from operations and availability under the Term Loan
Facility and Revolving Credit Facility will provide adequate
funds for the Company's foreseeable working capital needs,
planned capital expenditures and debt service obligations. The
Company's ability to fund its operations and make planned capital
expenditures, to make scheduled debt payments, to refinance its
indebtedness and to remain in compliance with all of the
financial covenants under its debt agreements depends on its
future operating performance and cash flow, which, in turn, are
subject to prevailing economic conditions and to financial,
business and other factors, some of which are beyond its control.
Capital expenditures for fiscal 1996 were $16 million
including approximately $1 million for environmental compliance.
The Company expects that capital expenditures during fiscal 1997
will be approximately $20 million. Capital expenditures are
expected to be funded from internally generated cash flows and by
borrowing from available financing sources.
The agreements with respect to the Bank Financing and the
Indenture contain restrictive covenants with respect to the
operation of the Company's business.
The Company's defined benefit retirement plans have been
determined to be underfunded under federal ERISA guidelines. It
has been the Company's policy to fund the Company's retirement
plans in an amount consistent with the funding requirements of
federal law and regulations and not to exceed an amount that
would be deductible for federal income tax purposes. Due to the
combination of these circumstances, total contributions during
fiscal 1996 for the defined benefit plan decreased to $13 million
as compared to $16 million in fiscal 1995. Fiscal 1997
contributions are expected to be approximately $25 million. In
connection with the Recapitalization, the Company has made
certain commitments to the U.S. Pension Benefit Guaranty
Corporation with respect to the funding of the Company's defined
benefit retirement plans. See "Business--Pension Contributions."
Pension plan funding requirements are expected to be funded from
internally generated cash flows and by borrowing under the
Revolving Credit Facility.
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Tax Net Operating Loss Carryforwards
As of June 30, 1996, the Company had $45 million in net
operating loss carryforwards for tax purposes, which will expire
between 2008 and 2010.
Inflation
The Company's costs are affected by inflation and the
effects of inflation may be experienced by the Company in future
periods. However, the Company has historically mitigated the
inflationary impact of increases in its costs by controlling its
overall cost structure.
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BUSINESS
General
The Company was originally incorporated in 1916 and
remained a publicly-traded company for over sixty years until its
acquisition in 1979 by the predecessor of RJR Nabisco. In
December 1989, RJR Nabisco sold the Company's fresh produce
operations, Del Monte Fresh Fruit, to Polly Peck International.
In January 1990, an investor group led by Merrill Lynch purchased
the Company and certain of its subsidiaries in the RJR Nabisco
Sale for $1.5 billion. Following such sale, the Company divested
several of its non-core businesses.
The Company is the largest producer and distributor of
canned vegetables and canned fruit in the United States, with net
sales to its customers in excess of $1 billion in fiscal 1996.
The Company's primary domestic channel of distribution is retail
outlets, which accounted for approximately $800 million (or 71%)
of the Company's fiscal 1996 domestic sales. In calendar 1996,
the Company had domestic market shares of 20.1% of canned
vegetable products and 38.1% of canned fruit products. The
Company's market share in vegetables is larger than the market
share of the Company's two largest branded competitors combined
and its market share of canned fruit is larger than the fruit
market share of all other branded competitors combined. In
addition, the Company enjoys strong market shares in various cut
tomato product categories.
The Del Monte brand name, which has been in existence since
1892, is one of the leading brand names in the food industry and
maintains a reputation for premium quality. Del Monte brand
products are found in substantially all chains and independent
grocery stores throughout the United States, with the average
supermarket carrying approximately 100 Del Monte brand items. The
Company estimates that Del Monte brand products are purchased by
over 80% of U.S. households and that the Del Monte brand is
recognized by 96% of all consumers of products in the Company's
categories. The Del Monte brand has the highest unaided brand
awareness of any canned food brand in the United States. As the
brand leader in three major processed food categories (canned
vegetables, fruit and cut tomato products), the Company has a
multi-category presence that management believes provides it with
a competitive advantage in selling to the retail grocery
industry.
The Company sells it products to national chains and
wholesalers through a nationwide sales network consisting
primarily of independent food brokers. The Company's direct sales
force also sells Del Monte products to Warehouse Clubs, Mass
Merchandisers and Supercenters. In addition, the Company sells
its products to the foodservice industry, food processors and the
military through different independent food brokers. The Company
also exports a small percentage of its products to certain
foreign countries directly and through independent exporters
based in the United States.
The Company has over 2,500 contracts to purchase vegetables
and fruit from individual growers and cooperatives located in
various geographic regions of the United States, principally the
Midwest, the Northwest, California and Texas. This diversity of
sourcing helps insulate the Company from localized disruptions
during the growing season, such as weather conditions, that can
affect the price and supply of vegetables and fruit. See "Risk
Factors--Adverse Weather Conditions."
The Company owns a number of registered and unregistered
trademarks that it uses in conjunction with its business,
including the trademarks Del Monte(R), FreshCut(TM), Snack
Cups(R), Fruit Cup(R), Fruit Naturals(R), and Del Monte LITE(R).
In connection with and subsequent to the RJR Nabisco Sale, the
Company granted various perpetual, royalty-free licenses for the
use of the Del Monte name and trademark, generally outside of the
United States. The licensees of the Del Monte name and trademark
include Del Monte Europe, Kikkoman, Fresh Del Monte, affiliates
of RJR Nabisco and Yorkshire. Neither Del Monte Europe nor Fresh
Del Monte is an affiliate of the Company.
In fiscal 1994, 1995 and 1996, the Company invested an
aggregate of approximately $55 million of capital in its domestic
operating facilities. The Company believes that the efficiency of
its fully-integrated production facilities, its proprietary seed
varieties and its bulk supply agreements make it one of the
lowest-cost producers of canned vegetables, fruit and cut tomato
products in the United States.
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DMC was incorporated under the laws of the State of New York
in 1978. DMFC, then known as DMPF Holdings Corp., was
incorporated under the laws of the State of Maryland in 1989. DMC
and DMFC each maintains its principal executive office at One
Market, San Francisco, California 94105, and their telephone
number is (415) 247-3000. DMC is a wholly owned subsidiary of
DMFC.
Competitive Strengths
Management believes that the following elements contribute
to the Company's position as a leading producer and distributor
of canned vegetables, fruit and cut tomato products in the United
States and provide a solid foundation for the Company's business
strategy.
- Significant Market Share and Strong Brand Name
Recognition--In calendar 1996, the Company had domestic
market shares of 20.1% of canned vegetable products and
38.1% of canned fruit products. The Company's market
share in canned vegetables is larger than the market
share of the Company's two largest branded competitors
combined and its market share in canned fruit is larger
than the market share of all other branded competitors
combined. In addition, the Company had a 25.4% market
share in the fastest growing segment of the solid tomato
market, the cut tomato segment. The Del Monte brand name,
which has been in existence since 1892, is one of the
leading brand names in the food industry, and has the
highest unaided brand awareness of any canned food brand
in the United States. As a result of its brand
leadership, the Company has a multi-category presence
that management believes provides it with a competitive
advantage in selling to the grocery industry. Del Monte
brand products are found in substantially all grocery
chains in the United States, with the average supermarket
carrying approximately 100 Del Monte brand items. The
Company estimates that Del Monte brand products are
purchased by over 80% of U.S. households and that the Del
Monte brand name is recognized by 96% of all consumers of
products in the Company's categories.
Calendar 1996 Market Share
----------------------------------------------------
Market Next Leading Branded
Category Position(a) Percentage Competitor's Percentage(a)
- -------- ----------- ---------- --------------------------
Canned Vegetables... #1 20.1% 12.5% (Green Giant)
Canned Fruit........ #1 38.1% 12.0% (Libby's)
Canned Cut Tomato
Products............ #1 25.4% 10.8% (Hunt's)
----------------------
(a) Excludes private label.
- Improving EBITDA and EBITDA Margins--The Company's
established market position, strong brand recognition,
new pricing strategy and significant cost reduction
efforts have allowed it to achieve consistent and
improving EBITDA and EBITDA margins. EBITDA (giving
effect to the sale of the Divested Operations) for fiscal
1994, 1995 and 1996 was $63 million, $76 million and $92
million, respectively. EBITDA margins for the same
periods were 5.7%, 6.9% and 8.6%, respectively.
- Extensive National Sales and Distribution System--The
Company's extensive sales and distribution network which
is responsible for the distribution of finished goods to
over 2,400 customer destinations nationwide, gives Del
Monte a nationwide presence. The Company's national sales
and distribution network enables it to compete with other
national brands and regional competitors, and to
introduce new products on a regional or national basis.
The Company operates six strategically-situated
distribution centers offering customers a variety of
services. Management believes that the Company's
distribution system is an important contributor to the
Company's success and provides the Company with a
competitive advantage over regional and private label
competitors.
- Low Cost Producer--Management believes that the Company
is one of the lowest cost producers of canned vegetables,
fruit and cut tomatoes in the United States as a result
of its raw product sourcing
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diversity, proprietary seed varieties, modern processing
equipment, labeling, packaging, warehousing and
distribution efficiencies and strategic alliances with
suppliers.
- Agricultural Expertise and Grower Relationships--The
Company has developed proprietary vegetable seed
varieties in order to increase agricultural and cannery
yields and to improve product flavor and quality. The
Company contracts with experienced growers who have
cultivated these varieties on prime agricultural land
proximate to the Company's processing facilities. In many
cases, the Company has had and continues to have
long-term relationships with such growers.
- Experienced Management Team--In connection with the
Recapitalization, two veteran managers with extensive
food industry experience, Richard G. Wolford and Wesley
J. Smith, joined the Company as Chief Executive Officer
and Chief Operating Officer, respectively. The Company's
prior Co-Chief Executive Officers will remain with the
Company as consultants during a transition period
following the Recapitalization. Mr. Wolford has 30 years
of experience in the food industry, 20 of which were with
Dole Foods. He was president of Dole Packaged Foods from
1982 to 1987. During Mr. Wolford's tenure at Dole, Dole
experienced increased profitability, sales volume and
market share. Mr. Wolford played a key role in redefining
the Dole brand and expanding the range of products sold
under the brand. From 1988 to 1996, he was Chief
Executive Officer of HK Acquisition Corp. where he
developed food industry investments with venture capital
investors and managed the investor-owned companies. Mr.
Smith has 25 years of experience, 23 of which were with
Dole Foods, where he oversaw the building of Dole's
domestic fresh pineapple business and the restructuring
of Dole's sizable Hawaiian operations. In addition, Mr.
Smith was responsible for establishing Dole's juice
business at Dole with minimal capital investment.
Business Strategy
In fiscal 1996, the Company began development of a new
business strategy designed to improve profitability, enhance the
Company's leadership position in the industry, increase spending
efficiencies and strengthen the Company's ability to manage
anticipated future growth. The key elements of this new business
strategy are discussed below.
- New Pricing--In the retail grocery market, pricing tends
to be set by the branded leader with other brand and
private label price levels being set using the leading
brand as the benchmark. Responding in part to relatively
balanced levels of supply and demand, the Company
increased prices on its core fruit products in fiscal
1996 and on its core vegetable products in fiscal 1996
and 1997. As anticipated, price increases were initially
not matched by competitors and the Company's market
shares in many of its core product categories were eroded
by both private label and branded competition. Market
shares have now stabilized or improved relative to the
lower levels reached after such price increases.
Specifically, branded fruit competitors have matched the
Company's prices and branded vegetable competitors have
increased their prices to more closely approach the
Company's higher prices. Management believes that its
price levels are sustainable in view of the current price
levels of branded competition. See "Risk Factor--Pricing
Strategy."
- Trade Promotion Programs--Over the last twelve months,
the Company has implemented a significant change in its
trade promotion strategy. Historically, the Company
marketed its products through aggressive periodic trade
promotions that represented discounts off list price for
retailers. Many of these promotions required little or no
retailer support or performance, resulted in the buildup
of retailers' inventories through advance buying, and
were not regularly passed through to the consumer in
shelf price reductions. Currently, under the Company's
"Go-to-Market" strategy, trade spending is based on
accruals generated by retailers for each case purchased.
These accrued amounts are then paid for retail
merchandising events based on each case actually sold to
the consumer. Management believes that this
performance-based strategy, combined with coordinated
promotional
45
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efforts undertaken with the retailer, provides much more
efficient spending that to date has resulted in more efficient
merchandising of the Company's products.
- Consumer Promotion--The Company has also substantially
increased its marketing spending targeted directly at
consumers and expects to spend $56 million on such
marketing in fiscal 1997 (a $44 million increase from
fiscal 1996). This strategy, which primarily takes the
form of free-standing insert couponing, has helped the
Company recapture some of the volume and market share
declines that occurred following the fiscal 1996 price
increases.
- New Products and Product Line Extensions--The Company has
focused on developing products designed to take advantage
of the Company's presence in existing categories,
emphasize existing manufacturing capabilities and
leverage the Del Monte brand name. Specifically, the
Company recently has introduced Del Monte D'Italia(TM)
pasta sauces, diced tomatoes and flavored fruits. The
Company has also repositioned certain of its tomato and
vegetable products using its FreshCut brand, which
emphasizes the freshness of the raw ingredients in those
products. In fiscal 1997, the Company introduced the
FreshCut line of vegetables and two new FreshCut tomato
products. See "Business--Legal Proceedings." Management
believes that the FreshCut concept for vegetables has
increased brand perceptions for ingredient freshness,
overall quality and taste. In the future, the Company
will seek to develop value-added products that reflect
consumer demands, such as convenience and quality, and
that will benefit from the Del Monte brand and the
Company's distribution infrastructure.
- Increased Penetration of High-Growth Channels of
Distribution--Changes in the retail grocery environment
have resulted in substantial growth of alternative
retailers such as Warehouse Clubs, Mass Merchandisers and
Supercenters. The Company believes it is well-positioned
to benefit from these changes because these vendors
generally seek brand name products with high turnover
from category leaders. In addition, vendors in this
category generally are attracted to large,
technologically sophisticated suppliers such as the
Company that have the ability to meet their stringent
inventory and shelf-management requirements. The Company
believes it is currently the leading supplier of canned
vegetables and fruit to Wal-Mart's Sam's Club and is a
major supplier to Price/Costco. The Company also believes
it is Wal-Mart Supercenters' leading supplier of canned
vegetables, fruit and cut tomato products as a group.
- Customer Alliances--Competitive pressures in the retail
food industry are causing many retailers to form
alliances with large suppliers such as the Company that
are able to provide sophisticated inventory and category
management programs. Management believes that the Company
is well situated to take advantage of this trend due to
the scope of its product offerings and efficient national
distribution system, as well as its size and
technological capabilities. The Company has formed
technological alliances with several key customers and
intends to pursue additional alliances. To support these
alliances, Del Monte has developed proprietary software
systems and programs in category management which enable
its customers to free shelf space for higher-margin
products, improve inventory management by eliminating
redundant or slow-moving products and optimize product
positioning on store shelves. Substantially all of the
Company's customers that have employed the Company's
category management system have increased Del Monte
product sales and shelf space while reducing overall
shelf space dedicated to the canned vegetables, fruit and
cut tomato categories as a whole. In addition, the
Company has developed a proprietary vendor-managed
inventory software system through which the Company
directly manages its customers' inventories of Del Monte
branded products. This inventory software is designed to
reduce customers' overhead and to enable them to achieve
lower average inventory levels while enhancing the
Company's opportunities to sell Del Monte products.
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Cost Savings and Inventory Management
In fiscal 1993, the Company instituted a reengineering plan
designed to reduce operating costs and enhance the Company's
ability to produce and distribute its products. The Company
realized approximately $41 million in cumulative cost savings in
fiscal 1994 and 1995 principally as a result of this plan. In
connection with the Recapitalization, the Company has developed a
capital expenditure program that is designed to generate an
additional $29 million in annual cost savings to be achieved over
the next four years as the initiatives discussed below are
completed. In addition, the Company has identified $45 million of
potential inventory reductions that it intends to effect. There
can be no assurance, however, that such cost savings or inventory
reductions will be realized.
- Manufacturing Improvements--Management currently plans to
introduce new processing equipment such as modern
high-speed fillers, optical sorting equipment and
packaging machinery, each of which is intended to
generate cost savings and to help the Company maintain
its position as a low cost producer. Such savings would
result primarily from decreased labor and general
production efficiencies.
- Facility Consolidation--The Company closed two vegetable
plants and two distribution centers in fiscal 1994 and
another vegetable plant in fiscal 1995. The Company plans
to close an additional facility by fiscal 1999, which is
expected to generate additional annual savings from
reduced hauling charges, improved recoveries and a
reduction of fixed costs.
- Improved Inventory Management--Keeping inventory levels
as low as possible will be a key strategic focus of the
Company. The Company intends to significantly reduce
excess inventories beginning with the 1997 pack,
primarily by reducing contracted acreage. The Company is
also evaluating a counter-seasonal production strategy
comprised of importing fruits from the Southern
hemisphere during the North American winter and increased
sourcing of vegetables from the Southwest during periods
other than the Midwestern harvest season.
The Canned Food Industry
The domestic canned food industry is characterized by
relatively stable growth based on modest price and population
increases. Over the last ten years, the industry has experienced
consolidation as competitors have shed non-core business lines
and made strategic acquisitions to complement category positions,
maximize economies of scale in raw material sourcing and
production and expand retail distribution. Sustaining strong
relationships with retailers has become a critical success factor
for food companies and is driving initiatives such as category
management. Food companies with category leadership positions and
strong retail relationships have increasingly benefited from
these initiatives as a way to maintain shelf space and maximize
distribution efficiencies.
Each product segment of the canned food industry is
typically comprised of a few dominant branded players who control
one third to more than one half of total industry market share
and a large, fragmented private label segment. Leading brands are
generally able to command a pricing premium over private label
competitors. Although private label products have held
significant market shares in the aggregate for canned fruit
(43.7% in calendar 1996), vegetables (42.2% in calendar 1996) and
cut tomato products (30.3% in calendar 1996) for some time, their
market shares have remained relatively stable over the past
decade. Since the canned food industry is mature and capital
intensive, there have been few new entrants into the major
product markets in recent years. Moreover, the industry has
experienced plant closures and consolidation over the past
decade.
Company Products
The Company has a multi-category presence with products in
four major processed food categories: canned vegetables, fruit,
tomato products and pineapple.
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Canned Vegetables. The canned and jarred vegetable industry
in the United States generated approximately $3.2 billion in
sales in fiscal 1996. The domestic canned vegetable industry is a
mature segment characterized by high household penetration.
Industry sales of canned and jarred vegetables have remained
stable in recent years, as illustrated in the following table:
Fiscal Year Ended June 30,
---------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in billions)
All Canned/Jarred Vegetables ....... $3.1 $3.0 $3.0 $3.1 $3.2
The canned retail vegetable market consists of three
distinct segments: major, flanker, and specialty products. The
major segment consists of corn, green beans and peas and
represents the largest volume segment, accounting for $732
million or approximately 66% of fiscal 1996 canned vegetable
supermarket case sales (excluding pickles and tomato products).
The flanker segment, which includes mixed vegetables, spinach,
beets, carrots, potatoes and sauerkraut, accounted for $234
million or approximately 17% of fiscal 1996 supermarket case
sales of canned vegetables. The specialty segment, comprised of
asparagus, zucchini, baby beets and a variety of corn and bean
offerings, represents $270 million or approximately 12% of the
overall canned vegetable market. A cross-segment, buffet
products, includes all of the above varieties in smaller can
sizes. The Company also offers a no-salt product line across most
of its core varieties. The Company competes in each of the major,
flanker, buffet and specialty categories of canned vegetables.
Within these categories, the Del Monte brand accounted for $323
million in retail sales in fiscal 1996. During calendar 1996, Del
Monte brand vegetable products enjoyed an average premium of
17(cent) (32%) per item over private label products and the
Company held a 20.1% share of the canned vegetable market for
that year.
The canned vegetable market is concentrated among a small
universe of branded players and a large, fragmented pool of
private label competitors. In the major vegetable market, the
Company is the branded market share leader and in calendar 1996
held a 23.4% market share in beans, a 20.6% market share in corn
and a 16.4% market share in peas. The Company also is the branded
market share leader in the flanker category and is the overall
market share leader in the buffet market. Private label products
taken as a whole command the largest share of the canned
vegetable market (42.2% in calendar 1996), but their market share
has remained relatively stable over the past decade. The primary
branded competitors in the market include Del Monte, and Green
Giant nationally, and regional brands such as Freshlike, Stokely
and Libby's in addition to private label producers.
1996 Canned Vegetable Market Share
Del Monte ........................................... 20.1%
Green Giant ......................................... 12.5%
Stokely ............................................. 2.6%
Libby's (Seneca) .................................... 3.7%
Freshlike (Dean Foods) .............................. 2.4%
All private label combined .......................... 42.2%
- ----------------------
Source: Nielsen Scantrack, calendar 1996 (based on equivalent cases).
The Company has relationships with approximately 900
vegetable growers located primarily in Wisconsin, Illinois,
Minnesota, Washington, and Texas.
Canned Fruit. The processed canned and jarred fruit
industry in the United States, including pineapple, generates
approximately $2.2 billion in sales per year. The domestic canned
fruit industry is a mature segment characterized by high
household penetration. Industry sales of canned and jarred fruit
have remained virtually flat in recent years, as illustrated in
the following table.
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<PAGE>
Fiscal Year Ended June 30,
---------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in billions)
All Canned/Jarred Fruit ............... $2.3 $2.3 $2.3 $2.3 $2.2
The Company competes in three distinct segments of the
canned fruit industry: major, specialty, and pineapple products.
These three distinct segments account for over 60% of the canned
fruit industry's total sales. The major segment consists of cling
peaches, pears and fruit cocktail/mixed fruit and fruit cups. The
specialty segment includes apricots, freestone and spiced
peaches, mandarin oranges and cherries. The pineapple segment is
discussed separately below.
The Company is the largest processor of branded canned
fruit in the United States. The Company competes in the major
fruit and specialty fruit segments of the canned fruit market
which together accounted for $1 billion of total canned fruit
industry sales in fiscal 1996.
Major fruit accounted for sales by retailers of $611
million in fiscal 1996. Sales by retailers of Del Monte brand
major fruit products totaled $262 million in fiscal 1996. For
calendar 1996, the Company was the branded share leader with a
38.1% market share. The Company is also the share leader in every
major sub-segment of the major category. In single serve sizes,
the Company has over a 60% market share. The Company's major
fruit and fruit cup businesses are distributed in substantially
all grocery outlets, with the average store stocking 27 Del Monte
major fruit items.
The Company is the branded leader in the specialty category
as a whole and the market leader in apricots and freestone and
spiced peaches. Specialty fruits are higher margin, lower volume
niche items, which benefit from the Company's brand recognition.
Del Monte apricots and freestone peaches are distributed in over
73% and 57% of grocery outlets, respectively. Mandarin oranges
and cherries are distributed in 19% and 7% of grocery outlets,
respectively.
The Company competes in the canned fruit business on the
basis of product quality and category support to both the trade
and consumers. On the industry's highest volume can size (15-16
oz.), the Del Monte brand commanded an average 11(cent) (13%) per
item premium. The Company faces competition in the canned fruit
segment primarily from Tri-Valley Growers and PCP, both of which
are grower co-operatives that produce private label products.
Tri-Valley Growers also packs the Libby's and S&W brands. Libby's
holds an overall canned fruit market share of 12%. Forty-four
percent of industry sales are generated primarily by private
label producers including Tri-Valley Growers and PCP.
The Company increased fruit prices in fiscal 1996 to cover
higher raw product costs and to improve margins. Higher prices
put the Company at a significant price disadvantage in the
marketplace for most of the year as competition did not raise
prices until late in the fiscal year. As a result, the Company
experienced a short-term volume loss and market share erosion.
However, the Company's significantly increased margins generally
offset the effects of the lower volume. The Company's market
share in the major canned fruit category increased in the seven
month period ended January 25, 1997 to 40.9%, a level experienced
prior to the price increases. See "Risk Factors--Pricing
Strategy."
1996 Canned Major Fruit Market Share
Del Monte ............................................ 38.1%
Libby's (Tri-Valley) ................................. 12.0%
All private label combined ........................... 43.7%
- ----------------------
Source: Nielsen Scantrack, calendar 1996 (based on equivalent cases).
The Company has relationships with approximately 600 fruit
growers located in California, Oregon and Washington.
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<PAGE>
Canned Tomato Products. Tomato products generated fiscal
1996 industry-wide sales of $5.3 billion, an increase of almost
4% from 1995. Total sales of tomato products have grown steadily
in recent years, achieving a five-year compound annual growth
rate of 3.6% per year. The diced and chunky segment of the retail
solid tomato category grew 27% during calendar 1996. The
following table presents total industry sales of all processed
tomato products in recent years.
Fiscal Year Ended June 30,
---------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in billions)
Processed Tomato Products ............. $4.6 $4.7 $4.8 $5.1 $5.3
The processed tomato market can be separated into more than
ten distinct product categories which differ widely in terms of
profitability, price sensitivity and growth potential. Consumers
use tomato products for a variety of purposes ranging from
ingredients to condiments, beverages and main dishes.
The highest growth is taking place in value-added
categories such as spaghetti/pasta sauce and diced tomatoes.
These products are generally the least price sensitive and,
consequently, can support higher margins. Growth in spaghetti
sauce and in the value-added diced and chunky segment of the
solids category is anticipated to remain strong as a result of
the shift in consumer preferences towards convenience-oriented
items.
The tomato products major market segments generated grocery
sales by retailers of $3.7 billion in fiscal 1996, including
sales of $246 million in the Company's key category of cut tomato
products. Sales by retailers of Del Monte branded cut tomato
products in fiscal 1996 accounted for $70 million. The Company's
tomato product offerings include four major segments: cut
tomatoes (stewed, diced, chunky and wedges), ketchup, tomato
sauce and paste, and value-added products such as spaghetti/pasta
sauce, salsa and sloppy joe sauce.
In fiscal 1995, the Company exited the whole-peeled tomato
segment to focus on cut tomato products, which is generally a
less price sensitive and higher-margin segment. The Company's
sales in the diced and chunky segment grew 60% during the same
period and as of December 28, 1996, the Company was the branded
leader with a 22.1% share. The Company increased prices
significantly on its cut tomato products in April 1995, at the
same time as it repositioned the line under the FreshCut brand.
The diced and chunky category is the fastest growing category in
the tomato products group.
The Company is active in the value-added tomato product
segment with its pasta and spaghetti sauces, salsas and sloppy
joe sauces. This segment has enjoyed significant growth over the
last four years, with retail sales of $2.2 billion in calendar
1996 compared to retail sales of $1.8 billion in calendar 1993.
The Company entered the value-added tomato product segment in
fiscal 1993, when the Company introduced a new, six-flavor line
of canned spaghetti sauce into the $1.1 billion retail spaghetti
sauce market. The Company employed a strategy to deliver high
quality product in a can at an everyday shelf price well below
that of the jarred competition. The Company currently offers two
styles of spaghetti sauce and four flavors of Del Monte D'Italia
pasta sauces.
The Company offers products in nearly every canned tomato
product category, and faces competition in the tomato product
market from brand name competitors including S&W, Contadina, Red
Gold and Hunt's in the cut tomato category; Heinz and Hunt's in
the ketchup category; Campbell Soup's Prego, Van Den Bergh's Ragu
and Hunt's in the spaghetti sauce category; Hunt's and Hormel in
the sloppy joe sauce category; and Campbell Soup's Pace, Frito
Lay's Tostito's and Pillsbury's Old El Paso in salsa and picante.
In addition, the Company faces competition from private label
products in all major categories. While the Company has a small
share of the overall tomato product market (with market shares in
calendar 1996 of 4.1% in spaghetti sauce, 3.8% in salsa and 7.8%
in tomato sauce), it is the largest branded competitor in the
high-margin cut tomato segment with market share of 25.4% in
calendar 1996. Hunt's, the next largest branded processor,
possessed a 10.8% share for this period. In other key categories,
for calendar 1996, Heinz was the market leader in ketchup with a
48.6% market share, Hunt's was the leader in tomato sauce with a
34.7% market share, and Pace was the market leader in
salsa/picante sauces with a 29.6% market share.
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1996 Canned Cut Tomato Products(a)
Market Share
Del Monte ................................... 25.4%
Hunt's ...................................... 10.8%
S&W ......................................... 9.6%
Contadina ................................... 5.8%
All private label combined .................. 30.3%
- ----------------------
(a) Excludes whole peeled and crushed tomatoes, ketchup,
tomato sauce and paste, spaghetti sauce and sloppy joe, salsa and
picante sauces.
Source: Nielsen Scantrack, calendar 1996 (based on equivalent cases).
The Company has relationships with approximately 40 tomato
growers located primarily in California where approximately 95%
of domestic tomatoes are produced.
Canned Pineapple. The canned pineapple products industry in
the United States generated approximately $329 million in sales
in fiscal 1996. The domestic pineapple industry is a mature
segment of the canned fruit industry that has generated stable
sales. Industry sales of canned pineapple products have remained
virtually flat in recent years, as illustrated in the following
table.
Fiscal Year Ended June 30,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in millions)
Canned Pineapple Products ........... $334 $334 $329 $317 $329
Individual pineapple items are differentiated by cut style,
with varieties including sliced, chunk, tidbits and crushed.
Currently, 84% of pineapple product sold is packed in juice, with
the remaining 16% packed in heavy syrup. Size offerings include
the 20 oz. size, which accounts for 74% of category sales. Other
sizes offered include the 8 oz. and 15 oz. varieties.
The Company's retail pineapple line consists of sliced,
chunk, crushed and juice products in a variety of container
sizes. In addition to sales by retailers, which totaled $36
million in fiscal 1996, the Company sells a significant amount of
juice concentrate and crushed pineapple through the food
ingredients channel and also sells pineapple solids and juice
products to foodservice customers.
The Company is the second leading brand of canned
pineapple, with a 14.9% market share in calendar 1996. Dole is
the industry leader with a market share of 43.9%. Private label
and foreign pack brands comprise the low-price segment of this
category and hold market shares of 28.0% and 11.8%, respectively.
The five major foreign pack brands, Geisha, Libby's, Liberty
Gold, Empress, and 3-Diamond, have regional distribution and are
supplied by Thai and Indonesian packers. Certain foreign brands
grew through 1995 by "dumping" product in the United States at
below cost prices which depressed category pricing. In 1995, the
U.S. government imposed anti-dumping tariffs on Thai packers
which allowed the domestic industry to recover some of its
margins and volume.
1996 Canned Pineapple Market Share
Del Monte ........................................... 14.9%
Dole ................................................ 43.9%
Foreign pack ........................................ 11.8%
All private label combined .......................... 28.0%
- ----------------------
Source: Nielsen Scantrack, calendar 1996 (based on equivalent cases).
51
<PAGE>
The Company sources virtually 100% of its pineapple
requirements from its former subsidiary, Del Monte Philippines,
under a long-term supply agreement. The agreement provides for a
guaranteed supply of quality pineapple and a steady profit stream
due to pricing based on fixed retail and foodservice margins.
Sales, Marketing and Distribution
Sales. The Company's sales organization for retail products
is divided into four groups: (i) a retail broker network (which
consists of 100% independent broker representation at the market
level, managed by Company sales managers); (ii) national
accounts; (iii) Warehouse Clubs, Mass Merchandisers and
Supercenters; and (iv) customer marketing. Retail brokers are
independent, commissioned sales organizations which represent
multiple manufacturers. The Company's broker network represents
the Company to a broad range of grocery retailers. The national
accounts group maintains relationships with the corporate
headquarters of key national chain and wholesaler accounts such
as Fleming, Kroger, Super Valu and Winn-Dixie. The Company's
Warehouse Club, Mass Merchandiser and Supercenter group calls on
these customers directly (non-brokered) and is responsible for
the development and implementation of sales programs for
non-grocery channels of distribution that include Wal-Mart,
Price/Costco, Kmart and Target. The fourth group, customer
marketing, is responsible for managing internal customer oriented
resources including order management, logistics, trade promotion,
strategic initiatives and sales information and administration.
Foodservice, food ingredients, private label and military sales
are accomplished through both direct sales and brokers.
Marketing. Marketing includes product development, pricing
strategy, consumer and trade promotion, advertising, publicity
and package design. Consumer advertising and promotion support
are used, together with trade spending, to support awareness of
new items and initial trial by consumers, and to build
recognition of the Del Monte name.
Distribution. The Company's distribution organization is
responsible for the distribution of finished goods to over 2,400
customer destinations. Customers can order products to be
delivered via truck, rail or on a customer pickup basis. The
Company's distribution centers provide, among other services,
casing, labeling, special packaging, cold storing, pallet
repairing and fleet trucking services. Other services the Company
provides to customers include One Purchase Order/One Shipment, in
which the Company's most popular products are listed on a
consolidated invoicing service; the UCS Electronic Data
Interchange, a paperless system of purchase orders and invoices;
and the Store Order Load Option (SOLO), in which products are
shipped directly to stores.
