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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-47289
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
12 1/2% SENIOR DISCOUNT NOTES DUE 2007
FOR
SERIES B 12 1/2% SENIOR DISCOUNT NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
DEL MONTE FOODS COMPANY
[DEL MONTE LOGO]
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Del Monte Foods Company, a Delaware corporation ("DMFC" and, together with
its subsidiaries, the "Company"), hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal," and together with this Prospectus, the
"Exchange Offer"), to exchange its Series B 12 1/2% Senior Discount Notes Due
2007 (the "Exchange Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus is a part, for the outstanding
12 1/2% Senior Discount Notes Due 2007 (the "Initial Notes" and, together with
the Exchange Notes, the "Notes") of DMFC.
THE NOTES WILL BE GENERAL, SENIOR, UNSECURED OBLIGATIONS OF DMFC. DMFC IS A
HOLDING COMPANY WITH SUBSTANTIALLY ALL OF ITS ASSETS CONSISTING OF THE STOCK OF
DEL MONTE CORPORATION, A NEW YORK CORPORATION AND WHOLLY OWNED SUBSIDIARY OF
DMFC ("DMC"), AND, THEREFORE, THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL
EXISTING AND FUTURE INDEBTEDNESS AND OTHER LIABILITIES, INCLUDING TRADE
PAYABLES, OF DMFC'S SUBSIDIARIES. THE NOTES WILL RANK PARI PASSU IN RIGHT OF
PAYMENT WITH ALL PRESENT AND FUTURE SENIOR INDEBTEDNESS OF DMFC AND SENIOR TO
ALL PRESENT AND FUTURE SUBORDINATED INDEBTEDNESS OF DMFC. AS OF MARCH 31, 1998,
AFTER GIVING EFFECT TO THE CONTADINA ACQUISITION (AS DEFINED HEREIN) AND RELATED
FINANCINGS, THE COMPANY HAD APPROXIMATELY $1.2 BILLION OF INDEBTEDNESS AND OTHER
LIABILITIES, INCLUDING TRADE PAYABLES, OUTSTANDING, OF WHICH APPROXIMATELY $1.1
BILLION WAS INDEBTEDNESS AND OTHER LIABILITIES, INCLUDING TRADE PAYABLES, OF
DMFC'S SUBSIDIARIES WHICH, AS DESCRIBED ABOVE, IS SENIOR IN RIGHT OF PAYMENT TO
THE NOTES. THE COMPANY HAS NOT ISSUED, AND CURRENTLY DOES NOT HAVE ANY FIRM OR
PENDING ARRANGEMENTS OR AGREEMENTS TO ISSUE, ANY SIGNIFICANT ADDITIONAL
INDEBTEDNESS TO WHICH THE NOTES WOULD EITHER BE RANKED PARI PASSU IN RIGHT OF
PAYMENT OR BE SENIOR. THE INDENTURE CONTAINS COVENANTS LIMITING THE INCURRENCE
OF ADDITIONAL INDEBTEDNESS (AS DEFINED HEREIN), OTHER THAN PERMITTED
INDEBTEDNESS (AS DEFINED HEREIN), BY DMFC AND ITS RESTRICTED SUBSIDIARIES (AS
DEFINED HEREIN), EXCEPT IF NO DEFAULT OR EVENT OF DEFAULT WOULD OCCUR OR BE
CONTINUING AT THE TIME OF OR AS A RESULT OF SUCH INCURRENCE AND AFTER OCCURRENCE
OF SUCH INDEBTEDNESS THE CONSOLIDATED FIXED CHARGE COVERAGE RATIO OF THE COMPANY
IS GREATER THAN 1:75 TO 1:0. SEE "DESCRIPTION OF THE NOTES -- CERTAIN
COVENANTS."
DMFC will accept for exchange any and all Initial Notes that are validly
tendered on or prior to 12:00 midnight, New York City time, on the date the
Exchange Offer expires, which will be September 18, 1998, unless the Exchange
Offer is extended (the "Expiration Date"). The exchange of Exchange Notes for
the Initial Notes will be made as soon as practicable after the close of the
Exchange Offer. DMFC will accept for exchange all Initial Notes tendered and not
validly withdrawn pursuant to the Exchange Offer and will deliver to the Trustee
(as defined herein) for cancellation all Initial Notes so accepted for exchange.
DMFC shall cause the Trustee to authenticate and deliver to each holder of the
Initial Notes the Exchange Notes equal in principal amount to the Initial Notes
of such holder so accepted for exchange. The Exchange Offer is not conditioned
upon any minimum principal amount of Initial Notes being tendered for exchange.
See "The Exchange Offer." DMFC has agreed to pay the expenses of the Exchange
Offer.
(Continued on next page)
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL DMFC ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF INITIAL NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE EXCHANGE
NOTES.
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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.
THE DATE OF THIS PROSPECTUS IS AUGUST 20, 1998
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(Continued from cover page)
The Exchange Notes will be obligations of DMFC issued pursuant to the
Indenture (as defined herein) under which the Initial Notes were issued. The
form and terms of the Exchange Notes are identical in all material respects to
the form and terms of the Initial Notes except that the Exchange Notes will not
contain terms with respect to transfer restrictions and the Exchange Notes have
been registered under the Securities Act. See "The Exchange Offer."
The Exchange Notes will have original issue discount ("OID"), and U.S.
holders of the Exchange Notes (including cash basis holders) will be required to
include such OID in income as interest income on a constant yield basis,
generally in advance of the receipt of the cash payments to which such income is
attributable and generally in increasing amounts until December 15, 2002. Any
amount of OID included will increase a holder's tax basis in the Exchange Notes.
See "U.S. Federal Income Tax Considerations."
The Exchange Notes will mature on December 15, 2007, unless previously
redeemed. Interest payable in cash will not commence to accrue on the Notes
prior to December 15, 2002. Commencing June 15, 2003, interest on the Notes will
be payable in cash semi-annually in arrears on June 15 and December 15 at a rate
of 12 1/2% per annum. The Notes will be redeemable, in whole or in part, at the
option of the Company on or after December 15, 2002, at the redemption prices
set forth herein. In addition, prior to December 15, 2000, the Company, at its
option, may redeem up to 35% of the aggregate principal amount at maturity of
the Notes originally issued with the Cash Net Proceeds (as defined herein) of
one or more Public Equity Offerings (as defined herein), if any, on the date of
redemption; provided that at least 65% of the aggregate principal amount at
maturity of Notes originally issued remains outstanding immediately after any
such redemption.
Upon a Change of Control (as defined herein), (i) the Company will have the
option, at any time prior to December 15, 2002, to redeem the Notes, in whole,
but not in part, at a redemption price equal to 101% of the Accreted Value
thereof plus the Applicable Premium (as defined herein), together with
Liquidated Damages (as defined herein), if any, to the date of redemption and
(ii) if the Company does not so redeem the Notes or if such Change of Control
occurs after December 15, 2002, each holder of the Notes will have the right to
require the Company to repurchase such holder's Notes at a price equal to 101%
of the Accreted Value plus accrued interest and Liquidated Damages, if any. In
addition, in certain circumstances, the Company would be obligated to offer to
repurchase the Notes at 100% of the Accreted Value plus accrued interest and
Liquidated Damages, if any, in the event of certain Asset Sales (as defined
herein). See "Description of the Notes -- Change of Control." Except with
respect to a Change of Control, the Indenture does not contain provisions that
permit the Holders of the Exchange Notes to require that the Company repurchase
the Exchange Notes in the event of a takeover, recapitalization or similar
transaction. DMFC's ability to make interest and principal payments on the Notes
is dependent upon the receipt of sufficient funds from its subsidiaries. There
can be no assurance that the Company will have sufficient funds necessary to
repurchase the Notes.
The Exchange Notes are being offered hereunder to satisfy certain
obligations of DMFC contained in the Registration Agreement (as defined herein).
Based on existing interpretations of the Securities Act by the staff of the
Securities and Exchange Commission ("Commission") set forth in several no-action
letters 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"), and subject to the immediately following sentence, DMFC
believes that the Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by the holders thereof
without further compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any holder of the Initial Notes who
is an "affiliate" (as defined in Rule 405 under the Securities Act) of DMFC or
who intends to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes (i) will not be able to rely on the interpretation by the
staff of the Commission set forth in the above mentioned no-action letters, (ii)
will not be able to tender its Initial Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in
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connection with any sale or transfer of the Initial Notes unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Initial Notes (other than certain specified holders) who
wishes to exchange the Initial Notes for Exchange Notes in the Exchange Offer is
required to represent to DMFC that (i) it is not an affiliate (as defined in
Rule 405 under the Securities Act) of DMFC, (ii) any Exchange Notes to be
received by it were acquired in the ordinary course of its business, (iii) it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and (iv) such holder is not engaged in and does not intend to engage in a
distribution of the Exchange Notes. Each broker-dealer that receives Exchange
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 Exchange
Notes. The Letter of Transmittal states that by so acknowledging 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. 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 Exchange Notes received in exchange
for Initial Notes where such Initial Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. DMFC has
agreed that, starting on the Expiration Date and ending on the close of business
on the 180th day following the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"The Exchange Offer" and "Plan of Distribution."
Until November 17, 1998 all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
The Initial Notes and the Exchange Notes constitute new issues of
securities with no established public trading market. The Initial Notes,
however, have traded on the National Association of Securities Dealers, Inc.'s
PORTAL Market. Any Initial Notes not tendered and accepted in the Exchange Offer
will remain outstanding. To the extent that Initial Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, and
tendered but unaccepted, Initial Notes could be adversely affected. Following
consummation of the Exchange Offer, the holders of Initial Notes will continue
to be subject to the existing restrictions on transfer thereof and DMFC will
have no further obligation to such holders to provide for the registration under
the Securities Act of the Initial Notes except under certain limited
circumstances. See "The Exchange Offer." No assurance can be given as to the
liquidity of the trading market for either the Initial Notes or the Exchange
Notes.
DMFC will not receive any proceeds from this offering, and no underwriter
is being utilized in connection with the Exchange Offer. See "Use of Proceeds."
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Under the terms of the Indenture under which the Initial Notes were issued,
and under which the Exchange Notes are to be issued, the Company has agreed
that, whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will furnish
to the holders of the Notes and file with the Commission all reports and other
information as it would be required to file with the Commission by Section 13(a)
or 15(d) under the Exchange Act if it were subject thereto.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE GENERAL COUNSEL AT ONE MARKET, SAN FRANCISCO, CALIFORNIA 94105, (415)
247-3000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
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Del Monte(R) and Contadina(R) are the principal registered trademarks of
the Company. The Company's other trademarks include Fruit Cup(R), FreshCut(TM),
Snack Cups(R), Fruit Naturals(R), Orchard Select(R), Fruit Smoothie Blenders(TM)
and Del Monte Lite(R).
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FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Unaudited Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performances or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions; weather
conditions; crop yields; industry trends; competition; raw material costs and
availability; the loss of significant customers; changes in business strategy or
development plans; availability, terms and deployment of capital; Year 2000
compliance; changes in, or the failure or inability to comply with, governmental
regulations, including, without limitation, environmental regulations; industry
trends and capacity and other factors referenced in this Prospectus. See "Risk
Factors." These forward-looking statements speak only as of the date of this
Prospectus. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The Company filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement," which term
shall encompass all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and
the rules and regulations promulgated thereunder, covering the Exchange Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement. For further information with respect to the
Company and the Exchange Offer, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, and the reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional Offices of the
Commission at 7 World Trade Center, 14th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus ("Prospectus"). Unless the
context otherwise requires, "DMFC" means Del Monte Foods Company, the issuer of
the Notes, and the parent of DMC, "DMC" means Del Monte Corporation, and, unless
stated otherwise or the context otherwise requires, the "Company" or "Del Monte"
means DMFC and DMC, together with 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 sold through retail grocery
stores (excluding warehouse clubs and supermarkets) with at least $2 million in
sales and are based upon data provided to the Company by A.C. Nielsen Company
("ACNielsen"), an independent market research firm. Such data is made publicly
available by ACNielsen at prescribed rates. Market share data for canned
vegetables and solid 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, which has been an
insignificant portion of the Company's operations. References to the "Contadina
Acquisition" are to the Company's acquisition of certain assets comprising
Nestle USA, Inc.'s ("Nestle") U.S. business of manufacturing and marketing
certain canned tomato products ("Contadina"). Market share data for canned solid
tomato products is pro forma for both Del Monte and Contadina sales.
THE COMPANY
GENERAL
The Company, a branded marketer of premium quality, nutritious food
products, is the largest producer and distributor of canned vegetables and
canned fruit in the United States, with pro forma net sales of $1.1 billion and
$1.4 billion for the nine months ended March 31, 1998 and the fiscal year ended
June 30, 1997, respectively. Management believes that the Company's principal
brand, Del Monte, which has been in existence since 1892, has the highest
unaided brand awareness of any canned food brand in the United States. Del Monte
brand products are found in substantially all national grocery chains and
independent grocery stores throughout the United States. As the brand leader in
three major processed food categories (canned vegetables, fruit and solid tomato
products), the Company has a full-line, multi-category presence that management
believes provides it with a substantial competitive advantage in selling to the
retail grocery industry. The Contadina Acquisition contributes another
established brand and positions the Company as the branded market leader in the
high margin canned solid tomato products category and establishes a strong
presence for the Company in the branded paste-based tomato products category.
See "Business -- Company Products."
The Company sells its products to national grocery chains and wholesalers
through a nationwide sales network consisting primarily of independent food
brokers. The Company's direct sales force also sells to warehouse club stores,
selected mass merchandisers, such as Wal-Mart and Kmart, and larger mass
merchandising outlets that include full grocery sections, such as Wal-Mart
Supercenters and Kmart's SuperKs. 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. See "Business -- Sales, Marketing and Distribution."
The Company operates 15 production facilities in California, the Midwest,
Washington and Texas, as well as six strategically located distribution centers.
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 California, the Midwest, the Northwest 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, fruit and tomatoes. See "Business -- Supply and
Production.".
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In April 1997, the Company completed a recapitalization (the
"Recapitalization") as a result of which Texas Pacific Group, a private
investment group, obtained a controlling interest in the Company. Under a new
senior management team introduced in connection with the Recapitalization, the
Company began implementing a new business strategy designed to increase sales
and improve operating margins by: (i) increasing market share and distribution
of high margin value-added products; (ii) introducing product and packaging
innovations; (iii) increasing penetration of high growth distribution channels,
such as supercenters and warehouse clubs; (iv) achieving cost savings through
investments in new and upgraded production equipment and plant consolidations;
and (v) completing strategic acquisitions.
COMPETITIVE STRENGTHS
Management believes that the following elements contribute to the Company's
position as a leading branded producer, marketer and distributor of canned
vegetables, fruit and tomato products in the United States and provide a solid
foundation for the Company's business strategy.
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte brand
name, which has been in existence since 1892, is one of the leading brand
names in the food industry. Based on the ability of consumers to name the Del
Monte brand when asked to identify companies that manufacture canned foods,
management believes that the Del Monte brand has the highest unaided brand
awareness of any canned food brand in the United States. The Company recently
acquired the Contadina brand, an established national brand with a strong
reputation for quality. For the 52 weeks ended March 28, 1998, the Company's
19.5% market share of canned vegetables was larger than the combined market
shares of the Company's two largest branded competitors, and its 41.9% market
share of canned fruit was larger than the combined market shares of all other
branded competitors. The Company, including its Contadina business, had a pro
forma 16.3% market share in the high margin solid segment of the canned tomato
market for the 52 weeks ended March 28, 1998. See "Business -- Company
Products."
<TABLE>
<CAPTION>
MARKET SHARE FOR THE 52 WEEKS ENDED
MARCH 28, 1998
------------------------------------------------------
MARKET NEXT LEADING BRANDED
CATEGORY POSITION(A) PERCENTAGE COMPETITOR'S PERCENTAGE(A)
-------- ----------- ---------- ---------------------------
<S> <C> <C> <C>
Canned vegetables......................... #1 19.5% 13.2% (Green Giant)
Canned fruit.............................. #1 41.9% 11.4% (Libby's)
Canned solid tomato products(b)........... #1 16.3% 11.2% (Hunt's)
</TABLE>
- ---------------
(a) Excludes private label.
(b) Pro forma to include Contadina sales.
- - TECHNICAL EXPERTISE AND LOW COST PRODUCTION ADVANTAGES -- The Company has
significant experience in developing new products and packaging alternatives
and in engineering efficient food processing operations. These capabilities
are leveragable across many food categories. The Company has developed
proprietary vegetable seed varieties, which increase harvest and cannery
recoveries and improve flavor and quality. The Company benefits from many
long-term relationships with experienced, geographically diverse growers who
work with the Company to maximize yields of raw product. These relationships
also help to ensure a consistent supply of raw product. As a result of its
technical expertise, proprietary seed varieties and raw product sourcing
diversity, as well as its modern processing equipment and labeling, packaging,
warehousing and distribution efficiencies, management believes that the
Company is one of the lowest cost producers of canned vegetables, fruit and
tomatoes in the United States. See "Business -- Company Products" and
"Business -- Supply and Production."
- - PREFERRED SUPPLIER STATUS -- Competitive pressures in the retail food industry
are causing many retailers to prefer large suppliers such as the Company that
are able to provide consumer-favored brands, full product lines and
sophisticated inventory and category management programs. Del Monte
anticipated this trend and has developed proprietary software tools to assist
its customers and promote sales of its products. Del Monte's proprietary
category management system is designed to address retailers' efforts to
maximize profitability of shelf space dedicated to canned food categories. A
substantial majority of the Company's
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customers that have employed Del Monte's category management system have
increased the relative amount of shelf space dedicated to the Company's
products as compared to competing products. The Company's proprietary
vendor-managed inventory software allows Del Monte to manage directly its
customers' inventories of the Company's products. This inventory management
software is designed to reduce customers' overhead costs and to enable them to
achieve lower average inventory levels while enhancing the Company's
opportunities to sell its products. Retailers also rely on Del Monte's
in-depth knowledge as the leading branded marketer in the canned fruit,
vegetable and tomato categories, and they seek the Company's advice on
marketing and promoting these categories. Finally, Del Monte has strong,
well-developed relationships with all major participants in the retail grocery
trade. The Company believes that these relationships will become increasingly
important as consolidation among grocery retailers continues. The Company is
seeking to use its category knowledge, customer relationships and software
tools, along with its multi-category product line that can readily be ordered
and shipped on a full truck-load basis, in order to become the preferred
supplier in its product categories. See "Business -- Sales, Marketing and
Distribution."
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company's extensive
sales and distribution network is responsible for the distribution of finished
goods to over 2,400 customer destinations nationwide. This network enables the
Company 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 located distribution centers offering customers a variety of
services, including electronic data interchange and direct store shipments.
Management believes that the Company's distribution system makes an important
contribution to the Company's success and provides the Company with a
competitive advantage over regional and private label competitors. See
"Business -- Sales, Marketing and Distribution."
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, the
Company's Chief Executive Officer and Chief Operating Officer, respectively,
are veteran senior managers with extensive food industry experience. Mr.
Wolford has 30 years of experience in the food industry, 20 of which were with
Dole. He was president of Dole Packaged Foods from 1982 to 1987, and 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, 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. See "Management."
BUSINESS STRATEGY
Following the consummation of the Recapitalization in 1997, the Company
implemented a new business strategy designed to increase sales and improve
operating margins. The key elements of this new business strategy are discussed
below.
- - LEVERAGE BRAND EQUITY TO INCREASE SALES AND MARKET SHARE OF HIGH MARGIN
PRODUCTS -- The Company plans to leverage the Del Monte and Contadina brand
names and its strong relationships with customers to increase sales of its
existing product lines, focusing specifically on high margin products, such as
its specialty fruits and vegetables, diced tomatoes and its Fruit Cup line,
where the Company has historically had either low market share or low
household penetration relative to its overall category position.
- - FOCUS ON CONSUMPTION-DRIVEN MARKETING STRATEGY -- To enhance its ability to
leverage its brand equity, the Company has refocused its marketing efforts and
promotional strategy. To leverage its brand strength, the Company has
increased consumer-targeted marketing programs, primarily through the
distribution of free-standing coupon inserts, and has established clearly
differentiated product positioning that emphasizes the Company's premium
quality. The Company increased spending on consumer promotions from $12
million in fiscal 1996 to $46 million in fiscal 1997 and anticipates that its
consumer spending in fiscal
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1998 and 1999 will be generally consistent with levels of consumer spending in
fiscal 1997. The Company has also improved the effectiveness of its trade
promotion strategy. The Company has implemented performance-based programs
under which trade spending, which consists of the costs of promotional
activities with grocery chains and other customers, such as special displays,
discounts and advertisements, is managed based on retailers' sales of the
Company's products to consumers rather than on purchases from the Company. The
Company believes that this performance-based strategy, coupled with the
Company's category management capabilities, will continue to increase sales
and reduce costs.
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
emphasizing new higher margin products and line extensions designed to
leverage the Company's presence in its current product categories and to
capitalize on its food technology expertise. The Company has successfully
introduced flavored diced tomatoes, two lines of flavored canned fruit,
Orchard Select, a premium fruit product packaged in glass, and Fruit Smoothie
Blenders, a flavored fruit drink. These products extend the Company's
traditional product lines and appeal to consumers' demands for high quality,
convenient and nutritious food products. The Company is evaluating
introductions of other new products packaged in glass and plastic to further
expand its presence in the market beyond the processed food aisle.
- - INCREASE PENETRATION OF HIGH-GROWTH DISTRIBUTION CHANNELS -- 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 leading brand name products that generate high
inventory turnover. 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. Based on internal estimates and the broad range of
products supplied by the Company to such retailers, 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 PriceCostco. Based on such estimates,
the Company also believes it is currently the leading supplier of canned
vegetables, fruit and solid tomato products as a group to Wal-Mart
Supercenters.
- - IMPLEMENT FURTHER COST SAVINGS -- The Company is aggressively pursuing cost
reduction opportunities, which have already contributed to an increase in
Adjusted EBITDA margins (excluding the results of Divested Operations (as
defined below)) from 6.9% in 1995 to 10.2% in 1997 and 10.0% for the nine
months ended March 31, 1998. Management's strategy is to improve profitability
through the implementation of capital projects that offer rapid returns on
investment, and through plant consolidations and increased operating
efficiencies. The Company has announced plans to consolidate, over the next
three fiscal years, six existing fruit and tomato operations in California
into four facilities, including one large state-of-the-art facility acquired
as part of the Contadina Acquisition. The Company continually evaluates its
production facilities and believes that further consolidations may be
warranted in the future. In addition, the Company plans to continue to invest
in new, state-of-the-art production equipment to increase production
efficiencies and strengthen its position as a low cost producer.
- - COMPLETE STRATEGIC ACQUISITIONS -- The Company will pursue strategic
acquisitions when there are opportunities to leverage the Company's key
strengths in product development, food processing, marketing, sales and
distribution. In evaluating potential acquisition candidates, the Company
seeks, among other things: (i) strong brands, including those in new product
lines, that can be expanded by leveraging the Company's technical and
manufacturing expertise and/or its sales and distribution systems; (ii) new
products that can achieve growth through re-branding; and (iii) economies of
scale in manufacturing, distribution and capacity utilization. The Contadina
Acquisition, for example, adds a leading national brand which strengthens the
Company's market share in key tomato segments and allows the Company to
realize cost savings through plant consolidations. The Contadina Acquisition
also allows the Company to introduce new branded retail products and to
increase sales to the branded foodservice market. The Company also recently
announced an agreement with Nabisco, Inc. ("Nabisco") to reacquire rights to
the Del Monte brand in South America and to purchase Nabisco's canned fruits
and vegetables business in Venezuela (the "Del Monte South America
Acquisition"). See "Recent Developments." The Company continuously reviews
acquisition opportunities and at any time may be engaged in discussions with
respect to an
4
<PAGE> 10
acquisition that may be material to its operations. With the exception of the
Del Monte South America Acquisition, however, no agreement, understanding or
arrangement has been reached with respect to any such transaction. The Company
believes that any acquisition would likely require the incurrence of
additional debt, which could exceed amounts available under the Bank Financing
(as defined herein). As a result, completion of an acquisition could require
the consent of the lenders under the Bank Financing and the amendment of the
terms thereof, including for purposes of permitting the Company's compliance
with its covenants thereunder.
THE RECAPITALIZATION
On April 18, 1997, TPG Shield Acquisition Corporation ("Shield"), an
affiliate of the Company's majority shareholder, was merged with and into DMFC
(the "Merger"), with DMFC surviving. In connection with the Merger, DMC repaid
substantially all of its funded debt obligations (the "Debt Retirement").
Cash funding requirements for the Recapitalization were $809 million, and
were satisfied through: (i) cash equity investment by Texas Pacific Group
("TPG") and other investors of $161 million; (ii) $380 million of borrowings
under a senior secured term loan facility among DMFC, as guarantor, DMC, as
borrower, and Bank of America National Trust and Savings Association ("BofA")
and Bankers Trust Company ("BTCo."), as agents, each an affiliate of an Initial
Purchaser (the "Term Loan Facility"); (iii) $119 million of borrowings under a
senior secured revolving credit facility among DMFC, as guarantor, DMC, as
borrower, BofA and BTCo., as agents, and other lenders party thereto (the
"Revolving Credit Facility" and, together with the Term Loan Facility, the "Bank
Financing"); (iv) $147 million from the net proceeds of the issuance and sale of
12 1/4% Senior Subordinated Notes due 2007 (the "DMC Notes") by DMFC, as issuer
of a senior subordinated guarantee, and DMC, as issuer; and (v) $2 million of
proceeds from the sale of a surplus property.
The above described transactions are herein referred to collectively as the
"Recapitalization."
TEXAS PACIFIC GROUP
TPG was founded by David Bonderman, James G. Coulter and William S. Price
III in 1992 to pursue public and private investment opportunities. TPG's other
investments include such branded consumer products companies as Beringer Wine
Estates Holdings, Inc., Ducati Motors S.p.A., Favorite Brands International Inc.
and J. Crew Group, Inc. Other TPG portfolio companies include America West
Airlines, Belden & Blake Corporation, Denbury Resources, Genesis ElderCare,
Paradyne, Virgin Entertainment, and Vivra Specialty Partners. In addition, the
principals of TPG led the $9 billion reorganization of Continental Airlines in
1993. Prior to the Equity Contribution, TPG owned 78% of the common equity of
the Company.
------------------------
Del Monte, a Delaware corporation, maintains its principal executive office
at One Market, San Francisco, California 94105, and its telephone number is
(415) 247-3000.
5
<PAGE> 11
THE EXCHANGE OFFER
REGISTRATION RIGHTS
AGREEMENT................... The Initial Notes were issued on December 17,
1997 to Bear, Stearns & Co. Inc., BancAmerica
Robertson Stephens and BT Alex. Brown
Incorporated (the "Initial Purchasers"). The
Initial Purchasers placed the Initial Notes
with institutional investors in transactions
exempt from the registration requirements of
the Securities Act pursuant to Sections 4(2)
thereof and Regulations S thereunder and
applicable state securities laws. In connection
therewith, DMFC and the Initial Purchasers
entered into the Registration Rights Agreement
(as defined herein), providing, among other
things, for the Exchange Offer. See "The
Exchange Offer."
THE EXCHANGE OFFER............ Exchange Notes are being offered in exchange
for an equal principal amount of Initial Notes.
As of the date hereof, $230,000,000 aggregate
principal amount at maturity of Initial Notes
is outstanding. Initial Notes may be tendered
only in integral multiples of $1,000.
RESALE OF EXCHANGE 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, DMFC believes that the
Exchange 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
Exchange Notes directly from 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 DMFC) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that
such Exchange 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
Exchange Notes and has no arrangement with any,
person to participate in a distribution of such
Exchange Notes. By tendering the Initial Notes
in exchange for Exchange Notes, each holder,
other than a broker-dealer, will represent to
DMFC that: (i) it is not an affiliate (as
defined in Rule 405 under the Securities Act)
of DMFC; (ii) it is not a broker-dealer
tendering Initial Notes acquired for its own
account directly from DMFC; (iii) any Exchange
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 Exchange Notes and
has no arrangement or understanding to
participate in a distribution of the Exchange
Notes. If a holder of Initial Notes is engaged
in or intends to engage in a distribution of
the Exchange Notes or has any arrangement or
understanding with respect to the distribution
of the Exchange 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.
6
<PAGE> 12
Each Participating Broker-Dealer that receives
Exchange 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 Exchange 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 Exchange Notes
received in exchange for Initial Notes where
such Initial Notes were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading
activities. 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 necessary to qualify
for sale or register the Exchange Notes prior
to offering or selling such Exchange Notes.
DMFC has agreed, pursuant to the Registration
Rights Agreement and subject to certain
specified limitations therein, to register or
qualify the Exchange Notes for offer or sale
under the securities or "blue sky" laws of such
jurisdictions as may be necessary to permit the
holders of Exchange Notes to trade the Exchange
Notes without any restrictions or limitations
under the securities laws of the several states
of the United States.
CONSEQUENCES OF FAILURE TO
EXCHANGE INITIAL NOTES...... Upon consummation of the Exchange Offer,
subject to certain exceptions, holders of
Initial Notes who do not exchange their Initial
Notes for Exchange Notes in the Exchange Offer
will no longer be entitled to registration
rights and will not be able to offer or sell
their Initial Notes, unless such Initial 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 -- Consequences of Exchange and Failure
to Exchange" and "The Exchange Offer -- Terms
of the Exchange Offer."
EXPIRATION DATE............... 5:00 p.m., New York City time, on September 18,
1998 (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 EXCHANGE
NOTES......................... The Exchange 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 Initial Notes
surrendered in exchange therefor or (ii) if the
Initial Notes are surrendered for exchange on a
date subsequent to the record date for an
interest payment date to occur
7
<PAGE> 13
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 Initial Notes, from December 15,
2002. Interest on the Exchange Notes is payable
on June 15 and December 15 of each year
commencing June 15, 2003.
CONDITIONS TO THE EXCHANGE
OFFER....................... The Exchange Offer is not conditioned upon any
minimum principal amount of Initial Notes being
tendered for exchange. However, the Exchange
Offer is subject to certain customary
conditions, including that (i) the Exchange
Offer does not violate an applicable law or
applicable interpretation of law by the
Commission, (ii) no action is proceeding or
threatened that would materially impair the
Company's ability to proceed with the Exchange
Offer, (iii) no material adverse development
has occurred in an existing action or
proceeding with respect to the Company, and
(iv) all governmental approvals which the
Company deems necessary for the consummation of
the Exchange Offer shall have been received.
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 DMFC in connection with the
Exchange Offer.
PROCEDURES FOR TENDERING
INITIAL
NOTES....................... Each holder of Initial 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 Initial
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 Initial 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 Initial Notes who wish to tender
their Initial Notes and whose Initial Notes are
not immediately available or who cannot deliver
their Initial 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 Initial Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS............. Tenders of Initial 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 Initial 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 INITIAL NOTES
AND
DELIVERY OF EXCHANGE
NOTES....................... Subject to certain conditions, any and all
Initial Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New
8
<PAGE> 14
York City time, on the Expiration Date will be
accepted for exchange. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "The Exchange Offer -- Terms of the
Exchange Offer."
TAX CONSIDERATIONS............ The exchange of Exchange Notes for Initial
Notes should not be a sale or exchange or
otherwise a taxable event for Federal income
tax purposes. All holders of Initial Notes are
advised, however, to consult their own tax
advisers regarding the tax consequences of the
exchange of Initial Notes for Exchange Notes
and of the ownership and disposition of
Exchange Notes received in the Exchange Offer.
See "U.S. Federal Income Tax Considerations."
The summary contained in the section entitled
"U.S. Federal Income Tax Considerations" does
not constitute and is not based upon an opinion
of tax counsel and does not purport to be a
comprehensive description of all tax
considerations which could be relevant to the
Exchange Offer or a decision to participate in
the Exchange Offer.
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
DMFC. See "The Exchange Offer -- Fees and
Expenses."
USE OF PROCEEDS............... There will be no cash proceeds payable to DMFC
from the issuance of the Exchange Notes
pursuant to the Exchange Offer. The proceeds
received from the sale of the Initial Notes
were used to finance a portion of the Contadina
Acquisition. See "Use of Proceeds" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Liquidity and Capital
Resources -- Finance Activities -- 1998
Activity."
9
<PAGE> 15
THE EXCHANGE NOTES
ISSUER........................ Del Monte Foods Company (the "Company").
THE NOTES..................... $230 million aggregate principal amount at
maturity of 12 1/2% Senior Discount Notes due
2007. The Exchange Notes will be entitled to
the benefits of the same Indenture that governs
the Initial Notes and that will govern the
Exchange Notes. The form and terms of the
Exchange Notes are the same in all material
respects as the form and terms of the Initial
Notes, except that the Exchange Notes have been
registered under the Securities Act and
therefore will not bear legends restricting the
transfer thereof. See "Description of the
Notes."
MATURITY DATE................. December 15, 2007.
ISSUE PRICE................... $545.76 per $1,000 principal amount at maturity
of the Notes.
YIELD TO MATURITY............. 12 1/2% per annum (computed on a semiannual
bond-equivalent basis), calculated from
December 17, 1997. Interest payable in cash
will not commence to accrue prior to December
15, 2002, and will be payable on each June 15
and December 15 thereafter until maturity,
commencing June 15, 2003.
ORIGINAL ISSUE DISCOUNT....... Each Note will have an Original Issue Discount
(as defined herein) for United States federal
income tax purposes equal to the excess of all
required principal and interest payments over
the amount of the Issue Price of such Note.
Prospective purchasers of Notes should be aware
that, even though periodic cash payments of
interest on the Notes will not commence until
June 15, 2003, accrued Original Issue Discount
will be includable, periodically, in a holder's
gross income for United States federal income
tax purposes even if in advance of the receipt
of cash payments to which such income is
attributable, regardless of the holder's
regular method of accounting. See "U.S. Federal
Income Tax Considerations" and "Risk
Factors -- Original Issue Discount."
OPTIONAL REDEMPTION........... The Notes may be redeemed at the option of the
Company in whole or from time to time in part
at any time on and after December 15, 2002 at
the redemption prices set forth herein on the
date of redemption. Notwithstanding the
foregoing, prior to December 15, 2002, upon a
Change of Control (as defined herein) the
Company will have the option to redeem the
Notes, in whole, but not in part, at a
redemption price equal to the Accreted Value
(as defined herein) on the date of redemption,
plus the Applicable Premium (as defined herein)
and Liquidated Damages, if any. In addition,
prior to December 15, 2000, the Company may
redeem up to 35% of the original aggregate
principal amount at maturity of the Notes with
the Cash Net Proceeds (as defined herein) of
one or more Public Equity Offerings (as defined
herein) at a redemption price of 112.5% of
Accreted Value, plus Liquidated Damages, if
any; provided that at least 65% of the original
aggregate principal amount at maturity of the
Notes remains outstanding immediately
thereafter.
10
<PAGE> 16
REDEMPTION UPON CHANGE OF
CONTROL AT HOLDERS'
OPTION...................... If, upon a Change of Control, the Company does
not redeem the Notes as described under
"Description of the Notes -- Optional
Redemption upon a Change of Control prior to
December 15, 2002", each holder of the Notes
will have the right to require the Company to
repurchase all or a portion of such holder's
Notes at a price equal to 101% of Accreted
Value plus accrued interest and Liquidated
Damages, if any, on the date of repurchase. A
Change of Control of the Company or of certain
of its subsidiaries may, however, cause an
acceleration of, or require an offer to
repurchase, the DMC Notes and other
indebtedness, if any, to which the Notes are
subordinated in right of payment, and such
acceleration or offer to repurchase would
require the Company to repay such indebtedness
in full before repurchase of the Notes. In such
case, the inability to repay such indebtedness
and to purchase all of the tendered Notes would
constitute an event of default under the
Indenture. There can be no assurance that the
Company will have funds available to repurchase
the Notes upon the occurrence of a Change of
Control. See "Risk Factors -- Limitation of
Change of Control."
RANKING AND HOLDING COMPANY
STRUCTURE..................... The Notes will be general, senior, unsecured
obligations of the Company and will rank pari
passu in right of payment with all future
senior indebtedness of the Company, including
the guarantee by DMFC of the Bank Financing,
and senior to all future subordinated
indebtedness of the Company, including DMFC's
guarantee of the DMC Notes. Substantially all
of the Company's consolidated liabilities
(other than the Notes) are liabilities of its
subsidiaries. DMFC is a holding company and
therefore the Notes will be effectively
subordinated to all existing and future
indebtedness and other liabilities of the
Company's subsidiaries, including trade
payables. As of March 31, 1998, the outstanding
indebtedness and other liabilities, including
trade payables, of such subsidiaries were
approximately $1.1 billion. See "Risk
Factors -- Holding Company Structure;
Limitations on Access to Cash Flow" and
"Description of the Notes."
CERTAIN COVENANTS............. The indenture governing the Notes (the
"Indenture") will limit, among other things,
(i) the incurrence of additional debt and the
issuance of capital stock by the Company and
its subsidiaries, (ii) the payment of dividends
on the capital stock of the Company and its
subsidiaries and the redemption or repurchase
of the capital stock of the Company and its
subsidiaries, (iii) the sale of assets and
subsidiary stock, (iv) transactions with
affiliates, (v) the creation of liens on the
assets of the Company and its subsidiaries and
(vi) consolidations, mergers and transfers of
all or substantially all of the Company's
assets. The foregoing limitations and
prohibitions, however, are subject to a number
of qualifications. See "Description of the
Notes -- Certain Covenants."
USE OF PROCEEDS............... The Company will not receive any proceeds from
the Exchange Offer, and no underwriter is being
utilized in connection with the Exchange Offer.
The proceeds received from the sale of the
Initial Notes were used to finance a portion of
the Contadina Acquisition.
11
<PAGE> 17
See "Use of Proceeds" and Management's
Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and
Capital Resources -- Financing
Activities -- 1998 Activity."
RISK FACTORS
Prospective investors in the Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate
specific factors, including among others, (i) the potential consequences of
failure to participate in the Offer, (ii) the degree of leverage of the Company
and the holding company structure of the Company, (iii) the effect of
restrictive debt covenants, and (iv) the lack of a public market for the
Exchange Notes, for risks attendant to an investment in the Notes or tendering
of the Initial Notes for the Exchange Notes offered hereby. See "Risk Factors."
12
<PAGE> 18
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
In April 1997, the Company completed the Recapitalization. The cash funding
requirements for the Recapitalization aggregated $809 million and were funded
primarily through a combination of an equity investment by TPG and certain other
investors, bank financing and other indebtedness. See "Description of
Indebtedness" and Notes D and E to the audited consolidated financial statements
of the Company as of and for the year ended June 30, 1997 appearing elsewhere
herein.
In December 1997, the Company completed the Contadina Acquisition for a
total purchase price of $197 million, comprised of a base price of $177 million
and an estimated net working capital adjustment of $20 million. The
consideration was paid solely in cash. The purchase price was subject to
adjustment based on the final calculation of net working capital as of the
closing date. Nestle provided its estimate of the net working capital, which
resulted in a payment to the Company of $2 million, and therefore a reduction in
the purchase price to a total of $195 million. The Contadina Acquisition also
included the assumption of certain liabilities of approximately $5 million,
consisting primarily of liabilities in respect of reusable packaging materials,
employee benefits and product claims. The Contadina Acquisition was accounted
for using the purchase method of accounting.
The following table presents summary historical and pro forma financial
data of the Company. The summary historical consolidated financial data
presented below as of June 30, 1995, 1996 and 1997 and for the years then ended
and as of March 31, 1998 and for the nine months then ended were derived from
the audited consolidated financial statements of the Company. The summary
historical consolidated financial data presented below as of March 31, 1997 and
for the nine months then ended was derived from the unaudited interim financial
statements of the Company. Such historical financial information should be read
in conjunction with the consolidated financial statements of the Company and the
related notes thereto included elsewhere in this Prospectus. The unaudited pro
forma statements of operations information was prepared by the Company as if the
Contadina Acquisition, the Recapitalization and related financings had occurred
as of July 1, 1996 and should be read in conjunction with the pro forma
financial information set forth under "Unaudited Pro Forma Financial Data." The
unaudited pro forma statements of operations information does not purport to
represent what the Company's results of operations actually would have been if
the Contadina Acquisition and the Recapitalization had occurred as of the date
indicated or what such results will be for any future periods. See "-- Summary
Historical Financial Data of Contadina," "Unaudited Pro Forma Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Financial Activities -- 1998
Activity -- Contadina Acquisition."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
---------------------------------------------- -------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
-------------------------------- ----------- ----------------------- -----------
1995 1996 1997 1997 1997 1998 1998
------ ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales(a)............................. $1,527 $1,305 $1,217 $ 1,373 $936 $ 968 $ 1,060
Cost of products sold(a)................. 1,183 984 819 953(b) 634 655(b) 726(b)
------ ------ ------ ---------- ---- ---------- ----------
Gross profit............................. 344 321 398 420 302 313 334
Selling, advertising, administrative and
general expense(a)..................... 264 239 327(c) 361 235 249 274
Acquisition expenses..................... -- -- -- -- -- 7 7
------ ------ ------ ---------- ---- ---------- ----------
Operating income......................... 80 82 71 59 67 57 53
Interest expense......................... 76 67 52 93 37 58 72
Loss (gain) on sale of divested
assets(d).............................. -- (123) 5 5 5 -- --
Other (income) expense(e)................ (11) 3 30 30 -- (1) (1)
------ ------ ------ ---------- ---- ---------- ----------
Income (loss) before income taxes,
minority interest, extraordinary item
and cumulative effect of accounting
change................................. 15 135 (16) (69) 25 -- (18)
Provision for income taxes............... 2 11 -- -- 2 -- --
Minority interest in earnings of
subsidiary............................. 1 3 -- -- -- -- --
------ ------ ------ ---------- ---- ---------- ----------
Net income (loss) before extraordinary
item and cumulative effect of
accounting change...................... 12 121 (16) (69) 23 -- (18)
Extraordinary loss(f).................... 7 10 42 42 4 -- --
Cumulative effect of accounting
change(g).............................. -- 7 -- -- -- -- --
------ ------ ------ ---------- ---- ---------- ----------
Net income (loss)........................ $ 5 $ 104 $ (58) $ (111) $ 19 $ -- $ (18)
====== ====== ====== ========== ==== ========== ==========
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
---------------------------------------------- -------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
-------------------------------- ----------- ----------------------- -----------
1995 1996 1997 1997 1997 1998 1998
------ ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Adjusted EBITDA(h)....................... $ 76 $ 92 $ 119 $ 85 $ 97
Adjusted EBITDA margin(h)................ 6.9% 8.6% 10.2% 9.5% 10.0%
Cash flows provided by operating
activities............................. $ 63 $ 60 $ 25 $ 26 $ 9 $
Cash flows provided by (used in)
investing activities................... (21) 170 37 39 (205)
Cash flows provided by (used in)
financing activities................... (44) (224) (63) (65) 195
Depreciation and amortization(i)......... 35 26 24 $ 30 18 20 $ 23
Capital expenditures..................... 24 16 20 30 12 15 20
SELECTED RATIOS:
Ratio of earnings to fixed charges(j).... 1.2x 2.8x -- -- 1.5x 1.0x --
Deficiency of earnings to cover fixed
charges(j)............................. -- -- $ 16 $ 69 -- -- $ 18
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------------------------------- -------------------
ACTUAL ACTUAL
-------------------------------- -------------------
1995 1996 1997 1997 1998
------ ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 99 $ 209 $ 118 $ 186 $ 220
Total assets................................................ 960 736 667 739 928
Total debt, including current maturities.................... 576 373 610 310 770
Redeemable preferred stock.................................. 215 213 32 213 32
Stockholders' deficit....................................... (393) (288) (398) (243) (354)
</TABLE>
Note: Financial data under the columns marked "restated" reflect the information
from the Company's restated financial statements.
- ---------------
(a) In fiscal 1997, merchandising allowances primarily relating to in-store
displays, store advertising and store coupons, which previously were
recorded as cost of products sold, have been reclassified to selling
expense. Such merchandising allowances totaled $106 million, $100 million,
$143 million and $101 million in the fiscal years ended June 30, 1995, 1996
and 1997 and the nine months ended March 31, 1997, respectively. In
addition, certain military distributor allowances, which previously were
treated as a reduction in net sales, have been reclassified to selling
expense. Such military distributor allowances amounted to $1 million, $1
million, $2 million and $2 million in fiscal years ended June 30, 1995, 1996
and 1997 and the nine months ended March 31, 1997, respectively. All
financial information has been restated to conform to this presentation.
(b) For the pro forma fiscal year ended June 30, 1997 and the historical nine
months ended March 31, 1998, includes $4 million and $2 million,
respectively, of inventory step-up as part of the purchase price allocation
relating to the Contadina Acquisition. For the pro forma nine months ended
March 31, 1998, excludes $2 million of inventory step-up as part of the
purchase price allocation relating to the Contadina Acquisition.
(c) In connection with the Recapitalization, which was consummated on April 18,
1997, expenses of approximately $25 million were incurred primarily for
management incentive payments and, in part, for severance payments.
(d) 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 Limited ("Del Monte Philippines") for $100
million, net of $2 million of related transaction fees. The sale resulted in
a gain of $52 million. In the fiscal quarter ended December 1996, the
Company sold its Mexican, Central American and Carribean subsidiaries
(collectively "Del Monte Latin America"). The combined sales price of $50
million, reduced by $2 million of related transaction expenses, resulted in
a loss of $5 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General."
(e) In fiscal 1995, other income includes the Company's receipt of proceeds of a
$30 million letter of credit, reduced by $4 million of related transaction
expenses, as a result of the termination of a merger agreement with Grupo
Empacador de Mexico, S.A. de C.V. In fiscal 1997, $22 million of expenses
were incurred in conjunction with the Recapitalization, primarily for legal,
investment advisory and management fees.
(f) 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
retirement of debt. In fiscal 1997, $42 million of expenses related to the
early retirement of debt and to the Recapitalization was charged to net
income. In September 1996, the Company repurchased outstanding debt, in
conjunction with which capitalized debt issue costs of $4 million, net of a
discount on such debt, were written off and accounted for as an
extraordinary loss. In conjunction with the refinancing of debt that
occurred at the time of the Recapitalization, the Company recorded a $38
million extraordinary loss related to the early retirement of debt. The $38
million extraordinary loss consisted of previously
14
<PAGE> 20
capitalized debt issue costs of approximately $19 million and a premium
payment and a term loan make-whole payment aggregating to $19 million.
(g) Effective July 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("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.
