<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 1999
REGISTRATION NO. 333-48235
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DEL MONTE FOODS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 13-3542950
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE MARKET
SAN FRANCISCO, CALIFORNIA 94105
TELEPHONE: (415) 247-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM R. SAWYERS, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
DEL MONTE FOODS COMPANY
ONE MARKET
SAN FRANCISCO, CALIFORNIA 94105
TELEPHONE: (415) 247-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
JANET L. FISHER, ESQ. PAUL C. PRINGLE, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON BROWN & WOOD LLP
ONE LIBERTY PLAZA 555 CALIFORNIA STREET
NEW YORK, NEW YORK 10006 SAN FRANCISCO, CALIFORNIA 94104
TELEPHONE: (212) 225-2000 TELEPHONE: (415) 772-1200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
DEL MONTE FOODS COMPANY
REGISTRATION STATEMENT ON FORM S-1
(Cross Reference Sheet Furnished Pursuant to Item 501(b) of Regulation S-K)
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
----------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Outside Front Cover Page of Prospectus
2. Inside Front Cover Page of Prospectus.... Inside Front Cover Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Outside Front Cover Page of Prospectus;
Underwriters
6. Dilution................................. Risk Factors; Dilution
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Outside Front Cover Page of Prospectus;
Underwriters
9. Description of Securities to be
Registered................................. Description of Capital Stock
10. Interest of Named Experts and Counsel.... Legal Matters; Experts
11. Information with Respect to the
Registrant................................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Capitalization;
Dilution; Unaudited Pro Forma Financial Data;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Corporate History;
Management; Principal and Selling
Stockholders; Certain Relationships and
Related Transactions; Description of Capital
Stock; Description of Certain Indebtedness;
Shares Eligible for Future Sale; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
EXPLANATORY NOTE
This Registration Statement contains two separate prospectuses, one to be
used in connection with an offering of common stock in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent offering of
common stock outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus will be
identical in all respects except for the front cover page.
The form of the U.S. Prospectus is included herein and the form of the
front cover page of the International Prospectus follows the back cover page of
the U.S. Prospectus.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued January 19, 1999
20,000,000 Shares
DEL MONTE FOODS COMPANY
COMMON STOCK
[DEL MONTE LOGO]
------------------------
DEL MONTE IS OFFERING 16,667,000 SHARES AND CERTAIN STOCKHOLDERS OF DEL MONTE
ARE OFFERING 3,333,000 SHARES. DEL MONTE IS OFFERING 16,000,000 SHARES OF COMMON
STOCK INITIALLY IN THE UNITED STATES AND CANADA AND 4,000,000 SHARES INITIALLY
OUTSIDE THE UNITED STATES AND CANADA. THIS IS OUR INITIAL PUBLIC OFFERING AND NO
PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. DEL MONTE ANTICIPATES THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $14 AND $16 PER SHARE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE, ON THE
NEW YORK STOCK EXCHANGE AND THE PACIFIC EXCHANGE UNDER THE SYMBOL "DLM."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 11.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY STOCKHOLDERS
-------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total.......................... $ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Del Monte and certain of its stockholders have granted the underwriters the
right to purchase up to an additional 3,000,000 shares to cover overallotments.
The underwriters expect to deliver the shares to purchasers on ,
1999.
------------------------
MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1999
<PAGE> 4
[PHOTOGRAPHS DEPICTING COLLAGES OF COMPANY PRODUCTS TO BE INSERTED ON
INSIDE FRONT COVER AND INSIDE BACK COVER PAGES]
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
General Information................... 10
Risk Factors.......................... 11
Recent Developments................... 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Unaudited Pro Forma Financial Data.... 20
Selected Consolidated Financial
Data................................ 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Corporate History..................... 59
Management............................ 61
Principal and Selling Stockholders.... 71
Certain Relationships and Related
Transactions........................ 74
Description of Capital Stock.......... 76
Description of Certain Indebtedness... 78
Certain U.S. Tax Consequences to
Non-U.S. Holders.................... 81
Shares Eligible for Future Sale....... 82
Underwriters.......................... 83
Legal Matters......................... 86
Experts............................... 86
Index to Financial Statements......... F-1
</TABLE>
You should rely only on the information contained in this prospectus. Del Monte
has not authorized anyone to provide you with information different from that
contained in this prospectus. Del Monte and the underwriters are offering to
sell shares of common stock and seeking offers to buy shares of common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or any sale of the common
stock.
DEL MONTE AND THE UNDERWRITERS HAVE NOT TAKEN ANY ACTION TO PERMIT A PUBLIC
OFFERING OF THE SHARES OF COMMON STOCK OUTSIDE THE UNITED STATES OR TO PERMIT
THE POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS TO THE PUBLIC OUTSIDE THE
UNITED STATES. PERSONS OUTSIDE THE UNITED STATES WHO COME INTO POSSESSION OF
THIS PROSPECTUS MUST INFORM THEMSELVES ABOUT AND OBSERVE ANY RESTRICTIONS
RELATING TO THE OFFERING OF THE SHARES OF COMMON STOCK AND THE DISTRIBUTION OF
THIS PROSPECTUS OUTSIDE OF THE UNITED STATES.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE SHARES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
i
<PAGE> 6
PROSPECTUS SUMMARY
The following summary highlights some of the information in this prospectus. It
is not complete and may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements. Unless the context otherwise requires, "Del Monte" means Del Monte
Foods Company, and the "Company" means Del Monte and its consolidated
subsidiaries. The Company's fiscal year ends on June 30, and its fiscal quarters
end on the last Sunday of September, December and March. The "Contadina
Acquisition" means the Company's acquisition of assets comprising Nestle USA,
Inc.'s ("Nestle") U.S. business of manufacturing and marketing certain canned
tomato products ("Contadina"). Unless this prospectus states otherwise, all
information assumes the underwriters do not exercise the overallotment option.
THE COMPANY
The Company manufactures and distributes premium quality, nutritious food
products under the Del Monte and other brand names. The Company is the largest
producer of canned vegetables and canned fruit in the United States, with pro
forma net sales of $1.4 billion in fiscal 1998. The Del Monte brand was
introduced in 1892, and management believes it is the best known brand among
canned food products in the United States. The Company believes that the wide
range of its products provides a competitive advantage in reaching retail
grocery customers.
The Company sells its products through national grocery chains and
independent grocery stores. The Company also sells to warehouse club stores and
mass merchandisers, such as Wal-Mart and Kmart, and larger merchandising outlets
that include full grocery sections, such as Wal-Mart Supercenters and Kmart's
Super Ks. The Company also sells its products to the foodservice industry, food
processors, the U.S. military and in certain export markets. The Company has 14
production facilities in California, the Midwest, Washington and Texas and six
distribution centers.
The Company was recapitalized in April 1997. In that transaction, Texas
Pacific Group, a private investment group, obtained a controlling interest in
the Company. Under a new senior management team, the Company has implemented a
new strategy to increase its sales and margins. This strategy includes (i)
increasing market share and household penetration of the Company's existing high
margin value-added products; (ii) introducing new products and new forms of
packaging such as glass and plastic; (iii) increasing penetration of high growth
distribution channels, such as supercenters, mass merchandisers and warehouse
clubs; (iv) achieving cost savings through operating efficiencies, plant
consolidations and investments in new and upgraded equipment; and (v) completing
strategic acquisitions.
COMPETITIVE STRENGTHS
Del Monte believes it has the following competitive strengths:
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte brand
name is a leading name in the food industry. The Company recently acquired the
Contadina brand name, which is also well-established nationally with a strong
reputation for quality. For the 52 weeks ended September 26, 1998, the Company
had the largest market share among producers of branded food products in
canned vegetable (20.5%), canned fruit (42.6%) and the high margin, canned
solid tomato category (16.5%).
- - TECHNICAL EXPERTISE AND LOW COST PRODUCTION ADVANTAGES -- The Company has
significant experience in developing new and innovative products and packaging
to generate increased sales. The Company also has significant expertise in
creating efficient food processing operations to reduce costs. The Company can
leverage each of these capabilities across many food categories. The Company
provides technical support to and benefits from its many long-term
relationships with experienced growers who work with the Company to maximize
yields on the Company's vegetable, fruit and tomato raw materials. Based on
these and other factors, the Company believes that it is one of the lowest
cost producers in its product lines in the United States.
1
<PAGE> 7
- - PREFERRED SUPPLIER STATUS -- Competitive pressures and mergers among grocery
chains are causing many retailers to prefer large suppliers that, as a single
vendor, can provide category expertise, continuity of supply, complete product
lines and popular brands. These retailers are also demanding that suppliers
have sophisticated technology, including inventory and category management
programs. The Company anticipated these trends and has developed proprietary
software tools to help its customers and promote sales of its products. Most
of the customers that have used the Company's management tools have increased
the shelf space they devote to the Company's products. The Company has strong,
well-developed relationships with all major participants in the retail grocery
industry and believes that these relationships will become increasingly
important as consolidation in the industry continues.
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company has an
extensive sales and distribution network that permits the Company to compete
efficiently with other national brands and regional competitors and to
introduce its products regionally or nationally.
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, Del
Monte's Chief Executive Officer and Chief Operating Officer, are veteran
senior managers with extensive food industry experience. Mr. Wolford has
worked 32 years in the food industry, 20 of which were with Dole. Mr. Smith
has 26 years of experience in the food industry, 23 of which were also at
Dole.
BUSINESS STRATEGY
The Company's business strategy has the following key elements:
- - 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, value added
products, such as its specialty fruits and vegetables, diced tomatoes and its
single serve Fruit Cup snack line. These products have potential due to either
low market shares or low household penetration relative to the Company's
overall position in the relevant food category.
- - FOCUS ON CONSUMPTION DRIVEN MARKETING -- 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 coupons, and has clearly positioned its products to emphasize their
premium quality. The Company has also implemented performance-based programs
for its trade spending with its customers. Under these programs, the Company
manages trade spending, which consists of the costs of promotional activities
with grocery chains and other customers (such as special displays, discounts
and advertisements), based on retailers' sales of the Company's products to
customers, rather than on their purchases of products from the Company.
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
emphasizing new, higher margin products and line extensions to leverage the
Company's presence in its existing product categories and to capitalize on its
food technology expertise. The Company is also developing new packaging forms
such as glass and plastic. These innovations have resulted in the successful
introduction of flavored diced tomatoes, two lines of single serve flavored
canned fruit and Orchard Select, a premium fruit product packaged in glass.
The Company has begun testing single serve fruit products packaged in plastic.
These products extend the Company's traditional product lines and appeal to
consumer demand for high quality, convenient and nutritious food products.
- - INCREASE PENETRATION OF HIGH-GROWTH DISTRIBUTION CHANNELS -- Alternative
retailers, such as warehouse clubs, mass merchandisers and supercenters, have
grown as the retail grocery industry has changed in recent years. The Company
believes that it is well-positioned to benefit from these changes because
these vendors generally seek leading brand name products that generate high
inventory turnover. These vendors are also attracted to reliable suppliers
with full product lines that have the ability to meet their stringent
inventory and shelf management requirements. Based on its internal estimates,
the Company believes it is a leading supplier to Wal-Mart's Sam's Club, Costco
and Wal-Mart Supercenters.
2
<PAGE> 8
- - IMPLEMENT FURTHER COST SAVINGS -- The Company is aggressively pursuing cost
reduction opportunities, which have already made substantial contributions to
the Company's operating cash flow. The Company plans to implement capital
projects that offer rapid returns on investment and to consolidate its plants
where that would increase efficiency. The Company is also investing in new,
state-of-the-art production equipment to strengthen its position as a low cost
producer.
- - COMPLETE STRATEGIC ACQUISITIONS -- The Company continuously reviews
acquisition opportunities and will pursue acquisitions to increase margins and
profitability by leveraging the Company's key strengths in product
development, food processing, marketing, sales and distribution. The Company
seeks (i) strong brands, including those with value added 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 grow faster through re-branding under one of the Company's brand names;
and (iii) economies of scale in manufacturing, distribution and capacity
utilization.
--------------------------
After the offering, TPG Partners, L.P. ("TPG Partners") and some of its
affiliates (with TPG Partners, "TPG") will own 46.7% of the common stock (42.9%
if the underwriters exercise the overallotment option in full) and will be able
to control the Company's management and policies and matters requiring
stockholder approval. TPG is part of Texas Pacific Group. David Bonderman, James
G. Coulter and William S. Price, III founded Texas Pacific Group in 1992 to
pursue public and private investment opportunities. TPG's other investments
include Beringer Wine Estates Holdings, Inc., Ducati Motors S.p.A., Favorite
Brands International, Inc. and J. Crew Group, Inc.
Del Monte is a Delaware corporation, with its principal executive office at
One Market, San Francisco, California 94105. Its telephone number is (415)
247-3000.
3
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
Del Monte................................................ 16,667,000 shares
The Selling Stockholders................................. 3,333,000 shares
Total................................................. 20,000,000 shares(1)
Common stock offered in:
United States offering................................... 16,000,000 shares
International offering................................... 4,000,000 shares
Total................................................. 20,000,000 shares(1)
Common stock to be outstanding after the offering.......... 52,163,943 shares(1)
Use of proceeds............................................ Del Monte intends to use the net
proceeds from the offering to repay or
redeem certain outstanding
indebtedness and preferred stock. Del
Monte will not receive any of the
proceeds from the sale of shares by
its stockholders. See "Use of
Proceeds."