Supply and Production
The Company owns virtually no agricultural land. Each year,
the Company buys over one million tons of fresh vegetables and
fruits pursuant to over 2,500 contracts with individual growers
and cooperatives located primarily in the United States. The
Company enters into individual fixed price contracts with growers
of vegetables, fruits and tomatoes. The vegetable growers are
located in Wisconsin, Illinois, Minnesota, Washington, Texas and
Arizona. The Company provides the growers with planting
schedules, seeds, insecticide management and hauling capabilities
and actively participates in agricultural management and quality
control with respect to all sources of supply. The vegetable
contracts are generally for a one-year term.
The Company's fruit and tomato growers are located
primarily in California; pear growers are also located in Oregon
and Washington. The fruit contracts range from one to ten years
each and as of June 30, 1996 the Company had purchase commitments
outstanding of approximately $322 million. Prices are generally
negotiated with grower associations. The Company actively
participates in agricultural management and quality control and
provides insecticide management and hauling capabilities. Where
appropriate, the Company manages the growers' agricultural
practices.
Thirteen Company-owned plants, located throughout the
United States, process the Company's products. Generally located
near growing areas, vegetable processing plants are located in
Illinois, Wisconsin, Minnesota, Texas and Washington, while fruit
and tomato plants are located in California, Indiana and
Washington. The
52
<PAGE>
Company produces the majority of its products between June
and October. Most of the Company's seasonal plants operate at
close to full capacity during the packing season.
Co-packers are used for pickles and certain other non-core
products and to supplement supplies of certain canned vegetables,
fruit and tomato products.
Prior to December 1993, the Company produced almost all of
the cans used to package its products in the United States at its
nine can manufacturing facilities located throughout the United
States. In December 1993, the Company sold substantially all the
assets (and certain related liabilities) of the Company's can
manufacturing business to Silgan Container Corporation
("Silgan"). The transaction included the sale or lease of the
Company's nine can manufacturing facilities. In connection with
this agreement, Silgan and the Company entered into a ten-year
supply agreement, with optional successive five year extensions
under which Silgan agreed to supply all of the Company's
requirements for metal food and beverage containers in the United
States. The Company's total annual can usage is approximately two
billion cans, representing approximately 5.5% of total domestic
food can volume in the United States.
Foreign Operations
The Company has sold all of its non-U.S. operations and now
conducts all of its business domestically.
Customers
The Company's customer base is broad and diverse and no
single customer accounted for more than 10% of fiscal 1996 net
sales. The Company's 15 largest customers during fiscal 1996
represented approximately 48.4% of the Company's net sales. These
companies have all been Del Monte customers for at least ten
years and in most cases for twenty years or more.
Competition
The Company faces substantial competition throughout its
product lines from numerous well-established businesses operating
nationally or regionally with single or multiple branded product
lines. In general, the Company competes on the basis of quality,
breadth of product line and price. See "--Company Products."
Information Services
In November 1992, the Company entered into an agreement
with Electronic Data Systems Corporation ("EDS") to provide
services and administration to the Company in support of its
information services functions for all domestic operations.
Payments under the terms of the agreement are based on scheduled
monthly base charges subject to various adjustments based on such
factors as production levels and inflation. Base charge payments
under the agreement total $137 million, to be paid over the
ten-year term of the contract. The agreement expires in November
2002 with optional successive one-year extensions. As a part of
the agreement, the Company sold EDS certain of its information
technology equipment and software for approximately $6 million.
The Company periodically reviews its general information system
needs.
Research and Development
The Company's research and development ("R&D") organization
provides product, packaging and process development and
analytical and microbiological services, as well as agricultural
research and seed production. In fiscal 1996, 1995 and 1994, R&D
expenditures (net of revenue for services to third parties) were
$6 million, $6 million and $5 million, respectively. The Company
maintains an R&D facility in Walnut Creek, California where it
conducts research in a number of areas related to its business
including seed production, packaging, pest management, food and
nutrition science and plant breeding.
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<PAGE>
Employees
At March 31, 1997, the Company had approximately 2,100
full-time employees. An additional 12,000 individuals are hired
on a temporary basis during the pack season. The Company
considers its relations with its employees to be satisfactory.
The Company has eight collective bargaining agreements with
seven unions covering approximately 9,850 of its hourly and
seasonal employees. Four collective bargaining agreements expire
in calendar 1997, covering seven canneries and one distribution
center. The remaining agreements expire in calendar 1998 and
1999. The Company believes that each of these agreements will be
successfully renegotiated, but there can be no assurance that
negotiations will be successful.
Trademarks and Licenses
The Company owns a number of registered and unregistered
trademarks for use in connection with various food products.
These trademarks are important to the Company because brand name
recognition is a key factor in the success of the Company's
products. The current registrations of these trademarks in the
United States and foreign countries are effective for varying
periods of time, and may be renewed periodically provided that
the Company, as the registered owner, and its licensees, where
applicable, comply with all applicable laws. The Company is not
aware of any material challenge to the ownership by the Company
of its major trademarks.
In connection with the RJR Nabisco Sale and the
divestitures of certain operations subsequent to that sale, the
Company granted various perpetual, royalty-free licenses for use
of certain trade secrets, trademarks, patents and other
intellectual property to the acquiring companies. With respect to
processed food products, affiliates of RJR Nabisco hold the
rights to use Del Monte trademarks in Canada and South America;
Kikkoman holds the rights to use Del Monte trademarks in the Far
East (excluding the Philippines); Del Monte Europe holds the
rights in Europe, Africa, the Middle East and the Indian
Subcontinent; and Dewey Limited (an affiliate of Del Monte
Europe) owns the rights in the Philippines to the Del Monte brand
name. Fresh Del Monte holds the rights to use the Del Monte
trademark with respect to fresh produce and certain chilled and
frozen products related thereto throughout the world. With
respect to dried fruit and snack products, Yorkshire holds the
rights to use Del Monte trademarks in the United States, Mexico,
Central America and the Caribbean. In connection with the sale of
its pudding business, the Company licensed Kraft to use the Del
Monte name on a royalty-free basis in connection with
single-serving pudding products for a period of two years from
November 1995. In connection with agreements to sell Del Monte
Latin America, Hicks, Muse, Tate & Furst acquired the right to
use the Del Monte trademarks with respect to processed foods in
Mexico and Donald W. Dickerson, Inc. acquired such right in
Central America and the Caribbean. The Company retains the right
to review the quality of the licensee's products under each of
its license agreements. The Company generally may inspect the
licensees' facilities for quality and the licensees must
periodically submit samples to the Company for inspection.
Licensees may grant sublicenses but all sublicensees are bound by
these quality control standards and other terms of the license.
The Company has also granted various security interests in its
trademarks and related trade names, patents and trade secrets to
its creditors in connection with the Bank Financing and to its
licensees.
Governmental Regulation
The Company's operating businesses are subject to
regulation and inspection by various federal, state and local
governmental agencies which enforce strict standards of
sanitation, product composition, packaging and labeling, work
place safety and environmental compliance. The Company believes
it is in substantial compliance with such regulations. New
nutrition labeling and health claim requirements proposed by the
U.S. Food and Drug Administration (the "FDA") were passed by
Congress in 1990 and became effective on August 4, 1994. The
Company believes it is in substantial compliance with such
regulations.
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Pension Contributions
As described more fully in Note F to the audited
consolidated financial statements of the Company for the year
ended June 30, 1996, the Company's defined benefit pension plans
are underfunded. In connection with the Recapitalization, the
Company has entered into an agreement with the U.S. Pension
Benefit Guaranty Corporation dated April 7, 1997 whereby the
Company will contribute the following amounts to its defined
benefit pension plans: $15 million within 30 days after the
consummation of the Recapitalization, $15 million in calendar
1998, $9 million in calendar 1999, $8 million in calendar 2000
and $8 million in calendar 2001, for a total of $55 million. The
contributions required to be made in 1999, 2000 and 2001 will be
secured by a $20 million letter of credit to be obtained by the
Company by August 31, 1998. The contributions required to be made
in 1997 and 1998 will be paid prior to any scheduled amortization
under the Bank Financing in excess of $1 million, and the Company
has agreed not to make voluntary prepayments of the loans under
the Bank Financing prior to making the contributions required to
be made in 1997 and 1998 or prior to obtaining the letter of
credit. The Company estimates that the total contributions
required to be made from 1997 through 2001 under this agreement
will be approximately $15 million more than the amount the
Company would have been required to contribute to the pension
plans under applicable law in the absence of the agreement.
Legal Proceedings
The Company is involved in various legal proceedings
incidental to its business, including claims with respect to
product liability, worker's compensation, tort and other general
liability and automobile liability, for which the Company carries
insurance or is self-insured, as well as trademark, copyright and
related litigation, and wrongful discharge and other
employer/employee claims and litigation. The Company believes
that no such legal proceedings will have a material adverse
effect on the business or financial condition of the Company. See
"--Environmental Compliance" for a description of certain
environmental litigation to which the Company is a party.
During fiscal years 1993, 1994 and 1995, the Company had
exclusive supply arrangements (the "PCP Agreement") with PCP to
purchase substantially all of PCP's tomato and fruit production.
PCP continued to own and operate its production facilities, as
well as purchase raw products through its established grower
network. The PCP Agreement was to expire in June 1998. During
fiscal 1995, the U.S. Federal Trade Commission ("FTC") conducted
an investigation to determine whether the supply arrangement was
in violation of certain United States antitrust laws. In January
1995, the Company and PCP agreed to terminate the PCP Agreement
and other supply and purchase option agreements in settlement of
the FTC investigation. The Company negotiated a consent order
with the FTC which was issued on April 11, 1995. Pursuant to this
consent order, the PCP Agreement was terminated in late fiscal
1995. The order imposes restrictions on the Company's ability to
acquire existing domestic canned fruit businesses and assets.
On January 30, 1996, the Company received an inquiry from
the FDA concerning the Company's FreshCut brand labeling on
certain tomato and vegetable products. The Company is in the
process of developing its response to the FDA inquiry. The
Company does not believe that the resolution of this inquiry will
have a material adverse impact on the Company's use of its
FreshCut brand or marketing concept.
On March 25, 1997, the entities that purchased the
Company's Mexican subsidiary in October 1996 commenced an action
in Texas state court entitled HMTF Acquisition Corp. et al v. Del
Monte Corporation, alleging, among other things, that the Company
breached the agreement with respect to the purchase because the
financial statements of the Mexican subsidiary did not fairly
present its financial condition and results of operations in
accordance with U.S. generally accepted accounting principles.
The purchasers have claimed damages in excess of $10 million as a
result of these alleged breaches. In connection with this action,
$8 million of the cash proceeds payable to current shareholders
and certain members of senior management of DMFC in the
Recapitalization will be held in escrow and applied to fund the
Company's costs and expenses in defending the action, with any
remaining amounts available to pay up to 80% of any ultimate
liability of the Company to the purchasers. Separately, the
purchasers claim that they are entitled to receive from the
Company as a purchase price adjustment an additional
approximately $2.6 million pursuant to provisions of the purchase
agreement. The Company does not believe that
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these claims, in the aggregate, will have a material adverse
effect on the Company's financial position or results of
operations.
Environmental Compliance
As a result of its agricultural, food processing and canning
activities, the Company is subject to numerous environmental laws
and regulations. Many of these laws and regulations, both foreign
and domestic, are becoming increasingly stringent and compliance
with them is becoming increasingly expensive. The Company
believes that it is in substantial compliance with all such laws
and regulations. The Company is engaged in a continuing program
to maintain its compliance with existing laws and regulations and
to establish compliance with anticipated future laws and
regulations. The Company spent an aggregate of $5 million on
domestic environmental expenditures from fiscal 1994 through
fiscal 1996, and projects that it will spend an aggregate of
approximately $4 million in fiscal 1997 and 1998 on capital
projects and other expenditures in connection with environmental
compliance.
In addition, in connection with the Company's divestiture
of owned or operated properties, the Company may be required to
remediate environmental conditions at such properties. The
Company has also identified certain conditions that require
remediation at properties it continues to own or operate. The
Company does not expect that such remediation costs will have a
material adverse effect on the Company's financial condition or
results of operations.
The Company has been notified by governmental authorities
and private claimants that it may be a potentially responsible
party ("PRP") for environmental investigation and remediation
costs at certain designated "Superfund Sites" under CERCLA or
under similar state laws. The Company is currently involved as a
PRP at five Superfund Sites. The Company resolved its liability
at three Superfund Sites in fiscal 1996 and at one Superfund Site
in early fiscal 1997. In addition, the Company obtained an
indemnification for any liabilities in connection with another
site from its former waste hauler. The Company has, in the past,
been identified as a PRP at five other sites, but has had no
active involvement at any of these sites for several years. At
several of these sites, the Company believes it has no liability.
Generally, the Company is considered a PRP because it sent
certain wastes (in most cases, non-hazardous materials) from its
operations to these sites for disposal. The exception is one site
that the Company formerly operated (but did not own). For the
formerly operated site, however, the Company has been indemnified
for any liability it may have. The five Superfund Sites at which
the Company is currently involved are at various stages of
environmental investigation and remediation. Because the
investigation and remediation process is usually long and
complicated, it is sometimes difficult to predict the ultimate
extent of the Company's liability. However, at most Superfund
Sites, the Company has a de minimis share of liability. There can
be no assurance that the Company will not be identified as a PRP
at additional sites in the future or that additional remediation
requirements will not be imposed on properties currently owned
and operated. In addition, there can be no assurance that other
sites to which the Company has sent waste will not be identified
for investigation or proposed for listing under CERCLA or similar
state laws. The Company believes that its CERCLA and other
environmental liabilities, if any, will not have a material
adverse effect on the Company's financial position or results of
operations.
Backlog
The Company does not experience significant backlog.
Properties
As of March 31, 1997, the Company operated 13 production
facilities and six distribution centers. The Company's production
facilities are owned properties, while the distribution centers
are owned or leased and the Company's various warehousing/storage
facilities are primarily leased facilities. Virtually all of the
Company's properties, whether owned or leased, are subject to
liens or security interests pursuant to the Bank Financing.
The following table summarizes the Company's production
facilities:
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Del Monte Production Facilities
Location Primary Product Line Square Footage
- -------- -------------------- --------------
Kingsburg, CA .... Peaches, Zucchini, Corn 121,000
Modesto, CA ...... Peeled Tomatoes, Ketchup, Tomato Sauce,
Salsa, Spaghetti Sauce, Bulk Paste,
Snap-E-Tom 220,000
San Jose, CA ..... Apricots, Fruit Cups, Fruit Cocktail,
Chunky Fruit, Diced Pears 371,000
Stockton, CA ..... Peaches, Cocktail Cherries, Fruit
Cocktail, Concentrate 446,000
Mendota, IL ...... Peas, Corn, Lima Beans, Mixed
Vegetables, Prune Juice, Carrots,
Peas & Carrots 246,000
Plymouth, IN ..... Snap-E-Tom, Ketchup, Tomato Sauce &
Juice, Pineapple Juice, Spaghetti
Sauce, Sloppy Joe 156,000
Sleepy Eye, MN ... Peas, Corn 230,000
Crystal City, TX . Green Beans, Spinach, Carrots, Beets,
Potatoes 362,000
Toppenish, WA .... Asparagus, Corn, Lima Beans, Peas 228,000
Yakima, WA ....... Cherries and Pears 214,000
Arlington, WI .... Peas, Corn, Sauerkraut 209,000
Markesan, WI ..... Green Beans, Wax Beans, Italian Beans 291,000
Plover, WI ....... Beans, Carrots, Beets, Potatoes 250,000
The Company's principal administrative headquarters are
located in leased office space in San Francisco, California. The
Company owns its primary research and development facility in
Walnut Creek, California.
In fiscal 1996, the Company entered into agreements
providing for the sale of real property and the construction and
lease of three new plant warehouses and one new ripening room
facility (located at Toppenish, Washington; Plover, Wisconsin;
Mendota, Illinois; and Yakima, Washington, respectively),
totaling approximately 739,000 square feet. The Company will
lease the facilities for an initial term of 20 years, at a total
annual rent of approximately $3 million (net of operating
expense).
The Company also holds a 50% interest in a limited
liability company which has developed a 160,000 square foot
retail shopping center in Oakland, California. The shopping
center development is located at the site of a former production
plant of the Company. The center opened in October 1996 and was
approximately 85% leased at that time.
The Company holds certain excess properties for sale and
periodically disposes of excess land and facilities through
sales.
Management considers its facilities to be suitable and
adequate for the business conducted therein, and to have
sufficient production capacity for the purposes for which they
are presently intended.
Working Capital
The inventory position of the Company is seasonally
affected by the growing cycle of the vegetables, fruits and
tomatoes it processes. Substantially all inventories are produced
during the harvesting and packing months of June through October
and depleted through the remaining seven months. The Company
maintains a revolving line of credit to fund its seasonal working
capital needs. See "The Bank Financing."
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CORPORATE HISTORY
The Company was acquired in 1979 by the predecessor of RJR
Nabisco. In 1990, the Company and certain of its subsidiaries and
affiliates were sold in the RJR Nabisco Sale for $1.5 billion to
DMFC and DMPF Corp., a Delaware corporation ("DMPF Corp."), which
were organized by Merrill Lynch & Co. ("ML&Co.") and capitalized
by ML&Co. and certain other investors including Court Square
Capital, L.P., an affiliate of Citibank, N.A., Kikkoman, Polly
Peck International PLC ("Polly Peck"), W.R. Huff Asset Management
Co., Charterhouse Equity Partners, L.P. and certain present and
former members of management of the Company. The RJR Nabisco Sale
excluded certain businesses that were retained by RJR Nabisco
such as the Del Monte processed foods operations in Canada and
South America. Certain other Del Monte businesses were not
acquired, including the Del Monte fresh foods business (currently
operated by Fresh Del Monte), which was sold by RJR Nabisco to
Polly Peck. In connection with and subsequent to the RJR Nabisco
Sale, the Company granted various perpetual, royalty-free
licenses for the use of the Del Monte name and trademark. The
licensees of the Del Monte name and trademark include Del Monte
Europe, Kikkoman, Fresh Del Monte and Yorkshire. Neither Del
Monte Europe nor Fresh Del Monte is an affiliate of the Company.
Following the RJR Nabisco Sale, the Company sold certain of
its properties, including the Company's processed foods
operations in the Far East (other than the Philippines) to
Kikkoman for approximately $104 million; the Hawaiian Punch
business to Procter & Gamble for approximately $147 million; and
Del Monte Europe to Gravelgrove Limited for approximately $360
million, and applied substantially all of the proceeds from such
sales to the partial repayment of the bank financing used to
finance the RJR Nabisco Sale. In connection with the sale of Del
Monte Europe, the Company acquired an 8.35% equity investment in
Del Monte Europe. Subsequently, in the fiscal quarter ended March
31, 1993, the Company sold its equity investment in Gravelgrove
Limited for approximately $23 million.
In January 1991, the Company completed the sale of a 49.9%
interest in Del Monte Philippines. As a result of this
transaction, the Company received $16.7 million in cash, $17.9
million in notes (which were subsequently repaid), $8.7 million
in a future purchase price adjustment (all of which has been
paid) and $1.3 million of preferred stock of a subsidiary of Del
Monte Philippines (20% of which was redeemed in May 1994 and 20%
redeemed in May 1995). The Company retained a 50.1% interest in
Del Monte Philippines. In March 1996, the Company sold its 50.1%
interest in Del Monte Philippines and the remaining preferred
stock to a joint venture affiliated with Del Monte Europe for
$100 million. In connection with the sale of its interest in Del
Monte Philippines, the Company signed an eight-year supply
agreement under which the Company is required to source
substantially all of its pineapple requirements from Del Monte
Philippines over the term of the agreement.
In August 1993, the Company sold its dried fruit and snack
operation to Yorkshire for cash and stock totaling $22.6 million.
The Company will continue to distribute certain of the former Del
Monte dried fruit and snack products as a service to and for the
benefit of Yorkshire through June 1997, pursuant to a service
agreement with Yorkshire. As part of the asset sale transaction,
the Company acquired 20% of the outstanding common stock and
1,000 shares of 7% preferred stock of Yorkshire. Following the
expiration of a standstill agreement in July, 1996, the Company
granted a right of first refusal to Yorkshire to acquire the
Company's equity interest in Yorkshire, and Yorkshire Foods,
Inc., the parent of Yorkshire ("YFI"), granted a right of co-sale
to the Company in the event that YFI proposed to sell its equity
interest in Yorkshire.
In December 1993, the Company sold substantially all of the
assets and certain related liabilities of its can manufacturing
operations in the United States to Silgan for $72 million. At the
same time, the Company entered into a ten-year supply agreement
under which Silgan would, effective immediately after the sale,
provide the Company with substantially all of its domestic can
requirements and at least 65% of the can requirements of the
Company's then-existing Mexican facilities. The supply agreement
provides the Company with a long-term supply of cans at
competitive prices that adjust over time for normal manufacturing
cost increases or decreases. See "Business--Production."
On June 27, 1994, DMFC entered into an Agreement and Plan of
Merger (the "1994 Merger Agreement") with Grupo Empacador de
Mexico, S.A. de C.V. and CCP Acquisition Company of Maryland,
Inc., which were
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formed by an investor group led by Mr. Carlos Cabal Peniche for
the purpose of effecting an acquisition (the "Proposed
Acquisition") of the Company. The Merger Agreement provided that
DMFC was entitled to terminate the 1994 Merger Agreement if the
effective date of the Proposed Acquisition failed to occur on or
prior to September 19, 1994. The effective date of the Proposed
Acquisition did not occur on or prior to such date and, on
September 21, 1994, DMFC terminated the 1994 Merger Agreement in
accordance with its terms. Pursuant to the 1994 Merger Agreement,
because the Proposed Acquisition failed to occur by September 19,
1994, DMFC drew $30 million under a letter of credit issued by
Banco Union, S.A., a bank affiliated with Mr. Cabal. Such amount
was applied to the repayment of indebtedness then-outstanding
under the Company's then-existing revolving credit agreement.
In November 1995, the Company sold its pudding business to
Kraft for $89 million. The purchase agreement allows Kraft to use
the Del Monte name on single-serve products for up to two years
from the time of the sale.
In October 1996, the Company sold its Mexican subsidiary
for $38 million, and, in November 1996, sold its Central American
and Caribbean operations for $12 million. The purchasers of the
Company's Mexican subsidiary have made certain claims in
connection with the purchase. See "Business--Legal Proceedings."
On February 21, 1997, TPG, Shield and DMFC entered into the
Merger Agreement with respect to the Recapitalization. The Merger
Agreement was amended and restated as of April 14, 1997. See "The
Recapitalization."
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MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position
of individuals who are serving as directors and executive
officers of each of DMC and DMFC. TPG anticipates that it will
cause to be elected additional individuals, including individuals
unaffiliated with either TPG or DMC, to serve as directors of DMC
and DMFC. Each director will hold office until the next annual
meeting of shareholders or until his successor has been elected
and qualified. Officers of DMC and DMFC are elected by their
respective Boards of Directors and serve at the discretion of
such Boards.
Name Age Positions
- ---- --- ---------
Richard G. Wolford ..... 52 Chief Executive Officer; Director
Wesley J. Smith ........ 50 Chief Operating Officer; Director
James G. Coulter ....... 36 Director
Brian E. Haycox ........ 55 Director
Jeffrey A. Shaw ........ 32 Director
David L. Meyers ........ 51 Executive Vice President, Administration
and Chief Financial Officer
Glynn M. Phillips ...... 59 Executive Vice President, Sales
Thomas E. Gibbons ...... 49 Senior Vice President and Treasurer
William J. Spain ....... 55 Senior Vice President, Technology
Richard L. French ...... 39 Vice President and Chief Accounting Officer
William R. Sawyers ..... 34 Vice President, General Counsel and Secretary
Richard G. Wolford, Chief Executive Officer; Director. Mr.
Wolford joined both DMC and DMFC as Chief Executive Officer and a
director upon consummation of the Recapitalization. From 1967 to
1987, he held a variety of positions at Dole Foods, including
President of Dole Packaged Foods from 1982 to 1987. From 1988 to
1996, he was Chief Executive Officer of HK Acquisition Corp.
where he developed food industry investments with venture capital
investors.
Wesley J. Smith, Chief Operating Officer; Director. Mr.
Smith joined both DMC and DMFC as Chief Operating Officer and a
director upon consummation of the Recapitalization. From 1972 to
1995, he was employed by Dole Foods in a variety of positions,
including senior positions in finance, marketing, operations and
general management in California, Hawaii and Honduras.
James G. Coulter, Director. Mr. Coulter became a director of
both DMC and DMFC following consummation of the Recapitalization.
Mr. Coulter was a founding partner of Texas Pacific Group in
1992. From 1986 to 1992, Mr. Coulter was a Vice President of the
Robert M. Bass Group, Inc. Mr. Coulter is Co-Chairman of the
Board of Beringer Wine Estates. He also serves on the Boards of
Directors of America West Airlines, Inc., Virgin Cinemas Limited
and Paradyne Partners, L.P.
Brian E. Haycox, Director. Mr. Haycox was elected to the
Board of Directors of both DMC and DMFC in June 1995. He was
elected as Co-Chairman and Co-Chief Executive Officer of both DMC
and DMFC in December 1995, and he served in those capacities
until the consummation of the Recapitalization. Mr. Haycox served
as President and Chief Executive Officer of Del Monte Tropical
Fruit Company from 1988 until 1993. Prior to that time Mr. Haycox
served in a variety of management positions within the Del Monte
organization.
Jeffrey A. Shaw, Director. Mr. Shaw became a director of
both DMC and DMFC following consummation of the Recapitalization.
Mr. Shaw has been an executive of TPG since 1993. Prior to
joining TPG, Mr. Shaw was a principal of Acadia Partners, L.P.,
an investment partnership, for three years. Mr. Shaw serves as a
director of Continental Micronesia, Inc., Favorite Brands
International, Inc., Ryanair PLC, Ducati Motors S.p.A and Ducati
North America, Inc.
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David L. Meyers, Executive Vice President, Administration
and Chief Financial Officer. Mr. Meyers joined the Company in
1989. He was elected Chief Financial Officer of both DMC and DMFC
in December 1992 and served as a member of the Board of Directors
of both DMC and DMFC from January 1994 until consummation of the
Recapitalization. Prior to joining the Company, Mr. Meyers held a
variety of financial and accounting positions with RJR Nabisco
(1987 to 1989), Nabisco Brands USA (1983 to 1987) and Standard
Brands, Inc. (1973 to 1983).
Glynn M. Phillips, Executive Vice President, Sales. Mr.
Phillips joined the Company in October 1994. Prior to joining the
Company, Mr. Phillips was Vice President, Sales of The Clorox
Company where he also held various sales and marketing positions
from 1973 to 1994.
Thomas E. Gibbons, Senior Vice President and Treasurer. Mr.
Gibbons joined the Company in 1969 and was elected to his current
position in February 1995. He was elected Vice President and
Treasurer of both DMC and DMFC in January 1990. Mr. Gibbons'
prior experience also includes a variety of positions within the
Company's and RJR Nabisco's tax and financial organizations.
William J. Spain, Senior Vice President, Technology. Mr.
Spain joined the Company in 1966 and was elected to his current
position in February 1995. Previously, he was Vice President,
Research, Government and Industry Relations of both DMC and DMFC.
Mr. Spain has also held various positions within the Company in
corporate affairs, production management, quality assurance,
environmental and energy management, and consumer services.
Richard L. French, Vice President and Chief Accounting
Officer. Mr. French joined the Company in 1980 and was elected to
his current position in August 1993. Mr. French was Controller
and Chief Accounting Officer of both DMC and DMFC from March 1990
through August 1993 and has held a variety of positions within
the Company's financial organization.
William R. Sawyers, Vice President, General Counsel and
Secretary. Mr. Sawyers joined both DMC and DMFC in November 1993
as Associate General Counsel and was appointed to his current
position in 1995. Prior to joining the Company, Mr. Sawyers was
an associate with the law firm of Shearman & Sterling from 1987
to 1993.
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Executive Compensation
The following table sets forth compensation paid by the
Company for fiscal years 1994, 1995 and 1996 to each individual
serving as its Chief Executive Officer during fiscal 1996 and to
each of the four other most highly compensated executive officers
of the Company as of the end of fiscal 1996.
Other
Annual
Name and Principal Fiscal Salary(1) Bonus Comp.(2)
Positions Year ($) ($) ($)
- ----------------- ------ --------- ----- --------
Brian E. Haycox 1996 420,673 -- --
Co-Chairman/Co-CEO(5)
Paul H. Mullan 1996 420,673 -- --
Co-Chairman/Co-CEO(5)
Robert W. D'Ornellas 1996 215,417 329,000 --
President and Chief
Executive 1995 530,000 -- --
Officer(6) 1994 366,250 315,000 --
David M. Little 1996 286,650 150,150 --
Executive Vice President 1995 309,500 -- --
Worldwide Operations 1994 200,000 97,500 --
David L. Meyers 1996 273,000 143,000 55,386
Executive Vice President 1995 302,500 -- --
Administration and Chief 1994 175,000 91,400 --
Financial Officer
Glynn M. Phillips 1996 225,750 118,250 --
Executive Vice President,
Sales 1995 158,907 -- --
1994 -- -- --
Thomas E. Gibbons 1996 175,600 63,900 --
Senior Vice President 1995 161,702 53,600 --
Treasurer 1994 153,033 69,100 --
Long Term
Compensation(3)
LTIP All Other
Name and Principal Fiscal Payouts Comp.(4)
Positions Year ($) ($)
- ----------------- ------ --------------- ---------
Brian E. Haycox 1996 -- 251,144
Co-Chairman/Co-CEO(5)
Paul H. Mullan 1996 -- 820,385
Co-Chairman/Co-CEO(5)
Robert W. D'Ornellas 1996 2,243,000 1,632,182
President and Chief
Executive 1995 1,122,000 19,880
Officer(6) 1994 -- 10,939
David M. Little 1996 421,000 10,660
Executive Vice President 1995 421,000 10,302
Worldwide Operations 1994 -- 7,620
David L. Meyers 1996 421,000 11,241
Executive Vice President 1995 421,000 139,624
Administration and Chief 1994 -- 6,522
Financial Officer
Glynn M. Phillips 1996 280,000 9,206
Executive Vice President,
Sales 1995 280,000 52,724
1994 -- --
Thomas E. Gibbons 1996 54,600 4,717
Senior Vice President 1995 50,400 4,500
Treasurer 1994 -- 4,500
- ----------------------
(1) Reflects actual base earnings for the fiscal year specified.
(2) Reflects certain perquisites, including moving expenses
($33,091) and company car ($15,500).
(3) Reflects payments under the Company's Management Equity Plan
and Long Term Incentive Plan.
(4) Reflects Company contributions to the Del Monte Corporation
Savings Plan, payment of term life insurance premiums,
payments under the Del Monte Corporation Additional Benefits
Plan, signing bonuses, relocation expenses and termination
payments.
(5) Mr. Haycox and Mr. Mullan became Co-Chairmen/Co-CEOs as of
December 11, 1995. Their service in this capacity terminated
with the consummation of the Recapitalization.
(6) Mr. D'Ornellas' employment as President and CEO was terminated
as of December 11, 1995.
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Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Number of Securities
Underlying Unexercised
Options At Fiscal Year End(1)
(#)
Name Exercisable/Unexercisable
---- -------------------------
Brian E. Haycox ................... ---
Paul H. Mullan .................... ---
Robert W. D'Ornellas .............. ---
David M. Little ................... 0/122
David L. Meyers ................... 0/122
Glynn M. Phillips ................. ---
Thomas E. Gibbons ................. 0/122
(1) Representing non-qualified options granted pursuant to the
Del Monte Corporation Management Stock Option Plan (the
"MSOP") with respect to shares of Class A Common Stock of the
Company. All options granted under the MSOP were
out-of-the-money as of the end of fiscal year 1996, and all
options under the plan expired on August 31, 1996.
Employment and Other Arrangements
The Management Equity Plan. Established beginning in fiscal
1995 and modified in March 1996, the Company's Management Equity
Plan ("MEP") provides awards to certain key executives upon the
sale of the Company or upon the public offering of the Company's
common stock. Under the terms of the MEP, the "Base Value" of the
Company's preferred and common stock is established at $125
million. To the extent that proceeds from the sale of the Company
to preferred and common stockholders (after repayment of debt but
without reduction for payment to executives under the MEP) exceed
the $125 million Base Value, an award pool of 6% of such excess
has been set aside for payment to the Company's executive
officers. The MEP was terminated concurrent with the
Recapitalization.
In connection with the Recapitalization, the Company made
payments aggregating $20 million pursuant to the MEP. This amount
was allocated as follows:
(Dollars in millions)
---------------------
Mr. Haycox ........................ $5
Mr. Mullan ........................ 5
Mr. Little ........................ 3
Mr. Meyers ........................ 3
Mr. Phillips ...................... 2
Other officers(1) ................. 2
- ----------------------
(1) Other officers includes Mr. Gibbons and 17 other senior officers.