(h) Adjusted EBITDA represents EBITDA (income (loss) before provision for income
taxes, minority interest, extraordinary item, cumulative effect of
accounting change and depreciation and amortization expense, plus interest
expense) before special charges and other one-time and non-cash charges,
less gains (losses) on sales of assets and the results of the Divested
Operations. Adjusted EBITDA should not be considered in isolation from, and
is not presented as an alternative measure of, operating income or cash flow
from operations (as determined in accordance with GAAP). Adjusted EBITDA as
presented may not be comparable to similarly titled measures reported by
other companies. Since the Company has undergone significant structural
changes during the periods presented, management believes that this measure
provides a meaningful measure of operating cash flow (without the effects of
working capital changes) for the core and continuing business of the Company
by normalizing the effects of operations that have been divested and of
one-time charges or credits. For fiscal 1995, Adjusted EBITDA excludes $26
million received in connection with a terminated transaction, $4 million
paid by the Company to terminate its alliance with PCP (as defined herein)
and $7 million related to the termination of a management equity plan. For
fiscal 1996, other one-time charges include $3 million for relocation costs
and $6 million of costs associated with a significant headcount reduction.
For fiscal 1997, Adjusted EBITDA excludes $47 million of expenses incurred
in connection with the Recapitalization and $7 million related to the
recognition of an other than temporary impairment of a long-term equity
investment. For the nine months ended March 31, 1998, historical and pro
forma one-time and non-cash charges consist of $7 million of severance
accruals and $3 million of stock compensation expense. Historical one-time
charges for the nine months ended March 31, 1998 also include $7 million of
expenses incurred in connection with the Contadina Acquisition and $2
million of inventory step-up due to the purchase price allocation related to
the Contadina Acquisition. Adjusted EBITDA margin is calculated as Adjusted
EBITDA as a percentage of net sales (excluding net sales of Divested
Operations of $417 million, $233 million and $48 million for the years ended
June 30, 1995, 1996 and 1997, respectively, and $43 million for the nine
months ended March 31, 1997). See tabular presentation under "Selected
Consolidated Financial Data."
(i) Depreciation and amortization exclude amortization of $5 million of deferred
debt issuance costs in each of fiscal 1995, 1996 and 1997. Depreciation and
amortization exclude amortization of $4 million and $3 million of deferred
debt issuance costs in the nine-month periods ended March 31, 1997 and 1998,
respectively. Pro forma depreciation and amortization exclude amortization
of $5 million and $3 million of pro forma deferred debt issuance costs for
fiscal 1997 and for the nine-month period ended March 31, 1998,
respectively.
(j) 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 issuance costs) and the interest component of rent expense.
15
<PAGE> 21
SUMMARY HISTORICAL FINANCIAL DATA OF CONTADINA
The following table presents summary historical financial data of Contadina
for purchased product lines for the year ended December 31, 1996 and the period
from January 1, 1997 through December 18, 1997 derived from the audited
financial statements for those periods, and summary financial data for the nine
months ended September 30, 1996 and 1997.
Contadina was not operated as a separate business unit and, as such, it did
not have regularly prepared financial statements. The Company has obtained and
prepared financial information of Contadina for the year ended December 31,
1996, the period ended December 18, 1997, and the nine-month periods ended
September 30, 1996 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 1, 1997 SEPTEMBER 30,
YEAR ENDED THROUGH -----------------
DECEMBER 31, 1996 DECEMBER 18, 1997 1996 1997
----------------- ----------------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales................................ $160 $162 $112 $108
Cost of products sold(a)................. 151 163 108 112
---- ---- ---- ----
Gross margin........................ 9 (1) 4 (4)
Selling, advertising, administrative and
general expense(b)..................... 20 26 19 19
---- ---- ---- ----
Operating loss........................... (11) (27) (15) (23)
Interest expense(c)...................... 6 6 4 4
---- ---- ---- ----
Net loss before taxes............... $(17) $(33) $(19) $(27)
==== ==== ==== ====
OTHER DATA:
Depreciation and amortization............ $ 12 $ 13 $ 8 $ 8
Capital expenditures..................... 10 8 7 7
</TABLE>
- ---------------
(a) Cost of products sold includes royalty expense of $5 million for both the
year ended December 31, 1996 and the period ended December 18, 1997 and $3
million for each of the nine-month periods ended September 30, 1996 and
1997. Under a royalty agreement with Nestle S.A., royalties were charged for
the license of the Contadina trademarks. This expense will not be incurred
as part of the on-going operations of Contadina subsequent to the date of
the Contadina Acquisition. Cost of products sold also includes an allocation
by Nestle for certain fixed distribution costs which included, without
limitation, costs of utilizing outside storage facilities and costs for
utilizing centralized distribution and storage facilities of $5 million, $7
million, $5 million and $5 million for the year ended December 31, 1996, the
period ended December 18, 1997, and the nine-month periods ended September
30, 1996 and 1997, respectively. The Company believes that, as part of
on-going operations of Contadina subsequent to the Contadina Acquisition, it
will experience distribution costs of a similar nature to those allocated by
Nestle in its cost allocation but at a significantly reduced level; however,
no assurances can be given in this regard.
(b) Selling, advertising, administrative and general expense included an
allocation by Nestle for marketing and other general expenses which include,
without limitation, all selling costs, including direct sales force and
brokerage expenses; costs for utilizing centralized distribution and storage
facilities; costs associated with marketing services; and general and
administrative costs associated with support services such as finance,
legal, human resources and information systems. For the year ended December
31, 1996, the period ended December 18, 1997, and the nine-month periods
ended September 30, 1996 and 1997, allocated marketing expense was $8
million, $10 million, $7 million and $8 million, respectively. The Company
believes that it will experience operating costs of a similar nature to
those charged by Nestle in its cost allocations, but at a significantly
reduced level; however, no assurances can be given in this regard. Other
general expenses allocated by Nestle were $4 million, $10 million, $7
million and $8 million for the year ended December 31, 1996, the period
ended December 18, 1997, and the nine month periods ended September 30, 1996
and 1997, respectively.
(c) Represents an allocation charged to Contadina by Nestle based on the
end-of-month working capital balance at an intercompany rate equal to 7% for
all periods.
16
<PAGE> 22
RISK FACTORS
Before tendering their Initial Notes for the Exchange Notes offered hereby,
holders of Initial Notes and prospective purchasers of the Notes should
carefully consider all of the information in this Prospectus, including the risk
factors set forth below.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon as a consequence of the issuance of the Initial 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 Initial Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. The Company does not intend to register the Initial Notes
under the Securities Act. In addition, any holder of Initial Notes who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent Initial Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Initial Notes could be adversely affected. See
"The Exchange Offer."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. As of March 31, 1998, the Company had
approximately $1.2 billion of indebtedness (including trade payables) and its
stockholders' deficit was $354 million. In addition, subject to the restrictions
contained in the Bank Financing, the Company and its subsidiaries 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, the Company's borrowings
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 the Company is leveraged could have important
consequences to the Holders of the Notes, including, but not limited to, the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be impaired; (ii) a significant portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Company for its operations; (iii) significant amounts of the Company's
borrowings will be at variable rates of interest, which could result in higher
interest expense; (iv) the terms of the Bank Financing contain financial and/or
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 the Company; (v) the indebtedness outstanding under the Bank Financing is
secured and matures prior to the maturity of the Notes; (vi) the DMC Notes
mature prior to the maturity of the Notes; (vii) the Company may be
substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage; and (viii) the Company'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 "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Existing
Indebtedness."
The Company'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 the Company'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, the Company 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
17
<PAGE> 23
the Company could realize therefrom. In addition, because the Company pays
interest on certain of its indebtedness at floating rates, an increase in
interest rates could adversely affect, among other things, the Company's ability
to meet its debt service obligations. If the Company 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. The inability of
the Company to meet its debt service obligations or to adopt an alternative
strategy could have a material adverse effect on the Company's results of
operations and financial condition.
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW
The Notes will rank pari passu in right of payment with all present and
future senior indebtedness of DMFC and senior to all present and future
subordinated indebtedness of DMFC. DMFC is a holding company with no substantial
business operations or assets (other than the capital stock of DMC) of its own.
DMFC's assets consist primarily of its ownership interests in DMC. The Notes
will be effectively subordinated to all existing and future indebtedness and
other liabilities of DMFC's subsidiaries because DMFC's right to receive the
assets of any such affiliates upon their liquidation or reorganization will be
subordinated by operation of law to the claims of such subsidiaries' creditors
(including trade creditors), except to the extent that DMFC is itself recognized
as a creditor of any such affiliate, in which case the claims of DMFC would
still be subordinated to any indebtedness of such affiliate that is senior in
right of payment to DMFC's claim. DMFC's subsidiaries have substantial
indebtedness and other liabilities. As of March 31, 1998, DMFC's subsidiaries
had $1.1 billion of indebtedness outstanding (including trade payables) which,
as described above, is senior in right of payment to the Notes. The instruments
governing indebtedness of the Company, including, without limitation, the DMC
Notes and the Bank Financing, severely limit the ability of the Company's
subsidiaries to distribute to the Company any cash or other assets, which could
materially and adversely affect the ability of the Company to service the Notes,
when they require payment of interest in cash commencing June 15, 2003, upon
acceleration, at maturity or otherwise. If the Company is unable to service its
obligations on the Notes as required, it may have to refinance the Notes or
otherwise raise additional funding with regard to which there can be no
assurance that the Company will be able to do so on acceptable terms, if at all.
In addition, future borrowings by the Company's subsidiaries can be expected to
contain further restrictions or prohibitions on the payment of dividends by such
subsidiaries to DMFC. See "Description of the Notes."
COMPETITION
While many companies compete in the domestic canned vegetable, fruit and
tomato product categories, only a small number of well-established companies
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 and other companies. Certain of these competitors have greater
financial resources and flexibility than the Company. Several of the Company's
product lines are sensitive to competition from regional brands, and many of the
Company's product lines compete with imports, private label products and fresh
alternatives. While no single private label competitor has greater market share
than the Company in its principal product categories, for the 52 weeks ended
March 28, 1998, private label competition as a group represented 43.8%, 39.7%
and 30.7% of canned vegetable, fruit and solid tomato product sales,
respectively. Furthermore, the Company cannot predict the pricing or promotional
actions by its competitors or their effects on the Company's ability to market
and sell its products. There can be no assurance that the Company's sales volume
or market shares would not be adversely affected by negative consumer reaction
to its higher prices. The categories of the canned food industry in which the
Company competes have in the past been affected by processing over-capacity.
Although the Company believes that recent consolidation among certain
participants in those categories may result in capacity rationalization, there
can be no assurance that the Company's results will not be adversely affected by
industry over-capacity in the future or that crop supply levels will not change
so as to create an imbalance of supply and demand in future periods.
18
<PAGE> 24
RISKS RELATING TO IMPLEMENTATION OF BUSINESS STRATEGY
The Company's ability to implement its business strategy and improve its
operating results will depend in part on its ability to realize substantial cost
savings through operating efficiencies and to achieve additional penetration and
market share for its high margin products. No assurance can be given that the
Company will be able to achieve such goals or that, in implementing cost saving
measures, it will not impair its ability to respond rapidly or efficiently to
changes in the competitive environment. In such circumstances, the Company's
results of operations and financial condition could be materially adversely
affected.
The Company's strategy also depends on its ability to increase distribution
of its products through warehouse clubs, such as Wal-Mart's Sam's Clubs and
PriceCostco, and mass merchandisers, such as Wal-Mart Supercenters. The Company
does not enter into long-term agreements with these entities, which make
purchases depending on their inventory levels. If the Company's relationship
with any of these entities should deteriorate, such entity could immediately
cease purchases of the Company's products. The loss of such sales and resulting
possible adverse market perception could materially adversely affect the
Company's results of operations and financial condition.
Although the Company intends to pursue strategic acquisitions, completion
of any acquisition could require the consent of the lenders under the Bank
Financing and the amendment of the terms thereof, including for purposes of
permitting the Company's compliance with its covenants thereunder. There can be
no assurance as to whether, or the terms on which, the lenders under the Bank
Financing would grant such consent. In addition, to the extent that the Company
completes strategic acquisitions, it will be subject to risks associated with
the integration of the acquired businesses into the Company's operations,
including the integration of personnel, production and financial and information
systems. The timing and number of acquisitions could increase the difficulty in
addressing these risks. Failure of the Company to integrate any acquired
business adequately could adversely affect the Company's results of operations
and financial condition.
RISKS RELATING TO CONTADINA
Contadina was not operated as a separate business unit and, as such, it did
not have regularly prepared financial statements. Contadina's books and records
have been audited only for the fiscal year ended December 31, 1996 and the
period ended December 18, 1997. Financial information presented herein
concerning Contadina has of necessity required estimation by the Company, and no
assurance can be given that results of the acquired business for these periods,
if the business had been operated as an independent entity, would not vary
materially.
The Contadina Acquisition has been accounted for using the purchase method.
This accounting treatment requires all purchased assets to be recorded on the
Company's books based upon their fair value. Accordingly, the inventory of
Contadina acquired in the Contadina Acquisition was recorded on the Company's
books at fair value (generally higher than the recorded cost). The Company
expects to report a lower gross margin upon future sales of the revalued
inventory.
The full benefits of the acquisition of Contadina's assets will require
coordination of operations, the implementation of appropriate operational,
financial and management systems and controls in order to operate effectively
and efficiently, and the integration of the Contadina business into the
Company's administrative, finance and marketing organizations. This will require
substantial attention from the Company's management team. The diversion of
management attention, as well as any other difficulties which may be encountered
in the transition and integration process, could have an adverse impact on the
revenue and operating results of the Company. In addition, there can be no
assurance that the Company will be successful in integrating the operations of
Contadina, or that any planned benefits will be realized.
SEVERE WEATHER CONDITIONS AND NATURAL DISASTERS
Severe weather conditions and natural disasters, such as floods, droughts,
frosts, earthquakes or pestilence, may affect the supply of one or more of the
Company's products. For example, the Company's
19
<PAGE> 25
peach and pear growing regions experienced a compressed summer 1997 harvesting
season due to adverse weather. This shortened time frame for harvesting caused
an increase in the use of cold storage for peaches and pears until processing
capacity became available. In addition, smaller fruit size lowered raw product
recoveries and cooler weather than normal resulted in late plantings for some
vegetables, lower field yields and lower recoveries. Furthermore, competing
manufacturers of canned vegetable, fruit or tomato products may be affected
differently depending on the location of their principal sources of supply. If
the supply of any of the Company's products is adversely affected by weather
conditions, there can be no assurance that the Company will be able to obtain
sufficient supplies from other sources. In particular, the Company's tomato and
fruit production is concentrated in the San Joaquin Valley of California. In the
winter and spring of 1997-98, certain areas in California, including some of the
Company's growing regions, have experienced substantial rainfall as a result of
the "El Nino" phenomenon. The Company believes that the 1998 California fruit
and tomato harvests and raw product recoveries are likely to be somewhat reduced
as a result of these weather conditions and that the Company is likely to incur
increased cost of products sold. Such circumstances may also adversely affect
the Company's sales volumes and inventory levels. Historically, significant
weather-related shortages in fruit, vegetable and tomato harvests have resulted
in price increases that have offset increases in raw product costs and
reductions in sales volumes. While the Company believes that the overall effects
of the El Nino phenomenon will not be material to its financial condition and
results of operations, no assurance can be given that the Company will be able
to achieve price increases sufficient to offset any reduction in sales volume or
increase in its cost of products sold.
SEASONALITY OF PRODUCTION AND SALES
The Company is not a continuous manufacturer, but has a production period
that is limited to approximately three to four months during the summer each
year. As a result, the Company's working capital requirements are also seasonal
and are most significant in the first and second fiscal quarters. If the Company
were to experience an unexpected plant shutdown or any other interference with
its production schedule, the Company's results of operations and financial
condition could be materially adversely affected.
The Company's historical net sales have exhibited seasonality, with the
second and third fiscal quarters having the highest net sales, principally due
to increased sales during the holiday period in the United States extending from
November through December, as well as in anticipation of the Easter holiday. Net
sales in the first fiscal quarter have historically been affected principally by
lower levels of promotional activity and the availability of fresh produce.
Although the Company believes that these seasonal fluctuations are relatively
predictable and that the Company's sources of liquidity are adequate to ensure
the availability of working capital, there can be no assurance that seasonal
trends in the Company's business will not adversely affect the Company's results
of operations or financial condition in the future.
DIFFICULTY IN COMPLYING WITH GOVERNMENTAL REGULATIONS; LIABILITIES ASSOCIATED
WITH ENVIRONMENTAL COMPLIANCE
As a result of its agricultural, food processing and canning activities,
the Company is subject to certain environmental laws and regulations. Many of
these laws and regulations are becoming increasingly stringent and compliance
with them is becoming increasingly expensive. 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, as amended ("CERCLA"), or under similar state laws. Based
on available information, the Company is defending itself in these actions as
appropriate, and believes that none of the matters will have a material adverse
impact on the Company's financial position or results of operations. There can
be no assurance that such will be the case 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 or
previously 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, under the Federal Food, Drug and Cosmetic Act and the
Food Quality Protection Act of 1996, the U.S. Environmental Protection Agency
(the "EPA") is involved in a series of
20
<PAGE> 26
regulatory actions relating to the evaluation and 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 and use 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 BY TPG
TPG and its affiliates, through their ownership of voting stock or through
other contractual arrangements, has the ability to control the management and
policies of the Company and determination of matters requiring stockholder
approval. See "Capital Stock of DMFC" and "Certain Relationships and Related
Transactions."
The Company currently has, and will continue to have, contractual
relationships with TPG, including a Transaction Advisory Agreement and a
Management Advisory Agreement, each relating to certain services to be provided
by TPG to the Company. See "Certain Relationships and Related Transactions."
LIMITATION ON CHANGE OF CONTROL
Upon a Change of Control, (i) the Company will have the option, at any time
prior to December 15, 2002, to redeem the Notes, in whole but not in part, at a
redemption price equal to 100% of the principal amount thereof, plus the
Applicable Premium, through the date of redemption, and (ii) if the Company does
not so redeem the Notes or if such Change of Control occurs after December 15,
2002, each Holder of the Notes will have the right to require the Company to
repurchase such Holder's Notes at a price equal to 101% of the Accreted Value
thereof to the date of repurchase, plus accrued and unpaid interest, if any. The
Change of Control purchase feature of the Notes may in certain circumstances
discourage or make more difficult a sale or takeover of the Company. In
particular, a Change of Control of the Company or certain of its subsidiaries
may cause an acceleration of, or require an offer to repurchase under, the DMC
Notes and other indebtedness, if any, in which case such indebtedness would be
required to be repaid in full before repurchase of the Notes. See "Description
of Indebtedness" and "Description of the Notes -- Change of Control." The
inability to repay such indebtedness, if accelerated, and to purchase all of the
tendered Notes would constitute an event of default under the Indenture. There
can be no assurance that the Company will have funds available to repurchase the
Notes upon the occurrence of a Change of Control.
RESTRICTIVE DEBT COVENANTS
The Company is subject to a number of significant covenants under its
indebtedness that, among other things, restrict the ability of the Company 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 capital 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, the Company is required to comply with specified financial ratios and
tests, including minimum EBITDA (as defined in the Bank Financing), minimum net
worth, minimum fixed charge coverage and maximum leverage ratios. Substantially
all of the assets of the Company have been pledged to secure the indebtedness of
the Company. See "Description of Indebtedness" and "Description of the Notes."
Compliance with such restrictions could impair the Company's ability to
fund its capital expenditures on a timely basis. Moreover, the Company's ability
to comply with such covenants may be affected by events beyond its control,
including prevailing economic, financial and industry conditions. The breach of
any of such covenants could result in a default, which would permit the
acceleration of such indebtedness and the termination of the commitments of the
Company's senior lenders to make further extensions of credit. Such senior
lenders could also foreclose against collateral securing indebtedness owed them.
If the Company's obligations under the Bank Financing were accelerated and the
lenders' commitments terminated, the Company would be required to repay all
amounts outstanding under the Bank Financing and would have no credit facility
available to finance its seasonal working capital or other cash requirements. As
a result,
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particularly if lenders were to foreclose on the Company's assets, the Company's
business prospects, results of operations and financial condition would be
materially and adversely affected.
BRAND RISK
The Company has licensed the Del Monte brand name to various unaffiliated
companies internationally and, for certain products, within the United States.
The common stock and certain debt securities of one licensee, Fresh Del Monte
Produce N.V., are publicly traded in the United States. Acts or omissions by
these unaffiliated companies may adversely affect the value of the Del Monte
brand name or the trading prices for the Exchange Notes. In addition, press and
other third party announcements or rumors relating to any of these licensees may
adversely affect the market prices for the Exchange Notes and demand for the
Company's products, even though the events announced or rumored may not relate
to the Company, which in turn could materially adversely affect the Company's
results of operations and financial condition. See "Business -- Intellectual
Property."
ORIGINAL ISSUE DISCOUNT
The Initial Notes were issued at a substantial discount from their
principal amount at maturity. For United States Federal income tax purposes, the
difference between the issue price (the initial price at which the Initial Notes
are sold) and the stated principal amount at maturity of each Note constitutes
original issue discount ("Original Issue Discount"). Holders of the Notes will
be required to include Original Issue Discount in income periodically over the
term of the Notes before receipt of the cash or other payment attributable to
such income.
For United States Federal income tax purposes, each Holder of a Note must
generally include in gross income a portion of the Original Issue Discount in
each taxable year during which the Note is held in an amount equal to the
Original Issue Discount that accrues on the Note during such period, determined
by using a constant yield to maturity method. The Original Issue Discount
included in income for each year will be calculated under a compounding formula
that will result in the allocation of less Original Issue Discount to the
earlier years of the term of the Note and more Original Issue Discount to later
years. Any amount included in income as Original Issue Discount will increase a
Holder's tax basis in the Note.
ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE NOTES
Prior to the Exchange Offer there was no public market for the Exchange
Notes. If such a market were to develop, the Exchange Notes could trade at
prices that may be higher or lower than their Accreted Value. The Company does
not intend to apply for listing of the Exchange Notes on any securities exchange
or for quotation of the Exchange Notes on the Nasdaq Stock Market's National
Market or otherwise. The Company has been advised by the Initial Purchasers that
they currently intend to make a market in the Exchange 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 Exchange
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 Exchange Notes or
that any active public market for the Exchange Notes will develop or continue.
If an active public market does not develop or continue, the market price and
liquidity of the Exchange Notes may be adversely affected.
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<PAGE> 28
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement entered into between DMFC and the Initial Purchasers as of December
17, 1997 (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 Initial Notes pursuant to a Purchase
Agreement dated as of December 9, 1997, by and among 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, DMFC are required to file within
75 days after December 19, 1997 (the date the Contadina Acquisition closed (the
"Acquisition 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 Initial Notes except that the new
notes shall contain no restrictive legend thereon. Under the Registration Rights
Agreement, DMFC is required to use its best efforts to (i) cause the
Registration Statement to become effective within 150 days after the Acquisition
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 Initial Notes and (iii) consummate the Exchange Offer
on or prior to the 30th 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 Initial 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. Exchange Notes of the same class will be issued in
exchange for an equal principal amount of outstanding Initial Notes accepted in
the Exchange Offer. Initial 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 August 20, 1998. The Exchange Offer is not
conditioned upon any minimum principal amount of Initial Notes being tendered in
exchange. However, the obligation to accept Initial Notes for exchange pursuant
to the Exchange Offer is subject to certain conditions as set forth herein under
"-- Conditions."
Initial 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 Initial Notes for the purposes of receiving the Exchange Notes and delivering
Exchange 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, DMFC believes that the Exchange 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 Exchange Notes
directly from 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
DMFC) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange 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 Exchange Notes and
has no arrangement or understanding with any person to participate in a
distribution of such Exchange Notes. By tendering the Initial Notes in exchange
for Exchange Notes, each holder, other than a broker-dealer, will represent to
DMFC that: (i) any Exchange Notes to be received by it will be acquired in the
ordinary course of its business; (ii) it is not engaged in, and does not intend
to engage in, a distribution of such Exchange Notes and has no arrangement or
understanding to participate in a distribution of the Exchange Notes; and (iii)
it is not an affiliate (as defined in Rule 405 under the Securities Act) of
DMFC. If a holder of Initial Notes is engaged
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<PAGE> 29
in or intends to engage in a distribution of the Exchange Notes or has any
arrangement or understanding with respect to the distribution of the Exchange
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 Exchange 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 Exchange 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 Exchange Notes received in exchange for Initial Notes where such
Initial Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. DMFC has agreed that it
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 DMFC to effect the Exchange Offer,
(ii) the Exchange Offer is not consummated within 180 days of the Acquisition
Date, (iii) in certain circumstances, certain holders of unregistered Exchange
Notes so request, or (iv) in the case of any of holder of Initial Notes that
participates in the Exchange Offer, such holder does not receive Exchange 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 DMFC within the meaning of the Securities Act), then in the case
of clauses (i) through (iv) of this sentence, DMFC shall (x) promptly deliver to
the holders of Initial 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 Initial 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 two years after Issue Date (subject to extension under certain
circumstances) or such time as all of the applicable Initial Notes have been
sold thereunder. DMFC will, in the event that a Shelf Registration Statement is
filed, provide to each holder of the Initial 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 Exchange Notes. A holder
that sells Initial 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 DMFC fails to comply with the above provision or if the Registration
Statement or the Shelf Registration Statement (in the event the Shelf
Registration Statement is required to be filed pursuant to the circumstances
described above) fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest" or "Liquidated Damages") shall
become payable in respect of the Initial Notes as follows:
(i) if (A) neither the Registration Statement nor the Shelf
Registration Statement is filed with the Commission within 75 days
following the Acquisition Date or (B) notwithstanding that DMFC has
consummated or will consummate an Exchange Offer, DMFC is 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 Accreted Value (determined
pursuant to the Registration Rights Agreement) of the Initial 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
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<PAGE> 30
(ii) if (A) neither the Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission within 150
days following the Acquisition Date or (B) notwithstanding that DMFC has
consummated or will consummate an Exchange Offer, DMFC is required to file
a Shelf Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the 150th day following
the Acquisition Date, then, commencing on the day after either such
required effective date, Additional Interest shall accrue on the Accreted
Value (determined pursuant to the Registration Rights Agreement) of the
Initial 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) DMFC has not exchanged Exchange Notes for all Initial
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 30th 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
second anniversary of the Issue Date (other than after such time as all
Initial Notes have been disposed of thereunder), then Additional Interest
shall accrue on the Accreted Value (determined pursuant to the Registration
Rights Agreement) of the Initial Notes at a rate of .50% per annum for the
first 90 days commencing on (x) the 30th 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 Initial 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 Exchange Notes for all Initial 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 Initial 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 Initial Notes.
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Initial Notes who do not exchange their Initial Notes for Exchange
Notes in the Exchange Offer will no longer be entitled to registration rights
and will not be able to offer or sell their Initial Notes, unless such Initial
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 -- Consequences of Exchange and Failure to Exchange."
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean September 18, 1998 (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 may notify the
holders of the Initial Notes by means of mail of an announcement or 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.
DMFC reserves the right (i) to delay acceptance of any Initial Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Initial Notes not previously accepted if any of the conditions set
forth herein under "-- Conditions" shall have occurred and shall not have been
waived by DMFC (if permitted to be waived), 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
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<PAGE> 31
advantageous to the holders of the Initial Notes. If any material change is made
to terms of the Exchange Offer, the Exchange Offer shall remain open for a
minimum of an additional five business days, if the Exchange Offer would
otherwise expire during such period. 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 determined by DMFC to constitute a material change, DMFC will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of the Initial Notes of such amendment including providing public
announcement, or giving oral or written notice to the holders of the Initial
Notes. A material change in the terms of the Exchange Offer could include, among
other things, a change in the timing of the Exchange Offer, a change in the
Exchange Agent, and other similar changes in the terms of the Exchange Offer.
Without limiting the manner in which DMFC may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, DMFC shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement.
Interest on the Exchange Notes
The Exchange Notes will accrue interest payable in cash 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
Initial Notes surrendered in exchange therefor or (ii) if the Initial 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 Initial Notes, from December 15, 2002. Interest on the
Exchange Notes is payable on June 15 and December 15 of each year commencing
June 15, 2003.
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, or an Agent's Message
together with the Initial Notes and 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 Initial 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
Initial Notes, if such procedure is available, into the Exchange Agent's account
at The Depository Trust Company (the "Book-Entry Transfer Facility" or "DTC")
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 INITIAL NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND-DELIVERY SERVICE.
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
INITIAL 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 term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Initial Notes which are the subject of such
Book-Entry Conformation that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal, and that DMFC may enforce such
agreement against such participant.
The tender by a holder of Initial Notes will constitute an agreement
between such holder and DMFC in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
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<PAGE> 32
Only a holder of Initial Notes may tender such Initial Notes in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Initial Notes are registered on the books of DMFC or any
other person who has obtained a properly completed bond power from the
registered holder.
Any beneficial owner whose Initial 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 Initial Notes, either
make appropriate arrangements to register ownership of the Initial 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 a 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 guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the
Initial Notes tendered pursuant thereto are tendered (i) by a registered holder
(or by a participant in DTC whose name appears on a security position listing as
the owner) who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
and the Exchange Notes are being issued directly to such registered holder (or
deposited into the participant's account at DTC) or (ii) for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by the recordholder(s) of the
Initial Notes tendered thereby, the signature must correspond with the name(s)
written on the face of the Initial Notes without alteration, enlargement or any
change whatsoever. If the Letter of Transmittal is signed by a participant in
DTC, the signature must correspond with the name as it appears on the security
position listing as the holder of the Initial Notes.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Initial Notes listed therein, such Initial Notes must
be endorsed or accompanied by bond powers and a proxy which authorize such
person to tender the Initial Notes on behalf of the registered holder, in each
case as the name of the registered holder or holders appears on the Initial
Notes.
If the Letter of Transmittal or any Initial 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 DMFC, evidence
satisfactory to DMFC of their authority to so act must be submitted with the
Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Initial
Notes (or a timely confirmation received of a book-entry transfer of Initial
Notes into the Exchange Agent's account at DTC with an Agent's Message) or a
Notice of Guaranteed Delivery from an Eligible Institution is received by the
Exchange Agent. Issuances of Exchange Notes in exchange for Initial Notes
tendered pursuant to a Notice of Guaranteed Delivery by an Eligible Institution
will be made only against delivery of the Letter of Transmittal (and any other
required documents) and the tendered Initial Notes (or a timely confirmation
received of a book-entry transfer of Initial Notes into the Exchange Agent's
account at DTC) with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Initial Notes will be
determined by DMFC in its sole discretion, which determination will be final and
binding. DMFC reserves the absolute right to reject any and all Initial Notes
not properly tendered or any Initial Notes which, if accepted, would, in the
opinion of DMFC or its counsel, be unlawful. DMFC also reserves the absolute
right to waive any conditions of the Exchange Offer or irregularities or defects
in tender as to particular Initial Notes. DMFC'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 Initial Notes must be
cured within such time as DMFC shall determine. Neither 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 Initial Notes, nor shall any of them
incur
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<PAGE> 33
any liability for failure to give such notification. Tenders of Initial Notes
will not be deemed to have been made until such irregularities have been cured
or waived. Any Initial 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 by the Exchange Agent to the
tendering holders of such Initial Notes, unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
In addition, DMFC reserves the right in its sole discretion, subject to the
provisions of the Indenture, to (i) purchase or make offers for any Initial
Notes that remain outstanding subsequent to the Expiration Date or, as set forth
under "-- Expiration Date; Extensions; Amendments; Termination," 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 Initial
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 Initial Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Initial Notes properly tendered will be accepted, promptly after the
Expiration Date, and the Exchange Notes will be issued promptly after acceptance
of the Initial Notes. See "-- Conditions" below. For purposes of the Exchange
Offer, Initial Notes shall be deemed to have been accepted as validly tendered
for exchange when, as and if DMFC has given oral or written notice thereof to
the Exchange Agent.
In all cases, issuance of Exchange Notes for Initial 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 Initial Notes or a
timely Book-Entry Confirmation of such Initial 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
Initial Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Initial Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Initial Notes will be returned without expense to the tendering
holder thereof (or, in the case of Initial Notes tendered by book-entry transfer
procedures described below, such nonexchanged Initial Notes will be credited to
an account 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 Initial 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 Initial Notes by causing the
Book-Entry Transfer Facility to transfer such Initial 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 Initial Notes may be effected through book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility, an Agent's Message
or 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. DELIVERY OF DOCUMENTS
TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in
this Prospectus to deposit or delivery of Initial Notes shall be deemed to
include the Book-Entry Transfer Facility's book-entry delivery method.
Guaranteed Delivery Procedures
If a registered holder of the Initial Notes desires to tender such Initial
Notes, and the Initial Notes are not immediately available, or time will not
permit such holder's Initial 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 and an Agent's Message delivered,
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 facsimile thereof)
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<PAGE> 34
and Notice of Guaranteed Delivery, substantially in the form provided by DMFC
(by facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Initial Notes and the amount of Initial Notes tendered,
stating that the tender is being made thereby and guaranteeing that within five
business days after the Expiration Date the certificates for all physically
tendered Initial 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 Initial 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 five business days after the Expiration Date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Initial 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" and prior to acceptance for exchange thereof by DMFC. Any such notice of
withdrawal must (i) specify the name of the person having tendered the Initial
Notes to be withdrawn (the "Depositor"), (ii) identify the Initial Notes to be
withdrawn (including, if applicable, the registration number or numbers and
total principal amount of such Initial Notes), (iii) be signed by the Depositor
in the same manner as the original signature on the Letter of Transmittal by
which such Initial Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to permit the
Trustee with respect to the Initial Notes to register the transfer of such
Initial Notes into the name of the Depositor withdrawing the tender, (iv)
specify the name in which any such Initial Notes are to be registered, if
different from that of the Depositor and (v) if applicable because the Initial
Notes have been tendered pursuant to the book-entry procedures, specify the name
and number of the participant's account at DTC to be credited, if different than
that of the Depositor. 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 Initial Notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Initial Notes which have been tendered for
exchange which are not exchanged for any reason will be returned to the holder
thereof without cost to such holder (or, in the case of Initial 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 Initial Notes will be credited to an account maintained with such
Book-Entry Transfer Facility for the Initial Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Initial 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, Initial Notes will
not be required to be accepted for exchange, nor will Exchange Notes be issued
in exchange for any Initial Notes, and DMFC may terminate or amend the Exchange
Offer as provided herein before the acceptance of such Initial Notes, if (i)
because of any change in law, or applicable interpretations thereof by the
Commission, DMFC determines that it is not permitted to effect the Exchange
Offer, (ii) an action is proceeding or threatened that would materially impair
the Company's ability to proceed with the Exchange Offer, (iii) there has been a
material adverse development in an existing action or proceeding with respect to
the Company, or (iv) not all governmental approvals which the Company deems
necessary for the consummation of the Exchange Offer have been received. DMFC
has no obligation to, and will not knowingly, permit acceptance of tenders of
Initial Notes from affiliates of 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 Exchange Notes to be received by such
holder or holders of Initial Notes in the Exchange Offer, upon receipt, will not
be tradable by such holder without restriction under the
29
<PAGE> 35
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.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Initial Notes, as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The costs of the Exchange Offer and the unamortized
expenses related to the issuance of the Initial Notes will be amortized over the
term of the Exchange Notes.
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:
<TABLE>
<CAPTION>
By Mail By Overnight Mail or Courier: By Hand
------- ----------------------------- -------
<S> <C> <C>
BT Services Tennessee, Inc. BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust and Agency Group Corporate Trust and Agency Group
P.O. Box 292737 Reorganization Unit Receipt & Delivery Window
Nashville, TN 37229-2737 648 Grassmere Park Road 123 Washington Street, 1st Floor
Nashville, TN 37211 New York, NY 10006
</TABLE>
Facsimile Transmission: (615) 835-3701
Confirm by Telephone: (615) 835-3572
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by 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.
DMFC will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. 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. 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, Letters of Transmittal and related documents to the
beneficial owners of the Initial Notes, and in handling or forwarding tenders
for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by DMFC, including fees and expenses of the Exchange Agent and Trustee and
accounting, legal, printing and related fees and expenses.
DMFC will pay all transfer taxes, if any, applicable to the exchange of
Initial Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Initial 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
Initial Notes tendered, or if tendered Initial 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 Initial 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.
30
<PAGE> 36
RECENT DEVELOPMENTS
On July 14, 1998, the Company announced an agreement with Nabisco to
reacquire rights to the Del Monte brand in South America and to purchase
Nabisco's canned fruits and vegetables business in Venezuela. The Venezuela
business, with 1997 sales of $17 million, includes Venezuela's largest processed
fruit, vegetable and specialty products operation. Nabisco had retained
ownership of the Del Monte brand in South America and the Venezuela Del Monte
business when it sold other Del Monte businesses in 1989. See "Corporate
History."
On July 22, 1998, the Company declared a 191.542-for-one stock split of all
of the Company's outstanding shares of Common Stock.
The Company has filed with the Securities and Exchange Commission a
registration statement on Form S-1 for the purpose of making a public offering
for shares of its Common Stock (the "Offering"). The Offering, which was
expected to close in July 1998, has been postponed for the present time due to
market conditions. The Company intended to use the net proceeds of the Offering
to (a) repay a portion of its borrowings under the Term Loan Facility, (b) repay
a portion of the Exchange Notes, (c) redeem a portion of the DMC Notes, and (d)
redeem all of its outstanding redeemable preferred stock, including accreted
dividends.
On July 27, 1998, the Company reported its financial results for the three
and 12 months ended June 30, 1998. Net income for the fourth quarter was $5
million compared to a loss of $77 million for the same quarter of fiscal 1997.
Net income for the year ended June 30, 1998 was $5 million compared to a loss of
$58 million in 1997. Net income for both years is affected by certain unusual or
one-time costs and expenses which are shown on the table set forth below.
During the fourth quarter of fiscal 1998, revenue increased by $64 million
to $345 million as a result of higher sales of the Company's principal fruit and
vegetable products, and product sales of Contadina, which was acquired in
December, 1997.
Interest expense for the fourth quarter of fiscal 1998 was $19 million, an
increase of $4 million, or 27%, from the comparable prior year period due to
higher debt levels resulting from the Recapitalization and the Contadina
Acquisition.
Revenues for fiscal 1998 of $1,313 million reflect a 7.9% increase over
fiscal 1997. This increase was driven by strong sales of the Company's principal
fruit and vegetable products, the successful introduction of new products,
expanded distribution into club stores and the Contadina Acquisition.
Interest expense for fiscal 1998 was $77 million, an increase of $25
million, or 48%, over fiscal 1997 due to higher debt levels resulting from the
Recapitalization and the Contadina Acquisition.
The following table sets forth certain summary condensed financial data for
the three month and 12 month periods ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- ----------------
1998 1997 1998 1997
----- ----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.................................................. $345 $281 $1,313 $1,217
Operating income........................................... 25 4 82 71
Interest expense........................................... 19 15 77 52
Net income (loss).......................................... 5 (77) 5 (58)
</TABLE>
The following table sets forth certain unusual or one-time costs and
expenses affecting net income for the three month and 12 month periods ended
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- ----------------
1998 1997 1998 1997
----- ----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Contadina inventory step-up................................ $ 1 $ -- $ 3 $ --
Costs of the Contadina Acquisition......................... -- -- 7 --
Plant consolidation charges................................ 3 -- 3 --
Severance.................................................. -- -- 7 --
Costs of the Recapitalization.............................. -- 85 -- 85
---- ---- ------ ------
Total............................................ $ 4 $ 85 $ 20 $ 85
==== ==== ====== ======
</TABLE>
31
<PAGE> 37
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the Exchange Notes pursuant to the Exchange Offer. In consideration for issuing
the Exchange Notes as contemplated in this Prospectus, the Company will receive
in exchange Initial Notes in like principal amount, the terms of which are
identical in all material respects to the Exchange Notes. The Initial Notes
surrendered in exchange for the Exchange Notes will be retired and cancelled and
cannot be reissued. Accordingly, the issuance of the Exchange Notes will not
result in any increase in the indebtedness of the Company. The proceeds received
from the sale of the Initial Notes were used to finance a portion of the
Contadina Acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Financing Activities -- 1998 Activity."
CAPITALIZATION
The following table sets forth the actual unaudited capitalization of the
Company at March 31, 1998. This table should be read in conjunction with the
"Unaudited Pro Forma Financial Data," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto of
the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
(UNAUDITED)
<S> <C>
Total debt, including current portion:
Revolving Credit Facility(1).......................... $ 68
Term Loan Facility(2)................................. 429
12 1/4% Senior Subordinated Notes of DMC(3)........... 147
12 1/2% Senior Discount Notes offered hereby(4)....... 126
-----
Total debt, including current portion......... 770
Redeemable preferred stock(5)........................... 32
Stockholders' deficit................................... (354)
-----
Total capitalization.......................... $ 448
=====
</TABLE>
- ---------------
(1) The total capacity under the Revolving Credit Facility as of March 31, 1998
was $350 million. "Description of Existing Indebtedness."
(2) The Company amended the existing loan documents to increase the amount of
this facility by $50 million in order to consummate the Contadina
Acquisition.
(3) Excludes $9 million of accrued interest payable.
(4) Excludes $2 million of accrued interest payable.
(5) Net of unamortized discount of $3 million and excludes accreted dividends
aggregating approximately $5 million as of March 31, 1998.
32
<PAGE> 38
UNAUDITED PRO FORMA FINANCIAL DATA
On April 18, 1997, the Company completed the Recapitalization. In
connection with the Recapitalization, the Company repaid substantially all of
its funded debt obligations existing immediately before the Recapitalization. On
December 19, 1997, the Company acquired Contadina for $177 million, plus an
estimated working capital adjustment of approximately $20 million. The
consideration was paid solely in cash. The purchase price was subject to
adjustment based on the final calculation of net working capital as of the
closing date. Nestle provided its calculation of the net working capital, which
resulted in a payment to the Company of $2 million, and therefore a reduction in
the purchase price to a total of $195 million. The following Unaudited Pro Forma
Statements of Operations were prepared by the Company as if the Contadina
Acquisition, the Recapitalization and related financings had occurred as of July
1, 1996. The Unaudited Pro Forma Statements of Operations do not purport to
represent what the Company's results of operations actually would have been if
the Contadina Acquisition and the Recapitalization had occurred 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.
Contadina was not operated as a separate business unit and, as such, it did
not have regularly prepared financial statements. The Company has obtained and
prepared financial information of Contadina for the year ended December 31,
1996, the period ended December 18, 1997 and the nine-month periods ended
September 30, 1996 and 1997. Due to the limited information available to the
Company, the Company has prepared the Unaudited Pro Forma Statement of
Operations for the year ended June 30, 1997 using Contadina historical financial
information for the 12-month period ended September 30, 1997 derived from the
audited financial statements for the year ended December 31, 1996 appearing
elsewhere in this Prospectus and unaudited financial data for the nine-month
periods ended September 30, 1996 and 1997 appearing under "Summary Historical
Financial Data of Contadina." The Unaudited Pro Forma Statement of Operations
for the nine-month period ended March 31, 1998 includes the historical revenues
and expenses of Contadina from July 1, 1997 through December 18, 1997 (the
results of operations of Contadina since the date of acquisition have been
included in the historical Company revenues and expenses for the nine-month
period ended March 31, 1998). Such historical financial information includes
allocations by Nestle for certain operating costs including, without limitation,
costs of utilizing outside storage facilities; all selling costs including,
without limitation, direct sales force and brokerage expenses; costs for
utilizing centralized distribution and storage facilities; costs associated with
marketing services; and general and administrative costs associated with support
services such as finance, legal, human resources and information systems. The
Company believes that it will experience operating costs of a similar nature to
those charged by Nestle in its cost allocations but at a significantly reduced
level; however, no assurances can be given in this regard. See "Risk
Factors -- Risks Relating to Contadina."
33
<PAGE> 39
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
DEL PRO FORMA PRO
MONTE CONTADINA(A)(B) ADJUSTMENTS FORMA
------- --------------- ----------- ------
(RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.................................... $ 1,217 $156 $ -- $1,373
Cost of products sold (excluding inventory 819 155 (25)(c) 949
step-up)...................................
Inventory step-up (d)........................ -- -- 4 4
------- ---- ---- ------
Gross profit............................... 398 1 21 420
Selling, advertising, administrative and 327(e) 20 14(e) 361
general expense............................
------- ---- ---- ------
OPERATING INCOME (LOSS)...................... 71 (19) 7 59
Interest expense............................. 52 6 35(f) 93
Loss on sale of divested assets.............. 5 -- -- 5
Other expense................................ 30(g) -- -- 30
------- ---- ---- ------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY $ (16) $(25) $(28) $ (69)
ITEM.......................................
Provision for income taxes................... -- -- -- --
------- ---- ---- ------
LOSS BEFORE EXTRAORDINARY ITEM............... $ (16) $(25) $(28) $ (69)
======= ==== ==== ======
OTHER DATA:
Depreciation and amortization (h)............ $ 24 $ 30
Capital expenditures......................... 20 30
</TABLE>
See accompanying notes.
34
<PAGE> 40
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
DEL MONTE CONTADINA(A)(B) ADJUSTMENTS PRO FORMA
--------- --------------- ----------- ---------
(RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales......................................... $968 $ 92 $ -- $ 1,060
Cost of products sold............................. 655 91 (18)(c) 728
Inventory step-up(d).............................. -- -- (2) (2)
---- ---- ---- ---------
Gross profit................................. 313 1 20 334
Selling, advertising, administrative and general 249 13 12(e) 274
expense.........................................
Acquisition expenses.............................. 7 -- -- 7
---- ---- ---- ---------
OPERATING INCOME (LOSS)........................... 57 (12) 8 53
Interest expense.................................. 58 3 11(f) 72
Other income...................................... (1) -- -- (1)
---- ---- ---- ---------
INCOME (LOSS) BEFORE INCOME TAXES................. -- (15) (3) (18)
Provision for income taxes........................ -- -- -- --
---- ---- ---- ---------
INCOME (LOSS)..................................... $ -- $(15) $ (3) $ (18)
==== ==== ==== =========
OTHER DATA:
Depreciation and amortization (h)................. $ 20 $ 23
Capital expenditures.............................. 15 20
</TABLE>
See accompanying notes.
35
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The Unaudited Pro Forma Statements of Operations reflect the adjustments
for the Contadina Acquisition, the Recapitalization and related financings as if
such events had occurred as of July 1, 1996.
On December 19, 1997, the Company acquired the Contadina canned tomato
business, including the Contadina trademark worldwide, capital assets and
inventory, from Nestle and Contadina Services, Inc. for a total purchase price
of $197 million, comprised of a base price of $177 million and an estimated net
working capital adjustment of $20 million. The consideration was paid solely in
cash. The purchase price was subject to adjustment based on the final
calculation of net working capital as of the closing date. Nestle provided its
calculation of the net working capital, which resulted in a payment to the
Company of $2 million, and therefore a reduction in the purchase price to a
total of $195 million. The Contadina Acquisition also included the assumption of
certain liabilities of approximately $5 million, consisting primarily of
liabilities in respect of reusable packaging materials, employee benefits and
product claims. In connection with the Contadina Acquisition, approximately $7
million of acquisition-related expenses were incurred.