Proposed New York Stock Exchange and Pacific Exchange
symbol................................................... DLM
Risk factors............................................... For a discussion of certain risks that
you should consider, see "Risk
Factors." These risks include, among
others, the Company's substantial
leverage and risks relating to
competition in the processed food
industry, the implementation of the
Company's business strategy and the
effects of severe weather conditions,
as well as risks and considerations
relating to the common stock, such as
the lack of a prior trading market and
the dilution that purchasers will
experience upon completion of the
offering.
</TABLE>
- ---------------
(1) Assumes the underwriters do not exercise the overallotment option.
4
<PAGE> 10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
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. This in turn reduced the
purchase price to a total of $195 million. The Contadina Acquisition also
included the assumption of liabilities of approximately $5 million, consisting
primarily of liabilities in respect of reusable packaging materials, employee
benefits and product claims. The Company accounted for the Contadina Acquisition
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 as of
June 30, 1996, 1997 and 1998 and for the years then ended were derived from the
audited consolidated financial statements of the Company. The summary historical
consolidated financial data as of September 30, 1997 and 1998 and for the three
months then ended were derived from the unaudited interim financial statements
of the Company. You should read this historical financial information in
conjunction with the consolidated financial statements of the Company. The
Company prepared the unaudited pro forma statement of operations information as
if the Contadina Acquisition and related financings had occurred as of July 1,
1997 (the results of operations of Contadina since the date of acquisition have
been included in the historical Company revenues and expenses for the year ended
June 30, 1998 and the three months ended September 30, 1998). You should read
this information in conjunction with the pro forma financial information set
forth under "Unaudited Pro Forma Financial Data." The unaudited pro forma
statement of operations information does not purport to represent what the
Company's results of operations actually would have been if the Contadina
Acquisition had occurred on the date indicated or what those results will be for
any future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------------------- ------------------------
ACTUAL PRO FORMA ACTUAL
------------------------------------ ------------- ------------------------
1996 1997 1998 1998 1997 1998
---------- ---------- ---------- ------------- ----------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................... $ 1,305 $ 1,217 $ 1,313 $ 1,405 $ 251 $ 318
Cost of products sold........................ 984 819 898(a) $ 973(a) 172 218
Selling, administrative and general
expense.................................... 239 327(b) 316 341 62 80
Special charges related to plant
consolidation(c)........................... -- -- 10 10 -- 7
Acquisition expenses......................... -- -- 7 7 -- 1
---------- ---------- ---------- ---------- ---------- ----------
Operating income............................. 82 71 82 74 17 12
Interest expense............................. 67 52 77 86 17 21
(Gain) loss on sale of divested assets(d).... (123) 5 -- -- -- --
Other (income) expense....................... 3 30(e) (1) (1) -- 2
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes, minority
interest, extraordinary item and cumulative
effect of accounting change................ 135 (16) 6 (11) -- (11)
Provision for income taxes................... 11 -- 1 1 -- --
Minority interest in earnings of
subsidiary................................. 3 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item
and cumulative effect of accounting
change..................................... 121 (16) 5 (12) -- (11)
Extraordinary loss(f)........................ 10 42 -- -- -- --
Cumulative effect of accounting change(g).... 7 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............................ 104 (58) 5 (12) -- (11)
Preferred stock dividends.................... 82 70 5 5 2 1
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to common
shares(h).................................. $ 22 $ (128) $ -- $ (17) $ (2) $ (12)
========== ========== ========== ========== ========== ==========
Net income (loss) per common share........... $ 0.29 $ (2.07) $ 0.01 $ (0.50) $ (0.06) $ (0.34)
Weighted average number of shares
outstanding................................ 75,047,353 61,703,436 31,619,642 34,812,008 26,815,880 35,495,683
</TABLE>
5
<PAGE> 11
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, THREE MONTHS ENDED
------------------------------------------------- SEPTEMBER 30,
PRO -----------------------
ACTUAL FORMA ACTUAL
------------------------------------ ---------- -----------------------
1996 1997 1998 1998 1997 1998
---------- ---------- ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CERTAIN DATA AS ADJUSTED FOR THE OFFERING:(i)
Interest expense(j)............................... $62 $14
Net income (loss)................................. 12 (4)
Net income (loss) per common share................ 0.25 (0.08)
Weighted average number of shares outstanding..... 48,285,642 52,162,683
OTHER DATA:
Adjusted EBITDA(k)................................ $ 92 $ 119 $ 135 $ 23 $30
Adjusted EBITDA margin(k)......................... 8.6% 10.2% 10.3% 9.2% 9.4%
Cash flows provided by (used in) operating
activities...................................... $ 60 $ 25 $ 97 $(153) $(153)
Cash flows provided by (used in) investing
activities...................................... 170 37 (222) (2) (37)
Cash flows provided by (used in) financing
activities...................................... (224) (63) 127 155 194
Depreciation and amortization(l).................. 26 24 29 $31 6 8
Capital expenditures.............................. 16 20 32 37 2 5
SELECTED RATIOS:
Ratio of earnings to fixed charges(m)............. 2.8x -- 1.1x -- 1.0x --
Deficiency of earnings to cover fixed
charges(m)...................................... -- $ 16 -- $11 -- $11
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------------------- ------------------------------------
AS
ACTUAL ACTUAL ADJUSTED(I)
------------------------------- ------------------- --------------
1996 1997 1998 1997 1998 1998
---------- ---------- ----- ---------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED) (RESTATED)
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 209 $ 118 $ 210 $ 117 $ 171 $ 180
Total assets............................................. 736 667 845 956 1,201 1,195
Total debt, including current maturities................. 373 610 709 765 904 736
Redeemable preferred stock............................... 213 32 33 32 33 --
Stockholders' deficit.................................... (288) (398) (350) (398) (361) (160)
</TABLE>
Note: Financial data under the columns marked "restated" reflect the information
from the Company's restated financial statements.
- ---------------
(a) The historical fiscal year ended June 30, 1998 and the pro forma fiscal
year ended June 30, 1998 include $3 million and $6 million of inventory
write-up as part of the purchase price allocation relating to the
Contadina Acquisition.
(b) In connection with the Company's recapitalization on April 18, 1997, the
Company incurred expenses of approximately $25 million primarily for
management incentive payments and, in part, for severance payments.
(c) In fiscal 1998, the Company recorded charges of $7 million related to
severance and benefit costs for employees to be terminated in connection
with a plant consolidation. The Company also recorded $3 million in fiscal
1998 and $4 million in the three months ended September 30, 1998
representing accelerated depreciation resulting from adjusting remaining
useful lives of assets to match the period of use prior to plant closures.
In addition, in the three-month period ended September 30, 1998, the
Company charged $3 million to earnings representing the write-down to fair
value of certain assets held for sale.
(d) In November 1995, the Company sold its pudding business for $89 million,
net of $4 million of transaction fees, and recorded 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,
6
<PAGE> 12
net of $2 million of transaction fees, and recorded a gain of $52 million.
In the fiscal quarter ended December 1996, the Company sold its Mexican,
Central American and Caribbean subsidiaries (collectively "Del Monte Latin
America"). The combined sales price of $50 million, reduced by $2 million
of 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 1997, the Company incurred $22 million of expenses in
conjunction with its recapitalization, primarily for legal, investment
advisory and management fees.
(f) 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, the
Company charged to net income $42 million of expenses related to the
early retirement of debt and to the Company's recapitalization. In
September 1996, the Company repurchased outstanding debt and, in
conjunction with that repurchase, the Company wrote off capitalized debt
issue costs of $4 million, net of a discount on such debt. The Company
accounted for the write-off as an extraordinary loss. In conjunction with
the refinancing of debt that occurred at the time of the Company's
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 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 this statement resulted in a charge to
fiscal 1996 net earnings of $7 million.
(h) The Company computes net income (loss) attributable to the shares of
common stock as net income (loss) reduced by the cash and in-kind
dividends for the period on redeemable preferred stock.
(i) Adjusted to give effect to the issuance by the Company of 16,667,000
shares in this offering assuming an initial public offering price of
$15.00 per share and the use of the net proceeds to fund the repayment of
$197 million of long-term debt and the redemption of preferred stock and
a corresponding reduction in fixed charges at the beginning of the
relevant periods.
(j) The table below presents as adjusted interest expense, including the
respective interest rates and related fees, and as adjusted amortization
of deferred financing costs after giving effect to this offering. See
"Use of Proceeds."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1998 SEPTEMBER 30, 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.............. 7.74% $ 46 $ 4 7.81% $ -- $--
Tranche A of Term Loan Facility........ 8.08 168 14 7.81 165 3
Tranche B of Term Loan Facility........ 8.63 190 17 8.56 189 4
DMC Notes.............................. 12.25 98 12 12.25 98 3
Del Monte Notes........................ 12.50 84 11 12.50 92 3
--- ---
Pro forma interest expense........... 58 13
Pro forma amortization of deferred
financing costs....................... 4 1
--- ---
Total pro forma interest expense..... $62 $14
=== ===
</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 relevant period.
(k) 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
7
<PAGE> 13
gains (losses) on sales of assets and the results of the Divested
Operations (as defined herein). You should not consider adjusted EBITDA in
isolation from, and it 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 the Company has divested and of one-time charges or
credits. 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 fiscal 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 fiscal 1998 also include $7 million of expenses incurred in
connection with the Contadina Acquisition and $3 million of inventory
write-up due to the purchase price allocation related to the Contadina
Acquisition. Historical one-time charges in three months ended September
30, 1998 include $3 million of write-off of assets related to the
Arlington plant closure (recorded as "Special charges related to plant
consolidation"), $1 million of acquisition-related expenses incurred in
connection with the South America Acquisition (as defined herein), $2
million of inventory write-up due to the purchase price allocation related
to the Contadina Acquisition and $2 million representing expenses of the
Company's public equity offering, which was cancelled. Adjusted EBITDA
margin is calculated as Adjusted EBITDA as a percentage of net sales
(excluding net sales of Divested Operations of $233 million and $48
million for the years ended June 30, 1996 and 1997). See tabular
presentation under "Selected Consolidated Financial Data."
(l) Depreciation and amortization exclude amortization of $5 million of
deferred debt issuance costs in each of fiscal 1996 and 1997 and $3
million of deferred debt issuance costs in fiscal 1998. Depreciation and
amortization exclude amortization of $1 million of deferred debt issuance
costs in both of the three-month periods ended September 30, 1997 and
1998. Pro forma depreciation and amortization exclude amortization of $5
million of pro forma deferred debt issuance costs for fiscal 1998. In
addition, in fiscal 1998 and the three months ended September 30, 1998,
depreciation and amortization exclude $3 million and $4 million of
accelerated depreciation, which is recorded as "Special charges related to
plant consolidation."
(m) 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.
8
<PAGE> 14
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.
Nestle did not operate Contadina 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 and the period ended December 18, 1997.
<TABLE>
<CAPTION>
JANUARY 1, 1997
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 18, 1997
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Net sales.................................................. $160 $162
Cost of products sold(a)................................... 151 163
---- ----
Gross margin.......................................... 9 (1)
Selling, administrative
and general expense(b)................................... 20 26
---- ----
Operating loss............................................. (11) (27)
Interest expense(c)........................................ 6 6
---- ----
Net loss before taxes................................. $(17) $(33)
==== ====
OTHER DATA:
Depreciation and amortization.............................. $ 12 $ 13
Capital expenditures....................................... 10 8
</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. Under
a royalty agreement with Nestle S.A., royalties were charged for the
license of the Contadina trademarks. The Company will not incur this
expense as part of the on-going operations of Contadina. 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 and $7 million for the year ended December
31, 1996 and the period ended December 18, 1997. The Company believes that,
as part of on-going operations of Contadina, 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, 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 and the period ended December 18, 1997, allocated marketing
expense was $8 million and $10 million. 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 and $10 million for the year ended December 31, 1996
and the period ended December 18, 1997.
(c) Represents an allocation that Nestle charged to Contadina based on the
end-of-month working capital balance at an intercompany rate equal to 7%
for all periods.
9
<PAGE> 15
GENERAL INFORMATION
This prospectus contains forward-looking statements, including those in the
sections captioned "Prospectus Summary," "Risk Factors," "Unaudited Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." Del Monte may also make
forward-looking statements in its periodic reports to the Securities and
Exchange Commission (the "Commission") on Forms 10-K, 10-Q, 8-K, in its annual
report to shareholders, proxy statements, offering circulars and prospectuses,
press releases and other written materials and in oral statements made by its
officers, directors or employees to third parties. Statements that are not
historical facts, including statements about Del Monte's beliefs and
expectations, are forward-looking statements. These statements are based on
plans, estimates and projections at the time Del Monte makes the statements, and
you should not place undue reliance on them. Del Monte does not undertake to
update any of these statements in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. Del Monte
cautions you that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. These
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."
------------------------
Del Monte(R) and Contadina(R) are the Company's principal registered trademarks.
The Company's other trademarks include Fruit Cup(R), FreshCut(TM), Snack
Cups(R), Fruit Naturals(R), Orchard Select(R), Can Do(R) and Del Monte Lite(R).