Messrs. D'Ornellas, Meyers, Little and Phillips were
participants in the MEP prior to its modification in March 1996,
and as such became eligible for awards for fiscal 1995 based on
the annual equity growth formula in effect under the MEP for such
year. Messrs. Meyers, Little and Phillips were paid installment
payments of the pre-modification MEP awards in the amounts of
$421,000, $421,000 and $280,000, respectively, in June 1996 and
remained eligible for installment payment of the pre-modification
MEP awards in the amounts of $421,000, $421,000 and $280,000,
respectively, for fiscal 1997. The Company was obligated to pay
these fiscal 1997 awards at the time of the Recapitalization. Due
to his termination, Mr. D'Ornellas received the balance of his
MEP award of $2,243,000 in December 1995. Mr. D'Ornellas's right
to such additional installments terminated when he left the
Company's employ.
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Long Term Incentive Plan. Established on July 1, 1990,
amended and restated on July 1, 1995, the Long Term Incentive
Plan ("LTIP") provides certain key management employees with a
long-term incentive program based on Company performance. The
LTIP has a performance cycle of three (3) fiscal years with
interim award payments at the end of each fiscal year based on
employee's target award. The three year target award is
determined by multiplying (i) the executive's base pay by (ii) a
percentage based on salary grade level, and multiplying the
result by (iii) three (for each fiscal year in the performance
cycle). Interim awards are determined by comparing actual
financial performance compared to target goals and subject to a
percentage payout schedule. Mr. Gibbons received fiscal 1995 and
fiscal 1996 awards of $50,400 and $54,600, respectively. Mr.
Gibbons received the final fiscal 1997 award in the amount of
$210,000 at the time of the Recapitalization.
The Annual Incentive Award Plan. The Annual Incentive Award
Plan ("AIAP") provides annual cash bonuses to certain management
employees, including certain of the named senior executives. The
target bonus for each eligible employee is based on a percentage
of base salary. Actual payment amounts are based on the Company's
achievement of annual earnings objectives and individual
performance objectives at fiscal year end. The targeted
percentage of base salary is as follows: Mr. D'Ornellas - 70%,
Mr. Little - 50%, Mr. Meyers - 50%, Mr. Phillips - 50% and Mr.
Gibbons - 30%. For fiscal 1996, each of Messrs. Little, Meyers
and Phillips received 50% of his respective annual base salary as
a guaranteed payment under the AIAP. Mr. Haycox and Mr. Mullan
are not eligible for the AIAP.
Stock Purchase Plan. The Company intends to implement a
stock purchase plan under which specified key employees will be
permitted to purchase an aggregate amount of approximately $5
million in DMFC common stock at a price per share equal to the
purchase price paid by TPG.
Stock Option Plan. The Company intends to implement an
employee stock option plan providing for grants to employees of
options to purchase an aggregate of approximately 6% of the
outstanding common stock of DMFC.
The Del Monte Retirement Plan for Salaried Employees. The
Del Monte Corporation Retirement Plan for Salaried Employees (the
"Del Monte Corporation Retirement Plan"), which became effective
as of January 1, 1990, is a non-contributory defined benefit
retirement plan covering salaried employees of the Company and
its subsidiaries. Credits are made monthly to each participant's
personal retirement account ("PRA") consisting of a percentage of
that month's eligible compensation, plus interest on his or her
account balance. A participant is fully vested upon completion of
five years of service.
The percentage of monthly compensation credited varies
according to age as follows:
Monthly Compensation
All Monthly Above
Participant Age Compensation Social Security Base
- --------------- ------------ --------------------
Below 35 ........................... 4.0% 3.0%
35 but below 45 .................... 5.0% 3.0%
45 but below 55 .................... 6.0% 3.0%
55 and over ........................ 7.0% 3.0%
A participant's annual retirement benefit will be
determined by dividing the participant's account balance at
retirement by an annuity conversion factor of 8.2 if retirement
occurs at age 55 or older, with somewhat higher factors
applicable to retirement at ages 50-54. Alternatively, a
participant at retirement or other termination of employment may
elect a lump sum distribution of his or her account balance.
Participants who, as of January 1, 1988, were at least age
40 with ten or more years' service, or at least age 55 with five
or more years' service, are eligible to receive an alternative
retirement benefit that is based on the terms of the prior Del
Monte Corporation plan. For credited service after December 31,
1981, such participants have accrued an annual benefit of 1.75%
of average final compensation multiplied by years of credited
service. Average final compensation is the participant's highest
five years' average compensation during his or her last ten years
of
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credited service; compensation generally includes base salary and
awards under the AIAP but not other forms of incentive
compensation. The amount determined by this alternative benefit
formula is reduced by .75% of the participant's Social Security
benefit multiplied by years of credited service. For credited
service prior to January 1, 1982, a similar benefit formula is
applied.
The Del Monte Corporation Retirement Plan was amended
effective April 30, 1992 to cease recognition of any future
credited service or average final compensation under the
alternative retirement benefit. At retirement, a participant who
was eligible for the alternative retirement benefit will receive
an annual retirement benefit equal to the greater of the
retirement benefit determined by his or her PRA, or his or her
alternative retirement benefit based on compensation and credited
service to April 30, 1992. Alternatively, a participant may elect
the greater of a lump sum distribution of his or her PRA account
balance or the actuarial equivalent of his or her annual age 65
retirement benefit.
Nonqualified Retirement Plans. Effective January 1, 1990,
the Company established the Del Monte Corporation Additional
Benefits Plan and the Del Monte Corporation Supplemental Benefits
Plan (the "Nonqualified Retirement Plans"). The Nonqualified
Retirement Plans are "excess" and "top hat" benefit plans
designed to provide benefits in excess of those otherwise
permitted under the Del Monte Corporation Retirement Plan and the
Del Monte Corporation Savings Plan (which is qualified under
Section 401(k)) of the Internal Revenue Code) by Sections
401(a)(17) and 415 of the Internal Revenue Code. The Nonqualified
Retirement Plans also provide benefits in respect of certain
amounts of deferred compensation and severance not taken into
account under the Del Monte Corporation Retirement Plan or the
Del Monte Corporation Savings Plan. Employees who participate in
the Del Monte Corporation Retirement Plan or the Del Monte
Corporation Savings Plan are generally eligible to participate in
the Nonqualified Retirement Plans. Benefits under the
Nonqualified Retirement Plans are unfunded and paid from the
general assets of the Company.
Set forth below are the estimated annual benefits payable
at age 65 (assuming lump sum payments are not elected) under the
Del Monte Corporation Retirement Plan and the Nonqualified
Retirement Plans:
Year Attaining Estimated Annual
Participant Age 65 Retirement Benefit(a)
- ----------- ------ ---------------------
Mr. Haycox .................... 2007 $134,835
Mr. Mullan .................... 2010 194,605
Mr. Little .................... 2013 279,716
Mr. Phillips .................. 2002 37,288
Mr. Meyers .................... 2010 206,768
Mr. Gibbons ................... 2012 195,163
- ----------------------
(a) The estimated annual retirement benefits shown assumes no
increase in compensation or AIAP and interest credits (as defined
in the plans) of 5.5%.
Employment Arrangements. During fiscal 1996, the Company
had employment agreements with each of Messrs. Haycox, Mullan,
Meyers, Little, Phillips and Gibbons. The following summaries of
the material provisions of the employment agreements with Messrs.
Haycox and Mullan (each, a "CEO Agreement" and collectively, the
"CEO Agreements"), the employment agreements with Messrs. Meyers
and Little (each, an "EVP Employment Agreement" and collectively,
the "EVP Employment Agreements") and the employment agreement
with Mr. Phillips (the "Phillips Employment Agreement") do not
purport to be complete and are qualified in their entirety by
reference to such agreements. The employment of Messrs. Haycox
and Mullan pursuant to the CEO Agreements was terminated
effective as of April 18, 1997. The employment of Mr. Little
pursuant to his EVP Employment Agreement was terminated effective
as of April 30, 1997.
The CEO Agreements provide for an initial term ending on
December 31, 1997. Under the terms of the CEO Agreements, if an
executive is terminated for any reason other than for Cause (as
defined), if he resigns for
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Good Reason (as defined), or if his employment is terminated upon
a sale of the Company, he shall be entitled to a lump sum
payment, within 10 days of his termination, equal to the base
salary that he would have earned through December 31, 1997. The
executive will also receive any amounts due under the MEP, and
will continue to participate in any employee benefit plans and
programs maintained by the Company until the earlier of (1)
December 31, 1997, or (2) such time as he is covered by
comparable programs of a subsequent employer.
Each of the EVP Employment Agreements is for an indefinite
term and contains virtually identical terms. Specifically, each
EVP Employment Agreement provides that if the executive's
employment terminates for any reason other than for Cause (as
defined) or if the executive resigns for Good Reason (as
defined), such executive would receive as severance, subject to
the executive's not competing with the Company or disclosing
confidential information or trade secrets of the Company,
severance payments over a three-year period commencing on the
date of such termination or resignation. The aggregate amount of
the severance payable to the executive over such three-year
period would equal two times the sum of: (a) the executive's
highest annual base salary in effect during the twelve-month
period prior to such termination or resignation and (b) the
target award (50% of annual base salary) under the AIAP (or
successor thereto) for the year in which such termination or
resignation occurs (or, if greater, the amount of the award for
the next preceding year). In addition, the executive would
receive a pro rata annual bonus under the AIAP for the year in
which such termination or resignation occurs and would be
entitled to participate in the employee benefit plans and
programs maintained by the Company in which the executive
participates until the earlier of (i) the end of the three-year
period and (ii) such time as the executive is covered by
comparable programs of a subsequent employer.
The Phillips Employment Agreement is for an indefinite
term. The Phillips Employment Agreement provides that if Mr.
Phillips' employment terminates for any reason other than for
Cause (as defined) or if Mr. Phillips resigns for Good Reason (as
defined), Mr. Phillips would receive as severance three months of
his then current base pay. In addition, if Mr. Phillips executes
and delivers to the Company a written agreement confirming his
commitment not to compete with the Company and not to disclose
confidential information or trade secrets of the Company, the
Company would then provide Mr. Phillips severance payments over
an eighteen-month period commencing on the date of such
termination or resignation. The aggregate amount of the severance
payable to Mr. Phillips over such eighteen-month period would
equal the sum of (a) Mr. Phillips' highest annual rate of base
salary in effect during the twelve-month period prior to such
termination or resignation, and (b) the target award under the
AIAP (or successor thereto) for the year in which such
termination or resignation occurs (or, if greater, the amount of
the award for the next preceding year of employment). In
addition, Mr. Phillips would receive a pro rata annual bonus
under the AIAP for the year in which such termination or
resignation occurs and would be entitled to participate in the
employee benefit plans and programs maintained by the Company in
which Mr. Phillips participates until the earlier of (i) the end
of the eighteen-month period or (ii) such time as Mr. Phillips is
covered by comparable programs of a subsequent employer.
Mr. Gibbons' employment agreement is similar to that of Mr.
Phillips except that it does not require Mr. Gibbons to execute
an agreement not to compete or disclose confidential information
in order to receive severance payments over an eighteen-month
period.
The Company also intends to enter into an employment
agreement with each of Mr. Wolford and Mr. Smith, the terms of
which have not yet been set.
Under the Company policy in effect on June 30, 1996, each
non-employee director who was not affiliated with a shareholder
of the Company received $7,500 per quarter plus $1,000 for each
Board of Directors meeting attended in person.
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CAPITAL STOCK OF DMC AND DMFC
DMC is a wholly owned subsidiary of DMFC. DMFC does not
have any material assets other than the stock of DMC.
Immediately following the consummation of the
Recapitalization, the charter of DMFC authorized DMFC to issue
capital stock consisting of 1,000,000 shares of new common stock,
$.01 par value, and 1,000,000 shares of new preferred stock which
may be issued in multiple series, the terms, provisions and
preferences of which may be designated from time to time by the
Board of Directors of DMFC.
Immediately following the consummation of the
Recapitalization, DMFC issued and had outstanding 140,000 shares
of common stock, and 35,000 shares of Preferred Stock. TPG and
certain of its affiliates or partners hold 109,248 shares of
DMFC's common stock, certain investors who held shares of DMFC
stock prior to the Recapitalization currently hold 14,252 shares
of DMFC's common stock, and other investors hold 16,500 shares of
DMFC's common stock (including Westar Capital, which holds 5,000
shares, TCW Capital Investment Corporation ("TCW"), which holds
1,500 shares, BT Investment Partners, Inc., which holds 5,000
shares, BankAmerica Investment Corporation, which holds 4,500
shares and MIG Partners III, an affiliate of BankAmerica
Investment Corporation, which holds 500 shares). DMFC and the
holders of its common stock, in connection with the
Recapitalization, entered into a stockholders' agreement dated as
of April 18, 1997. See "Certain Relationships and Related
Transactions."
In addition, TPG and certain of its affiliates purchased
17,500 outstanding shares of Preferred Stock and TCW purchased
17,500 outstanding shares of Preferred Stock for aggregate
consideration of $35 million. The Preferred Stock will accumulate
dividends at the rate of 14% per annum, which dividends will be
payable in cash or additional shares of Preferred Stock, at the
option of DMFC, subject to availability of funds and the terms of
its loan agreements. The Preferred Stock has an initial
liquidation preference of $1,000 per share, and may be redeemed
at the option of DMFC, in whole at any time or in part from time
to time, at a redemption price equal to the liquidation
preference thereof plus accumulated and unpaid dividends to the
redemption date. DMFC will be required to redeem all outstanding
shares of Preferred Stock on April 18, 2008 at such redemption
price. DMFC also will be required to redeem shares of Preferred
Stock in certain other circumstances, including the occurrence of
a change of control of DMFC. Holders of Preferred Stock will not
have any voting rights with respect thereto, except for such
rights as are provided under applicable law, the right to elect,
as a class, two directors of DMFC in the event that six
consecutive quarterly dividends are in arrears and class voting
rights with respect to transactions adversely affecting the
rights, preferences or powers of the Preferred Stock. The initial
purchasers of the Preferred Stock have agreed with the Initial
Purchasers not to sell, assign or transfer such shares, for a
period of six months following their issuance, subject to certain
specified exceptions. In connection with the issuance and sale of
the Preferred Stock, the initial purchasers received a
transaction fee in an amount equal to 1% of the purchase price
paid by them for such shares, and warrants to purchase, at a
nominal exercise price, shares of DMFC common stock representing
2% of the outstanding shares of DMFC common stock on a fully
diluted basis.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Recapitalization, the Company
entered into a ten-year agreement (the "Management Advisory
Agreement") with TPG pursuant to which TPG is entitled to receive
from the Company (but, at its discretion, may waive) an annual
fee for management advisory services equal to the greater of
$500,000 and 0.05% of the budgeted consolidated net sales of the
Company. In addition, the Company has agreed to indemnify TPG,
its affiliates and shareholders, and their respective directors,
officers, agents, employees and affiliates from and against all
claims, actions, proceedings, demands, liabilities, damages,
judgments, assessments, losses and costs, including fees and
expenses, arising out of or in connection with the services
rendered by TPG thereunder. The Management Advisory Agreement
makes available the resources of TPG concerning a variety of
financial and operational matters. The services that will be
provided by TPG cannot otherwise be obtained by the Company
without the addition of personnel or the engagement of outside
professional advisors. In management's opinion, the fees provided
for under the Management Advisory Agreement reasonably reflect
the benefits to be received by the Company.
In connection with the Recapitalization, the Company also
entered into an agreement (the "Transaction Advisory Agreement")
with TPG pursuant to which TPG received a cash financial advisory
fee of approximately $8.4 million upon the closing of the
Recapitalization as compensation for its services as financial
advisor for the Recapitalization. TPG also is entitled to receive
(but, at its discretion, may waive) fees of up to 1.5% of the
"transaction value" for each subsequent transaction in which the
Company is involved. The term "transaction value" means the total
value of any subsequent transaction, including, without
limitation, the aggregate amount of the funds required to
complete the subsequent transaction (excluding any fees payable
pursuant to the Transaction Advisory Agreement and fees, if any,
paid to any other person or entity for financial advisory,
investment banking, brokerage or any other similar services
rendered in connection with such transaction) including the
amount of any indebtedness, preferred stock or similar items
assumed (or remaining outstanding). In management's opinion, the
fees provided for under the Transaction Advisory Agreement
reasonably reflect the benefits received and to be received by
the Company.
Also in connection with the Recapitalization, DMFC and the
holders of its common stock, including TPG and 399 Venture
Partners, Inc. ("399 Venture Partners"), entered into a
stockholders' agreement dated as of April 18, 1997 (the
"Stockholders' Agreement"). Among other things, the Stockholders'
Agreement (i) imposes certain restrictions on the transfer of
shares of DMFC common stock and (ii) gives such holders
registration rights under certain circumstances. DMFC will bear
the costs of preparing and filing any such registration statement
and will indemnify and hold harmless, to the extent customary and
reasonable, holders selling shares covered by such a registration
statement.
As set forth in the Merger Agreement, an affiliate of 399
Venture Partners, and certain current and former employees of an
affiliate of 399 Venture Partners, received approximately $7.9
million, and $215,000, respectively, in return for shares of DMFC
preferred stock which were surrendered and were cancelled by
virture of the Merger. Since the beginning of fiscal 1996, in
connection with the PIK Note exchange offer and the refinancing
activity relating to the 1995 Senior Debt, the Company has also
paid fees and made other payments to affiliates of 399 Venture
Partners totaling approximately $442,000. In addition, in
connection with the Recapitalization, the Company paid to 399
Venture Partners a transaction fee of approximately $900,000.
The employment of Mr. Haycox pursuant to the CEO Agreement
was terminated effective as of April 18, 1997. Mr. Haycox will
continue to receive the salary that he would have earned pursuant
to the CEO Agreement until August 1997. In August 1997, the
Company will pay to Mr. Haycox a lump sum payment of salary. Such
lump sum payment will be in an amount equal to the base salary
that Mr. Haycox would have earned pursuant to the CEO Agreement
between the date the lump sum payment is made and December 31,
1997.
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THE BANK FINANCING
General
DMC entered into the Credit Agreement concurrently with the
Recapitalization. Proceeds of the Term Loan Facility and the
Revolving Credit Facility were used to satisfy the funding
requirements of the Recapitalization and to provide for the
working capital and other general corporate requirements of DMC.
Most of DMC's existing indebtedness was repaid in the
Recapitalization and, except as otherwise noted, was replaced by
the Revolving Credit Facility and Term Loan Facility summarized
below.
The Term Loan Facility provides for term loans in the
aggregate amount of $380 million, consisting of a $200 million
Tranche A term loan and a $180 million Tranche B term loan. The
Revolving Credit Facility provides for revolving loans in an
aggregate amount of $350 million, and includes a letter of credit
sublimit of $70 million and a "swingline" sublimit of $25 million
(representing funds that DMC may borrow with only limited advance
notice). Amounts available under the Revolving Credit Facility
also are subject to certain borrowing base limitations based
upon, among other things, the amounts and applicable advance
rates in respect of DMC's eligible accounts receivable and
eligible inventory.
Interest Rates; Fees
The interest rates per annum applicable to amounts
outstanding under the Tranche A term loan and the Revolving
Credit Facility are, at DMC's option, either (i) the base rate as
defined in the Credit Agreement (the "Base Rate") plus 1.25% per
annum (the "Applicable Base Rate Margin") or (ii) the reserve
adjusted offshore rate as defined in the Credit Agreement (the
"Offshore Rate") plus 2.25% per annum (the "Applicable Offshore
Rate Margin"). Upon attainment of certain leverage ratios, as set
forth in the Credit Agreement, such Applicable Base Rate Margin
and Applicable Offshore Rate Margin, as well as the Commitment
Fee (as defined) and the Letter of Credit Fees (as defined), will
be adjusted.
Interest rates on the Tranche B loan are, at DMC's option,
either (i) the Base Rate plus 2.00% per annum or (ii) the
Offshore Rate plus 3.00% per annum. Loans outstanding under the
swingline portion of the Revolving Credit Facility bear interest
at the Base Rate plus 1.00% per annum. Interest amounts
outstanding during the continuance of Events of Default (as
defined in the Credit Agreement) will accrue at the Base Rate
plus the applicable margin plus an additional 2.00% per annum,
and will be payable on demand.
In addition, DMC is required to pay the lenders under the
Revolving Credit Facility a commitment fee (the "Commitment Fee")
of 0.50% per annum, payable quarterly in arrears, on the unused
portion of such Facility. DMC is also required to pay the lenders
under the Revolving Credit Facility letter of credit fees
(collectively, the "Letter of Credit Fees") of 1.75% per annum
for commercial letters of credit and 2.25% per annum for all
other letters of credit, as well as an additional fee in the
amount of 0.25% per annum to the bank issuing such letters of
credit.
Amortization; Prepayments
The Tranche A loan matures six years after the consummation
of the Recapitalization (the "Closing") and is subject to
amortization, commencing in the first quarter of fiscal 1999, on
a quarterly basis of $7.50 million per quarter during fiscal
1999, $8.75 million per quarter during fiscal 2000, $10.00
million per quarter during fiscal 2001, $11.25 million per
quarter during fiscal 2002 and $16.67 million per quarter for the
first three quarters of fiscal 2003. The Tranche B loan matures
eight years following the Closing. The Tranche B loan is subject
to amortization commencing at the end of DMC's third quarter in
fiscal 1998, in the amount of $450,000 per quarter, with such
payments increasing to $42.19 million per quarter in the fourth
quarter of fiscal 2004 and the first three quarters of fiscal
2005. The Revolving Credit Facility will mature six years after
the Closing. DMC will be required to make certain prepayments,
subject to certain exceptions, of the outstanding amounts under
the Term Facility and the Revolving Credit Facility from excess
cash flow, asset sales, issuances of debt and equity securities
and insurance or condemnation proceeds. Amounts under the Credit
Agreement may be prepaid at DMC's option without premium or
penalty.
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Guarantees and Collateral
DMFC has guaranteed DMC's obligations under the Credit
Agreement. DMC's obligations are secured by substantially all
personal property of DMC. DMFC's guarantee is secured by a pledge
of the stock of DMC. DMC's obligations also are secured by first
priority liens on certain of its unencumbered real property fee
interests.
Covenants
Pursuant to the terms of the Credit Agreement, DMC is
required to meet certain financial tests, including minimum
levels of consolidated EBITDA (as defined in the Credit
Agreement), minimum fixed charge coverage, minimum adjusted net
worth and maximum leverage ratios. In addition, DMC has
covenanted that, among other things, it will limit the incurrence
of additional indebtedness, dividends, transactions with
affiliates, asset sales, acquisitions, mergers, prepayment of
other indebtedness, liens and encumbrances and other matters
customarily restricted in loan agreements. See "Risk
Factors--Restrictive Debt Covenants."
Events of Default
The Credit Agreement contains customary events of default,
including payment defaults, breach of representations and
warranties, covenant defaults, cross-defaults, certain events of
bankruptcy and insolvency, ERISA judgment defaults, failure of
any guaranty or security agreement supporting DMC's obligations
under the Credit Agreement to be in full force and effect and a
change of control of DMFC or DMC.
Other Long-Term Debt
DMC's other significant long-term debt consists of a $1
million obligation due December 1, 1997, in connection with a
1977 warehouse financing using industrial development bonds
issued by the Village of Plover, Wisconsin which bears interest,
paid semiannually, at 6.0% per annum.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the
Registration Rights Agreement does not purport to be complete and
reference is made to the provisions of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration
Statement and a copy of which is available as set forth under the
heading "Available Information."
Terms of the Exchange Offer
General
In connection with the issuance of the Old Notes pursuant
to a Purchase Agreement dated as of April 15, 1997, by and among
DMC, DMFC and the Initial Purchasers, the Initial Purchasers and
their respective assignees became entitled to the benefits of the
Registration Rights Agreement.
Under the Registration Rights Agreement, DMC and DMFC are
required to file within 60 days after April 18, 1997 (the date
the Old Notes were issued (the "Issue Date")) the Registration
Statement of which this Prospectus is a part for a registered
exchange offer with respect to an issue of new notes identical in
all material respects to the Old Notes except that the new notes
shall contain no restrictive legend thereon. Under the
Registration Rights Agreement, DMC and DMFC are required to use
their respective best efforts to (i) cause the Registration
Statement to become effective within 135 days after the Issue
Date, (ii) keep the Exchange Offer open for at least 30 days (or
longer if required by applicable law) after the date that notice
of the Exchange Offer is mailed to holders of the Old Notes and
(iii) consummate the Exchange Offer on or prior to the 60th day
following the date on which the Registration Statement is
declared effective by the Commission. The Exchange Offer being
made hereby, if commenced and consummated within the time periods
described in this paragraph, will satisfy those requirements
under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in
this Prospectus and in the Letter of Transmittal, all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date will be accepted for exchange.
New Notes of the same class will be issued in exchange for an
equal principal amount of outstanding Old Notes accepted in the
Exchange Offer. Old Notes may be tendered only in integral
multiples of $1,000. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of
June 26, 1997. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered in exchange.
However, the obligation to accept Old Notes for exchange pursuant
to the Exchange Offer is subject to certain conditions as set
forth herein under "--Conditions."
Old Notes shall be deemed to have been accepted as validly
tendered when, as and if the Trustee has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act
as agent for the tendering holders of Old Notes for the purposes
of receiving the New Notes and delivering New Notes to such
holders.
Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, including
the Exchange Offer No-Action Letters, DMC and DMFC believe that
the New Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by each
holder thereof (other than a broker-dealer who acquires such New
Notes directly from DMC or DMFC for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under
the Securities Act and other than any holder that is an
"affiliate" (as defined in Rule 405 under the Securities Act) of
DMC or DMFC) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not engaged in, and does not
intend to engage in, a distribution of such New Notes and has no
arrangement with any person to participate in a distribution of
such New Notes. By tendering the Old Notes in exchange for New
Notes, each holder, other than a broker-dealer, will represent to
DMC and DMFC that: (i) it is not an affiliate (as defined in Rule
405 under the Securities Act) of DMC or DMFC; (ii) it is not a
broker-dealer tendering Old Notes acquired for its own account
directly from DMC or DMFC; (iii) any New Notes to be received by
it will be acquired in the ordinary course of its business; and
(iv) it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no
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arrangement or understanding to participate in a distribution of
the New Notes. If a holder of Old Notes is engaged in or intends
to engage in a distribution of the New Notes or has any
arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such
holder may not rely on the applicable interpretations of the
staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each
Participating Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection
with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other
trading activities. DMC and DMFC have agreed that they will make
this Prospectus available to any Participating Broker-Dealer for
a period of time not to exceed 180 days after the Registration
Statement is declared effective (subject to extension under
certain circumstances) for use in connection with any such
resale. See "Plan of Distribution."
In the event that (i) any changes in law or the applicable
interpretations of the staff of the Commission do not permit DMC
and DMFC to effect the Exchange Offer, (ii) the Exchange Offer is
not consummated with 180 days of the Issue Date, (iii) in certain
circumstances, certain holders of unregistered New Notes so
request, or (iv) in the case of any of holder of Old Notes that
participates in the Exchange Offer, such holder does not receive
New Notes on the date of the exchange that may be sold without
restriction under the federal securities laws (other than due
solely to the status of such holder as an affiliate of DMC or
DMFC within the meaning of the Securities Act), then in the case
of clauses (i) through (iv) of this sentence, DMC and DMFC shall
(x) promptly deliver to the holders of Old Notes and the Trustee
written notice thereof and (y) at their sole expense, (a) as
promptly as practicable, file with the Commission a shelf
registration statement (the "Shelf Registration Statement")
covering resales of the Old Notes, (b) use their best efforts to
cause the Shelf Registration Statement to be declared effective
under the Securities Act and (c) use their best efforts to keep
effective the Shelf Registration Statement until the earlier of
three years after Issue Date (subject to extension under certain
circumstances) or such time as all of the applicable Old Notes
have been sold thereunder. DMC will, in the event that a Shelf
Registration Statement is filed, provide to each holder of the
Old Notes copies of the prospectus that is a part of the Shelf
Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of
the New Notes. A holder that sells Old Notes pursuant to the
Shelf Registration Statement will be required to be named as a
selling security holder in the related prospectus and to deliver
a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such a
holder (including certain indemnification rights and
obligations).
If DMC and DMFC fail to comply with the above provision or
if the Registration Statement or the Shelf Registration Statement
fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest") shall become
payable in respect of the Old Notes as follows:
(i) if (A) neither the Registration Statement nor the
Shelf Registration Statement is filed with the Commission
within 60 days following the Issue Date or (B)
notwithstanding that DMC and DMFC have consummated or will
consummate an Exchange Offer, DMC and DMFC are required to
file a Shelf Registration Statement and such Shelf
Registration Statement is not filed on or prior to the date
required by the Registration Rights Agreement, then
commencing on the day after either such required filing
date, Additional Interest shall accrue on the principal
amount of the Old Notes at a rate of .50% per annum for the
first 90 days immediately following each such filing date,
such Additional Interest rate increasing by an additional
.50% per annum at the beginning of each subsequent 90-day
period; or
(ii) if (A) neither the Registration Statement nor a
Shelf Registration Statement is declared effective by the
Commission within 135 days following the Issue Date or (B)
notwithstanding that DMC and DMFC have consummated or will
consummate an Exchange Offer, DMC and DFMC are required to
file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the
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Commission on or prior to the 60th day following the date
such Shelf Registration Statement was filed, then,
commencing on the day after either such required effective
date, Additional Interest shall accrue on the principal
amount of the Old Notes at a rate of .50% per annum for the
first 90 days immediately following such date, such
Additional Interest rate increasing by an additional .50%
per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) DMC and DMFC have not exchanged New Notes
for all Old Notes validly tendered in accordance with the
terms of the Exchange Offer on or prior to the 45th day
after the date on which the Registration Statement was
declared effective or (B) if applicable, the Shelf
Registration Statement has been declared effective and such
Shelf Registration Statement ceases to be effective at any
time prior to the third anniversary of the Issue Date
(other than after such time as all Old Notes have been
disposed of thereunder), then Additional Interest shall
accrue on the principal amount of the Old Notes at a rate
of .50% per annum for the first 90 days commencing on (x)
the 46th day after such effective date, in the case of (A)
above, or (y) the day such Shelf Registration Statement
ceases to be effective in the case of (B) above, such
Additional Interest rate increasing by an additional .50%
per annum at the beginning of each subsequent 90-day
period;
provided, however, that the Additional Interest rate on the Old
Notes may not exceed in the aggregate 1.0% per anum; provided,
further, however, that (1) upon the filing of the Registration
Statement or a Shelf Registration Statement (in the case of
clause (i) above), (2) upon the effectiveness of the Registration
Statement or a Shelf Registration Statement (in the case of
clause (ii) above), or (3) upon the exchange of New Notes for all
Old Notes tendered (in the case of clause (iii)(A) above), or
upon the effectiveness of the Shelf Registration Statement which
had ceased to remain effective (in the case of clause (iii)(B)
above), Additional Interest on the Old Notes as a result of such
clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause
(i), (ii) or (iii) above will be payable in cash on the original
interest payment dates specified with respect to the Old Notes.
Upon consummation of the Exchange Offer, subject to certain
exceptions, holders of Old Notes who do not exchange their Old
Notes for New Notes in the Exchange Offer will no longer be
entitled to registration rights and will not be able to offer or
sell their Old Notes, unless such Old Notes are subsequently
registered under the Securities Act (which, subject to certain
limited exceptions, the Company will have no obligation to do),
except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities
laws. See "Risk Factors--Risk Factors Relating to the
Notes--Consequences of Failure to Exchange."
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean July 31, 1997 (30
calendar days following the commencement of the Exchange Offer),
unless the Exchange Offering is extended if and as required by
applicable law, in which case the term "Expiration Date" shall
mean the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will
notify the Exchange Agent of any extension by oral or written
notice and will notify the holders of the Old Notes by means of a
press release or other public announcement prior to 9:00 A.M.,
New York City time, on the next business day after the previously
scheduled Expiration Date.
DMC and DMFC reserve the right (i) to delay acceptance of
any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer and not permit acceptance of Old Notes not
previously accepted if any of the conditions set forth herein
under "-- Conditions" shall have occurred and shall not have been
waived by DMC and DMFC, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent, or (ii) to
amend the terms of the Exchange Offer in any manner deemed by it
to be advantageous to the holders of the Old Notes. Any such
delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice
thereof to the Exchange Agent. If the Exchange Offer is amended
in a manner
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determined by DMC to constitute a material change, DMC will
promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Old Notes of such
amendment.
Without limiting the manner in which DMC and DMFC may
choose to make public announcement of any delay, extension,
amendment or termination of the Exchange Offer, DMC and DMFC
shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement.