The Contadina Acquisition was accounted for using the purchase method of
accounting. The allocation of purchase price to the assets acquired and
liabilities assumed has been made using estimated fair values that include
values based on independent appraisals and management estimates. These estimates
may be subject to adjustment to reflect actual amounts, primarily in the case of
accrued liabilities. Any subsequent adjustments are expected to occur by the
1998 fiscal year-end and are not expected to be material. Allocation of the $195
million purchase price is as follows: inventory $95 million, prepaid expenses $5
million, property, plant and equipment $84 million, intangibles $16 million and
accrued liabilities $5 million.
(a) The historical financial information for Contadina for the 12-month period
ended September 30, 1997 was derived from the audited financial statements
appearing elsewhere in this Prospectus and unaudited financial data
appearing under "Summary Historical and Financial Data of Contadina." The
historical financial data provided to the Company includes certain allocated
expenses for functions and services provided by Nestle. Such allocated
expenses are comprised of, without limitation, costs of utilizing outside
storage facilities; all selling costs including, without limitation, direct
sales force and brokerage expenses; costs for utilizing centralized
distribution and storage facilities; costs associated with marketing
services; and general and administrative costs associated with support
services such as finance, legal, human resources and information systems and
interest expense. The additional operating cost allocations were $25 million
and $17 million, and the interest allocations were $6 million and $3 million
for the 12-month period ended September 30, 1997 and the nine-month period
ended March 31, 1998, respectively.
(b) Represents the historical revenue and expenses of Contadina from October 1,
1996 through September 30, 1997 and July 1, 1997 through December 18, 1997
for the Unaudited Pro Forma Statements of Operations for the year ended June
30, 1997 and the nine months ended March 31, 1998, respectively. As
described in note (a) above, pro forma statement of operations data for the
12-month period ending September 30, 1997 for Contadina has been derived
using Contadina's results of operations for the nine-month periods ended
September 30, 1996 and 1997 and the year ended December 31, 1996.
Contadina's results of operations for the period from July 1, 1997 to
September 30, 1997 are accordingly presented in both the pro forma statement
of operations for the year ended June 30, 1997 and the pro forma statement
of operations for the nine months ended March 31, 1998. Net sales included
in both periods amount to $37 million, and the net loss included in both
periods is $8 million. There were no significant transactions or unusual
events occurring during the three-month period ended September 30, 1997, nor
were there any significant transactions or unusual events omitted by not
including the period from July 1, 1996 to September 30, 1996.
36
<PAGE> 42
(c) Adjustment to cost of products sold reflects the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
1997 1998
---------- ------------
(IN MILLIONS)
<S> <C> <C>
Reclassification of Contadina trade promotion
costs............................................. $(14) $(13)
Reduction in depreciation expense arising from fair
value adjustment for property, plant and equipment
acquired.......................................... (6) (2)
Elimination of royalties to Nestle S.A. for
trademark license................................. (5) (3)
---- ----
$(25) $(18)
==== ====
</TABLE>
Trade promotion costs for Contadina were reclassified from cost of products
sold to selling, advertising, general and administrative expense to conform
with Del Monte's classification of such costs.
The expense represented by Contadina's historical charge to cost of
products sold for royalties due to Nestle S.A. has been replaced by
amortization of trademark recorded as selling, advertising, general and
administrative expense which treatment is more representative of the
continuing costs associated with the use of the Contadina trademark.
(d) Represents the cost of products sold related to the sales of the inventory
acquired from Contadina which was written-up by the Company to estimated
fair value as part of the preliminary purchase price allocation relating to
the Contadina Acquisition.
(e) Adjustment to selling, advertising, administrative and general expense
reflects the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
1997 1998
---------- ------------
(IN MILLIONS)
<S> <C> <C>
Reclassification of Contadina trade promotion
costs............................................. $ 14 $ 13
Elimination of amortization of Nestle goodwill...... (1) (1)
Amortization of intangible acquired................. 1 --
---- ----
$ 14 $ 12
==== ====
</TABLE>
Selling, advertising, administrative and general expense for the year ended
June 30, 1997 includes $25 million of one-time charges incurred in
connection with the Recapitalization primarily for management incentive
payments and, in part, for severance payments.
37
<PAGE> 43
(f) Represents adjustments necessary to reflect pro forma interest expense and
amortization of deferred financing expense as shown below based upon pro
forma debt levels and applicable interest rates. The table below presents
pro forma interest expense, including the respective interest rates and
related fees and pro forma amortization of deferred financing costs.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
----------------------------------- -----------------------------------
INTEREST PRINCIPAL INTEREST INTEREST PRINCIPAL INTEREST
RATE(1) BALANCE(2) EXPENSE(3) RATE(1) BALANCE(2) EXPENSE(3)
--------- ---------- ---------- --------- ---------- ----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revolving Credit Facility......... 7.82% $ 220 $18 7.68% $ 228 $13
Tranche A of Term Loan Facility... 7.82 200 16 8.13 197 12
Tranche B of Term Loan Facility... 8.57 230 20 8.61 249 15
DMC Notes......................... 12.25 150 18 12.25 150 15
Del Monte Notes................... 12.50 129 16 12.50 145 14
--- ---
Pro forma interest expense...... 88 69
Pro forma amortization of deferred
financing costs................. 5 3
--- ---
Total pro forma interest
expense....................... $93 $72
=== ===
</TABLE>
-------------------
(1) Average of month-end interest rates.
(2) Average of month-end principal balances.
(3) Represents product of average month-end interest rate and average
month-end principal balance for the applicable period.
(g) For the year ended June 30, 1997, includes $22 million of one-time expenses
incurred in connection with the Recapitalization.
(h) Historical depreciation and amortization exclude amortization of $5 million
and $3 million of deferred debt issue costs for fiscal 1997 and for the
nine-month period ended March 31, 1998, respectively. Pro forma depreciation
and amortization excludes amortization of $5 million and $3 million of pro
forma deferred debt issue costs for fiscal 1997 and for the nine-month
period ended March 31, 1998, respectively.
38
<PAGE> 44
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial
information of the Company. The statement of operations data for each of the
fiscal years in the four-year period ended June 30, 1996 and the balance sheet
data as of June 30, 1993, 1994, 1995 and 1996 have been derived from
consolidated financial statements of the Company audited by Ernst & Young LLP,
independent auditors. The statement of operations data for the year ended June
30, 1997 and the nine months ended March 31, 1998, and the balance sheet data as
of June 30, 1997 and March 31, 1998, have been derived from consolidated
financial statements of the Company audited by KPMG Peat Marwick LLP,
independent auditors. The selected consolidated financial data presented below
as of March 31, 1997 and the nine months then ended was derived from the
unaudited interim financial statements of the Company. The financial data
presented below as of March 31, 1997 and for the nine months then ended, 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, 1997. Operating results for the nine months ended March 31,
1998 are not necessarily indicative of results to be expected for the full
fiscal year. 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.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
---------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(a)............................... $1,556 $1,500 $1,527 $1,305 $1,217 $936 $968
Cost of products sold(a)................... 1,213 1,208 1,183 984 819 634 655
------ ------ ------ ------ ------ ---- ----
Gross profit............................... 343 292 344 321 398 302 313
Selling, advertising, administrative and
general expense(a)....................... 286 225 264 239 327(b) 235 249
Special charges(c)......................... 140 -- -- -- -- -- --
Acquisition expenses....................... -- -- -- -- -- -- 7
------ ------ ------ ------ ------ ---- ----
Operating income (loss).................... (83) 67 80 82 71 67 57
Interest expense........................... 68 61 76 67 52 37 58
Loss (gain) on sale of divested
assets(d)................................ (13) (13) -- (123) 5 5 --
Other (income) expense(e).................. 4 8 (11) 3 30 -- (1)
------ ------ ------ ------ ------ ---- ----
Income (loss) before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting change... (142) 11 15 135 (16) 25 --
Provision for income taxes................. 10 3 2 11 -- 2 --
Minority interest in earnings of
subsidiary............................... 8 5 1 3 -- -- --
------ ------ ------ ------ ------ ---- ----
Net income (loss) before extraordinary item
and cumulative effect of accounting
change................................... (160) 3 12 121 (16) 23 --
Extraordinary loss(f)...................... -- -- 7 10 42 4 --
Cumulative effect of accounting
change(g)................................ 28 -- -- 7 -- -- --
------ ------ ------ ------ ------ ---- ----
Net income (loss).......................... $ (188) $ 3 $ 5 $ 104 $ (58) $ 19 $ --
====== ====== ====== ====== ====== ==== ====
</TABLE>
39
<PAGE> 45
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
-------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gross margin(a)............................. 22.0% 19.5% 22.5% 24.6% 32.7% 32.3% 32.3%
Adjusted EBITDA:(h)
EBIT...................................... $ (74) $ 72 $ 91 $ 202 $ 36 $ 62 $ 58
Depreciation and amortization(i).......... 59 35 35 26 24 18 20
EBITDA of Divested Operations............. (50) (39) (35) (22) -- -- --
Special charges(c)........................ 140 -- -- -- -- -- --
Asset write-down/impairment(j)............ -- 1 -- -- 7 -- --
Loss (gain) on sale of Divested
Operations(d)........................... (13) (13) -- (123) 5 5 --
Terminated transactions(k)................ -- 1 (22) -- -- -- --
Benefit costs(l).......................... -- 6 7 -- -- -- 10
Headcount reduction and relocation(m)..... -- -- -- 9 -- -- --
Recapitalization
expenses(b)(e).......................... -- -- -- -- 47 -- --
Expenses of Contadina Acquisition(n)...... -- -- -- -- -- -- 7
Contadina inventory
write-up(n)............................. -- -- -- -- -- -- 2
------ ------ ------ ------ ------ ----- ------
Adjusted EBITDA......................... $ 62 $ 63 $ 76 $ 92 $ 119 $ 85 $ 97
====== ====== ====== ====== ====== ===== ======
Adjusted EBITDA margin(h)................... 5.4% 5.7% 6.9% 8.6% 10.2% 9.5% 10.0%
Cash flows provided by operating
activities................................ $ 61 $ 28 $ 63 $ 60 $ 25 $ 26 $ 9
Cash flows provided by (used in) investing
activities................................ (2) 55 (21) 170 37 39 (205)
Cash flows provided by (used in) financing
activities................................ (55) (83) (44) (224) (63) (65) 195
Capital expenditures........................ 34 36 24 16 20 12 15
SELECTED RATIOS:
Ratio of earnings to fixed charges(o)....... -- 1.2x 1.2x 2.8x -- 1.5x 1.0x
Deficiency of earnings to cover fixed
charges(o)................................ $ 142 -- -- -- $ 16 -- --
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 92 $ 88 $ 99 $ 209 $ 118 $186 $ 220
Total assets.................................. 1,066 936 960 736 667 739 928
Total debt, including current maturities...... 624 569 576 373 610 310 770
Redeemable preferred stock.................... 216 215 215 213 32 213 32
Stockholders' deficit......................... (385) (384) (393) (288) (398) (243) (354)
</TABLE>
Note: Financial data under the columns marked "restated" reflect the information
from the Company's restated financial statements.
- ---------------
(a) In fiscal 1997, merchandising allowances primarily relating to in-store
displays, store advertising and store coupons, which previously were
recorded as a cost of products sold, have been reclassified to selling
expense. Such merchandising allowances totaled $113 million, $67 million,
$106 million, $100 million, $143 million and $101 million in the fiscal
years ended June 30, 1993, 1994, 1995, 1996 and 1997, and the nine months
ended March 31, 1997, respectively. In addition, certain military
distributor allowances, which previously were treated as a reduction in net
sales, have been reclassified to selling expense. Such military distributor
allowances amounted to $1 million, $1 million, $1 million, $1 million, $2
million and $2 million in fiscal years ended June 30, 1993, 1994, 1995,
1996 and 1997, and the nine months ended March 31, 1997, respectively. All
financial information has been restated to conform to this presentation.
(b) In connection with the Recapitalization, which was consummated on April 18,
1997, expenses of approximately $25 million were incurred primarily for
management incentive payments and, in part, for severance payments.
40
<PAGE> 46
(c) 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.
(d) The Company sold its equity investment in Del Monte International 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. In the fiscal quarter
ended December 1996, the Company sold Del Monte Latin America. The combined
sales price of $50 million, reduced by $2 million of related transaction
expenses, resulted in a loss of $5 million.
(e) In fiscal 1995, other income includes the Company's receipt of proceeds of
a $30 million letter of credit, reduced by $4 million of related
transaction expenses, as a result of the termination of a merger agreement
with Grupo Empacador de Mexico, S.A. de C.V. In fiscal 1997, $22 million of
expenses were incurred in conjunction with the Recapitalization, primarily
for legal, investment advisory and management fees.
(f) 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 retirement of debt. In fiscal 1997, $42 million of expenses related
to the early retirement of debt and to the Recapitalization was charged to
net income. In September 1996, the Company repurchased outstanding debt, in
conjunction with which capitalized debt issue costs of $4 million, net of a
discount on such debt, were written off and accounted for as an
extraordinary loss. In conjunction with the refinancing of debt that
occurred at the time of the Recapitalization, the Company recorded a $38
million extraordinary loss related to the early retirement of debt. The $38
million extraordinary loss consisted of previously capitalized debt issue
costs of approximately $19 million and a premium payment and a term loan
make-whole payment aggregating $19 million.
(g) 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.
(h) Adjusted EBITDA represents EBITDA (income (loss) before provision for
income taxes, minority interest, extraordinary item, cumulative effect of
accounting change and depreciation and amortization expense, plus interest
expense) before special charges and other one-time and non-cash charges,
less gains (losses) on sales of assets and the results of the Divested
Operations. Adjusted EBITDA should not be considered in isolation from, and
is not presented as an alternative measure of, operating income or cash
flow from operations (as determined in accordance with GAAP). Adjusted
EBITDA as presented may not be comparable to similarly titled measures
reported by other companies. Since the Company has undergone significant
structural changes during the periods presented, management believes that
this measure provides a meaningful measure of operating cash flow (without
the effects of working capital changes) for the core and continuing
business of the Company by normalizing the effects of operations that have
been divested and one-time charges or credits. Adjusted EBITDA margin is
calculated as Adjusted EBITDA as a percentage of net sales (excluding net
sales of Divested
41
<PAGE> 47
Operations of $402 million, $399 million, $417 million, $233 million and
$48 million for the years ended June 30, 1993, 1994, 1995, 1996 and 1997,
respectively, and $43 million for the nine months ended March 31, 1997).
(i) Depreciation and amortization exclude amortization of $8 million, $5
million, $5 million, $5 million and $5 million of deferred debt issuance
costs for fiscal 1993, 1994, 1995, 1996 and 1997, respectively.
Depreciation and amortization exclude amortization of $4 million and $3
million of deferred debt issuance costs in the nine-month periods ended
March 31, 1997 and 1998, respectively.
(j) In fiscal 1994 and fiscal 1997, non-cash charges include $1 million
related to write-offs of labels due to new labeling laws and $7 million
related to the recognition of an other than temporary impairment of a
long-term equity investment, respectively.
(k) In fiscal 1994, one-time charges of $1 million relate to a terminated
transaction. In fiscal 1995, one-time charges and credits include $26
million received in connection with a terminated transaction and $4 million
paid by the Company to terminate its alliance with PCP.
(l) In fiscal 1994 and 1995, one-time and non-cash charges include $6 million
of benefit plan charges and $7 million related to the termination of a
management equity plan, respectively. In the nine months ended March 31,
1998, one-time and non-cash charges include $3 million of stock
compensation and related benefit expense and $7 million of severance and
benefit costs.
(m) In fiscal 1996, other one-time charges include $3 million for relocation
costs and $6 million of costs associated with a significant headcount
reduction.
(n) For the nine months ended March 31, 1998, one-time charges include $7
million of acquisition-related expenses incurred in connection with the
Contadina Acquisition and $2 million of inventory step-up due to the
purchase price allocation related to the Contadina Acquisition.
(o) 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 issuance costs) and the interest component of rent expense.
42
<PAGE> 48
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, 1997 and 1998, and the three-year
period ended June 30, 1997. This discussion should be read in conjunction with
the unaudited consolidated financial statements for the nine-month period ended
March 31, 1997 and the audited consolidated financial statements of the Company
for the nine-month period ended March 31, 1998 and for the three-year period
ended June 30, 1997, including the notes thereto, appearing 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 inventory production 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 affects operating results as
sales volumes, revenues and profitability decline during this period. Results
over the remainder of the fiscal year are affected by many factors including
industry supply and the Company's share of that supply. See "-- Seasonality."
Consistent with the Company's strategy to generate growth through
acquisitions, the Company consummated the Contadina Acquisition in December
1997. The Contadina Acquisition contributes another established brand and
positions the Company as the branded market leader in the high margin canned
solid tomato category. The Contadina Acquisition also establishes a strong
presence for the Company in the branded paste-based tomato products category,
which includes tomato paste, tomato sauce and pizza sauce. The Company believes
that Contadina's strong brand recognition, particularly in paste-based tomato
products, complements the Company's brand leadership in canned solid tomato
products and will enhance the Company's market share and household penetration.
See "Prospectus Summary -- Summary Historical Financial Data of Contadina" and
"Unaudited Pro Forma Financial Data." The Company also recently announced an
agreement with Nabisco to reacquire rights to the Del Monte brand in South
America and to purchase Nabisco's canned fruits and vegetables business in
Venezuela. See "Recent Developments."
In addition to diversifying further the Company's revenue base, the
Contadina Acquisition will expand the Company's processing scale, which the
Company believes will result in production cost efficiencies. Moreover, among
the facilities acquired by the Company is a state-of-the-art manufacturing
facility at Hanford, California. As part of its efforts to consolidate
production, tomato production at the Company's Modesto, California facility is
expected to be transferred to Hanford following the summer 1998 pack. The
Modesto facility would then be converted to a fruit processing facility and
would assume the production currently conducted at the Company's San Jose and
Stockton facilities in California, which are expected to be closed after the
summer 1999 and 2000 packs, respectively. It is anticipated that these
properties will be sold in the year following closure. In connection with these
actions, the Company recorded charges of $7 million in the third quarter of
fiscal 1998, principally relating to severance. The Company anticipates that it
will incur material additional charges as a result of these plant closures,
including the effects of adjusting the assets' remaining useful lives to
accelerate the depreciation thereof, the costs to remove and dispose of those
assets and ongoing fixed costs to be incurred during the Modesto plant
reconfiguration and until the sale of the San Jose and Stockton properties. See
Note N to the consolidated financial statements for the nine-month period ended
March 31, 1998. The Company is continuing to evaluate its production facilities
and believes that further consolidations may be appropriate. In conjunction with
the purchase price allocation relating to the Contadina Acquisition, the Company
has stepped up the value of the purchased inventory. Such step-up is estimated
to be $6 million.
Commencing in 1996, the Company has sought to leverage its brand and price
leadership to improve sales and operating margins and, to that end, increased
prices for many of its fruit and vegetable products in that year. As a result,
the Company experienced an anticipated volume loss and market share decline. In
the case of its fruit operations, the Company lost 3.3 percentage points of
market share during fiscal 1996. However, the Company's significantly improved
margins generally offset the effects of the lower volume, and the
43
<PAGE> 49
Company's market share recovered by year-end 1997 to achieve an increase of 5.1
percentage points of market share during 1997, a level higher than that
experienced prior to the price increases. In the case of its vegetable
operations, the Company lost 3.8 percentage points of market share during fiscal
1996 and 0.1 of a percentage point of market share during fiscal 1997. The
Company coupled these price increases with a new marketing strategy that
emphasizes consumption-driven trade promotion programs, as well as
consumer-targeted promotions such as advertising and coupons, to encourage
retailers to use store advertisements, displays and consumer-targeted
promotions, rather than periodic price-only promotions. The Company plans to
continue to emphasize its status as a price leader and, in 1997, in connection
with the Recapitalization, began implementing a new business strategy designed
to improve sales and operating margins by: (i) increasing market share and
household penetration of high margin value-added products; (ii) introducing
product and packaging innovations; (iii) increasing penetration of high growth
distribution channels, such as supercenters and warehouse clubs; (iv) achieving
cost savings through operating efficiencies, plant consolidations and
investments in new and upgraded production equipment; and (v) completing
strategic acquisitions.
In fiscal 1995, Del Monte terminated an exclusive supply agreement with
Pacific Coast Producers, an unaffiliated grower co-operative ("PCP"), to
purchase substantially all of PCP's tomato and fruit production. Since
terminating its agreement with PCP, the Company on occasion buys from and sells
to PCP a limited amount of product on a spot basis. 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 expired under which
Del Monte sold certain products for Yorkshire Dried Fruits and Nuts, Inc.
("Yorkshire") at cost. These events are collectively referred to as the
"Divested Operations."
The following table sets forth the net proceeds received by the Company in
connection with the sale of the Divested Operations and, for the periods
indicated, the net sales generated by the Divested Operations prior to
disposition by the Company:
<TABLE>
<CAPTION>
NET PROCEEDS NET SALES FROM DIVESTED
FISCAL YEAR FROM DISPOSITION/ OPERATIONS PRIOR TO
DIVESTED OPERATION ENDED JUNE 30, TERMINATION DISPOSITION/TERMINATION
------------------ -------------- ----------------- -----------------------
(IN MILLIONS)
<S> <C> <C> <C>
Del Monte pudding business............. 1996 $ 89(a) $ 15(a)
1995 -- 47
Del Monte Philippines ................. 1996 100(b) 102(b)
1995 -- 142
Del Monte Latin America................ 1997 48(c) 17(c)
1996 -- 55
1995 -- 65
PCP.................................... 1996 -- 26(d)
1995 --(d) 124(d)
Yorkshire.............................. 1997 --(e) 31(e)
1996 -- 35
1995 -- 39
</TABLE>
- ---------------
(a) The Company divested its pudding business in November 1995.
(b) In connection with the sale, which was consummated in March 1996, the
Company entered into an eight-year supply agreement with the acquiror.
(c) The Company divested its Latin American operations in the second quarter of
fiscal 1997.
(d) The Company entered into a consent decree with the U.S. Federal Trade
Commission (the "FTC") pursuant to which the Company agreed to terminate its
supply agreement with PCP. The Company terminated that supply agreement in
June 1995. The Company sold the remaining inventory during fiscal 1996.
(e) The Company's distribution agreement with Yorkshire expired in June 1997.
44
<PAGE> 50
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 periods:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
------------------------------ ------------------------
1995 1996 1997 1997 1998
------ ------ ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Net sales....................... 100% 100% 100% 100% 100%
Cost of products sold........... 78 76 67 68 68
--- --- ------- ------- -------
Gross profit.................... 22 24 33 32 32
Selling, advertising,
administrative and general
expense and other expense..... 17 18 27 25 26
--- --- ------- ------- -------
Operating income................ 5% 6% 6% 7% 6%
--- --- ------- ------- -------
--- --- ------- ------- -------
Interest expense................ 5% 5% 4% 4% 6%
--- --- ------- ------- -------
--- --- ------- ------- -------
</TABLE>
The following tables set forth, for the periods indicated, the Company's
net sales by product category, expressed in dollar amounts and as percentages of
the Company's total net sales for such periods:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Canned vegetables(a)................... $ 441 $ 402 $ 437 $336 $358
Canned fruit(a)........................ 394 367 431 335 343
Tomato products(a)..................... 211 217 229 168 211
Canned pineapple(a).................... 66 72 65 50 50
Other(b)............................... 219 89 41 33 6
------ ------ ------ ---- ----
Subtotal domestic............ 1,331 1,147 1,203 922 968
Latin America.......................... 65 55 17 17 --
Philippines............................ 180 142 -- -- --
Intercompany sales..................... (49) (39) (3) (3) --
------ ------ ------ ---- ----
Total net sales.............. $1,527 $1,305 $1,217 $936 $968
====== ====== ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Canned vegetables(a)................... 29% 31% 36% 36% 37%
Canned fruit(a)........................ 26 28 35 36 35
Tomato products(a)..................... 14 16 19 18 22
Canned pineapple(a).................... 4 6 5 5 5
Other(b)............................... 14 7 4 3 1
--- --- --- ---- ----
Subtotal domestic............ 87 88 99 98 100
Latin America.......................... 4 4 1 2 --
Philippines............................ 12 11 -- -- --
Intercompany sales..................... (3) (3) -- -- --
--- --- --- ---- ----
Total........................ 100% 100% 100% 100% 100%
--- --- --- ---- ----
--- --- --- ---- ----
</TABLE>
- ---------------
(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.
45
<PAGE> 51
(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.
SEASONALITY
The Company's quarterly operating results have varied in the past and are
likely to vary in the future based upon a number of factors. The Company's
historical net sales have exhibited seasonality, with the second and third
fiscal quarters having the highest net sales. These two quarters reflect
increased sales of the Company's products during the holiday period in the
United States extending from late November through December, as well as sales
associated with the Easter holiday. Net sales in the first fiscal quarter have
historically been affected by lower levels of promotional activity, the
availability of fresh produce and other factors. Quarterly gross profit
primarily reflects fluctuations in sales volumes and is also affected by the
overall product mix. The Company's fruit operations have a greater percentage of
annual sales and cost of sales in the first fiscal quarter, as compared to its
vegetable and tomato operations, due principally to increased sales of fruit
cups during the "back to school" period. The Company's vegetable and fruit
operations have a greater percentage of annual sales and cost of sales in the
second and third fiscal quarters, principally due to the year-end holiday season
in the United States, and sales of ketchup and related cost of sales typically
increase in the fourth fiscal quarter. Selling, advertising, general and
administrative expenses tend to be greater in the first half of the fiscal year,
reflecting promotional expenses relating to the "back to school" period and the
year-end holiday season, while Easter is the only major holiday in the second
half of the fiscal year.
During the early 1990s, the markets for the Company's principal canned
vegetable and fruit products 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 over-capacity. 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 over-capacity. 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
fruit, while tomato production was slightly higher than expected. Vegetable
production during the summer of 1996 was above average. This, coupled with an
industry decrease in sales, resulted in higher than expected carry-in
inventories (inventories on hand at the start of a packing season) of
vegetables. In response, planned vegetable plantings were decreased for summer
1997 which resulted in higher vegetable costs. In addition, cooler weather than
normal resulted in late plantings for some vegetables causing lower recoveries,
while smaller fruit size lowered raw product fruit recoveries. These conditions
have had very little impact on the Company's supply of product available for
sale, however, since carry-in inventories were adequate to cover shortfalls from
the summer 1997 harvest.
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 production costs 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 of fiscal 1996 as a
result of higher net selling prices. These price increases were applied to all
product lines in fiscal 1997. Although the Company's aggregate volumes decreased
in fiscal 1997 as compared to fiscal 1996, the Company regained and exceeded
prior year fruit market share while vegetable market share was maintained and
profitability growth continued due to these higher net selling prices.
Profitability growth and market share may be unfavorably affected in the future
due to the market dynamics of available supply and competitors' pricing.
In the winter and spring of 1997-98, certain areas in California, one of
the Company's principal growing regions for tomatoes and fruit, experienced
substantial rainfall as a result of the "El Nino" phenomenon. The Company
believes that the 1998 California fruit and tomato harvests and raw product
recoveries are likely to be somewhat reduced as a result of these weather
conditions and that the Company is likely to incur increased
46
<PAGE> 52
cost of products sold. Such circumstances may also adversely affect the
Company's sales volumes and inventory levels. Historically, significant
weather-related shortages in fruit, vegetable and tomato harvests have resulted
in price increases that have offset increases in raw product costs and
reductions in sales volumes. While the Company believes that the overall effects
of the El Nino phenomenon will not be material to its financial condition and
results of operations, no assurance can be given that the Company will be able
to achieve price increases sufficient to offset any reduction in sales volume or
increase in its cost of products sold.
NINE MONTHS ENDED MARCH 31, 1998 VS. NINE MONTHS ENDED MARCH 31, 1997
Contadina Acquisition
On December 19, 1997, the Company completed the Contadina Acquisition for a
total of $197 million, comprised of a base price of $177 million and an
estimated working capital adjustment of approximately $20 million. The
consideration was paid solely in cash. The purchase price was subject to
adjustment based on the final calculation of net working capital as of the
closing date. Nestle provided its calculation of the net working capital, which
resulted in a payment to the Company of $2 million, and therefore a reduction in
the purchase price to a total of $195 million. The Contadina Acquisition also
included the assumption of certain liabilities of approximately $5 million,
consisting principally of liabilities in respect of reusable packaging
materials, employee benefits and product claims. Results of operations for the
nine months ended March 31, 1998 include $7 million of acquisition expenses
related to the Contadina Acquisition. The Contadina Acquisition was accounted
for using the purchase method of accounting. See "Prospectus Summary -- Summary
Historical Financial Data of Contadina," "Unaudited Pro Forma Financial Data"
and "-- Liquidity and Capital Resources -- Financing Activities -- 1998
Activity -- Contadina Acquisition."
Net Sales
Consolidated net sales for the nine months ended March 31, 1998 increased
by $32 million, or 3.4%, from the nine months ended March 31, 1997 due to higher
sales across all businesses and the Contadina Acquisition. Net sales, after
adjusting for the effect of the Divested Operations, were $968 million for the
nine months ended March 31, 1998 as compared to $893 million for the nine months
ended March 31, 1997, an increase of $75 million or 8.4%. Fruit volume and net
sales increased slightly for the nine months ended March 31, 1998 as compared to
the nine months ended March 31, 1997, primarily due to an increase in retail
fruit cup sales and sales of flavored fruits, which were introduced in 1997. Due
to competitive pricing pressures in the fruit foodservice market, the gains in
retail fruit sales in the nine months ended March 31, 1998 were partially offset
by volume and sales declines in the foodservice business. The vegetable business
experienced an increase of 6.3% and 6.5% in sales volumes and net sales,
respectively, for the nine months ended March 31, 1998 as compared to the nine
months ended March 31, 1997. The increase in sales volumes and net sales for the
vegetable business has been affected by the Company's use of an effective mix of
targeted trade and consumer promotions in addressing competitive discounting by
other manufacturers. The tomato business also experienced an increase in sales
volumes and net sales for the nine months ended March 31, 1998 as compared to
the nine months ended March 31, 1997, primarily due to the Contadina
Acquisition.
Cost of Products Sold and Gross Profit
Gross margin was 32.3% for both of the nine-month periods ended March 31,
1997 and 1998. Gross margin (excluding the Divested Operations) was 32.3% and
33.5% for the nine months ended March 31, 1998 and 1997, respectively. Costs
increased for the nine months ended March 31, 1998 as compared to the comparable
prior period. However, these increased costs were offset in part by a favorable
sales mix of higher margin products. Increased costs for the nine months ended
March 31, 1998 reflect primarily an increase in processing costs caused by a
compressed harvesting season for fruit which resulted in the increased use of
cold storage until processing capacity became available. Also affecting costs
were reduced plantings for some vegetables and lower fruit raw product
recoveries due to adverse weather conditions. Adverse harvesting conditions did
not materially affect the Company's supply of product available for sale,
however, since inventory balances at the end of fiscal 1997 were adequate to
cover shortfalls in production in fiscal 1998. In addition, $2 million of
inventory step-up resulting from the purchase price allocation related to the
Contadina Acquisition has been included in cost of products sold.
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Selling, Advertising, Administrative and General Expense
Selling, advertising, administrative and general expense as a percentage of
net sales (excluding the Divested Operations) was 25.7% and 26.0% for the nine
months ended March 31, 1998 and 1997, respectively. Selling, advertising,
administrative and general expense for the nine months ended March 31, 1998
increased to $249 million from $235 million for the nine months ended March 31,
1997. The Company addressed competitive discounting in the marketplace in its
vegetable and tomato businesses by increasing spending on an effective mix of
targeted trade and consumer promotions. In addition, in the third quarter of
fiscal 1998, the Company recorded accruals of $7 million for severance and
related benefit costs of employees to be terminated in connection with a plant
consolidation plan. As previously disclosed, management has implemented a plan
to consolidate the Company's manufacturing operations.
Interest Expense
The 56.8% increase in interest expense for the nine months ended March 31,
1998 as compared to the nine months ended March 31, 1997 was due primarily to
higher outstanding debt balances resulting from the Recapitalization, which
occurred in the fourth quarter of fiscal 1997.
Provision for Income Taxes
There was no provision for income taxes for the nine months ended March 31,
1998 as compared to a provision of $2 million for the nine months ended March
31, 1997 because of the utilization of net operating loss carryforwards for
which no benefit has been recognized and because of a change in the valuation
allowance.
Net Income
Net income for the nine months ended March 31, 1998 decreased by $19
million as compared to the nine months ended March 31, 1997. The decrease in net
income was primarily due to the plant consolidation severance accrual of $7
million and the increase in interest expense over the comparable prior period.
THREE YEARS ENDED JUNE 30, 1997
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 (excluding the Divested Operations) were $1,072 million for
fiscal 1996 as compared to $1,110 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 brand vegetables was 20.4% versus 24.1%
for the previous year, and the Company's market share for Del Monte brand fruit
was 35.5% versus 38.8% for the previous year. Consolidated net sales for fiscal
1997 decreased by $88 million or 7% from fiscal 1996. This decrease was
attributable to the absence of the Divested Operations. Net sales for the
domestic operations, after adjusting for the effect of Divested Operations,
increased by $97 million from $1,072 million in fiscal 1996 to $1,169 million in
fiscal 1997 due to higher prices across all product lines. The retail vegetable
and fruit businesses 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 the Company's
emphasis on consumer promotions were contributing factors towards realizing the
higher prices. Volume increases in the fruit business were more than offset by
volume decreases in the vegetable and tomato businesses. The volume decrease in
the Company's vegetable business reflects, in part, an overall decline in canned
vegetable consumption. In fiscal 1997, the Company's market share for Del Monte
brand vegetable products was 20.3% versus 20.4% in the previous year, while the
Company's market share for Del Monte brand fruit products was 40.5% compared to
35.5% 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
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$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.
Cost of Products Sold and Gross Profit
Gross margin was 22.5%, 24.6% and 32.7% in fiscal 1995, 1996 and 1997,
respectively. Domestic gross margin (excluding the Divested Operations) was
26.4%, 26.4% and 33.8% in fiscal 1995, 1996 and 1997, respectively. Higher
selling prices, changes in marketing strategy and relatively stable costs
resulted in significantly higher gross profit margin than in prior years. In
fiscal 1996, higher manufacturing costs were offset by price increases across
all major product lines.
Del Monte Philippines' gross margins were 11.8% and 17.4% in fiscal 1995
and 1996, respectively. Gross margins for Del Monte Latin America were 23.8% and
24.3% in fiscal 1995 and 1996, 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 Expense
Selling, advertising, administrative and general expense as a percentage of
net sales (excluding the Divested Operations) was 21.2%, 19.8% and 27.5% in
fiscal 1995, 1996 and 1997, respectively. Selling, advertising, administrative
and general expense for fiscal 1997 increased significantly due to the
Recapitalization and the change in marketing strategy. Expenses incurred
primarily for management incentive payments and, in part, for severance payments
incurred related to the Recapitalization were approximately $25 million.
Marketing spending increased as the Company placed more emphasis on consumer
promotion programs versus discounts from retailers' list prices than in the
prior year.
Included in general and administrative expenses are research and
development costs of $6 million, $6 million and $5 million for fiscal 1995, 1996
and 1997, respectively. Research and development spending in fiscal 1995, 1996
and 1997 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. Interest expense decreased 22% in fiscal 1997 compared
to fiscal 1996. This decrease was due to the lower outstanding debt balances
during the first nine months of fiscal 1997 (before the Recapitalization).
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. Other expense for fiscal
1997 increased due to $22 million of expenses incurred in the Recapitalization
(primarily legal, investment advisory and management fees). Also included in
fiscal 1997 other expense is $7 million relating to the recognition of an other
than temporary impairment of a long-term equity investment. Such impairment was
recognized as a result of the deteriorating financial condition of the investee
company, the lack of payment of dividends by such company over a 15-month period
and the planned sale of such company in connection with which its majority
investors ascribed no value to the Company's equity investment.
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 in fiscal 1996. There was no tax
provision in fiscal 1997 compared to a provision of $11 million in fiscal 1996.
This decrease was primarily due to the expenses of the Recapitalization. As of
June 30, 1997, the Company had $84 million in net operating loss carryforwards
for tax purposes, which will expire between 2008 and 2012.
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Extraordinary Loss
In June 1995, the Company refinanced its then-outstanding revolving credit
facility, term loan and senior notes. 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
were charged to income, both of which have been accounted for as an
extraordinary item. 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. In conjunction
with an exchange offer, capitalized debt issue costs of approximately $4
million, net of a discount, were charged to net income in fiscal 1997 and
accounted for as an extraordinary loss. In conjunction with the refinancing of
debt that occurred at the time of the Recapitalization, previously capitalized
debt issue costs of approximately $19 million and a note premium and a term loan
make-whole aggregating $19 million were charged to fiscal 1997 net income and
accounted for as an extraordinary loss.
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.
Net Income
Net income for fiscal 1996 increased by $99 million from fiscal 1995 due to
the $123 million gain on sale of the Company's pudding business and Del Monte
Philippines in fiscal 1996. Net income for fiscal 1997 decreased by $162 million
as compared to fiscal 1996 primarily due to expenses associated with the
Recapitalization of $85 million and loss on the sale of Del Monte Latin America
of $5 million in fiscal 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1996, the AICPA Accounting Standards Executive Committee issued
Statement of Position ("SOP") No. 96-1 "Environmental Remediation Liabilities."
The SOP provides guidance with respect to the recognition, measurement and
disclosure of environmental remediation liabilities. SOP No. 96-1 is required to
be adopted for fiscal years beginning after December 15, 1996. The Company has
adopted SOP 96-1 for the first quarter of fiscal year 1998 and, based on current
circumstances, does not believe the effect of adoption will be material.
The Financial Accounting Standards Board (the "FASB") recently issued SFAS
No. 129, "Disclosure of Information about Capital Structure"; SFAS No. 130,
"Reporting Comprehensive Income"; SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information"; and SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The Company believes the
effect of adoption of these statements will not be material.
YEAR 2000
In the first quarter of fiscal 1998, the Company contracted with its
information services outsourcing provider, Electronic Data Systems Corporation
("EDS"), to implement substantially all of the Company's Year 2000 compliance
project. EDS maintains and operates most of the Company's software applications
and also owns and operates a significant portion of the related hardware. The
Company's compliance project is expected to be completed by June 1999. The total
cost of the project is not material to the Company's expected cash outlays and
is being funded through operating cash flow. The Company is expensing all costs
associated with these system changes as the costs are incurred. The Company is
also conducting inquiries regarding the Year 2000 compliance programs of its key
suppliers and selected customers. No assurance can be given that the Company's
suppliers and customers will all be Year 2000 compliant. The Company cannot
predict to what extent its operations may be adversely affected if they are not
compliant.
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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 the Revolving Credit Facility are
the Company's primary sources of liquidity. See Note D to the Company's
consolidated financial statements as of and for the nine months ended March 31,
1998.
Management believes that cash flow from operations and availability under
the Revolving Credit Facility will provide adequate funds for the Company's
working capital needs, planned capital expenditures and debt service obligations
for at least the next 12 months. The Revolving Credit Facility is the Company's
only revolving credit facility. See "-- Financing Activities -- 1997 Activity --
Bank Financing" and "Description of Indebtedness."
The Company's ability to fund its cash requirements 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. The Company actively considers various
means of reducing inventory levels to improve cash flow.
As part of its business strategy, the Company continuously reviews
acquisition opportunities. With the exception of the Del Monte South America
Acquisition, however, no agreement, understanding or arrangement has been
reached with respect to any such transaction. The Company believes that any
acquisition would likely require the incurrence of additional debt, which could
exceed amounts available under the Bank Financing. As a result, completion of
any such acquisition could require the consent of the lenders under the Bank
Financing and the amendment of the terms thereof, including for purposes of
permitting the Company's compliance with its covenants thereunder. There can be
no assurance as to whether, or the terms on which, the lenders under the Bank
Financing would grant such consent.
Operating Activities
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 uses funds
from its Revolving Credit Facility, which currently provides for a $350 million
line of credit, to finance the seasonal working capital needs of its operations.
See "Description of Indebtedness."
Cash provided by operating activities in the nine months ended March 31,
1998 was $9 million as compared to $26 million for the same period in fiscal
1997. The increase in inventories (excluding the acquired Contadina inventory)
at March 31, 1998 from June 30, 1997 reflects the seasonal inventory buildup.
The increase in accounts payable and accrued expenses from June 30, 1997 to
March 31, 1998 primarily reflects accrued expenses resulting from higher levels
of trade and consumer promotions and accruals remaining from the peak production
period. As of March 31, 1998, $68 million was outstanding under the Revolving
Credit Facility, compared to $82 million at June 30, 1997.
Cash provided by operating activities decreased by $3 million in fiscal
1996 over fiscal 1995 primarily due to a decrease in inventories and in accounts
receivable offset by a decrease in accounts payable and accrued expenses. The
decrease in inventories resulted from high carry-over inventories from fiscal
1995 versus low inventory levels at the end of fiscal 1996 due to a tight
industry supply of certain inventory items. The decrease in accounts receivable
resulted primarily from a decrease in sales activity during June 1996 as
compared to June 1995. The decrease in accounts payable and accrued expenses was
due primarily to a decrease in amounts payable to PCP due to the termination of
a joint venture at the end of fiscal 1995 and a decrease in marketing accruals
due to a change in marketing strategy during fiscal 1996. Also affecting accrued
expenses in fiscal 1996 was a charge to an accrual established in fiscal 1993 to
implement multi-year cost savings measures. The decrease occurred as costs
associated with fiscal 1996 consolidation efforts were charged to this accrual.
In fiscal 1997, cash provided by operations decreased by $35 million over fiscal
1996 primarily due to various expenses associated with the Recapitalization, as
well as an increase in inventories due to lower sales volume during the year
than anticipated.
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Investing Activities
The increase of $191 million in cash provided by investing activities in
fiscal 1996 versus fiscal 1995 and the decrease of $133 million in cash provided
by investing activities in fiscal 1997 versus fiscal 1996 was principally due to
net cash proceeds from the sale of the Company's pudding business ($85 million)
and the sale of the Company's interest in Del Monte Philippines ($98 million) in
fiscal 1996. The effect of the fiscal 1996 divested asset sales was partially
offset in fiscal 1997 by the sale of Del Monte Latin America ($48 million).
Capital expenditures for fiscal 1997 were $20 million including
approximately $1 million for environmental compliance. The Company expects that
capital expenditures during fiscal 1998 will be approximately $35 million as the
Company implements a new program which is intended to generate cost savings by
introducing new equipment that would result in general production efficiencies.
Approximately $15 million of such amount had been spent through March 1998. The
Company also plans an aggregate of approximately $136 million of additional
capital expenditures through 2001, of which $54 million, $58 million and $24
million is expected to be spent in fiscal 1999, 2000 and 2001, respectively. In
fiscal 1999, the Company intends to spend approximately $28 million in
connection with its plans to consolidate processing operations and $6 million
for general manufacturing improvements. Of the anticipated capital expenditures
for fiscal 2000, the Company plans to spend approximately $32 million in
connection with its plans to consolidate processing operations. In addition to
the foregoing, the Company budgets certain amounts for ordinary repairs and
maintenance. The Company continually evaluates its capital expenditure
requirements, and such plans are subject to change depending on market
conditions, the Company's cash position, the availability of alternate means of
financing and other factors. Capital expenditures are expected to be funded from
internally generated cash flows and by borrowing from available financing
sources.
Financing Activities -- 1998 Activity
Contadina Acquisition. In connection with the $195 million Contadina
Acquisition, the Company issued discount notes with an aggregate principal
amount at maturity of $230 million and received gross proceeds of approximately
$126 million. These Notes accrue interest at 12.50% payable on each June 15 and
December 15, which will be accreted through December 15, 2002, after which time
interest is required to be paid in cash until maturity. The Initial Notes mature
on December 15, 2007.
In connection with the Contadina Acquisition, the Company also amended the
Bank Financing and certain related debt covenants to permit additional funding
under the existing Term B loan in an amount of $50 million, thus increasing the
aggregate amount outstanding under the Term Loan Facility to $430 million.
Amortization of such additional Term B loan amount is incremental to the
scheduled amortization of the previously existing Term B loan. Such additional
amortization will begin on a quarterly basis in the second quarter of fiscal
1999 in the amount of $0.5 million on an annual basis with such amortization
increasing in the fourth quarter of fiscal 2004, through the third quarter of
fiscal 2005, to approximately $12 million per quarter.
Financing Activities -- 1997 Activity
The Recapitalization. On February 21, 1997, DMFC entered into a merger
agreement (the "Merger Agreement"), which was amended and restated as of April
14, 1997, with TPG and Shield. On April 18, 1997, DMFC was recapitalized through
the merger of Shield with and into DMFC, with DMFC being the surviving
corporation. By virtue of the Recapitalization, shares of DMFC's preferred stock
having an implied value of approximately $14 million held by certain of DMFC's
stockholders who remained investors were cancelled and were converted into the
right to receive new DMFC Common Stock. All other shares of DMFC stock were
cancelled and were converted into the right to receive cash consideration. In
connection with the Recapitalization, DMC repaid substantially all of its funded
debt obligations existing immediately before the Recapitalization. In the
Recapitalization, the common stock and preferred stock of Shield was converted
into new shares of Common Stock and Preferred Stock, respectively, of DMFC.
Cash funding requirements for the Recapitalization totaled $809 million and
included repayment of $158 million of then outstanding notes, $113 million of
the then-existing term loan, and $30 million of the then-existing revolving
credit facility. In addition, $422 million was paid to former shareholders as
cash
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consideration for their shares and approximately $86 million was paid in other
fees and expenses. These cash funding requirements were satisfied through the
following: (i) a cash equity investment by TPG and other investors of $126
million in Common Stock; (ii) a cash equity investment by TPG and other
investors of $35 million in shares of redeemable preferred stock and warrants to
purchase Common Stock; (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 offering of the DMC Notes; and
(vi) $2 million of proceeds from the sale of a surplus property.
Bank Financing. Concurrent with the Recapitalization, the Company entered
into the Bank Financing. The Term Loan Facility provides for term loans in the
aggregate amount of $380 million, consisting of Term Loan A of $200 million and
Term Loan B of $180 million. The Revolving Credit Facility provides for
revolving loans in an aggregate amount of $350 million, including a $70 million
Letter of Credit subfacility. The Revolving Credit Facility terminates in fiscal
2003, the Term Loan A will mature in fiscal 2003, and the Term Loan B will
mature in fiscal 2005. Scheduled principal payments on the Term Loan A begin in
the first quarter of fiscal 1999 and continue quarterly through maturity.
Initial quarterly amortization is approximately $8 million per quarter, rising
periodically at approximately $1 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 Term Loan B
begin in the third quarter of fiscal 1998 and continue quarterly through
maturity. Initial quarterly amortization amounts to approximately $2 million per
year. Substantial amortization begins in the fourth quarter of fiscal 2004, with
quarterly amortization of approximately $42 million. The interest rates
applicable to amounts outstanding under the Term Loan A and the Revolving Credit
Facility are currently, 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
1.00% or (ii) the reserve adjusted offshore rate plus 2.00%. Interest rates on
the Term Loan B are, at the Company's option, either (i) the base rate plus
2.00% or (ii) the offshore rate plus 3.00%. The Bank Financing is the Company's
only syndicated bank loan.