------------------------
Unless otherwise indicated, references herein to U.S. market share data are to
case volume sold through retail grocery stores (excluding warehouse clubs and
supercenters) with at least $2 million in sales and are based upon data provided
to the Company by A.C. Nielsen Company, an independent market research firm.
ACNielsen makes this data available to the public at prescribed rates. Market
share data for canned vegetables and solid tomato products include only those
categories in which the Company competes. The 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.
Data for canned solid tomato products is pro forma for both the Company and
Contadina sales.
10
<PAGE> 16
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in the shares.
OUR HIGH LEVERAGE COULD ADVERSELY AFFECT OUR BUSINESS
The Company is highly leveraged. On a pro forma basis, as of September 30,
1998, after giving effect to the offering, the Company had $1.4 billion of
long-term debt (including trade payables and non-current liabilities) and a
stockholders' deficit of $160 million. The Company can incur additional
indebtedness to complete capital projects or acquisitions, even though its
principal credit facility imposes some limits on the ability to do so. Because
its business is seasonal, the Company's borrowings fluctuate significantly
during the year, generally peaking in September and October.
The Company's high degree of leverage can have important adverse
consequences, such as:
- Limiting the Company's ability to obtain additional financing to fund its
growth strategy, working capital, capital expenditures, debt service
requirements or other cash requirements;
- Limiting the Company's ability to invest operating cash flow in its
business because it uses a substantial portion of these funds to pay debt
service;
- Limiting the Company's ability to compete with companies that are not as
highly leveraged and that may be better positioned to withstand economic
downturns;
- Increasing the Company's vulnerability to economic downturns and changing
market conditions; and
- Increasing the Company's vulnerability to fluctuations in market interest
rates, since certain of its debt has floating interest rates.
The Company's ability to pay its debt service depends partly on its
performance, which in turn can be affected by general economic or competitive
conditions beyond its control. The Company's financial position could also
prevent it from obtaining necessary financing at favorable rates, including at
times when it must refinance maturing debt.
If the Company cannot pay its debt service and meet its other liquidity
needs from operating cashflow, it could have substantial liquidity problems. In
those circumstances, the Company might have to sell assets, delay planned
investments, obtain additional equity capital or restructure its debt. Depending
on the circumstances at the time, the Company may not be able to accomplish any
of these actions on favorable terms or at all. The Company's principal credit
facility limits its ability to take some actions that could generate additional
cash proceeds or requires the Company to apply proceeds first to repay the
facility. The credit facility also requires the Company to meet certain
financial tests, which are measured periodically. If the Company defaults on any
of its debt, the relevant lenders could accelerate the maturity of the debt and
take other actions that could adversely affect the Company. For example, in the
event of a default under the Company's credit facility, the lenders could
foreclose on the security for the facility, which includes virtually all of the
assets of the Company.
OUR BUSINESS IS HIGHLY COMPETITIVE
Many companies compete in the domestic canned vegetable, fruit and tomato
product categories. However, only a few well-established companies operate on
both a national and a regional basis with one or several branded product lines.
The Company faces strong competition from these and other companies in all its
product lines. Important competitive considerations include the following:
- Some of the Company's competitors have greater financial resources and
operating flexibility. This may permit them to respond better to changes
in the industry or to introduce new products and packaging more quickly
and with greater marketing support.
11
<PAGE> 17
- 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. No single private
label competitor has greater market share than the Company in its
principal product categories. However, for the 52 weeks ended September
26, 1998, private label companies as a group had market shares of 43.8%,
39.6% and 31.0% in the canned vegetable, fruit and solid tomato
categories.
- The Company cannot predict the pricing or promotional actions of its
competitors or whether they will have a negative effect on the Company.
Also, when the Company raises its prices, the Company may lose market
share temporarily to its competitors.
- The canned food industry has in the past experienced processing
over-capacity and, despite some consolidation in the industry recently,
over-capacity or changes in crop supplies could create an imbalance in
supply and demand that depresses sales volumes or prices.
OUR BUSINESS STRATEGY POSES SPECIAL RISKS ASSOCIATED WITH OUR ABILITY TO REDUCE
COSTS, REACH TARGETED CUSTOMERS AND COMPLETE ACQUISITIONS SUCCESSFULLY
The success of Del Monte's business strategy depends in part on its ability
to reduce costs. The Company plans to reduce costs through consolidation of its
processing facilities and use of improved processing technologies. The Company's
performance also depends on its ability to increase sales of its higher margin
products, such as its Fruit Cup single serve fruit products, diced tomatoes,
specialty vegetables and Orchard Select jarred fruit, and to increase product
distribution through high volume warehouse clubs, such as Wal-Mart's Sam's Clubs
and Costco, and mass merchandisers, such as Wal-Mart Supercenters. The Company
also plans to increase operating results through acquisitions. All of these
plans involve risks, including the following:
- The Company is consolidating tomato processing from Modesto to its
Hanford facility and is converting its Modesto facility from tomato to
fruit processing. The Company recently shut down the Modesto facility for
conversion. To assure production capacity for the 1999 tomato harvest,
the Company must complete the conversion of the Hanford facility by June
1999. If the Company does not meet this timetable to any significant
degree, tomato production could be materially reduced. This could have a
material adverse effect on the Company's results of operations, its
market share of the canned tomato market and the Company's reputation for
reliability.
- The Company may not complete capital projects on time or within budget.
- Cost saving measures can sometimes impair a company's ability to respond
rapidly to changes in the industry.
- Warehouse clubs and mass merchandisers do not enter into long-term
contracts and purchase products based on their inventory levels. They can
stop purchasing the Company's products at any time. Losing one of these
customers would reduce sales volumes and could also have a negative
effect on the Company's reputation.
- Acquisitions could require the consent of Del Monte's main bank lenders
and could involve amendments to the Company's principal credit facility
to permit the Company to comply with its financial covenants. These
lenders could also impose conditions on their consent that could
adversely affect the Company's operating flexibility.
- Del Monte may not be able to integrate successfully acquired businesses,
including personnel, operating facilities and information systems, into
its existing operations. The timing and number of acquisitions could make
these risks more difficult to address. The process of integrating
acquired businesses could distract management from other opportunities or
problems in the Company's business. The benefits of an acquisition often
take a long time to develop, and there is no guarantee that any
acquisition will in fact produce any benefits.
12
<PAGE> 18
- In pursuing acquisitions, Del Monte could incur substantial additional
debt and contingent liabilities, which could in turn restrict its ability
to pursue other important elements of its business strategy, such as
completing capital projects, or its ability to comply with its financial
covenants.
OUR ACQUISITION OF CONTADINA PRESENTS CERTAIN RISKS
Nestle did not operate Contadina 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. There can be no guarantee that, if it had
been operated independently, Contadina's financial results would be the same as
those presented in this prospectus.
SEVERE WEATHER CONDITIONS AND NATURAL DISASTERS CAN AFFECT CROP SUPPLIES AND
REDUCE OUR OPERATING RESULTS
Severe weather conditions and natural disasters, such as floods, droughts,
frosts, earthquakes or pestilence, may affect the supply of the Company's
products. These events can result in reduced supplies of raw materials, lower
recoveries of usable raw materials, higher costs of cold storage if harvests are
accelerated and processing capacity is unavailable or interruptions in the
Company's production schedules if harvests are delayed. Competing manufacturers
can be affected differently depending on the location of their supplies. If the
Company's supplies of raw materials are reduced, it may not be able to find
enough supplemental supply sources on favorable terms.
The Company's tomato and fruit suppliers are concentrated in the San
Joaquin Valley of California. In the winter and spring of 1997-1998, some parts
of California, including some of the Company's growing regions, experienced
heavy rainfall due to the El Nino phenomenon. The 1998 California fruit and
tomato harvests and raw product recoveries were somewhat reduced due to this
phenomenon. Although these weather-related conditions resulted in slightly
higher cost of products to be sold in fiscal 1999, the overall effects of the El
Nino phenomenon will not be material to the Company's financial condition and
results of operations.
OUR OPERATING RESULTS ARE HIGHLY SEASONAL
The Company does not manufacture the majority of its products continuously,
but instead has a production period that is limited to approximately three to
four months during the summer each year. The Company's working capital
requirements are also seasonal and are most significant in the first and second
fiscal quarters. If the Company had an unexpected plant shutdown or any other
interference with its production schedule, its operating results would be
adversely affected.
The Company's sales tend to peak in the second and third fiscal quarters
each year, mainly as a result of the holiday period in November and December and
the Easter holiday. By contrast, in the first fiscal quarter of each year, sales
generally decline, mainly due to less promotional activity and the availability
of fresh produce. The Company believes that the main trends in its operating
results are relatively predictable and that it has adequate sources of liquidity
to fund operations during periods of low sales. If these trends were to change
or be disrupted, however, the Company's operating results could be adversely
affected, and it could require additional sources of liquidity to fund our
working capital and other cash requirements.
OUR BUSINESS IS SUBJECT TO THE RISK OF ENVIRONMENTAL LIABILITY
As a result of its agricultural, food processing and canning activities,
the Company is subject to various 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 is no
guarantee,
13
<PAGE> 19
however, that this will be the case. The Company may in the future be named as a
PRP at other currently or previously owned or operated sites, and additional
remediation requirements could be imposed. Other properties could be identified
for investigation or proposed for listing under CERCLA or state law. Also, 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 regulatory actions relating to the evaluation and use of pesticides in
the food industry. The effect of such actions and future actions on the
availability and use of pesticides could have a material adverse impact on the
Company's financial position or results of operations.
AFTER THE OFFERING, TPG WILL CONTINUE TO CONTROL THE COMPANY
After this offering, TPG will own 46.7% (42.9% if the underwriters exercise
the overallotment option in full) of the common stock. TPG will likely continue
to use its significant ownership interest to influence and control the Company's
management and policies. TPG's large interest may also discourage, delay, deter
or prevent a change in control of Del Monte or discourage bids for the common
stock at a premium price. The Company also has contractual relationships with
TPG, under which TPG provides it with financial advisory and other services.
These arrangements could give rise to conflicts of interest.
OUR DEBT COVENANTS CAN RESTRICT OUR OPERATING FLEXIBILITY
The Company is subject to various financial and operating covenants under
its principal credit facility, including limitations on asset sales, the amount
of debt it can incur or repay and the amount and kind of distributions that it
and its subsidiaries may make. Certain transactions that the Company may view as
important opportunities, such as mergers and acquisitions, may also be subject
to the consent of its main bank lenders, which may be withheld or granted
subject to conditions that may make the transaction less attractive. The Company
must also meet specified financial ratios and tests, including minimum net
worth, minimum fixed charge coverage and maximum leverage ratios. These
restrictions can limit the Company's ability to fund its capital expenditures
when planned. The Company's compliance with these restrictions can also be
affected by factors beyond its control. A breach of these restrictions would
permit the acceleration of the relevant debt and could result in the termination
of the commitments of the Company's main bank lenders. If that happened, the
Company would have no credit facility available to finance its seasonal working
capital and other cash requirements. The Company has pledged substantially all
of its assets to secure its bank and other debt. If a default occurred and was
not cured, secured lenders could foreclose on this collateral.
OUR BRAND NAME COULD BE CONFUSED WITH NAMES OF OTHER COMPANIES
The Company has licensed the Del Monte brand name to various unaffiliated
companies internationally and, for some of its products, in the United States.
The common stock of one licensee, Fresh Del Monte Produce N.V., is publicly
traded in the United States. Acts or omissions by these unaffiliated companies
may adversely affect the value of the Del Monte brand name, the trading prices
for the common stock and demand for the Company's products. Third party
announcements or rumors about these licensees could also have these negative
effects.
WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE
Del Monte has not paid cash dividends in the past, and it does not expect
to pay cash dividends in the foreseeable future. Del Monte is a holding company
with no substantial business operations or assets of its own. The terms of the
Company's debt limit the ability of Del Monte's subsidiaries to distribute cash
or other assets, which could affect the Company's ability to pay dividends or
make other distributions on the common stock. Future borrowings by Del Monte's
subsidiaries will also likely contain restrictions on their ability to pay
dividends to Del Monte.
14
<PAGE> 20
POSSIBLE FUTURE SALES OF STOCK COULD DEPRESS OUR STOCK PRICE
Following this offering, Del Monte will have 52,163,943 shares of common
stock outstanding (assuming no exercise of the underwriters' overallotment
option). Investors in the offering who are not "affiliates" of the Company will
be able to sell their shares without any restrictions. TPG and other current
stockholders of Del Monte, which will own most of the remaining 32,163,943
shares, will own "restricted" shares. Holders of "restricted" shares may sell
them in the public market without restrictions, so long as they meet the volume
and other limitations set out in Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). Sales of large amounts of the common stock after
this offering or the perception that these sales could occur could depress the
trading price of the common stock.
THERE IS NO TRADING MARKET FOR THE COMMON STOCK
The common stock has no established trading market or trading history.