Interest on the New Notes
The New Notes will accrue interest at the applicable per
annum rate set forth on the cover page of this Prospectus, from
(A) the later of (i) the last interest payment date on which
interest was paid on the Old Notes surrendered in exchange
therefor or (ii) if the Old Notes are surrendered for exchange on
a date subsequent to the record date for an interest payment date
to occur on or after the date of such exchange and as to which
interest will be paid, the date of such interest payment or (B)
if no interest has been paid on the Old Notes, from the Issue
Date of such Old Notes. Interest on the New Notes is payable on
April 15 and October 15 of each year.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter
of Transmittal, and mail or otherwise deliver such Letter of
Transmittal or such facsimile, together with any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder
must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION
AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL
OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Delivery of all
documents must be made to the Exchange Agent at its address set
forth below. Holders may also request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect
such tender for such holders.
The tender by a holder of Old Notes will constitute an
agreement between such holder and DMC in accordance with the
terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the
Exchange Offer. The term "holder" with respect to the Exchange
Offer means any person in whose name Old Notes are registered on
the books of DMC or any other person who has obtained a properly
completed bond power from the registered holder.
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact such registered
holder promptly and instruct such registered holder to tender on
his behalf. If such beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register ownership of the
Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by any member
firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial
bank or trust company having an office or correspondent in the
United States or an "eligible
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guarantor" institution within the meaning of Rule 17Ad-15 under
the Exchange Act (each an "Eligible Institution") unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other
than the registered holder of any Old Notes listed therein, such
Old Notes must be endorsed or accompanied by bond powers and a
proxy which authorizes such person to tender the Old Notes on
behalf of the registered holder, in each case as the name of the
registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond
powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons
should so indicate when signing, and unless waived by DMC,
evidence satisfactory to DMC of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility
(including time of receipt) and withdrawal of the tendered Old
Notes will be determined by DMC in its sole discretion, which
determination will be final and binding. DMC reserves the
absolute right to reject any and all Old Notes not properly
tendered or any Old Notes which, if accepted, would, in the
opinion of counsel for DMC, be unlawful. DMC also reserves the
absolute right to waive any irregularities or conditions of
tender as to particular Old Notes. DMC's interpretation of the
terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be
cured within such time as DMC shall determine. Neither DMC, DMFC,
the Exchange Agent nor any other person shall be under any duty
to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned
without cost to such holder by the Exchange Agent to the
tendering holders of Old Notes, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, DMC reserves the right in its sole discretion,
subject to the provisions of the Indenture, to (i) purchase or
make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date or, as set forth under "-- Conditions", to
terminate the Exchange Offer in accordance with the terms of the
Registration Rights Agreement and (ii) to the extent permitted by
applicable law, purchase Old Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the
Exchange Offer.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, all Old Notes properly tendered will be accepted,
promptly after the Expiration Date, and the New Notes will be
issued promptly after acceptance of the Old Notes. See
"--Conditions" below. For purposes of the Exchange Offer, Old
Notes shall be deemed to have been accepted as validly tendered
for exchange when, as and if DMC has given oral or written notice
thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of certificates
for such Old Notes or a timely Book-Entry Confirmation of such
Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount than the holder desires
to exchange, such unaccepted or nonexchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer procedures
described below, such nonexchanged Old Notes will be credited to
an account
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maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange
Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an
account with respect to the Old Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business
days after the date of this Prospectus. Any financial institution
that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures
for transfer. However, although delivery of Old Notes may be
effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof with any
required signature guarantees and any other required documents
must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "-- Exchange
Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
Guaranteed Delivery Procedures
If a registered holder of the Old Notes desires to tender
such Old Notes, and the Old Notes are not immediately available,
or time will not permit such holder's Old Notes or other required
documents to reach the Exchange Agent before the Expiration Date,
or the procedures for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by DMC (by facsimile
transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered
Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may
be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal of Tenders
Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent prior to 5:00
p.m., New York City time on the Expiration Date at one of the
addresses set forth below under "--Exchange Agent." Any such
notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes)
and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates
for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates,
the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility to
be credited with the withdrawn Old Notes and otherwise comply
with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of
such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old
Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but
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which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to
the book-entry transfer procedures described above, such Old
Notes will be credited to an account maintained with such
Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination
of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under
"--Procedures for Tendering" and "--Book-Entry Transfer" above at
any time on or prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, Old
Notes will not be required to be accepted for exchange, nor will
New Notes be issued in exchange for any Old Notes, and DMC or
DMFC may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if because of any change
in law, or applicable interpretations thereof by the Commission,
DMC or DMFC determines that it is not permitted to effect the
Exchange Offer. DMC and DMFC have no obligation to, and will not
knowingly, permit acceptance of tenders of Old Notes from
affiliates of DMC or DMFC (within the meaning of Rule 405 under
the Securities Act) or from any other holder or holders who are
not eligible to participate in the Exchange Offer under
applicable law or interpretations thereof by the Commission, or
if the New Notes to be received by such holder or holders of Old
Notes in the Exchange Offer, upon receipt, will not be tradable
by such holder without restriction under the Securities Act and
the Exchange Act and without material restrictions under the
"blue sky" or securities laws of substantially all of the states
of the United States.
Exchange Agent
Bankers Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and
requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent
addressed as follows:
By Mail: By Hand:
-------- --------
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Receipt & Delivery Window
P.O. Box 292737 123 Washington Street, 1st Floor
Nashville, TN 37229-2737 New York, NY 10006
By Overnight Mail or Courier:
-----------------------------
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
For information call:
(800) 735-7777
Confirm: (615) 835-3572
Facsimile: (615) 835-3701
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange
Offer will be borne by DMC and DMFC. The principal solicitation
for tenders pursuant to the Exchange Offer is being made by mail;
however, additional solicitations may be made by telegraph,
telephone, telecopy or in person by officers and regular
employees of the Company.
Neither DMC nor DMFC will make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange
Offer. DMC and DMFC, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. DMC and DMFC may also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of
the Prospectus and related documents to the beneficial owners of
the Old Notes, and in handling or forwarding tenders for
exchange.
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The expenses to be incurred in connection with the Exchange
Offer will be paid by DMC and DMFC, including fees and expenses
of the Exchange Agent and Trustee and accounting, legal, printing
and related fees and expenses.
DMC and DMFC will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, certificates representing New Notes or Old
Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the
name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by
the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
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DESCRIPTION OF THE NEW NOTES
The Old Notes were issued, and the New Notes offered hereby
will be issued under an indenture dated as of April 18, 1997 (the
"Indenture") by and among DMC (as issuer), DMFC (as guarantor)
and Marine Midland Bank (as trustee, the "Trustee"), a copy of
the form of which is available from the Trustee. The following
summary of the material provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as
amended (the "TIA"), and the provisions of the Indenture,
including the definitions of certain terms contained therein. For
definitions of certain capitalized terms used in the following
summary, see "Certain Definitions." For purposes of this section,
references to DMC include only Del Monte Corporation and not its
Subsidiaries.
General
The New Notes will be issued in fully registered form only,
without coupons, in denominations of $1,000 and integral
multiples thereof. Initially, Bankers Trust Company will act as
Paying Agent and Registrar for the New Notes. The New Notes may
be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be at Bankers
Trust Company's office at 4 Albany Street, New York, New York
10006. DMC may change any Paying Agent and Registrar without
notice to holders of the New Notes (the "Holders"). DMC will pay
principal (and premium, if any) on the New Notes at Bankers Trust
Company's office at the above address. At DMC's option, interest
may be paid at Bankers Trust Company's office at the above
address or by check mailed to the registered address of Holders.
Any Old Notes that remain outstanding after the completion of the
Exchange Offer, together with the New Notes issued in connection
with the Exchange Offer, will be treated as a single class of
securities under the Indenture.
The New Notes will be general unsecured obligations of DMC
and will be subordinated in right of payment to all existing and
future Senior Debt of DMC. As of March 31, 1997, on a pro forma
basis and after giving effect to the Recapitalization, DMC would
have had approximately $511 million of Senior Debt outstanding
(exclusive of unused commitments of $194 million).
Principal, Maturity and Interest
The New Notes are limited in aggregate principal amount to
$150 million and will mature on April 15, 2007. Interest on the
New Notes will accrue at the rate of 12 1/4% per annum and will be
payable semiannually in cash on each April 15 and October 15, to
the persons who are registered Holders at the close of business
on the April 1 and October 1 immediately preceding the applicable
interest payment date. Interest on the New Notes will accrue from
(A) the later of (i) the last interest payment date on which
interest was paid on the Old Notes surrendered in exchange
therefor or (ii) if the Old Notes are surrendered for exchange on
a date subsequent to the record date for an interest payment date
to occur on or after the date of such exchange and as to which
interest will be paid, the date of such interest payment or (B)
if no interest has been paid on the Old Notes, from the Issue
Date (as defined herein) of such Old Notes.
The New Notes will not be entitled to the benefit of any
mandatory sinking fund.
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Redemption
Optional Redemption. The New Notes will be redeemable, at
DMC's option, in whole at any time or in part from time to time,
on and after April 15, 2002, upon not less than 30 nor more than
60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on April 15 of the year set
forth below, plus, in each case, accrued and unpaid interest
thereon, if any, to the date of redemption:
Year Percentage
---- ----------
2002 ............................. 106.313%
2003 ............................. 104.734%
2004 ............................. 103.156%
2005 ............................. 101.578%
2006 and thereafter .............. 100.000%
Optional Redemption upon Public Equity Offerings. At any
time, or from time to time, on or prior to April 15, 2000, DMC
may, at its option, use the net cash proceeds of one or more
Public Equity Offerings to redeem up to 35% of the aggregate
principal amount of New Notes originally issued at a redemption
price equal to 112.625% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of
redemption; provided that at least 65% of the principal amount of
New Notes originally issued remains outstanding immediately after
any such redemption. In order to effect the foregoing redemption
with the proceeds of any Public Equity Offering, DMC will make
such redemption not more than 120 days after the consummation of
any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity
Offering" means an underwritten public offering of Qualified
Capital Stock of DMFC or DMC pursuant to a registration statement
filed with the Commission in accordance with the Securities Act;
provided that, in the event of a Public Equity Offering by DMFC,
DMFC contributes to the capital of DMC the portion of the net
cash proceeds of such Public Equity Offering necessary to pay the
aggregate redemption price (plus accrued interest to the
redemption date) of the New Notes to be redeemed pursuant to the
preceding paragraph.
Optional Redemption upon a Change of Control on or prior to
April 15, 2002. At any time on or prior to April 15, 2002, the
New Notes may also be redeemed as a whole at the option of DMC
upon the occurrence of a Change of Control, upon not less than 30
nor more than 60 days' prior notice (but in no event more than 90
days after the occurrence of such Change of Control) mailed by
first-class mail to each Holder's registered address, at a
redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium as of, and accrued and unpaid
interest, if any, to the date of redemption (the "Redemption
Date") (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest
payment date).
"Applicable Premium" means, with respect to a New Note at
any Redemption Date, the greater of (i) 1.0% of the principal
amount of such New Note and (ii) the excess of (A) the present
value at such time of (1) the redemption price of such New Note
at April 15, 2002 (such redemption price being described under
"--Optional Redemption") plus (2) all required interest payments
due on such New Note through April 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 1.0% per annum,
over (B) the principal amount of such New Note.
"Treasury Rate" means the yield to maturity at the time of
computation of U.S. Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve
Release H.15 (519) which has become publicly available at least
two Business Days prior to the Redemption Date (or, if such
Statistical Release is no longer published, any publicly
available source or similar market data)) closest to the period
from the Redemption Date to April 15, 2002, provided, however,
that if the period from the Redemption Date to April 15, 2002, is
not equal to the constant maturity of a U.S. Treasury security
for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of one year) from the weekly average yields
of U.S. Treasury securities for which such yields are given,
except that if the period from the
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Redemption Date to April 15, 2002, is less than one year, the
weekly average yield on actually traded U.S. Treasury securities
adjusted to a constant maturity of one year shall be used.
Selection and Notice of Redemption
In the event that less than all of the New Notes are to be
redeemed at any time, selection of such New Notes for redemption
will be made by the Trustee in compliance with the requirements
of the principal national securities exchange, if any, on which
such New Notes are listed or, if such New Notes are not then
listed on a national securities exchange, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no New Notes of a principal
amount of $1,000 or less shall be redeemed in part; provided,
further, that if a partial redemption is made with the proceeds
of a Public Equity Offering, selection of the New Notes or
portions thereof for redemption shall be made by the Trustee only
on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to applicable DTC procedures), unless such
method is otherwise prohibited. Notice of redemption shall be
mailed by first-class mail at least 30 but not more than 60 days
before the redemption date to each Holder of New Notes to be
redeemed at its registered address. If any New Note is to be
redeemed in part only, the notice of redemption that relates to
such New Note shall state the portion of the principal amount
thereof to be redeemed. A new note in a principal amount equal to
the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original New Note. On and
after the redemption date, interest will cease to accrue on New
Notes or portions thereof called for redemption as long as DMC
has deposited with the Paying Agent funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
Guarantee
The obligations of DMC pursuant to the New Notes, including
the repurchase obligation resulting from a Change in Control,
will be unconditionally guaranteed on a senior subordinated basis
(the "Guarantee") by DMFC. Pursuant to the Indenture, DMFC may
consolidate with, merge with or into, or transfer all or
substantially all its assets to any other Person to the extent
described below under "--Certain Covenants--Merger, Consolidation
and Sales of Assets of Guarantor;" provided, however, that if
such other Person is not DMC, DMFC's obligations under the
Guarantee must be expressly assumed by such other Person.
However, upon the sale or other disposition (including by way of
consolidation or merger) of DMFC or the sale or disposition of
all or substantially all the assets of DMFC (in each case other
than to DMC or an Affiliate of DMC) permitted by the Indenture,
DMFC will be released and relieved from all its obligations under
the Guaranty.
The only material asset of DMFC is the stock of DMC.
In addition, Restricted Subsidiaries may be required to
issue Guarantees to the extent described below under "--Certain
Covenants--Limitation on Guarantees by Restricted Subsidiaries."
Ranking
The New Notes will be unsecured senior obligations of DMC,
and the indebtedness evidenced by the New Notes will rank pari
passu in right of payment with all other existing and future
unsubordinated obligations of DMC and senior in right of payment
to all existing and future obligations of DMC expressly
subordinated in right of payment to the New Notes. The payment of
all Obligations on the New Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents
of all Obligations on or in respect of Senior Debt. Upon any
payment or distribution of assets of DMC of any kind or character
to creditors, whether in cash, property or securities, upon any
liquidation, dissolution, winding up, reorganization, assignment
for the benefit of creditors or marshaling of assets of DMC or in
a bankruptcy, reorganization, insolvency, receivership or other
similar proceeding relating to DMC or its property, whether
voluntary or involuntary, all Obligations due or to become due
upon all Senior Debt shall first be paid in full in cash or Cash
Equivalents, or such payment duly provided for to the
satisfaction of the holders of Senior Debt, before any payment or
distribution of any kind or character is made on account of any
Obligations on the New Notes, or for the acquisition of any of
the New Notes for cash or property or otherwise.
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If any default occurs and is continuing in the payment when
due, whether at maturity, upon any redemption, by declaration or
otherwise, of any principal of, interest on, unpaid drawings for
letters of credit issued in respect of, or regularly accruing
fees with respect to, any Senior Debt, no payment of any kind or
character shall be made by or on behalf of DMC or any other
Person on its or their behalf with respect to any Obligations on
the New Notes or to acquire any of the Notes for cash or property
or otherwise.
In addition, if any other event of default occurs and is
continuing with respect to any Designated Senior Debt, as such
event of default is defined in the instrument creating or
evidencing such Designated Senior Debt, permitting the holders of
such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective
issue of Designated Senior Debt gives written notice of the event
of default to the Trustee and each Paying Agent (a "Default
Notice"), then, unless and until all events of default have been
cured or waived or have ceased to exist or the Trustee and each
Paying Agent receives notice from the Representative for the
respective issue of Designated Senior Debt terminating the
Blockage Period (as defined below), during the 179 days after the
delivery of such Default Notice (the "Blockage Period"), neither
DMC nor any other Person on its behalf shall (x) make any payment
of any kind or character with respect to any Obligations on the
New Notes or (y) acquire any of the New Notes for cash or
property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 180
days from the date the payment on the New Notes was due and only
one such Blockage Period may be commenced within any 360
consecutive days. No event of default which existed or was
continuing on the date of the commencement of any Blockage Period
with respect to the Designated Senior Debt shall be, or be made,
the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Debt whether or not
within a period of 360 consecutive days, unless such event of
default shall have been cured or waived for a period of not less
than 90 consecutive days (it being acknowledged that any
subsequent action or any breach of any financial covenants for a
period commencing after the date of commencement of such Blockage
Period that, in either case, would give rise to an event of
default pursuant to any provisions under which an event of
default previously existed or was continuing shall constitute a
new event of default for this purpose).
The obligations of DMFC under the Guarantee, and the
obligations of the Restricted Subsidiaries under any Guarantees
that may be issued, are subordinated in right of payment to the
obligations of such Persons under any Senior Debt (including any
guarantees constituting Senior Debt) on terms substantially
identical to those described above.
By reason of such subordination, in the event of the
insolvency of DMC, creditors of DMC who are not holders of Senior
Debt, including the Holders of the New Notes, may recover less,
ratably, than holders of Senior Debt.
As of March 31, 1997, on a pro forma basis after giving
effect to the Recapitalization (other than the Offering), DMC
would have had approximately $511 million of Senior Debt
outstanding (exclusive of unused commitments of $194 million).
Change of Control
The Indenture will provide that upon the occurrence of a
Change of Control, if DMC does not redeem the New Notes as
provided under the heading "Optional Redemption upon Change of
Control prior to April 15, 2002," above, DMC shall make the
"Change of Control Offer" and each Holder will have the right to
require that DMC purchase all or a portion of such Holder's New
Notes pursuant to such Change of Control Offer, at a purchase
price equal to 101% of the principal amount thereof plus accrued
interest to the date of purchase.
The occurrence of certain of the events that would
constitute a Change of Control would constitute a default under
the Credit Agreement. Future Senior Debt of DMC and its
Subsidiaries may also contain prohibitions of certain events that
would constitute a Change of Control or require such Senior Debt
to be repurchased upon a Change of Control. Moreover, the
exercise by the Holders of their right to require DMC to
repurchase the New Notes could cause a default under such Senior
Debt, even if the Change of Control itself does not, due to the
financial effect of such repurchase on DMC.
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The Indenture will provide that, prior to the mailing of the
notice referred to below, but in any event within 30 days
following any Change of Control, DMC covenants to (i) repay in
full and terminate all commitments under Indebtedness under the
Credit Agreement and all other Senior Debt the terms of which
require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under all Indebtedness under
the Credit Agreement and all other such Senior Debt and to repay
the Indebtedness owed to each lender which has accepted such
offer in full or (ii) obtain the requisite consents under the
Credit Agreement and all other Senior Debt to permit the
repurchase of the New Notes as provided below. DMC shall first
comply with the covenant in the immediately preceding sentence
before it shall be required to repurchase New Notes pursuant to
the provisions described below. DMC's failure to comply with the
second preceding sentence shall constitute an Event of Default
described in clause (iii) and not in clause (ii) under "Events of
Default" below.
Within 30 days following the date upon which the Change of
Control occurred, unless DMC has mailed a notice with respect to
a redemption described under the heading "Optional Redemption
upon Change of Control prior to April 15, 2002" above with
respect to all the New Notes in connection with a Change of
Control occurring on or prior to April 15, 2002, DMC must send,
by first class mail, a notice to each Holder, with a copy to the
Trustee and each Paying Agent, which notice shall govern the
terms of the Change of Control Offer. Such notice shall state,
among other things, the purchase date, which must be no earlier
than 30 days nor later than 45 days from the date such notice is
mailed, other than as may be required by law (the "Change of
Control Payment Date"). Holders electing to have a New Note
purchased pursuant to a Change of Control Offer will be required
to surrender the New Note, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the New Note
completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third business day
prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no
assurance that DMC will have available funds sufficient to pay
the Change of Control purchase price for all the New Notes that
might be delivered by Holders seeking to accept the Change of
Control Offer. In the event DMC is required to purchase
outstanding New Notes pursuant to a Change of Control Offer, DMC
expects that it would seek third party financing to the extent it
does not have available funds to meet its purchase obligations.
However, there can be no assurance that DMC would be able to
obtain such financing.
Neither the Board of Directors of DMC nor the Trustee may
waive the covenant relating to a Holder's right to redemption
upon a Change of Control. Restrictions in the Indenture described
herein on the ability of DMC and its Restricted Subsidiaries to
incur additional Indebtedness, to grant Liens on its property, to
make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of DMC, whether favored
or opposed by the management of DMC. Consummation of any such
transaction in certain circumstances may require redemption or
repurchase of the New Notes, and there can be no assurance that
DMC or the acquiring party will have sufficient financial
resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates
may, in certain circumstances, make more difficult or discourage
any leveraged buyout of DMC or any of its Subsidiaries by the
management of DMC. While such restrictions cover a wide variety
of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the
Holders of New Notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
DMC will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of New Notes pursuant to a
Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of
Control" provisions of the Indenture, DMC shall comply with the
applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
The Change of Control purchase feature is a result of
negotiations between DMC and the Initial Purchasers. Management
has no present intention to engage in a transaction involving a
Change of Control (other than the recently completed
Recapitalization), although it is possible that DMC would decide
to do so in the future. Subject to the limitations discussed
below, DMC could, in the future, enter into certain transactions,
including
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acquisitions, refinancings or other recapitalizations, that would
not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such
time or otherwise affect DMC's capital structure or credit
ratings.
Except as described above with respect to a Change of
Control, the Indenture does not contain provisions that permit
the Holders of the New Notes to require that DMC repurchase the
New Notes in the event of a takeover, recapitalization or similar
transaction.
Certain Covenants
The Indenture will contain, among others, the following
covenants:
Limitation on Incurrence of Additional Indebtedness. DMC
will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect
to, or otherwise become responsible for payment of (collectively,
"incur") any Indebtedness (other than Permitted Indebtedness);
provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, DMC may
incur Indebtedness (including, without limitation, Acquired
Indebtedness), and the Restricted Subsidiaries of DMC may incur
Acquired Indebtedness, in each case if on the date of the
incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio
of DMC is greater than 2.0 to 1.0.
Limitation on Restricted Payments. DMC will not, and will
not cause or permit any of its Restricted Subsidiaries to,
directly or indirectly, (a) declare or pay any dividend or make
any distribution (other than dividends or distributions payable
in Qualified Capital Stock of DMC or in options, warrants or
other rights to purchase such Qualified Capital Stock) on or in
respect of shares of DMC's Capital Stock to holders of such
Capital Stock, (b) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of DMC or any warrants, rights
or options to purchase or acquire shares of any class of such
Capital Stock (in each case other than in exchange for Qualified
Capital Stock of DMC or options, warrants or other rights to
purchase such Qualified Capital Stock), (c) make any principal
payment on, purchase, defease, redeem, prepay, decrease or
otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of DMC that is subordinate or junior in
right of payment to the Notes or (d) make any Investment (other
than Permitted Investments) (each of the foregoing actions set
forth in clauses (a), (b) (c) and (d) being referred to as a
"Restricted Payment"), if at the time of such Restricted Payment
or immediately after giving effect thereto, (i) a Default or an
Event of Default shall have occurred and be continuing or (ii)
DMC is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance
with the covenant described under "--Limitation on Incurrence of
Additional Indebtedness" or (iii) the aggregate amount of
Restricted Payments (including such proposed Restricted Payment)
made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of
such property as determined reasonably and in good faith by the
Board of Directors of DMC) shall exceed the sum of: (v)
$10,000,000; plus (w) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss,
minus 100% of such loss) of DMC earned subsequent to the Issue
Date and on or prior to the date on which the Restricted Payment
occurs or is to occur (the "Reference Date") (treating such
period as a single accounting period); plus (x) 100% of the
aggregate net cash proceeds received by DMC from any Person
(other than a Subsidiary of DMC) from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of DMC (including by conversion
of Indebtedness into Qualified Capital Stock) and, subject to the
limitation set forth in clause (8) of the immediately succeeding
paragraph, 100% of the fair market value of non-cash
consideration received in any such issuance and sale; plus (y)
without duplication of any amounts included in clause (iii)(x)
above, 100% of the aggregate net cash proceeds of any equity
contribution received by DMC from a holder of DMC's Capital Stock
and, subject to the limitation set forth in clause (8) of the
immediately succeeding paragraph, 100% of the fair market value
of non-cash consideration of any equity contribution received by
DMC from a holder of DMC's Capital Stock; plus (z) without
duplication, the sum of (1) the aggregate amount returned in cash
on or with respect to Investments (other than Permitted
Investments) made subsequent to the Issue Date whether through
interest payments, principal payments, dividends or other
distributions or payments, (2) the net cash proceeds
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received by DMC or any Restricted Subsidiary from the disposition
of all or any portion of such Investments (other than to a
Subsidiary of DMC) and, subject to the limitations set forth in
clause (8) of the immediately succeeding paragraph, 100% of the
fair market value of non-cash consideration received in any such
disposition, and (3) upon redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the fair market value of
such Subsidiary; provided, however, that with respect to all
Investments made in any Unrestricted Subsidiary or joint venture,
the sum of clauses (1), (2) and (3) above with respect to such
Investment shall not exceed the aggregate amount of all such
Investments made subsequent to the Issue Date in such
Unrestricted Subsidiary or joint venture.
Notwithstanding the foregoing, the provisions set forth in
the immediately preceding paragraph do not prohibit: (1) the
payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been
permitted on the date of declaration; (2) the acquisition of any
shares of Capital Stock of DMC, either (i) solely in exchange for
shares of Qualified Capital Stock of DMC or (ii) through the
application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of DMC) of shares of
Qualified Capital Stock of DMC; (3) if no Default or Event of
Default shall have occurred and be continuing, the acquisition of
any Indebtedness of DMC that is subordinate or junior in right of
payment to the New Notes either (i) solely in exchange for shares
of Qualified Capital Stock of DMC or Indebtedness of DMC that is
subordinate or junior in right of payment to the New Notes at
least to the extent of the subordination provisions contained in
the Indenture and having no maturity, sinking fund payment or
scheduled mandatory redemption prior to maturity of the New
Notes, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a
Subsidiary of DMC) of (A) shares of Qualified Capital Stock of
DMC or (B) Refinancing Indebtedness; (4) so long as no Default or
Event of Default shall have occurred and be continuing, payments
for the purpose of and in an amount equal to the amount required
to permit DMFC to redeem or repurchase Common Stock of DMFC or
options in respect thereof from employees or officers of DMFC or
any of its Subsidiaries or their estates or authorized
representatives upon the death, disability or termination of
employment of such employees or officers in an aggregate amount
not to exceed $10 million; (5) the making of distributions, loans
or advances in an amount not to exceed $1 million per annum
sufficient to permit DMFC to pay the ordinary operating expenses
of DMFC related to DMFC's ownership of Capital Stock of DMC; (6)
the payment of any amounts pursuant to the Tax Sharing Agreement;
(7) aggregate payments of not more than $835 million pursuant to
the Recapitalization and made within 30 days of the date of the
consummation of the Recapitalization; and (8) in the event that
DMC has not realized cash from the proceeds of the payment, sale
or disposition of any non-cash consideration referred to in
clause (iii)(x), (iii)(y) and (iii)(z)(2) of the immediately
preceding paragraph, Restricted Payments permitted by reason of
such non-cash consideration; provided, that such Restricted
Payments may be made only in kind of the non-cash consideration
so received. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with
clause (iii) of the immediately preceding paragraph, amounts
expended pursuant to clauses (1), (4) and (8) shall be included
in such calculation and amounts expended pursuant to clauses (2),
(3), (5), (6) and (7) shall be excluded from such calculation.
Not later than the date of making any Restricted Payment,
DMC shall deliver to the Trustee an officers' certificate stating
that such Restricted Payment complies with the Indenture and
setting forth in reasonable detail the basis upon which the
required calculations were computed, which calculations may be
based upon DMC's latest available internal quarterly financial
statements. The Trustee shall have no duty or obligation to
recalculate or otherwise verify the accuracy of the calculations
set forth in any such officers' certificate.
Limitation on Asset Sales. DMC will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset
Sale unless (i) DMC or the applicable Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets sold
or otherwise disposed of (in each case as determined in good
faith by DMC's Board of Directors), (ii) at least 75% of the
consideration received by DMC or the Restricted Subsidiary, as
the case may be, from such Asset Sale shall be in the form of
cash or Cash Equivalents (provided that (A) the amount of any
liabilities (as shown on DMC's or such Restricted Subsidiary's
most recent balance sheet) of DMC or any such Restricted
Subsidiary (other than liabilities that are by their terms
subordinated to the New Notes) that are assumed by the transferee
of any such assets and (B) the fair market value of any
marketable securities received by DMC or a Restricted Subsidiary
in exchange for any such assets that are promptly converted into
cash shall be deemed to be cash for purposes of this provision)
and is received at the time of such disposition, provided that
DMC and its Restricted Subsidiaries may make Asset Sales
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not exceeding $2 million in the aggregate in each year for
non-cash consideration; and (iii) upon the consummation of an
Asset Sale, DMC shall apply, or cause such Restricted Subsidiary
to apply, the Net Cash Proceeds relating to such Asset Sale prior
to the date occurring 360 days following the receipt thereof
either (A) to prepay any Senior Debt and, in the case of any
Senior Debt under any revolving credit facility, effect a
permanent reduction in the availability under such revolving
credit facility, or to so prepay any Indebtedness of a Wholly
Owned Restricted Subsidiary, (B) to make an Investment in
properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets
that will be used in the business of DMC and its Restricted
Subsidiaries as it exists on the date of such Asset Sale or in
businesses the same, similar or reasonably related thereto
("Replacement Assets"), or (C) a combination of prepayment and
investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). Subject to the last sentence of this paragraph, on the
361st day after an Asset Sale or such earlier date, if any, as
the Board of Directors of DMC or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such
Asset Sale as set forth in clause (iii)(A), (iii)(B) or (iii)(C)
of the next preceding sentence (each, a "Net Proceeds Offer
Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer
Trigger Date as permitted in clauses (iii)(A), (iii)(B) and
(iii)(C) of the next preceding sentence (each a "Net Proceeds
Offer Amount") shall be applied by DMC or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not
less than 30 nor more than 45 days following the applicable Net
Proceeds Offer Trigger Date, from all Holders on a pro rata
basis, that amount of Notes equal to the Net Proceeds Offer
Amount at a price equal to 100% of the principal amount of the
New Notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase; provided, however, that
if at any time any non-cash consideration received by DMC or any
Restricted Subsidiary of DMC, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect
to any such non-cash consideration), then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder
and the Net Cash Proceeds thereof shall be applied in accordance
with this covenant. DMC may defer the Net Proceeds Offer until
there is an aggregate unutilized Net Proceeds Offer Amount equal
to or in excess of $10 million resulting from one or more Asset
Sales (at which time, the entire unutilized Net Proceeds Offer
Amount, and not just the amount in excess of $10 million, shall
be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not
all) of the property and assets of DMC and its Restricted
Subsidiaries as an entirety to a Person in a transaction
permitted under the covenant described under "--Merger,
Consolidation and Sale of Assets," the successor corporation
shall be deemed to have sold the properties and assets of DMC and
its Restricted Subsidiaries not so transferred for purposes of
such covenant, and shall comply with the provisions of such
covenant with respect to such deemed sale as if it were an Asset
Sale. In addition, the fair market value of such properties and
assets of DMC or its Restricted Subsidiaries deemed to be sold
shall be deemed to be Net Cash Proceeds for purposes of such
covenant.
Each Net Proceeds Offer will be mailed to the record
Holders as shown on the register of Holders within 25 days
following the Net Proceeds Offer Trigger Date, with a copy to the
Trustee, and shall comply with the procedures set forth in the
Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their New Notes in whole or in part
in integral multiples of $1,000 in exchange for cash. To the
extent Holders properly tender New Notes in an amount exceeding
the Net Proceeds Offer Amount, New Notes of tendering Holders
will be purchased on a pro rata basis (based on amounts
tendered). To the extent that the aggregate amount of the New
Notes tendered pursuant to a Net Proceeds Offer is less than the
Net Proceeds Offer Amount, DMC may use such excess Net Proceeds
Offer Amount for general corporate purposes or for any other
purpose not prohibited by the Indenture. Upon completion of any
such Net Proceeds Offer, the Net Proceeds Offer Amount shall be
reset at zero. A Net Proceeds Offer shall remain open for a
period of 20 business days or such longer period as may be
required by law.
DMC will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of New Notes pursuant to a Net
Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, DMC shall comply with the applicable
securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof.