Senior Subordinated Notes. In connection with the Recapitalization, on
April 18, 1997, DMC issued senior subordinated notes with an aggregate principal
amount of $150 million (the "DMC Notes") and received gross proceeds of $147
million. The DMC Notes accrue interest at 12.25% per year, payable semiannually
in cash on each April 15 and October 15. The DMC Notes are guaranteed by DMFC
and mature on April 15, 2007. DMC's obligations under the senior subordinated
notes are secured by substantially all personal property of DMC and by first
priority liens on certain of its unencumbered real property for interests.
DMFC's guarantee is secured by a pledge of the stock of DMC.
The terms of the Company's indebtedness contain restrictive covenants, the
most restrictive of which is that the Company must maintain a minimum level of
EBITDA (as defined in the Bank Financing). See "Description of Indebtedness."
The Company is in compliance with all such covenants.
Financing Activities -- 1996 Activity
The increase in net cash used in financing activities of $180 million in
fiscal 1996 as compared to fiscal 1995 reflects a lower balance under the
Revolving Credit Facility at year-end 1996 versus 1995 and higher net pay-down
of long-term debt. The higher payments on the Revolving Credit Facility and
long-term debt were due to cash available from the Company's sales of the
pudding business and Del Monte Philippines. In connection with the early debt
repayment, a prepayment penalty of $5 million was charged to income and recorded
as an extraordinary loss. Included in other financing activities in fiscal 1996
was a deposit of $30 million of Del Monte Philippines sale proceeds into a
collateral account until agreement was reached with the term lenders as to final
application.
PENSION FUNDING
As described more fully in Note F to the audited consolidated financial
statements of the Company as of and for the year ended June 30, 1997, the
Company's defined benefit pension plans were determined to be underfunded. It
had 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. In connection with the Recapitalization, the Company has entered into
an agreement with the U.S. Pension Benefit Guaranty Corporation dated April 7,
1997
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whereby the Company contributed $15 million within 30 days after the
consummation of the Recapitalization to its defined benefit pension plans. The
Company will also contribute a minimum of $15 million in calendar 1998, of which
$10 million has been paid, $9 million in calendar 1999, $8 million in calendar
2000 and $8 million in calendar 2001, for a total of $55 million. The agreement
provides that 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 prior
to August 31, 1998. The contribution required to be made in 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 contribution required to be
made in 1998 or prior to obtaining the letter of credit.
TAX NET OPERATING LOSS CARRYFORWARDS
As of June 30, 1997, the Company had $84 million in net operating loss
carryforwards, which will expire between 2008 and 2012. The Company's use of
these net operating loss carryforwards in any year may be limited by applicable
law.
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 until its acquisition in 1979 by the predecessor of RJR Nabisco.
In December 1989, RJR Nabisco sold the Company's fresh produce operations
("Fresh Del Monte"), to Polly Peck International PLC ("Polly Peck"). In January
1990, an investor group led by Merrill Lynch & Co. ("ML & Co.") purchased the
Company and certain of its subsidiaries from RJR Nabisco for $1.5 billion (the
"RJR Nabisco Sale"). Following such sale, the Company divested several of its
non-core businesses and all of its foreign operations.
The Company, a branded marketer of premium quality, nutritious food
products, is the largest producer and distributor of canned vegetables and
canned fruit in the United States, with pro forma net sales of $1.1 billion and
$1.4 billion for the nine months ended March 31, 1998 and the fiscal year ended
June 30, 1997, respectively. Management believes that the Company's principal
brand, Del Monte, which has been in existence since 1892, has the highest
unaided brand awareness of any canned food brand in the United States. Del Monte
brand products are found in substantially all national grocery chains and
independent grocery stores throughout the United States. As the brand leader in
three major processed food categories (canned vegetables, fruit and solid tomato
products), the Company has a full-line multi-category presence that management
believes provides it with a substantial competitive advantage in selling to the
retail grocery industry. The Contadina Acquisition contributes another
established brand and positions the Company as the branded market leader in the
high margin canned solid tomato category and establishes a strong presence for
the Company in the branded paste-based tomato products category. See "-- Company
Products."
The Company sells its products to national grocery chains and wholesalers
through a nationwide sales network consisting primarily of independent food
brokers. The Company's direct sales force also sells to warehouse club stores,
selected mass merchandisers, such as Wal-Mart and Kmart, and larger mass
merchandising outlets that include full grocery sections, such as Wal-Mart
Supercenters and Kmart's SuperKs. 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. See "-- Sales, Marketing and Distribution."
The Company operates 15 production facilities in California, the Midwest,
Washington and Texas, as well as six strategically located distribution centers.
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 California, the Midwest, the Northwest 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, fruit and tomatoes. See "-- Supply and Production."
The Company owns a number of registered and unregistered trademarks that it
uses in conjunction with its business, including the trademarks Del Monte, Fruit
Cup, FreshCut, Snack Cups, Fruit Naturals, Orchard Select, Fruit Smoothie
Blenders, Del Monte Lite and Contadina. In connection with and subsequent to the
RJR Nabisco Sale, the Company granted various perpetual, exclusive royalty-free
licenses for the use of the Del Monte name and trademark, as well as the use of
certain copyrights, patents, and trade secrets, generally outside of the United
States. The licensees include Fresh Del Monte and its affiliates (which
succeeded to Polly Peck as the owner of the Company's former fresh produce
operations), Del Monte International, Kikkoman Corporation ("Kikkoman"),
affiliates of RJR Nabisco, and Yorkshire. None of the licensees is an affiliate
of the Company, other than Yorkshire with respect to which the Company owns 20%
of the common stock. See "Risk Factors -- Brand Risk" and "-- Intellectual
Property."
In April 1997, the Company completed the Recapitalization as a result of
which Texas Pacific Group, a private investment group, obtained a controlling
interest in the Company. Under a new senior management team introduced in
connection with the Recapitalization, the Company began implementing a new
business strategy designed to increase sales and improve operating margins, by:
(i) increasing market share and distribution of high margin value-added
products; (ii) introducing product and packaging innovations; (iii) increasing
penetration of high growth distribution channels, such as supercenters and
warehouse clubs;
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<PAGE> 61
(iv) achieving cost savings through investments in new and upgraded production
equipment and plant consolidations; and (v) completing strategic acquisitions.
COMPETITIVE STRENGTHS
Management believes that the following elements contribute to the Company's
position as a leading branded producer, marketer and distributor of canned
vegetables, fruit and tomato products in the United States and provide a solid
foundation for the Company's business strategy.
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte
brand name, which has been in existence since 1892, is one of the leading
brand names in the food industry. Based on the ability of consumers to name
the Del Monte brand when asked to identify companies that manufacture canned
foods, management believes that the Del Monte brand has the highest unaided
brand awareness of any canned food brand in the United States. The Company
recently acquired the Contadina brand, an established national brand with a
strong reputation for quality. For the 52 weeks ended March 31, 1998, the
Company's 19.5% market share of canned vegetables was larger than the
combined market shares of the Company's two largest branded competitors, and
its 41.9% market share of canned fruit was larger than the combined market
shares of all other branded competitors. The Company, including its Contadina
business had a pro forma 16.3% market share in the high margin solid segment
of the canned tomato market for the 52 weeks ended March 31, 1998. See
"-- Company Products."
<TABLE>
<CAPTION>
MARKET SHARE FOR 52 WEEKS ENDED
MARCH 28, 1998
-----------------------------------------------------
MARKET NEXT LEADING BRANDED
CATEGORY POSITION(A) PERCENTAGE COMPETITOR'S PERCENTAGE(A)
-------- ----------- ---------- --------------------------
<S> <C> <C> <C>
Canned vegetables.................... #1 19.5% 13.2% (Green Giant)
Canned fruit......................... #1 41.9% 11.4% (Libby's)
Canned solid tomato products(b)...... #1 16.3% 11.2% (Hunt's)
</TABLE>
- ---------------
(a) Excludes private label.
(b) Pro forma to include Contadina sales.
- - TECHNICAL EXPERTISE AND LOW COST PRODUCTION ADVANTAGES -- The Company has
significant experience in developing new products and packaging alternatives
and in engineering efficient food processing operations. These capabilities
are leveragable across many food categories. The Company has developed
proprietary vegetable seed varieties, which increase harvest and cannery
recoveries and improve flavor and quality. The Company also benefits from many
long-term relationships with experienced, geographically diverse growers who
work with the Company to maximize yields of raw product. These relationships
also help to ensure a consistent supply of raw product. As a result of its
technical expertise, proprietary seed varieties and raw product sourcing
diversity, as well as its modern processing equipment and labeling, packaging,
warehousing and distribution efficiencies, management believes that the
Company is one of the lowest cost producers of canned vegetables, fruit and
tomatoes in the United States. See "-- Company Products" and "-- Supply and
Production."
- - PREFERRED SUPPLIER STATUS -- Competitive pressures in the retail food industry
are causing many retailers to prefer large suppliers such as the Company that
are able to provide consumer-favored brands, full product lines and
sophisticated inventory and category management programs. Del Monte
anticipated this trend and has developed proprietary software tools to assist
its customers and promote sales of its products. Del Monte's proprietary
category management system is designed to address retailers' efforts to
maximize profitability of shelf space dedicated to canned food categories. A
substantial majority of the Company's customers that have employed Del Monte's
category management system have increased the relative amount of shelf space
dedicated to the Company's products as compared to competing products. The
Company's proprietary vendor-managed inventory software allows Del Monte to
manage directly its customers' inventories of the Company's products. This
inventory management software is designed to reduce customers' overhead costs
and to enable them to achieve lower average inventory levels while enhancing
the Company's opportunities to sell its products. Retailers also rely on Del
Monte's in-depth knowledge as the leading branded marketer in the canned
fruit, vegetable and tomato categories, and they
56
<PAGE> 62
seek the Company's advice on marketing and promoting these categories.
Finally, Del Monte has strong, well-developed relationships with all major
participants in the retail grocery trade. The Company believes that these
relationships will become increasingly important as consolidation among
grocery retailers continues. The Company is seeking to use its category
knowledge, customer relationships and software tools, along with its
multi-category product line that can readily be ordered and shipped on a full
truck-load basis, to become the preferred supplier in its product categories.
See "-- Sales, Marketing and Distribution."
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company's extensive
sales and distribution network is responsible for the distribution of finished
goods to over 2,400 customer destinations nationwide. This network enables the
Company 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 located distribution centers offering customers a variety of
services, including electronic data interchange and direct store shipments.
Management believes that the Company's distribution system makes an important
contribution to the Company's success and provides the Company with a
competitive advantage over regional and private label competitors. See
"-- Sales, Marketing and Distribution."
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, the
Company's Chief Executive Officer and Chief Operating Officer, respectively,
are veteran managers with extensive food industry experience. Mr. Wolford has
30 years of experience in the food industry, 20 of which were with Dole. He
was president of Dole Packaged Foods from 1982 to 1987, and 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, 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. See "Management."
BUSINESS STRATEGY
Following the consummation of the Recapitalization in 1997, the Company
implemented a new business strategy designed to increase sales and improve
operating margins. The key elements of this new business strategy are discussed
below.
- - LEVERAGE BRAND EQUITY TO INCREASE SALES AND MARKET SHARE OF HIGH MARGIN
PRODUCTS -- The Company plans to leverage the Del Monte and Contadina brand
names and its strong relationships with customers to increase sales of its
existing product lines, focusing specifically on high margin products, such as
its specialty fruits and vegetables, diced tomatoes and its Fruit Cup line,
where the Company has historically had either low market share or low
household penetration relative to its overall category position.
- - FOCUS ON CONSUMPTION-DRIVEN MARKETING STRATEGY -- To enhance its ability to
leverage its brand equity, the Company has refocused its marketing efforts and
promotional strategy. To leverage its brand strength, the Company has
increased consumer-targeted marketing programs, primarily through the
distribution of free-standing coupon inserts, and has established clearly
differentiated product positioning that emphasizes the Company's premium
quality. The Company increased spending on consumer promotions from $12
million in fiscal 1996 to $46 million in fiscal 1997 and anticipates that its
consumer spending in fiscal 1998 and 1999 will be generally consistent with
levels of consumer spending in fiscal 1997. The Company has also improved the
effectiveness of its trade promotion strategy. The Company has implemented
performance-based programs under which trade spending, which consists of the
costs of promotional activities with grocery chains and other customers, such
as special displays, discounts and advertisements, is managed based on
retailers' sales of the Company's products to consumers rather than on
purchases from the Company. The Company believes that this performance-based
strategy, coupled with the Company's category management capabilities, will
continue to increase sales and reduce costs.
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<PAGE> 63
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
emphasizing new higher margin products and line extensions designed to
leverage the Company's presence in its current product categories and to
capitalize on its food technology expertise. The Company has successfully
introduced flavored diced tomatoes, two lines of flavored canned fruit,
Orchard Select, a premium fruit product packaged in glass, and Fruit Smoothie
Blenders, a flavored fruit drink. These products extend the Company's
traditional product lines and appeal to consumers' demands for high quality,
convenient and nutritious food products. The Company is evaluating
introductions of other new products packaged in glass and plastic to further
expand its presence in the market beyond the processed food aisle.
- - INCREASE PENETRATION OF HIGH-GROWTH DISTRIBUTION CHANNELS -- 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 leading brand name products that generate high
inventory turnover. 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. Based on internal estimates and the broad range
of products supplied by the Company to such retailers, 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. Based on such estimates,
the Company also believes it is currently the leading supplier of canned
vegetables, fruit and solid tomato products as a group to Wal-Mart
Supercenters.
- - IMPLEMENT FURTHER COST SAVINGS -- The Company is aggressively pursuing cost
reduction opportunities, which have already contributed to an increase in
Adjusted EBITDA margins (excluding the results of Divested Operations) from
6.9% in 1995 to 10.2% in 1997 and 10.0% for the nine months ended March 31,
1998. Management's strategy is to improve profitability through the
implementation of capital projects that offer rapid returns on investment, and
through plant consolidations and increased operating efficiencies. The Company
has announced plans to consolidate, over the next three fiscal years, six
existing fruit and tomato operations in California into four facilities,
including one large state-of-the-art facility acquired as part of the
Contadina Acquisition. The Company continually evaluates its production
facilities and believes that further consolidations may be warranted in the
future. In addition, the Company plans to continue to invest in new,
state-of-the-art production equipment to increase production efficiencies and
strengthen its position as a low cost producer. For example, such equipment
includes high-speed, high-resolution vision sorting technology, which allows
the rapid detection of defects in raw product, as well as high-speed,
volumetric filling and continuous cooking equipment, which ensures accurate
fill weights and uniform product quality.
- - COMPLETE STRATEGIC ACQUISITIONS -- The Company will pursue strategic
acquisitions when there are opportunities to leverage the Company's key
strengths in product development, food processing, marketing, sales and
distribution. In evaluating potential acquisition candidates, the Company
seeks, among other things: (i) strong brands, including those in new product
lines, that can be expanded by leveraging the Company's technical and
manufacturing expertise and/or its sales and distribution systems, (ii) new
products that can achieve growth through re-branding and (iii) economies of
scale in manufacturing, distribution and capacity utilization. The Contadina
Acquisition, for example, adds a leading national brand which strengthens the
Company's market share in key tomato segments and allows the Company to
realize cost savings through plant consolidations. The Contadina Acquisition
also allows the Company to introduce new branded retail products and to
increase sales to the branded foodservice market. The Company also recently
announced an agreement with Nabisco to reacquire rights to the Del Monte brand
in South America and to purchase Nabisco's canned fruits and vegetables
business in Venezuela. See "Recent Developments." The Company continuously
reviews acquisition opportunities and at any time may be engaged in
discussions with respect to an acquisition that may be material to its
operations. With the exception of the recent agreement with Nabisco, however,
no agreement, understanding or arrangement has been reached with respect to
any such transaction. The Company believes that any acquisition would likely
require the incurrence of additional debt, which could exceed amounts
available under the Bank Financing. As a result, completion of an acquisition
could require the consent of the lenders under the Bank Financing and the
amendment of the terms thereof, including for purposes of permitting the
Company's compliance with its covenants thereunder.
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<PAGE> 64
THE INDUSTRY
The Company believes that the domestic canned food industry is generally
characterized by relatively stable growth based on modest price and population
increases. Within the industry, however, the Company believes that certain
categories have been experiencing substantial growth. Over the last ten years,
the industry has experienced consolidation as competitors have disposed of
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. The Company also believes that 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 appear to
have increasingly benefited from these initiatives as a way to maintain and
increase shelf space and maximize distribution efficiencies.
Pricing and innovation in the canned food segments in which the Company
competes are typically led by branded food manufacturers. A majority of market
share in these categories is, however, attributable to private label
manufacturers based on statistical information compiled by ACNielsen. The
Company believes that the private label segment has historically been highly
fragmented among regional producers seeking to compete principally based on
price, although the aggregate market share of these manufacturers has remained
relatively stable over the past several years in each of the Company's principal
product categories. For the 52 weeks ended March 28, 1998, private label
manufacturers as a group represented 43.8%, 39.7% and 30.7% of canned vegetable,
fruit and solid tomato product sales, respectively. Recently, some consolidation
has occurred among private label manufacturers in the canned vegetable category.
The Company believes that this consolidation may result in increasing
rationalization of production capacity in the industry, which may in turn result
in higher price positioning by private label manufacturers of canned vegetable
products.
The Company increased vegetable and 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 an anticipated volume loss and market share decline. In the
case of its fruit operations, however, the Company's significantly improved
margins generally offset the effects of the lower volume, and the Company's
market share recovered by year-end 1997 to achieve a higher level than that
experienced prior to the price increases. In the case of its vegetable
operations, the Company's market share has stabilized at a level lower than its
share prior to the price increases. See "Risk Factors -- Competition" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPANY PRODUCTS
The Company has a full-line, multi-category presence with products in four
major processed food categories: canned vegetable, fruit, tomato and pineapple
products.
The following table sets forth, for the periods indicated, the Company's
net sales by canned product category, expressed in dollar amounts and as a
percentage of the Company's total pro forma net sales for such period:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
1997 1998
--------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Vegetables (a)..................................... $ 437 32% $ 358 34%
Fruit(a)........................................... 431 31 343 32
Tomato products(a)(b).............................. 385 28 303 29
Pineapple(a)....................................... 65 5 50 5
Other(c)........................................... 55 4 6 --
------ ----- ------ ---
Total(b)................................. $1,373 100% $1,060 100%
====== ===== ====== ===
</TABLE>
- ---------------
(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
business and military sales.
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<PAGE> 65
(b) Includes $156 million and $92 million of sales of tomato products by
Contadina, on a pro forma basis, for the fiscal year ended June 30, 1997 and
the nine months ended March 31, 1998, respectively.
(c) Includes pickles, dried fruit and certain other retail products, as well as
sales of Divested Operations.
Vegetables
Based on internal estimates using data compiled by ACNielsen from various
industry and other sources, the Company believes that the canned vegetable
industry in the United States generated more than $3 billion in sales in fiscal
1997. The Company believes that the domestic canned vegetable industry is a
mature segment characterized by high household penetration.
The Company views the retail canned vegetable market as consisting of three
distinct segments: major, flanker and specialty products. The Company competes
in each of these segments. The major segment consists of corn, green beans and
peas and represents the largest volume segment, accounting for $780 million or
approximately 65% of fiscal 1997 canned vegetable supermarket case sales
(excluding pickles and tomato products). The Company's entries in the major
segment include cut green beans and French-style green beans, as well as whole
kernel and cream-style corn. The flanker segment, which includes mixed
vegetables, spinach, beets, carrots, potatoes and sauerkraut, accounted for $237
million or approximately 17% of fiscal 1997 canned vegetable supermarket case
sales. The specialty segment, comprised of asparagus, zucchini, baby beets and a
variety of corn and bean offerings, represents $284 million or approximately 12%
of fiscal 1997 canned vegetable supermarket case sales. Many of the Company's
specialty vegetable products are enhanced with flavors and seasonings, such as
the Company's zucchini in tomato sauce and its Fiesta corn, which is made with
green peppers and seasonings. The Company's specialty vegetables are priced at a
premium to its other vegetable products and carry higher margins. All of the
Company's vegetable products are offered to the retail market principally in
14-15 oz. sizes and to the foodservice market primarily in a larger commercial
size can. The Company produces six or eight can multi-packs primarily for its
club store customers. 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. Within these segments, the Del Monte
brand accounted for $349 million in retail sales in fiscal 1997. During the 52
weeks ended March 28, 1998, Del Monte brand vegetable products enjoyed an
average premium of 20c (44%) per item over private label products and the
Company held a 19.5% share of the canned vegetable market for that period.
The canned vegetable market is concentrated among a small number of branded
manufacturers and a large, fragmented pool of private label competitors. In the
major vegetable market, the Company is the branded market share leader and for
the 52 weeks ended March 28, 1998 held a 23.2% market share in green beans, a
18.6% market share in corn and a 16.1% market share in peas. The Company also is
the branded market share leader in the flanker segment and is the overall market
share leader in the buffet segment. Private label products taken as a whole
command the largest share of the canned vegetable market, but their market share
has remained relatively stable over the past decade. The Company's primary
branded competitors in the market include Green Giant nationally, and regional
brands such as Freshlike, Stokely and Libby's, in addition to private label
producers.
VEGETABLE MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 19.5%
Green Giant (Pillsbury)..................................... 13.2%
Libby's (Seneca)............................................ 3.6%
Stokely (Chiquita).......................................... 2.3%
Freshlike (Dean Foods)...................................... 2.0%
All private label combined.................................. 43.8%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended March 28, 1998 (based on equivalent
cases).
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<PAGE> 66
The Company has relationships with approximately 900 vegetable growers
located primarily in Wisconsin, Illinois, Minnesota, Washington and Texas.
Fruit
Based on internal estimates using data compiled by ACNielsen from various
industry and other sources, the Company believes that the processed canned fruit
industry in the United States generated more than $2 billion in sales in fiscal
1997. The Company believes that the domestic canned fruit industry is a mature
segment characterized by high household penetration.
The Company is the largest processor of branded canned fruit in the United
States. The Company competes in three distinct segments of the canned fruit
industry: major, specialty and pineapple products, which together account for
approximately 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 Company believes that the major fruit and specialty
fruit segments of the canned fruit market together accounted for more than $1
billion of total canned fruit industry sales in fiscal 1997. The pineapple
segment is discussed separately below.
Major fruit accounted for sales by retailers of $624 million in fiscal
1997. Sales by retailers of Del Monte brand major fruit products totaled $291
million in fiscal 1997. For the 52 weeks ended March 28, 1998, the Company was
the branded share leader with a 41.9% 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 67% market share. The Company's major fruit and
fruit cup products are distributed in substantially all grocery outlets.
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 71% and 65% of grocery outlets, respectively. Mandarin oranges and cherries
are distributed in 30% and 8% of grocery outlets, respectively.
The Company believes that it has substantial opportunities to leverage the
Del Monte brand name to increase sales of its existing high margin specialty
products, such as its Fruit Cup line. The Company has also been developing new
high margin products designed to leverage the Company's presence in existing
categories, to capitalize on its existing manufacturing capabilities and to
expand the Company's presence in the market beyond the canned food aisle. For
example, following initial success in test markets, the Company is planning
national distribution of its Orchard Select, a premium fruit product packaged in
glass. The Company is also test marketing a new flavored fruit drink, Fruit
Smoothie Blenders, to expand its presence into the beverage aisle. An important
focus of the Company's new product development efforts is the production of high
quality, convenient and nutritious products, particularly snack-type products.
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 8c
(9%) 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.
MAJOR FRUIT MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 41.9%
Libby's (Tri-Valley)........................................ 11.4%
All private label combined.................................. 39.7%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended March 28, 1998 (based on equivalent
cases).
The Company has relationships with approximately 600 fruit growers located
primarily in California, Oregon and Washington.
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<PAGE> 67
Tomato Products
Based on internal estimates using data compiled by ACNielsen from various
industry and other sources, the Company believes that processed tomato products
generated fiscal 1997 industry-wide sales in the United States of more than $5
billion. While total sales of tomato products have grown steadily in recent
years, the Company believes that the diced segment of the retail canned solid
tomato segment (which also includes chunky tomatoes and tomato wedges) has been
growing at a substantially greater rate than the category as a whole, as
consumer preferences have trended toward more convenient cut and seasoned tomato
products.
The processed tomato category can be separated into more than ten distinct
product segments 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 Company's tomato product offerings consist of two major segments: solid
tomato products, which are differentiated primarily by cut style, with varieties
including stewed, crushed, diced, chunky and wedges, and paste-based tomato
products, such as ketchup, tomato sauce and tomato paste and value-added
products, including spaghetti, pasta and sloppy joe sauces.
The Company is the leading producer of canned solid tomato products, which
are generally higher margin tomato products and are the fastest growing segment
of the Company's tomato products. As a result of the Contadina Acquisition, the
Company extended its presence in this segment through the addition of
Contadina's share of the market for crushed tomato products. The canned solid
tomato segment has evolved to include additional value-added items, such as
flavored diced tomato products. The Company believes that there is substantial
opportunity to increase sales of solid tomato products, including particularly
crushed tomato products, through similar line extensions that capitalize on the
Company's manufacturing and marketing expertise.
SOLID TOMATO PRODUCTS MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE/CONTADINA......................................... 16.3%
Hunt's (ConAgra)............................................ 11.2%
S&W (TriValley Growers)..................................... 5.1%
All private label combined.................................. 30.7%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended March 28, 1998 (based on equivalent
cases).
With the Contadina Acquisition, the Company has strengthened its position
in the branded paste-based tomato products categories in which it competes. The
Company markets its spaghetti, pasta and sloppy joe sauces, as well as its
ketchup products, under the Del Monte brand name using a "niche" marketing
strategy targeted toward value-conscious consumers seeking a branded, high
quality product. The Company's tomato paste products are marketed under the
Contadina brand name, which is an established national brand for Italian-style
food products. Contadina also targets the branded food service tomato market,
including small restaurants that use Contadina brand products, such as finished
spaghetti and pasta sauces. The Company plans to use this presence as a platform
to expand its branded foodservice business, including sales of Del Monte brand
products to new and existing Contadina foodservice customers.
The Company faces competition in the tomato product market from brand name
competitors including S&W and Hunt's in the solid tomato category; Heinz and
Hunt's in the ketchup category; and Hunt's, Campbell Soup's Prego and Unilever's
Ragu in the spaghetti sauce category. Hunt's is the Company's chief competitor
in the tomato paste segment. 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 for the 52 weeks
ended March 28, 1998 of 4.2% in spaghetti sauce and 5.6% in tomato sauce), it is
the largest branded competitor in the solid tomato segment with a market share
of 16.3% for the 52 weeks ended March 28, 1998. Hunt's, the next largest branded
processor, possessed a 11.2% share of the solid tomato segment for this period.
In other key categories, for the 52 weeks ended March 28, 1998, Heinz was the
market leader in ketchup with a 46.2% market share, and Hunt's was the leader in
tomato sauce with a 35.2% market share.
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<PAGE> 68
The Company has relationships with approximately 40 tomato growers located
primarily in California, where approximately 95% of domestic tomatoes are
produced. See "Risk Factors -- Severe Weather Conditions and Natural Disasters."
Pineapple
Based on internal estimates using data compiled by ACNielsen from various
industry and other sources, the Company believes that the canned pineapple
industry in the United States generated more than $300 million in sales in
fiscal 1997. The Company believes that the domestic canned pineapple industry is
a mature segment of the canned fruit industry that has generated stable sales.
Individual pineapple items are differentiated by cut style, with varieties
including sliced, chunk, tidbits and crushed. Currently, approximately 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 $35 million in fiscal 1997, 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 14.3%
market share for the 52 weeks ended March 28, 1998. Dole is the industry leader
with a market share of 44.6%. Private label and foreign pack brands comprise the
low-price segment of this category and hold market shares of 28.3% and 11.6%,
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.
PINEAPPLE MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 14.3%
Dole........................................................ 44.6%
Foreign pack................................................ 11.6%
All private label combined.................................. 28.3%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended March 28, 1998 (based on equivalent
cases).
The Company sources virtually all 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 with pricing
based on fixed retail and foodservice margins.
SUPPLY AND PRODUCTION
The Company owns virtually no agricultural land. Each year, the Company
buys over one million tons of fresh vegetables, fruit and tomatoes pursuant to
over 2,500 contracts with individual growers and cooperatives located primarily
in the United States, many of which are long-term relationships. No supplier
accounts for more than 5% of the Company's raw product requirements, and the
Company does not consider its relationship with any particular supplier to be
material to its operations. The Company is exploring ways in which to extend its
growing season. For example, it has been planting green bean crops in Texas,
which has a longer growing season than the Company's other bean growing
locations in the Midwest region. Like other processed vegetable, fruit and
tomato product manufacturers, the Company is subject to market-wide price
fluctuations resulting from seasonal or other factors, although its long-term
relationships with growers help to ensure a consistent supply of raw product.
The Company's 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 Company's vegetable supply contracts are
generally for a one-year term and require
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delivery of a specified quantity. Prices are renegotiated each year. The Company
believes that one of its competitive advantages in the canned vegetable category
derives from its proprietary seed varieties. For example, the Company believes
that its "Del Monte Blue Lake Green Bean" variety is higher yielding than green
bean varieties used by the Company's competitors. In addition, the Company's
green bean production is primarily on irrigated fields, which facilitates
production of high quality, uniformly-sized beans.
The Company's fruit and tomato growers are located primarily in California;
pear growers are also located in Oregon and Washington. The Company's fruit
supply contracts range from one to ten years. See Note J to the Company's
consolidated financial statements for the nine months ended March 31, 1998.
Prices are generally negotiated with grower associations and are reset each
year. Contracts to purchase yellow cling peaches generally require the Company
to purchase all of the fruit produced by a particular orchard or block of trees.
Contracts for other fruits require delivery of specified quantities each year.
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.
Fifteen Company-owned plants, located throughout the United States, process
the Company's products. The 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.
The following table lists the Company's production facilities:
<TABLE>
<CAPTION>
LOCATION PRIMARY PRODUCT LINE SQUARE FOOTAGE*
-------- -------------------- ---------------
<S> <C> <C>
Hanford, CA....................... Solid and Paste-Based Tomato Products 651,000
Kingsburg, CA..................... Peaches, Zucchini and Corn 229,000
Modesto, CA....................... Solid and Paste-Based Tomato Products and 220,000
Snap-E-Tom
San Jose, CA...................... Apricots, Fruit Cups, Fruit Cocktail, 458,000
Chunky Fruit and Diced Pears
Stockton, CA...................... Peaches, Cocktail Cherries, Fruit Cocktail 446,000
and Fruit Concentrate
Woodland, CA...................... Bulk Paste and Bulk Diced Tomatoes 465,000
Mendota, IL....................... Peas, Corn, Lima Beans, Mixed Vegetables, 246,000
Carrots and Peas & Carrots
Plymouth, IN...................... Paste-Based Tomato Products, Snap-E-Tom 156,000
and Pineapple Juice
Sleepy Eye, MN.................... Peas and Corn 230,000
Crystal City, TX.................. Green Beans, Spinach, Carrots, Beets and 362,000
Potatoes
Toppenish, WA..................... Asparagus, Corn, Lima Beans and Peas 228,000
Yakima, WA........................ Cherries and Pears 214,000
Arlington, WI..................... Peas, Corn and Sauerkraut 209,000
Markesan, WI...................... Green Beans, Wax Beans and Italian Beans 299,000
Plover, WI........................ Beans, Carrots, Beets and Potatoes 298,000
</TABLE>
- ---------------
* Includes owned manufacturing and on-site warehouse and storage capacity.
In January 1998, the Company announced a four-year plan to consolidate its
California production facilities in order to enhance the efficiency of its fruit
and tomato processing operations and to better meet the competitive challenges
of the market. Tomato production currently taking place at the Modesto plant is
expected to be transferred to the Company's newly acquired state-of-the-art
facility in Hanford in 1999. The Modesto location would then be converted to a
fruit processing plant allowing production currently processed at the San Jose
plant to be transferred to Modesto. At the end of the production season in 2000,
the Company is also expected to close its Stockton fruit plant and transfer
production from that plant to Modesto. Considerations of plant age and location
were primary factors in the decision to close the 80-year-old San Jose plant and
the 70-year-old Stockton plant and transfer production closer to growing areas.
The Company plans an aggregate of approximately $136 million of capital spending
through 2001 to increase production efficiency
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and reduce costs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General" and "-- Liquidity and Capital
Resources -- Investing Activities."
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 by either party under which the Company has agreed to
purchase all of its requirements for metal food and beverage containers in the
United States from Silgan. If Silgan is unable to supply all of such
requirements for any reason, the Company is entitled to purchase the excess from
another supplier. In addition, after September 1998, the Company is entitled to
seek a competitive bid for up to 50% of its requirements. Price levels were
originally set based on the Company's costs of self-manufactured containers.
Price changes under the contract reflect changes in the manufacturer's costs.
Upon any extension of the agreement, the parties have agreed to negotiate in
good faith the amount of Silgan's margin. The agreement may be terminated by
either party, without penalty, on notice given 12 months prior to the end of the
term of the agreement (or any extension). The Company's total annual can usage
is approximately two billion cans.
SALES, MARKETING AND DISTRIBUTION
Sales and Marketing
The Company's sales organization for retail products is divided into three
groups: (i) a retail broker network (which consists of 100% independent broker
representation at the market level, managed by Company sales managers); (ii) an
in-house sales force with responsibility for warehouse clubs, mass merchandisers
and supercenters; and (iii) an in-house team responsible for trade promotion.
Retail brokers are independent, commissioned sales organizations that represent
multiple manufacturers and, during fiscal 1997, accounted for 67% of the
Company's total net sales. The Company retains its brokers through a
standardized retail grocery brokerage agreement, and brokers are typically paid
at a percentage of collected sales, generally 2.5%, which percentage may be
increased up to 3.0% based on the broker's accomplishment of specified sales
objectives. Such agreements may be terminated on 30 days' prior notice by either
party. The Company's broker network represents the Company to a broad range of
grocery retailers. 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, PriceCostco, Kmart
and Target. During fiscal 1997, this group accounted for 12% of the Company's
total net sales. Foodservice, food ingredients, private label and military and
export sales are accomplished through both direct sales and brokers and, during
fiscal 1997, accounted for 21% of the Company's total net sales.
The Company's marketing group directs product development, pricing
strategy, consumer 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 and Contadina brand names.
The Company has been enhancing its sales and marketing efforts with
proprietary software applications, principally its Trade Wizard application and
applications designed to assist customers in managing product categories. The
Trade Wizard application assists the Company in implementing and managing the
timing and scope of its trade and consumer promotions. Customers using the
Company's category management software tools are able to more rapidly identify
sales levels for various product categories so as to achieve an optimal product
mix. Use of these category management tools has resulted in increased shelf
presence for the Company's products, particularly fruit products, relative to
those of the Company's competitors. The Company also has proprietary tools that
allows it to manage its customers' inventory requirements for its
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<PAGE> 71
products, thereby reducing customers' inventory levels while enhancing the
Company's opportunities to sell its products.
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 third party trucking, rail or on a customer pickup
basis. The Company's distribution centers provide, among other services, casing,
labeling, special packaging, cold storing 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.
The following table lists the Company's distribution centers:
<TABLE>
<CAPTION>
LOCATION OWNED/LEASED SQUARE FOOTAGE
-------- ------------ --------------
<S> <C> <C>
Birmingham, AL............... Leased 292,000
Clearfield, UT............... Leased 80,000
Dallas, TX................... Leased 175,000
Rochelle, IL................. Owned 425,000
Stockton, CA................. Leased 512,000
Swedesboro, NJ............... Owned 267,000
</TABLE>
CUSTOMERS
The Company's customer base is broad and diverse, and no single customer
accounted for more than 10% of fiscal 1997 sales. The Company's 15 largest
customers during fiscal 1997 represented approximately 47.8% of the Company's
sales. These companies have all been Del Monte customers for at least ten years
and, in some cases, for 20 years or more. The Company has sought to establish
and strengthen its alliances with key customers by offering sophisticated
proprietary software applications to assist customers in managing inventories.
The Company plans to expand its promotion of these applications with its
customers.
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, as well as with private label
manufacturers. In general, the Company competes on the basis of quality, breadth
of product line and price. See "Risk Factors -- Competition" and " -- Company
Products."
INFORMATION SERVICES
In November 1992, the Company entered into an agreement with EDS to provide
services and administration to the Company in support of its information
services functions. 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. The agreement expires in November
2002 with optional successive one-year extensions. The Company periodically
reviews its general information system needs, including Year 2000 compliance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
RESEARCH AND DEVELOPMENT
The Company's research and development organization provides product,
packaging and process development and analytical and microbiological services,
as well as agricultural research and seed production. In fiscal 1995, 1996 and
1997, 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> 72
EMPLOYEES
At March 31, 1998, the Company had approximately 2,550 full-time employees.
In addition, approximately 10,900 individuals are hired on a temporary basis
during the pack season. The Company considers its relations with its employees
to be good. In the past several years, the Company has not experienced any work
stoppages or strikes.
The Company has ten collective bargaining agreements with seven union
locals covering approximately 10,600 of its hourly and seasonal employees. One
collective bargaining agreement expires in calendar 1999. The remaining
agreements expire in calendar 2000, 2001 and 2002.
INTELLECTUAL PROPERTY
The Company owns a number of registered and unregistered trademarks for use
in connection with various food products, including the marks Del Monte, Snack
Cups, Fruit Cup, Fresh Cut, Fruit Naturals, Orchard Select, Fruit Smoothie
Blenders, Del Monte Lite and Contadina. 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, or
its licensees, where applicable, comply with all applicable renewal requirements
including, where necessary, the continued use of the marks in connection with
similar goods. The Company is not aware of any material challenge to the
ownership by the Company of its major trademarks.
DMC owns approximately 12 issued U.S. patents covering machines used in
filling, cleaning, and sealing cans, food preservation methods, extracts and
colors, and peeling and coring devices. The patents expire between 2002 and 2014
and cannot be renewed. Patents are generally not material to the Company's
business.
The Company claims copyright protection in its proprietary category
management software and vendor-managed inventory software. The Company's
customers receive reports generated by these software programs and provide data
to the Company for use in connection with the programs. The software itself,
however, is not currently licensed to the Company's customers. The copyrights
are not registered.
The Company has developed a number of proprietary vegetable seed varieties
which it protects against disclosure by restricting access and/or by the use of
non-disclosure agreements. There can be no assurance that the means taken by the
Company to protect the secrecy of its seed varieties will be sufficient to
protect their secrecy or that others will not independently develop similar
technology. The Company has obtained U.S. plant variety protection certificates
under the Plant Variety Protection Act on some of its proprietary seed
varieties. Under such a certificate, the breeder has the right, among other
rights, to exclude others from offering or selling the variety or reproducing it
in the United States. The protection afforded by a plant variety protection
certificate generally runs for 20 years from the date of its issuance.
In connection with the RJR Nabisco Sale, and the divestitures of the
Company's non-core and foreign operations subsequent to that sale, the Company
granted various perpetual, exclusive, royalty-free licenses for use of the Del
Monte name and mark along with certain other trademarks, patents, copyrights and
trade secrets to the acquiring companies or their affiliates. Under such
licenses, the Company is generally entitled to reimbursement from the licensees
of certain of its expenses in maintaining the registrations relating to such
intellectual property. In particular, with respect to all food and beverage
products other than fresh fruits, vegetables and produce, affiliates of RJR
Nabisco hold the rights to use the Del Monte trademark in Canada; Kikkoman holds
the rights to use Del Monte trademarks in the Far East and Pacific Rim
(excluding the Philippines); Del Monte International holds the rights in Europe,
Africa, the Middle East and the Indian Subcontinent. On July 10, 1998, the
Company entered into an agreement with Nabisco to reacquire the rights to the
Del Monte brand in South America. See "Recent Developments." Fresh Del Monte
holds the rights to use the Del Monte name and trademark with respect to fresh
fruit, vegetables, and produce and certain chilled and frozen products related
thereto throughout the world. With respect to dried fruit, nut 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 agreements
to sell Del Monte Latin America, an affiliate of Hicks, Muse, Tate & Furst
acquired the right to use the Del Monte trademarks with respect to all food and
beverage products other than fresh fruits, vegetables and produce in Mexico and
Capital Universal Ltd. (an affiliate of
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<PAGE> 73
Donald W. Dickerson, Inc.) acquired similar rights in Central America and the
Caribbean. Dewey Limited (an affiliate of Del Monte International) owns the
rights in the Philippines to the Del Monte brand name. See "Risk
Factors -- Brand Risk."
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 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 and tangible interests in its
trademarks and related trade names, copyrights, patents, trade secrets and other
intellectual property to its creditors, in connection with the Bank Financing,
and to its licensees, to secure certain of the Company's obligations under the
license agreements.
GOVERNMENTAL REGULATION
As a manufacturer and marketer of food products, the Company's operations
are subject to extensive regulation by various federal government agencies,
including the Food and Drug Administration, the United States Department of
Agriculture and the FTC, as well as state and local agencies, with respect to
production processes, product attributes, packaging, labeling, storage and
distribution. Under various statutes and regulations, such agencies prescribe
requirements and establish standards for safety, purity and labeling. In
addition, advertising of the Company's products is subject to regulation by the
FTC, and the Company's operations are subject to certain health and safety
regulations, including those issued under the Occupational Safety and Health
Act. The Company's manufacturing facilities and products are subject to periodic
inspection by federal, state and local authorities. The Company seeks to comply
at all times with all such laws and regulations and is not aware of any
instances of material non-compliance. The Company maintains all permits and
licenses relating to its operations. The Company believes its facilities and
practices are sufficient to maintain compliance with applicable governmental
laws and regulations. Nevertheless, there can be no assurance that the Company
will be able to comply with any future laws and regulations. Failure by the
Company to comply with applicable laws and regulations could subject the Company
to civil remedies including fines, injunctions, recalls or seizures as well as
potential criminal sanctions.
LEGAL PROCEEDINGS
The Company is involved from time to time in various legal proceedings
incidental to its business, including claims with respect to product liability,
worker's compensation and other employee claims, tort and other general
liability, for which the Company carries insurance or is self-insured, as well
as trademark, copyright and related litigation. The Company believes that no
such legal proceedings will have a material adverse effect on the results of
operations, cash flow, liquidity or financial condition of the Company. See
"--Environmental Compliance" for a description of certain environmental matters
in which the Company is involved.
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 are becoming increasingly stringent and compliance
with them is becoming increasingly expensive. The Company seeks to comply at all
times with all such environmental laws and regulations and is not aware of any
instances of material non-compliance. The Company cannot predict the extent to
which any environmental law or regulation that may be enacted or enforced in the
future may affect its operations. 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.
In connection with the sale of one of its facilities, the Company is
currently remediating conditions resulting from the release of petroleum from
underground storage tanks ("USTs"). The Company is also conducting a groundwater
investigation at one currently owned property for hydrocarbon contamination that
it believes resulted from the operations of an unaffiliated prior owner of the
property. At the present time, the Company is unable to predict the total cost
for the remediation or the extent to which it may obtain contribution from the
prior owner. Further, there can be no assurance that investigation and
remediation of
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environmental conditions will not be required at other properties currently or
formerly owned or operated by the Company. Nonetheless, the Company does not
expect that these and other 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 is a PRP or may otherwise be potentially responsible for
environmental investigation and remediation costs at certain contaminated sites
under CERCLA or under similar state laws. With the exception of one previously
owned site, the Company has potential liability at each site because it
allegedly sent certain wastes from its operations to these sites for disposal or
recycling. These wastes consisted primarily of empty metal drums (which
previously held raw materials), used oils and solvents, solder dross and paint
waste.
The Company is indemnified for any liability at two of these sites,
including the previously owned site. With respect to a majority of the sites at
which the Company has been identified as a PRP and is not indemnified by another
party, the Company has settled its liability with the responsible regulatory
agency. The Company believes that it has no liability for the remaining sites,
except with respect to one site at which it is a member of the PRP group. The
PRP group is conducting a Remedial Investigation and Feasibility Study to
analyze the nature and extent of the contamination and to evaluate remedial
alternatives for the site. Based upon the information currently available, the
Company does not expect that its liability for this site will be material. There
can be no assurance that the Company will not be identified as a PRP at
additional sites in the future.
The Company spent approximately $5 million on domestic environmental
capital projects and expenditures from fiscal 1995 through fiscal 1997,
primarily related to UST remediation activities and upgrades to boilers and
wastewater treatment systems. The Company projects that it will spend an
aggregate of approximately $4 million in fiscal 1998 and 1999 on capital
projects and other expenditures in connection with environmental compliance,
primarily for boiler upgrades, compliance costs related to the consolidation of
its fruit and tomato processing operations and continued UST remediation
activities. The Company believes that its CERCLA and other environmental
liabilities will not have a material adverse effect on the Company's financial
position or results of operations.
PROPERTIES
As of March 31, 1998, the Company operated 15 production facilities and six
distribution centers. See "-- Supply and Production" and "-- Sales, Marketing
and Distribution." The Company's production facilities are owned properties,
while its distribution centers are owned or leased. The Company has various
warehousing and storage facilities, which are primarily leased facilities. The
Company's leases are generally long-term. Virtually all of the Company's
properties, whether owned or leased, are subject to liens or security interests.
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.
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 its
business and to have sufficient production capacity for the purposes for which
they are currently intended.
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CORPORATE HISTORY
DMC was acquired in 1979 by the predecessor of RJR Nabisco. In 1990, DMC
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, which were
organized by 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, 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
produce business, which was sold by RJR Nabisco to Polly Peck, which, in turn,
sold it to Fresh Del Monte. In connection with the RJR Nabisco Sale and,
subsequently, in connection with the sale of the Company's foreign operations,
as described below, the Company granted various perpetual, exclusive
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 International,
Kikkoman, Fresh Del Monte and Yorkshire. None of the licensees is affiliated
with the Company except for Yorkshire, of which the Company owns 20% of the
common stock. See "Risk Factors -- Brand Risk" and "Business -- Intellectual
Property."
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
International 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 International, the Company acquired an 8.35% equity investment
in Del Monte International. Subsequently, in the fiscal quarter ended March 31,
1993, the Company sold such equity investment 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 International 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. 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. The supply agreement provides the Company with a long-term supply
of cans at prices that adjust over time for normal manufacturing cost increases
or decreases. See "Business -- Supply and 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 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 1994 Merger Agreement provided that
DMFC was entitled to terminate the 1994 Merger Agreement if the effective date
of the Proposed Acquisition
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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.
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.