Although Del Monte has applied to list the common stock on the New York Stock
Exchange and the Pacific Exchange, an active trading market may not develop or
be sustained. The market price could also drop below the public offering price
shown on the cover page of this prospectus. Del Monte, certain of its
stockholders and the underwriters will determine by negotiation the initial
public offering price of the common stock and that price may not be indicative
of the market price for the common stock after this offering. The market price
could also fluctuate substantially in response to various factors and events,
including the liquidity of the market for the common stock, differences between
the Company's actual performance and that expected by investors and analysts,
changes in analysts' recommendations or projections, pricing and competition in
the Company's industry, new statutes or regulations and changes in general
market conditions.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE DILUTION
The initial public offering price per share will exceed the net book value
per share. New investors will incur substantial and immediate dilution of $18.91
per share. After this offering, the deficit in net tangible book value per share
will be $3.91. Holders of the common stock could also experience dilution if the
Company elects to complete an acquisition using its common stock as
consideration, depending on the terms of the acquisition.
OUR ANTI-TAKEOVER DEFENSES MAY DEPRESS OUR STOCK PRICE OR DISCOURAGE
PREMIUM-GENERATING TRANSACTIONS
Anti-takeover provisions under state law and in Del Monte's certificate of
incorporation and bylaws may deter, delay or prevent hostile takeovers and other
attempts to make changes in Del Monte's Board of Directors or management. The
fact that we have these provisions may depress our stock price and could
discourage transactions in which stockholders might otherwise receive a premium
over the market value of their shares. Under these provisions:
- Members of Del Monte's Board have staggered terms, which could prevent an
acquiror from removing the entire Board at once;
- Stockholders are not entitled to cumulative voting rights;
- Only a majority of the Board, and not stockholders, may call a meeting of
stockholders;
- Certain matters must be approved by a supermajority vote of stockholders;
- Del Monte can issue preferred stock on any terms it decides without the
approval of common stockholders, which could make it more difficult or
expensive for an acquiror to obtain voting control; and
- Del Monte can implement, without stockholder approval, a "rights" or
"poison pill" plan without the approval of common stockholders, which
could also make a takeover attempt more difficult or expensive. Under
these plans, common stockholders typically receive preferred share
purchase rights that become exercisable when a third party tries to
obtain control of the Company.
15
<PAGE> 21
RECENT DEVELOPMENTS
On January 19, 1999, the Company reported its financial results for the
three and six months ended December 31, 1998. Net income for the second quarter
was $10 million compared to net income of $2 million for the same quarter of the
prior year. The six months ended December 31, 1998 resulted in a loss of $1
million compared to net income of $2 million for the same period of the prior
year. Net income for all periods is affected by certain unusual or one-time
costs and expenses which are shown in the table set forth below.
During the three months ended December 31, 1998, revenue increased by $58
million to $427 million, an increase of 16%, over the three months ended
December 31, 1997, as a result of sales of products of Contadina, which was
acquired in December 1997, and higher sales of the Company's principal fruit and
vegetable products.
Interest expense for the three months ended December 31, 1998 was $22
million, an increase of $3 million or 16%, from the comparable prior year period
due to higher debt levels resulting from the Contadina Acquisition and the South
America Acquisition.
During the six months ended December 31, 1998, revenue increased by $125
million to $745 million, an increase of 20%, over the six months ended December
31, 1997. This increase was caused by the Contadina Acquisition, strong sales of
the Company's principal fruit and vegetable products and the successful
introduction of new products.
Interest expense for the six months ended December 31, 1998 was $43
million, an increase of $7 million or 19%, from the six months ended December
31, 1997 due to higher debt levels resulting from the Contadina Acquisition and
the South America Acquisition.
The following table sets forth certain summary condensed financial data for
the three and six-month periods ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------- -------------
1997 1998 1997 1998
----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales................................................... $369 $427 $620 $745
Operating income............................................ 20 32 37 44
Interest expense............................................ 19 22 36 43
Net income (loss)........................................... 2 10 2 (1)
</TABLE>
The following table sets forth certain unusual and one-time costs and
expenses affecting net income for the three and six-month periods ended December
31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------- -------------
1997 1998 1997 1998
----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Inventory write-up from acquisitions........................ $ -- $ 1 $ -- $ 3
Costs of acquisitions....................................... 7 -- 7 1
Special charges related to plant consolidation.............. -- 5 -- 12
Costs of withdrawn transaction.............................. -- -- -- 2
</TABLE>
Non-cash charges related to depreciation of plant and equipment, leasehold
amortization and amortization of intangibles were $7 million and $12 million for
the three months ended December 31, 1997 and 1998 and $13 million and $24
million for the six months ended December 31, 1997 and 1998. For the three and
six-month periods ended December 31, 1998, $3 million and $7 million of such
depreciation was related to accelerated depreciation resulting from the effects
of adjusting the assets' remaining useful lives to match the period of use prior
to plant closure. This accelerated depreciation will be included in the caption
"Special charges related to plant consolidation" in the Consolidated Statements
of Operations.
16
<PAGE> 22
USE OF PROCEEDS
Assuming an initial public offering price of $15.00 per share, Del Monte
estimates that it will receive net proceeds from its sale of common stock (after
deducting applicable underwriting discounts and commissions and estimated
offering expenses payable by Del Monte) of approximately $231 million
(approximately $249 million if the underwriters exercise the overallotment
option in full). Del Monte will not receive any of the proceeds from the sale of
shares by its stockholders. Del Monte intends to use the net proceeds of the
offering as follows: (i) approximately $67 million to repay indebtedness under
its senior secured term loan facility (the "Term Loan Facility"); (ii) $55
million to redeem a portion of its senior subordinated notes (the "DMC Notes"),
including $3 million of accrued interest; (iii) $48 million to redeem a portion
of its senior discount notes (the "Del Monte Notes"), including $2 million of
accelerated amortization of original issue discount; (iv) $44 million to redeem
its Series A Redeemable Preferred Stock (the "Series A Preferred Stock"),
including $2 million of unamortized discount, $8 million of accreted dividends
and $1 million of redemption premium; (v) $13 million to pay certain repayment
and redemption premiums in connection with the redemption of the DMC Notes and
the Del Monte Notes; and (vi) $4 million to repay indebtedness under its
Revolving Credit Facility (as defined herein). The Term Loan Facility and the
DMC Notes mature and bear interest at the rates specified under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Financing Activities -- 1997
Activity."
DIVIDEND POLICY
Holders of the common stock are entitled to receive dividends pro rata on a
per share basis when, as and if declared by the Board of Directors of Del Monte
out of funds legally available for dividends. Del Monte has not declared or paid
any cash or other dividends on its common stock and does not expect to pay
dividends for the foreseeable future. Future dividend policy will be determined
periodically by the Board of Directors based upon conditions then existing,
including the Company's earnings and financial condition, capital requirements,
including debt service obligations, and other relevant factors.
As a holding company, the ability of Del Monte to pay dividends in the
future is dependent upon the receipt of dividends or other payments from its
subsidiaries. In addition, the terms of the Company's indebtedness limit the
ability of Del Monte's subsidiaries to pay dividends to Del Monte. See "Risk
Factors -- We Do Not Expect to Pay Dividends for the Foreseeable Future" and
"Description of Certain Indebtedness."
17
<PAGE> 23
CAPITALIZATION
The following table sets forth the actual unaudited capitalization of the
Company at September 30, 1998 and as adjusted to give effect to the sale of
16,667,000 shares of common stock by the Company, assuming an initial public
offering price of $15.00 per share, and the application of the estimated net
proceeds to the Company. The following table should be read in conjunction with
"Use of Proceeds," "Unaudited Pro Forma Financial Data," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------
ACTUAL AS ADJUSTED
------ --------------
(IN MILLIONS)
<S> <C> <C>
Total debt:
Revolving Credit Facility(1).............................. $ 202 $ 198
Term Loan Facility........................................ 422 355
12 1/4% Senior Subordinated Notes of DMC(2)............... 147 96
12 1/2% Senior Discount Notes of Del Monte(3)............. 133 87
----- -----
Total debt............................................. 904 736
----- -----
Redeemable Preferred Stock(4)............................... 33 --
Stockholders' equity:
Common stock, $.01 par value; 500,000,000 shares
authorized and 35,496,943 shares issued and
outstanding, actual, and 52,163,943 shares issued and
outstanding, as adjusted(5)............................ -- --
Paid-in capital........................................... 172 403
Retained deficit(6)....................................... (533) (563)
----- -----
Total stockholders' deficit............................ (361) (160)
----- -----
Total capitalization.............................. $ 576 $ 576
===== =====
</TABLE>
- ---------------
(1) The total capacity under the Revolving Credit Facility as of September 30,
1998 was $350 million. See "Description of Certain Indebtedness." The
amount, as adjusted, reflects $4 million of repayment of the Revolving
Credit Facility.
(2) Excludes $3 million of accrued interest payable. As adjusted reflects $1
million write-off of unamortized discount relating to the DMC Notes repaid.
(3) Excludes $2 million of accelerated amortization of original issue discount
relating to the Del Monte Notes repaid.
(4) Net of unamortized discount of $2 million and excludes accreted dividends
aggregating approximately $8 million as of September 30, 1998.
(5) Excludes 4,885,849 shares reserved for issuance pursuant to the Company's
management share option plans. See "Management" and "Description of Capital
Stock."
(6) As adjusted reflects a $5 million write-off of a pro rata share of deferred
financing costs associated with the repayment of the Company's indebtedness,
as well as $14 million of repayment and redemption premiums, $8 million in
dividends paid and $2 million write-off of unamortized discount relating to
the preferred shares redeemed and $1 million write-off of unamortized
discount relating to the DMC Notes repaid.
18
<PAGE> 24
DILUTION
The deficit in net tangible book value of the Company at September 30, 1998
was approximately $405 million or $11.41 per share of common stock. Without
taking into account any changes in the deficit in net tangible book value
attributable to operations after September 30, 1998, after giving effect to the
sale of the shares of common stock in this offering at an assumed initial public
offering price of $15.00 per share and the application of the estimated net
proceeds as described under "Use of Proceeds," the pro forma deficit in net
tangible book value of the Company as adjusted at September 30, 1998 would have
been $204 million, or $3.91 per share of common stock (assuming no exercise of
the underwriters' overallotment option). This represents an immediate reduction
in the deficit in net tangible book value of $7.50 per share of common stock to
the existing stockholders, including TPG, and an immediate dilution of $18.91
per share to new investors in this offering. The following table illustrates
such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
Deficit in net tangible book value per share of common stock
before the offering(1).................................... (11.41)
Reduction in deficit in net tangible book value per share of
common stock attributable to new investors(2)............. 7.50
------
Pro forma deficit in net tangible book value per share of
common stock after this offering.......................... (3.91)
------
Dilution per share to new investors(3)...................... $18.91
======
</TABLE>
- ---------------
(1) Deficit in net tangible book value per share is determined by dividing the
Company's net deficit in tangible book value (total tangible assets less
total liabilities) of approximately $405 million at September 30, 1998 by
the aggregate number of shares of common stock outstanding at September 30,
1998.
(2) After deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(3) Dilution is determined by subtracting pro forma deficit in net tangible book
value per share of common stock after the offering from the assumed initial
public offering price paid by a new investor for a share of common stock.
19
<PAGE> 25
UNAUDITED PRO FORMA FINANCIAL DATA
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. This in turn reduced the
purchase price to a total of $195 million. The Company prepared the following
Unaudited Pro Forma Statement of Operations as if the Contadina Acquisition and
related financings had occurred as of July 1, 1997. The Unaudited Pro Forma
Statement of Operations does not purport to represent what the Company's results
of operations actually would have been if the Contadina Acquisition had occurred
on the date indicated or what those 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.
Nestle did not operate Contadina 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 period ended
December 18, 1997. The Unaudited Pro Forma Statement of Operations for the year
ended June 30, 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 year ended June 30, 1998). This 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 -- Our Acquisition of Contadina
Presents Certain Risks."
20
<PAGE> 26
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
DEL MONTE CONTADINA(A) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................ $ 1,313 $ 92 $ -- $ 1,405
Cost of products sold (excluding
inventory write-up)................ 895 91 (19)(b) 967
Inventory step-up (c)................ 3 -- 3 6
Selling, administrative and general
expense............................ 316 13 12(d) 341
Special changes related to plant
consolidation...................... 10 -- -- 10
Acquisition expenses................. 7 -- -- 7
----------- ---- ---- -----------
OPERATING INCOME (LOSS).............. 82 (12) 4 74
Interest expense..................... 77 3 6(e) 86
Other income......................... (1) -- -- (1)
----------- ---- ---- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 6 (15) (2) (11)
Provision for income taxes........... 1 -- -- 1
----------- ---- ---- -----------
INCOME (LOSS)........................ 5 $(15) $ (2) (12)
==== ====
Preferred stock dividends............ 5 5
----------- -----------
Income (loss) before extraordinary
item attributable to common
shares(f).......................... $ -- $ (17)
=========== ===========
Income (loss) before extraordinary
item per common share.............. $ 0.01 $ (0.50)
Weighted average number of shares
outstanding (g).................... 31,619,642 34,812,008
OTHER DATA:
Depreciation and amortization (h).... $ 29 $ 31
Capital expenditures................. 32 37
</TABLE>
See accompanying notes.
21
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The Unaudited Pro Forma Statement of Operations reflect the adjustments for
the Contadina Acquisition and related financings as if such events had occurred
as of July 1, 1997.
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. This in turn reduced 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, the Company incurred approximately
$7 million of acquisition-related expenses.