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Notwithstanding the foregoing, DMC and its Restricted
Subsidiaries will be permitted to consummate an Asset Swap if (i)
at the time of entering into such Asset Swap or immediately after
giving effect to such Asset Swap, no Default or Event of Default
shall have occurred or be continuing or would occur as a
consequence thereof, (ii) in the event that such Asset Swap
involves an aggregate amount in excess of $10 million, the terms
of such Asset Swap have been approved by a majority of the
members of the Board of Directors of DMC, and (iii) in the event
such Asset Swap involves an aggregate amount in excess of $50
million, DMC has received a written opinion from an Independent
Financial Advisor that such Asset Swap is fair to DMC or such
Restricted Subsidiary, as the case may be, from a financial point
of view.
Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. DMC will not, and will not cause or
permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of DMC to (a) pay dividends
or make any other distributions on or in respect of its Capital
Stock; (b) make loans or advances or to pay any Indebtedness or
other obligation owed to DMC or any other Restricted Subsidiary
of DMC; or (c) transfer any of its property or assets to DMC or
any other Restricted Subsidiary of DMC, except for such
encumbrances or restrictions existing under or by reason of: (1)
applicable law; (2) the Indenture; (3) customary non-assignment
provisions of any contract or lease governing a leasehold or
ownership interest of any Restricted Subsidiary of DMC; (4) any
instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or
assets of the Person so acquired; (5) agreements existing on the
Issue Date (including, without limitation, the Credit Agreement)
to the extent and in the manner such agreements are in effect on
the Issue Date; (6) secured Indebtedness otherwise permitted to
be incurred pursuant to the provisions of the covenants described
under "--Limitation on Incurrence of Additional Indebtedness" and
"--Limitation on Liens" above that limit the right of the debtor
to dispose of the assets securing such Indebtedness; (7)
customary net worth provisions contained in leases and other
agreements entered into by a Restricted Subsidiary in the
ordinary course of business; (8) customary restrictions with
respect to a Restricted Subsidiary pursuant to an agreement that
has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of such Restricted
Subsidiary; (9) customary provisions in joint venture agreements
and other similar agreements relating solely to the securities,
assets and revenues of such joint venture or other business
venture; (10) an agreement governing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant
to an agreement referred to in clause (2), (4), (5) or (6) above;
provided, however, that the provisions relating to such
encumbrance or restriction contained in any such Indebtedness are
not, in the aggregate, materially less favorable to DMC as
determined by the Board of Directors of DMC in its reasonable and
good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in
such clause (2), (4) (5) or (6); and (11) Standard Securitization
Undertakings relating to a Receivables Subsidiary or Special
Purpose Vehicle.
Limitation on Preferred Stock of Restricted Subsidiaries.
DMC will not permit any of its Restricted Subsidiaries (other
than a Receivables Subsidiary or a Special Purpose Vehicle) to
issue any Preferred Stock (other than to DMC or to a Wholly Owned
Restricted Subsidiary of DMC) or permit any Person (other than
DMC or a Wholly Owned Restricted Subsidiary of DMC) to own any
Preferred Stock of any Restricted Subsidiary of DMC (other than a
Receivables Subsidiary or a Special Purpose Vehicle).
Limitation on Liens. DMC will not, and will not cause or
permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or permit or suffer to exist
any Liens of any kind against or upon any property or assets of
DMC or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive
income or profits therefrom for purposes of security unless (i)
in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the New Notes, the
New Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Liens and (ii) in all
other cases, the New Notes are equally and ratably secured,
except for (A) Liens existing as of the Issue Date to the extent
and in the manner such Liens are in effect on the Issue Date; (B)
Liens securing Senior Debt and Liens on assets of Restricted
Subsidiaries securing guarantees of Senior Debt; (C) Liens
securing the New Notes; (D) Liens of DMC or a Wholly Owned
Restricted Subsidiary of DMC on assets of any Restricted
Subsidiary of DMC; (E) Liens securing Refinancing Indebtedness
which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under the Indenture and which
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has been incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens (1) are not
materially less favorable to the Holders and are not materially
more favorable to the lienholders with respect to such Liens than
the Liens in respect of the Indebtedness being Refinanced and (2)
do not extend to or cover any property or assets of DMC or any of
its Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and (F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. DMC
will not incur or suffer to exist Indebtedness that is senior in
right of payment to the New Notes and subordinate in right of
payment to any other Indebtedness of DMC.
Restriction of Lines of Business to Food, Food Distribution
and Related Businesses. DMC shall not, and shall not permit any
Restricted Subsidiary to, engage in any material business
activity except for food, food distribution and related
businesses.
Merger, Consolidation and Sale of Assets of DMC. DMC will
not, in a single transaction or series of related transactions,
consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or
permit any Restricted Subsidiary of DMC to sell, assign,
transfer, lease, convey or otherwise dispose of) all or
substantially all of DMC's assets (determined on a consolidated
basis for DMC and its Restricted Subsidiaries), whether as an
entirety or substantially as an entirety, to any Person unless:
(i) either (1) DMC shall be the surviving or continuing
corporation or (2) the Person (if other than DMC) formed by such
consolidation or into which DMC is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of DMC and its
Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and
validly existing under the laws of the United States or any state
thereof or the District of Columbia and (y) shall expressly
assume, by supplemental indenture (in form and substance
reasonably satisfactory to the Trustee), executed and delivered
to the Trustee, the due and punctual payment of the principal of
and premium, if any, and interest on all of the New Notes and the
performance of every covenant of the New Notes, the Indenture
and, if applicable, the Registration Rights Agreement on the part
of DMC to be performed or observed; (ii) immediately after giving
effect to such transaction and the assumption contemplated by
clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to
be incurred in connection with or in respect of such
transaction), DMC or such Surviving Entity, as the case may be,
shall be able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant
described under "Certain Covenants--Limitation on Incurrence of
Additional Indebtedness"; (iii) immediately after giving effect
to such transaction, DMC or such Surviving Entity, as the case
may be, will have Consolidated Net Worth in an amount that is not
less than the Consolidated Net Worth of DMC immediately prior to
such transaction; (iv) immediately before and immediately after
giving effect to such transaction and the assumption contemplated
by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred and any Lien granted in connection
with or in respect of such transaction), no Default or Event of
Default shall have occurred and be continuing; and (v) DMC or
such Surviving Entity, as the case may be, shall have delivered
to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such
transaction, such supplemental indenture complies with the
applicable provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been
satisfied.
Notwithstanding the foregoing, the merger of DMC with an
Affiliate incorporated solely for the purpose of reincorporating
DMC in another jurisdiction shall be permitted without regard to
clauses (ii) and (iii) of the immediately preceding paragraph.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series
of transactions) of all or substantially all of the properties or
assets of one or more Restricted Subsidiaries of DMC the Capital
Stock of which constitutes all or substantially all of the
properties and assets of DMC, shall be deemed to be the transfer
of all or substantially all of the properties and assets of DMC.
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The Indenture will provide that upon any consolidation,
combination or merger or any transfer of all or substantially all
of the assets of DMC in accordance with the foregoing in which
DMC is not the continuing corporation, the successor Person
formed by such consolidation or into which DMC is merged or to
which such conveyance, lease or transfer is made shall succeed
to, and be substituted for, and may exercise every right and
power of, DMC under the Indenture and the New Notes with the same
effect as if such surviving entity had been named as such;
provided, however, that solely for purposes of computing amounts
described in subclause (iii) of the first paragraph of the
covenant described under "--Limitation on Restricted Payments"
above, any such surviving entity shall only be deemed to have
succeeded to and be substituted for DMC with respect to periods
subsequent to the effective time of such merger, consolidation or
transfer of assets.
Merger, Consolidation and Sale of Assets of a Guarantor. A
Guarantor (including DMFC) will not, in a single transaction or
series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of such Guarantor's assets,
whether as an entirety or substantially as an entirety, to any
Person unless: (i) either (1) such Guarantor shall be the
surviving or continuing corporation or (2) the Person (if other
than such Guarantor) formed by such consolidation or into which
such Guarantor is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the
properties and assets of such Guarantor substantially as an
entirety (the "Surviving Guarantor Entity") (x) shall be a
corporation organized and validly existing under the laws of the
United States or any state thereof or the District of Columbia
and (y) shall expressly assume, by supplemental indenture (in
form and substance reasonably satisfactory to the Trustee),
executed and delivered to the Trustee, the obligations of such
Guarantor of the due and punctual payment of the principal of and
premium, if any, and interest on the New Notes and all of such
Guarantor's obligations under the Indenture; (ii) such Guarantor
or such Surviving Guarantor Entity, as the case may be, shall
not, immediately after giving effect to such transaction or
series of transactions herein default in the performance of any
covenants or obligations of such Guarantor or Surviving Guarantor
Entity under the Indenture; and (iii) such Guarantor or such
Surviving Guarantor Entity, as the case may be, shall have
delivered to the Trustee an officers' certificate and an opinion
of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such
transaction, such supplemental indenture complies with the
applicable provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been
satisfied.
Notwithstanding the foregoing, the Merger of Shield with
and into DMFC and the merger of DFMC with and into DMC shall be
permitted; provided that, with respect to the Merger of DMFC with
and into DMC, such merger shall be permitted pursuant to the
covenant described under "--Merger, Consolidation and Sale of
Assets of DMC."
The Indenture will provide that upon any consolidation,
combination or merger or any transfer of all or substantially all
of the assets of a Guarantor in accordance with the foregoing, in
which such Guarantor is not the continuing corporation, the
Surviving Guarantor Entity shall succeed to, and be substituted
for, and may exercise every right and power of, such Guarantor
under the Indenture and the New Notes with the same effect as if
such Surviving Guarantor Entity had been named as such.
Limitations on Transactions with Affiliates. (a) DMC will
not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property
or the rendering of any service) with, or for the benefit of, any
of its Affiliates (each an "Affiliate Transaction"), other than
(x) Affiliate Transactions permitted under paragraph (b) below
and (y) Affiliate Transactions on terms that are no less
favorable to DMC or the relevant Restricted Subsidiary than those
that might reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of DMC or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate
Transactions which are part of a common plan) involving aggregate
payments or other property with a fair market value in excess of
$1 million shall be approved by the Board of Directors of DMC or
such Restricted Subsidiary, as the case may be, such approval to
be evidenced by a Board Resolution stating that such Board of
Directors has determined that such transaction complies with the
foregoing provisions. If DMC or any Restricted Subsidiary of DMC
enters into an Affiliate Transaction (or a series of related
Affiliate Transactions related to a common plan) that involves an
aggregate fair market value or
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payments to an Affiliate, as the case may be, of more than $10
million, DMC or such Restricted Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of
related transactions to DMC or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view,
from an Independent Financial Advisor and file the same with the
Trustee.
(b) The restrictions set forth in clause (a) shall not
apply to (i) reasonable fees and compensation paid to (including
issuances and grant of securities and stock options), employment
agreements and stock option and ownership plans for the benefit
of) and indemnity provided on behalf of, officers, directors,
employees or consultants of DMC or any Restricted Subsidiary of
DMC as determined in good faith by DMC's Board of Directors or
senior management; (ii) transactions between or among DMC and any
of its Restricted Subsidiaries or exclusively between or among
such Restricted Subsidiaries, provided that such transactions are
not otherwise prohibited by the Indenture; (iii) any agreement as
in effect as of the Issue Date or any amendment thereto or any
transaction contemplated thereby (including pursuant to any
amendment thereto or any replacement agreement thereto so long as
any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the
original agreement as in effect on the Issue Date); (iv) payments
and investments permitted by the Indenture; (v) payments made in
connection with the Recapitalization, including transaction fees
to stockholders of DMFC not exceeding $10,000,000; (vi) the
issuance of Qualified Capital Stock of DMC; (vii) any obligations
of DMC pursuant to the Management Advisory Agreement and the
Transaction Advisory Agreement; (viii) transactions permitted by,
and complying with, the provisions of the covenants described
under "Certain Covenants--Merger, Consolidation and Sale of
Assets of DMC" and "--Merger, Consolidation and Sale of Assets of
a Guarantor"; (ix) transactions with suppliers or other
purchasers or sales of goods or services, in each case in the
ordinary course of business (including, without limitation,
pursuant to joint venture agreements) and otherwise in compliance
with the terms of the Indenture which are fair to DMC in the good
faith determination of the Board of Directors of DMC or the
senior management thereof and on terms at least as favorable as
might reasonably have been obtained at such time from an
unaffiliated party; and (x) Qualified Receivables Transactions.
Limitation on Guarantees by Restricted Subsidiaries. DMC
will not permit any of its domestic Restricted Subsidiaries
directly or indirectly, by way of the pledge of any intercompany
note or otherwise, to assume, guarantee or in any other manner
become liable with respect to any Indebtedness of DMC or any
other Restricted Subsidiary (other than Permitted Indebtedness of
a Restricted Subsidiary), unless, in any such case (a) such
Restricted Subsidiary executes and delivers a supplemental
indenture to the Indenture, providing a Guarantee by such
Restricted Subsidiary and (b) (x) if any such assumption,
guarantee or other liability of such Restricted Subsidiary is
provided in respect of Senior Debt, the guarantee or other
instrument provided by such Restricted Subsidiary in respect of
such Senior Debt may be superior to such Guarantee pursuant to
subordination provisions no less favorable to the Holders of the
New Notes than those contained in the Indenture and (y) if such
assumption, guarantee or other liability of such Restricted
Subsidiary is provided in respect of Indebtedness that is
expressly subordinated to the New Notes, the guarantee or other
instrument provided by such Restricted Subsidiary in respect of
such subordinated Indebtedness shall be subordinated to such
Guarantee pursuant to subordination provisions no less favorable
to the Holders of the New Notes than those contained in the
Indenture.
Each Guarantee will be limited in amount to an amount not
to exceed the maximum amount that can be guaranteed by a
Restricted Subsidiary without rendering such Guarantee, as it
relates to such Restricted Subsidiary, void or voidable under
applicable laws relating to fraudulent conveyance or fraudulent
transfer or other similar laws affecting the rights of creditors
generally.
Notwithstanding the foregoing, any such Guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be
automatically and unconditionally released and discharged,
without any further action required on the part of the Trustee or
any Holder, upon: (i) the unconditional release of such
Restricted Subsidiary from its liability in respect of the
Indebtedness in connection with which such Guarantee was executed
and delivered pursuant to the preceding paragraph; or (ii) any
sale or other disposition (by merger or otherwise) to any Person
which is not a Restricted Subsidiary of DMC of all of DMC's
Capital Stock in, or all or substantially all of the assets of,
such Restricted Subsidiary; provided that (a) such sale or
disposition of such Capital Stock or assets is otherwise in
compliance with the terms of the Indenture and (b) such
assumption, guarantee or other liability of such Restricted
Subsidiary has been released by the holders of the other
Indebtedness so guaranteed.
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Reports to Holders. The Indenture will provide that so long
as the New Notes are outstanding DMC will deliver to the Trustee
within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the
information, documents and other reports, if any, which DMC is
required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. The Indenture will further provide
that, notwithstanding that DMC may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange
Act, so long as the New Notes are outstanding DMC will file with
the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act. DMC will also comply with the provisions of TIA
ss.314(a).
Events of Default
The following events are defined in the Indenture as
"Events of Default":
(i) the failure to pay interest on any New Notes when
the same becomes due and payable and the default continues
for a period of 30 days (whether or not such payment shall
be prohibited by the subordination provisions of the
Indenture);
(ii) the failure to pay the principal on any New
Notes, when such principal becomes due and payable, at
maturity, upon redemption or otherwise (including the
failure to make a payment to purchase New Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds
Offer) (whether or not such payment shall be prohibited by
the subordination provisions of the Indenture);
(iii) a default in the observance or performance of
any other covenant or agreement contained in the Indenture
which default continues for a period of 30 days after
written notice specifying the default (and demanding that
such default be remedied) is received by DMC from the
Trustee or by DMC and the Trustee from the Holders of at
least 25% of the outstanding principal amount of the New
Notes;
(iv) the failure to pay at final stated maturity
(giving effect to any applicable grace periods and any
extensions thereof) the principal amount of any
Indebtedness for borrowed money of DMC or any Restricted
Subsidiary of DMC or the acceleration of the final stated
maturity of any such Indebtedness, in either case, if the
aggregate principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or
which has been accelerated aggregates $20 million or more
at any time;
(v) one or more judgments for the payment of money in
an aggregate amount in excess of $20 million (to the extent
not covered by insurance) shall have been rendered against
DMC or any of its Restricted Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a
period of 60 days after such judgment or judgments become
final and non-appealable;
(vi) the failure of a guaranty of the New Notes given
by a Guarantor to be in full force and effect (except as
contemplated by the terms thereof) or the denial or
disaffirmation of such obligations by a Guarantor; and
(vii) certain events of bankruptcy affecting DMC
or any of its Significant Subsidiaries.
If an Event of Default (other than an Event of Default
specified in clause (vii) above with respect to DMC) shall occur
and be continuing, the Trustee or the Holders of at least 25% in
principal amount of outstanding New Notes may declare the
principal of and accrued interest on all the New Notes to be due
and payable by notice in writing to DMC and the Trustee
specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the
same (i) shall become immediately due and payable or (ii) if
there are any amounts outstanding under the Credit Agreement,
shall become immediately due and payable upon the first to occur
of an acceleration under the Credit Agreement or five business
days after receipt by DMC and the Representative under the Credit
Agreement of such Acceleration Notice, but only if such Event of
Default is then continuing. If an Event of Default specified in
clause (vii) above with respect to DMC occurs and is continuing,
then all unpaid
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principal of and premium, if any, and accrued and unpaid interest
on all of the outstanding New Notes shall ipso facto become and
be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
The Indenture will provide that, at any time after the
delivery of an Acceleration Notice with respect to the New Notes
as described in the preceding paragraph, the Holders of a
majority in principal amount of the New Notes may, on behalf of
the Holders of all of the New Notes, rescind and cancel such
declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events
of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue
principal which has become due otherwise than by such declaration
of acceleration has been paid, (iv) if DMC has paid the Trustee
its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and any other amounts due
the Trustee under the Indenture, and (v) in the event of the cure
or waiver of an Event of Default of the type described in clause
(vii) of the description above of Events of Default, the Trustee
shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived. No
such rescission shall affect any subsequent Default or impair any
right consequent thereto.
The Holders of a majority in principal amount of the New
Notes may waive any existing Default or Event of Default under
the Indenture and its consequences, except a default in the
payment of the principal of or interest on any New Notes.
Holders of the New Notes may not enforce the Indenture or
the New Notes except as provided in the Indenture and under the
TIA. Subject to the provisions of the Indenture relating to the
duties of the Trustee, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject
to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the then
outstanding New Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, DMC is required to provide an
officers' certificate to the Trustee promptly upon any such
officer obtaining knowledge of any Default or Event of Default
(provided that such officers shall provide such certification at
least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee or stockholder of DMC, as
such, shall have any liability for any obligations of DMC under
the New Notes or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation.
Each Holder of New Notes by accepting a New Note waives and
releases all such liability. The waiver and release are part of
the consideration for issuance of the New Notes. The foregoing
provisions do not relate to the liability of DMFC as a Guarantor.
Legal Defeasance and Covenant Defeasance
DMC may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding New Notes
("Legal Defeasance"). Such Legal Defeasance means that DMC shall
be deemed to have paid and discharged the entire indebtedness
represented by the outstanding New Notes, except for (i) the
rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the New Notes when such
payments are due, (ii) DMC's obligations with respect to the New
Notes concerning issuing temporary New Notes, registration of New
Notes, mutilated, destroyed, lost or stolen New Notes and the
maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and
DMC's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, DMC may, at
its option and at any time, elect to have the obligations of DMC
released with respect to certain covenants that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not
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constitute a Default or Event of Default with respect to the New
Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with
respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance, (i) DMC must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in U.S. dollars,
non-callable U.S. government obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the New
Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be; (ii) in the case of Legal
Defeasance, DMC shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee
confirming that (A) DMC has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm
that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, DMC shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or
constitute a default under the Indenture or any other material
agreement or instrument to which DMC or any of its Subsidiaries
is a party or by which DMC or any of its Subsidiaries is bound;
(vi) DMC shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by DMC with the
intent of preferring the Holders over any other creditors of DMC
or with the intent of defeating, hindering, delaying or
defrauding any other creditors of DMC or others; (vii) DMC shall
have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; (viii) DMC shall have
delivered to the Trustee an opinion of counsel to the effect that
(A) the trust funds will not be subject to any rights of holders
of Senior Debt, including, without limitation, those arising
under the Indenture and (B) assuming no intervening bankruptcy of
DMC between the date of deposit and the 91st day following the
deposit and that no Holder is an insider of DMC, after the 91st
day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights
generally; and (ix) certain other customary conditions precedent
are satisfied.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of
further effect (except as to surviving rights or registration of
transfer or exchange of the New Notes, as expressly provided for
in the Indenture) as to all outstanding New Notes when: (i)
either (a) all the New Notes theretofore authenticated and
delivered (except lost, stolen or destroyed New Notes which have
been replaced or paid and New Notes for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by DMC and thereafter repaid to DMC or discharged from such
trust) have been delivered to the Trustee for cancellation or (b)
all New Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and DMC has irrevocably
deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on
the New Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on
the New Notes to the date of deposit together with irrevocable
instructions from DMC directing the Trustee to apply such funds
to the payment thereof at maturity or redemption, as the case may
be; (ii) DMC has paid all other sums payable under the Indenture
by DMC; and (iii) DMC has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions
precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
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Modification of the Indenture
From time to time, DMC and the Trustee, without the consent
of the Holders, may amend the Indenture for certain specified
purposes, including curing ambiguities, omissions, defects or
inconsistencies, so long as such change does not, in the opinion
of the Trustee, materially adversely affect the rights of any of
the Holders. In formulating its opinion on such matters, the
Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely on an opinion
of counsel. In addition, without the consent of the Holders, DMC
and the Trustee may amend the Indenture to provide for the
assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of DMC under the
Indenture as permitted by this Indenture, to provide for
uncertificated New Notes in addition to or in place of
certificated New Notes, to add Restricted Subsidiaries, as
Guarantors as described under "Certain Covenants--Limitations on
Guarantees by Restricted Subsidiaries" or to add further
Guarantees, to secure the New Notes, to add to the covenants of
DMC for the benefit of the Holders or to surrender any right or
power conferred upon DMC or to comply with any requirement of the
Commission in connection with the qualification of the Indenture
under the Trust Indenture Act. Other modifications and amendments
of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding New Notes
issued under the Indenture, except that, without the consent of
each Holder affected thereby, no amendment may: (i) reduce the
amount of New Notes whose Holders must consent to an amendment;
(ii) reduce the rate of or change or have the effect of changing
the time for payment of interest, including defaulted interest,
on any New Notes; (iii) reduce the principal of or change or have
the effect of changing the fixed maturity of any New Notes, or
change the date on which any New Notes may be subject to
redemption, or reduce the redemption price therefor; (iv) make
any New Notes payable in money other than that stated in the New
Notes; (v) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of
principal of and interest on such New Note on or after the due
date thereof or to bring suit to enforce such payment, or
permitting Holders of a majority in principal amount of New Notes
to waive Defaults or Events of Default (other than Defaults or
Events of Default with respect to the payment of principal of, or
interest on, the New Notes); (vi) amend, change or modify in any
material respect the obligation of DMC to make and consummate a
Change of Control Offer in the event of a Change of Control; or
(vii) modify or change any provision of the Indenture or the
related definitions affecting the subordination or ranking of the
New Notes in a manner which adversely affects the Holders in any
material respect.
Governing Law
The Indenture will provide that it and the New Notes will
be governed by, and construed in accordance with, the laws of the
State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application
of the law of another jurisdiction would be required thereby.
The Trustee
The Indenture will provide that, except during the
continuance of an Event of Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture.
During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture,
and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in
the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain
limitations on the rights of the Trustee, should it become a
creditor of DMC, to obtain payments of claims in certain cases or
to realize on certain property received in respect of any such
claim as security or otherwise. Subject to the TIA, the Trustee
will be permitted to engage in other transactions; provided that
if the Trustee acquires any conflicting interest as described in
the TIA, it must eliminate such conflict or resign.
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Certain Definitions
Set forth below is a summary of certain of the defined
terms used in the Indenture. Reference is made to the Indenture
for the full definition of all such terms, as well as any other
terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or
any of its Subsidiaries existing at the time such Person becomes
a Restricted Subsidiary of DMC or at the time it merges or
consolidates with DMC or any of its Restricted Subsidiaries or
assumed by DMC or any of its Restricted Subsidiaries in
connection with the acquisition of assets from such Person and in
each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of DMC or such acquisition, merger or
consolidation.
"Acquisition Financing Indebtedness" means Indebtedness of
DMC incurred in connection with the acquisition of assets or
capital stock (by stock purchase, merger or otherwise) of a
Person engaged in all material respects solely in the business of
food, food distribution and related businesses.
"Affiliate" means, with respect to any specified Person,
any other Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such specified Person. The term "control" means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have
meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by DMC or any
Restricted Subsidiary of DMC in any other Person pursuant to
which such Person shall become a Restricted Subsidiary of DMC, or
shall be merged with or into DMC, or (b) the acquisition by DMC
or any Restricted Subsidiary of DMC of the assets of any Person
(other than a Restricted Subsidiary of DMC) which constitute all
or substantially all of the assets of such Person or comprises
any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered
into in the ordinary course of business), assignment or other
transfer for value by DMC or any of its Restricted Subsidiaries
(including any Sale and Leaseback Transaction) to any Person
other than DMC or a Wholly Owned Restricted Subsidiary of DMC of
(a) any Capital Stock of any Restricted Subsidiary of DMC; or (b)
any other property or assets of DMC or any Restricted Subsidiary
of DMC other than in the ordinary course of business; provided,
however, that Asset Sales shall not include (i) a transaction or
series of related transactions for which DMC or its Restricted
Subsidiaries receive aggregate consideration of less than $1
million; (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of DMC as
permitted under "Merger, Consolidation and Sale of Assets of
DMC"; (iii) the grant of Liens permitted by the covenant
described under "Certain Covenants--Limitation on Liens" above;
(iv) the sale or transfer of Receivables Related Assets in
connection with a Qualified Receivables Transaction; and (v) the
sale or transfer of certain assets identified in a schedule to
the Indenture as being held for disposition.
"Asset Swap" means the execution of a definitive agreement,
subject only to customary closing conditions that DMC in good
faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of assets (of a kind used or
usable by DMC and its Restricted Subsidiaries in their business
as it exists on the date thereof, or in businesses the same as or
similar or reasonably related thereto) between DMC or any of its
Restricted Subsidiaries and another Person or group of affiliated
Persons; provided, however, that any amendment to or waiver of
any closing condition that individually or in the aggregate is
material to the Asset Swap shall be deemed to be a new Asset
Swap.
"Board of Directors" means, as to any Person, the board of
directors of such Person or any duly authorized committee
thereof.
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"Board Resolution" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant
Secretary of such Person to have been duly adopted by the Board
of Directors of such Person and to be in full force and effect on
the date of such certification, and delivered to the Trustee.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be
classified and accounted for as capital lease obligations under
GAAP and, for purposes of this definition, the amount of such
obligations at any date shall be the capitalized amount of such
obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that
is a corporation, any and all shares, interests, participations
or other equivalents (however designated and whether or not
voting) of corporate stock, including each class of Common Stock
and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Cash Equivalents" means (i) obligations issued by, or
unconditionally guaranteed by, the U.S. Government or issued by
any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the
date of acquisition thereof; (ii) obligations issued or fully
guaranteed by any state of the United States of America or any
political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one
of the two highest ratings obtainable from either Standard &
Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"); (iii) commercial paper maturing no more than one
year from the date of creation thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P
or Moody's; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof
issued by any bank organized under the laws of the United States
or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more
than seven days for underlying securities of the types described
in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi)
investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i)
through (v) above.
"Change of Control" means the occurrence of one or more of
the following events: (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions)
of all or substantially all of the assets of DMC or DMFC to any
Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the
provisions of the Indenture), other than TPG or its Related
Parties; (ii) the approval by the holders of Capital Stock of DMC
or DMFC, as the case may be, of any plan or proposal for the
liquidation or dissolution of DMC or DMFC, as the case may be
(whether or not otherwise in compliance with the provisions of
the Indenture); (iii) (A) any Person or Group (other than TPG or
its Related Parties) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing
more than 40% of the aggregate ordinary voting power represented
by the issued and outstanding Capital Stock (the "Voting Stock")
of DMC and DMFC and (B) TPG and its Related Parties shall
beneficially own, directly or indirectly, in the aggregate a
lesser percentage of the Voting Stock of DMC or DMFC, as the case
may be, than such other Person or Group: or (iv) the replacement
of a majority of the Board of Directors of DMC or DMFC over a
two-year period from the directors who constituted the Board of
Directors of DMC or DMFC, as the case may be, at the beginning of
such period, and such replacement shall not have been approved by
a vote of at least a majority of the Board of Directors of DMC or
DMFC, as the case may be, then still in office who either were
members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors
was previously so approved or who were nominated by, or designees
of, TPG or its Related Parties.
"Common Stock" of any Person means any and all shares,
interests or other participations in, and other equivalents
(however designated and whether voting or non-voting) of such
Person's common stock, whether outstanding on the Issue Date or
issued after the Issue Date, and includes, without limitation,
all series and classes of such common stock.
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"Consolidated EBITDA" means, with respect to any Person, for
any period, the sum (without duplication) of (i) Consolidated Net
Income and (ii) to the extent Consolidated Net Income has been
reduced thereby, (A) all income taxes of such Person and its
Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period, (B) Consolidated Interest Expense and (C)
Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with
respect to any Person, the ratio of Consolidated EBITDA of such
Person during the four full fiscal quarters (the "Four Quarter
Period") ending on or prior to the date of the transaction giving
rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (the "Transaction Date") to the Consolidated Fixed
Charges of such Person for the Four Quarter Period. In addition
to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma
basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its
Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence
or repayment of Indebtedness in the ordinary course of business
for working capital purposes pursuant to working capital
facilities, occurring during the Four Quarter Period or at any
time subsequent to the last day of the Four Quarter Period and on
or prior to the Transaction Date, as if such incurrence or
repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter
Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need
to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA
(including any pro forma expense and cost reductions calculated
on a basis consistent with Regulation S-X under the Securities
Act) attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period)
occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such Asset Sale or Asset
Acquisition (including the incurrence, assumption or liability
for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period. If such Person or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of the
"Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of
the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date, (2) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating
basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations, shall be deemed to accrue
at the rate per annum resulting after giving effect to the
operation of such agreements, (3) interest on Indebtedness that
may optionally be determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rate, shall be deemed to have been based
upon the rate actually chosen, or if, none, then based upon such
optional rate as such Person may designate, and (4) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by the Board of Directors of
such Person (as evidenced by a Board Resolution) to be the rate
of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP and as reflected in such Person's financial
statements.
"Consolidated Fixed Charges" means, with respect to any
Person for any period, the sum (without duplication) of (i)
Consolidated Interest Expense (excluding amortization or
write-off of deferred financing costs), plus (ii) the product of
(x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in
Qualified Capital Stock) paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a
decimal.
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"Consolidated Interest Expense" means, with respect to any
Person for any period, the sum (without duplication) of (i) the
aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and
amortization or write-off of deferred financing costs, (b) the
net costs under Interest Swap Obligations, (c) all capitalized
interest, (d) the interest portion of any deferred payment
obligation, (e) dividends paid in respect of Disqualified Capital
Stock and (f) net payments (whether positive or negative)
pursuant to Interest Swap Obligations; and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its Restricted
Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP. Notwithstanding the foregoing,
Consolidated Interest Expense of DMC shall include the interest
expense of a Person only to the extent that the net income of
such Person is included in the Consolidated Net Income of DMC.
"Consolidated Net Income" means, with respect to any
Person, for any period, the aggregate net income (or loss) of
such Person and its Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP; provided
that there shall be excluded therefrom (a) after-tax gains or
losses from Asset Sales (without regard to the $1 million
limitation set forth in the definition thereof) or abandonments
or reserves relating thereto, (b) after-tax items classified as
extraordinary or nonrecurring gains, (c) the net income of any
Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the
referent Person or is merged or consolidated with the referent
Person or any Restricted Subsidiary of the referent Person, (d)
the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends
or similar distributions by that Restricted Subsidiary of that
income is restricted by a contract, operation of law or
otherwise, (e) the net income of any Person, other than a
Restricted Subsidiary of the referent Person, except to the
extent of cash dividends or distributions paid to the referent
Person or to a Restricted Subsidiary of the referent Person by
such Person, (f) any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following
the Issue Date, (g) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified
as discontinued), and (h) in the case of a successor to the
referent Person by consolidation or merger or as a transferee of
the referent Person's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of
assets. Notwithstanding the foregoing, "Consolidated Net Income"
shall be calculated without giving effect to (i) the amortization
of any premiums, fees or expenses incurred in connection with the
Recapitalization and related financings and (ii) the amortization
or depreciation of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 (including non-cash
write-ups and non-cash charges relating to inventory and fixed
assets, in each case arising in connection with the
Recapitalization) and 17 (including non-cash charges relating to
intangibles and goodwill arising in connection with the
Recapitalization).