On April 18, 1997, DMFC was recapitalized through the merger of Shield with
and into DMFC, with DMFC being the surviving corporation. By virtue of the
Recapitalization, shares of DMFC's preferred stock having an implied value of
approximately $14 million held by certain of DMFC's stockholders who remained
investors were cancelled and were converted into the right to receive new DMFC
Common Stock. All other shares of DMFC capital stock were cancelled and were
converted into the right to receive cash consideration. In connection with the
Recapitalization, the Company repaid substantially all of its funded debt
obligations existing immediately before the Recapitalization. In the
Recapitalization, the common stock and preferred stock of Shield was converted
into new shares of Common Stock and preferred stock, respectively, of DMFC.
On December 19, 1997, the Company acquired the Contadina business for $177
million in cash, plus an estimated working capital adjustment of approximately
$20 million. The purchase price was subject to adjustment based on the final
calculation of net working capital as of the closing date. Nestle provided its
calculation of the net working capital, which resulted in a payment to the
Company of approximately $2 million, and therefore a reduction in the purchase
price to $195 million. The Contadina Acquisition also included the assumption of
certain liabilities of approximately $5 million, consisting primarily of
liabilities in respect of reusable packaging materials, employee benefits and
product claims.
On May 1, 1998, DMFC merged with and into a newly created, wholly-owned
subsidiary incorporated under the laws of the State of Delaware to change DMFC's
state of incorporation from Maryland to Delaware.
Through TPG's majority interest in the Common Stock of the Company, TPG has
the power to control the management and policies of the Company and
determination of matters requiring stockholder approval. TPG is part of Texas
Pacific Group, which was founded by David Bonderman, James G. Coulter and
William S. Price, III in 1992 to pursue public and private investment
opportunities. Texas Pacific Group's other investments include such branded
consumer products companies as Beringer Wine Estates Holdings, Inc., Ducati
Motors S.p.A., Favorite Brands International, Inc. and J. Crew Group, Inc.
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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 DFMC. Such individuals
hold the same positions with DMC. Each director will hold office until the next
annual meeting of shareholders or until his successor has been elected and
qualified. Officers are elected by the Board of Directors and serve at the
discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Richard W. Boyce....................... 44 Chairman of the Board; Director
Richard G. Wolford..................... 53 Chief Executive Officer; Director
Wesley J. Smith........................ 51 Chief Operating Officer; Director
Timothy G. Bruer....................... 41 Director
Al Carey............................... 46 Director
Patrick Foley.......................... 66 Director
Brian E. Haycox........................ 56 Director
Denise M. O'Leary...................... 41 Director
William S. Price, III.................. 42 Director
Jeffrey A. Shaw........................ 34 Director
David L. Meyers........................ 52 Executive Vice President,
Administration and Chief Financial
Officer
Glynn M. Phillips...................... 61 Executive Vice President, Sales
Brent D. Bailey........................ 46 Executive Vice President, Marketing
Thomas E. Gibbons...................... 50 Senior Vice President and Treasurer
William J. Spain....................... 56 Senior Vice President, Technology
Richard L. French...................... 41 Senior Vice President and Chief
Accounting Officer
William R. Sawyers..................... 36 Vice President, General Counsel and
Secretary
</TABLE>
Richard W. Boyce, Chairman of the Board; Director. Mr. Boyce became
Chairman of the Board and a director of DMFC in August 1997. Mr. Boyce became
President of SRB, Inc., which provides management services to TPG and its
affiliated companies, in 1997. He currently serves as Chairman and Chief
Executive Officer of Favorite Brands International, Inc. He was employed by
PepsiCo from 1992 to 1997, most recently as Senior Vice President of Operations
for Pepsi-Cola North America. From 1980 to 1992, Mr. Boyce was employed by Bain
& Co., where he was a partner. He is also a director of J. Crew Group, Inc.
Richard G. Wolford, Chief Executive Officer; Director. Mr. Wolford joined
DMFC as Chief Executive Officer and a director in April 1997 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 DMFC
as Chief Operating Officer and a director in April 1997 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.
Timothy G. Bruer, Director. Mr. Bruer became a director of DMFC in August
1997. Mr. Bruer has been President and Chief Executive Officer and a director of
Silverado Foods, Inc. since March 1997. From 1993 until that time, he was Vice
President and General Manager of the Culinary Division of Nestle. He is also a
director of Authentic Specialty Foods Inc.
Al Carey, Director. Mr. Carey became a director of DMFC in November 1997.
He is the Chief Operating Officer of Frito-Lay, Inc., a division of PepsiCo,
Inc., and has been employed in various capacities with that company since 1981.
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<PAGE> 78
Patrick Foley, Director. Mr. Foley became a director of DMFC in August
1997. Mr. Foley is Chairman, President and Chief Executive Officer of DHL
Corporation, Inc. and its major subsidiary, DHL Airways, Inc. He joined DHL in
September 1988, with more than 30 years experience in hotel and airline
industries. He was formerly Chairman and President of Hyatt Hotel Corporation.
Mr. Foley serves on the Boards of Directors of Continental Airlines, Inc., DHL
International, Flextronics International, Foundation Health Systems, Inc. and
Glenborough Realty Trust, Inc.
Brian E. Haycox, Director. Mr. Haycox was elected to the Board of Directors
of DMFC in June 1995. He was elected as Co-Chairman and Co-Chief Executive
Officer of 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.
Denise M. O'Leary, Director. Ms. O'Leary became a director of DMFC in
August 1997. Ms. O'Leary has been a Special Limited Partner of Menlo Ventures
since 1996. From 1983 to 1996, she was a General Partner of Menlo Ventures. Ms.
O'Leary serves on the Boards of Directors of various private companies as well
as on the Board of ALZA Corporation. She is a member of the Board of Trustees of
Stanford University and a director of UCSF Stanford Health Care.
William S. Price III, Director. Mr. Price became a director of DMFC in
August 1997. Mr. Price was a founding partner of TPG in 1992. Prior to forming
TPG, he was Vice President of Strategic Planning and Business Development for G.
E. Capital, and from 1985 to 1991, he was employed by Bain & Company, where he
was a partner and co-head of the Financial Services Practice. Mr. Price serves
on the Boards of Directors of Belden & Blake Corporation, Beringer Wine Estates
Holdings, Inc., Continental Airlines, Inc., Denbury Resources, Inc., Favorite
Brands International, Inc., Vivra Specialty Partners, Inc. and Zilog, Inc.
Jeffrey A. Shaw, Director. Mr. Shaw became a director of DMFC in May 1997.
Mr. Shaw is a partner of TPG and 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 affiliated with the Robert M. Bass Group, for three years. Mr. Shaw
serves as a director of Ducati Motors S.p.A., Ducati North America, Inc.,
Favorite Brands International, Inc. and Ryanair PLC.
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 DMFC in December 1992 and served as a member of the Board
of Directors of 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
DMFC 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.
Brent D. Bailey, Executive Vice President, Marketing. Mr. Bailey joined
DMFC in his current position in January 1998. Prior to that he was with The Dial
Corporation since 1992 as Senior Vice President and General Manager -- Household
Division, and Senior Vice President -- Portfolio Group. From 1974 to 1992, Mr.
Bailey held marketing management positions with Procter & Gamble, Frito-Lay and
Pillsbury.
Thomas E. Gibbons, Senior Vice President and Treasurer. Mr. Gibbons joined
DMFC in 1969 and was elected to his current position in February 1995. He was
elected Vice President and Treasurer of 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 DMFC
in 1966 and was elected to his current position in February 1995. Previously, he
was Vice President, Research, Government and Industry Relations of DMFC. Mr.
Spain has also held various positions within DMFC in corporate affairs,
production management, quality assurance, environmental and energy management,
and consumer services.
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<PAGE> 79
Richard L. French, Senior Vice President and Chief Accounting Officer. Mr.
French joined DMFC in 1980 and was elected to his current position in May 1998.
Mr. French was Vice President and Chief Accounting Officer of DMFC from August
1993 through May 1998 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 DMFC in November 1993 and was elected 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.
COMMITTEES OF THE BOARD OF DIRECTORS; TERM
DMFC's Board of Directors has the committees described below.
The Nominating and Compensation Committee (the "Compensation Committee")
has authority to determine executive compensation and will approve the terms of
stock options and stock purchase rights pursuant to the Company's plans and
arrangements (as described below). The Compensation Committee's current members
are Messrs. Price and Shaw and Ms. O'Leary.
The Audit Committee is responsible for reviewing the activities of the
Company's independent accountants and internal audit department. The Audit
Committee's members are Messrs. Bruer, Foley and Haycox. The directors on the
Audit Committee are not affiliated with the Company or TPG, in accordance with
applicable New York Stock Exchange requirements.
The Board of Directors of DMFC is divided into three classes, as nearly
equal in number as possible, with each director serving a three year term and
one class being elected at each year's annual meeting of stockholders. Messrs.
Bruer, Haycox and Price are in the class of directors whose term expires at the
1999 annual meeting of DMFC's stockholders. Messrs. Foley, Shaw and Smith are in
the class of directors whose term expires at the annual meeting of DMFC's
stockholders to be held in the year 2000. Messrs. Boyce, Carey and Wolford and
Ms. O'Leary are in the class of directors whose term expires at the 2001 annual
meeting of DMFC's stockholders. At each annual meeting of DMFC's stockholders,
successors to the class of directors whose term expires at such meeting will be
elected to serve for three year terms and until their successors are elected and
qualified.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company for fiscal
years 1995, 1996 and 1997 to each individual serving as its Chief Executive
Officer during fiscal 1997 and to each of the four other most
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<PAGE> 80
highly compensated executive officers of the Company as of the end of fiscal
1997, and to one executive officer whose employment terminated prior to the end
of fiscal 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(3)
---------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITIONS FISCAL YEAR SALARY(1) BONUS COMP.(2) PAYOUTS COMP.(4)
- ---------------------------- ----------- --------- -------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Wolford(5)...... 1997 $100,641 $ -- $ -- $ -- $ 251,196
Chief Executive Officer
Brian E. Haycox............ 1997 602,404 -- 73,471 -- 5,323,303
Co-Chairman/Co-CEO(6) 1996 420,673 -- 247,780 -- 8,052
Paul H. Mullan............. 1997 602,404 -- 221,940 -- 5,288,452
Co-Chairman/Co-CEO(7) 1996 420,673 -- 817,978 -- 8,052
David L. Meyers............ 1997 286,000 159,400 -- 421,000 2,959,771
Executive Vice President, 1996 273,000 143,000 55,386 421,000 11,242
Administration & CFO 1995 302,500 -- 145,954 421,000 9,786
Glynn M. Phillips.......... 1997 239,118 118,300 -- 280,000 1,974,454
Executive Vice President, 1996 225,750 118,250 -- 280,000 9,206
Sales
1995 158,907 -- -- 280,000 52,724
Thomas E. Gibbons.......... 1997 183,458 59,900 -- 210,000 115,829
Senior Vice President and 1996 175,600 63,900 -- 54,600 4,717
Treasurer 1995 161,703 53,600 -- 50,400 4,728
William J. Spain........... 1997 147,917 49,500 -- 162,000 115,766
Senior Vice President, 1996 139,167 49,700 -- 42,100 4,417
Technology 1995 126,542 40,700 -- 38,900 4,024
David M. Little(8)......... 1997 250,250 -- -- 421,000 3,363,581
Executive Vice President, 1996 286,650 150,150 -- 421,000 10,660
Worldwide Operations 1995 309,500 -- -- 421,000 10,302
</TABLE>
- ---------------
(1) Reflects actual base earnings for the fiscal year specified.
(2) Fiscal 1995 reflects certain perquisites, including moving expenses for Mr.
Meyers ($129,838). Fiscal 1996 reflects certain perquisites, including
relocation related expenses for Mr. Haycox ($243,092) and Mr. Mullan
($812,333); moving expenses for Mr. Meyers ($33,091) and company car
($15,500). Fiscal 1997 reflects certain perquisites, including relocation
related taxes for Mr. Haycox ($57,005) and Mr. Mullan ($198,955).
(3) Reflects payments under the Company's Old MEP (as defined below) and Long
Term Incentive Plan.
(4) For fiscal 1995: Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Meyers $4,500; Mr. Gibbons $4,500; Mr. Spain $3,796; Mr. Little
$4,500, Company paid term life premiums -- Mr. Meyers $1,960; Mr. Phillips
$2,724; Mr. Gibbons $228; Mr. Spain $228; Mr. Little $2,080, a sign-on bonus
for Mr. Phillips $50,000, amount paid under the nonqualified Additional
Benefits Plan -- Mr. Meyers $3,326; Mr. Little $3,722. For fiscal 1996:
Company contributions to the Del Monte Corporation Savings Plan -- Mr.
Haycox $4,500; Mr. Mullan $4,500; Mr. Meyers $4,500; Mr. Phillips $4,500;
Mr. Gibbons $4,500; Mr. Spain $4,200; Mr. Little $4,500, Company paid term
life premiums -- Mr. Haycox $3,552; Mr. Mullan $3,552; Mr. Meyers $3,407;
Mr. Phillips $4,706; Mr. Gibbons $217; Mr. Spain $217; Mr. Little $2,428,
amount paid under the nonqualified Additional Benefits Plan -- Mr. Meyers
$3,335; Mr. Little $3,732. For fiscal 1997: Company contributions to the Del
Monte Corporation Savings Plan -- Mr. Haycox $4,800; Mr. Mullan $5,738; Mr.
Meyers $4,500; Mr. Phillips $4,500; Mr. Gibbons $4,500; Mr. Spain $4,437;
Mr. Little $3,003; Company paid term life premiums -- Mr. Wolford $1,196;
Mr. Haycox $13,057; Mr. Mullan $10,657; Mr. Meyers $4,198; Mr. Phillips
$5,325; Mr. Gibbons $217; Mr. Spain $217; Mr. Little $2,739, amount paid
under the nonqualified Additional Benefits Plan -- Mr. Meyers $4,130; Mr.
Little $4,567, amount paid due to termination for Mr. Haycox $393,874; Mr.
Mullan $360,485; Mr. Little $406,329, amounts under the New MEP (as defined
below) paid April 1997 -- Mr. Haycox $4,911,572; Mr. Mullan $4,911,572; Mr.
Meyers $2,946,943; Mr. Phillips $1,964,629; Mr. Gibbons $111,112; Mr. Spain
$111,112; Mr. Little $2,946,943. For Mr. Wolford, the
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<PAGE> 81
fiscal 1997 amount includes a consulting fee of $250,000 paid in December
1997 for the period prior to April 18, 1997.
(5) Mr. Wolford became Chief Executive Officer as of April 18, 1997.
(6) Mr. Haycox's employment as Co-Chairman/Co-CEO terminated as of April 18,
1997.
(7) Mr. Mullan's employment as Co-Chairman/Co-CEO terminated as of April 18,
1997.
(8) Mr. Little's employment as Executive Vice President, Worldwide Operations
terminated as of April 30, 1997.
EMPLOYMENT AND OTHER ARRANGEMENTS
The Management Equity Plan
Established beginning in fiscal 1995 and modified in March 1996, the
Company's Management Equity Plan ("New MEP") provided 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 New MEP, the "Base Value" of the
Company's preferred and Common Stock was 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 New MEP) exceeded the $125 million Base Value, an award
pool of 6% of such excess was set aside for payment to the Company's executive
officers. The New MEP was terminated concurrent with the Recapitalization.
In connection with the Recapitalization, the Company made payments
aggregating approximately $19.7 million pursuant to the New MEP. This amount was
allocated as follows:
<TABLE>
<S> <C>
Mr. Haycox............................................... $4,911,572
Mr. Mullan............................................... 4,911,572
Mr. Little............................................... 2,946,943
Mr. Meyers............................................... 2,946,943
Mr. Phillips............................................. 1,964,629
Other officers(1)........................................ 2,000,016
</TABLE>
- ---------------
(1) Other officers include Messrs. Gibbons and Spain and 16 other senior
officers.
Messrs. Meyers, Little and Phillips were participants in the MEP prior to
its modification in March 1996 (the "Old MEP"), and as such became eligible for
awards for fiscal 1995 based on the annual equity growth formula in effect under
the Old MEP for such year. Messrs. Meyers, Little and Phillips were paid
installment payments of the Old 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 Old MEP awards in the amounts of $421,000, $421,000 and $280,000,
respectively, for fiscal 1997. The Company paid these fiscal 1997 awards at the
time of the Recapitalization.
Long Term Incentive Plan
Established on July 1, 1990, amended and restated on July 1, 1995, the Long
Term Incentive Plan ("LTIP") provided certain key management employees with a
long-term incentive program based on Company performance. The LTIP had a
performance cycle of three fiscal years with interim award payments at the end
of each fiscal year based on the employee's target award. The three-year target
award was 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 were
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. Mr. Spain received fiscal 1995 and fiscal 1996 awards of
$38,900 and $42,100, respectively. Mr. Spain received the final fiscal 1997
award in the amount of $162,000 at the time of the Recapitalization. This plan
was terminated following the Recapitalization.
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<PAGE> 82
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. Little -- 50%, Mr.
Meyers -- 50%, Mr. Phillips -- 50%, Mr. Gibbons -- 30% and Mr. Spain -- 30%. Mr.
Haycox and Mr. Mullan were not eligible for the AIAP for fiscal 1996 or fiscal
1997. Mr. Wolford was not eligible for the AIAP for fiscal 1997. Mr. Little
received his fiscal 1997 AIAP payment of $150,150 at the time of his termination
as of April 30, 1997.
Stock Purchase Plan
The Del Monte Foods Company Employee Stock Purchase Plan was approved on
August 4, 1997 and amended on November 4, 1997. Under the Plan, key employees
are allowed to purchase up to $5 million in Common Stock. To date, 454,146
shares of the Company's Common Stock have been purchased by and issued to
eligible employees.
Stock Incentive Plans
The Del Monte Foods Company 1997 Stock Incentive Plan was approved on
August 4, 1997 and amended on November 4, 1997. Under the 1997 Stock Incentive
Plan, grants of incentive stock options and nonqualified stock options
representing 1,784,980 shares of Common Stock may be made to key employees. With
the exception of options for 151,701 shares issued to Mr. Bailey on January 19,
1998, the options were granted at an exercise price equal to the fair market
value of the shares at the time of such grant and have a ten-year term. Two
different vesting schedules have been approved under the 1997 Stock Incentive
Plan. The first provides for annual vesting on a proportionate basis over five
years and the second provides for monthly vesting on a proportionate basis over
four years. Pursuant to this plan, options for 1,736,520 shares of Common Stock
have been granted to eligible employees to date. It is not anticipated that any
additional options will be granted pursuant to this plan.
The Del Monte Foods Company 1998 Stock Incentive Plan (the "1998 Stock
Incentive Plan") was adopted as the Del Monte Foods Company 1998 Stock Option
Plan by the Board of Directors on April 24, 1998 and approved in final form by
the Compensation Committee on May 29, 1998. Under the 1998 Stock Incentive Plan,
grants of incentive and nonqualified stock options ("Options"), stock
appreciation rights ("SARs") and stock bonuses (together with Options and SARs,
"Awards") representing 3,195,687 shares of Common Stock may be made to employees
of the Company. Subject to certain limitations, the Compensation Committee has
authority to grant Awards under the 1998 Stock Incentive Plan and to set the
terms of any such Awards. As of June 3, 1998, no Awards had been made under the
1998 Stock Incentive Plan.
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. 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:
<TABLE>
<CAPTION>
ALL MONTHLY MONTHLY COMPENSATION
PARTICIPANT AGE COMPENSATION ABOVE SOCIAL SECURITY BASE
--------------- ------------ --------------------------
<S> <C> <C>
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
</TABLE>
The Del Monte Corporation Retirement Plan was amended effective January 1,
1998 to change the interest credit from 110% of the U.S. Pension Benefit
Guaranty Corporation ("PBGC") rate to the yield on
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<PAGE> 83
the 12-month Treasury Bill rate plus 1.5%. In addition, the factors for annuity
conversions were changed from specific Company factors to factors based on
30-year Treasury Bond yields and an Internal Revenue Service ("IRS") specified
mortality table. A participant's annual age 65 annuity benefit will be the
greater of an annuity based on (i) the credit balance as of December 31, 1997
increased by interest credits (and not compensation credits) of 110% of the
December 31, 1997 PBGC rate divided by 8.2 or (ii) the credit balance at the
time of retirement using an annuity factor based on 30-year Treasury Bond yields
and an IRS specified mortality table. 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 Retirement 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 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 0.75% 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 lump sum of the alternative 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 "top hat" and "excess" 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
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:
<TABLE>
<CAPTION>
YEAR ATTAINING ESTIMATED ANNUAL
PARTICIPANT AGE 65 RETIREMENT BENEFIT(A)
----------- -------------- ---------------------
<S> <C> <C>
Mr. Wolford................................... 2009 $125,819
Mr. Phillips.................................. 2002 28,260
Mr. Meyers.................................... 2010 179,742
Mr. Gibbons................................... 2012 178,762
Mr. Spain..................................... 2007 104,915
</TABLE>
- ---------------
(a) The estimated annual retirement benefits shown assumes no increase in
compensation or AIAP and interest credits of 6.68%.
Employment Arrangements. During fiscal 1997, the Company had employment
agreements with each of Messrs. Haycox, Mullan, Meyers, Little, Phillips,
Gibbons and Spain. 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
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<PAGE> 84
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 employment
agreements of Messrs. Meyers, Phillips, Gibbons and Spain have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
The CEO Agreements provided 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, if he resigns for good reason or if his
employment is terminated upon a sale of the Company, he shall be entitled to a
lump sum payment, within ten 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 (i) December 31, 1997, or (ii) 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 or if the executive resigns for good reason, 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 12-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 or if Mr. Phillips resigns for good reason, 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 18-month period
commencing on the date of such termination or resignation. The aggregate amount
of the severance payable to Mr. Phillips over such 18-month period would equal
the sum of (a) Mr. Phillips' highest annual rate of base salary in effect during
the 12-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 18-month period or (ii) such time as Mr.
Phillips is covered by comparable programs of a subsequent employer.
Messrs. Gibbons' and Spain's employment agreement is similar to that of Mr.
Phillips except that it does not require Messrs. Gibbons or Spain to execute an
agreement not to compete or disclose confidential information in order to
receive severance payments over an 18-month period.
On March 16, 1998, Del Monte entered into employment agreements with Mr.
Wolford and Mr. Smith (the "Wolford/Smith Employment Agreements") as Chief
Executive Officer and Chief Operating Officer, respectively. The Wolford/Smith
Employment Agreements are for an indefinite term. Under the terms of the
Wolford/Smith Employment Agreements, if the employment of Mr. Wolford or Mr.
Smith is terminated by Del Monte for any reason other than for cause or by such
executive for any reason, he would be entitled to
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continue to receive his base salary and target award under the AIAP (50% of base
salary) and to participate in certain employee welfare benefit plans and
programs of the Company for up to two years after the date of such termination
of employment, subject to his not competing with the Company, not soliciting
employees of the Company and not disclosing proprietary or confidential
information of the Company and subject to his signing a general release and
waiver with respect to certain claims he may have against the Company.
DIRECTORS' COMPENSATION
Under Company policy, Messrs. Bruer, Carey, Foley and Haycox and Ms.
O'Leary will each receive $25,000 per year to be paid in cash or in Common
Stock, at the option of the director. Each of these directors will also receive
$2,000 for each committee meeting of the Board of Directors attended in person.
In February 1998, the Company adopted a stock incentive plan with terms
substantially identical to the terms of the Del Monte Foods 1997 Stock Incentive
Plan for the benefit of directors and independent contractors of the Company.
Pursuant to that plan, Mr. Boyce received options representing 148,828 shares of
Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the period following consummation of the Recapitalization through
the end of DMFC's last completed fiscal year, DMFC did not have a compensation
committee or other board committee performing equivalent functions. During that
period, the entire Board of Directors had authority to consider executive
compensation matters. The membership of the Board of Directors during that
period is described under "Management -- Directors and Executive Officers"
above. No person who was an officer, employee or former officer of DMFC or any
of its subsidiaries participated in deliberations of DMFC's Board of Directors
concerning executive officer compensation.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Recapitalization, the Company entered into a
ten-year agreement dated April 18, 1997 (the "Management Advisory Agreement")
with TPG pursuant to which TPG is entitled to receive an annual fee from the
Company for management advisory services equal to the greater of $500,000 and
0.05% of the budgeted consolidated net sales of the Company for each fiscal year
under the contract term. In addition, the Company has agreed to indemnify TPG,
its affiliates and shareholders, and their respective directors, officers,
controlling persons, 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. Such indemnification
may not extend to actions arising under the U.S. federal securities laws. The
Management Advisory Agreement makes available the resources of TPG concerning a
variety of financial and operational matters, including advice and assistance in
reviewing the Company's business plans and its results of operations and in
evaluating possible strategic acquisitions, as well as providing investment
banking services in identifying and arranging sources of financing. The
Management Advisory Agreement does not specify a minimum number of TPG personnel
who must provide such services or the individuals who must provide them, nor
does it require that a minimum amount of time be spent by such personnel on
Company 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 and are comparable to those obtainable in an
arm's-length transaction with an unaffiliated third party.
In connection with the Recapitalization, the Company also entered into a
ten-year agreement dated April 18, 1997 (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,
which included assistance in connection with the evaluation of the fairness of
the Recapitalization and the valuation of the Company in connection therewith.
TPG also is entitled to receive a fee of 1.5% of the "transaction value" for
each transaction in which the Company is involved, which may include
acquisitions, refinancings and recapitalizations. 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). The Transaction Advisory Agreement includes indemnification
provisions similar to those in the Management Advisory Agreement, which
provisions also may not extend to actions arising under the U.S. federal
securities laws. In connection with the Contadina Acquisition, TPG received from
the Company a transaction fee of approximately $3 million. 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 and
are comparable to those obtainable in an arm's-length transaction with an
unaffiliated third party.
Also in connection with the Recapitalization, DMFC and the holders of the
Common Stock, including TPG and 399 Venture Partners, Inc. ("399 Venture
Partners"), an affiliate of one of the Company's bank lenders, 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 Common Stock by such holders 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. Directors and members
of management of the Company to date have received 465,639 restricted shares of
Common Stock, which are subject to stockholders' agreements with the Company
which impose similar restrictions.
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
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virtue of the Merger. Since the beginning of fiscal 1996, in connection with
certain interest rate protection transactions, the Company has also paid fees
and made other payments to banking and other affiliates of 399 Venture Partners
totaling approximately $442,000, consisting of fees for banking services. In
addition, in consideration of advisory services rendered and its participation
in connection with the Recapitalization, the Company paid to 399 Venture
Partners a transaction advisory fee of approximately $900,000. The Company
believes that the terms of these transactions were comparable to those
obtainable in an arms-length transaction with a disinterested third party.
The employment of Mr. Haycox pursuant to the CEO Agreement was terminated
effective as of April 18, 1997. Mr. Haycox continued to receive the salary that
he would have earned pursuant to the CEO Agreement until September 1997. In
September 1997, the Company paid to Mr. Haycox a lump sum payment of salary.
Such lump sum payment was $250,000, which was equal to the base salary that Mr.
Haycox would have earned pursuant to the CEO Agreement between the date the lump
sum payment was made and December 31, 1997. The Company believes that the terms
of these transactions were comparable to those obtainable in an arms-length
transaction with an unaffiliated third party.
During the second and third quarters of fiscal 1998, the Company sold
shares of Common Stock to certain key employees, including the executive
officers of the Company, pursuant to the Company's Employee Stock Purchase Plan.
See "Management -- Employment and Other Arrangements -- Stock Purchase Plan."
Messrs. Wolford and Smith each borrowed $175,000 from the Company in order to
acquire a portion of the stock purchased by him pursuant to such plan, all of
which remains outstanding. At March 31, 1998, these loans bore interest at a
rate of 5.62%, which rate is adjusted semi-annually, and are evidenced by
promissory notes which are secured by a pledge of the stock purchased with the
proceeds of the loans. The Company extended these loans in accordance with
applicable law governing transactions by a corporation with its officers. The
Company cannot predict whether the terms of such transactions, if made with a
disinterested third party, would be more or less favorable to Messrs. Wolford
and Smith, although the Company has no reason to believe that such terms would
be less favorable. The Bank Financing limits the ability of the Company to make
loans or advances to employees to a maximum amount outstanding at any time of $5
million. Aside from the loans to Messrs. Wolford and Smith, the Company has made
no such loans or advances to any of its directors, officers or employees. Any
vote by the party receiving any loan must be made in accordance with Delaware
law.
Certain conflicts of interest could arise as a result of the relationship
between the Company and TPG. Messrs. Price and Shaw, each a partner of TPG, and
Mr. Boyce, an officer of a company that provides management services to TPG, are
also directors of the Company. None of the Company's management is affiliated
with TPG. TPG has the power to control the management and policies of the
Company and determination of matters requiring stockholder approval. TPG may be
subject to a conflict of interest in allocating acquisition or other business
opportunities between the Company and other entities in which TPG has
substantial investments. Although currently TPG has no investment in any entity
that competes directly with the Company, it may in the future make such an
investment.
The Company will address any conflicts of interest and future transactions
it may have with its affiliates, including TPG, or other interested parties in
accordance with applicable law. Delaware law provides that any transaction with
any director or officer or other entity in which any of the Company's directors
or officers are also directors or officers, or have a financial interest, will
not be void or voidable solely due to the fact of the interest or affiliation,
nor because the votes of interested directors are counted in approving the
transaction, so long as (i) the material facts of the relevant party and its
interest are disclosed to the Board of Directors or the stockholders, as
applicable, and the transaction is approved in good faith by a majority of the
disinterested directors or by a specific vote of the stockholders, as
applicable; or (ii) the transaction is fair to the Company at the time it is
authorized, approved or ratified.
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CAPITAL STOCK OF DMFC
GENERAL
The following description summarizes DMFC's capital stock and does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Certificate of Incorporation, the terms of
which are incorporated by reference into the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
The Certificate of Incorporation authorizes the issuance of an aggregate of
500,000,000 shares of Common Stock. There are 45 holders of record of Common
Stock. On July 22, 1998, the Company declared a 191.542-for-one stock split of
all of the Company's outstanding shares of Common Stock.
The holders of the shares of Common Stock are entitled to receive, when, as
and if declared by the Board of Directors out of legally available funds,
dividends and other distributions in cash, shares or property of the Company.
Dividends or distributions so declared by the Board will be paid ratably in
proportion to the number of shares held by the holders of Common Stock.
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of DMFC, after payment of the creditors of DMFC, the remaining assets
and funds of DMFC available for distribution to DMFC's stockholders shall be
divided among and paid ratably to the holders of the shares of Common Stock.
Except as provided by statute or the Certificate of Incorporation, holders
of the shares of the Common Stock have the sole right and power to vote on all
matters on which a vote of DMFC's stockholders is to be taken. At every meeting
of the stockholders, each holder of the shares of Common Stock is entitled to
cast one vote provided such holder is present in person or by proxy for each
share of Common Stock standing in his or her name as of the record date for such
a vote.
The holders of the shares of Common Stock are entitled, by a majority vote
of those present, to nominate and thereafter elect and remove directors to and
from the Board of Directors of DMFC.
PREFERRED STOCK
The Certificate of Incorporation authorizes the issuance of an aggregate of
2,000,000 shares of preferred stock. Upon consummation of the Offering, there
will be no shares of preferred stock outstanding.
DMFC's Board of Directors may, from time to time, direct the issue of
shares of preferred stock in series and may, at the time of issue, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding preferred stock would reduce the amount of funds
available for the payment of dividends on shares of Common Stock. Holders of
shares of preferred stock may be entitled to receive a preference payment in the
event of any liquidation, dissolution or winding-up of DMFC before any payment
is made to the holders of shares of Common Stock. Under certain circumstances,
the issuance of preferred stock may render more difficult or tend to discourage
a merger, tender offer or proxy contest, the assumption of control by a holder
of a large block of DMFC's securities or the removal of incumbent management.
Upon the affirmative vote of a majority of the total number of directors then in
office, the Board of Directors of DMFC may issue shares of preferred stock with
voting and conversion rights which could adversely affect the holders of shares
of Common Stock.
The Series A Preferred Stock accumulates dividends at the rate of 14% per
annum, which dividends are payable in cash or additional shares of Series A
Preferred Stock, at the option of DMFC, subject to availability of funds and the
terms of its loan agreements. The Series A 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
ranging from 103% of the liquidation preference, if redeemed prior to October
1998, to 100% of the liquidation preference, if redeemed after October 2000,
plus accumulated and unpaid dividends to the redemption date. DMFC will be
required to redeem all outstanding shares of Series A Preferred Stock on April
18, 2008 at such redemption price. In certain other circumstances, including the
occurrence of a change of control of DMFC, the holders of the Series A Preferred
Stock will have the right to require DMFC to repurchase said shares at 101% of
the liquidation preference, plus accumulated and unpaid dividends to the
redemption date. Holders of Series A Preferred Stock will not have
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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 Series A Preferred Stock. In January 1998, TPG sold
approximately 93% of its holdings of Series A Preferred Stock to unaffiliated
investors, and TPG currently holds approximately 1,315 shares of the
approximately 37,253 shares of Series A Preferred Stock outstanding.
WARRANTS
In connection with the Recapitalization, the Company issued warrants to
purchase at any time prior to the expiration thereof, at an exercise price of
$0.01 per share, subject to adjustment in certain circumstances involving
dilutive transactions, approximately 547,262 shares of Common Stock. The Company
issued the warrants, together with shares of its preferred stock, to TPG and
other investors for $35 million in a private placement in accordance with
Section 4(2) of the Securities Act. All such warrants have been exercised. Under
the Stockholders' Agreement and the Registration Rights Agreement, the Company
has agreed to register under the Securities Act the resale of the Common Stock
received upon exercise of the warrants in certain circumstances.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The Certificate of Incorporation provides for the Board of Directors of
DMFC to be divided into three classes, as nearly equal in number as possible,
serving staggered terms. Approximately one-third of the Board of Directors will
be elected each year. See "Management." The provision for a classified board
could prevent a party who acquires control of a majority of the outstanding
voting shares from obtaining control of the Board of Directors until the second
annual stockholders meeting following the date the acquiror obtains the
controlling share interest. The classified board provision is designed to have
the effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of DMFC and to increase the likelihood
that incumbent directors will retain their positions.
The Certificate of Incorporation provides that stockholder action can be
taken only at a general meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Bylaws provide that, except as otherwise
required by law, general meetings of the stockholders can only be called
pursuant to a resolution adopted by a majority of the Board of Directors or by
the Chairman of the Board. Stockholders are not permitted to call a general
meeting or to require the Board of Directors to call a general meeting.
The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before a general meeting of stockholders of DMFC, including
proposed nominations of persons for election to the Board of Directors.
Stockholders at a general meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the Board of Directors or by a stockholder who was a
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting and who has given to DMFC's Secretary timely written notice,
in proper form, of the stockholder's intention to bring that business before the
meeting. Although the Certificate of Incorporation does not give the Board of
Directors the power to approve or disapprove stockholder nominations of
candidates or proposals regarding other business to be conducted at a general
meeting, the Certificate of Incorporation may have the effect of precluding the
conduct of certain business at a meeting if the proper procedures are not
followed or may discourage or deter a potential acquiror from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of DMFC.
The Certificate of Incorporation provides that the provisions of Section
203 of the Delaware General Corporation Law, which relate to business
combinations with interested stockholders, do not apply to Del Monte.
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DESCRIPTION OF INDEBTEDNESS
The summaries of the indebtedness contained herein do not purport to be
complete and are qualified in their entirety by reference to the provisions of
the various agreements and indentures related thereto, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
BANK FINANCING
The Bank Financing consists of the Revolving Credit Facility and the Term
Loan Facility, which are described below. Borrowings under the Bank Financing
are syndicated among a group of banks led by BofA.
Revolving Credit Facility. The Revolving Credit Facility provides for
revolving loans in an aggregate amount of $350 million, including a letter of
credit sublimit of $70 million and a "swingline loan" sublimit of $25 million
(representing funds that DMC may borrow with only limited advance notice).
Amounts available under the Revolving Credit Facility 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 per annum applicable to amounts outstanding
under the Revolving Credit Facility are currently, at DMC's option, either (i)
the Base Rate (as defined) plus 1.00% (the "Applicable Base Rate Margin") or
(ii) the reserve adjusted Offshore Rate (as defined) plus 2.00% (the "Applicable
Offshore Rate Margin"). In addition, DMC is required to pay to lenders under the
Revolving Credit Facility a commitment fee (the "Commitment Fee") of 0.425%,
payable quarterly in arrears, on the unused portion of such Revolving Credit
Facility. DMC is also required to pay to lenders under the Revolving Credit
Facility letter of credit fees (collectively, the "Letter of Credit Fees") of
1.50% for commercial letters of credit and 2.00% for all other letters of
credit, as well as an additional fee in the amount of 0.25% to the bank issuing
such letters of credit. Upon attainment of certain levels of the Senior Debt
Ratio (as defined), such Applicable Base Rate Margin and Applicable Offshore
Rate Margin, as well as the Commitment Fee and Letter of Credit Fees, will be
adjusted. At March 31, 1998, borrowings under the Revolving Credit Facility were
$68.1 million, and the weighted average interest rate thereon was approximately
8.3%.
Term Loan. The Term Loan Facility consists of amortizing term loans in an
aggregate amount of $429 million, consisting of a $200 million Tranche A term
loan and a $229 million Tranche B term loan. Interest rates per annum applicable
to the Tranche A term loan are, at DMC's option, either (i) the Base Rate plus
the Applicable Base Rate Margin, or (ii) the Offshore Rate plus the Applicable
Offshore Rate Margin. Upon attainment of certain levels of the Senior Debt
Ratio, such Applicable Base Rate Margin and Applicable Offshore Rate Margin will
be adjusted. Interest rates applicable to the Tranche B term loan are, at DMC's
option, either (i) the Base Rate plus 2.00% or (ii) the Offshore Rate plus
3.00%. At March 31, 1998, the outstanding principal amounts of the Tranche A and
B term loans were $200 million and $229 million, respectively, and the weighted
average interest rate on the Term Loan Facility was approximately 8.3%.
Consummation of the Contadina Acquisition required certain amendments under
the Bank Financing agreements to permit additional funding under the Tranche B
term loan in an amount of $50 million. Amortization of the additional Tranche B
term loan amount is incremental to scheduled amortization of the existing
Tranche B term loan. Such additional amortization will commence in the second
quarter of fiscal 1999 in a quarterly amount equal to $0.1 million, with such
amortization increasing in the fourth quarter of fiscal 2004, through the third
quarter of fiscal 2005, to $11.8 million per quarter.
Amortization/Prepayment. The Revolving Credit Facility terminates March 31,
2003. The existing Tranche A term loan matures March 31, 2003, and is subject to
quarterly amortization, commencing with the first quarter of fiscal 1999, in the
quarterly amounts of $7.50 million, $8.75 million, $10.00 million and $11.25
million during the fiscal years 1999 through 2002, respectively, and $16.67
million per quarter for the first three quarters of fiscal 2003. The Tranche B
term loan matures March 31, 2005, and is subject to quarterly amortization,
commencing with the third quarter of fiscal 1998, in the quarterly amount of
$0.45 million, with such amortization increasing to $42.19 million per quarter
in the fourth quarter of fiscal 2004 through the first three quarters of fiscal
2005. The incremental amortization which results from the additional Tranche B
term loan is described in the paragraph immediately above. With certain
exceptions, as set forth in the Bank Financing agreements, DMC will be required
to make prepayments under both the
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Revolving Credit Facility and the Term Loan Facility from excess cash flow,
asset sales, issuances of debt and equity securities and insurance or
condemnation proceeds.
Guarantees and Collateral. DMFC has guaranteed DMC's obligations under the
Bank Financing. 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 Bank Financing, DMC is required to
meet certain financial tests, certain of which are set forth below. 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.
The following is a summary of certain financial tests which apply under the
Bank Financing (capitalized terms have the meanings set forth in the Bank
Financing):
Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio (a
ratio of EBITDA to certain interest expense and scheduled principal payments
under the Term Loan Facility) for any Computation Period may not be less than
1.2 times through September 26, 1999, increasing over specified periods to 1.5
times at June 30, 2004 and thereafter.
Maximum Senior Debt Ratio. The Senior Debt Ratio (a ratio of outstanding
debt other than subordinated debt to EBITDA) for any Computation Period may not
exceed 5.25 times through March 29, 1998, decreasing over specified periods to
2.25 times at June 30, 2003 and thereafter.
Maximum Total Debt Ratio. The Total Debt Ratio (a ratio of total
indebtedness to EBITDA) on the last day of any fiscal year may not exceed 6.25
times through June 30, 1998, decreasing at specified dates to 3.50 times at June
30, 2003 and thereafter.
Maximum Capital Expenditures. The aggregate amount of all Capital
Expenditures by the Company for any fiscal year may not exceed $45 million at
June 30, 1998, varying during specified periods to $40 million at June 30, 2001
and thereafter.
Minimum EBITDA. EBITDA for Del Monte for any Computation Period may not be
less than $110 million through March 29, 1998, increasing over specified periods
to $155 million at June 30, 2002 and thereafter.
Events of Default. The Bank Financing 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 Bank Financing to be in full force and effect and a
change of control of DFMC or DMC.
THE DMC NOTES
On April 15, 1997, DMC issued and sold $150 million principal amount of
12 1/4% Senior Subordinated Notes due 2007 (the "Original DMC Notes") pursuant
to an Indenture, dated April 18, 1997, by and among DMC and Marine Midland Bank
as Trustee (the "DMC Indenture"). The Original DMC Notes were sold pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. On July
31, 1997, DMC completed an exchange offer whereby the Original DMC Notes were
exchanged into new Senior Subordinated Notes due 2007, which are registered
under the Securities Act with terms substantially identical to the Original DMC
Notes (the "DMC Notes").
The DMC Notes will mature on April 15, 2007. Interest accrues at the rate
of 12 1/4% per annum and is payable semi-annually in arrears on each April 15
and October 15. Payment of principal, premium and interest on the DMC Notes are
subordinated, as set forth in the DMC Indenture, to the prior payment in full of
DMC's Senior Debt (as defined in the DMC Indenture).
At any time on or prior to April 15, 2000, DMC may use the net cash
proceeds of one or more Public Equity Offerings to redeem up to 35% of the
aggregate principal amount of the DMC Notes originally issued at a redemption
price equal to 112.625% of the principal amount thereof plus accrued and unpaid
interest
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thereon, if any. At any time prior to April 15, 2002, the DMC Notes may be
redeemed as a whole at the option of DMC upon the occurrence of a Change of
Control at a redemption price of 100% of the principal amount thereof plus an
Applicable Premium. On or after April 15, 2002, the DMC Notes may be redeemed at
a premium that declines each year until April 15, 2006 when the DMC Notes may be
prepaid in whole or in part at 100% of their principal amount. Upon a Change of
Control, each holder can require DMC to redeem such holder's DMC Notes at an
offer price equal to 101% of their principal amount plus accrued and unpaid
interest.
The obligations of DMC pursuant to the DMC Notes, including the repurchase
obligations resulting from a Change of Control, are unconditionally guaranteed
on a senior subordinated basis by DMFC. The DMC Indenture contains various
restrictive 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 of any Senior Debt and senior in right of payment to the DMC 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 or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of DMC.
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DESCRIPTION OF THE NOTES
The Initial Notes where issued, and the Exchange Notes offered hereby will
be issued, under an indenture, dated as of December 17, 1997 (the "Indenture"),
by and between the Company 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, unless specified
otherwise, references to the Company include only Del Monte Foods Company and
not its subsidiaries.
GENERAL
The Exchange 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 Exchange
Notes. The Exchange 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. The Company
may change any Paying Agent and Registrar without notice to holders of the
Exchange Notes (the "Holders"). The Company will pay principal (and premium, if
any) on the Exchange Notes at Bankers Trust Company's office at the above
address. At the Company'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 Initial Notes that remain outstanding after the
completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture. There will be no mandatory sinking fund payments
for the Exchange Notes.
PRINCIPAL, MATURITY AND INTEREST; PAYMENT OF LIQUIDATED DAMAGES
The Exchange Notes are limited in aggregate principal amount at maturity to
$230 million and will mature on December 15, 2007. The Initial Notes were issued
at a substantial discount from their principal amount at maturity to generate
gross proceeds of approximately $126 million. Until December 15, 2002, no
interest payable in cash will accrue on the Exchange Notes, but the Accreted
Value will increase (representing amortization of original issue discount)
between the date of original issuance and December 15, 2002, on a semi-annual
bond equivalent basis using a 360-day year comprised of twelve 30-day months,
such that the Accreted Value shall be equal to the full principal amount at
maturity of the Exchange Notes on December 15, 2002. Beginning on December 15,
2002, interest payable in cash on the Exchange Notes will accrue at the rate of
12 1/2% per annum and will be payable semi-annually in arrears on June 15, and
December 15, commencing on June 15, 2003, to Holders of record on the
immediately preceding June 1 and December 1, respectively. Interest payable in
cash on the Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from December 15, 2002.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal, Accreted Value, premium, if any, and interest and
Liquidated Damages (as defined in the Registration Rights Agreement) on the
Exchange Notes will be payable at the office or agency of the Company maintained
for such purpose within the City and State of New York or, at the option of the
Company, payment of principal, Accreted Value, premium, interest, and Liquidated
Damages may be made by check mailed to the Holders of the Exchange Notes at
their respective addresses set forth in the register of Holders of the Exchange
Notes; provided that all payments of principal, Accreted Value, premium,
interest and Liquidated Damages with respect to the Exchange Notes represented
by one or more permanent global Exchange Notes will be required to be made by
wire transfer of immediately available funds to the accounts of the Depository
Trust Company or any successor thereto. Whenever the Company is required by the
terms of the Indenture to effect a payment to Holders of any amounts as a result
of the occurrence of any event, the Company will include, in addition to such
amount, an additional amount equal to any Liquidated Damages then owing to such
Holders. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose.
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OPTIONAL REDEMPTIONS
Optional Redemption. Except as set forth below, the Exchange Notes will not
be redeemable at the option of the Company prior to December 15, 2002. On and
after December 15, 2002, the Exchange Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, upon not less than 30
nor more than 60 days' notice, at the following redemption prices (expressed as
percentages of the Accreted Value thereof on the date of redemption) if redeemed
during the twelve-month period commencing on December 15 of the year set forth
below, plus, in each case, accrued and unpaid interest to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002...................................................... 106.250%
2003...................................................... 104.688%
2004...................................................... 103.125%
2005...................................................... 101.563%
2006 and thereafter....................................... 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, prior to December 15, 2000, the Company may, at its option, use the
Cash Net Proceeds of one or more Public Equity Offerings to redeem up to 35% of
the aggregate principal amount at maturity of Exchange Notes originally issued
at a redemption price equal to 112.5% of the Accreted Value thereof to the date
of redemption; provided that at least 65% of the aggregate principal amount at
maturity of Exchange 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, the Company must consummate such
redemption not more than 120 days after the consummation of the applicable
Public Equity Offering. The Company recently filed a registration statement with
the Commission relating to the public sale of its common stock and intends to
use part of the proceeds therefrom to redeem a portion of the Exchange Notes.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
Optional Redemption upon a Change of Control prior to December 15, 2002. At
any time prior to December 15, 2002, the Exchange Notes may be redeemed as a
whole, but not in part, at the option of the Company 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 Accreted Value thereof, plus the
Applicable Premium as of, the date of redemption (the "Redemption Date").