The Company accounted for the Contadina Acquisition using the purchase
method of accounting. The Company allocated the purchase price to the assets
acquired and liabilities assumed using estimated fair values that include values
based on independent appraisals and management estimates. Allocation of the $195
million purchase price is as follows: inventory $93 million, prepaid expenses $5
million, property, plant and equipment $85 million, intangibles $16 million and
accrued liabilities $4 million.
(a) Represents the historical revenue and expenses of Contadina from July 1,
1997 through December 18, 1997.
(b) Adjustment to cost of products sold reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1998
-------------
(IN MILLIONS)
<S> <C>
Reclassification of Contadina trade promotion costs......... $(13)
Reduction in depreciation expense arising from fair value
adjustment for property, plant and equipment acquired..... (3)
Elimination of royalties to Nestle S.A. for trademark
license................................................... (3)
----
$(19)
====
</TABLE>
Trade promotion costs for Contadina were reclassified from cost of products
sold to selling, administrative and general 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, administrative and general
expense which treatment is more representative of the continuing costs
associated with the use of the Contadina trademark.
(c) Represents the cost of products sold related to the sales of the inventory
acquired from Contadina which the Company wrote up to estimated fair value
as part of the preliminary purchase price allocation relating to the
Contadina Acquisition.
(d) Adjustment to selling, administrative and general expense reflects the
following:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1998
-------------
(IN MILLIONS)
<S> <C>
Reclassification of Contadina trade promotion costs......... $ 13
Elimination of amortization of Nestle goodwill.............. (1)
----
$ 12
====
</TABLE>
22
<PAGE> 28
(e) Represents adjustment 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
JUNE 30, 1998
-----------------------------------
INTEREST PRINCIPAL INTEREST
RATE(1) BALANCE(2) EXPENSE(3)
--------- ---------- ----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Revolving Credit Facility................................... 7.74% $ 128 $10
Tranche A of Term Loan Facility............................. 8.08 200 16
Tranche B of Term Loan Facility............................. 8.63 229 21
DMC Notes................................................... 12.25 150 18
Del Monte Notes............................................. 12.50 129 17
---
Pro forma interest expense................................ 82
Pro forma amortization of deferred financing costs.......... 4
---
Total pro forma interest expense.......................... $86
===
</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.
(f) Loss before extraordinary items attributable to common shares for the year
ended June 30, 1998, reflect the deduction for the cash and in-kind
dividends for the period on redeemable preferred stock.
(g) The weighted average number of shares outstanding reflects the
191.542-for-one stock split of the shares of common stock, which Del Monte
declared on July 22, 1998.
(h) Historical depreciation and amortization exclude amortization of $3 million
of deferred debt issue costs. Pro forma depreciation and amortization
excludes amortization of $3 million of pro forma deferred debt issue costs.
Historical and proforma depreciation and amortization exclude $3 million of
accelerated depreciation which is recorded as "Special charges related to
plant consolidation."
23
<PAGE> 29
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 three-year period ended June 30, 1996 and the balance sheet
data as of June 30, 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 years ended June 30, 1997 and
1998, and the balance sheet data as of June 30, 1997 and 1998, have been derived
from consolidated financial statements of the Company audited by KPMG LLP,
independent auditors. The selected consolidated financial data as of September
30, 1997 and 1998 and the three months then ended was derived from the unaudited
interim financial statements of the Company. The financial data as of September
30, 1997 and 1998 and the three 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,
1998. Operating results for the three months ended September 30, 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 other financial information included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-----------------------
FISCAL YEAR ENDED JUNE 30, ACTUAL
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $ 1,500 $ 1,527 $ 1,305 $ 1,217 $ 1,313 $ 251 $ 318
Cost of products sold................. 1,208 1,183 984 819 898 172 218
Selling, administrative and general
expense(a).......................... 225 264 239 327 316 62 80
Special charges related to plant
consolidation(b).................... -- -- -- -- 10 -- 7
Acquisition expenses.................. -- -- -- -- 7 -- 1
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)............... 67 80 82 71 82 17 12
Interest expense...................... 61 76 67 52 77 17 21
(Gain) loss on sale of divested
assets(c)........................... (13) -- (123) 5 -- -- --
Other (income) expense(d)............. 8 (11) 3 30 (1) -- 2
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes,
minority interest, extraordinary
item and cumulative effect of
accounting change................... 11 15 135 (16) 6 -- (11)
Provision for income taxes............ 3 2 11 -- 1 -- --
Minority interest in earnings of
subsidiary.......................... 5 1 3 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary
item and cumulative effect of
accounting change................... 3 12 121 (16) 5 -- (11)
Extraordinary loss(e)................. -- 7 10 42 -- -- --
Cumulative effect of accounting
change(f)........................... -- -- 7 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)..................... 3 5 104 (58) 5 -- (11)
Preferred stock dividends............. 61 71 82 70 5 2 1
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to
common shares(g).................... $ (58) $ (66) $ 22 $ (128) $ -- $ (2) $ (12)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common share.... $ (0.75) $ (0.85) $ 0.29 $ (2.07) $ 0.01 $ (0.06) $ (0.34)
Weighted average number of shares
outstanding(h)...................... 77,915,263 76,671,294 75,047,353 61,703,436 31,619,642 26,815,880 35,495,683
</TABLE>
24
<PAGE> 30
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- ---------- ---------- --------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Adjusted EBITDA:(i)
EBIT.................................... $ 72 $ 91 $ 202 $ 36 $ 83 $ 17 $ 10
Depreciation and amortization(j)........ 35 35 26 24 29 6 8
EBITDA of Divested Operations........... (39) (35) (22) -- -- -- --
Asset write-down/impairment(k).......... 1 -- -- 7 -- -- --
(Gain) loss on sale of Divested
Operations(c)......................... (13) -- (123) 5 -- -- --
Terminated transactions(l).............. 1 (22) -- -- -- -- --
Benefit costs(m)........................ 6 7 -- -- 3 -- --
Headcount reduction and relocation(n)... -- -- 9 -- -- -- --
Recapitalization expenses(a)(d)......... -- -- -- 47 -- -- --
Special charges related to plant
consolidation (b)..................... -- -- -- -- 10 -- 7
Expenses of acquisitions(o)............. -- -- -- -- 7 -- 1
Inventory write-up(p)................... -- -- -- -- 3 -- 2
Costs of withdrawn transaction(q)....... -- -- -- -- -- -- 2
--------- --------- --------- --------- --------- -------- ----------
Adjusted EBITDA....................... $ 63 $ 76 $ 92 $ 119 $ 135 $ 23 $ 30
========= ========= ========= ========= ========= ======== ==========
Adjusted EBITDA margin(i)................. 5.7% 6.9% 8.6% 10.2% 10.3% 9.2% 9.4%
Cash flows provided by operating
activities.............................. $ 28 $ 63 $ 60 $ 25 $ 97 $ (153) $ (153)
Cash flows provided by (used in) investing
activities.............................. 55 (21) 170 37 (222) (2) (37)
Cash flows provided by (used in) financing
activities.............................. (83) (44) (224) (63) 127 155 194
Capital expenditures...................... 36 24 16 20 32 2 5
SELECTED RATIOS:
Ratio of earnings to fixed charges(r)..... 1.2x 1.2x 2.8x -- 1.1x 1.0x --
Deficiency of earnings to cover fixed
charges(r).............................. -- -- -- $ 16 -- -- $ 11
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
-------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1997 1998
------ ------ ---------- ---------- ------ ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 88 $ 99 $ 209 $ 118 $ 210 $ 117 $ 171
Total assets.................................. 936 960 736 667 845 956 1,201
Total debt, including current maturities...... 569 576 373 610 709 765 904
Redeemable preferred stock.................... 215 215 213 32 33 32 33
Stockholders' deficit......................... (384) (393) (288) (398) (350) (398) (361)
</TABLE>
Note: Financial data under the columns marked "restated" reflect the information
from the Company's restated financial statements.
- ---------------
(a) In connection with the Company's recapitalization on April 18, 1997, the
Company incurred expenses of approximately $25 million primarily for
management incentive payments and, in part, for severance payments.
(b) In fiscal 1998, the Company recorded charges of $7 million related to
severance and benefit costs for employees to be terminated in connection
with a plant consolidation. The Company also recorded $3 million in fiscal
1998 and $4 million in the three months ended September 30, 1998
representing accelerated depreciation resulting from adjusting remaining
useful lives of assets to match the period of use prior to plant closures.
In addition, in the three-month period ended September 30, 1998, the
Company charged $3 million to earnings representing the write-down to fair
value of certain assets held for sale.
(c) 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 transaction fees. The sale resulted in a gain of $71 million. In
March
25
<PAGE> 31
1996, the Company sold its 50.1% ownership interest in Del Monte
Philippines for $100 million, net of $2 million of 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 transaction expenses,
resulted in a loss of $5 million.
(d) In fiscal 1995, other income includes the Company's receipt of proceeds of
a $30 million letter of credit, reduced by $4 million of 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, the Company incurred $22
million of expenses in conjunction with its recapitalization, primarily for
legal, investment advisory and management fees.
(e) 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, the Company wrote off capitalized debt issue
costs of $7 million and accounted for that write-off 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, the
Company charged to net income $42 million of expenses related to the early
retirement of debt and to the Company's recapitalization. In September
1996, the Company repurchased outstanding debt, in conjunction with which
it wrote off and accounted for as an extraordinary loss capitalized debt
issue costs of $4 million, net of a discount on such debt. 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.
(f) 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 this statement resulted in
a charge to fiscal 1996 net earnings of $7 million.
(g) Net income (loss) attributable to the shares of common stock is computed as
net income (loss) reduced by the cash and in-kind dividends for the period
on redeemable preferred stock.
(h) For each period, the weighted average number of shares outstanding reflects
the 191.542-for-one stock split, which Del Monte declared on July 22, 1998.
(i) 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. You should not consider adjusted EBITDA in isolation from, and
it 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 Operations of $399 million, $417 million, $233 million
and $48 million for the years ended June 30, 1994, 1995, 1996 and 1997).
(j) Depreciation and amortization exclude amortization of $5 million, $5
million, $5 million, $5 million and $3 million of deferred debt issuance
costs for fiscal 1994, 1995, 1996, 1997 and 1998. Depreciation and
amortization exclude amortization of $1 million of deferred debt issuance
costs in both of the three-month periods ended September 30, 1997 and 1998.
(k) 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.
26
<PAGE> 32
(l) 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 Pacific Coast Producers.
(m) 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 fiscal 1998, one-time and non-cash
charges include $3 million of stock compensation and related benefit
expense.
(n) In fiscal 1996, other one-time charges include $3 million for relocation
costs and $6 million of costs associated with a significant headcount
reduction.
(o) In fiscal 1998, one-time charges include of $7 million of
acquisition-related expenses incurred in connection with the Contadina
Acquisition. In the three months ended September 30, 1998, one-time charges
include $1 million of acquisition-related expenses incurred in connection
with the South America Acquisition.
(p) In fiscal 1998, one-time charges include $3 million of inventory write-up
due to the purchase price allocation related to the Contadina Acquisition.
In the three months ended September 30, 1998, one-time charges include $2
million of inventory write-up due to the Contadina Acquisition.
(q) In the three months ended September 30, 1998, one-time charges include $2
million representing expenses of the Company's public equity offering,
which was cancelled.
(r) 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.
27
<PAGE> 33
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 three-month periods ended September 30, 1997 and 1998, and the
three-year period ended June 30, 1998. This discussion should be read in
conjunction with the unaudited consolidated financial statements for the
three-month period ended September 30, 1998 and the audited consolidated
financial statements of the Company for the three-year period ended June 30,
1998, 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.
The Company also reacquired the rights to the Del Monte brand in South America
in August 1998 ("South America Acquisition"). This acquisition has opened a new
geographic market for the Company. See "Prospectus Summary -- Summary Historical
Financial Data of Contadina" and "Unaudited Pro Forma Financial Data."
In addition to diversifying further the Company's revenue base, the
Contadina Acquisition has expanded the Company's processing scale, which has
resulted in production cost efficiencies. Moreover, among the facilities
acquired by the Company is a state-of-the-art manufacturing facility at Hanford,
California. In the third quarter of fiscal 1998, the Company committed to a plan
to consolidate processing operations over a three-year period. As part of these
efforts, the Company began transferring tomato production at its Modesto,
California facility to Hanford following the summer 1998 pack. The Company is
converting its Modesto facility to a fruit processing facility that will assume
the production currently conducted at the Company's San Jose and Stockton
facilities in California. The Company expects to close its San Jose facility
after the production season in 1999 and its Stockton facility after the
production season in 2000. The Company anticipates 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 (a $3 million accelerated depreciation charge was taken in
the fourth quarter of fiscal 1998 and a $4 million accelerated depreciation
charge was taken in the first quarter of fiscal 1999), 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 P to the consolidated financial statements for the year
ended June 30, 1998. In addition, in August 1998, management announced its
intention to close the Company's vegetable processing plant located in
Arlington, Wisconsin after the summer 1998 pack. Total costs to be incurred in
connection with this closure are approximately $3 million primarily relating to
asset write-offs. The Company recorded this expense in the first quarter of
fiscal 1999.