"Consolidated Net Worth" means the total of the amounts
shown on the balance sheet of DMC and its Restricted
Subsidiaries, determined on a consolidated basis, as of the end
of the most recent fiscal quarter of DMC ending prior to the
taking of any action for the purpose of which the determination
is being made, as (i) the par or stated value of all outstanding
Capital Stock of DMC plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Capital Stock.
"Consolidated Non-cash Charges" means, with respect to any
Person, for any period, the aggregate depreciation, amortization,
exchange or translation losses on foreign currencies and other
non-cash expenses of such Person and its Restricted Subsidiaries
reducing Consolidated Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such
charge which requires an accrual of or a reserve for cash charges
for any future period).
"Credit Agreement" means the Credit Agreement dated as of
the Issue Date, among DMFC, DMC, the lenders party thereto in
their capacities as lenders thereunder and Bank of America
National Trust and Savings Association and Bankers Trust Company,
as agents, together with the related documents thereto
(including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time,
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including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including, without
limitation, increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is
permitted by the covenant described under "Certain
Covenants--Limitation on Incurrence of Additional Indebtedness"
above) or adding Restricted Subsidiaries of DMC as additional
borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement
designed to protect DMC or any Restricted Subsidiary of DMC
against fluctuations in currency values.
"Default" means an event or condition the occurrence of
which is, or with the lapse of time or the giving of notice or
both would be, an Event of Default.
"Designated Senior Debt" means (i) Indebtedness under or in
respect of the Credit Agreement and (ii) any other Indebtedness
constituting Senior Debt which, at the time of determination, has
an aggregate outstanding principal amount of at least $75 million
and is specifically designated by DMC in the instrument
evidencing such Senior Debt as "Designated Senior Debt."
"Disqualified Capital Stock" means that portion of any
Capital Stock which, by its terms (or by the terms of any
security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder
thereof, in each case on or prior to the final maturity date of
the New Notes.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length,
free market transaction, for cash, between a willing seller and a
willing and able buyer, neither of whom is under undue pressure
or compulsion to complete the transaction.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the
accounting profession of the United States, which are in effect
as of the Issue Date.
"Guarantor" means each of DMFC and any other Person that
executes a Guarantee pursuant to the covenant described under
"Certain Covenants--Limitation on Guarantees by Restricted
Subsidiaries," each until a successor replaces it pursuant to the
Indenture and thereafter means such successor. A Person whose
Guarantee has terminated pursuant to the aforesaid covenant shall
cease to be a Guarantor effective as of such termination.
"Indebtedness" means with respect to any Person, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all
Capitalized Lease Obligations of such Person (but excluding any
operating lease obligations), (iv) all obligations of such Person
issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title
retention agreement (but excluding trade accounts payable and
other accrued liabilities arising in the ordinary course of
business that are not overdue by 90 days or more or that are
being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all obligations for the
reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and
other contingent obligations in respect of Indebtedness referred
to in clauses (i) through (v) above and clause (viii) below,
(vii) all obligations of any other Person of the type referred to
in clauses (i) through (vi) that are secured by any lien on any
property or asset of such Person, the amount of such obligation
being deemed to be the lesser of the fair market value of such
property or asset or the amount of the obligation so
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secured, (viii) all obligations under Currency Agreements and
Interest Swap Obligations of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock
being equal to its maximum fixed repurchase price (or comparable
price that DMC may be required to pay for the acquisition or
retirement of such Disqualified Capital Stock), but excluding
accrued dividends, if any. For purposes hereof, the "maximum
fixed repurchase price" of any Disqualified Capital Stock which
does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as
if such Disqualified Capital Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such
fair market value shall be determined in good faith by the Board
of Directors of the issuer of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does
not, and whose directors, officers and employees or Affiliates do
not, have a direct or indirect equity beneficial ownership
interest in DMC exceeding 10% and (ii) which, in the judgment of
the Board of Directors of DMC, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person,
whereby, directly or indirectly, such Person is entitled to
receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a
stated notional amount in exchange for periodic payments made by
such other Person calculated by applying a fixed or a floating
rate of interest on the same notional amount and shall include,
without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct
or indirect loan or other extension of credit (including, without
limitation, a guarantee) or capital contribution to (by means of
any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or
any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any other Person. In the case of DMC,
"Investment" shall exclude extensions of trade credit (including
trade receivables) by DMC and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade
practices of DMC or such Restricted Subsidiary, as the case may
be. For the purposes of the covenant described under "Certain
Covenants--Limitation on Restricted Payments", (i) "Investment"
shall include and be valued at the portion of the fair market
value of the net assets of any Restricted Subsidiary represented
by DMC's equity interest in such Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by DMC or
any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the
payment of dividends or distributions in connection with such
Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce
the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in
Consolidated Net Income. If DMC or any Restricted Subsidiary of
DMC sells or otherwise disposes of any Common Stock of any direct
or indirect Restricted Subsidiary of DMC such that, after giving
effect to any such sale or disposition, DMC no longer owns,
directly or indirectly, 100% of the outstanding Common Stock of
such Restricted Subsidiary, DMC shall be deemed to have made an
Investment on the date of any such sale or disposition equal to
the fair market value of the Common Stock of such Restricted
Subsidiary not sold or disposed of.
"Lien" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including
any conditional sale or other title retention agreement, any
lease in the nature thereof and any agreement to give any
security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale,
the proceeds in the form of cash or Cash Equivalents including
payments in respect of deferred payment obligations when received
in the form of cash or Cash Equivalents (other than the portion
of any such deferred payment constituting interest) received by
DMC or
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any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or
payable after taking into account any reduction in consolidated
tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is
required to be repaid in connection with such Asset Sale and (d)
appropriate amounts to be provided by DMC or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and
retained by DMC or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation
governing any Indebtedness.
"Permitted Indebtedness" means, without duplication, each
of the following:
(i) Indebtedness under the New Notes and the Indenture;
(ii) Indebtedness incurred pursuant to the Credit
Agreement in an aggregate principal amount at any time
outstanding not to exceed $730 million less (A) the sum of
(y) the amount of all scheduled mandatory principal
payments in respect of term loans thereunder (excluding any
such payments to the extent refinanced at the time of
payment under a replacement Credit Agreement) actually made
by DMC on or before June 30, 2000 plus (z) the amount of
all mandatory principal payments in respect of such term
loans thereunder (other than such excluded payments) made
from (or attributable to) the proceeds received from Asset
Sales; (B) in the case of the Revolving Credit Facility,
any required permanent repayments (which are accompanied by
a corresponding permanent commitment reduction) thereunder
made on or before June 30, 2000 or made by reason of the
receipt of the proceeds of Asset Sales; and (C) the amount
of the Receivables Program Obligations then outstanding.
(iii) other Indebtedness of DMC and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the
amount of any scheduled amortization payments or mandatory
prepayments when actually paid or permanent reductions
thereon;
(iv) Interest Swap Obligations of DMC covering
Indebtedness of DMC or any of its Restricted Subsidiaries
and Interest Swap Obligations of any Restricted Subsidiary
of DMC covering Indebtedness of such Restricted Subsidiary;
provided, however, that such Interest Swap Obligations are
entered into to protect DMC and its Restricted Subsidiaries
from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap Obligation
does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided
that in the case of Currency Agreements which relate to
Indebtedness, such Currency Agreements do not increase the
Indebtedness of DMC and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted
Subsidiary of DMC to DMC or to another Wholly Owned
Restricted Subsidiary of DMC, in either case for so long as
such Indebtedness is held by DMC or a Wholly Owned
Restricted Subsidiary of DMC, in each case subject to no
Lien held by a Person other than DMC or a Wholly Owned
Restricted Subsidiary of DMC; provided that if as of any
date any Person other than DMC or a Wholly Owned Restricted
Subsidiary of DMC owns or holds any such Indebtedness or
holds a Lien in respect of such Indebtedness, there shall
be deemed to have occurred on such date the incurrence of
Indebtedness not constituting Permitted Indebtedness by the
issuer of such Indebtedness;
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(vii) Indebtedness of DMC to a Wholly Owned Restricted
Subsidiary of DMC for so long as such Indebtedness is held
by a Wholly Owned Restricted Subsidiary of DMC, in each
case subject to no Lien; provided that (a) any Indebtedness
of DMC to any Wholly Owned Restricted Subsidiary of DMC is
unsecured and subordinated, pursuant to a written
agreement, to DMC's obligations under the Indenture and the
New Notes and (b) if as of any date any Person other than a
Wholly Owned Restricted Subsidiary of DMC owns or holds any
such Indebtedness or any Person holds a Lien in respect of
such Indebtedness, there shall be deemed to have occurred
on such date the incurrence of Indebtedness not
constituting Permitted Indebtedness by DMC;
(viii) Indebtedness arising from the honoring by a
bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in
the ordinary course of business; provided, however, that
such Indebtedness is extinguished within five business days
of incurrence;
(ix) Indebtedness of DMC or any of its Restricted
Subsidiaries in respect of security for workers'
compensation claims, payment obligations in connection with
self-insurance, performance bonds, surety bonds or similar
requirements in the ordinary course of business;
(x) Capitalized Lease Obligations and Purchase Money
Indebtedness of DMC and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed
$25 million at any one time outstanding;
(xi) guarantees by DMC and its Wholly Owned Restricted
Subsidiaries of each other's Indebtedness: provided that
such Indebtedness is permitted to be incurred under the
Indenture, including, with respect to guarantees by Wholly
Owned Restricted Subsidiaries of DMC, the covenant
described under "Certain Covenants--Limitation of
Guarantees by Restricted Subsidiaries";
(xii) Acquired Indebtedness and Acquisition Financing
Indebtedness; provided that (y) if such indebtedness is
incurred on or before June 30, 1999, the consolidated Fixed
Charge Coverage Ratio of DMC and its Restricted
Subsidiaries, after giving effect to the transaction in
which such Acquired Indebtedness or Acquisition Financing
Indebtedness is incurred (a "pro forma Consolidated Fixed
Charge Coverage Ratio") (A) shall be greater than 1.8 to
1.0 and (B) shall be at least equal to the Consolidated
Fixed Charge Coverage Ratio at such time without giving
effect to the transaction in which such Acquired
Indebtedness or Acquisition Financing Indebtedness is
incurred or (z) if such indebtedness is incurred on or
after July 1, 1999, such pro forma Consolidated Fixed
Charge Coverage Ratio shall be greater than 2.0 to 1.0;
(xiii) Indebtedness arising from agreements providing
for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any
obligations of DMC or any of its Restricted Subsidiaries
pursuant to such agreements, in each case incurred in
connection with the disposition of any business assets or
Restricted Subsidiary of DMC (other than Guarantees of
Indebtedness or other obligations incurred by any Person
acquiring all or any portion of such business assets or
Restricted Subsidiary of DMC for the purpose of financing
such acquisition) in a principal amount not to exceed the
gross proceeds actually received by DMC or any of its
Restricted Subsidiaries in connection with such
disposition; provided, however, that the principal amount
of any Indebtedness incurred pursuant to this clause
(xiii), when taken together with all Indebtedness incurred
pursuant to this clause (xiii) and then outstanding, shall
not exceed $20 million;
(xiv) guarantees furnished by DMC or its Restricted
Subsidiaries in the ordinary course of business, of
Indebtedness of another Person in an aggregate amount not
to exceed $10 million at any time outstanding;
(xv) Refinancing Indebtedness;
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(xvi) Receivables Program Obligations; and
(xvii) additional Indebtedness of DMC and its
Restricted Subsidiaries in an aggregate principal amount
not to exceed $50 million at any one time outstanding
(which amount may, but need not, be incurred in whole or in
part under the Credit Agreement).
"Permitted Investments" means: (i) Investments by DMC or
any Restricted Subsidiary of DMC in any Person that is or will
become immediately after such Investment a Restricted Subsidiary
of DMC or that will merge or consolidate into DMC or a Restricted
Subsidiary of DMC, provided that such Person is engaged, in all
material respects, solely in the business of food, food
distribution and related businesses; (ii) Investments in DMC by
any Restricted Subsidiary of DMC; provided that any Indebtedness
evidencing such Investment is unsecured and subordinated,
pursuant to a written agreement, to DMC's obligations under the
New Notes and the Indenture; (iii) Investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of
DMC and its Restricted Subsidiaries in the ordinary course of
business for bona fide business purposes not in excess of $5
million at any one time outstanding; (v) Currency Agreements and
Interest Swap Obligations entered into in the ordinary course of
DMC's or its Restricted Subsidiaries' businesses and otherwise in
compliance with the Indenture; (vi) additional Investments not to
exceed $25 million at any one time outstanding; (vii) Investments
in securities of trade creditors or customers received in
settlement of obligations or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; (viii)
Investments made by DMC or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale
made in compliance with the covenant described under "Certain
Covenants--Limitation on Asset Sales," or not constituting an
Asset Sale by reason of the $1 million threshold contained in the
definition thereof; (ix) Investments specifically permitted by
and made in accordance with the provisions of the covenant
described under "Certain Covenants--Limitation on Transactions
with Affiliates"; (x) guarantees permitted by the covenant
described under "Certain Covenants--Limitation of Guarantees by
Restricted Subsidiaries"; (xi) Related Business Investments in
companies and ventures in which DMC or a Restricted Subsidiary of
DMC holds an equity ownership interest of not less than 33 1/3%
in an aggregate amount not exceeding the sum of (x) the
unutilized portion of the amount of Investments permitted by
clause (vi) of this definition, (y) the proceeds of the sale of
certain assets identified in a schedule to the Indenture as being
held for disposition plus (z) $25 million; and (xii) Investments
made in connection with a Qualified Receivables Transaction.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental
charges or claims either (a) not delinquent or (b)
contested in good faith by appropriate proceedings and as
to which DMC or any of its Restricted Subsidiaries shall
have set aside on its books such reserves as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent for
a period of more than 60 days or being contested in good
faith, if such reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers'
compensation, unemployment insurance and other types of
social security or similar obligations, including any Lien
securing letters of credit issued in the ordinary course of
business consistent with past practice in connection
therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and
return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed
money);
(iv) judgment Liens not giving rise to an Event of
Default so long as such Lien is adequately bonded and any
appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have
been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
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(v) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property
not interfering in any material respect with the ordinary
conduct of the business of DMC or any of its Restricted
Subsidiaries;
(vi) any interest or title of a lessor under any
lease, whether or not characterized as capital or
operating; provided that such Liens do not extend to any
property or assets which is not leased property subject to
such lease;
(vii) Liens securing Capitalized Lease Obligations and
Purchase Money Indebtedness incurred in accordance with the
covenant described under "Certain Covenants--Limitation on
Incurrence of Additional Indebtedness"; provided, however,
that in the case of Purchase Money Indebtedness (A) the
Indebtedness shall not exceed the cost of such property or
assets being acquired or constructed and shall not be
secured by any property or assets of DMC or any Restricted
Subsidiary of DMC other than the property and assets being
acquired or constructed and (B) the Lien securing such
Indebtedness shall be created within 90 days of such
acquisition or construction;
(viii) Liens upon specific items of inventory or other
goods and proceeds of any Person securing such Person's
obligations in respect of bankers' acceptances issued or
created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with
respect to letters of credit which encumber documents and
other property relating to such letters of credit and
products and proceeds thereof;
(x) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory,
contractual, or warranty requirements of DMC or any of its
Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations that
relate to Indebtedness that is otherwise permitted under
the Indenture;
(xii) Liens securing Indebtedness under Currency
Agreements;
(xiii) Liens securing Acquired Indebtedness incurred
in accordance with the covenant described under "Certain
Covenants--Limitation on Incurrence of Additional
Indebtedness"; provided that (A) such Liens secured such
Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by DMC or a
Restricted Subsidiary of DMC and were not granted in
connection with, or in anticipation of, the incurrence of
such Acquired Indebtedness by DMC or a Restricted
Subsidiary of DMC and (B) such Liens do not extend to or
cover any property or assets of DMC or of any of its
Restricted Subsidiaries other than the property or assets
that secured the Acquired Indebtedness prior to the time
such Indebtedness became Acquired Indebtedness of DMC or a
Restricted Subsidiary of DMC and are no more favorable to
the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired
Indebtedness by DMC or a Restricted Subsidiary of DMC;
(xiv) leases or subleases granted to others not
interfering in any material respect with the
business of DMC or its Restricted Subsidiaries;
(xv) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by DMC or
any of its Restricted Subsidiaries in the ordinary course
of business; and
(xvi) Liens on Receivables Program Assets securing
Receivables Program Obligations.
"Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision
thereof.
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"Preferred Stock" of any Person means any Capital Stock of
such Person that has preferential rights to any other Capital
Stock of such Person with respect to dividends or redemptions or
upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of DMC or
any of its Restricted Subsidiaries incurred in the normal course
of business for the purpose of financing all or any part of the
purchase price, or the cost of installation, construction or
improvement, of property or assets.
"Purchase Money Note" means a promissory note evidencing
the obligation of a Receivables Subsidiary to pay the purchase
price for Receivables or other indebtedness to DMC or to any
other Seller in connection with a Qualified Receivables
Transaction, which note shall be repaid from cash available to
the maker of such note, other than cash required to be held as
reserves pursuant to Receivables Documents, amounts paid in
respect of interest, principal and other amounts owing under
Receivables Documents and amounts paid in connection with the
purchase of newly generated Receivables.
"Qualified Capital Stock" means any Capital Stock that is
not Disqualified Capital Stock.
"Qualified Receivables Transaction" means any transaction
or series of transactions that may be entered into by DMC or any
such Subsidiary of DMC pursuant to which DMC or any such
Subsidiary may sell, convey or otherwise transfer to a
Receivables Subsidiary (in the case of a transfer by DMC or any
other Seller) and any other person (in the case of a transfer by
a Receivables Subsidiary), or may grant a security interest in,
any Receivables Program Assets (whether now existing or arising
in the future); provided that:
(a) no portion of the indebtedness or any other
obligations (contingent or otherwise) of a Receivables
Subsidiary or Special Purpose Vehicle (i) is guaranteed by
DMC or any other Seller (excluding guarantees of
obligations pursuant to Standard Securitization
Undertakings), (ii) is recourse to or obligates DMC or any
other Seller in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property
or asset of DMC or any other Seller, directly or
indirectly, contingently or otherwise, to the satisfaction
of obligations incurred in such transactions, other than
pursuant to Standard Securitization Undertakings;
(b) neither DMC nor any other Seller has any material
contract, agreement, arrangement or understanding with a
Receivables Subsidiary or a Special Purpose Vehicle (except
in connection with a Purchase Money Note or Qualified
Receivables Transaction) other than on terms no less
favorable to DMC or such Seller than those that might be
obtained at the time from persons that are not affiliates
of DMC, other than fees payable in the ordinary course of
business in connection with servicing accounts receivable;
and
(c) DMC and the other Sellers do not have any
obligation to maintain or preserve the financial condition
of a Receivables Subsidiary or a Special Purpose Vehicle or
cause such entity to achieve certain levels of operating
results.
"Receivables" means all rights of DMC or any other Seller
to payments (whether constituting accounts, chattel paper,
instruments, general intangibles or otherwise, and including the
right to payment of any interest or finance charges), which
rights are identified in the accounting records of DMC or such
Seller as accounts receivable.
"Receivables Documents" means (x) a receivables purchase
agreement, pooling and servicing agreement, credit agreement,
agreements to acquire undivided interests or other agreement to
transfer, or create a security interest in, Receivables Program
Assets, in each case as amended, modified, supplemented or
restated and in effect from time to time and entered into by DMC,
another Seller and/or a Receivables Subsidiary, and (y) each
other instrument, agreement and other document entered into by
DMC, any other Seller or a Receivables Subsidiary relating to the
transactions contemplated by the agreements referred to in clause
(x) above, in each case as amended, modified, supplemented or
restated and in effect from time to time.
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"Receivables Program Assets" means (a) all Receivables which
are described as being transferred by DMC, another Seller or a
Receivables Subsidiary pursuant to the Receivables Documents, (b)
all Receivables Related Assets, and (c) all collections
(including recoveries) and other proceeds of the assets described
in the foregoing clauses.
"Receivables Program Obligations" means (a) notes, trust
certificates, undivided interests, partnership interests or other
interests representing the right to be paid a specified principal
amount for the Receivables Program Assets, and (b) related
obligations of DMC, a Subsidiary of DMC or a Special Purpose
Vehicle (including, without limitation, rights in respect of
interest or yield, breach of warranty claims and expense
reimbursement and indemnity provisions).
"Receivables Related Assets" means (i) any rights arising
under the documentation governing or relating to Receivables
(including rights in respect of liens securing such Receivables
and other credit support in respect of such Receivables), (ii)
any proceeds of such Receivables and any lockboxes or accounts in
which such proceeds are deposited, (iii) spread accounts and
other similar accounts (and any amounts on deposit therein)
established in connection with a Qualified Receivables
Transaction, (iv) any warranty, indemnity, dilution and other
intercompany claim arising out of Receivables Documents and (v)
other assets which are customarily transferred or in respect of
which security interests are customarily granted in connection
with asset securitization transactions involving accounts
receivable.
"Receivables Subsidiary" means a special purpose wholly
owned subsidiary of DMC created in connection with the
transactions contemplated by a Qualified Receivables Transaction,
which subsidiary engages in no activities other than those
incidental to such Qualified Receivables Transaction and which is
designated as a Receivables Subsidiary by DMC's Board of
Directors. Any such designation by the Board of Directors shall
be evidenced by filing with the Trustee a Board Resolution of DMC
giving effect to such designation and an Officers' Certificate
certifying, to the best of such officers' knowledge and belief
after consulting with counsel, such designation, and the
transactions in which the Receivables Subsidiary will engage,
comply with the requirements of the definition of Qualified
Receivables Transaction.
"Refinance" means, in respect of any security or
Indebtedness, to refinance, extend, renew, refund, repay, prepay,
redeem, defease or retire, or to issue a security or Indebtedness
in exchange or replacement for, such security or Indebtedness, in
whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by DMC or
any Restricted Subsidiary of DMC of Indebtedness incurred in
accordance with the covenant described under "Certain
Covenants--Limitation on Incurrence of Additional Indebtedness"
(other than pursuant to clauses (ii), (iv), (v), (vi), (vii),
(viii), (ix), (x), (xi), (xiii) or (xiv) of the definition of
Permitted Indebtedness), in each case that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of
such Person as of the date of such proposed Refinancing (plus the
amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by DMC in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted
Average Life to Maturity that is less than the Weighted Average
Life to Maturity of the Indebtedness being Refinanced or (B) a
final maturity earlier than the final maturity of the
Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is solely Indebtedness of DMC, then
such Refinancing Indebtedness shall be Indebtedness solely of DMC
and (y) if such Indebtedness being Refinanced is subordinate or
junior to the New Notes, then such Refinancing Indebtedness shall
be subordinate to the New Notes at least to the same extent and
in the same manner as the Indebtedness being Refinanced.
"Related Business Investment" means (i) any Investment by a
Person in any other Person a majority of whose revenues are
derived from the food, food distribution or related businesses;
and (ii) any Investment by such Person in any cooperative or
other supplier, including, without limitation, any joint venture
which is intended to supply any product or service useful to the
business of DMC and its Restricted Subsidiaries.
"Related Party" means, any Affiliate of TPG.
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"Representative" means the indenture trustee or other
trustee, agent or representative in respect of any Designated
Senior Debt; provided that, if and for so long as any Designated
Senior Debt lacks such a representative, then the Representative
for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary
of such Person which at the time of determination is not an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or
indirect arrangement with any Person or to which any such Person
is a party, providing for the leasing to DMC or a Restricted
Subsidiary of DMC of any property, whether owned by DMC or any
Restricted Subsidiary at the Issue Date or later acquired, which
has been or is to be sold or transferred by DMC or such
Restricted Subsidiary to such Person or to any other Person from
whom funds have been or are to be advanced by such Person on the
security of such Property.
"Seller" means DMC or any Subsidiary or other Affiliate of
DMC (other than a Receivables Subsidiary) which is a party to a
Receivables Document.
"Senior Debt" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the
filing of a bankruptcy petition at the rate provided for in the
documentation with respect thereto, whether or not such interest
is an allowed claim under applicable law) on any Indebtedness of
DMC, whether outstanding on the Issue Date or thereafter created,
incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that
such Indebtedness shall not be senior in right of payment to the
New Notes. Without limiting the generality of the foregoing,
"Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all
other amounts owing in respect of, (x) all monetary obligations
(including guarantees thereof) of every nature of DMC under the
Credit Agreement, including, without limitation, obligations to
pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, (y) all
Interest Swap Obligations (including guarantees thereof) and (z)
all obligations (including guarantees thereof) under Currency
Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt"
shall not include (i) any Indebtedness of DMC to a Subsidiary of
DMC, (ii) Indebtedness to, or guaranteed by DMC for the benefit
of, any shareholder (other than a parent corporation), director,
officer or employee of DMC or any Subsidiary of DMC (including,
without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services, (iv)
Indebtedness represented by Disqualified Capital Stock, (v) any
liability for federal, state, local or other taxes owed or owing
by DMC, (vi) any Indebtedness incurred in violation of the
Indenture and (vii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness
of DMC. "Senior Debt," when used with respect to a Guarantor,
shall have a meaning substantially identical to that applied to
the Indebtedness of such Guarantor (including any guarantees
issued by such Guarantor).
"Significant Subsidiary" shall have the meaning set forth
in Rule 1.02(w) of Regulation S-X under the Securities Act.
"Special Purpose Vehicle" means a trust, partnership or
other special purpose Person established by DMC and/or any of its
Subsidiaries to implement a Qualified Receivables Transaction.
"Standard Securitization Undertakings" means
representations, warranties, covenants and indemnities entered
into by DMC or any Subsidiary of DMC which are reasonably
customary in an accounts receivable transactions.
"Subsidiary," with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election
of directors under ordinary circumstances
107
<PAGE>
shall at the time be owned, directly or indirectly, by such
Person or (ii) any other Person of which at least a majority of
the voting interest under ordinary circumstances is at the time
owned, directly or indirectly, by such Person.
"Tax Sharing Agreement" means the tax sharing agreement
between DMC and DMFC allocating the obligations to contribute
amounts for the payment of income taxes and the benefits of any
credits or other reductions of tax payments so as to approximate
the income taxes that would be payable by DMC and DMFC on a
stand-alone basis if no consolidated tax return were filed by
such entities.
"Unrestricted Subsidiary" of any Person means (i) any
Subsidiary of such Person that at the time of determination shall
be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors of DMC may designate any Subsidiary of DMC
(including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of,
DMC or any other Subsidiary of DMC that is not a Subsidiary of
the Subsidiary to be so designated; provided that (x) DMC
certifies to the Trustee that such designation complies with the
covenant described under "Certain Covenants--Limitation on
Restricted Payments" and (y) each Subsidiary to be so designated
and each of its Subsidiaries has not at the time of designation,
and does not thereafter, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to
any Indebtedness pursuant to which the lender thereof has
recourse to any of the assets of DMC or any of its Restricted
Subsidiaries. The Board of Directors of DMC may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (x)
immediately after giving effect to such designation, DMC is able
to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the covenant described
under "Certain Covenants--Limitation on Incurrence of Additional
Indebtedness" and (y) immediately before and immediately after
giving effect to such designation, no Default or Event of Default
shall have occurred and be continuing. Any such designation by
the Board of Directors of DMC shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the
foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by
dividing (a) the then outstanding aggregate principal amount of
such Indebtedness into (b) the sum of the total of the products
obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required
payment of principal, including payment at final maturity, in
respect thereof, by (ii) the number of years (calculated to the
nearest one-twelfth) which will elapse between such date and the
making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means
any Restricted Subsidiary of such Person of which all the
outstanding voting securities (other than, in the case of a
foreign Restricted Subsidiary, directors' qualifying shares or an
immaterial amount of shares otherwise required to be owned by
other Persons pursuant to applicable law) are owned by such
Person or any Wholly Owned Restricted Subsidiary of such Person.
108
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
Exchange of Old Notes for New Notes
The following summary describes the principal U.S. federal
income tax consequences of the exchange of the Old Notes for New
Notes (the "Exchange") that may be relevant to a beneficial owner
of Notes that will hold the New Notes as capital assets and that
is a citizen or resident of the United States, or that is a
corporation, partnership or other entity created or organized in
or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to
U.S. federal income taxation regardless of its source or a trust
if (i) a U.S. court is able to exercise primary supervision over
the trust's administration and (ii) one or more U.S. fiduciaries
have the authority to control all of the trust's substantial
decisions.
The Exchange pursuant to the Exchange Offer will not be a
taxable event for U.S. federal income tax purposes. As a result,
a holder of an Old Note whose Old Note is accepted in an Exchange
Offer will not recognize gain on the Exchange. A tendering
holder's tax basis in the New Notes will be the same as such
holder's tax basis in its Old Notes. A tendering holder's holding
period for the New Notes received pursuant to the Exchange Offer
will include its holding period for the Old Notes surrendered
therefor.
ALL HOLDERS OF OLD NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND OF
THE OWNERSHIP AND DISPOSITION OF NEW NOTES RECEIVED IN THE
EXCHANGE OFFER IN VIEW OF THEIR OWN PARTICULAR CIRCUMSTANCES.
109
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making
activities or other trading activities. DMC and DMFC have agreed
that they will make this Prospectus available to any
Participating Broker-Dealer for a period of time not to exceed
180 days after the Registration Statement is declared effective
(subject to extension under certain circumstances) for use in
connection with any such resale. In addition, until such date,
all broker-dealers effecting transactions in the New Notes may be
required to deliver a prospectus.
Neither DMC nor DMFC will receive any proceeds from any
sale of New Notes by broker-dealers. New Notes received by
broker-dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly
to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Notes
may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and
any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
Starting on the Expiration Date, DMC or DMFC will promptly
send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. DMC and DMFC have
agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the Holders of the
Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the New Notes
(including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes and the Guarantee will be
passed upon for DMC and DMFC by Cleary, Gottlieb, Steen &
Hamilton, New York, New York.
EXPERTS
The consolidated financial statements of DMFC, as of June
30, 1996 and 1995, and for each of the three years in the period
ended June 30, 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which
contains an explanatory paragraph with respect to the change in
the method of accounting for impairment of long-lived assets and
long-lived assets to be disposed of) appearing elsewhere herein,
and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
At a meeting held on April 18, 1997, the Board of Directors
of the Company approved the engagement of KPMG Peat Marwick LLP
as its independent auditors for the fiscal year ending June 30,
1997 to replace the firm of Ernst & Young LLP, who were dismissed
as auditors of the Company effective April 18, 1997.
110
<PAGE>
The reports of Ernst & Young LLP on the Company's financial
statements for the past two fiscal years did not contain an
adverse opinion or a disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope, or accounting
principles.
In connection with the audits of the Company's financial
statements for each of the two fiscal years ended June 30, 1996
and in the subsequent interim period, there were no disagreements
with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Ernst &
Young LLP would have caused Ernst & Young LLP to make reference
to the matter in their report.
The Company has requested Ernst & Young LLP to furnish it a
letter addressed to the Commission stating whether it agrees with
the above statements. A copy of that letter, dated June 11, 1997
is filed as Exhibit 16.1 to this Registration Statement.
111
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Del Monte Foods Company and subsidiaries
Page
----
Audited Financial Statements
- ----------------------------
Report of Independent Auditors ............................... F-2
Consolidated Balance Sheets--June 30, 1996 and 1995 .......... F-3
Consolidated Statements of Operations--Years
ended June 30, 1996, 1995 and 1994 .......................... F-4
Consolidated Statements of Stockholders' Equity--Years
ended June 30, 1996, 1995 and 1994 .......................... F-5
Consolidated Statements of Cash Flows--Years ended
June 30, 1996, 1995 and 1994 ................................ F-7
Notes to Consolidated Financial Statements ................... F-8
Unaudited Financial Statements
- ------------------------------
Consolidated Balance Sheets--March 31, 1997
and June 30, 1996 ........................................... F-24
Consolidated Statements of Operations--Nine-Month
Periods ended March 31, 1997 and 1996 ....................... F-25
Consolidated Statements of Cash Flows--Nine-Month
Periods ended March 31, 1997 and 1996 ....................... F-26
Notes to Consolidated Financial Statements ................... F-27
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated balance
sheets of Del Monte Foods Company and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years
ended June 30, 1996, 1995 and 1994. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 that 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
consolidated financial position of Del Monte Foods Company and
subsidiaries at June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for the years
ended June 30, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.
In the fiscal year ended June 30, 1996, Del Monte Foods
Company changed its method of accounting for impairment of
long-lived assets and for long-lived assets to be disposed of.