"Applicable Premium" means, with respect to an Exchange Note at any
Redemption Date, the greater of (i) 1.0% of the Accreted Value of such Exchange
Note and (ii) the excess of (A) the present value at such time of the redemption
price of such Exchange Note at December 15, 2002 (such redemption price being
described under "-- Optional Redemption"), computed using a discount rate equal
to the Treasury Rate plus 1.0% per annum, over (B) the Accreted Value of such
Exchange Note on such Redemption Date.
"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 December
15, 2002, provided, however, that if the period from the Redemption Date to
December 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 Redemption Date to December
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.
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<PAGE> 95
SELECTION AND NOTICE OF REDEMPTION
In the event that fewer than all of the Exchange Notes are to be redeemed
at any time, selection of such Exchange 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 Exchange Notes are listed or, if such Exchange
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 Exchange Notes of a principal amount at maturity 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 Exchange 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 Depository Trust Company 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 Exchange Notes to be redeemed at its registered address.
If any Exchange Note is to be redeemed in part only, the notice of redemption
that relates to such Exchange Note shall state the portion of the principal
amount at maturity thereof to be redeemed. A new note in a principal amount at
maturity equal to the unredeemed portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Exchange Note. On and after
the redemption date, interest will cease to accrue on Exchange Notes or portions
thereof called for redemption as long as the Company has deposited with the
Paying Agent funds in satisfaction of the applicable redemption price pursuant
to the Indenture.
RANKING
The Exchange Notes will be general, unsecured, senior obligations of the
Company, and the indebtedness evidenced by the Exchange Notes will rank pari
passu in right of payment with all other existing and future unsubordinated
obligations of the Company, and senior in right of payment to all existing and
future obligations of the Company expressly subordinated in right of payment to
the Exchange Notes, including the Company's guarantee of DMC's obligations under
the DMC Notes.
The Company is a holding company with no substantial business operations of
its own. The Company's assets consist primarily of its ownership interests in
its subsidiaries. The Exchange Notes will be effectively subordinated to all
existing and future indebtedness and other liabilities of the Company's
subsidiaries because the Company's right to receive the assets of any such
affiliates upon their liquidation or reorganization will be subordinated by
contract to the claims of such subsidiaries' creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of any such affiliate, in which case the claims of the Company would
still be subordinated to any indebtedness of such affiliate that is senior in
right of payment to the Company's claim. The Company's subsidiaries have
substantial indebtedness and other liabilities. As of March 31, 1998, after
giving effect to the Contadina Acquisition, the Company and its consolidated
subsidiaries had approximately $1.2 billion of indebtedness outstanding,
including other liabilities and trade payables, of which approximately $1.1
billion was indebtedness of the Company's subsidiaries which, as described
above, is senior in right of payment to the Notes.
CHANGE OF CONTROL
The Indenture will provide that, upon the occurrence of a Change of
Control, if the Company does not redeem the Exchange Notes as provided under the
heading "Optional Redemption upon Change of Control prior to December 15, 2002,"
above, the Company shall make the "Change of Control Offer" and each Holder will
have the right to require that the Company purchase all or a portion of such
Holder's Exchange Notes pursuant to such Change of Control Offer, at a purchase
price equal to 101% of the Accreted Value thereof, plus accrued interest, if
any, to the date of purchase.
Within 30 days following the date upon which the Change of Control
occurred, unless the Company has mailed an irrevocable notice with respect to a
redemption described under the heading "Optional Redemption upon Change of
Control prior to December 15, 2002" above with respect to all the Exchange Notes
in connection with a Change of Control occurring on or prior to December 15,
2002, the Company 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
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<PAGE> 96
than as may be required by law (the "Change of Control Payment Date"). Holders
electing to have an Exchange Note purchased pursuant to a Change of Control
Offer will be required to surrender the Exchange Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Exchange 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.
Neither the Board of Directors of the Company 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 the Company 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 the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require repurchase of the Exchange Notes, and there
can be no assurance that the Company or the acquiring party will have sufficient
financial resources to effect such repurchase. Such restrictions may, in certain
circumstances, make more difficult or discourage any leveraged buyout of the
Company. 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 Exchange Notes protection in all circumstances
from the adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-l 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 Exchange 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, the Company 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
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including 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 the Company'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 Exchange
Notes to require that the Company repurchase the Exchange 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
The Company 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), including Acquired 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, the Company and its Restricted Subsidiaries may incur Indebtedness
(including, without limitation, Acquired Indebtedness) on the date of the
incurrence of such Indebtedness, if after giving effect to the incurrence
thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater
than 1.75 to 1.0.
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<PAGE> 97
Limitation on Restricted Payments
The Company 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 the Company or in options, warrants or other rights to purchase
such Qualified Capital Stock) on or in respect of shares of the Company's
Capital Stock to holders of such Capital Stock, (b) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of the Company 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 the Company 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,
as applicable, any Indebtedness of the Company 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) the Company 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 the Company) 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 the Company 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 Cash Net Proceeds received by the Company from any Person
(other than a Subsidiary of the Company and other than with respect to the TPG
Equity Contribution) from the issuance and sale subsequent to the Issue Date and
on or prior to the Reference Date of Qualified Capital Stock of the Company
(including by conversion of Indebtedness (excluding Disqualified Capital Stock)
into Qualified Capital Stock) and, subject to the limitation set forth in clause
(5) 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 Cash Net Proceeds of any Equity Contribution (other than the TPG
Equity Contribution) received by the Company subsequent to the Issue Date and on
or prior to such Reference Date from a holder of the Company's Capital Stock
and, subject to the limitation set forth in clause (5) of the immediately
succeeding paragraph, 100% of the fair market value of non-cash consideration of
any Equity Contribution received by the Company from a holder of the Company's
Capital Stock; plus (z), without duplication, the sum of (l) the aggregate
amount returned to the Company or a Restricted Subsidiary 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 paym ents, (2) the Cash Net Proceeds received by the
Company or any Restricted Subsidiary from the disposition of all or any portion
of such Investments (other than to a Subsidiary of the Company) and, subject to
the limitations set forth in clause (5) 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 subsequent to the Issue Date and on or prior to such
Reference Date, the fair market value of the net assets 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 and on or prior to such Reference
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 the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or
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<PAGE> 98
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of shares of Qualified
Capital Stock of the Company; (3) if no Default or Event of Default shall have
occurred and be continuing, the acquisition of any Indebtedness of the Company
that is subordinate or junior in right of payment to the Notes either (i) solely
in exchange for shares of Qualified Capital Stock of the Company or Indebtedness
of the Company that is subordinate or junior in right of payment to the Notes at
least to the extent of the subordination provisions contained in the instrument
governing the terms of such Indebtedness and having no maturity, sinking fund
payment or scheduled mandatory redemption prior to maturity of the Notes, or
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified
Capital Stock of the Company 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 the
Company to redeem or repurchase Common Stock of the Company or options in
respect thereof from employees or officers of the Company 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; and (5) in the event that the
Company 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), (2), (3), (4) and
(5) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company 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 the Company'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
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale, unless (i) the Company 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 the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company 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 the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any such Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes) that are assumed by the transferee of any such assets and (B) the fair
market value of any marketable securities received by the Company 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 the Company and
its Restricted Subsidiaries may make Asset Sales not exceeding $2 million in the
aggregate in each year for non-cash consideration; and (iii) upon the
consummation of an Asset Sale, the Company 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 Indebtedness of a Wholly Owned Restricted Subsidiary (provided that any
proceeds of an Asset Sale used to repay amounts outstanding under any revolving
credit facility shall result in a permanent reduction in the availability under
such revolving credit facility), (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 the
Company 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
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<PAGE> 99
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 the Company 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 the Company 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 (and other Indebtedness of
the Company ranking on a parity with the Notes from time to time outstanding
with similar provisions requiring the Company to make an offer to purchase or to
redeem such Indebtedness with the proceeds from asset sales, pro rata in
proportion to the respective principal amounts, or accreted values in the case
of Indebtedness issued with an Original Issue Discount) equal to the Net
Proceeds Offer Amount at a price equal to 100% of the Accreted Value (as of the
date of purchase thereof) of the Notes to be purchased, plus accrued and unpaid
interest thereon to the date of purchase; provided, however, that if at any time
any non-cash consideration received by the Company or any Restricted Subsidiary
of the Company, 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. The
Company 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 Net Proceeds Offer Amount not
utilized in accordance with this covenant, 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 the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction governed by and permitted under the
covenant described under "-- Merger, Consolidation and Sale of Assets of the
Company," the successor corporation shall be deemed to have sold the properties
and assets of the Company 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 the Company 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 Notes in whole or in part in integral multiples of $1,000
principal amount at maturity in exchange for cash. To the extent Holders
properly tender Notes (if applicable, along with such other pari passu
Indebtedness referred to above) in an amount exceeding the Net Proceeds Offer
Amount, Notes of tendering Holders (if applicable, along with such other pari
passu Indebtedness referred to above) will be purchased on a pro rata basis
(based on amounts tendered). To the extent that the aggregate amount of the
Notes tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds
Offer Amount, the Company 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.
The Company will comply with the requirements of Rule 14e-l 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 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, the Company 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, the Company 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 the
Company, and (iii) in the event such Asset Swap involves an aggregate amount in
excess of $50 million, the Company has received a written opinion from an
Independent Financial Advisor that such Asset Swap is fair to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries
The Company 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 the Company 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 the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture and other pari passu
Indebtedness of the Company that does not contain any encumbrances or
restrictions more restrictive than those contained in the Indenture; (3)
customary non-assignment provisions of any contract or lease governing a
leasehold or ownership interest of any Restricted Subsidiary of the Company; (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 and the DMC Notes) 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 the Company as determined by the Board of Directors
of the Company 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
The Company 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 the Company or to a Wholly Owned Restricted Subsidiary of
the Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company (other than a Receivables Subsidiary or a
Special Purpose Vehicle).
Limitation on Liens
The Company 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
the Company 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
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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 Notes, the 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 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 the Notes; (C) Liens of the Company or a
Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted
Subsidiary of the Company; (D) Liens securing Refinancing Indebtedness which is
incurred to Refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which 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 the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and (E) Permitted Liens; provided, further, that
such Liens do not encumber any capital stock of DMC held by the Company, except
to the extent that such Liens secure Indebtedness to a commercial lending
institution pursuant to the Credit Agreement.
Restriction of Lines of Business to Food, Food Distribution and Related
Businesses
The Company shall not, and shall not permit any Restricted Subsidiary to,
engage in any material business activity except the food, food distribution and
related businesses.
Merger, Consolidation and Sale of Assets of the Company
The Company 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 the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and its Restricted
Subsidiaries), whether as an entirety or substantially as an entirety, to any
Person, unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company 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 Notes and the
performance of every covenant of the Notes, the Indenture and, if applicable,
the Registration Rights Agreement on the part of the Company 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), the Company 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 "-- Limitation on Incurrence of Additional
Indebtedness"; (iii) immediately after giving effect to such transaction, the
Company 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 the
Company 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) the Company 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.
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Notwithstanding the foregoing, the merger of the Company with an Affiliate
incorporated solely for the purpose of reincorporating the Company 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 the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and (except in the case of a Sale and Leaseback Transaction) be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the 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 the Company with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
Limitations on Transactions with Affiliates
(a) The Company 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
the Company 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 the Company 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 a majority of the disinterested members of the Board of
Directors of the Company 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 the Company or any Restricted Subsidiary of the Company 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
payments to an Affiliate, as the case may be, of more than $10 million, the
Company 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 the Company 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.
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 the Company or any Restricted Subsidiary of the
Company as determined in good faith by the Company's Board of Directors or
senior management; (ii) transactions between or among the Company 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) the
issuance of Qualified Capital Stock of the Company; (vi) any obligations of the
Company pursuant to the Management Advisory Agreement and the Transaction
Advisory Agreement; (vii) transactions permitted by, and comply-
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ing with, the provisions of the covenants described under "-- Merger,
Consolidation and Sale of Assets of the Company"; (viii) payments made in
connection with the Recapitalization, including transaction fees to stockholders
of DMFC not exceeding an aggregate of $10,000,000 from the original issue date
of the DMC Notes; (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 the
Company in the good faith determination of a majority of the disinterested Board
of Directors of the Company 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
Notwithstanding anything to the contrary contained in the Indenture, the
Company 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 the Company 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 an unconditional and full (subject to the following two
paragraphs) guarantee of the Notes (a "Guarantee") by such Restricted Subsidiary
and (b) if such assumption, guarantee or other liability of such Restricted
Subsidiary is provided in respect of Indebtedness that is expressly subordinated
to the 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 Notes than those contained in the instrument governing the terms
of such subordinated Indebtedness.
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 and complete
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 first paragraph of this covenant; or (ii) any sale or other
disposition (by merger or otherwise) to any Person that is not a Restricted
Subsidiary of the Company of all of the Company'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.
Limitation on Sales of Common Stock of Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries, to issue, sell, offer to sell, or otherwise transfer any shares of
the common stock of any Restricted Subsidiary to any person other than the
Company or a Restricted Subsidiary of the Company; provided that this
restriction will not apply to sales, offers to sell or transfers of all shares
of the common stock of any Restricted Subsidiary (other than DMC) in a single
transaction for the purpose of selling the common equity interest in the
business of such Restricted Subsidiary substantially as an entirety; provided,
further, that the any such sale of such business as an entirety otherwise
complies with the provisions of the Indenture.
Reports to Holders
The Indenture will provide that so long as the Notes are outstanding the
Company 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 the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
The Indenture will further provide
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that, notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, so long as the Notes
are outstanding the Company 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. The Company will also comply with the provisions of TIA
Section 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default:"
(1) the failure to pay interest on any Notes when the same becomes due and
payable and the default continues for a period of 30 days;
(2) the failure to pay the principal or Accreted Value, as applicable, or
premium on any Notes, when such becomes due and payable, at maturity, upon
redemption or otherwise (including the failure to make a payment to purchase
Notes tendered pursuant to a Change of Control Offer, Mandatory Redemption upon
the occurrence of a Triggering Event, or a Net Proceeds Offer);
(3) 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 the Company from the Trustee or by the
Company and the Trustee from the Holders of at least 25% of the aggregate
outstanding principal amount at maturity of the Notes;
(4) the failure to pay principal, premium or interest at final stated
maturity (giving effect to any applicable grace periods and any extensions
thereof) any Indebtedness for borrowed money of the Company or any Restricted
Subsidiary of the Company 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;
(5) 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 the Company 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;
(6) the failure of a guaranty of the 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
(7) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(7) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount at maturity
of outstanding Notes may declare the principal of and accrued interest on all
the Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same shall become immediately
due and payable. If an Event of Default specified in clause (7) above with
respect to the Company occurs and is continuing, then all unpaid principal, or
Accreted Value, if applicable, of and premium, if any, and accrued and unpaid
interest on all of the outstanding Notes and, if applicable, accrued Liquidated
Damages 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 Notes as described in the preceding
paragraph, the Holders of a majority in aggregate principal amount at maturity
of the Notes may, on behalf of the Holders of all of the 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 Accreted Value, if
applicable, 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, or Accreted Value, if
applicable, which has become due otherwise than by such declaration of
acceleration has been paid, (iv) if the
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Company 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 (7) 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 aggregate principal amount at maturity of the
Notes may waive any existing Default or Event of Default under the Indenture and
its consequences, except a default in the payment, or Accreted Value, if
applicable, of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the 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 at maturity of the then outstanding 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, the Company 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 the Company, as such,
shall have any liability for any obligations of the Company under the 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 Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders to receive payments in respect of
the principal of, premium, if any, and interest on the Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company 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 constitute a
Default or Event of Default with respect to the 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
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company 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 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, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company 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
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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, the Company 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 the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; (vii) the Company 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) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that assuming no
intervening bankruptcy of the Company between the date of deposit and the 91st
day following the deposit and that no Holder is an insider of the Company, 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
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when: (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company 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 Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company 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.
MODIFICATION OF THE INDENTURE
From time to time, the Company 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, the Company 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 the Company under the
Indenture as permitted by the Indenture, to provide for uncertificated Notes in
addition to or in place of certificated 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
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the Notes, to add to the covenants of the Company for the benefit of the Holders
or to surrender any right or power conferred upon the Company 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
aggregate principal amount at maturity of the then outstanding Notes issued
under the Indenture, except that, without the consent of each Holder affected
thereby, no amendment may: (i) reduce the amount of 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, or the
rate at which Accreted Value increases, on any Notes; (iii) reduce the
principal, or Accreted Value, if applicable, of or change or have the effect of
changing the fixed maturity of any Notes, or change the date on which any Notes
may be subject to redemption, or reduce the redemption price therefor; (iv) make
any Notes payable in money other than that stated in the Notes; (v) make any
change in provisions of the Indenture protecting the right of each Holder to
receive payment of principal, or Accreted Value, if applicable, of and interest
on such Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in aggregate principal amount at
maturity of Notes to waive Defaults or Events of Default (other than Defaults or
Events of Default with respect to the payment of principal, Accreted Value, of,
or interest on, the Notes); (vi) amend, change or modify in any material respect
the obligation of the Company 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 to render the rights of the Holders
with respect to the Notes subordinate in right of payment to those of any other
creditor with respect to any other Indebtedness, or the provisions set forth
under "-- Secured Proceeds Account" or the definitions relating thereto in a
manner which adversely affects the Holders in any material respect.
GOVERNING LAW
The Indenture will provide that it and the 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 the Company, 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.
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.
"Accreted Value" means as of any date of determination prior to December
15, 2002, the sum of (a) the initial offering price of each Note and (b) the
portion of the excess of the principal amount at maturity of each Note over such
initial offering price which shall have been accreted thereon through such date,
such amount to be so accreted at the rate of 12 1/2% per annum of the initial
offering price of the Notes, compounded semi-annually on each June 15 and
December 15 from the date of issuance of the Notes through the date of
determination. On and after December 15, 2002, the Accreted Value of each Note
shall be equal to the principal amount at maturity thereof.
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"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed by the Company 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 the Company
or such acquisition, merger or consolidation.
"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 the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company, or shall be merged
with or into the Company or any Restricted Subsidiary, or (b) the acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
Person (other than a Restricted Subsidiary of the Company) which constitute all
or substantially all of the assets of such Person or comprises any division or
line of business of such Person or other than in the ordinary course of business
any other properties or assets of any such other Person.
"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 the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company 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 the Company 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 the Company as permitted under "Merger, Consolidation and Sale of
Assets of the Company"; (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 the Company 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 the Company 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 the Company 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.
"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,
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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.
"Cash Net Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock or a
Capital Contribution plus, in the case of an issuance of Qualified Capital Stock
upon any exercise, exchange or conversion of securities (including options,
warrants, rights and convertible or exchangeable debt) of the Company that were
issued for cash on or after the Issue Date, the amount of cash originally
received by the Company upon the issuance of such securities (including options,
warrants, rights and convertible or exchangeable debt) less, in each case, the
sum of all payments, fees, commissions and expenses (including, without
limitation, the fees and expenses of legal counsel and investment banking fees
and expenses) incurred in connection with such sale of Qualified Capital Stock.
"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 the
Company 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
the Company of any plan or proposal for the liquidation or dissolution of the
Company (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 the Company and (B) TPG and its Related Parties shall beneficially
own, directly or indirectly, in the aggregate a lesser percentage of the Voting
Stock of the Company than such other Person or Group; or (iv) the replacement of
a majority of the Board of Directors of the Company over a two-year period from
the directors who constituted the Board of Directors of the Company 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 the Company 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.
"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
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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 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.
"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
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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 the Company 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 the Company.
"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 (other than DMC) 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, depreciation or charge 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) and 17 (including non-cash charges relating to intangibles and
goodwill).
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis, as of the end of the most recent fiscal quarter of the
Company 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 the Company 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).
"Consolidation" means, with respect to the Company, the consolidation of
the accounts of the Restricted Subsidiaries with those of the Company, all in
accordance with GAAP; provided that "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary with the accounts
of the Company. The term "consolidated" has a correlative meaning to the
foregoing.
"Credit Agreement" means the Credit Agreement dated as of April 18, 1997,
among 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
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be amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, 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 the Company 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 the
Company or any Restricted Subsidiary of the Company 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.
"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 Notes; provided that Capital Stock that would
be "Disqualified Capital Stock" solely by virtue of its containing a customary
requirement that the issuer offer to repurchase such Capital Stock upon a change
of control of the issuer will not be deemed to be "Disqualified Capital Stock."
"Equity Contribution" means a contribution of cash or Cash Equivalents by a
stockholder of the Company to the consolidated stockholders' equity of the
Company solely in exchange for, if anything, shares of the Company's common
stock with no preferences or special rights or privileges and with no redemption
or prepayment provisions.
"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 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
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such property or asset or the amount of the obligation so 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 the
Company 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 the Company exceeding 10% and (ii)
which, in the judgment of the Board of Directors of the Company, 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 the Company, "Investment" shall exclude
extensions of trade credit (including trade receivables) by the Company and its
Restricted Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company 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 the Company's proportionate 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 the Company 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 the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, 100% of the
outstanding Common Stock of such Restricted Subsidiary, the Company 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).
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"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
the Company or 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
secured by the assets or properties that are the subject of such Asset Sale and
that is required to be repaid in connection with such Asset Sale and (d)
appropriate amounts to be provided by the Company 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 the Company 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 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 the Company or 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 the Company 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 the Company or any Restricted
Subsidiaries covering Indebtedness of the Company or any of its Restricted
Subsidiaries and Interest Swap Obligations of any Restricted Subsidiary of
the Company covering Indebtedness of such Restricted Subsidiary; provided,
however, that such Interest Swap Obligations are entered into to protect
the Company or 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 the Company 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 the
Company to the Company or to another Wholly Owned Restricted Subsidiary of
the Company, in either case for so long as such Indebtedness is held by the
Company or a Wholly Owned Restricted Subsidiary of the Company, in each
case subject to no Lien held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary of the Company; provided that if as of any date
any Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company 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 the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien; provided that (a) such Indebtedness of the Company to any Wholly
Owned Restricted Subsidiary of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under the
Indenture and the Notes and (b) if as of any date any Person other than a
Wholly Owned Restricted Subsidiary of the Company 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 the Company;
(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 the Company 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
the Company and its Restricted Subsidiaries incurred in the ordinary course
of business not to exceed $25 million at any one time outstanding;
(xi) guarantees by the Company and its Wholly Owned Restricted
Subsidiaries of each other's Indebtedness and guarantees by its Wholly
Owned Restricted Subsidiaries of Indebtedness of other Wholly Owned
Restricted Subsidiaries; provided that such Indebtedness is permitted to be
incurred under the Indenture, including, with respect to guarantees by
Wholly Owned Restricted Subsidiaries of the Company, the covenant described
under "Certain Covenants -- Limitation of Guarantees by Restricted
Subsidiaries;"
(xii) 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 the Company 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 the Company (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 the Company for the purpose of
financing such acquisition) in a principal amount not to exceed the gross
proceeds actually received by the Company 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
(xii), when taken together with all Indebtedness incurred pursuant to this
clause (xii) and then outstanding, shall not exceed $20 million;
(xiii) guarantees furnished by the Company 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;
(xiv) Refinancing Indebtedness;
(xv) Receivables Program Obligations; and
(xvi) additional Indebtedness of the Company 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 the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Restricted Subsidiary of the Company or that
will merge or consolidate into the Company or a Restricted Subsidiary of the
Company; provided that such Person is engaged, in all material respects, solely
in the business of food, food distribution and related businesses; (ii)
Investments in the Company by any Restricted Subsidiary of the Company; provided
that any Indebtedness evidencing such Investment is unsecured and subordinated,
pursuant to a
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written agreement, to the Company's obligations under the Notes and the
Indenture; (iii) Investments in cash and Cash Equivalents; (iv) loans and
advances to employees and officers of the Company and its Restricted
Subsidiaries in the ordinary course of businesses 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
the Company's or its Restricted Subsidiaries' business 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 the Company 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 Covenant -- Limitation of Guarantees by Restricted Subsidiaries;" (xi)
Related Business Investments in companies and ventures in which the Company or a
Restricted Subsidiaries of the Company holds an equity ownership interest of not
less than 33% 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 the Company 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 lenders 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 when such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
respect with the ordinary conduct of the business of the Company 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 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
accrued or constructed and shall
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not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company 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 the Company
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 the Company or a Restricted
Subsidiary of the Company and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company and (B) such Liens do not
extend to or cover any property or assets of the Company 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 the Company or a Restricted Subsidiary of the Company and
are no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company;
(xiv) leases or subleases granted to others not interfering in any
material respect with the business of the Company or its Restricted
Subsidiaries;
(xv) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business;
(xvi) Liens on Receivables Program Assets securing Receivables Program
Obligations;
(xvii) Liens securing Indebtedness of Restricted Subsidiaries (so long
as the Company is neither co-obligor, guarantor, or otherwise directly
liable with respect to such Indebtedness), which Indebtedness is incurred
in compliance with the Indenture; and
(xviii) Liens securing the Credit Agreement.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"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 the Company 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 the Company 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.
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"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 the Company or any such Subsidiary of
the Company pursuant to which the Company or any such Subsidiary may sell,
convey or otherwise transfer to a Receivables Subsidiary (in the case of a
transfer by the Company 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:
(i) no portion of the indebtedness or any other obligations
(contingent or otherwise) of a Receivables Subsidiary or Special Purpose
Vehicle (a) is guaranteed by the Company or any other Seller (excluding
guarantees of obligations pursuant to Standard Securitization
Undertakings), (b) is recourse to or obligates the Company or any other
Seller in any way other than pursuant to Standard Securitization
Undertakings or (c) subjects any property or asset of the Company 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;
(ii) neither the Company 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 the Company or such Seller than those that might
be obtained at the time from persons that are not affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable; and
(iii) the Company 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 the Company 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 the
Company 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 the Company,
another Seller and/or a Receivables Subsidiary, and (y) each other instrument,
agreement and other document entered into by the Company, 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.
"Receivables Program Assets" means (a) all Receivables which are described
as being transferred by the Company, 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 the Company, a Subsidiary of the Company
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
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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
the Company 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 the Company's Board of Directors.
Any such designation by the Board of Directors shall be evidenced by filing with
the Trustee a Board Resolution of the Company 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 the Company or any
Restricted Subsidiary of the Company 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), (xii), (xiii), or (xvi) of the definition of
Permitted Indebtedness), in each case that does not (1) result in an increase in
the aggregate 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 the Company or its Restricted Subsidiaries 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 the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the 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 the Company and its Restricted Subsidiaries.
"Related Party" means any Affiliate of TPG.
"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 the Company or a Restricted Subsidiary of the Company of any
property, whether owned by the Company or any Restricted Subsidiary at the Issue
Date or later acquired, which has been or is to be sold or transferred by the
Company 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 the Company or any Subsidiary or other Affiliate of the
Company (other than a Receivables Subsidiary) which is a party to a Receivables
Document.
"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 the Company and or any of its Subsidiaries to
implement a Qualified Receivables Transaction.
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"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company 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
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.
"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 the Company may designate any Subsidiary of the Company
(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, the Company or any other Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; provided that
(x) the Company 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 the Company or any of its
Restricted Subsidiaries. The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately
after giving effect to such designation, the Company 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 the Company 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.
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
IN GENERAL
The following summary describes the principal U.S. federal income tax
consequences of the exchange of the Initial Notes for Exchange Notes (the
"Exchange") and of the principal U.S. federal income tax consequences of the
purchase, ownership and disposition of the Exchange Notes. This summary does not
constitute and is not based upon an opinion of tax counsel and does not purport
to be a comprehensive description of all the tax considerations that may be
relevant to a decision to exchange the Initial Notes. In particular, special tax
considerations that may apply to certain types of taxpayers, including
securities dealers, banks, tax exempt investors and insurance companies are not
addressed. In addition, this summary does not describe any tax consequences
arising under the laws of any state, locality or taxing jurisdiction other than
the United States federal government. In general, the summary assumes that a
holder holds such Exchange Note as a capital asset under the U.S. Internal
Revenue Code of 1986 and not as part of a "hedge," "straddle," "conversion
transaction," "synthetic security" or other integrated investment.
This summary is based on the U.S. federal income tax laws, regulations,
rulings and decisions in effect or available on the date hereof. All of the
foregoing are subject to change, which change may apply retroactively and could
affect the continued validity of this summary.
As used in this section, the term "U.S. holder" means a holder of an
Exchange Note who is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized under the laws of the U.S. or
any state or political subdivision thereof, an estate that is subject to U.S.
federal income taxation without regard to the source of its income, or a trust
whose administration is subject to the primary supervision of a U.S. court and
which has one or more U.S. persons who have the authority to control all
substantial decisions of the trust.
ALL HOLDERS OF INITIAL NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE U.S. FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE EXCHANGE OF
INITIAL NOTES FOR EXCHANGE NOTES AND OF THE OWNERSHIP AND DISPOSITION OF
EXCHANGE NOTES RECEIVED IN THE EXCHANGE OFFER IN VIEW OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
TAX TREATMENT OF U.S. HOLDERS OF NOTES
The Exchange of Initial Notes. 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 Initial Note whose Initial Note is accepted in an Exchange Offer
will not recognize gain on the Exchange. A tendering holder's tax basis in the
Exchange Notes will be the same as such holder's tax basis in its Initial Notes.
A tendering holder's holding period for the Exchange Notes received pursuant to
the Exchange Offer will include its holding period for the Initial Notes
surrendered therefor.
Original Issue Discount. The Exchange Notes will have original issue
discount ("OID"), and U.S. holders of the Exchange Notes (including cash basis
holders) will be required to include such OID in income as interest income on a
constant yield basis, generally in advance of the receipt of the cash payments
to which such income is attributable and generally in increasing amounts until
December 15, 2002. Any amount of OID included will increase a holder's tax basis
in the Exchange Notes.
The total amount of OID with respect to an Exchange Note will be equal to
the excess of the "stated redemption price at maturity" of such Exchange Note
over its "issue price". The "stated redemption price at maturity" of an Exchange
Note will be the sum of all payments, whether denominated as interest or
principal, required to be made on such Exchange Note other than payments of
"qualified stated interest". Qualified stated interest is stated interest that
is unconditionally payable at least annually at a single fixed rate that
appropriately takes into account the length of the interval between payments.
Because interest is not payable on the Exchange Notes until June 15, 2003, none
of the interest payments on an Exchange Note will constitute qualified stated
interest and all such payments will be included in the Exchange Note's stated
redemption price at maturity. The "issue price" of an Exchange Note was the
first price to the public (not including bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters or wholesalers)
at which a substantial portion of the Initial Notes were initially sold.
116
<PAGE> 122
The amount of OID required to be included in a U.S. holder's income with
respect to an Exchange Note for any taxable year (regardless of whether such
holder uses the cash or accrual method of accounting) is the sum of the daily
portions of OID with respect to the Exchange Note for each day during the
taxable year or portion thereof in which such holder holds such Exchange Note. A
daily portion is determined by allocating to each day in any "accrual period" a
pro rata portion of the OID allocable to that accrual period. Accrual periods
with respect to an Exchange Note may be of any length selected by the holder and
may vary in length over the term of the Exchange Note as long as (i) no accrual
period is longer than one year and (ii) each scheduled payment of interest or
principal on the Exchange Note occurs on either the first or final day of an
accrual period. The amount of OID allocable to each accrual period will be the
product of the adjusted issue price of the Exchange Note at the beginning of
that accrual period and the yield to maturity of such Exchange Note (determined
on the basis of a compounding assumption that reflects the length of the accrual
period). The adjusted issue price of an Exchange Note at the beginning of an
accrual period will be its original issue price, increased by all previously
accrued OID and reduced by the amount of all previous cash payments on the
Exchange Note. The yield to maturity is the interest rate, expressed as a
constant annual interest rate, that when used in computing the present value of
all payments of principal and interest to be paid in connection with Exchange
Note produces an amount equal to the issue price of the Exchange Note.
Under the foregoing rules, holders of the Exchange Notes (including cash
basis holders) during the 5-year period during which interest will accrue but
not be paid will be required to include in income, on a constant yield basis (as
described above), an aggregate amount of OID equal to the excess of the
principal amount payable at maturity over the issue price of the Exchange Notes.
Thereafter, the amount of OID required to be included in the income of the
holders of Exchange Notes during each taxable year will be equal to the amount
of the scheduled interest payments due on the Exchange Notes during such taxable
year.
The Exchange Notes are expected to be subject to the applicable high-yield
debt obligation ("HYDO") rules that restrict the deduction of interest by the
Company. The original issue discount that would otherwise be deductible by the
Company as the original issue discount economically accrues would be deductible
only when paid in cash or property, but would not be deductible to the extent
that the yield to maturity on the Initial Notes exceeds the Applicable Federal
Rate at the time of issuance plus six percentage points ("the disqualified
portion"). The disqualified portion may be treated as a dividend (rather than
original issue discount) to corporate holders solely for purposes of the
dividends received deduction to the extent such amount would have been treated
as a dividend if it were a distribution with respect to stock.
Sale, Exchange and Retirement of Notes. Upon the sale, exchange,
redemption, retirement or other taxable disposition ("Disposition") of an
Exchange Note, a holder generally will recognize gain or loss equal to the
difference between the amount realized on such Disposition and the holder's tax
basis in the Exchange Note. Gain or loss recognized by a holder on Disposition
of an Exchange Note will be capital gain or loss and will, in the case of
individuals, be long-term capital gain or loss subject to a maximum rate of 20%
if the Exchange Note has been held for more than eighteen months at the time of
Disposition. Net capital gain recognized by a Holder on Disposition of the
Exchange Notes that have been held for more than 12 months but for not more than
18 months will be subject to tax at a rate not to exceed 28% and capital gain
recognized from Disposition of the Exchange Notes that have been held for 12
months or less will be subject to tax at ordinary income tax rates. Under the
Internal Revenue Service Restructuring and Reform Act of 1998, which has been
passed by the House of Representatives and expected to be passed by the Senate
and signed by President Clinton, the maximum rate of 20% is applicable for
holding periods of more than 12 months (rather than 18 months) effective January
1, 1998. In addition, capital gain recognized by a corporate taxpayer will be
subject to tax at the ordinary income tax rates applicable to corporations.
Market Discount. If an Exchange Note is acquired by a subsequent purchaser
at a "market discount," some or all of any gain realized upon a disposition
(including a sale or a taxable exchange) or payment at maturity of such Exchange
Note may be treated as ordinary income. "Market discount" with respect to an
Exchange Note is, subject to a de minimis exception, the excess of (1) the issue
price of the Initial Note exchanged therefor plus all previously accrued
original issue discount over (2) such U.S. Holder's tax basis in the Exchange
Note. The amount of market discount treated as having accrued will be determined
either on a ratable basis, or, if the U.S. Holder so elects, on a constant
interest method. Upon any subsequent disposition (including a gift or payment at
maturity) of such Exchange Note (other than in connection with certain
117
<PAGE> 123
nonrecognition transactions), the lesser of any gain on such disposition (or
appreciation, in the case of a gift) or the portion of the market discount that
accrued while the Exchange Note was held by such U.S. Holder will be treated as
ordinary interest income at the time of the disposition. In lieu of including
accrued market discount in income at the time of disposition, a U.S. Holder may
elect to include market discount in income currently. Unless a U.S. Holder so
elects, such U.S. Holder may be required to defer a portion of any interest
expense that may otherwise be deductible on any indebtedness incurred or
maintained to purchase or carry such Exchange Note until the U.S. Holder
disposes of the Exchange Note.
Acquisition Premium. A subsequent U.S. Holder of an Exchange Note is
generally subject to rules for accruing OID described above. However, if such
U.S. Holder's purchase price for the Exchange Note exceeds the "revised issue
price" (the sum of the issue price of the Exchange Note and the aggregate amount
of the OID includible in the gross income of all holders for periods before the
acquisition of the Exchange Note by such U.S. Holder), the excess (referred to
as "acquisition premium") is offset ratably against the amount of OID otherwise
includible in such U.S. Holder's taxable income (i.e., such U.S. Holder may
reduce the daily portions of OID by a fraction, the numerator of which is the
excess of such U.S. Holder's purchase price for the Exchange Note over the
revised issue price, and the denominator of which is the excess of the sum of
all amounts payable on the Exchange Note after the purchase date over the
Exchange Note's revised issue price). TAX TREATMENT OF NON-U.S. HOLDERS
In the case of a non-U.S. holder, payments made with respect to the
Exchange Notes will not be subject to U.S. withholding tax, provided that such
holder complies with applicable certification requirements (including in general
the furnishing of an Internal Revenue Service Form W-8 or a substitute form).
Any capital gain realized on Disposition of the Exchange Notes by such holder
will generally not be subject to U.S. federal income tax if (i) such gain is not
effectively connected with a U.S. trade or business of such holder and (ii) in
the case of an individual, such individual is not present in the United States
for 183 days or more in the taxable year of Disposition and certain other
requirements are met or the gain is not attributable to a fixed place of
business maintained by such individual in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current United States federal income tax law, a 31% "backup'
withholding tax is applied to certain payments (including amounts in respect of
Original Issue Discount) made to, and to the proceeds of sales before maturity
by, certain U.S. persons if such persons (i) fail to furnish their taxpayer
identification numbers which, for an individual, would be his Social Security
Number or (ii) in certain circumstances, fail to certify, under penalties of
perjury, that they have both furnished a correct taxpayer identification number
and not been notified by the Internal Revenue Service that they are subject to
backup withholding for failure to report interest and dividend payments. Under
current regulations, this backup withholding will not apply to payments made
outside the United States by the Company or a paying agent on an Exchange Note
if the Owner's Statement is received; provided in each case that the Company or
the paying agent, as the case may be, does not have actual knowledge that the
payee is a U.S. person.
Under current regulations, payments of the proceeds of Disposition of an
Exchange Note to or through a foreign office of a "broker" will not be subject
to backup withholding but will be subject to information reporting if the broker
is a U.S. person, a controlled foreign corporation for United Stated federal
income tax purposes, or a foreign person 50% or more of whose gross income is
from a United States trade or business for a specified three-year period, unless
the broker has in its records documentary evidence that the holder of an
Exchange Note is not a U.S. person and certain conditions are met or the holder
of an Exchange Note otherwise establishes an exemption. Payment of the proceeds
of Disposition to or through the United States office of a broker is subject to
backup withholding and information reporting unless the holder certifies its
non-United States status under penalties of perjury or otherwise establishes an
exemption.
Recently, the U.S. Treasury Department released final regulations regarding
withholding and information reporting requirements discussed above. The final
regulations do not generally alter the treatment of non-U.S. Holders who furnish
an Owner's Statement to the payor. The final regulations may change certain
procedures applicable to certain financial intermediaries acting on behalf of
beneficial owners. The final regulations are generally effective for payments
made after December 31, 1998.
118
<PAGE> 124
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange 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 Exchange 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 Exchange Notes received in
exchange for Initial Notes where such Initial Notes were acquired as a result of
market-making activities--or other trading activities. DMFC has agreed that it
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 November 17, 1998, all
broker-dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
DMFC will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange 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 Exchange 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 Exchange Notes. Any
broker-dealer that resells Exchange 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 Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange 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, 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. DMFC
has agreed to pay expenses incident to the Exchange Offer other than commissions
or concessions of any brokers or dealers and will indemnify the holders of the
Exchange Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
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, DMFC believes that the Exchange 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 Exchange Notes
directly from 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
DMFC) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange 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 Exchange Notes and
has no arrangement or understanding with any person to participate in a
distribution of such Exchange Notes.
119
<PAGE> 125
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Pillsbury Madison & Sutro LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1997,
and for the year then ended, and as of March 31, 1998, and for the nine months
then ended, appearing in this Prospectus and Registration Statement have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, and
as of June 30, 1996, and for each of the two years in the period ended June 30,
1996, by Ernst & Young LLP, independent certified public accountants, as set
forth in their respective reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of said firms as
experts in accounting and auditing.
The combined financial statements of Contadina (a division of Nestle USA,
Inc.) as of December 31, 1996 and December 18, 1997, and for the year ended
December 31, 1996 and the period January 1 through December 18, 1997, appearing
in this Prospectus and Registration Statement have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance on such
report given upon the authority of said firm as experts in accounting and
auditing.
120
<PAGE> 126
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- June 30, 1996 and 1997....... F-3
Consolidated Statements of Operations -- Years ended June
30, 1995, 1996 and 1997................................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit) -- Years ended June 30, 1995, 1996 and 1997..... F-5
Consolidated Statements of Cash Flows -- Years ended June
30, 1995, 1996 and 1997................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Auditors.............................. F-27
Report of Independent Auditors.............................. F-28
Consolidated Balance Sheets -- March 31, 1997 (unaudited)
and March 31, 1998........................................ F-29
Consolidated Statements of Operations -- Nine-month Periods
ended March 31, 1997 (unaudited) and March 31, 1998....... F-30
Consolidated Statement of Stockholders' Equity
(Deficit) -- Nine-month Period ended March 31, 1998....... F-31
Consolidated Statements of Cash Flows -- Nine-month Periods
ended March 31, 1997 (unaudited)
and March 31, 1998........................................ F-32
Notes to Consolidated Financial Statements.................. F-33
CONTADINA (A DIVISION OF NESTLE USA, INC.)
Independent Auditors' Report................................ F-51
Combined Balance Sheets at December 31, 1996 and December
18, 1997.................................................. F-52
Combined Statements of Operations and Divisional Equity for
the year ended December 31, 1996 and the period from
January 1, 1997 through December 18, 1997................. F-53
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-54
Notes to Combined Financial Statements for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-55
</TABLE>
F-1
<PAGE> 127
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated balance sheet of Del Monte
Foods Company and subsidiaries as of June 30, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. 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 audit. The accompanying financial statements
of Del Monte Foods Company and subsidiaries as of June 30, 1996 and for each of
the years in the two-year period ended June 30, 1996 were audited by other
auditors whose report, dated August 29, 1996, except for Note N, as to which the
date is June 29, 1998, and Note M, as to which the date is July 22, 1998, on
those statements included an explanatory paragraph that described the change in
the Company's method of accounting for impairment of long-lived assets and for
long-lived assets to be disposed of discussed in Note A to the financial
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Del Monte Foods Company and subsidiaries as of June 30, 1997 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
August 22, 1997, except for Note N,
as to which the date is June 29, 1998 and
Note M, as to which the date is
July 22, 1998
F-2
<PAGE> 128
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 6 $ 5
Restricted cash........................................... 30 --
Trade accounts receivable, net of allowance............... 98 67
Other receivables......................................... 8 2
Inventories............................................... 304 339
Prepaid expenses and other current assets................. 13 9
---- ----
Total current assets.............................. 459 422
Property, plant and equipment, net........................ 247 222
Other assets.............................................. 30 23
---- ----
Total assets...................................... $736 $667
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $200 $220
Short-term borrowings..................................... 43 82
Current portion of long-term debt......................... 7 2
---- ----
Total current liabilities......................... 250 304
Long-term debt.............................................. 323 526
Other noncurrent liabilities................................ 236 203
Redeemable common stock ($.01 par value per share,
316,044,300 shares authorized; issued and outstanding:
30,529,113 at June 30, 1996).............................. 2 --
Redeemable preferred stock ($.01 par value per share,
32,493,000 shares authorized; issued and outstanding:
17,300,041 at June 30, 1996; aggregate liquidation
preference: $579)......................................... 213 --
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding:
35,000 at June 30, 1997; aggregate liquidation preference:
$35)...................................................... -- 32
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 325,621,400
shares authorized; issued and outstanding: 42,803,508
in 1996).............................................. -- --
Common stock ($.01 par value per share, 191,542,000
shares authorized;
issued and outstanding: 26,815,880 in 1997).......... -- --
Paid-in capital........................................ 3 129
Retained earnings (deficit)............................ (265) (527)
Cumulative translation adjustment...................... (26) --
---- ----
Total stockholders' equity (deficit).............. (288) (398)
---- ----
Total liabilities and stockholders' equity........ $736 $667
==== ====
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 129
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Net sales........................................... $ 1,527 $ 1,305 $ 1,217
Cost of products sold............................... 1,183 984 819
----------- ----------- -----------
Gross profit...................................... 344 321 398
Selling, advertising, administrative and general
expense........................................... 264 239 327
----------- ----------- -----------
Operating income.................................. 80 82 71
Interest expense.................................... 76 67 52
Loss (gain) on sale of divested assets (Note B)..... -- (123) 5
Other (income) expense (Note D)..................... (11) 3 30
----------- ----------- -----------
Income (loss) before income taxes, minority
interest, extraordinary item and cumulative
effect of accounting change.................... 15 135 (16)
Provision for income taxes.......................... 2 11
Minority interest in earnings of subsidiary......... 1 3 --
----------- ----------- -----------
Income (loss) before extraordinary item and
cumulative effect of accounting change......... 12 121 (16)
Extraordinary loss from refinancing of debt and
early debt retirement............................. 7 10 42
Cumulative effect of accounting change.............. -- 7 --
----------- ----------- -----------
Net income (loss)......................... $ 5 $ 104 $ (58)
=========== =========== ===========
Net income (loss) attributable to common shares..... $ (66) $ 22 $ (128)
=========== =========== ===========
Weighted average numbers of shares outstanding...... 76,671,294 75,047,353 61,703,436
=========== =========== ===========
Income (loss) per common share:
Income (loss) before extraordinary item and
cumulative effect of accounting change............ $ (0.76) $ 0.52 $ (1.40)
Extraordinary loss from early debt retirement....... (0.09) (0.14) (0.67)
Cumulative effect of accounting change.............. -- (0.09) --
----------- ----------- -----------
Net income (loss) per common share........ $ (0.85) $ 0.29 $ (2.07)
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 130
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES TOTAL
RECEIVABLE RETAINED CUMULATIVE STOCKHOLDERS'
COMMON PAID-IN FROM EARNINGS TRANSLATION EQUITY
STOCK CAPITAL STOCKHOLDERS (DEFICIT) ADJUSTMENT (DEFICIT)
------ ------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994............ $-- $ 3 $(1) $(374) $(12) $(384)
Repurchase of shares................ -- -- -- -- -- --
Net income.......................... -- -- -- 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 (as restated)............ -- -- -- 104 -- 104
--- ---- --- ----- ---- -----
Balance at June 30, 1996 (as
restated)......................... -- 3 -- (265) (26) (288)
Cancellation of shares in connection
with the Recapitalization......... -- (3) -- (204) -- (207)
Issuance of shares.................. -- 129 -- -- -- 129
Net loss (as restated).............. -- -- -- (58) -- (58)
Cumulative translation adjustment... -- -- -- -- 26 26
--- ---- --- ----- ---- -----
Balance at June 30, 1997 (as
restated)......................... $-- $129 $-- $(527) $ -- $(398)
=== ==== === ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------------------------------
COMMON TOTAL COMMON
STOCK CLASS A CLASS B CLASS E SHARES
---------- ----------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Shares issued and outstanding
at June 30, 1994............ -- 416,768,032 -- 4,788,550 46,556,582
Repurchase of shares.......... -- (642,241) -- -- (642,241)
---------- ----------- ------ ---------- -----------
Shares issued and outstanding
at June 30, 1995............ -- 41,125,791 -- 4,788,550 45,914,341
Repurchase of shares.......... -- (3,110,833) -- -- (3,110,833)
---------- ----------- ------ ---------- -----------
Shares issued and outstanding
at June 30, 1996............ -- 38,014,958 -- 4,788,550 42,803,508
Cancellation of shares........ -- (38,014,958) -- (4,788,550) (42,803,508)
Issuance of shares............ 26,815,880 -- -- -- 26,815,880
---------- ----------- ------ ---------- -----------
Shares issued and outstanding
at June 30, 1997............ 26,815,880 -- -- -- 26,815,880
========== =========== ====== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 131
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1995 1996 1997
------- ------- -------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 5 $ 104 $ (58)
Adjustments to reconcile net income (loss) to net cash
flows:
Extraordinary loss from early debt retirement.......... 7 10 42
Cumulative effect of accounting change................. -- 7 --
Loss (gain) on sale of divested assets................. -- (123) 5
Loss on sales of assets................................ 3 2 3
Depreciation and amortization.......................... 40 31 29
Minority interest in earnings of subsidiary............ 1 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................... (37) 33 24
Inventories............................................ (21) 11 (48)
Prepaid expenses and other current assets.............. 3 (2) 3
Other assets........................................... 4 1 6
Accounts payable and accrued expenses.................. 25 (28) 29
Other non-current liabilities.......................... 33 14 (10)
------- ------- -------
Net cash provided by operating activities......... 63 60 25
Investing activities:
Capital expenditures................................... (24) (16) (20)
Proceeds from sales of fixed assets.................... 3 4 9
Proceeds from sales of divested assets................. -- 182 48
------- ------- -------
Net cash provided by (used in) investing
activities...................................... (21) 170 37
Financing activities:
Short-term borrowings.................................. 1,901 1,276 1,137
Payment on short-term borrowings....................... (1,867) (1,354) (1,098)
Proceeds from long-term borrowings..................... 188 -- 582
Principal payments on long-term debt................... (238) (108) (407)
Deferred debt issuance costs........................... (24) (2) (26)
Prepayment penalty..................................... -- (5) (20)
Payments to previous shareholders for cancellation of
stock................................................ -- -- (422)
Issuance of common and preferred stock................. -- -- 161
Specific Proceeds Collateral Account................... -- (30) 30
Dividends paid to minority shareholders................ (1) -- --
Other.................................................. (3) (1) --
------- ------- -------
Net cash used in financing activities............. (44) (224) (63)
Effect of exchange rate changes on cash and cash
equivalents............................................... 3 (8) --
------- ------- -------
Net change in cash and cash equivalents........... 1 (2) (1)
Cash and cash equivalents at beginning of year.............. 7 8 6
------- ------- -------
Cash and cash equivalents at end of year.......... $ 8 $ 6 $ 5
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 132
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(IN MILLIONS, EXCEPT SHARE DATA)
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 to a variety of food retailers, supermarkets
and mass merchandising stores. The Company holds the rights to the Del Monte
brand in the United States.