28
<PAGE> 34
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 Company's
market share recovered by year-end 1997 to achieve an increase of 5.0 percentage
points of market share during 1997 and an additional increase during 1998 of 1.7
percentage points, 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, 0.1 of a percentage point
of market share during fiscal 1997 and 0.6 of a percentage point during fiscal
1998. 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. In 1997, in connection
with the recapitalization, the Company 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 new products and packaging; (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 equipment; and (v) completing strategic
acquisitions. The Company has announced price increases, effective during the
third quarter of fiscal 1999, on certain of its major fruit products and certain
of its tomato products. The Company may, as a result, lose market share
temporarily to its competitors in these categories.
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 Premier Valley Foods, Inc. (formerly
Yorkshire Dried Fruits and Nuts, Inc.) 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)
Del Monte Philippines ................. 1996 100(b) 102(b)
Del Monte Latin America................ 1997 48(c) 17(c)
1996 -- 55
PCP.................................... 1996 -- 26(d)
Premier Valley Foods................... 1997 --(e) 31(e)
1996 -- 35
</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 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 Premier Valley Foods expired in
June 1997.
29
<PAGE> 35
RECENT DEVELOPMENTS
On January 19, 1999, the Company reported its financial results for the
three and six months ended December 31, 1998. Net income for the three months
ended December 31, 1998 was $10 million compared to net income of $2 million for
the same period of the prior year. The six months ended December 31, 1998
resulted in a loss of $1 million compared to net income of $2 million for the
same period of the prior year. Net income for all periods is affected by certain
unusual or one-time costs and expenses. See "Recent Developments."
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 THREE MONTHS
ENDED JUNE 30, ENDED SEPTEMBER 30,
---------------------------------- --------------------
1996 1997 1998 1997 1998
---------- ---------- ------ ---------- ------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Net sales........................ 100% 100% 100% 100% 100%
Cost of products sold............ 76 67 69 68 69
Selling, administrative and
general expense and other
expense........................ 18 27 24 25 25
Special charges related to plant
consolidation.................. -- -- 1 -- 2
----- ----- --- ----- ---
Operating income................. 6% 6% 6% 7% 4%
----- ----- --- ----- ---
----- ----- --- ----- ---
Interest expense................. 5% 4% 6% 7% 7%
----- ----- --- ----- ---
----- ----- --- ----- ---
</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>
THREE MONTHS
FISCAL YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
-------------------------- --------------
1996 1997 1998 1997 1998
------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Canned vegetables(a)................... $ 402 $ 437 $ 466 $ 89 $104
Canned fruit(a)........................ 367 431 456 96 111
Tomato products(a)..................... 217 229 313 50 85
Canned pineapple(a).................... 72 65 70 14 16
Other(b)............................... 89 41 8 2 2
------ ------ ------ ---- ----
Subtotal domestic............ 1,147 1,203 1,313 251 318
Latin America.......................... 55 17 -- -- --
Philippines............................ 142 -- -- -- --
Intercompany sales..................... (39) (3) -- -- --
------ ------ ------ ---- ----
Total net sales.............. $1,305 $1,217 $1,313 $251 $318
====== ====== ====== ==== ====
</TABLE>
30
<PAGE> 36
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
-------------------------- --------------
1996 1997 1998 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Canned vegetables(a)................... 31% 36% 35% 35% 33%
Canned fruit(a)........................ 28 35 35 38 35
Tomato products(a)..................... 16 19 24 20 27
Canned pineapple(a).................... 6 5 5 6 5
Other(b)............................... 7 4 1 1 --
--- --- --- ---- ----
Subtotal domestic............ 88 99 100 100 100
Latin America.......................... 4 1 -- -- --
Philippines............................ 11 -- -- -- --
Intercompany sales..................... (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.
(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. Lower levels of promotional activity, the
availability of fresh produce and other factors have historically affected net
sales in the first fiscal quarter. 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.
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. The high levels
of carry-in inventories at the beginning of fiscal 1998, together with the 1997
pack inventory, resulted in adequate product available for sale. The 1998
harvest was in a balanced position overall.
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<PAGE> 37
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 1998
California fruit and tomato harvests and raw product recoveries were somewhat
reduced due to the El Nino phenomenon. Although these weather-related conditions
resulted in slightly higher cost of products to be sold in fiscal 1999, the
overall effects of the El Nino phenomenon will not be material to the Company's
financial condition and results of operations.
THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER 30, 1997
South America Acquisition
On July 10, 1998, the Company entered into an agreement with Nabisco, Inc.
("Nabisco") to reacquire rights to the Del Monte brand in South America and to
purchase Nabisco's canned fruit and vegetable business in Venezuela, including a
food processing plant in Venezuela. The transaction closed on August 28, 1998
for a cash purchase price of $32 million. In connection with the South America
Acquisition, the Company incurred approximately $1 million of expenses. RJR
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 1990.
This transaction was accounted for as a purchase. The purchase price has been
allocated as $3 million to inventory, $1 million to property, plant and
equipment and $28 million representing intangible assets.
Net Sales
Consolidated net sales for the first quarter of fiscal 1999 increased by
$67 million as compared to the prior year period, primarily due to higher
volumes in the vegetable and fruit businesses and the purchase of Contadina,
which accounted for $35 million of the increase. The vegetable and fruit
businesses experienced an increase in sales volumes, and corresponding increases
in net sales of 17% and 14%, respectively, compared to prior year period. For
the 13 weeks ended September 26, 1998 as compared to the comparable prior year
period, the Company's vegetable market share, based on case volume, increased
from 16.8% to 20.9%. Vegetable product sales increased in the first quarter of
fiscal 1999 due to increased promotional effectiveness. Fruit product sales
increased in the first quarter of fiscal 1999 as compared to the prior year
period, due to the introduction of new products (FruitRageous, Fruit Pleasures
and Orchard Select) that began national distribution during the first quarter of
fiscal 1999. The Company's market share in the fruit category increased from
40.2% for the 13 weeks ended September 26, 1997, to 42.2% in the current period.
Cost of Products Sold
Cost of products sold as a percent of net sales was 68.5% for the first
quarter of both fiscal 1998 and 1999. Manufacturing costs decreased in the
fiscal 1999 period due to cost savings from capital spending initiatives and
increased production levels. Prior year manufacturing costs were adversely
impacted by lower yields and recoveries, as well as lower production volume
affecting cost absorption. The decrease in manufacturing costs has been offset
by amortization of $2 million of inventory write-up attributable to the purchase
price allocation related to the Contadina Acquisition.
32
<PAGE> 38
Selling, Administrative and General Expenses
Selling, administrative and general expenses for the first quarter of
fiscal 1999 increased by $18 million as compared to the prior year period. This
higher spending was due to a combination of promotional costs associated with
higher volumes of product sold (including an increase due to the Contadina
Acquisition) and costs associated with the introduction of new products.
Special Charges Related to Plant Consolidation
Charges of $4 million in the first quarter of fiscal 1999 resulted from
accelerated depreciation of buildings and machinery and equipment that the
Company will no longer need following the consolidation of the operations of two
fruit processing plants and two tomato processing plants. Special charges for
that quarter also included $3 million for the write-down to fair value of the
assets held for sale related to the closure of the Arlington, Wisconsin plant.
Interest Expense
Interest expense increased by $4 million in the first quarter of fiscal
1999 as compared to the prior year period, primarily due to debt incurred to
fund the Contadina Acquisition.
Other Expense
Other expense for the first quarter of fiscal 1999 represents expenses of
the Company's proposed public equity offering. The expenses were charged to
earnings during the quarter upon the cancellation of the offering.
Net Income (Loss)
Net loss for the first quarter of fiscal 1999 was $11 million as compared
to no earnings in the prior year period. Although net sales increased as
compared to the prior year period, the net loss in the current quarter resulted
from higher interest expense, special charges related to the plant consolidation
plan, inventory write-up related to the Contadina Acquisition and costs of the
public equity offering, which was cancelled.
FISCAL 1997 VS. FISCAL 1998
Contadina Acquisition
On December 19, 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 calculation of the net working capital which
resulted in a payment to the Company of $2 million. This in turn reduced the
purchase price to a total of $195 million. The Contadina Acquisition also
included the assumption of liabilities of approximately $5 million, primarily
consisting of liabilities in respect of reusable packaging materials, employee
benefits and product claims. In conjunction with the Contadina Acquisition,
approximately $7 million of expenses were incurred. The Company accounted for
the Contadina Acquisition using the purchase method of accounting. In
conjunction with the purchase price allocation relating to the Contadina
Acquisition, the Company wrote up, to estimated fair value, the purchased
inventory by approximately $6 million.
Plant Consolidation
The Company recorded charges of $7 million in fiscal 1998 in connection
with its plan to consolidate processing operations. These costs related to
severance and benefit costs for 433 employees to be terminated. Management
believes that because of the sequenced activities of its consolidation plan
described above, it is not likely that there will be any significant changes to
the timetable for its implementation. In addition, due to historically low
turnover at the affected plants, the Company can reasonably estimate the number
of
33
<PAGE> 39
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
$36 million as a result of these plant closures. These expenses include costs of
$16 million 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 and $7 million in severance costs (as described above). The
Company also expects to incur various other costs totaling $13 million, 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 facilities. The Company recorded total charges relating to
plant closures in fiscal 1998 of $10 million (including depreciation expense of
$3 million recorded in the fourth quarter of fiscal 1998). The Company expects
these charges to affect its results over the next four-year period as follows:
$13 million in fiscal 1999 (including depreciation expense of $9 million), $9
million in fiscal 2000 (including depreciation expense of $4 million), $3
million in fiscal 2001 and $1 million in fiscal 2002. This accelerated
depreciation is included in "Special charges related to plant consolidation."
Net Sales
Consolidated net sales for fiscal 1998 increased by $96 million or 7.9%
from fiscal 1997. This increase was attributable to higher sales across all
businesses and the Contadina Acquisition offset by the absence of the Divested
Operations of dried fruit and Latin America. Net sales were $1,237 million for
fiscal 1998 before acquisitions as compared to net sales of $1,169 million for
fiscal 1997 absent the Divested Operations. This represented an increase of $68
million or 5.8% for fiscal 1998 versus fiscal 1997 on a comparable basis. Fruit
volume and net sales increased for the year ended June 30, 1998 as compared to
the year ended June 30, 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 were partially offset by volume and sales declines in the
foodservice business. Vegetable volume and net sales increased for the year
ended June 30, 1998 as compared to the year ended June 30, 1997. Although
competitive pricing pressures were experienced in the vegetable market as well,
an effective mix of targeted trade and consumer promotions resulted in increased
volumes leading to an overall increase in net sales. In fiscal 1998, the
Company's market share for Del Monte branded vegetables, based on case volume,
was 19.7% versus 20.3% in the previous year, while the Company's market share
for Del Monte branded fruit products was 42.3% compared to 40.6% for the
previous year.
Cost of Products Sold
Costs increased for fiscal 1998 as compared to fiscal 1997 by $79 million
(which includes $3 million of inventory write-up resulting from the purchase
price allocation related to the Contadina Acquisition). Cost of products sold
expressed as a percentage of net sales was 67.3% in fiscal 1997 and 68.4% in
fiscal 1998. Cost of products sold for fiscal 1998 before acquisitions was $835
million versus $774 million in fiscal 1997 absent Divested Operations or,
expressed as a percentage of net sales, 67.5% for fiscal 1998 compared to 66.2%
for fiscal 1997. The increased costs in fiscal 1998 were offset in part by a
favorable sales mix of higher margin products. Increased costs for the year
ended June 30, 1998 reflect primarily an increase in processing costs caused by
a compressed harvesting season for fruit. These conditions resulted in increased
use of cold storage until processing capacity became available. Reduced
plantings for some vegetables and lower fruit raw product recoveries due to
adverse weather conditions also affected costs.
Selling, Administrative and General Expenses
Selling, administrative and general expense as a percentage of net sales
was 26.9% and 25.1% in fiscal 1997 and 1998, respectively. Selling,
administrative and general expense for fiscal 1997 was higher due to management
incentive payments and, in part, severance payments related to the Company's
recapitalization in 1997 of approximately $25 million.
34
<PAGE> 40
Included in general and administrative expenses are research and
development costs of $5 million in each of fiscal 1997 and 1998. Research and
development spending remained focused on strategic spending to maintain and
enhance the existing business and to develop product line extensions.
Acquisition Expense
In connection with the Contadina Acquisition, the Company incurred
approximately $7 million of expenses.
Interest Expense
Interest expense increased 48% in fiscal 1998 as compared to fiscal 1997.
This increase was due to the lower outstanding debt balances during the first
nine months of fiscal 1997 (before the recapitalization) and additional debt in
fiscal 1998 due to the Contadina Acquisition.
Other (Income) Expense
Other expense for fiscal 1998 decreased as compared to fiscal 1997 due to
the inclusion in 1997 of recapitalization expenses and the write-down of an
investment. Other expense for fiscal 1997 represented $22 million of expenses
incurred in connection with the recapitalization (primarily legal, investment
advisory and management fees). Other expense in fiscal 1997 also included $7
million relating to the recognition of an other than temporary impairment of a
long-term equity investment.
Provision for Income Taxes
As of June 30, 1998, the Company had $77 million in net operating loss
carryforwards for tax purposes, which will expire between 2008 and 2012.