ERNST & YOUNG LLP
August 29, 1996
San Francisco, California
F-2
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Per Share Amounts)
June 30,
---------------
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 6 $ 8
Restricted cash ..................................... 30
Trade accounts receivable, net
of allowance ....................................... 98 157
Other receivables ................................... 8 12
Inventories ......................................... 304 360
Prepaid expenses and other
current assets ..................................... 13 14
----- -----
TOTAL CURRENT ASSETS ............................ 459 551
Property, plant and equipment, net ................... 247 317
Other assets ......................................... 30 92
----- -----
TOTAL ASSETS .................................... $ 736 $ 960
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses ........................................... $ 202 $ 267
Short-term borrowings ............................... 43 167
Current portion of long-term
debt ............................................... 7 18
----- -----
TOTAL CURRENT LIABILITIES ....................... 252 452
Long-term debt ....................................... 323 391
Other noncurrent liabilities ......................... 250 262
Minority Interest .................................... 31
Redeemable common stock ($.01 par
value per share, 1,650,000 shares
authorized; issued and outstanding:
159,386 in 1996 and 1995) ........................... 2 2
Redeemable preferred stock ($.01
par value per share, 32,493,000
shares authorized; issued and
outstanding: 17,300,041 in 1996
and 15,521,790 in 1995; aggregate
liquidation preference: $579 in
1996 and $500 in 1995) .............................. 213 215
Stockholders' equity:
Common stock ($.01 par value per
share, 1,700,000 shares authorized;
issued and outstanding: 223,468 in
1996 and 239,709 in 1995)
Paid-in capital ...................................... 3 3
Notes receivable from stockholders (1)
Retained earnings (deficit) .......................... (281) (369)
Cumulative translation adjustment .................... (26) (26)
----- -----
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) ............................... (304) (393)
----- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........................... $ 736 $ 960
===== =====
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions Except Per Share Amounts)
Year Ended June 30,
1996 1995 1994
Net sales ..................................... $1,304 $1,526 $1,499
Cost of products sold ......................... 1,084 1,289 1,275
----- ----- -----
Gross profit ................................ 220 237 224
Selling, advertising, administrative
and general expense .......................... 138 157 157
----- ----- -----
OPERATING INCOME ............................ 82 80 67
Interest expense .............................. 67 76 61
Gain on sale of divested assets (Note B) ...... (107) (13)
Other (income) expense (Note M) ............... 3 (11) 8
----- ----- -----
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ...... 119 15 11
Provision for income taxes ..................... 11 2 3
Minority interest in earnings of subsidiary .... 3 1 5
----- ----- -----
INCOME BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE ...................................... 105 12 3
Extraordinary loss from refinancing of debt
and early debt retirement ..................... 10 7
Cumulative effect of accounting change ......... 7
----- ----- -----
NET INCOME ................................... $ 88 $ 5 $ 3
===== ===== =====
Net income (loss) attributable to common
shares ........................................ $ 23 $(66) $ (58)
===== ===== =====
Income (loss) per common shares:
Income (loss) before extraordinary item
and cumulative effect of accounting change . $59.40 $(145.35) $(143.08)
Extraordinary loss from refinancing of debt
and early debt retirement .................. (26.39) (18.34)
Cumulative effect of accounting change ...... (18.14) -- --
----- ----- -----
Net income (loss) per common share ....... $14.87 $(163.69) $(143.08)
===== ===== =====
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Millions)
Notes
Receivable Retained Cumulative
Common Paid-in from Earnings Translation Total
Stock Capital Stockholder (Deficit) Adjustment (Deficit)
------ ------- ----------- --------- ----------- ---------
Balance at
June 30, 1993 $ -- $ 3 $(1) $(377) $(10) $(385)
Repurchase
of shares
Net income
for year
ended June
30, 1994 3 3
Cumulative
translation
adjustment (2) (2)
----- ----- ----- ----- ----- -----
Balance at
June 30, 1994 -- 3 (1) (374) (12) (384)
Repurchase
of shares
Net income for
year ended
June 30, 1995 5 5
Cumulative
translation
adjustment (14) (14)
----- ----- ----- ----- ----- -----
Balance at
June 30, 1995 -- 3 (1) (369) (26) (393)
Repayment of
notes
receivable
from
stockholders 1 1
Repurchase
of shares
Net income
for year
ended
June 30, 1996 88 88
----- ----- ----- ----- ----- -----
Balance at
June 30, 1996 $ -- $ 3 $-- $(281) $(26) $(304)
===== ===== ===== ===== ===== =====
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock--Number of Shares
Total
Class A Class B Class E Common Shares
Shares issued and
outstanding at
June 30, 1993 ....... 232,214 25,000 257,214
Repurchase
of shares ............ (14,152) (14,152)
------- ------- ------- -------
Shares issued and
outstanding at
June 30, 1994 ........ 218,062 25,000 243,062
Repurchase
of shares............. (3,353) (3,353)
------- ------- ------- -------
Shares issued and
outstanding at
June 30, 1995 ........ 214,709 25,000 239,709
Repurchase
of shares............. (16,241) (16,241)
------- ------- ------- -------
Shares issued and
outstanding at
June 30, 1996 ........ 198,468 25,000 223,468
======= ======= ======= =======
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
Year ended June 30,
-------------------
1996 1995 1994
OPERATING ACTIVITIES:
Net income........................................... $88 $ 5 $ 3
Adjustments to reconcile net income to net cash flows:
Extraordinary loss from refinancing of debt
and early debt and retirement.................... 5 7
Cumulative effect of accounting change........... 7
Gain on sale of divested assets.................. (107) (13)
Loss on sales of assets.......................... 2 3 4
Depreciation and amortization.................... 31 40 40
Deferred income taxes............................ 2
Minority interest in earnings of subsidiary...... 1 5
Changes in operating assets and liabilities:
Accounts receivable.............................. 33 (37) 2
Inventories...................................... 11 (21) 27
Prepaid expenses and other current assets........ (2) 3 (2)
Other assets..................................... (1) (20) (5)
Accounts payable and accrued expenses............ (28) 25 (67)
Other non-current liabilities.................... 14 33 30
Other............................................ 2
----- ----- -----
Total adjustments................................ (35) 34 25
----- ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 53 39 28
INVESTING ACTIVITIES:
Capital expenditures.......................... (16) (24) (36)
Proceeds from sales of fixed assets........... 4 3
Proceeds from sales of divested assets........ 182 91
----- ----- -----
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES ........................... 170 (21) 55
FINANCING ACTIVITIES:
Short-term borrowings....................... 1,276 1,901 909
Payment on short-term borrowings............ (1,354) (1,867) (909)
Proceeds from long-term borrowing........... 188
Principal payments on long-term debt........ (108) (238) (78)
Specific Proceeds Collateral Account........ (30)
Dividends paid to minority shareholders..... (1) (2)
Other....................................... (1) (3) (3)
----- ----- -----
NET CASH USED IN FINANCING ACTIVITIES.. (217) (20) (83)
Effect of exchange rate changes on cash and cash
equivalent ................................... (8) 3 (2)
----- ----- -----
NET CHANGE IN CASH AND CASH EQUIVALENTS (2) 1 (2)
Cash and cash equivalents at beginning
of year ...................................... 8 7 9
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR $6 $8 $7
===== ===== =====
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Business: Del Monte Foods Company ("DMFC") and its wholly
owned subsidiary, Del Monte Corporation ("DMC"), (DMFC together
with DMC, "the Company") purchased the Del Monte processed foods
division of RJR Nabisco, Inc. effective January 9, 1990 ("the
Acquisition"). The Company operates in one business segment: the
manufacturing and marketing of processed foods, primarily canned
vegetables, fruits and tomato products. The Company primarily
sells its products under the Del Monte brand. The Company holds
the rights to the Del Monte brand in the United States, Mexico,
and Central America.
Principles of Consolidation: The consolidated financial
statements include the accounts of the Company and its majority
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain
amounts reported in the consolidated financial statements are
based on management estimates. The ultimate resolution of these
items may differ from those estimates.
Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents. The carrying amount reported in
the balance sheet for cash and cash equivalents approximates its
fair value.
Restricted Cash: Restricted cash represents a portion of
the proceeds from the Company's sale of its 50.1% interest in Del
Monte Pacific Resources Limited ("DMPR"), a joint venture
operating primarily in the Philippines, which were deposited into
the Specific Proceeds Collateral Account until agreement is
reached with the Term Loan lenders as to final application of the
funds (see Note B).
Inventories: Inventories are stated at the lower of cost or
market. The cost of substantially all inventories is determined
using the LIFO method. The Company has established various LIFO
pools that have measurement dates coinciding with the natural
business cycles of the Company's major inventory items.
Inflation has had a minimal impact on production costs
since the Company adopted the LIFO method as of July 1, 1991.
Accordingly, there is no significant difference between LIFO
inventory costs and current costs.
Property, Plant and Equipment and Depreciation: Property,
plant and equipment are stated at cost and depreciated over their
estimated useful lives, principally by the straight-line method.
Maintenance and repairs are expensed as incurred. Significant
expenditures that increase useful lives are capitalized.
The principal estimated useful lives are: land
improvements--10 to 30 years; building and leasehold
improvements--10 to 30 years; machinery and equipment--7 to 15
years. Depreciation of plant and equipment and leasehold
amortization was $26, $34 and $35 for the years ended June 30,
1996, 1995 and 1994, respectively.
Cost of Products Sold: Cost of products sold includes raw
material, labor, overhead, and direct trade promotion costs.
Research and Development: Research and development costs
are included as a component of "Selling, advertising,
administrative and general expense." Research and development
costs charged to operations were $6, $6 and $5 for fiscal years
ended June 30, 1996, 1995 and 1994, respectively.
Foreign Currency Translation: For the Company's operations
in countries where the functional currency is other than the U.S.
dollar, asset and liability accounts are translated at the rate
in effect at the balance sheet date, and revenue and expense
accounts are translated at the average rates during the period.
Translation adjustments are reflected as a separate component of
stockholders' equity.
F-8
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
Net Income (Loss) per Common Share: Net income (loss) per
common share is computed by dividing net income (loss)
attributable to common shares by the weighted average number of
common and redeemable common shares outstanding during the
period. Net income (loss) attributable to common shares is
computed as net income (loss) reduced by the cash and in-kind
dividends for the period on redeemable preferred stock.
Minority Interest: Minority interest represents the minority
shareholders' proportionate share of the equity of DMPR, a
consolidated subsidiary.
Change in Accounting Principle: Effective July 1, 1995, the
Company adopted the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". The statement requires that assets held and used be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company has identified certain events as
possible indicators that an asset's carrying value may not be
recoverable including the elimination of or a significant
reduction in a product line. Future cash flows will be estimated
based on current levels of production, market sales price and
operating costs adjusted for expected trends. The statement also
requires that all long-lived assets, for which management has
committed to a plan to dispose, be reported at the lower of
carrying amount or fair value. A review of assets to be disposed
of resulted in identification of certain assets (farm lands and
plants no longer in use) whose carrying value exceeded their
present fair value, and a loss of $7 was recorded. The Company
does not depreciate long-lived assets held for sale.
NOTE B--DIVESTED ASSETS
Del Monte Pacific Resources Limited Operations
On March 29, 1996, the Company sold its 50.1% interest in
Del Monte Pacific Resources Limited, a joint venture operating
primarily in the Philippines, for $100 net of $2 of related
transaction expenses. This sale resulted in a gain of $52,
reduced by taxes of $6. Of the net gain of $46, $16 was deferred
and $30 was recognized in the current year. The purchase price
included a premium paid to the Company as consideration for
signing an eight year supply agreement whereby the Company must
source substantially all of its pineapple requirements from DMPR
over the agreement term. The gain associated with the value of
the premium has been deferred and will be amortized over the term
of the agreement.
The following results of the DMPR operations are included
in the Statements of Operations:
Year Ended June 30,
-----------------------
1996 1995 1994
---- ---- ----
Net sales.................................... $102 $142 $121
Costs and expenses........................... 97 141 115
--- --- ---
Income from operations before income taxes... 5 1 6
Provision for income taxes................... 2 2
--- --- ---
Income from operations....................... $3 $1 $4
=== === ===
All of the net proceeds from the sale of the Del Monte
Pacific Resources Limited operations were temporarily applied to
the revolving credit facility. In April 1996, $13 of Senior
Secured Notes were prepaid along with a $1 prepayment premium
recorded as an extraordinary loss. In addition, $30 was placed in
the Specific Proceeds Collateral Account until final agreement is
reached with the Term Loan lenders as to the application of
funds.
F-9
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
Pudding Business
On November 27, 1995, the Company sold its Pudding
Business, including the capital assets and inventory on hand, to
Kraft Foods, Inc. ("Kraft") for $89, net of $4 of related
transaction expenses. The sale resulted in the recognition of a
$71 gain, reduced by $2 of taxes. The purchase agreement, among
other things, allows Kraft to use the Del Monte name on
single-serve pudding products for up to a two-year period.
The following results of the Pudding Business are included in the
Statements of Operations:
Year Ended June 30,
-----------------------
1996 1995 1994
---- ---- ----
Net sales.................................... $15 $47 $41
Costs and expenses........................... 11 33 29
--- --- ---
Income from operations....................... $ 4 $14 $12
=== === ===
The net proceeds received from the Pudding Business sale
were used to prepay $54 of the term debt and $25 of the Senior
Secured Notes. In conjunction with the prepayment, the Company
recorded an extraordinary loss for the early retirement of debt.
The extraordinary loss consists of a $4 prepayment premium and a
$5 write-off of capitalized debt issue costs related to the early
retirement of debt.
Dried Fruit and Snack Operations
Effective August 13, 1993, the Company, sold its dried
fruit and snack operations to Yorkshire Dried Fruits and Nuts,
Inc., ("YDFNI") for $23. Proceeds from the sale were received in
cash ($16), preferred stock of YDFNI ($4) and common stock of
YDFNI ($3) representing a 20% equity interest in that company. No
significant gain or loss resulted from the sale. In connection
with this asset sale, DMC entered into certain agreements with
YDFNI which, among other things, grant YDFNI the right to use
certain Del Monte trademarks. Under these agreements, as a
service to, and for the benefit of YDFNI, DMC will purchase and
resell certain of the former DMC dried fruit and snack products.
Can Manufacturing Operations
Effective December 21, 1993, the Company sold substantially
all of the assets and certain related liabilities of its can
manufacturing operations in the United States to Silgan
Containers Corporation ("Silgan") for $70 in cash, net of $2 in
fees. The sale of these assets resulted in the recognition of a
$13 gain. In connection with the sale to Silgan, DMC entered into
a ten-year supply agreement under which Silgan, effective
immediately after the sale, began supplying substantially all of
DMC's metal container requirements for foods and beverages in the
United States and certain of DMC's metal container requirements
for foods and beverages in Mexico. Purchases under the agreement
for fiscal years 1996, 1995 and 1994 amounted to $130, $197 and
$77, respectively. The Company believes the supply agreement
provides it with a long term supply of cans at competitive prices
that adjust over time for normal manufacturing cost increases or
decreases.
F-10
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
NOTE C--SUPPLEMENTAL BALANCE SHEET INFORMATION
June 30,
---------------
1996 1995
---- ----
Trade Accounts Receivable:
Trade............................................. $99 $159
Allowance for doubtful accounts................... (1) (2)
----- -----
TOTAL TRADE ACCOUNTS RECEIVABLE................. $98 $157
===== =====
Inventories:
Finished product................................. $198 $208
Raw materials and supplies....................... 12 20
Other, principally packaging material............ 94 132
----- -----
TOTAL INVENTORIES........................... $304 $360
===== =====
Property, Plant and Equipment:
Land and land improvements....................... $44 $52
Buildings and leasehold improvements............. 98 117
Machinery and equipment.......................... 240 288
Construction in progress......................... 9 16
----- -----
391 473
Accumulated depreciation......................... (144) (156)
----- -----
TOTAL PROPERTY, PLANT AND EQUIPMENT......... $247 $317
===== =====
Other Assets:
Deferred debt issue costs..................... $26 $30
Other......................................... 10 65
----- -----
36 95
Accumulated amortization......................... (6) (3)
----- -----
TOTAL OTHER ASSETS.......................... $30 $92
===== =====
Accounts Payable and Accrued Expenses:
Accounts payable--trade....................... $76 $93
Marketing and advertising..................... 39 55
Payroll and employee benefits................. 18 30
Current portion of accrued pension liability.. 13 16
Current portion of other noncurrent
liabilities.................................. 22 11
Other............................................ 34 62
----- -----
TOTAL ACCOUNTS PAYABLE AND ACCRUED EXPENSES. $202 $267
===== =====
Other Noncurrent Liabilities:
Accrued postretirement benefits............... $140 $144
Accrued pension liability..................... 48 53
Self-insurance liabilities.................... 12 14
Other............................................ 50 51
----- -----
TOTAL OTHER NONCURRENT LIABILITIES.......... $250 $262
===== =====
F-11
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
NOTE D--SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings are summarized as follows:
June 30,
------------
1996 1995
---- ----
Revolving credit agreement................ $43 $121
Notes payable to banks outside
of the United States ................... 46
---- ----
$43 $167
==== ====
Unused lines of credit under the revolving credit agreement
at June 30, 1996 and 1995 totaled $328 and $245, respectively.
Long-term debt consists of the following:
June 30,
------------
1996 1995
---- ----
Term Loan................................. $ 68 $138
Subordinated Debt......................... 243 215
Senior Secured Notes...................... 13 50
Other..................................... 6 6
---- ----
330 409
Less Current Portion...................... 7 18
---- ----
$323 $391
==== ====
In June 1995, the Company refinanced its then existing $325
revolving credit agreement, Term Loan and Senior Secured Floating
Rate Notes through a new $400 revolving credit agreement, a $138
Term Loan and Senior Secured Notes in the amount of $50. In
conjunction with the refinancing, capitalized debt issue costs of
$7 were charged to fiscal 1995 income and have been accounted for
as an extraordinary item.
The revolving credit agreement bears an interest rate of
the London Interbank Offered Rate ("LIBOR") plus 2.75% or the
bank's reference rate plus 1.5% (9.75% at June 30, 1996), with
interest payable monthly. The credit facility also provides for
the issuance of letters of credit up to $50. Letters of credit
totaling $29 were outstanding at June 30, 1996. Letter of credit
fees are 2.75% per year. The Company pays a commitment fee to
maintain the lines of credit equal to .5% of the unused balance.
The agreement expires in June 2000.
At June 30, 1996, the Term Loan consists of three
components. A $31 amortizing component is due in quarterly
installments and bears an interest rate of LIBOR plus 3.25%. The
second component of this loan of $30 and the third component of
$7 are non-amortizing with interest fixed at 11.11% and LIBOR
plus 4.75%, respectively. The notes mature on December 1, 2000.
At June 30, 1996, the interest rate on the $31 component was
8.75% and on the $7 component was 10.25%.
The Senior Secured Notes bear interest at 18%, 14% payable
in cash and 4% payable in-kind in Secondary Notes, at the
Company's option. Interest payments are due quarterly. The notes
mature on December 1, 2001.
Subordinated Debt consists of Subordinated Guaranteed
Payment-in-Kind Notes. Interest accrues at 12.25% per year and is
generally payable through the issuance of additional PIK Notes.
The payment of such interest in additional PIK Notes since
issuance has resulted in an increase in the principal amount
outstanding of such indebtedness. The notes mature on September
1, 2002.
F-12
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
Scheduled maturities of long-term debt in each of the next five
years and thereafter will be as follows:
1997 ..................... $ 7
1998 ..................... 8
1999 ..................... 7
2000 ..................... 7
2001 ..................... 41
Thereafter ............... 260
----
$330
====
The Notes, Term Loan and Revolver (collectively "the Debt")
are collateralized by security interests in certain of the
Company's assets. Certain capital stock of the Company's wholly
owned subsidiaries is pledged as collateral on obligations of the
Company totaling $136. At June 30, 1996, total assets and net
equity of all subsidiaries, the stock or assets of which are not
pledged to secure the Debt, are less than 10% of the Company's
total consolidated amounts for these line items. At June 30,
1996, assets totaling $643 were pledged as collateral for
approximately $130 of short-term borrowings and long-term debt.
The Debt agreements contain restrictive covenants with
which the Company must comply. These restrictive covenants, in
some circumstances, limit the ability of the Company and its
subsidiaries to incur indebtedness, pay dividends, transfer
assets among subsidiaries, engage in transactions with
stockholders and affiliates, create liens, engage in mergers and
consolidations, engage in sales of assets and subsidiary stock
and make investments in unrestricted subsidiaries. Financial
covenants were set in June 1995 when the debt was issued based
upon the operations of the Company at that time. As a result of
the sale of the Pudding Business, such covenants have been
amended to reflect the absence of this business. The Company is
in compliance with all of the Debt covenants at June 30, 1996.
The Company made cash interest payments of $30, $44 and $37
for the years ended June 30, 1996, 1995 and 1994, respectively.
The Company has made an offer (the "Exchange Offer"), which
is scheduled to expire on September 6, 1996, to repurchase up to
$100 of the outstanding Subordinated Guaranteed Payment-in-Kind
Notes and exchange the remaining notes with new notes containing
similar terms except for a change of ownership premium. In order
to complete the Exchange Offer, the Company will apply the $30
Specific Proceeds Collateral Account and borrow an additional $55
and $35 under the existing Term Loan and the revolving credit
facility, respectively.
Due to the Company's ability to borrow additional funds in
conjunction with the Exchange Offer at terms consistent with its
current debt agreements, the borrowings presented on the June 30,
1996 balance sheet are deemed to approximate fair value.
NOTE E--STOCKHOLDERS' EQUITY AND REDEEMABLE STOCK
Stockholders' equity includes the following classes of
common stock, $.01 par value per share:
Shares Issued and Outstanding
Shares -------------------------------
Class Authorized June 30, 1996 June 30, 1995
- ----- ---------- ------------- -------------
A ................... 1,000,000 198,468 214,709
B ................... 150,000
E ................... 550,000 25,000 25,000
--------- ------- --------
1,700,000 223,468 239,709
========= ======= =======
F-13
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
Each class of common stock shares equally and ratably in
dividends declared by the Company on its common stock and in the
assets available to the holders of common stock in the event of
liquidation or dissolution of the Company. There are restrictions
on the payment of cash dividends on common stock under the
provisions of the Company's Debt agreements. Classes A and E
common stock have voting rights, Class A at one vote per share
and Class E at two votes per share. Class A common stock has
certain conversion features that permit, with various
restrictions, conversion to Classes C and D redeemable common
stock and Class E common stock. Classes B and E also have certain
conversion features that permit, with various restrictions,
conversion to Class A common.
Redeemable common and redeemable preferred stock consist of
the following:
Redeemable non-voting common stock ($.01 par value per
share):
Shares Issued and Outstanding
Shares -------------------------------
Class Authorized June 30, 1996 June 30, 1995
- ----- ---------- ------------- -------------
C ................... 550,000 6,903 6,903
D ................... 550,000 102,483 102,483
F ................... 550,000 50,000 50,000
--------- ------- --------
1,650,000 159,386 159,386
========= ======= =======
Classes C, D and F contain specified repurchase provisions
requiring the Company, at the twentieth anniversary of the
Acquisition closing date, to repurchase all outstanding shares
for cash at the then independently appraised value.
Each class of redeemable common stock shares equally and
ratably in dividends declared by the Company on its common stock
and in the assets available to the holders of common stock in the
event of liquidation or dissolution of the Company. There are
restrictions on the payment of cash dividends on redeemable
common stock under the provisions of the Company's Debt
agreements.
Redeemable preferred stock ($.01 par value per share):
Shares Issued and Outstanding
Shares -------------------------------
Series Authorized June 30, 1996 June 30, 1995
- ----- ---------- ------------- -------------
A Cumulative (issuable
in subseries A1
and A2 .............. 16,523,000 8,336,795 7,408,875
B Cumulative .......... 3,616,000 1,602,845 1,376,673
C Cumulative .......... 2,900,000 1,522,353 1,522,353
D Cumulative .......... 1,454,000 1,356,955 1,162,634
E Cumulative .......... 5,000,000 3,328,002 2,851,419
F Cumulative .......... 3,000,000 1,153,091 1,199,836
--------- --------- ----------
32,493,000 17,300,041 15,521,790
========== ========== ==========
In the event of a change in control, each holder of
redeemable preferred stock has the right, subject to certain
limitations, to require the Company to repurchase such holder's
shares in whole or in part at a purchase price equal to the
liquidation value plus accumulated and unpaid dividends per
share.
The various series of redeemable preferred stock pay
cumulative dividends, payable quarterly, at rates ranging from
15.0% to 15.5% per annum. Dividends on the Series A1 and B
redeemable preferred stock may be paid-in-kind in lieu of payment
in cash so long as the Company's debt agreements prohibit such
payment in cash. Dividends on the Series A2 redeemable preferred
stock may be paid in either cash or through a corresponding
periodic increase in the liquidation value of such stock.
Dividends on the Series C, D and E redeemable preferred
F-14
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
stock may be accumulated and unpaid or paid-in-kind in lieu of
payment of cash for a period of 28 quarters after issuance and
thereafter, if declared, must be paid in cash. Effective with the
quarter ended December 31, 1992, the holders of Series C
redeemable preferred stock elected to forego their periodic
receipt of paid-in-kind dividends in exchange for a corresponding
periodic increase in Series C liquidation value. Dividends on the
Series F redeemable preferred stock may be accumulated and unpaid
for a period of 28 quarters after issuance in lieu of payment in
cash and thereafter, if declared, must be paid in cash. Unpaid
dividends will be accumulated and compounded at the dividend
rate. There are restrictions on the payment of cash dividends on
redeemable preferred stock under the provisions of the Company's
Debt agreements.
Series A and Series B of the redeemable preferred stock
can, after the fifth anniversary of the issue date and at the
option of the holders thereof, be exchanged for subordinated debt
of DMFC in an amount equal to the liquidation value of stock
being exchanged. This debt would carry the same coupon as the
existing preferred stock. This debt would be subordinated to all
debt outstanding at June 30, 1996.
The various classes of redeemable preferred stock have no
voting rights except the right to elect two directors to the
Board in cases where dividends are in arrears for the specified
period or if the Charter is to be amended to adversely affect the
series of redeemable preferred stock in question.
The Company declared dividends for the following series of
redeemable preferred stock:
Dividend Rate Per Share
-----------------------
Year Ended June 30,
-----------------------
Series 1996 1995 1994
------ ---- ---- ----
A1 ................... $3.81 $3.81 $3.80
B .................... $3.87 $3.87 $3.87
D .................... $3.94 $3.93 $3.93
E .................... $3.94 $3.93 $3.93
Dividends are paid in like-kind redeemable preferred stock
at the rate of .04 shares for each $.001 dividend declared.
Resulting issuance of additional shares and related par values
are:
Year Ended June 30,
----------------------------------
1996 1995 1994
---- ---- ----
Additional shares 1,824,999 1,564,117 1,344,432
Total par value $ 0.018 $ 0.016 $ 0.012
NOTE F--RETIREMENT BENEFITS
The Company sponsors three non-contributory defined benefit
pension plans covering substantially all full-time employees.
Plans covering most hourly employees provide pension benefits
that are based on the employee's length of service and final
average compensation before retirement. Plans covering salaried
employees provide for individual accounts which offer lump sum or
annuity payment options, with benefits based on accumulated
compensation and interest credits made monthly throughout the
career of each participant. Assets of the plans consist primarily
of equity securities and corporate and government bonds.
It is the Company's policy to fund the plans in an amount
consistent with the funding requirements of federal law and
regulations and not to exceed an amount that would be deductible
for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date but
also for those expected to be earned in the future.
F-15
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
The following table sets forth the pension plans' funding status
and amounts recognized on the Company's balance sheet:
June 30,
--------------
1996 1995
---- ----
Actuarial present value of benefit obligations:
Vested benefit obligation ........................ $(265) $(270)
Accumulated benefit obligation ................... (270) (276)
Projected benefit obligation for services
rendered to date ................................ (277) (287)
Plan assets at fair value ........................ 245 233
---- ----
Projected benefit obligation in excess
of plan assets .................................. (32) (54)
Unrecognized net actuarial gain .................. (27) (12)
Unrecognized prior service income ................ (2) (3)
---- ----
Accrued pension cost recognized in the
consolidated balance sheet ...................... $ (61) $ (69)
==== ====
The components of net periodic pension cost for the years
ended June 30, 1996, 1995 and 1994 for all defined benefit plans
are as follows:
June 30,
---------------------
1996 1995 1994
---- ---- ----
Service cost for benefits earned during
period .................................... $ 4 $ 4 $ 5
Interest cost on projected benefit
obligation ................................ 21 22 23
Actual return on plan assets ............... (32) (31) (22)
Net amortization and deferral .............. 11 11 (1)
Curtailment ................................ (2)
Settlement ................................. (1)
----- ----- -----
Net periodic pension cost .................. $ 4 $ 6 $ 2
===== ===== =====
The curtailment and settlement gains in fiscal 1994
resulted from the Company's sale of its container manufacturing
operations (see Note B) in December 1993. Significant rate
assumptions used in determining net periodic pension cost and
related pension obligations, are as follows:
As of June 30,
---------------------
1996 1995 1994
---- ---- ----
Weighted average discount rate used in
determining project benefit obligation ...... 8.0% 7.75% 8.5%
Rate of increase in compensation levels ...... 5.0 5.0 5.0
Weighted average long-term rate of return
on assets ................................... 9.0 9.0 9.0
In addition, the Company participates in several
multi-employer pension plans which provide defined benefits to
certain of its union employees. The contributions to
multi-employer plans for each of the years ended June 30, 1996,
1995 and 1994 were $4. The Company also sponsors defined
contribution plans covering substantially all employees. Company
contributions to the plans are based on employee contributions or
compensation. Contributions under such plans totaled $2, $3, and
$4 for the years ended June 30, 1996, 1995, and 1994,
respectively.
The Company provides retirement benefits under various
arrangements to substantially all employees in foreign locations
who are not covered under the above plans. Generally, benefits
under these arrangements are based on years of service and levels
of salary. The majority of the Company's foreign plans are
commonly referred to as termination indemnities. The plans
provide employees with retirement benefits in accordance with
programs mandated by the governments of the countries in which
such employees work. The expense and related liabilities
associated with these arrangements are recorded currently by the
Company based on established formulas, with funding generally
occurring when employees cease active service.
F-16
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
The Company sponsors several unfunded defined benefit
postretirement plans providing certain medical, dental and life
insurance benefits to eligible retired, salaried, non-union
hourly and union employees. Benefits, eligibility and cost-
sharing provisions vary by plan and employee group.
Net periodic postretirement benefit cost for the fiscal
years 1996, 1995 and 1994 included the following components:
June 30,
---------------------
1996 1995 1994
---- ---- ----
Service Cost .............................. $ 2 $ 2 $ 2
Interest Cost ............................. 9 9 11
Amortization of Actuarial Losses (Gains) .. (3)
Curtailment Gain .......................... (4) (6)
---- ---- ----
Net periodic postretirement benefit cost .. $ 4 $ 11 $ 7
==== ==== ====
In 1996, the Company began amortizing unrecognized gains
and losses at the end of the fiscal year over the expected
remaining service of active employees. The curtailment gain
results from the Company's sale of its container manufacturing
operations (See Note B) in December 1993 and from a reduction in
personnel in fiscal 1996. The following table sets forth the
plans' combined status reconciled with the amount included in the
consolidated balance sheet:
June 30,
--------------
1996 1995
---- ----
Accumulated postretirement benefit obligation:
Current Retirees ........................... $ 85 $94
Fully eligible active plan participants .... 16 15
Other active plan participants ............. 18 20
---- ----
119 129
Unrecognized Gain .......................... 30 23
---- ----
Accrued postretirement benefit cost ........ $ 149 $152
==== ====
For fiscal years 1996 and 1995, the weighted average annual
assumed rate of increase in the health care cost trend is 13.33%
and 14.25%, respectively, and is assumed to decrease gradually to
6.0% in the year 2004. The health care cost trend rate assumption
has a significant effect on the amounts reported. An increase in
the assumed health care cost trend by 1% in each year would
increase the accumulated postretirement benefit obligation as of
June 30, 1996 by $11 and the aggregate of the service and
interest cost components of net periodic postretirement benefit
cost for the year then ended by $1.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation as of June 30, 1996
and 1995 was 8.32% and 8.18%, respectively.
NOTE G--MANAGEMENT STOCK OPTION PLAN
Effective as of July 1, 1991, the Del Monte Corporation
Management Stock Option Plan ("MSOP") was established pursuant to
which options to purchase up to 50,000 share of Class A Common
Stock of the Company may be awarded to certain officers and key
employees. Pursuant to this plan, options for approximately
37,500 shares were granted to approximately 440 key employees and
officers. Per share exercise price of the options granted is
$79.40. The options are non-qualified options for purposes of the
Internal Revenue Code and become exercisable only after the later
event of an initial public offering of the Company's stock or
three years after the Grant Date. All MSOP options expired on
July 31 1996.