Basis of Accounting: Pursuant to the Agreement and Plan of Merger, dated
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 held by certain of DMFC's
stockholders, who remained investors, 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 as set forth in the Merger Agreement. In the Merger, the common
stock and preferred stock of Shield was converted into shares of new DMFC common
stock and preferred stock, respectively. The Merger was accounted for as a
leveraged recapitalization for accounting purposes (the "Recapitalization");
accordingly, all assets and liabilities are stated at historical cost. In
connection with the Merger, DMC repaid substantially all of its funded debt
obligations existing immediately before the closing of the Merger.
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.
Use of Estimates: 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 at June 30, 1996 represents a portion of
the proceeds from the Company's sale of its 50.1% interest in Del Monte Pacific
Resources Limited ("Del Monte Philippines"), a joint venture operating primarily
in the Philippines, which were deposited into the Specific Proceeds Collateral
Account until agreement was reached with the Term Loan lenders as to final
application of the funds (see Note B). These funds were used to repurchase
outstanding PIK Notes in September 1996.
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.
F-7
<PAGE> 133
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 $34, $26 and $24 for the years ended June 30, 1995, 1996 and
1997, respectively.
Revenue Recognition: Revenue from sales of product, and related cost of
product is recognized upon shipment of product, at which time title passes to
the customer. Customers generally do not have the right to return product unless
damaged or defective.
Cost of Products Sold: Cost of products sold includes raw material, labor
and overhead.
Advertising Expenses: The Company expenses all costs associated with
advertising as incurred or when the advertising takes place. Advertising expense
was $8, $5 and $6 for the years ended June 30, 1995, 1996 and 1997,
respectively.
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 the
years ended June 30, 1995, 1996 and 1997, 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 were translated at the rate in effect at the balance sheet date, and
revenue and expense accounts were translated at the average rates during the
period. Translation adjustments were reflected as a separate component of
stockholders' equity.
Interest Rate Contracts: To manage interest rate exposure, the Company
uses interest-rate swap agreements. These agreements involve the receipt of
fixed rate amounts in exchange for floating rate interest payments over the life
of the agreement without an exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets.
Fair Value of Financial Instruments: The carrying amount of the Company's
financial instruments, which primarily include cash, accounts receivable,
accounts payable, and accrued expenses, approximates fair value due to the
relatively short maturity of such instruments.
The carrying amounts of the Company's borrowings under its short-term
revolving credit agreement and long-term debt instruments, excluding the
Subordinated Notes, approximate their fair value. At June 30, 1997, the fair
value of the Subordinated Notes was $161, as estimated based on quoted market
prices from dealers.
The fair value of the interest rate swap agreements at June 30, 1997 was
$(1). The fair value of interest rate swap agreements are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
credit worthiness of the counterparties.
Net Income (Loss) per Common Share: The Company has adopted the provision
of Statement of Financial Accounting Standards No. 128. 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 (Note E). 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 earnings of Del Monte Philippines, a consolidated
subsidiary.
F-8
<PAGE> 134
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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. During fiscal 1996, 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.
Reclassification: Beginning in the fourth quarter of fiscal 1997,
merchandising allowances primarily relating to in-store displays, store
advertising and store coupons, which previously were recorded as a cost of
products sold, have been reclassified to selling expense. Such merchandising
allowances totaled $106, $100 and $143 in the fiscal years ended June 30, 1995,
1996, and 1997, respectively. Due to the nature of the Company's trade promotion
programs and the required performance associated with such programs, the
classification of these costs as selling expense rather than as a cost of
products sold is appropriate. The Company believes that this presentation is
widely practiced in the industry. In addition, certain military distributor
allowances, which previously were treated as a reduction in net sales, have been
reclassified to selling expense. Such military distributor allowances amounted
to $1, $1 and $2 in fiscal years ended June 30, 1995, 1996 and 1997,
respectively. All financial information has been restated to conform to this
presentation.
NOTE B -- DIVESTED ASSETS
Del Monte 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 ("Hicks Muse"). This agreement was
amended and restated on October 25, 1996 for the sale of only the Company's
Mexican subsidiary, Productos Del Monte, S.A. de C.V. ("PDM") to an affiliate of
Hicks Muse for $38 which was completed on October 28, 1996. 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. In addition, the purchasers have alleged, among other things, that
the Company breached the purchase agreement 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 Company does not believe that this claim will have a material
adverse effect on the Company's financial position or results of operations (see
Note H). The combined proceeds of both sales of $50, reduced by $2 of related
transaction expenses, resulted in a loss of $5.
The following results of the Latin American operations are included in the
Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales............................................... $65 $55 $17
Costs and expenses...................................... 62 50 17
--- --- ---
Income from operations before income taxes.............. 3 5 --
Provision for income taxes.............................. 1 1 --
--- --- ---
Income from Latin American operations................... $ 2 $ 4 $--
=== === ===
</TABLE>
F-9
<PAGE> 135
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Del Monte Philippines. On March 29, 1996, the Company entered into a
repurchase agreement to sell its 50.1% interest in Del Monte Philippines (a
joint venture operating primarily in the Philippines) and also executed a supply
agreement, for total proceeds of $100 (net of $2 of related transaction
expenses) which were paid solely in cash. Under the terms of the supply
agreement, the Company must source substantially all of its pineapple
requirements from Del Monte Philippines over the eight-year term of the
agreement (Note N).
The following results of the Del Monte Philippines operations are included
in the Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------
1995 1996
---- ----
<S> <C> <C>
Net sales................................................... $142 $102
Costs and expenses.......................................... 141 97
---- ----
Income from operations before income taxes.................. 1 5
Provision for income taxes.................................. -- 2
---- ----
Income from operations...................................... $ 1 $ 3
==== ====
</TABLE>
All of the net proceeds from the sale of Del Monte Philippines 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 was reached with the Term Loan lenders
as to the application of funds. These funds were used in the September 1996
exchange offer.
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 following results of the pudding business are included in the
Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------
1995 1996
---- ----
<S> <C> <C>
Net sales................................................... $47 $15
Costs and expenses.......................................... 33 11
--- ---
Income from operations...................................... $14 $ 4
=== ===
</TABLE>
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.
F-10
<PAGE> 136
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C>
Trade Accounts Receivable:
Trade..................................................... $ 99 $ 68
Allowance for doubtful accounts........................... (1) (1)
----- -----
Total trade accounts receivable................... $ 98 $ 67
===== =====
Inventories:
Finished product.......................................... $ 198 $ 239
Raw materials and supplies................................ 12 13
Other, principally packaging material..................... 94 87
----- -----
Total inventories................................. $ 304 $ 339
===== =====
Property, Plant and Equipment:
Land and land improvements................................ $ 44 $ 37
Buildings and leasehold improvements...................... 98 93
Machinery and equipment................................... 240 233
Construction in progress.................................. 9 10
----- -----
391 373
Accumulated depreciation.................................. (144) (151)
----- -----
Property, plant and equipment, net................ $ 247 $ 222
===== =====
Other Assets:
Deferred debt issue costs................................. $ 26 $ 19
Other..................................................... 10 4
----- -----
36 23
Accumulated amortization.................................. (6) --
----- -----
Total other assets................................ $ 30 $ 23
===== =====
Accounts Payable and Accrued Expenses:
Accounts payable -- trade................................. $ 76 $ 79
Marketing and advertising................................. 39 59
Payroll and employee benefits............................. 18 17
Current portion of accrued pension liability.............. 13 12
Current portion of other noncurrent liabilities........... 22 19
Other..................................................... 32 34
----- -----
Total accounts payable and accrued expenses....... $ 200 $ 220
===== =====
Other Noncurrent Liabilities:
Accrued postretirement benefits........................... $ 140 $ 145
Accrued pension liability................................. 48 26
Self-insurance liabilities................................ 12 15
Other..................................................... 36 17
----- -----
Total other noncurrent liabilities................ $ 236 $ 203
===== =====
</TABLE>
F-11
<PAGE> 137
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE D -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings under revolving credit agreements at June 30, 1996
and 1997 were $43 and $82, respectively. Unused amounts under the revolving
credit agreements at June 30, 1996 and 1997 totaled $328 and $242, respectively.
On April 18, 1997, the Company completed the Recapitalization transaction
in which $301 of proceeds from the transaction were used to repay the
outstanding balances of the then-existing $400 revolving credit facility, term
loan, and Senior Subordinated Guaranteed Pay-in-Kind Notes. Concurrent with the
Recapitalization, the Company entered into a credit agreement with respect to
the Term Loan Facility (the "Term Loan") and the Revolving Credit Facility (the
"Revolver"). The Term Loan provides for term loans in the aggregate amount of
$380, consisting of Term Loan A of $200 and Term Loan B of $180. The Revolver
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.
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% (8.25% at
June 30, 1997). Interest rates on Term Loan B are, at the Company's option,
either (i) the base rate plus 2.00% or (ii) the offshore rate plus 3.00% (8.875%
at June 30, 1997).
The Company is required to pay the lenders under the Revolving Credit
Facility a commitment fee of 0.50% on the unused portion of such facility. The
Company is also required to pay the lenders under the Revolving Credit Facility
letter of credit fees of 1.75% per year for commercial letters of credit and
2.25% per year for all other letters of credit, as well as an additional fee in
the amount of 0.25% per year 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. At June 30, 1997, a balance of $26 was outstanding on these letters of
credit.
In addition, on April 18, 1997, the Company issued senior subordinated
notes (the "Unregistered Notes") with an aggregate principal amount of $150 and
received gross proceeds of $147. The Unregistered Notes accrue interest at
12.25% per year, payable semiannually in cash on each April 15 and October 15.
These Unregistered Notes are guaranteed by DMFC and mature on April 15, 2007.
The Unregistered Notes are redeemable at the option of the Company on or after
April 15, 2002 at a premium to par that initially is 106.313% and that decreases
to par on April 15, 2006 and thereafter. On or prior to April 15, 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. The Unregistered
Notes were issued with registration rights requiring the Company to exchange the
Unregistered Notes for new notes (the "Subordinated Notes") registered under the
Securities Act of 1933, as amended. The form and terms of the Subordinated Notes
are substantially the same as the Unregistered Notes, except that there is no
restriction on the transfer thereof. The Company filed a registration statement
on Form S-4 with respect to the Unregistered Notes on June 12, 1997, which
became effective on June 24, 1997. The exchange of the Unregistered Notes for
the Subordinated Notes was completed on July 31, 1997.
In connection with the Recapitalization, the Company incurred expenses
totaling $85 of which $25 were included in selling, advertising, administrative
and general expense, $22 were charged to other expense and $38 were accounted
for as an extraordinary loss. The extraordinary loss consisted of previously
capitalized debt
F-12
<PAGE> 138
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
issue costs of approximately $19 and a 1996 PIK Note premium and a term loan
make-whole aggregating $19. In addition, in conjunction with the Bank Financing,
$19 of debt issue costs were capitalized.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Term Loan................................................... $ 68 $380
Subordinated Debt........................................... 243 --
Subordinated Notes.......................................... -- 147
Senior Secured Notes........................................ 13 --
Other....................................................... 6 1
---- ----
330 528
Less Current Portion........................................ 7 2
---- ----
$323 $526
==== ====
</TABLE>
At June 30, 1997, scheduled maturities of long-term debt in each of the
next five fiscal years and thereafter will be as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2
1999........................................................ 32
2000........................................................ 36
2001........................................................ 42
2002........................................................ 47
Thereafter.................................................. 372
----
531
Less discount............................................... 3
----
$528
====
</TABLE>
The Term Loan and Revolver are collateralized by security interests in
certain of the Company's assets. At June 30, 1997, total assets that are not
pledged to secure the Debt are less than 10% of the Company's total consolidated
assets. At June 30, 1997, assets totaling $639 were pledged as collateral for
approximately $462 of short-term borrowings and long-term debt.
The Subordinated Notes, Term Loan and Revolver (collectively the "Debt")
agreements contain restrictive covenants with which the Company must comply.
These restrictive covenants, in some circumstances, limit the incurrence of
additional indebtedness, payment of dividends, transactions with affiliates,
asset sales, mergers, acquisitions, prepayment of other indebtedness, liens and
encumbrances. In addition, the Company 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. The Company is in compliance with all of the Debt
covenants at June 30, 1997.
In June 1995, the Company refinanced its then-existing revolving credit
agreement, term loan and Senior Secured Floating Rate Notes. In conjunction with
the refinancing, capitalized debt issue costs of $7 were charged to fiscal 1995
income and were accounted for as an extraordinary item.
At June 30, 1996, a balance of $29 was outstanding on letters of credit.
Letter of credit fees were 2.25% per year for commercial letters of credit and
2.75% per year for all other letters of credit with an additional fee of 0.50%
to the bank issuing such letters of credit. The Company paid a commitment fee to
maintain the lines of credit equal to 0.50% of the unused balance.
F-13
<PAGE> 139
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
At June 30, 1996, the then-existing term loan consisted of three
components. A $31 amortizing component was due in quarterly installments with an
interest rate of LIBOR plus 3.25%. The second component of this loan of $30 and
the third component of $7 were non-amortizing with interest fixed at 11.11% and
LIBOR plus 4.75%, respectively. 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 carried an interest rate of 18%, 14% payable in
cash and 4% payable in-kind in Secondary Notes, at the Company's option.
Interest payments were due quarterly.
Subordinated Debt consisted of Subordinated Guaranteed Payment-in-Kind
Notes ("PIK Notes"). Interest accrued at 12.25% per year and was generally
payable through the issuance of additional PIK Notes. The payment of such
interest in additional PIK Notes since issuance resulted in an increase in the
principal amount outstanding of such indebtedness.
In August 1996, the Company offered to redeem (the "Exchange Offer") a
portion of its outstanding PIK Notes for a cash payment and exchange the
remaining PIK Notes for new Senior Subordinated Guaranteed Pay-in-Kind Notes due
2002 (the "1996 PIK Notes"). On September 11, 1996, 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 Secured Notes
outstanding were repaid. Funding for the Exchange Offer was accomplished through
the application of $30 from the Specific Proceeds Collateral Account held by the
then-existing term lenders, additional borrowing in an aggregate amount of $55
under the then-existing term loan, and borrowing of approximately $36 from the
then-existing revolving credit facility. 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 in fiscal 1997 and accounted for as an
extraordinary loss.
The Company made cash interest payments of $44, $30 and $24 for the years
ended June 30, 1995, 1996 and 1997, respectively.
As required by the Company's Debt agreements, the Company has entered into
interest rate swap agreements which effectively converts $235 notional principal
amount of floating rate debt to a fixed rate basis for a three-year period
beginning May 22, 1997, thus reducing the impact of interest rate changes on
future income. The Company paid a fixed rate of 6.375% and received a weighted
average rate of 5.875%. The incremental effect on interest expense for 1997 was
insignificant. The agreements also include a provision establishing the rate the
Company will pay as 7.50% if the three-month LIBOR rate sets at or above 7.50%
during the term of the agreements. The Company will continue paying 7.50% until
the three-month LIBOR again sets below 7.50% at which time the fixed rate of
6.375% will again become effective. The Company is exposed to credit loss in the
event of nonperformance by the other parties to the interest rate swap
agreements. However, the Company does not anticipate nonperformance by the
counterparties.
NOTE E -- STOCKHOLDERS' EQUITY AND REDEEMABLE STOCK
On February 21, 1997, Del Monte Foods Company entered into a
recapitalization agreement and plan of merger, which was amended and restated as
of April 14, 1997, with affiliates of Texas Pacific Group. Under this agreement,
Shield, a corporation affiliated with TPG, was to be merged with and into DMFC,
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-recapitalization stockholders who remained investors
pursuant to the Recapitalization, were cancelled, and were converted into the
right to receive new DMFC common stock. All other shares of DMFC stock were
cancelled and were converted into the right to receive
F-14
<PAGE> 140
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
cash consideration, as set forth in the Merger Agreement. In the Merger, the
common and preferred stock of Shield were 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 new common stock
(the "Common Stock"), $.01 par value, and 1,000,000 shares of new preferred
stock (the "Preferred Stock"), $.01 par value. The Company issued and has
outstanding 26,815,880 shares of Common Stock, and 35,000 shares of Preferred
Stock. TPG and certain of its affiliates or partners hold 20,925,580 shares of
DMFC's Common Stock, continuing shareholders of DMFC hold 2,729,857 shares of
such stock, and other investors hold 3,160,443 shares. TPG and certain of its
affiliates hold 17,500 outstanding shares of Series A Preferred Stock, and TCW
Capital Investment Corporation holds 17,500 outstanding shares of Series B
Preferred Stock.
The Preferred Stock accumulates dividends at the annual rate of 14% of the
liquidation value, payable quarterly. These dividends are 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, or through a
corresponding increase in the liquidation value of such stock. 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 is 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 purchasers of Preferred
Stock for consideration of $35 received 35,000 shares of Preferred Stock and
warrants (exercisable after October 17, 1997) to purchase, at a nominal exercise
price, shares of DMFC Common Stock representing 2% of the outstanding shares of
DMFC Common Stock. A value of $3 was placed on the warrants, and such amount is
reflected as paid-in-capital within stockholders' equity. The remaining $32 is
reflected as redeemable preferred stock.
The two series of preferred stock have no voting rights except the right to
elect one director to the Board for each series, resulting in the authorized
number of directors to be increased, in cases where dividends are in arrears for
six quarters or shares have not been redeemed within ten days of a redemption
date.
Stockholders' equity at June 30, 1996 included the following classes of
common stock, $.01 par value per share:
<TABLE>
<CAPTION>
SHARES ISSUED AND
CLASS SHARES AUTHORIZED OUTSTANDING
----- ----------------- -----------------
<S> <C> <C>
A.......................................... 191,542,000 38,014,958
B.......................................... 28,731,300 --
E.......................................... 105,348,100 4,788,550
----------- ----------
325,621,400 42,803,508
=========== ==========
</TABLE>
Redeemable common and redeemable preferred stock at June 30, 1996 consisted
of the following:
Redeemable non-voting common stock ($.01 par value per share):
<TABLE>
<CAPTION>
SHARES ISSUED AND
CLASS SHARES AUTHORIZED OUTSTANDING
----- ----------------- -----------------
<S> <C> <C>
C.......................................... 105,348,100 1,322,214
D.......................................... 105,348,100 19,629,799
F.......................................... 105,348,100 9,577,100
----------- ----------
316,044,300 30,529,113
=========== ==========
</TABLE>
F-15
<PAGE> 141
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Redeemable preferred stock ($.01 par value per share):
<TABLE>
<CAPTION>
SHARES ISSUED AND
SERIES SHARES AUTHORIZED OUTSTANDING
------ ----------------- -----------------
<S> <C> <C>
A Cumulative (issuable in subseries A1 and
A2)........................................ 16,523,000 8,336,795
B Cumulative................................. 3,616,000 1,602,845
C Cumulative................................. 2,900,000 1,522,353
D Cumulative................................. 1,454,000 1,356,955
E Cumulative................................. 5,000,000 3,328,002
F Cumulative................................. 3,000,000 1,153,091
---------- ----------
32,493,000 17,300,041
========== ==========
</TABLE>
The Company declared dividends for the following series of redeemable
preferred stock:
<TABLE>
<CAPTION>
DIVIDEND RATE PER SHARE
YEAR ENDED JUNE 30,
-----------------------
SERIES 1995 1996 1997
------ ----- ----- -----
<S> <C> <C> <C>
A1................................................ $3.80 $3.81 $1.92
B................................................. $3.87 $3.87 $1.95
D................................................. $3.93 $3.94 $1.98
E................................................. $3.93 $3.94 $1.98
</TABLE>
These dividends were 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 were:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Additional shares...................... 1,564,117 1,824,999 1,027,406
Total par value........................ $ 0.016 $ 0.018 $ 0.010
</TABLE>
In the Recapitalization, all of the redeemable preferred stock issued prior
to April 18, 1997 was either cancelled and converted into the right to receive
new DMFC common stock or cancelled and converted into the right to receive cash
consideration as set forth in the Merger Agreement.
F-16
<PAGE> 142
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item and
cumulative effect of accounting change........... $ 12 $ 121 $ (16)
Preferred stock dividends........................... (71) (82) (70)
----------- ----------- -----------
Numerator for basic and diluted earning (loss) per
share -- income (loss) attributable to common
shares before extraordinary items and cumulative
effect of accounting change...................... $ (59) $ 39 $ (86)
=========== =========== ===========
Denominator for basic and diluted earnings (loss) per
common share -- weighted-average shares............. 76,671,294 75,047,353 61,703,436
=========== =========== ===========
Basic and diluted income (loss) per common share
before extraordinary item and cumulative effect of
accounting change................................... $ (0.76) $ 0.52 $ (1.40)
=========== =========== ===========
Extraordinary loss.................................... $ 7 $ 10 $ 42
=========== =========== ===========
Extraordinary loss per common share................... $ (0.09) $ (0.14) $ (0.67)
=========== =========== ===========
Cumulative effect of accounting change................ -- $ 7 --
=========== =========== ===========
Cumulative effect of accounting change per common
share............................................... -- $ (0.09) --
=========== =========== ===========
</TABLE>
For the period from April 18, 1997 to June 30, 1997, since the effect of
inclusion of potentially dilutive securities in the denominator of diluted loss
per share was antidilutive, 547,262 warrants were excluded from the computation.
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 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. 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. Del Monte's defined benefit retirement plans have been determined to be
underfunded under federal ERISA guidelines. In connection with the
Recapitalization, the Company entered into an agreement with the U.S. Pension
Benefit Guaranty Corporation dated April 7, 1997 whereby the Company will
contribute a total of $55 to its defined benefit pension plans through calendar
2001, with $15 contributed within 30 days after the consummation of the
Recapitalization. The contributions to be made in 1999, 2000 and 2001 will be
secured by a $20 letter of credit to be obtained by the Company by August 31,
1998.
F-17
<PAGE> 143
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The following table sets forth the pension plans' funding status and
amounts recognized on the Company's balance sheet:
<TABLE>
<CAPTION>
JUNE 30,
--------------
1996 1997
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(265) $(269)
===== =====
Accumulated benefit obligation.............................. $(270) $(274)
===== =====
Projected benefit obligation for services rendered to
date...................................................... $(277) $(279)
Plan assets at fair value................................... 245 276
----- -----
Projected benefit obligation in excess of plan assets....... (32) (3)
Unrecognized net actuarial gain............................. (27) (34)
Unrecognized prior service income........................... (2) (1)
----- -----
Accrued pension cost recognized in the consolidated balance
sheet..................................................... $ (61) $ (38)
===== =====
</TABLE>
The components of net periodic pension cost for the years ended June 30,
1995, 1996 and 1997 for all defined benefit plans are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1995 1996 1997
---- -------- ----
<S> <C> <C> <C>
Service cost for benefits earned during period.............. $ 4 $ 4 $ 3
Interest cost on projected benefit obligation............... 22 21 21
Actual return on plan assets................................ (31) (32) (35)
Net amortization and deferral............................... 11 11 13
---- ---- ----
Net periodic pension cost................................... $ 6 $ 4 $ 2
==== ==== ====
</TABLE>
Significant rate assumptions used in determining net periodic pension cost
and related pension obligations are as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate used in determining projected benefit
obligation................................................ 7.75% 8.0% 7.75%
Rate of increase in compensation levels..................... 5.0 5.0 5.0
Long-term rate of return on assets.......................... 9.0 9.0 9.0
</TABLE>
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, 1995,
1996 and 1997 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 $3, $2, and $1 for the years ended June 30, 1995, 1996, and 1997,
respectively.
The Company provided retirement benefits under various arrangements to
substantially all employees in foreign locations who were not covered under the
above plans. Generally, benefits under these arrangements were based on years of
service and levels of salary. The majority of the Company's foreign plans were
commonly referred to as termination indemnities. The plans provided employees
with retirement benefits in accordance with programs mandated by the governments
of the countries in which such employees worked. The expense and related
liabilities associated with these arrangements were recorded by the Company
based on established formulas, with funding generally occurring when employees
ceased active service.
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.
F-18
<PAGE> 144
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Net periodic postretirement benefit cost for the fiscal years 1995, 1996
and 1997 included the following components:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $ 2 $ 2 $ 1
Interest cost............................................... 9 9 9
Amortization of prior service cost.......................... -- -- (1)
Amortization of actuarial losses (gains).................... -- (3) (3)
Curtailment gain............................................ -- (4) --
--- --- ---
Net periodic postretirement benefit cost.................... $11 $ 4 $ 6
=== === ===
</TABLE>
The Company amortizes unrecognized gains and losses at the end of the
fiscal year over the expected remaining service of active employees. The
curtailment gain results 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:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees.......................................... $ 85 $ 80
Fully eligible active plan participants................... 16 11
Other active plan participants............................ 18 13
---- ----
119 104
Unrecognized prior service cost........................... -- 10
Unrecognized gain......................................... 30 38
---- ----
Accrued postretirement benefit cost....................... $149 $152
==== ====
</TABLE>
For fiscal years 1996 and 1997, the weighted average annual assumed rate of
increase in the health care cost trend is 13.33% and 12.42%, 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, 1997 by $10 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $1.
The discount rate used in determining the accumulated postretirement
benefit obligation as of June 30, 1997 was 7.75%. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation as of
June 30, 1996 was 8.32%.
F-19
<PAGE> 145
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE G -- PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
---- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Income (loss) before minority interest and taxes:
Domestic........................................... $2 $106 $(58)
Foreign............................................ 6 12 1
-- ---- ----
$8 $118 $(57)
== ==== ====
Income tax provision (benefit)
Current:
Federal......................................... $-- $ 5 $ --
Foreign and state............................... 1 6 --
-- ---- ----
Total current................................... 1 11 --
-- ---- ----
Deferred:
Federal......................................... -- -- --
Foreign and state............................... 1 -- --
-- ---- ----
Total deferred.................................. 1 -- --
-- ---- ----
$2 $ 11 $ --
== ==== ====
</TABLE>
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 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------------
1996 1997
---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C>
Deferred tax assets:
Post employment benefits.................................. $ 53 $ 53
Pension expense........................................... 24 16
Workers' compensation..................................... 7 8
Leases and patents........................................ 5 4
State income taxes........................................ -- 14
Other..................................................... 20 24
Net operating loss and tax credit carryforward............ 16 33
---- -----
Gross deferred tax assets.............................. 125 152
Valuation allowance.................................... (92) (122)
---- -----
Net deferred tax assets................................ 33 30
Deferred tax liabilities:
Depreciation.............................................. 30 30
Other..................................................... 3 --
---- -----
Gross deferred liabilities............................. 33 30
---- -----
Net deferred tax asset................................. $ -- $ --
==== =====
</TABLE>
F-20
<PAGE> 146
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The net change in the valuation allowance for the years ended June 30, 1996
and 1997 was a decrease of $33 and an increase of $30, respectively. The Company
believes that, based on a history of tax losses and the related absence of
recoverable prior taxes through net operating loss carryback, it is more likely
than not that the net operating losses and the deferred tax assets will not be
realized. Therefore, a full valuation allowance in the amount of $122 has been
recorded.
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:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes (benefit) computed at the statutory U.S.
federal income tax rates.................................. $2 $42 $(19)
Taxes on foreign income at rates different than U.S. federal
income tax rates.......................................... -- (1) --
State taxes, net of federal benefit......................... -- 3 --
Net operating losses for which no benefit has been
recognized................................................ -- -- 19
Realization of prior years' net operating losses and tax
credits................................................... -- (33) --
-- --- ----
Provision for income taxes.................................. $2 $11 $ --
== === ====
</TABLE>
As of June 30, 1997, the Company had operating loss carryforwards for tax
purposes available from domestic operations totaling $84 which will expire
between 2008 and 2012.
Extraordinary losses from refinancing of debt and early debt retirement and
the cumulative effect of change in accounting principle did not have any tax
effect due to the Company's current tax position.
The Company made income tax payments of $3, $5 and $4 for the years ended
June 30, 1995, 1996 and 1997, respectively.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment and office and plant
facilities. At June 30, 1997, the aggregate minimum rental payments required
under operating leases that have initial or remaining terms in excess of one
year are as follows:
<TABLE>
<S> <C>
1998........................................................ $14
1999........................................................ 13
2000........................................................ 12
2001........................................................ 9
2002........................................................ 6
Thereafter.................................................. 41
---
$95
===
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of $7
due through 2016 under noncancelable subleases.
Rent expense was $32, $28, and $32 for fiscal years ended June 30, 1995,
1996, and 1997, 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 two to ten years, to purchase certain quantities of raw
products. Total purchases under these agreements were $68,
F-21
<PAGE> 147
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
$54, and $114 for the years ended June 30, 1995, 1996, and 1997, respectively.
The Company also has commitments to purchase certain finished goods.
At June 30, 1997, aggregate future payments under such purchase commitments
(priced at the June 30, 1997 estimated cost) are estimated as follows:
<TABLE>
<S> <C>
1998........................................................ $ 68
1999........................................................ 56
2000........................................................ 44
2001........................................................ 33
2002........................................................ 26
Thereafter.................................................. 60
----
$287
====
</TABLE>
In addition, the Company expects to purchase $46 in fiscal 1998 under the
supply agreement for pineapple products entered into in conjunction with the
sale of the Del Monte Philippines operations (see Note B).
Effective August 13, 1993, DMC sold its dried fruit and snack operations to
Yorkshire Dried Fruits and Nuts, Inc., ("YDFNI"). 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 purchased and
resold certain of the former DMC dried fruit and snack products. This resale
agreement was terminated by the Company as of June 30, 1997.
Effective December 21, 1993, DMC sold substantially all of the assets and
certain related liabilities of its can manufacturing operations in the United
States to Silgan Containers Corporation ("Silgan"). 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.
Purchases under the agreement in fiscal 1997 amounted to $134. 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.
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 were $186.
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
F-22
<PAGE> 148
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
monthly base charges subject to various adjustments such as system usage and
inflation. Total payments for the twelve months ended June 30, 1995, 1996, and
1997 were $16, $16, and $18, respectively. The agreement expires in November
2002 with optional successive one-year extensions.
At June 30, 1997, base charge payments under the agreement are as follows:
<TABLE>
<S> <C>
1998........................................................ $14
1999........................................................ 14
2000........................................................ 13
2001........................................................ 13
2002........................................................ 13
Thereafter.................................................. 6
---
$73
===
</TABLE>
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 work force. Of these represented employees, 7% of employees
are under agreements that will expire in 1998.
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 or financial position.
On March 25, 1997, the entities that purchased the Company's Mexican
subsidiary in October 1996 commenced an action in Texas state court 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 as a result of these alleged breaches. In connection
with this action, $8 of the cash proceeds from the Recapitalization which were
payable to shareholders and certain members of senior management of DMFC have
been held in escrow and will be 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 pursuant to provisions
of the purchase agreement. The Company does not believe that these claims, in
the aggregate, will have a material adverse effect on the Company's financial
position or results of operations.
NOTE I -- FOREIGN OPERATIONS AND GEOGRAPHIC DATA
The Company's earnings have historically been derived in part from foreign
operations. As of November 1996, all of these operations had been sold.
Transfers between geographic areas have been accounted for as intercompany
sales, and transfer prices have been based generally on negotiated contracts.
F-23
<PAGE> 149
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The following table shows certain financial information relating to the
Company's operations in various geographic areas:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net Sales:
United States.......................................... $1,331 $1,147 $1,203
Philippines............................................ 180 142 --
Latin America.......................................... 65 55 17
Transfer between geographic areas...................... (49) (39) (3)
------ ------ ------
Total net sales................................ $1,527 $1,305 $1,217
====== ====== ======
Operating income (loss):
United States.......................................... $ 64 $ 65 $ 71
Philippines............................................ 11 12 --
Latin America.......................................... 5 5 --
------ ------ ------
Total operating income......................... $ 80 $ 82 $ 71
====== ====== ======
Assets:
United States.......................................... $ 754 $ 701 $ 667
Philippines............................................ 164 -- --
Latin America.......................................... 42 35 --
------ ------ ------
Total assets................................... $ 960 $ 736 $ 667
====== ====== ======
Liabilities of the Company's operations located in
foreign countries...................................... $ 128 $ 7 $ --
====== ====== ======
</TABLE>
NOTE J -- DEL MONTE CORPORATION
DMC is directly-owned and wholly-owned by DMFC. In the fiscal years ended
June 30, 1996 and 1997, 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 K). As of June 30, 1996 and 1997, 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 full and unconditional.
NOTE K -- TERMINATION OF AGREEMENT AND PLAN OF MERGER
On June 27, 1994 the Company entered into an Agreement and Plan of Merger
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 Agreement and Plan
of Merger provided that the Company was entitled to terminate the Agreement and
Plan of Merger 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 Agreement and Plan of Merger in accordance with its
terms.
F-24
<PAGE> 150
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Pursuant to the Agreement and Plan of Merger, 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 Agreement and Plan
of Merger, the Company was entitled 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.
NOTE L -- RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, the Company entered into a
ten-year agreement dated April 18, 1997 (the "Management Advisory Agreement")
with TPG pursuant to which TPG is entitled to receive an annual fee from the
Company for management advisory services equal to the greater of $0.5 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 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
including advice and assistance in reviewing the Company's business plans and
its results of operations and in evaluating possible strategic acquisitions, as
well as providing investment banking services in identifying and arranging
sources of financing. 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 and are comparable to those obtainable in an
arm's-length transaction with an unaffiliated third party.
In connection with the Recapitalization, the Company also entered into an
agreement dated April 18, 1997 (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 fees up to 1.5% of the "transaction value" for each subsequent
transaction in which the Company is involved, which may include acquisitions,
refinancings and recapitalizations. 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 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 to be received by the Company and are
comparable to those obtainable in an arm's-length transaction with an
unaffiliated third party.
NOTE M -- SUBSEQUENT EVENT
In connection with the Company's proposed public offering of shares of its
Common Stock, on July 22, 1998, the Company declared a 191.542-for-one stock
split of all of the Company's outstanding shares of Common Stock (the "Stock
Split"). Accordingly, all share and per share amounts have been retroactively
adjusted to give effect to the Stock Split.
F-25
<PAGE> 151
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE N -- RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its financial statements for the years ended June
30, 1996 and 1997. This action was taken following consultation with the staff
of the Securities and Exchange Commission regarding the deferral of $16 of gain
resulting from the sale of the Company's 50.1% interest in Del Monte Philippines
in March 1996 (see Note B). The Company had allocated $16 of the $100 proceeds
from the sale to the supply agreement the Company executed in conjunction with
the sale. The deferred gain of $16 was being recognized by the Company over the
eight-year term of the supply agreement. After discussions with the staff of the
Securities and Exchange Commission, the Company has recognized the $16 gain at
the time of the sale.
The fiscal 1996 financial statements have been restated to include the $16
gain and the fiscal 1997 financial statements have been restated to reverse the
recognition of $2 of the deferred gain. The impact of these adjustments on the
Company's financial results as originally reported is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
AS REPORTED AS RESTATED AS REPORTED AS RESTATED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary item.... $ 105 $ 121 $ (14) $ (16)
Net income (loss).............................. 88 104 (56) (58)
Net income (loss) attributable to common
shares....................................... 6 22 (126) (128)
Net income (loss) per common share............. 0.08 0.29 (2.04) (2.07)
</TABLE>
F-26
<PAGE> 152
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated balance sheet of Del Monte
Foods Company and subsidiaries as of June 30, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended June 30, 1996 and 1995. 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 the consolidated
results of their operations and their cash flows for the years ended June 30,
1996 and 1995 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
San Francisco, California
August 29, 1996,
except for Note N, as to which the date is
June 29, 1998, and Note M, as to which the date is
July 22, 1998
F-27
<PAGE> 153
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated balance sheet of Del Monte
Foods Company and subsidiaries as of March 31, 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the nine-month period then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Del Monte Foods Company and subsidiaries as of March 31, 1998 and the
consolidated results of their operations and their cash flows for the nine-month
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
May 1, 1998, except for Note O,
as to which the date is June 29, 1998,
and the third paragraph of Note M, as to which
the date is July 22, 1998
F-28
<PAGE> 154
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1998
----------- ----------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 6 $ 4
Restricted cash........................................... 2 --
Trade accounts receivable, net of allowance............... 84 104
Other receivables......................................... 3 5
Inventories............................................... 381 467
Prepaid expenses and other current assets................. 4 10
----- ------
Total current assets.............................. 480 590
Property, plant and equipment, net.......................... 229 298
Intangibles................................................. 16
Other assets................................................ 30 24
----- ------
Total assets...................................... $ 739 $ 928
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 236 $ 278
Short-term borrowings..................................... 42 68
Current portion of long-term debt......................... 16 24
----- ------
Total current liabilities......................... 294 370
Long-term debt.............................................. 252 678
Other noncurrent liabilities................................ 221 202
Redeemable common stock ($.01 par value per share,
316,044,300 shares authorized; issued and outstanding:
30,529,113 at March 31, 1997)............................. 2 --
Redeemable preferred stock ($.01 par value per share,
32,493,000 shares authorized; issued and outstanding:
18,327,449 at March 31, 1997; aggregate liquidation
preference: $649)......................................... 213 --
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding 37,253
at March 31, 1998; aggregate liquidation preference
$40)...................................................... -- 32
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 325,621,400 shares
authorized;
issued and outstanding: 42,803,508 at March 31,
1997).................................................. -- --
Common stock ($.01 par value per share, 500,000,000 shares
authorized;
issued and outstanding: 34,943,199 at March 31,
1998).................................................. -- --
Paid-in capital........................................... 3 173
Retained earnings (deficit)............................... (246) (527)
----- ------
Total stockholders' equity (deficit).............. (243) (354)
----- ------
Total liabilities and stockholders' equity........ $ 739 $ 928
===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-29
<PAGE> 155
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
------------- ----------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $ 936 $ 968
Cost of products sold....................................... 634 655
---------- ----------
Gross profit........................................... 302 313
Selling, advertising, administrative and general expense.... 235 249
Acquisition expenses........................................ -- 7
---------- ----------
Operating income....................................... 67 57
Interest expense............................................ 37 58
Loss on sale of divested assets............................. 5 --
Other income................................................ -- (1)
---------- ----------
Income before income taxes and extraordinary item...... 25 --
Provision for income taxes.................................. 2 --
---------- ----------
Income before extraordinary item....................... 23 --
Extraordinary loss from early debt retirement............... 4 --
---------- ----------
Net income............................................. $ 19 $ --
========== ==========
Net loss attributable to common shares...................... $ (51) $ (4)
========== ==========
Weighted average number of shares outstanding............... 73,332,621 30,389,671
========== ==========
Loss per common share:
Loss before extraordinary item......................... $ (0.64) $ (0.12)
Extraordinary loss from early debt retirement.......... (0.05) --
---------- ----------
Net loss per common share......................... $ (0.69) $ (0.12)
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-30
<PAGE> 156
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOTES TOTAL
RECEIVABLE RETAINED STOCKHOLDERS'
COMMON COMMON PAID-IN FROM EARNINGS EQUITY
SHARES STOCK CAPITAL STOCKHOLDERS (DEFICIT) (DEFICIT)
---------- ------ ------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 (as
restated).................. 26,815,880 -- 129 -- (527) (398)
Issuance of shares........... 8,127,319 -- 44 -- -- 44
Net income (as restated)..... -- -- -- -- -- --
---------- ---- ---- ---- ----- -----
Balance at March 31, 1998 (as
restated).................. 34,943,199 $ -- $173 $ -- $(527) $(354)
========== ==== ==== ==== ===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-31
<PAGE> 157
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
----------- ----------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net income................................................ $ 19 $ --
Adjustments to reconcile net income to net cash flows:
Extraordinary loss from early debt retirement.......... 4 --
Loss on sale of divested assets........................ 5 --
Loss (gain) on sales of assets......................... -- 1
Depreciation and amortization.......................... 22 23
Other.................................................. -- 2
Changes in operating assets and liabilities net of
effect of acquisition:
Accounts receivable.................................. 7 (40)
Inventories.......................................... (90) (24)
Prepaid expenses and other current assets............ 7 3
Other assets......................................... -- (1)
Accounts payable and accrued expenses................ 44 46
Other non-current liabilities........................ 8 (1)
----- -----
Net cash provided by operating activities............ 26 9
Investing activities:
Capital expenditures................................... (12) (15)
Proceeds from sales of assets.......................... 1 5
Proceeds from sales of divested assets................. 50 --
Acquisition of business................................ -- (195)
----- -----
Net cash provided by (used in) investing
activities.......................................... 39 (205)
Financing activities:
Short-term borrowings.................................. 929 261
Payment on short-term borrowings....................... (930) (275)
Proceeds from long-term borrowings..................... 55 176
Principal payments on long-term debt................... (140) (2)
Deferred debt issuance costs........................... (7) (7)
Issuance of common and preferred stock................. -- 42
Specific Proceeds Collateral Account................... 28 --
----- -----
Net cash provided by (used in) financing
activities.......................................... (65) 195
Net change in cash and cash equivalents.............. -- (1)
Cash and cash equivalents at beginning of period............ 6 5
----- -----
Cash and cash equivalents at end of period........... $ 6 $ 4
===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-32
<PAGE> 158
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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") 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 to a variety of
food retailers, supermarkets and mass merchandising stores. The Company holds
the rights to the Del Monte brand in the United States. The Company reports its
financial results on a July 1 to June 30 fiscal year basis.
During fiscal 1998, the Company acquired certain of Contadina's canned
processed tomato product lines from Nestle USA, Inc. and Contadina Services,
Inc. (see Note B). Contadina operates in one business segment which manufactures
and markets branded, private label, industrial and foodservice processed tomato
products from manufacturing facilities in Hanford, California and Woodland,
California. Contadina's products are distributed throughout the United States.
The acquisition was accounted for using the purchase method of accounting.
Basis of Accounting: Pursuant to the Agreement and Plan of Merger, dated
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 held by certain of DMFC's
stockholders, who remained investors, were canceled and were converted into the
right to receive common stock of the surviving corporation. All other shares of
DMFC stock were canceled and were converted into the right to receive cash
consideration as set forth in the Merger Agreement. In the Merger, the common
stock and preferred stock of Shield was converted into shares of new DMFC common
stock and preferred stock, respectively. The Merger was accounted for as a
leveraged recapitalization for accounting purposes (the "Recapitalization");
accordingly, all assets and liabilities continue to be stated at historical
cost.
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.
Use of Estimates: 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.
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.
F-33
<PAGE> 159
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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 $20 for the nine-month period ended March 31, 1998.
Intangibles: Intangibles consists of tradenames and trademarks, and are
carried at cost less accumulated amortization which is calculated on a
straight-line basis over the estimated useful life of the asset, not to exceed
40 years.
Revenue Recognition: Revenue from sales of products is recognized upon
shipment of product, at which time title passes to the customer. Customers
generally do not have the right to return product unless damaged or defective.
Cost of Products Sold: Cost of products sold includes raw material, labor
and overhead.
Advertising Expenses: The Company expenses all costs associated with
advertising as incurred or when the advertising takes place. Advertising expense
was $1 for the nine months ended March 31, 1998.
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 $4 for the nine-month
period ended March 31, 1998.
Interest Rate Contracts: To manage interest rate exposure, the Company
uses interest-rate swap agreements. These agreements involve the receipt of
fixed rate amounts in exchange for floating rate interest payments over the life
of the agreement without an exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets.
Fair Value of Financial Instruments: The carrying amount of certain of the
Company's financial instruments, including accounts receivable, accounts
payable, and accrued expenses, approximates fair value due to the relatively
short maturity of such instruments.
The carrying amounts of the Company's borrowings under its short-term
revolving credit agreement and long-term debt instruments, excluding the Senior
Subordinated Notes and the Senior Discount Notes, approximate their fair value.