Net Income
Net income for fiscal 1998 increased by $63 million as compared to the
prior year. The increase in net income was primarily due to expenses related to
the recapitalization and extraordinary losses due to early debt retirement
included in the fiscal 1997 net loss. These items were offset in part by the
plant consolidation severance accrual and accelerated depreciation cost in
fiscal 1998, as well as expenses of the Contadina Acquisition and an increase in
interest expense.
FISCAL 1996 VS. FISCAL 1997
Net Sales
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 branded vegetables, based on case
volume, was 20.3% versus 20.4% in the previous year, while the Company's market
share for Del Monte branded fruit was 40.6% compared to 35.6% for the prior
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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<PAGE> 41
$10 million or 15% even though volumes were at approximately the same level as
the prior year. This decrease was primarily due to the significant Mexican peso
devaluation.
Cost of Products Sold
Cost of products sold decreased by $165 million in fiscal 1997 as compared
to fiscal 1996. Cost of products sold (absent Divested Operations in both years)
decreased by $15 million from $789 million in fiscal 1996 to $774 million in
fiscal 1997. Cost of products sold expressed as a percentage of net sales was
73.7% in fiscal 1996 and 66.2% in fiscal 1997. The decrease in costs as a
percent of net sales in fiscal 1997 was primarily due to higher net sales
resulting from higher selling prices across all product lines.
Selling, Administrative and General Expense
Selling, administrative and general expense as a percentage of net sales
(excluding the Divested Operations) was 19.8% and 27.5% in fiscal 1996 and 1997.
Selling, administrative and general expense for fiscal 1997 increased
significantly due to the recapitalization and the change in marketing strategy.
The Company incurred expenses primarily for management incentive payments and,
in part, for severance payments related to the recapitalization of 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 and $5 million for fiscal 1996 and 1997.
Research and development spending in fiscal 1996 and 1997 remained focused on
strategic spending to maintain the existing business and to develop product line
extensions.
Interest Expense
Interest expense decreased 22% in fiscal 1997 as compared to fiscal 1996.
This decrease was due to lower outstanding debt balances during the first nine
months of fiscal 1997 (before the recapitalization).
Other (Income) Expense
Other expense for fiscal 1997 increased due to $22 million of expenses
incurred in connection with the recapitalization (primarily legal, investment
advisory and management fees). Also included in fiscal 1997 other expense was $7
million relating to the recognition of an other than temporary impairment of a
long-term investment.
Provision for Income Taxes
There was no tax provision in fiscal 1997 as compared to a provision of $11
million in fiscal 1996. This decrease was primarily due to the expenses of the
recapitalization.
Extraordinary Loss
In conjunction with the 1996 Exchange Offer (as defined herein), the
Company charged capitalized debt issue costs of approximately $4 million, net of
a discount on the PIK ("pay-in-kind") Notes, to net income in fiscal 1997 and
accounted for these costs as an extraordinary loss. In conjunction with the
refinancing of debt that occurred at the time of the recapitalization, the
Company charged previously capitalized debt issue costs of approximately $19
million and a 1996 PIK Note premium and a term loan make-whole aggregating $19
million to fiscal 1997 net income and accounted for these items as an
extraordinary loss. The Company used the net proceeds of the sale of its pudding
business and proceeds of the sale of Del Monte Philippines for the early
retirement of debt. In conjunction with this early debt retirement, in the
second and fourth quarters of fiscal 1996, the Company wrote-off $5 million in
capitalized debt issue costs and charged to income $5 million primarily related
to a prepayment premium. The Company accounted for both of these items as an
extraordinary loss.
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<PAGE> 42
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 1997 decreased by $162 million compared to fiscal
1996 net income. The decrease in net income was primarily due to expenses
associated with the recapitalization as of April 18, 1997 and the loss on the
sale of Del Monte Latin America of $5 million in fiscal 1997 as compared to a
gain of $123 million from the sale of the pudding business and Del Monte
Philippines in fiscal 1996.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the AICPA Accounting Standards Executive Committee issued,
Statement of Position ("SOP") No. 98-1 "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." This SOP provides guidance
with respect to the recognition, measurement and disclosure of costs of computer
software developed or obtained for internal use. SOP 98-1 is required to be
adopted for fiscal years beginning after December 15, 1998. The Company will
adopt this statement in fiscal 2000 and is evaluating the impact of adoption on
its financial statements.
The Company will adopt SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for its 1999 fiscal year. This statement
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas,
and major customers. The Company is not required to disclose segment information
in accordance with SFAS No. 131 until its fiscal 1999 year-end and then for
subsequent interim periods in fiscal 2000 with comparative fiscal 1999 interim
disclosures. Adoption will not impact the Company's consolidated financial
position, results of operations or cash flows, and any effect will be limited to
the form and content of the disclosures.
Effective July 1, 1998, the Company adopted SFAS No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 must
be adopted for fiscal years beginning after December 15, 1997 and amends only
the disclosure requirements with respect to pensions and other postretirement
benefits. Adoption of this statement will not impact the Company's consolidated
financial position, results of operations or cash flows, and any effect will be
limited to the form and content of the disclosures.
In fiscal 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 must be adopted for all fiscal quarters and fiscal years beginning
after June 15, 1999 and relates to accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. The
Company is reviewing the effect of adoption of this statement on its financial
statements.
YEAR 2000
In the first quarter of fiscal 1998, the Company contracted with its
information services outsourcing provider, Electronic Data Systems Corporation
("EDS"), to assist the Company in implementation of the Company's Year 2000
compliance project. The Company's Year 2000 compliance project was initiated to
address the issue of computer hardware and software that are time-sensitive or
define dates using two digits rather than four. 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 includes both
information technology ("IT") systems and non-IT systems that could be affected
by Year 2000 issues.
The Company expects to complete its project to evaluate, modify, test
and/or implement Year 2000 compliant systems (including customer and supplier
assessments) by June 1999. Overall, the project is
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<PAGE> 43
proceeding as scheduled and was estimated to be 80% complete as of December 31,
1998, with testing ongoing as each system is modified.
The Company is in the process of obtaining statements from vendors of
non-IT equipment describing their products' Year 2000 compliance. The Company
will perform additional testing activities through the early part of calendar
2000 primarily on non-IT equipment containing embedded chips which may be date
sensitive.
Total cost of the project is not material to the Company's financial
position. The Company expects costs incremental to the base service contract
between EDS and the Company to total under $2 million. The Company is funding
these costs through operating cash flow. Approximately $1 million of this $2
million estimate had been incurred as of December 31, 1998. The Company is
expensing all costs associated with these system changes as the costs are
incurred.
The Company is continuing to conduct inquiries regarding the Year 2000
compliance programs of its key suppliers and customers and will continue to
update its understanding of the current status of their Year 2000 programs
throughout calendar 1999. No assurance can be given that the Company's suppliers
and customers will all be Year 2000 compliant. The failure of the Company's
suppliers and customers to address the Year 2000 issue adequately, or the
failure of any material aspect of the Company's Year 2000 compliance project
with respect to its own systems, could result in disruption to the Company's
operations and have a significant adverse impact on its results of operations,
the extent of which the Company cannot yet determine.
The Company has begun developing contingency plans to address both internal
system failures, as well as external supplier and customer failures that may
result from Year 2000 issues. The Company will continue to update these
contingency plans through calendar 1999 as new information becomes known. These
contingency plans will identify alternatives for the Company's business
operations it believes may be affected, principally communications with key
suppliers and customers and distribution of finished goods to distribution
centers and customer locations, so the Company will be able to continue to
conduct business in the event of material internal or external Year 2000 system
failures. The contingency plans include the development of risk avoidance action
items, such as increasing the Company's finished goods and materials inventory
position before year 2000 to provide additional supply to carry the Company
through any brief period of disruption that may occur due to either internal or
external Year 2000 system failures. The Company believes that with completion of
the project as scheduled and ongoing monitoring any significant disruptions of
core operations should be reduced.
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. In connection with this offering,
the Company plans to amend and restate the terms of the Bank Financing (as
defined herein), including the Revolving Credit Facility, as described under
"Description of Certain Indebtedness."
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 Certain 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. These are in turn subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond the Company's 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. The Company believes that any acquisition would
likely require the incurrence of additional debt, which could
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<PAGE> 44
exceed amounts available under the Bank Financing. As a result, completion of
any acquisition could require the consent of the lenders under the Bank
Financing and the amendment and restatement of its terms, including to permit
the Company's compliance with its covenants. The Company cannot predict whether,
or the terms on which, the lenders under the Bank Financing would grant their
consent.
Funding requirements for the South America Acquisition were satisfied
through borrowings under the Revolving Credit Facility.
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 Certain Indebtedness -- Bank Financing."
Cash used in operating activities was $153 million in both of the
three-month periods ended September 30, 1997 and 1998. The increase in
inventories at September 30, 1998 from June 30, 1998 reflects the seasonal
inventory buildup. The increase in accounts payable and accrued expenses from
June 30, 1998 to September 30, 1998 primarily reflects accrued expenses
resulting from the peak production period.
In fiscal 1998, cash provided by operations increased by $72 million
primarily due to a decrease in inventories. In fiscal 1997, cash provided by
operations decreased by $35 million over fiscal 1996 primarily due to various
expenses associated with the Company's recapitalization in April 1997, as well
as an increase in inventories due to lower than anticipated sales volume during
the year.
Investing Activities
In fiscal 1998, cash used in investing increased by $259 million due to the
Contadina Acquisition and increased capital expenditures. 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 proceeds from the
sale of the Company's Latin America subsidiaries ($48 million).
Capital expenditures for fiscal 1998 were $32 million, including
approximately $1 million for environmental compliance as the Company continued
its implementation of a program which is intended to generate cost savings by
introducing new equipment that would result in general production efficiencies.
The Company also plans an aggregate of approximately $136 million of additional
capital expenditures through 2001, of which $57 million, $45 million and $34
million is expected to be spent in fiscal 1999, 2000 and 2001. In fiscal 1999,
the Company intends to spend approximately $21 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 $18 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
amounts discussed above do not include capital expenditures relating to the
adoption of SOP 98-1 "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use." The Company is in the process of evaluating the
impact of adopting SOP 98-1 which may increase its capital expenditures. The
Company plans to adopt SOP 98-1 on July 1, 1999. 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. The Company
expects to fund capital expenditures from internally generated cash flows and by
borrowing from available financing sources.
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<PAGE> 45
Financing Activities -- 1999 Activity
Bank Financing. The Company has engaged Bank of America, NT & SA as
Arranger in connection with a proposed $38 million lease to finance the
construction of four warehouse facilities (totaling approximately 1.4 million
square feet) adjacent to the Company's Hanford, Kingsburg and Modesto,
California, and Plymouth, Indiana, production plants. While the syndication of
this financing is not yet complete, land acquisition and construction have begun
at the Hanford and Kingsburg, California sites, under funding provided by Bank
of America. The Company has proposed that the terms of the fully-syndicated
financing will include, in addition to customary lease terms and conditions, a
floating interest rate based on a blended spread of approximately 325 basis
points over three-month LIBOR (which is currently at approximately 5.0%).
Additional proposed terms are an initial lease term of five years and renewal
options under certain circumstances for up to five years. At the expiration of
the lease, the Company will have the option to purchase the leased facilities
for amounts specified in the lease or to sell them on behalf of the lessor.
There can be no assurance, however, that the Company will complete the lease
syndication on the terms proposed.
Financing Activities -- 1998 Activity
Contadina Acquisition. In connection with the $195 million Contadina
Acquisition, Del Monte issued the Del Monte Notes with an aggregate principal
amount at maturity of $230 million and received gross proceeds of approximately
$126 million. The Del Monte 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 Del Monte
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. The additional
amortization began 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, Del Monte entered into a merger
agreement (the "Merger Agreement"), which was amended and restated as of April
14, 1997, with TPG and a newly created merger vehicle ("Shield"). On April 18,
1997, Del Monte was recapitalized through the merger of Shield with and into Del
Monte. Del Monte was the surviving corporation. By virtue of the
recapitalization, shares of Del Monte's preferred stock having an implied value
of approximately $14 million held by certain of Del Monte's stockholders who
remained investors were cancelled and were converted into the right to receive
new Del Monte common stock. All other shares of Del Monte 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 Del Monte.
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 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
(the "Revolving Credit Facility" and, together with the Term Loan Facility, the
"Bank Financing"); (v) $147 million from the net proceeds of the offering of the
DMC Notes; and (vi) $2 million of proceeds from the sale of a surplus property.
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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 (which are subject to
reductions from application of annual excess cash flow mandatory prepayment
requirements) 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 (which are subject to reductions from application of annual
excess cash flow mandatory prepayment requirements) 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. At June 30, 1997, the
interest rates (which are subject to adjustment) applicable to amounts
outstanding under the Term Loan A and the Revolving Credit Facility were, at the
Company's option, either (i) the base rate (the higher of .50% above the Federal
Funds Rate and the bank's reference rate) plus 1.25%; or (ii) the reserve
adjusted offshore rate plus 2.25%. Interest rates on Term Loan B 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 Company's
recapitalization, on April 18, 1997, Del Monte Corporation, a wholly owned
subsidiary of Del Monte ("DMC"), issued the DMC Notes with an aggregate
principal amount of $150 million 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 Del Monte and
mature on April 15, 2007. Del Monte's guarantee is secured by a pledge of the
stock of DMC.