F-17
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
NOTE H--PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
Year Ended June 30,
---------------------
1996 1995 1994
---- ---- ----
Income (loss) before minority interest
and taxes:
Domestic .............................. $ 90 $ 2 $ (6)
Foreign ............................... 12 6 17
---- ---- ----
$102 $ 8 $ 11
==== ==== ====
Income tax provision (benefit) Current:
Federal .............................. $ 5 $ $
Foreign and state .................... 6 1 1
---- ---- ----
Total Current ........................ 11 1 1
---- ---- ----
Deferred:
Federal ............................... -- -- --
Foreign and state ..................... -- 1 2
---- ---- ----
Total Deferred ........................ -- 1 2
---- ---- ----
$ 11 $ 2 $ 3
==== ==== ====
Pre-tax income for foreign operations includes income of
all operations located outside the United States, some of which
are currently subject to U.S. taxing jurisdictions.
Significant components of the Company's deferred tax assets
and liabilities as of June 30, 1996 and 1995 are as follows:
Year Ended
June 30,
--------------
1996 1995
---- ----
Deferred Tax Assets:
Post employment benefits........................ $ 53 $ 54
Pension expense................................. 24 27
Deferred gain................................... 6 --
Workers' compensation........................... 7 8
Leases and patents.............................. 5 5
Other........................................... 20 16
Net operating loss carry forward................ 16 60
Deferred tax liabilities:
Depreciation.................................... 30 32
Other........................................... 3 13
---- -----
Net deferred tax assets.......................... 98 125
Valuation allowance............................. 98 125
---- -----
Total deferred taxes............................. $ -- $ --
==== =====
F-24
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
The differences between the provision for income taxes and income
taxes computed at the statutory U.S. federal income tax rates are
explained as follows:
Year Ended June 30,
---------------------
1996 1995 1994
---- ---- ----
Income taxes computed at the statutory
U.S. federal income tax rates ........... $ 36 $ 2 $ 6
Taxes on foreign income at rates different
than U.S. federal income tax rates ...... (1) (3)
State taxes, net of federal benefit ...... 3
Realization of prior years' operating loss
carryforwards and tax credits ........... (27)
---- ---- ----
Provision for income taxes ............... $ 11 $ 2 $ 3
==== ==== ====
At June 30, 1996, there was $20 of accumulated and
undistributed earnings of foreign subsidiaries included in
retained earnings for which no provision for U.S. federal income
taxes had been made.
As of June 30, 1996, the Company had operating loss
carryforwards for tax purposes available from domestic operations
totaling $45 which will expire between 2008 and 2010.
Extraordinary losses from refinancing of debt and early
debt retirement and the cumulative effect of change in accounting
principle have no tax effect.
The Company made income tax payments of $5, $3 and $4 for
the years ended June 30, 1996, 1995 and 1994, respectively.
NOTE I--COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment,
agricultural lands, and office and plant facilities. At June 30,
1996, the aggregate minimum rental payments required under
operating leases that have initial or remaining terms in excess
of one year are as follows:
1997 ..................... $ 14
1998 ..................... 12
1999 ..................... 11
2000 ..................... 10
2001 ..................... 8
Thereafter ............... 46
-----
$ 101
=====
Minimum payments have not been reduced by minimum sublease
rentals of $9 due through 2016 under noncancelable subleases.
Rent expense was $28, $32, and $28 for fiscal years ended
June 30, 1996, 1995, and 1994, respectively. Rent expense
includes contingent rentals on certain equipment based on usage.
The Company has entered into noncancelable agreements with
growers, with terms ranging from 2 to 10 years, to purchase
certain quantities of raw products. The Company also has
commitments to purchase certain finished goods. Total purchases
under these agreements were $54, $68, and $86 for the years ended
June 30, 1996, 1995, and 1994, respectively. In addition, the
Company expects to purchase $51 in fiscal 1997 under the supply
agreement entered into in conjunction with the sale of the DMPR
operations (see Note B).
F-19
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
At June 30, 1996, aggregate future payments under such
purchase commitments (priced at the June 30, 1996 estimated cost)
are estimated as follows:
1997 .................. $ 55
1998 .................. 49
1999 .................. 43
2000 .................. 40
2001 .................. 36
Thereafter ............ 105
-----
$ 328
In May 1992, DMC entered into an exclusive supply agreement
(the "Agreement") with Pacific Coast Producers ("PCP"), a canned
fruit and tomato processor, to purchase substantially all of
PCP's tomato and fruit production commencing July 1, 1992. PCP
continued to own and operate its production facilities, as well
as purchase raw products via its established grower network. The
Agreement was to expire in June 1998 with optional successive
five year extensions. Total payments under the Agreement for the
twelve months ended June 30, 1995 and 1994 (including the
guaranteed payment) were $186 and $180, respectively.
The Federal Trade Commission ("FTC") conducted an
investigation to determine whether the supply arrangement was in
violation of certain U.S. antitrust laws. In January 1995, the
Company and PCP agreed to terminate their supply and purchase
option agreements in settlement of the FTC investigation. In
response to the Company's actions, the FTC issued a final consent
order on April 18, 1995. A consent agreement does not constitute
an admission of any violation of law. The option and supply
agreements were terminated in late fiscal 1995. As a condition of
the termination, the Company was required to make a termination
payment of $4 to PCP.
On November 1, 1992, DMC entered into an agreement with
Electronic Data Systems Corporation ("EDS") to provide services
and administration to the Company in support of its information
services functions for all domestic operations. Payments under
the terms of the agreement are based on scheduled monthly base
charges subject to various adjustments such as system usage and
inflation. Total payments for the twelve months ended June 30,
1996, 1995, and 1994 were $16, $16, and $15, respectively. The
agreement expires in November 2002 with optional successive one
year extensions.
At June 30, 1996, base charge payments under the agreement
are as follows:
1997 .................. $ 14
1998 .................. 14
1999 .................. 14
2000 .................. 13
2001 .................. 13
Thereafter ............ 19
----
$ 87
Del Monte has a concentration of labor supply in employees
working under union collective bargaining agreements, which
represent approximately 75% of its hourly and seasonal workforce.
Of these represented employees, 85% of employees are under
agreements that will expire in 1997.
The Company is defending various claims and legal actions
that arise from its normal course of business, including certain
environmental actions. While it is not feasible to predict or
determine the ultimate outcome of these matters, in the opinion
of management none of these actions, individually or in the
aggregate, will have a material effect on the Company's results
of operations, cash flow, liquidity and financial position.
F-20
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
NOTE J--FOREIGN OPERATIONS AND GEOGRAPHIC DATA
The Company's earnings are derived in part from foreign
operations. These operations, a significant factor in the
economies of the countries where the Company operates, are
subject to the risks that are inherent in operating in such
foreign countries, including government regulations, currency and
ownership restrictions, risks of expropriation and burdensome
taxes. Certain of these operations are also dependent on leases
and other agreements with these governments. Transfers between
geographic areas are accounted for as intercompany sales, and
transfer prices are based generally on negotiated contracts.
The following table shows certain financial information
relating to the Company's operations in various geographic areas:
Year Ended June 30,
---------------------
1996 1995 1994
---- ---- ----
Net sales
United States ........................ $1,146 $1,330 $1,320
Philippines .......................... 142 180 162
Latin America ........................ 55 65 69
Transfer between geographic areas .... (39) (49) (52)
------ ------ ------
Total Net Sales ..................... $1,304 $1,526 $1,499
====== ====== ======
Operating Income (Loss):
United States ........................ $ 65 $ 64 $ 43
Philippines .......................... 12 11 21
Latin America ........................ 5 5 3
------ ------ ------
Total Operating Income .............. $ 82 $ 80 $ 67
====== ====== ======
Assets:
United States ........................ $ 701 $ 754 $ 723
Philippines .......................... 164 156
Latin America ........................ 35 42 57
------ ------ ------
$ 736 $ 960 $ 936
====== ====== ======
Liabilities of the Company's Operations
Located in Foreign Countries ......... $ 7 $ 128 $ 130
====== ====== ======
NOTE K--DEL MONTE CORPORATION
DMC is directly- and wholly owned by DMFC. In the fiscal
years ended June 30, 1996 and 1994, DMC and DMC's subsidiaries
accounted for 100% of the consolidated revenues and net earnings
of the Company. In the fiscal year ended June 30, 1995, DMC and
DMC's subsidiaries accounted for all of the consolidated revenues
and net earnings of the Company except for proceeds recorded by
DMFC from a $30 letter of credit related to the termination of an
Agreement and Plan of Merger (see Note M). As of June 30, 1996
and 1995, the Company's sole asset, other than intercompany
receivables from DMC, was the stock of DMC. The Company had no
subsidiaries other than DMC and DMC's subsidiaries, and had no
direct liabilities other than intercompany payables to DMC. The
Company is separately liable under various guarantees of
indebtedness of DMC, which guarantees of indebtedness are in most
cases full and unconditional.
F-21
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
NOTE L--SALE OF LATIN AMERICA
In June, 1996, the Company adopted a plan to sell its Latin
American subsidiaries. On August 27, 1996, the Company signed a
Stock Purchase Agreement whereby it will sell its stock holdings
in the Latin American subsidiaries for approximately $59. The
sales transaction is expected to close on or about September 30,
1996, and the sales price, net of applicable fees and taxes, is
estimated to result in a minimal gain. The net assets at June 30,
1996, and 1995 of the Latin American operations included in the
Company's consolidated balance sheet are summarized as follows:
June 30,
--------------
1996 1995
---- ----
Assets
Current assets:
Cash........................................... $ 1 $ 1
Trade accounts receivable...................... 12 11
Other receivables.............................. 1
Inventories.................................... 13 17
Prepaids and other assets...................... 1 2
---- ----
Total current assets.......................... 27 32
Property, plant & equipment, net............... 8 10
---- ----
Total......................................... 35 42
Liabilities:
Current liabilities............................ 4 6
Noncurrent liabilities......................... 3 4
Cumulative translation adjustment................. 26 22
---- ----
Net assets.................................... $ 54 $ 54
==== ====
The following results of the Latin American operations are
included in the Statements of Operations:
Year Ended June 30,
---------------------
1996 1995 1994
---- ---- ----
Net sales $ 55 $ 65 $ 67
Costs and expenses 50 62 65
---- ---- ----
Income from operations before
income taxes 5 3 2
Provision for income taxes 1 1 1
---- ---- ----
Income from Latin American operations $ 4 $ 2 $ 1
==== ==== ====
NOTE M--TERMINATION OF AGREEMENT AND PLAN OF MERGER
On June 27, 1994 the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with Grupo Empacador de
Mexico, S.A. de C.V., and CCP Acquisition Company of Maryland,
Inc. (the "Purchasers"). The Purchasers were formed by an
investor group led by Mr. Carlos Cabal Peniche for the purpose of
effecting an acquisition (the "Proposed Acquisition") of the
Company. The Merger Agreement provided that the Company was
entitled to terminate the Merger Agreement if the effective date
of the Proposed Acquisition failed to occur on or prior to
September 19, 1994. The effective date of the Proposed
Acquisition did not occur on or prior to such date and, on
September 21, 1994, the Company terminated the Merger Agreement
in accordance with its terms.
Pursuant to the Merger Agreement, the Purchasers caused a
$30 letter of credit (the "Letter of Credit") to be issued by
Banco Union, S.A., a Mexican bank affiliated with Mr. Cabal, and
confirmed by Midland Bank plc, New York Branch, in favor of the
Company. Under the terms of the Merger Agreement, the Company was
entitled
F-22
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
to draw under the Letter of Credit if the effective date of the
Proposed Acquisition failed to occur on or prior to September 19,
1994. Because the Proposed Acquisition did not close by September
19, 1994, on September 20, 1994 the Company drew $30 under the
Letter of Credit. This amount, net of $4 of related transaction
expenses, is included in "Other (income) expense". The cash was
applied to the repayment of indebtedness then outstanding under
the Company's revolving credit agreement.
F-23
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Millions)
March 31, June 30,
1997 1996
----------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................. $ 6 $ 6
Restricted cash............................ 2 30
Trade accounts receivable, net of allowance 84 98
Other receivables.......................... 3 8
Inventories................................ 381 304
Prepaid expenses and other current assets.. 4 13
---- ----
TOTAL CURRENT ASSETS....................... 480 459
Property, plant and equipment, net........... 229 247
Other assets................................. 30 30
---- ----
TOTAL ASSETS............................... $739 $736
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...... $238 $202
Short-term borrowings...................... 42 43
Current portion of long-term debt.......... 16 7
---- ----
TOTAL CURRENT LIABILITIES................ 296 252
Long-term debt............................... 252 323
Other noncurrent liabilities................. 233 250
Redeemable common stock ($.01 par value per
share, 1,650,000 shares authorized; issued
and outstanding: 159,386 at March 31, 1997 and
June 30, 1996)............................. 2 2
Redeemable preferred stock ($.01 par value per
share, 32,493,000 shares authorized; issued and
outstanding: 18,327,449 at March 31, 1997,
$649 aggregate liquidation preference and
17,300,041 at June 30, 1996,
$579 aggregate liquidation preference)..... 213 213
Stockholders' equity:
Common stock ($.01 par value per share,
1,700,000 shares authorized;
issued and outstanding: 223,468 at March 31,
1997 and June 30, 1996)....................
Paid-in capital............................ 3 3
Retained earnings (deficit)................ (260) (281)
Cumulative translation adjustment.......... (26)
---- ----
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)....... (257) (304)
---- ----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $739 $736
==== ====
See Notes to Consolidated Financial Statements.
F-24
<PAGE>
Nine Months
March 31,
---------------
1997 1996
---- ----
Net sales .................................. $ 934 $ 1,018
Cost of products sold ...................... 733 858
---- ----
Gross profit ............................. 201 160
Selling, advertising, administrative and
general expenses .......................... 132 160
OPERATING INCOME ........................ 69 44
Interest expense ........................... 37 54
Loss (gain) on sale of divested assets ..... 5 (107)
Other (income) expense ..................... 1
---- ----
INCOME FROM OPERATIONS BEFORE INCOME
TAXES, MINORITY INTEREST, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE .................................. 27 96
Provision for income taxes ................. 2 13
Minority interest in earnings of subsidiary 3
---- ----
INCOME FROM OPERATIONS BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE ..................................
25 80
Extraordinary loss from the Exchange Offer
and early debt retirement ................. 4 9
Cumulative effect of accounting change 3
---- ----
NET INCOME ............................... $ 21 $ 68
==== ====
Net income (loss) attributable to
common share .............................. $(49) $ 7
==== ====
Income (loss) per common share:
Income (loss) before extraordinary item
and cumulative effect of accounting
change ................................ $(117.36) $47.75
Extraordinary loss from the Exchange
Offer and early debt retirement ...... (9.77) (22.17)
Cumulative effect of accounting change (7.60)
-------- ------
Net income (loss) per common share ... $(127.13) $17.98
======== ======
F-25
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
MARCH 31, 1997
(Dollars in Millions)
Nine Months Ended
March 31,
-----------------
1997 1996
---- ----
OPERATING ACTIVITIES:
Net income..................................... $21 $68
Adjustments to reconcile net income to net
cash flows provided by (used in)
operating activities:
Depreciation and amortization................. 22 23
Extraordinary loss from the Exchange Offer
and early debt retirement .................... 4 5
Loss (gain) on sale of divested assets........ 5 (107)
Cumulative effect of accounting change........ 3
Changes in operating assets and liabilities:
Accounts receivable........................... 7 36
Inventories................................... (90) (52)
Prepaid expense and other current assets...... 7 2
Other assets.................................. (7) (2)
Accounts payable and accrued expenses......... 44 5
Other non-current liabilities................. 6 2
--- ---
Total adjustments............................. (2) (85)
--- ---
NET CASH USED IN OPERATING ACTIVITIES......... 19 (17)
INVESTING ACTIVITIES:
Capital expenditures........................... (12) (8)
Proceeds from sale of operations and assets.... 51 185
--- ---
NET CASH PROVIDED BY INVESTING ACTIVITIES..... 39 177
FINANCING ACTIVITIES:
Short-term borrowings.......................... 929 1,028
Payments on short-term borrowings.............. (930) (1,097)
Proceeds from long-term borrowings............. 55
Principal payments on long-term borrowings..... (140) (92)
Specific Proceeds Collateral Account 28
Other.......................................... (1)
--- ---
NET CASH USED IN FINANCING ACTIVITIES......... (58) (162)
--- ----
NET CHANGE IN CASH AND CASH EQUIVALENTS....... (2)
Cash and cash equivalents at beginning of period 6 8
--- ---
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 6 $ 6
=== ===
See Notes to Consolidated Financial Statements.
F-26
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Dollars in Millions Except Per Share Amounts)
NOTE A--BASIS OF FINANCIAL STATEMENTS
Basis of Presentation: The accompanying consolidated
financial statements at March 31, 1997 and for the nine-month
periods ended March 31, 1997 and 1996, are unaudited, but are
prepared in accordance with generally accepted accounting
principles for interim financial information and include all
adjustments (consisting only of normal recurring entries) which,
in the opinion of management, are necessary for a fair
presentation of financial position, results of operations and
cash flows. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements as of and for the year ended June 30, 1996,
and notes thereto.
NOTE B--INVENTORIES
The major classes of inventory are as follows:
March 31, June 30,
1997 1996
---- ----
Finished product....................... $317 $198
Raw materials and supplies............. 6 12
Other, principally packaging material.. 58 94
---- ----
$381 $304
During the twelve months ended June 30, 1996 and the nine
months ended March 31, 1997 and 1996, inflation had a minimal
impact on production costs. As a result, the effect of accounting
for these inventories by the LIFO method has had no material
effect on inventories at June 30, 1996 and March 31, 1997 or on
results of operations for the nine months ended March 31, 1997
and 1996.
NOTE C--SHORT TERM BORROWINGS AND LONG TERM DEBT
In August 1996, the Company offered (the "Exchange Offer")
to redeem a portion of its outstanding Subordinated Guaranteed
Pay-in-Kind Notes ("PIK Notes") for a cash payment and exchange
the remaining PIK Notes for new Senior Subordinated Guaranteed
Pay-in-Kind Notes ("1996 PIK Notes") due 2002. On September 11,
1996, following the required acceptances under the Exchange Offer
and approval of its senior lenders, the Company repurchased PIK
Notes in an aggregate amount of $102 for a cash payment of $100
and, concurrently, exchanged essentially all remaining PIK Notes
for 1996 PIK Notes in an aggregate amount of $156. In addition,
the $13 Senior Notes outstanding were repaid. Funding for the
Exchange Offer was accomplished through the application of $30
from a collateral account held by the Term Lenders, additional
borrowing in an aggregate amount of $55 under the existing Term
Loan ("1995 Term Loan"), and borrowing of approximately $36 from
the Revolving Credit Facility ("1995 Revolving Credit Facility").
The 1996 PIK Notes, which are senior to the PIK Notes, also
incorporate certain changes from the terms of the original PIK
Notes, principally the elimination of a make-whole premium upon a
change-in-control of the Company, or upon the redemption of the
PIK Notes by the Company. The 1996 PIK Notes also allow the
Company to call the notes beginning September 1, 1996, at a
premium which decreases annually. The 1996 PIK Notes required,
under certain conditions, an offer, at par, to further redeem
1996 PIK Notes from certain available Del Monte Latin America
sale proceeds. (See Note E below). Under this condition an offer
was tendered to the 1996 PIK Note holders on November 21, 1996.
One holder accepted the offer and $10 was redeemed at par on
December 23, 1996. The remaining proceeds from the sale were
applied to the 1995 Revolving Credit Facility.
F-27
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MARCH 31, 1997
(Dollars in Millions Except Per Share Amounts)
Scheduled principal payments on the 1995 Term Loan, as
amended, are $15 for each of the fiscal years 1997 through 2000
and $63 in fiscal 2001. In conjunction with the Exchange Offer,
capitalized debt issue costs of approximately $4, net of a
discount on the PIK Notes, have been charged to net income and
accounted for as an extraordinary loss.
As of March 31, 1997, the Company's Short Term Borrowings
and Long Term Debt primarily consist of the 1995 Revolving Credit
Facility, 1995 Term Loan, and the 1996 PIK Notes. The 1995
Revolving Credit Facility bears interest at floating rates based
on LIBOR plus 2.75% or the bank's reference rate plus 1.5%. The
1995 Term Loan (maturing December 1, 2000) consists of three
components. One component is amortizing and bears interest at
LIBOR plus 3.25%. The other two components are non-amortizing.
One non-amortizing component bears interest at a fixed rate of
11.11% and the second component bears interest at LIBOR plus
4.75%. Under an amendment to the 1995 Term Loan in connection
with the closing of the Exchange Offer, the Company borrowed an
additional $55 (maturing June 1, 2001) consisting of three
components. One component is amortizing and bears interest at
LIBOR plus 3.25%. The other two components are non-amortizing.
One non-amortizing component bears interest at LIBOR plus 4.00%
and the other non-amortizing component bears interest at a fixed
rate of 11.729%.
Interest on the 1996 PIK Notes accrues at a fixed rate of
12.25% per annum, and is generally payable through the issuance
of additional 1996 PIK Notes. The payment of such interest in
additional 1996 PIK Notes since issuance will result in an
increase in the principal amount outstanding of such
indebtedness. Beginning March 11, 1997, additional interest
accrues at a rate of .50% per annum and is payable in additional
1996 PIK Notes until such time as a public registration statement
is effective with respect to the 1996 PIK Notes.
On April 18, 1997, the Company completed a recapitalization
transaction in which $301 of proceeds from the transaction were
used to repay the outstanding balances on the 1995 Revolving
Credit Facility, 1995 Term Loan and 1996 PIK Notes (see Note G).
NOTE D--NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share was computed by dividing
net income (loss) attributable to common shares by the weighted
average number of common and redeemable common shares outstanding
during the period. Net income (loss) attributable to common
shares is computed as net income or loss reduced by cash and
in-kind dividends for the period on redeemable preferred stock.
NOTE E--SALE OF LATIN AMERICA
On August 27, 1996, the Company signed a stock Purchase
Agreement to sell its Latin America subsidiaries to an affiliate
of Hicks, Muse, Tate & Furst Incorporated. This Agreement was
amended and restated on October 25, 1996. The sale of the
Company's Mexican subsidiary, Productos Del Monte, S.A. de C.V.
("PDM") to Hicks, Muse, Tate & Furst Incorporated for $38 was
completed on October 28, 1996 and the sale of the Central America
and Caribbean subsidiaries to an affiliate of Donald W.
Dickerson, Inc. for $12 was completed on November 13, 1996. The
sales price for PDM is subject to adjustment based on the final
balance sheet. The amount of any adjustment to the purchase price
is currently in dispute but is not expected to be material. The
combined sales prices of $50, reduced by $1 of related
transaction expenses, resulted in a loss of $5. In conjunction
with these sales, supply agreements were signed under which Del
Monte will sell limited quantities of fruit, vegetables, and
tomato products, at cost, to the Mexican business for a five-year
period and to the Central America/Caribbean business for an
eight-year period.
F-28
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MARCH 31, 1997
(Dollars in Millions Except Per Share Amounts)
NOTE F--REDEEMABLE STOCK
On January 28, 1997, the Board of Directors revised the
number of shares authorized for Series D Cumulative Preferred
Stock and Series F Cumulative Preferred Stock. Series D
authorized shares were increased by 100,000 shares from 1,454,000
to 1,554,000, and Series F authorized shares were decreased by
100,000 shares from 3,000,000 to 2,900,000.
Effective with the quarter ended March 31, 1997, the
holders of Series A1 and B redeemable preferred stock elected to
forego their periodic receipt of pay-in-kind dividends in
exchange for a corresponding periodic increase in Series A1 and B
liquidation value.
NOTE G--SUBSEQUENT EVENT - RECAPITALIZATION
On February 21, 1997, Del Monte Foods Company ("DMFC")
entered into a recapitalization agreement (the
"Recapitalization") and plan of merger which was amended and
restated as of April 14, 1997 with affiliates of Texas Pacific
Group ("TPG"). Under this agreement, a corporation affiliated
with TPG ("Merger Sub") was to be merged with and into DMFC (the
"Merger"), with DMFC being the surviving corporation. The Merger
became effective on April 18, 1997. By virtue of the Merger,
shares of DMFC's outstanding preferred stock having a value
implied by the Merger consideration of approximately $14, held by
certain of DMFC's pre-capitalization stockholders who remained
investors pursuant to the Recapitalization, were cancelled, and
were converted into the right to receive new DMFC common stock.
All other presently existing shares of DMFC stock were cancelled
and were converted into the right to receive cash consideration.
In the Merger, the common stock and preferred stock of Merger Sub
was converted into new shares of common stock and preferred
stock, respectively, of DMFC.
Immediately following the consummation of the
Recapitalization, the charter of DMFC authorized DMFC to issue
capital stock consisting of 1,000,000 shares of new common stock,
$.01 par value, and 1,000,000 shares of new preferred stock and
issued and has outstanding 140,000 shares of common stock, and
35,000 shares of Preferred Stock. TPG and certain of its
affiliates or partners hold 109,248 shares of DMFC's common
stock, continuing shareholders of DMFC hold 14,252 shares of such
stock, and other investors hold 16,500 shares (including Westar
Capital, which holds 5,000 shares, TCW Capital Investment
Corporation ("TCW"), which holds 1,500 shares, BT Investment
Partners, Inc., which holds 5,000 shares, BankAmerica Investment
Corporation, which holds 4,500 shares and MIG Partners III, an
affiliate of BankAmerica Investment Corporation, which holds 500
shares). TPG and certain of its affiliates hold 17,500
outstanding shares of preferred stock, and TCW holds 17,500
outstanding shares of preferred stock.
The preferred stock will accumulate dividends at the rate
of 14%. These dividends will be payable in cash or additional
shares of preferred stock, at the option of the Company, subject
to availability of funds and the terms of its loan agreements.
The preferred stock has a liquidation preference of $1,000 per
share and may be redeemed at the option of the Company at a
redemption price equal to the liquidation preference plus
accumulated and unpaid dividends (the "Redemption Price"). The
Company will be required to redeem all outstanding shares of
preferred stock on or prior to April 17, 2008 at the Redemption
Price or upon a change of control of the Company at 101% of the
Redemption Price. The initial purchases of preferred stock have
received warrants to purchase, at a nominal exercise price,
shares of DMFC common stock representing 2% of the outstanding
shares of DMFC common stock.
Cash funding requirements for the Recapitalization,
including repayment of substantially all previous indebtedness,
are $809 and have been satisfied through the following: (i) a
cash equity investment by TPG and other investors of $126 in the
common stock of Shield, (ii) a cash equity investment by TPG and
other investors of $35 in shares of redeemable preferred stock of
Shield, (iii) $380 of borrowings under a senior secured term loan
facility (the "Term Loan Facility"), (iv) $119 of borrowings
under a senior secured revolving credit facility (the "Revolving
Credit Facility" and, together with the Term Loan Facility, the
"Bank Financing"), (v) $147, net of $3
F-29
<PAGE>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MARCH 31, 1997
(Dollars in Millions Except Per Share Amounts)
of discount, from senior subordinated notes (the "Notes"), and
(vi) application of $2 of proceeds from an asset sale which had
been deposited in the Specific Proceeds Collateral Account
pending completion of the transaction.
Concurrent with the Recapitalization, the Company entered
into a credit agreement with respect to the Bank Financing. The
Term Loan Facility provides for term loans in the aggregate
amount of $380, consisting of Term Loan A of $200 and Term Loan B
of $180. The Revolving Credit Facility provides for revolving
loans in an aggregate amount of up to $350, including a $70
Letter of Credit subfacility. The Revolving Credit Facility will
expire in fiscal 2003, Term Loan A will mature in fiscal 2003,
and Term Loan B will mature in fiscal 2005.
In addition, on April 18, 1997, the Company issued senior
subordinated notes (the "Notes") with an aggregate principal
amount of $150 and received gross proceeds of $147. The notes
will accrue interest 12.25% per annum, payable semiannually in
cash on each April 15 and October 15. These Notes are guaranteed
by DMFC and mature on April 15, 2007. The Notes will be
redeemable in fiscal 2002. Prior to fiscal 2000, the Company, at
its option, may redeem up to 35% of the aggregate principal
amount of Notes originally issued with the net cash proceeds of
one or more public equity offerings at a redemption price equal
to 112.625% of the principal amount thereof, plus accrued and
unpaid interest to the date of redemption; provided that at least
65% of the aggregate principal amount of Notes originally issued
remains outstanding immediately after any such redemption.
There are no current maturities on the Bank Financing for
the remainder of fiscal 1997. Scheduled maturities on the long
term debt in each of the next five years and thereafter will be:
1998............. $ 1
1999............. 32
2000............. 37
2001............. 41
2002............. 47
Thereafter....... 372
----
$ 530
====
In conjunction with the Bank Financing, previously
capitalized debt issue costs of approximately $19 and a 1996 PIK
Note premium and a term loan make-whole aggregating $19 will be
charged to net income and accounted for as an extraordinary loss.
The interest rates applicable to amounts outstanding under
Term Loan A and the Revolving Credit Facility are, at the
Company's option, either (i) the base rate (the higher of .50%
above the Federal Funds Rate and the bank's reference rate) plus
1.25% or (ii) the reserve adjusted offshore rate plus 2.25%.
Interest rates on Term Loan B will be, at the Company's option,
either (i) the base rate plus 2.00% or (ii) the offshore rate
plus 3.00%. In addition, the Company will be required to pay the
lenders under the Revolving Credit Facility a commitment fee of
.50% on the unused portion of such Facility. The Company will
also be required to pay the lenders under the Revolving Credit
Facility letter of credit fees of 1.75% per annum for commercial
letters of credit and 2.25% per annum for all other letters of
credit, as well as an additional fee in the amount of 0.25% per
annum to the bank issuing such letters of credit. Upon attainment
of certain leverage ratios, the base rate margin, offshore rate
margin, as well as the commitment fees and letter of credit fees
will be adjusted.
The Bank Financing agreements contain restrictive covenants
with which the Company must comply. These covenants will require
the Company to meet certain financial tests, including minimum
levels of consolidated EBITDA (as defined in the Credit
Agreement), minimum fixed charge coverage, minimum adjusted net
worth and maximum leverage ratios. In addition, the Company will
agree to covenant that, among other things, it will limit the
incurrence of additional indebtedness, dividends, transactions
with affiliates, asset sales, acquisitions, mergers, prepayment
of other indebtedness, liens and encumbrances and other matters
customarily restricted in loan agreements.
F-30
<PAGE>
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No person has been authorized
to give any information or to
make any representations other
than those contained or
incorporated by reference in
this Prospectus and the
accompanying Letter of
Transmittal and, if given or
made, such information or
representations must not be
relied upon as having been
authorized by the Company or
the Exchange Agent. Neither this Del Monte Corporation
Prospectus nor the accompanying Del Monte Foods Company
Letter of Transmittal, or both
together, constitute an offer to
sell or the solicitation of an
offer to buy any securities in Offer to Exchange
any jurisdiction to any person
to whom it is unlawful to make Series B 12 1/4% Senior
such offer or solicitation. Subordinated Notes due 2007,
Neither the delivery of this
Prospectus, nor the accompanying which have been registered under
Letter of Transmittal, or both Securities Act of 1933, as amended,
together, nor any sale made
hereunder shall, under any for any and all outstanding
circumstances, create an 12 1/4% Senior Subordinated
implication that there has been Notes due 2007
no change in the affairs of the
Company since the date hereof or
thereof or that the information
contained herein is correct at
any time subsequent to the date
hereof or thereof.
Until September 29, 1997 (90 days
after the date of this Prospectus),
all dealers effecting transactions
in the New Notes, whether or not
participating in this distribution,
may be required to deliver a
Prospectus. This is in addition
to the obligation of the dealers
to deliver a Prospectus when
acting as underwriters and with
respect to their unsold allotments
or subscriptions.
TABLE OF CONTENTS
Page
Available Information........ 1
Incorporation of Certain
Documents by Reference..... 1 PROSPECTUS
Prospectus Summary........... 2
Risk Factors................. 16
The Recapitalization......... 21
Use of Proceeds.............. 22
Texas Pacific Group.......... 22 July 1, 1997
Pro Forma Capitalization..... 23
Unaudited Pro Forma
Financial Data.............. 24
Selected Consolidated
Financial Data.............. 31
Management's Discussion
and Analysis of Financial
Condition and Results
of Operations............... 34
Corporate History............ 58
Management................... 60
Capital Stock of DMC
and DMFC.................... 67
Certain Relationships
and Related Transactions.... 68
The Bank Financing........... 69
The Exchange Offer........... 71
Description of the New
Notes....................... 79
Certain U.S. Federal
Income Tax Considerations... 109
Plan of Distribution......... 110
Legal Matters................ 110
Experts...................... 110
Change in Accountants........ 110
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<PAGE>