At March 31, 1998, the fair value of the Senior Subordinated Notes was $170 and
of the Senior Discount Notes was $153, as estimated based on quoted market
prices from dealers.
The fair value of the interest rate swap agreements at March 31, 1998 was
$(3). The fair value of interest rate swap agreements are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
credit worthiness of the counterparties.
Net Income (Loss) per Common Share: The Company has adopted the provisions
of Statement of Financial Accounting Standards No. 128. 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.
Stock Option Plan: The Company accounts for its stock-based employee
compensation for stock options using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Accordingly, compensation cost is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the price the employee must pay to acquire the stock.
F-34
<PAGE> 160
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE B -- ACQUISITION
On December 19, 1997, the Company acquired the Contadina canned tomato
business, including the Contadina trademark worldwide, capital assets and
inventory (the "Contadina Acquisition") from Nestle USA, Inc. ("Nestle") and
Contadina Services, Inc. for a total purchase price of $197, comprised of a base
price of $177 and an estimated net working capital adjustment of $20. The
consideration was paid solely in cash. The purchase price was subject to
adjustment based on the final calculation of net working capital as of the
closing date. Nestle provided its calculation of the net working capital which
resulted in a payment to the Company of $2, and therefore a reduction in the
purchase price to a total of $195. The Contadina Acquisition also included the
assumption of certain liabilities of approximately $5, consisting primarily of
liabilities in respect of reusable packaging materials, employee benefits and
product claims. In connection with the Contadina Acquisition, approximately $7
of acquisition-related expenses were incurred.
The Contadina Acquisition was accounted for using the purchase method of
accounting. The allocation of purchase price to the assets acquired and
liabilities assumed has been made using estimated fair values which include
values based on independent appraisals and management estimates. These estimates
may be subject to adjustment to actual amounts, primarily in the area of accrued
liabilities. Any subsequent adjustments are expected to occur by fiscal year end
and are not expected to be material. Allocation of the $195 purchase price is as
follows: inventory $95, prepaid expenses $5, property, plant and equipment $84,
intangibles $16 and accrued liabilities $5.
Results of operations of the Contadina Acquisition are included in the
Consolidated Statement of Operations for March 31, 1998 since the acquisition
date. The following unaudited pro forma information has been prepared assuming
the Contadina Acquisition had taken place on July 1, 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Net sales............................................ $1,064 $1,060
Operating income..................................... 64 53
Net income (loss) before extraordinary item.......... 4 (16)
Net income (loss).................................... $ -- $ (16)
====== ======
Net loss attributable to common shares............... $ (70) $ (20)
====== ======
Loss per share....................................... $(0.95) $(0.57)
====== ======
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to represent what the Company's results of operations
actually would have been if the Contadina Acquisition had occurred as of the
date indicated.
F-35
<PAGE> 161
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1998
----------- ----------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C>
Trade Accounts Receivable:
Trade..................................................... $ 85 $105
Allowance for doubtful accounts........................... (1) (1)
---- ----
Total trade accounts receivable................... $ 84 $104
==== ====
Inventories:
Finished product.......................................... $317 $390
Raw materials and supplies................................ 6 12
Other, principally packaging material..................... 58 65
---- ----
Total inventories................................. $381 $467
==== ====
Property, Plant and Equipment:
Land and land improvements................................ $ 43 $ 41
Buildings and leasehold improvements...................... 94 106
Machinery and equipment................................... 230 304
Construction in progress.................................. 11 15
---- ----
378 466
Accumulated depreciation.................................. (149) (168)
---- ----
Property, plant and equipment, net................ $229 $298
==== ====
Intangible Assets:
Trademark................................................. $ -- $ 16
Accumulated amortization.................................. -- --
---- ----
Intangible assets, net............................ $ -- $ 16
==== ====
Other Assets:
Deferred debt issue costs................................. $ 26 $ 26
Other..................................................... 11 --
---- ----
37 26
Accumulated amortization.................................. 7 2
---- ----
Total other assets................................ $ 30 $ 24
==== ====
Accounts Payable and Accrued Expenses:
Accounts payable--trade................................... $ 58 $ 67
Marketing and advertising................................. 71 84
Payroll and employee benefits............................. 17 18
Current portion of accrued pension liability.............. 13 12
Current portion of other noncurrent liabilities........... 22 15
Accrued production costs.................................. 31 34
Other..................................................... 24 48
---- ----
Total accounts payable and accrued expenses....... $236 $278
==== ====
Other Noncurrent Liabilities:
Accrued postretirement benefits........................... $142 $144
Accrued pension liability................................. 40 18
Self-insurance liabilities................................ 16 8
Other..................................................... 23 32
---- ----
Total other noncurrent liabilities................ $221 $202
==== ====
</TABLE>
F-36
<PAGE> 162
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE D -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings under the revolving credit agreement at March 31,
1998 were $68. Unused amounts under the revolving credit agreement at March 31,
1998 totaled $282.
In conjunction with the Contadina Acquisition, the Company issued $230 of
12 1/2% senior discount notes ("DMFC Notes") and received proceeds of $126. The
DMFC Notes accrue interest on each June 15 and December 15, which will be
accreted through December 15, 2002, after which time interest is to be paid in
cash until maturity. The DMFC Notes mature on December 15, 2007. These DMFC
Notes are redeemable in whole or in part at the option of the Company on or
after December 15, 2002 at a price that initially is 106.250% of par and that
decreases to par, if redeemed on December 15, 2005 or thereafter. On or prior to
December 15, 2000, the Company may, at its option, redeem up to 35% of the
aggregate principal amount at maturity of the DMFC Notes with the net cash
proceeds of one or more public equity offerings, at a redemption price of
112.50% of the accreted value to the date of redemption. The DMFC Notes were
issued with registration rights requiring the Company (i) to file, within 75
days of the consummation of the Contadina Acquisition, a registration statement
under the Securities Act of 1933, as amended, to exchange the DMFC Notes for new
registered notes with terms substantially identical to the initial notes and,
(ii) to use its best efforts to effect that registration within 150 days after
the consummation of the Contadina Acquisition. A registration statement was
filed to this effect on March 4, 1998. If the Company does not comply with its
obligations under the Registration Rights Agreement, the Company will be
required to pay an additional 0.5% interest on the accreted value of the DMFC
Notes. In connection with the financing related to the Contadina Acquisition, $7
of deferred debt issuance costs were capitalized.
On April 18, 1997, the Company completed the Recapitalization transaction
in which $301 of proceeds from the transaction were used to repay the
outstanding balances of the then-existing $400 revolving credit facility, term
loan, and Senior Subordinated Guaranteed Pay-in-Kind Notes. Concurrent with the
Recapitalization, the Company entered into a credit agreement with respect to
the Term Loan Facility (the "Term Loan") and the Revolving Credit Facility (the
"Revolver"). The Term Loan provides for term loans in the aggregate amount of
$380, consisting of Term Loan A of $200 and Term Loan B of $180. The Revolver
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 connection with the Contadina Acquisition, the Company
amended its bank financing agreements and related debt covenants to permit
additional funding under the existing Term B loan which was drawn in an amount
of $50. Amortization of the additional Term B loan amount is incremental to the
scheduled amortization of the existing Term B loan. Such additional amortization
will begin on a quarterly basis in the second quarter of fiscal 1999. In
conjunction with the Recapitalization, $19 of debt issue costs were capitalized.
Deferred debt issuance costs are amortized on a straight-line basis over the
life of the related debt issuance.
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 0.50% above the Federal Funds Rate or the bank's reference
rate) plus 1.00% or (ii) the reserve adjusted offshore rate plus 2.00% (7.8750%
at March 31, 1998). Interest rates on Term Loan B are, at the Company's option,
either (i) the base rate plus 2.00% or (ii) the offshore rate plus 3.00%
(8.6875% at March 31, 1998).
The Company is required to pay the lenders under the Revolving Credit
Facility a commitment fee of 0.425% on the unused portion of such facility. The
Company is also required to pay the lenders under the Revolving Credit Facility
letter of credit fees of 1.50% per year for commercial letters of credit and
2.00% per year for all other letters of credit, as well as an additional fee in
the amount of 0.25% per year to the bank issuing such letters of credit. At
March 31, 1998, a balance of $26 was outstanding on these letters of credit.
F-37
<PAGE> 163
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
In addition, on April 18, 1997, the Company issued senior subordinated
notes (the "DMC Notes") with an aggregate principal amount of $150 and received
gross proceeds of $147. The DMC Notes accrue interest at 12.25% per year,
payable semiannually in cash on each April 15 and October 15. The DMC Notes are
guaranteed by DMFC and mature on April 15, 2007. The DMC Notes are redeemable at
the option of the Company on or after April 15, 2002 at a premium to par that
initially is 106.313% and that decreases to par on April 15, 2006 and
thereafter. On or prior to April 15, 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.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1998
----------- ----
(UNAUDITED)
<S> <C> <C>
Term Loan........................................... $112 $429
Subordinated Debt................................... 155 --
Senior Subordinated Notes........................... -- 147
Senior Discount Notes............................... -- 126
Other............................................... 1 --
---- ----
268 702
Less current portion................................ 16 24
---- ----
$252 $678
==== ====
</TABLE>
At March 31, 1998, scheduled maturities of long-term debt in each of the
next five fiscal years and thereafter will be as follows:
<TABLE>
<S> <C>
4(th) Quarter 1998.......................................... $ 1
1999........................................................ 32
2000........................................................ 37
2001........................................................ 42
2002........................................................ 47
2003........................................................ 52
Thereafter.................................................. 598
----
809
Less discount on notes...................................... 107
----
$702
====
</TABLE>
The Term Loan and Revolver are collateralized by security interests in
certain of the Company's assets. At March 31, 1998, total assets that are not
pledged to secure debt are less than 10% of the Company's total consolidated
assets. At March 31, 1998, assets totaling $875 were pledged as collateral for
approximately $497 of short-term borrowings and long-term debt.
The DMC Notes, DMFC Notes, Term Loan and Revolver (collectively the "Debt")
agreements contain restrictive covenants with which the Company must comply.
These restrictive covenants, in some circumstances, limit the incurrence of
additional indebtedness, payment of dividends, transactions with affiliates,
asset sales, mergers, acquisitions, prepayment of other indebtedness, liens and
encumbrances. In addition, the Company is required to meet certain financial
tests, including minimum levels of consolidated EBITDA (as
F-38
<PAGE> 164
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
defined in the credit agreement), minimum fixed charge coverage, minimum
adjusted net worth and maximum leverage ratios. The Company is in compliance
with all of the Debt covenants at March 31, 1998.
The Company made cash interest payments of $48 for the nine months ended
March 31, 1998.
As required by the Company's Debt agreements, the Company has entered into
interest rate swap agreements which effectively converts $235 notional principal
amount of floating rate debt to a fixed rate basis for a three-year period
beginning May 22, 1997, thus reducing the impact of interest rate changes on
future income. The Company paid a fixed rate of 6.3750% and received a weighted
average rate of 5.6875%. The incremental effect on interest expense for the nine
months ended March 31, 1998 was approximately $1. The agreements also include a
provision establishing the rate the Company will pay as 7.50% if the three-month
LIBOR rate sets at or above 7.50% during the term of the agreements. The Company
will continue paying 7.50% until the three-month LIBOR again sets below 7.50% at
which time the fixed rate of 6.375% will again become effective. The Company is
exposed to credit loss in the event of nonperformance by the other parties to
the interest rate swap agreements. However, the Company does not anticipate
nonperformance by the counterparties.
NOTE E -- STOCKHOLDERS' EQUITY AND REDEEMABLE STOCK
On February 21, 1997, Del Monte Foods Company entered into a
recapitalization agreement and plan of merger, which was amended and restated as
of April 14, 1997, with affiliates of Texas Pacific Group. Under this agreement,
Shield, a corporation affiliated with TPG, was to be merged with and into DMFC,
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-recapitalization stockholders who remained investors
pursuant to the Recapitalization, were canceled, and were converted into the
right to receive new DMFC common stock. All other shares of DMFC stock were
canceled and were converted into the right to receive cash consideration, as set
forth in the Merger Agreement. In the Merger, the common and preferred stock of
Shield were 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 new common stock
(the "Common Stock"), $.01 par value, and 1,000,000 shares of new preferred
stock (the "Preferred Stock"), $.01 par value. The Company issued and had
outstanding 26,815,880 shares of Common Stock, and 35,000 shares of Preferred
Stock. TPG and certain of its affiliates or partners held 20,925,580 shares of
DMFC's Common Stock, continuing shareholders of DMFC held 2,729,857 shares of
such stock, and other investors held 3,160,443 shares. TPG and certain of its
affiliates held 17,500 outstanding shares of Series A Preferred Stock, and TCW
Capital Investment Corporation held 17,500 outstanding shares of Series B
Preferred Stock.
The Preferred Stock accumulates dividends at the annual rate of 14% of the
liquidation value, payable quarterly. These dividends are 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, or through a
corresponding increase in the liquidation value of such stock. The Preferred
Stock had an initial 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 is 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 purchasers
of Preferred Stock for consideration of $35 received 35,000 shares of Preferred
Stock and warrants to purchase, at a nominal exercise price, shares of DMFC
Common Stock representing 2% of the then-outstanding shares of DMFC Common
Stock. A value of $3 was placed on the warrants, and such amount is reflected as
paid-in-capital within stockholders' equity. The remaining $32 is reflected as
redeemable preferred stock.
F-39
<PAGE> 165
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The two series of preferred stock had no voting rights except the right to
elect one director to the Board for each series, resulting in the authorized
number of directors to be increased, in cases where dividends are in arrears for
six quarters or shares have not been redeemed within ten days of a redemption
date.
On October 13, 1997, the Company authorized a new series of cumulative
redeemable preferred stock, Series C, and authorized issuance of shares of such
new series of preferred stock in exchange for all of the issued and outstanding
shares of cumulative redeemable preferred stock, Series A and B, held by
preferred stock shareholders. The Series A and Series B preferred stock were
retired upon completion of this exchange.
The terms of the Series C preferred stock are substantially identical to
those of the Series A and B stock with the exception of a call premium and right
of holders to require redemption upon a change in control. The Series C
preferred stock will be redeemable at the option of the Company at a redemption
price ranging from 103% of the liquidation preference, if redeemed prior to
October 1998, to 100% of the liquidation preference, if redeemed after October
2000. The Series A and B preferred stock was redeemable by the Company at par.
In the event of a change of control of the Company, the holders of the Series C
preferred stock will have the right to require the Company to repurchase shares
of such stock at 101% of the liquidation preference. Under the terms of the
Series A and B preferred stock, shares of such stock were mandatorily redeemable
(i.e., the holder did not have the option of continuing to hold such shares) at
101% of the liquidation preference.
On January 16, 1998, TPG and certain of its affiliates sold approximately
93% of their preferred stock holdings to unaffiliated investors.
Dividends paid on redeemable preferred stock were $4 for the nine months
ended March 31, 1998 consisting of $1 of additional shares issued and $3 of
accretion of liquidation value.
NOTE F -- EARNINGS PER SHARE
The following table set forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Numerator:
Income before extraordinary item.......... $ 23 $ --
Preferred stock dividends................. (70) (4)
----------- -----------
Numerator for basic and diluted earnings
per share -- loss attributable to
common stock before extraordinary
item................................... $ (47) $ (4)
=========== ===========
Denominator:
Denominator for basic and diluted earnings
per share -- weighted-average shares... 73,332,621 30,389,671
=========== ===========
Basic and diluted loss per common share
before extraordinary item................. $ (0.64) $ (0.12)
=========== ===========
</TABLE>
Since the effect of inclusion of potentially dilutive securities in the
denominator of the diluted loss per share was antidilutive, 547,262 warrants and
774,979 weighted average options were excluded from the computation for the
period ended March 31, 1998.
F-40
<PAGE> 166
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE G -- STOCK PLANS
STOCK OPTION INCENTIVE PLAN
On August 4, 1997, the Company adopted the 1997 Stock Incentive Plan
(amended November 4, 1997) which allows the granting of options to certain key
employees. Options may be granted to participants for up to 1,784,980 shares of
the Company's common stock. Options may be granted as incentive stock options or
as non-qualified options for purposes of the Internal Revenue Code. Options
terminate ten years from the date of grant. Two different vesting schedules have
been approved under the 1997 Stock Incentive plan. The first provides for annual
vesting on a proportionate basis over five years and the second provides for
monthly vesting on a proportionate basis over four years. In addition, on
February 24, 1998, the Company adopted the Del Monte Foods Company Non-Employee
Director and Independent Contractor 1997 Stock Option Plan. Under the plan,
148,828 options were granted. These options terminate 10 years from the date of
grant and vest monthly on a proportionate basis over four years.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE
OPTION SHARES PRICE PER SHARE NUMBER OF SHARES
- ------------- ---------------- ----------------
<S> <C> <C>
Outstanding at July 1, 1997................................ -- --
Granted.................................................... $5.22 1,885,348
Canceled................................................... $5.22 46,353
Exercised.................................................. -- --
Outstanding at March 31, 1998.............................. $5.22 1,838,995
Exercisable at March 31, 1998.............................. $5.22 298,806
Available for grant at March 31, 1998...................... $5.22 94,813
</TABLE>
The weighted-average remaining contractual life for the above options is
9.1 years.
The Company accounts for its stock option plans using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations, under which no
compensation cost for stock options is recognized for stock option awards
granted with an exercise price at or above fair market value.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock Issued to Employees"
("SFAS 123"), and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option-pricing model with the following weighted average assumptions: dividend
yield of 0%, expected volatility of 0; risk-free interest rates of 5.74%; and
expected lives of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The weighted
average fair value per share of options granted during the year was $2.78.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information as calculated in accordance with
F-41
<PAGE> 167
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
SFAS 123, results in a pro forma net income of zero and a pro forma loss per
common share of $(0.13) for the nine months ended March 31, 1998.
The Del Monte Foods Company 1998 Stock Option Plan (the "1998 Stock Option
Plan") was approved on April 24, 1998. Under the 1998 Stock Option Plan, grants
of incentive and nonqualified stock options ("Options"), stock appreciation
rights ("SARs") and stock bonuses (together with Options and SARs, "Awards")
representing 3,064,672 shares of Common Stock may be made to key employees of
the Company. The term of any Option or SAR is not to be more than ten years from
the date of its grant. No Awards have been made under the 1998 Stock Option
Plan.
STOCK PURCHASE PLAN
Effective August 4, 1997, the Del Monte Foods Company Employee Stock
Purchase Plan was established under which certain key employees are eligible to
participate. A total of 957,710 shares of common stock of the Company are
reserved for issuance under the Employee Stock Purchase Plan. At March 31, 1998,
454,146 shares of the Company's common stock were purchased by and issued to
eligible employees. It is anticipated that no future shares will be issued
pursuant to this plan.
Total compensation expense recognized in connection with all stock plans
for the nine months ended March 31, 1998 was $2.
NOTE H -- 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 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. Contributions are intended to provide not only for benefits
attributed to service to date but also for those benefits expected to be earned
in the future. Del Monte's defined benefit retirement plans were determined to
be underfunded under federal ERISA guidelines. In connection with the
Recapitalization, the Company entered into an agreement with the U.S. Pension
Benefit Guaranty Corporation dated April 7, 1997 whereby the Company will
contribute a total of $55 to its defined benefit pension plans through calendar
2001, with $15 contributed within 30 days after the consummation of the
Recapitalization. The contributions to be made in 1999, 2000 and 2001 will be
secured by a $20 letter of credit to be obtained by the Company by August 31,
1998.
F-42
<PAGE> 168
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The following table sets forth the pension plans' funding status and
amounts recognized on the Company's balance sheet at March 31, 1998:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(279)
=====
Accumulated benefit obligation.............................. $(287)
=====
Projected benefit obligation for services rendered to
date...................................................... $(294)
Plan assets at fair value................................... 298
-----
Plan assets in excess of projected benefit obligation....... 4
Unrecognized net actuarial gain............................. (33)
Unrecognized prior service income........................... (1)
-----
Accrued pension cost recognized in the consolidated balance
sheet..................................................... $ (30)
=====
</TABLE>
The components of net periodic pension cost for the nine months ended March
31, 1998 for all defined benefit plans are as follows:
<TABLE>
<S> <C>
Service cost for benefits earned during period.............. $ 2
Interest cost on projected benefit obligation............... 16
Actual return on plan assets................................ (32)
Net amortization and deferral............................... 13
----
Net periodic pension cost................................... $ (1)
====
</TABLE>
Significant rate assumptions used in determining net periodic pension cost
and related pension obligations at March 31, 1998 are as follows:
<TABLE>
<S> <C>
Discount rate used in determining projected benefit
obligation................................................ 7.0%
Rate of increase in compensation levels..................... 5.0
Long-term rate of return on assets.......................... 9.0
</TABLE>
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 the nine-month period ended March 31,
1998 was $5. 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
$1 for the nine-month period ended March 31, 1998.
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 nine months ended March
31, 1998 included the following components:
<TABLE>
<S> <C>
Service cost................................................ $ 1
Interest cost............................................... 6
Amortization of prior service cost.......................... (1)
Amortization of actuarial losses (gains).................... (2)
---
Net periodic postretirement benefit cost.................... $ 4
===
</TABLE>
F-43
<PAGE> 169
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The Company amortizes unrecognized gains and losses at the end of the
fiscal year over the expected remaining service of active employees. The
following table sets forth the plans' combined status reconciled with the amount
included in the consolidated balance sheet at March 31, 1998:
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Current retirees.......................................... $ 86
Fully eligible active plan participants................... 11
Other active plan participants............................ 15
----
112
Unrecognized prior service cost........................... 9
Unrecognized gain......................................... 31
----
Accrued postretirement benefit cost....................... $152
====
</TABLE>
For the nine months ended March 31, 1998, the weighted average annual
assumed rate of increase in the health care cost trend is 12.42%, 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 March 31, 1998 by $11 and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost for the period then ended by $1.
The discount rate used in determining the accumulated postretirement
benefit obligation as of March 31, 1998 was 7.00%.
NOTE I -- PROVISION FOR INCOME TAXES
The provision for income taxes at March 31, 1998 consists of the following:
<TABLE>
<S> <C>
Income before taxes (restated).............................. $ --
=====
Income tax provision(benefit)
Current:
Federal................................................ $ --
State.................................................. --
-----
Total current............................................. --
-----
Deferred:
Federal................................................ --
State.................................................. --
-----
Total deferred............................................ --
-----
$ --
=====
</TABLE>
F-44
<PAGE> 170
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Significant components of the Company's deferred tax assets and liabilities
as of March 31, 1998 are as follows (restated):
<TABLE>
<S> <C>
Deferred tax assets:
Post employment benefits.................................. $ 53
Pension expense........................................... 14
Purchase accounting....................................... 7
Inventory valuation....................................... 8
Workers' compensation..................................... 4
Interest expense.......................................... 2
Intangibles............................................... 7
State income taxes........................................ 14
Other..................................................... 19
Net operating loss and tax credit carry forward........... 29
-----
Gross deferred tax assets.............................. 157
Valuation allowance.................................... (122)
-----
Net deferred tax assets................................ 35
Deferred tax liabilities:
Depreciation.............................................. 30
Other..................................................... 5
-----
Gross deferred liabilities............................. 35
-----
Net deferred tax asset................................. $ --
=====
</TABLE>
There has been no net change in the valuation allowance for the nine months
ended March 31, 1998. The Company believes that, based on a history of tax
losses and related absence of recoverable prior taxes through net operating loss
carryback, it is more likely than not that the net operating losses and the
deferred tax assets will not be realized. Therefore, a full valuation allowance
in the amount of $122 has been recorded.
The differences between the provision for income taxes and income taxes
computed at the statutory U.S. federal income tax rates for the nine months
ended March 31, 1998 are explained as follows:
<TABLE>
<S> <C>
Income taxes (benefit) computed at the statutory U.S.
federal income tax rates.................................. $ --
State taxes, net of federal benefit......................... --
Realization of prior years' net operating losses and tax
credits................................................... --
----
Provision for income taxes.................................. $ --
====
</TABLE>
As of March 31, 1998, the Company had operating loss carryforwards for tax
purposes available from domestic operations totaling $72 which will expire
between 2008 and 2012.
The Company made no income tax payments for the nine months ended March 31,
1998.
F-45
<PAGE> 171
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE J -- COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment and office and plant
facilities. At March 31, 1998, the aggregate minimum rental payments required
under operating leases that have initial or remaining terms in excess of one
year are as follows:
<TABLE>
<S> <C>
4th Quarter 1998............................................ $ 3
1999........................................................ 14
2000........................................................ 13
2001........................................................ 11
2002........................................................ 6
2003........................................................ 5
Thereafter.................................................. 37
----
$ 89
====
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of $6
due through 2016 under noncancelable subleases. Rent expense was $28 for the
nine months ended March 31, 1998. Rent expense includes contingent rentals on
certain equipment based on usage.
The Company has entered into noncancelable agreements with growers, with
terms ranging from two to ten years, to purchase certain quantities of raw
products. Total purchases under these agreements were $68 for the nine months
ended March 31, 1998. The Company also has commitments to purchase certain
finished goods.
At March 31, 1998, aggregate future payments under such purchase
commitments (priced at the March 31, 1998 estimated cost) are estimated as
follows:
<TABLE>
<S> <C>
4th Quarter 1998............................................ $ 6
1999........................................................ 63
2000........................................................ 51
2001........................................................ 40
2002........................................................ 38
2003........................................................ 34
Thereafter.................................................. 78
----
$310
====
</TABLE>
In connection with the sale of the Company's 50.1% interest in Del Monte
Philippines, a joint venture operating primarily in the Philippines, on March
29, 1996, the Company signed an eight-year supply agreement whereby the Company
must source substantially all of its pineapple requirements from Del Monte
Philippines over the agreement term. The Company expects to purchase $11 during
the fourth quarter of fiscal 1998 and $44 in fiscal 1999 under the supply
agreement for pineapple products entered into in conjunction with the sale of
the Del Monte Philippines operations. During the nine months ended March 31,
1998, the Company purchased $33 under the supply agreement.
Effective December 21, 1993, DMC sold substantially all of the assets and
certain related liabilities of its can manufacturing operations in the United
States to Silgan Containers Corporation ("Silgan"). 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.
Purchases under the agreement during the nine-month period
F-46
<PAGE> 172
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
ended March 31, 1998 amounted to $100. 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.
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 nine months ended March 31, 1998 were $13. The
agreement expires in November 2002 with optional successive one year extensions.
At March 31, 1998, base charge payments under the agreement are as follows:
<TABLE>
<S> <C>
4th Quarter 1998............................................ $ 3
1999........................................................ 14
2000........................................................ 14
2001........................................................ 13
2002........................................................ 14
2003........................................................ 5
----
$ 63
====
</TABLE>
Del Monte has a concentration of labor supply in employees working under
union collective bargaining agreements, which represent approximately 84% of its
hourly and seasonal work force. Of these represented employees, 1% of employees
are under agreements that will expire during the remainder of calendar 1998, and
4% of employees are under agreements that will expire in calendar 1999.
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable, and the amounts of such losses are
reasonably estimable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further information
develops or circumstances change. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value.
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 or financial position.
On March 25, 1997, the entities that purchased the Company's Mexican
subsidiary in October 1996 commenced an action in Texas state court 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. In connection with this
action, $8 of the cash proceeds from the Recapitalization which were payable to
shareholders and certain members of senior management of DMFC were held in
escrow to be 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. In January 1998, the Company reached
a settlement of this litigation. The settlement resolves all claims and disputes
relating to the sale of the Company's Mexican subsidiary, including the purchase
price adjustment contemplated at the time of the sale. The Company's portion of
the settlement was within the amount reserved and thus did not adversely impact
net income of the Company.
F-47
<PAGE> 173
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE K -- DEL MONTE CORPORATION
DMC is directly-owned and wholly-owned by DMFC. For the nine months ended
March 31, 1998, DMC and DMC's subsidiaries accounted for 100% of the
consolidated revenues and net earnings of the Company, except for those expenses
incidental to the DMFC Notes. As of March 31, 1998, 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 and the DMFC Notes. The
Company is separately liable under various guarantees of indebtedness of DMC,
which guarantees of indebtedness are full and unconditional.
NOTE L -- RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, the Company entered into a
ten-year agreement dated April 18, 1997 (the "Management Advisory Agreement")
with TPG pursuant to which TPG is entitled to receive an annual fee from the
Company for management advisory services equal to the greater of $.5 or 0.05% of
the budgeted consolidated net sales of the Company. For the nine month period
ended March 31, 1998, TPG received fees of less than $1. 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 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
including advice and assistance in reviewing the Company's business plans and
its results of operations and in evaluating possible strategic acquisitions, as
well as providing investment banking services in identifying and arranging
sources of financing. 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 and are comparable to those obtainable in an
arm's-length transaction with an unaffiliated third party.
In connection with the Recapitalization, the Company also entered into an
agreement dated April 18, 1997 (the "Transaction Advisory Agreement") with TPG
pursuant to which TPG is entitled to receive fees up to 1.5% of the "transaction
value" for each transaction in which the Company is involved, which may include
acquisitions, refinancings and recapitalizations. 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
indebtedness, preferred stock or similar items assumed (or remaining
outstanding). In connection with the Contadina Acquisition, TPG received $3 upon
the closing of the acquisition as compensation for its services as financial
advisor for the acquisition. In management's opinion, the fees provided for
under the Transaction Advisory Agreement reasonably reflect the benefits to be
received by the Company and are comparable to those obtainable in an
arm's-length transaction with an unaffiliated third party.
NOTE M -- PUBLIC OFFERING
The Company has filed a registration statement on Form S-1 with the SEC for
the purpose of making a public offering for shares of its Common Stock (the
"Offering") which is expected to occur during the fourth quarter of 1998. The
Company intends to use the net proceeds of the Offering to (i) repay a portion
of its borrowings outstanding under its Term Loan Facility; (ii) repay a portion
of its senior discount notes; (iii) redeem a portion of its senior subordinated
notes; and (iv) redeem all of its outstanding redeemable preferred stock,
including accreted dividends. In connection with the Offering, the Company
intends to amend
F-48
<PAGE> 174
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
its bank financing agreements and related debt covenants, among other things, to
increase the available revolving loans from an aggregate amount of $350 to $400,
to decrease the term loans from an aggregate amount of $429 to $300 and to
change certain provisions and definitions to reflect changes resulting from the
consummation of the Offering. In connection with the Offering, TPG expects to
receive approximately $4 as compensation for its services as financial advisor
in the Offering.
On May 1, 1998, in contemplation of the Offering, Del Monte Foods Company
merged with and into a newly created, wholly-owned subsidiary incorporated under
the laws of the State of Delaware to change Del Monte Foods Company's state of
incorporation from Maryland to Delaware. The Certificate of Incorporation
authorizes the issuance of an aggregate of 500,000,000 shares of Common Stock
and an aggregate of 2,000,000 shares of preferred stock.
In connection with the Company's proposed public offering of shares of its
Common Stock, on July 22, 1998, the Company declared a 191.542-for-one stock
split of all of the Company's outstanding shares of Common Stock (the "Stock
Split"). Accordingly, all share and per share amounts for the periods have been
retroactively adjusted to give effect to the Stock Split.
NOTE N -- PLANT CONSOLIDATION
In the third quarter of fiscal 1998, management committed to a plan to
consolidate processing operations. In connection with this plan, the Company
recorded charges of $7 in selling, advertising, general and administrative
expenses. These costs relate to severance and benefit costs for 433 employees to
be terminated, which includes all salaried and regular employee groups at the
Stockton and San Jose facilities. No expenditures have been recorded against
this accrual as of March 31, 1998. This plan will be implemented in a specific
sequence over the next three years. The plan involves suspending operations at
the Modesto facility for a year while that facility is reconfigured to
accommodate fruit processing which is currently taking place at the San Jose and
Stockton facilities (which sites will be permanently closed). The tomato
processing currently at the Modesto facility will be moved to the Hanford
facility. Management believes that because of these sequenced activities, it is
not likely that there will be any significant changes to this plan. In addition,
due to historically low turnover at the affected plants, the Company can
reasonably estimate the number of employees to be terminated, and, due to the
existence of union contracts, the Company can reasonably estimate any related
benefit exposure.
The Company anticipates that it will incur total charges of approximately
$35 as a result of these plant closures. These expenses include costs of $16
representing accelerated depreciation resulting from the effects of adjusting
the assets' remaining useful lives to match the period of use prior to the plant
closure, $7 in severance costs (as described above) and various other costs
totaling $12, such as costs to remove and dispose of those assets and ongoing
fixed costs to be incurred during the Modesto plant reconfiguration and until
the sale of the San Jose and Stockton properties. These charges will affect the
Company's results over a five-year period as follows: $10 in fiscal 1998
(including depreciation expense of $3), $12 in fiscal 1999 (including
depreciation expense of $9), $9 in fiscal 2000 (including depreciation expense
of $4), $3 in fiscal 2001 and $1 in fiscal 2002.
Assets that are subject to accelerated depreciation, the costs of which
will begin to be reflected in operations during the fourth quarter of fiscal
1998, consist primarily of buildings and of machinery and equipment, which will
become redundant due to the consolidation of the operations of the two fruit
processing plants and the consolidation of the operations of two tomato
processing plants. At March 31, 1998, the buildings at the San Jose facility had
remaining useful lives of approximately 22 years, which were reduced to two
years. The remaining useful lives of machinery and equipment at the affected
plants have been reduced to one year, two years and three years for the Modesto,
San Jose and Stockton facilities, respectively.
F-49
<PAGE> 175
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE O -- RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its financial statements for the nine months ended
March 31, 1998. This action was taken following consultation with the staff of
the Securities and Exchange Commission regarding the deferral of $16 of gain
resulting from the sale of the Company's 50.1% interest in Del Monte Philippines
in March 1996. The Company had allocated $16 of the $100 proceeds from the sale
to the supply agreement the Company executed in conjunction with the sale. The
deferred gain of $16 was being recognized by the Company over the eight-year
term of the supply agreement. After discussions with the staff of the Securities
and Exchange Commission, the Company has recognized the $16 gain at the time of
the sale.
The financial statements for the nine months ended March 31, 1998 have been
restated to include the $16 gain in retained earnings and to reverse the
recognition of $2 of the deferred gain. The impact of these adjustments on the
Company's financial results as originally reported is summarized as follows:
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
----------- -----------
<S> <C> <C>
Net income (loss) before extraordinary item.......... $ 2 $ --
Net income (loss).................................... 2 --
Net income (loss) attributable to common shares...... (2) (4)
Net income (loss) per common share................... (0.05) (0.12)
</TABLE>
F-50
<PAGE> 176
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Del Monte Foods Company
We have audited the accompanying combined balance sheets of Contadina (a
division of Nestle USA, Inc.) as of December 18, 1997 and December 31, 1996, and
the related statements of operations, divisional equity, and cash flows for the
period January 1, 1997 through December 18, 1997 and for the year ended December
31, 1996. These financial statements are the responsibility of Del Monte Foods
Company 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 financial statements referred to above present fairly,
in all material respects, the financial position of Contadina (a division of
Nestle USA, Inc.) as of December 18, 1997 and December 31, 1996, and the results
of its operations and its cash flows for the period January 1, 1997 through
December 18, 1997 and for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
March 16, 1998
Los Angeles, California
F-51
<PAGE> 177
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED BALANCE SHEETS
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Trade accounts receivable................................. $ 10 $ 17
Other receivables......................................... 3 --
Inventories............................................... 92 98
---- ----
TOTAL CURRENT ASSETS.............................. 105 115
Property, plant and equipment............................... 94 90
Goodwill.................................................... 32 31
---- ----
TOTAL ASSETS...................................... $231 $236
==== ====
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 10 $ 13
Payable to Nestle USA, Inc................................ 17 52
---- ----
TOTAL CURRENT LIABILITIES......................... 27 65
Divisional equity........................................... 204 171
---- ----
TOTAL LIABILITIES AND DIVISIONAL EQUITY........... $231 $236
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-52
<PAGE> 178
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED STATEMENTS OF OPERATIONS AND
DIVISIONAL EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Net sales................................................... $160 $162
Cost of products sold....................................... 151 163
---- ----
Gross profit (loss).................................... 9 (1)
Selling, advertising, administrative and general expense.... 20 26
---- ----
OPERATING LOSS.................................... (11) (27)
Interest expense............................................ 6 6
---- ----
NET LOSS BEFORE INCOME TAXES...................... (17) (33)
DIVISIONAL EQUITY, BEGINNING OF PERIOD...................... 221 204
---- ----
DIVISIONAL EQUITY, END OF PERIOD............................ $204 $171
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-53
<PAGE> 179
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 THROUGH
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(17) $(33)
Adjustments to reconcile net loss to net cash flows used
in operating activities:
Depreciation and amortization.......................... 12 13
Changes in operating assets and liabilities:
Accounts receivable.................................... 9 (4)
Inventories............................................ (16) (6)
Accounts payable and accrued expenses.................. 4 3
---- ----
NET CASH USED IN OPERATING ACTIVITIES............. (8) (27)
INVESTING ACTIVITIES:
Capital expenditures...................................... (10) (8)
Proceeds from sale of assets.............................. 1 --
---- ----
NET CASH USED IN INVESTING ACTIVITIES............. (9) (8)
FINANCING ACTIVITIES: Net borrowings from Nestle USA,
Inc....................................................... 17 35
---- ----
NET CHANGE IN CASH AND CASH EQUIVALENTS........... -- --
Cash and cash equivalents at beginning of period............ -- --
---- ----
CASH AND CASH EQUIVALENTS
AT END OF PERIOD................................ $ -- $ --
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-54
<PAGE> 180
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 18, 1997
(IN MILLIONS)
NOTE A -- ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
General: The accompanying combined financial statements include the
accounts of Contadina Services, Inc., a wholly-owned subsidiary of Nestle USA,
Inc. ("Nestle") and other divisional accounts related to the Contadina canned
business within the culinary division of Nestle ("Contadina") on a carve-out
basis, excluding the effects of product lines not acquired (see Note E).
Contadina operates in one business segment which manufactures and markets
branded, private label, industrial and foodservice processed tomato products
from manufacturing facilities in Hanford, California and Woodland, California.
Contadina's products are distributed throughout the United States.
Contadina does not maintain stand-alone corporate treasury, legal, tax and
other similar corporate support functions. Therefore, corporate general and
administrative expense and interest expense, as well as certain other expenses
(see Note D), are allocated to Contadina from Nestle generally on a proportional
basis. Allocations and estimates, as described in Note D, are based on
assumptions that Del Monte Foods Company management believes are reasonable. It
is impracticable to determine whether such costs are comparable to those which
would have been incurred on a stand-alone basis. Long-term debt and income taxes
are not allocated by Nestle.
All purchases of inventory, payroll, capital and other expenditures are
funded through Contadina's intercompany account with Nestle. Remittances from
sales to customers are collected by Nestle and are accounted for through the
intercompany account. Accordingly, Contadina has no cash on a stand-alone basis.
Trade receivables and payables do represent the amounts due from/to
customers/suppliers at the dates presented.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market.
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 ranges of estimated useful lives for computing depreciation are:
buildings -- 30 years; leasehold improvements -- the shorter of useful life or
life of lease; and machinery and equipment -- 5 to 17 years. Depreciation of
plant and equipment and building and leasehold improvements amortization was $11
for the year ended December 31, 1996 and $12 for the period ended December 18,
1997.
Goodwill: Goodwill represents the excess purchase price over fair value of
acquired assets and liabilities. Goodwill is amortized on a straight-line basis
over 40 years.
Fair Value of Financial Instruments: The carrying amount of the Company's
financial instruments, which include trade accounts receivable, accounts
payable, and accrued expenses, approximates fair value due to the relatively
short maturity of such instruments. The carrying amount of the payable to Nestle
USA, Inc. approximates fair value due to the regular settlement of this account.
Cost of Products Sold: Cost of products sold includes raw material, labor,
and overhead.
Royalties: Under a royalty agreement with Nestle S.A. (parent of Nestle
and legal entity which owns the Contadina trademarks), royalties are charged for
the license of the Contadina trademarks at a rate of 3% of net sales. Royalty
expense under this agreement was $5 for both the year ended December 31, 1996
and the period ended December 18, 1997.
F-55
<PAGE> 181
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
Divisional Equity: Divisional equity includes the combined historical
legal capital of Contadina Services, Inc. and profit and losses of Contadina
subsequent to December 31, 1995 on a carve-out basis. Pre-1996 results of
operations for the acquired product line are not available. Transactions with
Nestle for all other intercompany transactions are included in and settled
through the intercompany account payable to Nestle.
Use of Estimates: Certain amounts reported in the financial statements are
based on management estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities as of December 31, 1996 and December 18, 1997, and the reported
amounts of income and expenses for the year ended December 31, 1996 and the
period ended December 18, 1997. The ultimate resolution of these items may
differ from those estimates.
Change in Accounting Principle: Effective January 1, 1996, Contadina
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. Contadina evaluates impairment based upon undiscounted future cash
flows. If such cash flows indicate that long-lived assets may not be
recoverable, the loss is measured by discounting cash flows to present value.
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. Contadina does not depreciate long-lived assets held for sale. There
was no material effect upon the adoption of this statement.
F-56
<PAGE> 182
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Trade Accounts Receivable:
Trade..................................................... $ 10 $ 17
Allowance for doubtful accounts........................... -- --
---- ----
TOTAL TRADE ACCOUNTS RECEIVABLE................... $ 10 $ 17
==== ====
Inventories:
Finished product.......................................... $ 60 $ 69
Raw materials and supplies................................ 35 32
Other, principally packaging material..................... 2 2
Reserves.................................................. (5) (5)
---- ----
TOTAL INVENTORIES................................. $ 92 $ 98
==== ====
Property, Plant and Equipment:
Land and land improvements................................ $ 8 $ 4
Buildings................................................. 36 40
Machinery and equipment................................... 110 125
Construction in progress.................................. 10 3
---- ----
164 172
Accumulated amortization.................................. (70) (82)
---- ----
PROPERTY, PLANT AND EQUIPMENT, NET................ $ 94 $ 90
==== ====
Goodwill:
Goodwill.................................................. $ 44 $ 44
Accumulated amortization.................................. (12) (13)
---- ----
GOODWILL, NET..................................... $ 32 $ 31
==== ====
Accounts payable and accrued expenses:
Accounts payable.......................................... $ 6 $ 2
Payroll................................................... 1 1
Marketing................................................. 1 8
Other..................................................... 2 2
---- ----
TOTAL ACCOUNTS PAYABLE AND ACCRUED EXPENSES....... $ 10 $ 13
==== ====
</TABLE>
NOTE D -- CORPORATE ALLOCATIONS AND RELATED PARTY INFORMATION
Goodwill is associated with the acquisition of Carnation Foods in 1985, the
then-parent of Contadina, and was not recorded in the individual business units'
accounts. As such, goodwill relating to Contadina has been allocated based on a
percentage derived from the tax basis goodwill specifically identified to
Contadina in relation to total tax basis goodwill. This relative percentage was
then applied to aggregate goodwill to determine book basis goodwill attributable
to Contadina. This allocation basis was determined to be reasonable by Del Monte
Foods Company management.
Since invoicing is centralized at Nestle for all business units, customer
discounts and unapplied cash related to trade receivables are allocated based on
Contadina relative sales dollars on a customer invoice as a percentage of the
total sales dollars on the customer invoice. Cash discounts are allocated to
Contadina based
F-57
<PAGE> 183
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
on Contadina receivables as a percent of total consolidated Nestle receivables.
A specific reserve for doubtful accounts is not maintained on a business unit
basis. Therefore, a reserve for doubtful accounts was established for Contadina
through an allocation of the corporate reserve based on the percentage of
Contadina's outstanding receivables to the total Nestle outstanding accounts
receivable balance.
Variable distribution costs are allocated based on the applied usage rate
for the respective products. Fixed distribution costs are allocated on an
historical average cost per case basis. Allocated distribution costs included in
cost of products sold for the year ended December 31, 1996 were $5 and for the
period ended December 18, 1997 were $7. Marketing and sales force expense is
allocated based on relative Contadina sales dollars to total Nestle sales
dollars. The majority of warehousing costs reported are actual costs related to
Contadina's two facilities; however, a component of warehousing cost also
includes costs allocated from Nestle based on historical average inventory
stored at the distribution center.
General and administrative expenses are, for the most part, allocated by
function. Allocated selling, marketing, general and administrative expenses
amounted to $12 for the year ended December 31, 1996 and to $20 for the period
ended December 18, 1997. Benefit costs are allocated at a rate of 40% of gross
wages which is representative of total benefit costs (including pension,
postretirement benefits, bonus, 401(k) matching contribution and vacation) to
total compensation. Interest expense is charged to Contadina based on the end-
of-month working capital balance at an intercompany rate equal to 7% for all
periods.
Contadina's sales of product to Nestle were $6 for both the year ended
December 31, 1996 and the period ended December 18, 1997.
NOTE E -- SALE OF CONTADINA
On December 19, 1997, Del Monte Foods Company acquired the Contadina canned
tomato businesses, including the Contadina trademark worldwide, capital assets
and inventory from Nestle and Contadina Services, Inc., for a total purchase
price of $197 paid solely in cash, comprised of a base price of $177 and an
estimated net working capital adjustment of $20. The purchase price is subject
to adjustment based on the final calculation of net working capital as of the
closing date. In accordance with the asset purchase agreement, dated November
12, 1997, by and among Del Monte Foods Company, Del Monte Corporation ("DMC")
and Nestle USA, Inc., Nestle has provided its calculation of the net working
capital which would result in a payment to DMC of approximately $2. DMC has
until April 18, 1998 to review this calculation and determine if it has an
objection to the calculation.
F-58
<PAGE> 184
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO WHICH
IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT ANY INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements.............. iii
Available Information................... iv
Prospectus Summary...................... 1
Risk Factors............................ 17
The Exchange Offer...................... 23
Recent Developments..................... 31
Use of Proceeds......................... 32
Capitalization.......................... 32
Unaudited Pro Forma Financial Data...... 33
Notes to Unaudited Pro Forma Statements
of Operations......................... 36
Selected Consolidated Financial Data.... 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 43
Business................................ 55
Corporate History....................... 70
Management.............................. 72
Certain Relationships and Related
Transactions.......................... 81
Capital Stock of DMFC................... 83
Description of Indebtedness............. 85
Description of the Notes................ 88
U.S. Federal Income Tax
Considerations........................ 116
Plan of Distribution.................... 119
Legal Matters........................... 120
Experts................................. 120
Index to Financial Statements........... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$230,000,000
[LOGO]
DEL MONTE FOODS COMPANY
OFFER TO EXCHANGE
12 1/2% SENIOR DISCOUNT
NOTES DUE 2007
FOR
SERIES B 12 1/2% SENIOR DISCOUNT
NOTES DUE 2007
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
------------------------
PROSPECTUS
------------------------
AUGUST 20, 1998
- ------------------------------------------------------
- ------------------------------------------------------