The terms of the Company's indebtedness contain restrictive covenants. See
"Description of Certain Indebtedness." The Company is in compliance with all of
these covenants.
PENSION FUNDING
As described more fully in Note I to the audited consolidated financial
statements of the Company as of and for the year ended June 30, 1998, 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 Company's recapitalization, the Company entered
into an agreement with the U.S. Pension Benefit Guaranty Corporation dated April
7, 1997 whereby the Company contributed $15 million within 30 days after the
consummation of the Recapitalization to its defined benefit pension plans. The
Company contributed $15 million in calendar 1998. The Company will also
contribute a minimum of $9 million in calendar 1999, $8 million in calendar 2000
and $8 million in calendar 2001. The contributions required to be made in 1999,
2000 and 2001 are secured by a $20 million letter of credit.
TAX NET OPERATING LOSS CARRYFORWARDS
As of June 30, 1998, the Company had $77 million in net operating loss
carryforwards for tax purposes, 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. In January 1990, an
investor group led by Merrill Lynch & Co. purchased the Company and some of its
subsidiaries from RJR Nabisco for $1.5 billion (the "RJR Nabisco Sale").
Following this sale, the Company divested several of its non-core businesses and
all of its foreign operations.
The Company manufactures and distributes premium quality, nutritious food
products under the Del Monte and other brand names. The Company is the largest
producer and distributor of canned vegetables and canned fruit in the United
States, with pro forma net sales of $1.4 billion in fiscal 1998. The Del Monte
brand was introduced in 1892, and management believes that it is the best known
brand among canned food products in the United States. Del Monte brand products
are found in most 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.
The Company sells its products through national grocery chains and
independent grocery stores nationwide. The Company also sells to warehouse club
stores and 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 U.S. military through
different independent food brokers. The Company also exports a small percentage
of its products to certain foreign countries directly and through independent
exporters based in the United States.
The Company operates 14 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.
The Company owns a number of registered and unregistered trademarks that it
uses in conjunction with its business, including the trademarks Del Monte,
Contadina, Fruit Cup, FreshCut, Snack Cups, Fruit Naturals, Orchard Select, Can
Do and Del Monte Lite. 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, an affiliate of RJR Nabisco and
Premier Valley Foods. None of the licensees is an affiliate of the Company,
other than Premier Valley Foods with respect to which the Company owns 20% of
the common stock.
The Company was recapitalized in April 1997. In that transaction Texas
Pacific Group, a private investment group, obtained a controlling interest in
the Company. Under a new senior management team, the Company has implemented a
new strategy to increase its sales and margins. This strategy includes (i)
increasing market share and household penetration of the Company's existing high
margin value-added products; (ii) introducing new products and new forms of
packaging such as glass and plastic; (iii) increasing penetration of high growth
distribution channels, such as supercenters, mass merchandisers and warehouse
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<PAGE> 48
clubs; (iv) achieving cost savings through operating efficiencies plant
consolidations and investments in new and upgraded equipment; and (v) completing
strategic acquisitions.
COMPETITIVE STRENGTHS
The Company believes it has the following competitive strengths that
contribute to its 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 its business strategy.
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte
brand name, which has been in existence since 1892, is a leading brand name
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 name, which is also well-established nationally
with a strong reputation for quality. For the 52 weeks ended September 26,
1998, the Company's 20.5% market share of canned vegetables was larger than
the combined market shares of the Company's two largest branded competitors.
The Company's 42.6% 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 16.5% market share in the high margin
solid segment of the canned tomato market for the 52 weeks ended September
26, 1998.
<TABLE>
<CAPTION>
MARKET SHARE FOR 52 WEEKS ENDED
SEPTEMBER 26, 1998
------------------------------------------------------
MARKET NEXT LEADING BRANDED
CATEGORY POSITION(A) PERCENTAGE COMPETITOR'S PERCENTAGE(A)
-------- ----------- ---------- --------------------------
<S> <C> <C> <C>
Canned vegetables..................... #1 20.5% 12.1% (Green Giant)
Canned fruit.......................... #1 42.6% 10.4% (Libby's)
Canned solid tomato products(b)....... #1 16.5% 11.4% (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 and innovative products and
packaging to generate increased sales. The Company also has significant
expertise in creating efficient food processing operations to reduce costs.
The Company can leverage each of these capabilities 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 provides technical support to and benefits from its many
long-term relationships with experienced, geographically diverse growers who
work with the Company to maximize yields on the Company's vegetable, fruit
and tomato raw materials. 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, the Company believes that it is one of the lowest
cost producers of canned vegetables, fruit and tomatoes in the United States.
- - PREFERRED SUPPLIER STATUS -- Competitive pressures and mergers among grocery
chains are causing many retailers to prefer large suppliers that, as a single
vendor, can provide category expertise, continuity of supply, complete
product lines and popular brands. These retailers are also demanding that
suppliers have sophisticated technology, including inventory and category
management programs. The Company anticipated these trends and has developed
proprietary software tools to help its customers and promote sales of its
products. The Company's proprietary category management system is designed to
address retailers' efforts to maximize profitability of shelf space dedicated
to canned food categories. Most of the Company's customers that have used the
Company's management tools have increased the shelf space they devote to the
Company's products. The Company's proprietary vendor-managed inventory
software allows the Company to manage directly its customers' inventories of
the Company's products. This inventory management software helps to reduce
customers' overhead costs and enables them to achieve lower
43
<PAGE> 49
average inventory levels while enhancing the Company's opportunities to sell
its products. Retailers also rely on the Company'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, the Company has strong, well-developed
relationships with all major participants in the retail grocery industry and
believes that these relationships will become increasingly important as
consolidation in the industry continues. The Company using 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.
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company has an
extensive sales and distribution network that permits the Company to compete
efficiently with other national brands and regional competitors and to
introduce its products regionally or nationally. Certain of the Company's
products are distributed in virtually every major U.S. retail grocery store.
The Company operates six strategically located distribution centers offering
customers a variety of services, including electronic data interchange and
direct store shipments. The Company's distribution system is an important
part of the Company's success and provides the Company with a competitive
advantage over regional and private label competitors.
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, the
Company's Chief Executive Officer and Chief Operating Officer are veteran
managers with extensive food industry experience. Mr. Wolford has 32 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 26 years of experience, 23 of which
were also 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 at Dole with minimal capital investment.
BUSINESS STRATEGY
Following the Recapitalization in 1997, the Company implemented a new
business strategy to increase its sales and margins. This new business strategy
has the following key elements.
- - 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, value added
products, such as its specialty fruits and vegetables, diced tomatoes and its
single serve Fruit Cup snack line. These products have potential due to
either low market shares or low household penetration relative to the
Company's overall position in the relevant food category.
- - FOCUS ON CONSUMPTION-DRIVEN MARKETING STRATEGY -- 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 coupons, and has clearly positioned its products to
emphasize their premium quality. The Company increased spending on consumer
promotions from $12 million in fiscal 1996 to $45 million in fiscal 1998 and
anticipates that its consumer spending in fiscal 1999 and 2000 will be
generally consistent with levels of consumer spending in fiscal 1998. The
Company has also improved the effectiveness of its trade promotion strategy.
The Company has implemented performance-based programs for its trade spending
with its customers. Under these programs, the Company manages trade spending,
which consists of the costs of promotional activities with grocery chains and
other customers (such as special displays, discounts and advertisements),
based on retailers' sales of the Company's products to consumers, rather than
on their purchases of products 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.
44
<PAGE> 50
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
emphasizing new, higher margin products and line extensions to leverage the
Company's presence in its existing product categories and to capitalize on
its food technology expertise. The Company is also developing new packaging
forms such as glass and plastic. These innovations have resulted in the
successful introduction of flavored diced tomatoes, two lines of single serve
flavored canned fruit and Orchard Select, a premium fruit product packaged in
glass. The Company has begun testing single serve fruit products packaged in
plastic. These products extend the Company's traditional product lines and
appeal to consumer demand 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 -- Alternative
retailers, such as warehouse clubs, mass merchandisers and supercenters, have
grown in importance as the retail grocery industry has changed in recent
years. 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. These vendors are also attracted to
reliable, technologically sophisticated suppliers with full product lines
that have the ability to meet their stringent inventory and shelf management
requirements. Based on its internal estimates and the broad range of products
supplied by the Company to these retailers, the Company believes it is a
leading supplier to Wal-Mart's Sam's Club, Costco and 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 10.3% in 1998 and 9.4% in the first quarter of fiscal 1999.
The Company plans to implement capital projects that offer rapid returns on
investment, and consolidate its plants where that would increase efficiency.
The Company 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. Also, in August 1998, management announced its
intention to close the Company's vegetable processing plant located in
Arlington, Wisconsin after the summer 1998 pack. In addition, the Company is
investing 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. This technology 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 increase margins and
profitability by leveraging 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 with value added 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 has reacquired
rights to the Del Monte brand in South America from Nabisco and to purchase
Nabisco's canned fruits and vegetables business in Venezuela. 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. No agreement, understanding or arrangement has been reached,
however, with respect to any such acquisition. 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.
45
<PAGE> 51
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 by responding to changing
consumer needs. Over the last ten years, the industry has experienced
rationalization 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 branded 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.
Branded food manufacturers typically lead pricing and innovation in the
canned food segments in which the Company competes. A majority of market share
in these categories is, however, attributable to private label manufacturers
based on statistical information compiled by ACNielsen. 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 September 26, 1998, private label manufacturers as a group
represented 43.8%, 39.6% and 31.0% of canned vegetable, fruit and solid tomato
product sales, respectively. The Company believes that the private label segment
has historically been highly fragmented among regional producers seeking to
compete principally based on price. 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. This 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 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 anticipated, the Company experienced a volume loss
and market share decline. In the case of its vegetable operations, the Company's
margins have increased while its market share has stabilized at a level lower
than its share prior to the price increases. In the case of its fruit
operations, the Company's significantly improved margins generally offset the
effects of the lower volume. The Company's fruit market share recovered by
year-end 1997 to achieve a higher level than that experienced prior to the price
increases. The Company has announced price increases, effective during the third
quarter of fiscal 1999, on certain of its major fruit products and certain of
its tomato products. The Company may, as a result, lose market share temporarily
to its competitors in these categories. See "Risk Factors -- Our Business Is
Highly Competitive" 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
ENDED JUNE 30,
1998
---------------
(IN MILLIONS)
<S> <C> <C>
Vegetables(a).............................................. $ 466 33%
Fruit(a)................................................... 456 32
Tomato products(a)(b)...................................... 405 29
Pineapple(a)............................................... 70 5
Other(c)................................................... 8 1
------ ---
Total(b)......................................... $1,405 100%
====== ===
</TABLE>
46
<PAGE> 52
- ---------------
(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.
(b) Includes $92 million of sales of tomato products by Contadina, on a pro
forma basis, for the fiscal year ended June 30, 1998.
(c) Includes pickles, dried fruit and certain other retail products.
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
1998. 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 $775 million or
approximately 66% of fiscal 1998 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 $234
million or approximately 17% of fiscal 1998 canned vegetable supermarket case
sales. The specialty segment, comprised of asparagus, zucchini, baby beets and a
variety of corn and bean offerings, represents $287 million or approximately 12%
of fiscal 1998 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
red and green peppers. 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 1998. During the 52
weeks ended September 26, 1998, Del Monte brand vegetable products enjoyed an
average premium of 19c (40%) per item over private label products and the
Company held a 20.5% 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 September 26, 1998, held a 24.4% market share in green beans,
a 19.9% market share in corn and a 17.4% market share in peas. The Company's
major vegetable products are distributed in substantially all grocery outlets.
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
47
<PAGE> 53
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................................................... 20.5%
Green Giant (Pillsbury)..................................... 12.1%
Libby's (Seneca)............................................ 3.3%
Stokely (Chiquita).......................................... 2.2%
Freshlike (Agrilink)........................................ 2.3%
All private label combined.................................. 43.8%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended September 26, 1998 (based on
equivalent cases).
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
1998. 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. These segments 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 1998.
The pineapple segment is discussed separately below.
Major fruit accounted for sales by retailers of $640 million in fiscal
1998. Sales by retailers of Del Monte brand major fruit products totaled $316
million in fiscal 1997. For the 52 weeks ended September 26, 1998, the Company
was the branded share leader with a 42.6% 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 68% 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 73% and 62% of grocery outlets, respectively. Mandarin oranges and cherries
are distributed in 43% 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 completing
national distribution of its Orchard Select, a premium fruit product packaged in
glass. In September 1998, the Company also began national introduction of Fruit
Pleasures and FruitRageous, two new single serve fruit product lines. Fruit
Pleasures is targeted at the adult snack market and FruitRageous is a fruit
snack for children. 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.
48
<PAGE> 54
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 9c
(10%) 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
fruit under the Libby's and S&W brands.
MAJOR FRUIT MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 42.6%
Libby's (Tri-Valley Growers)................................ 10.4%
All private label combined.................................. 39.6%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended September 26, 1998 (based on
equivalent cases).
The Company has relationships with approximately 600 fruit growers located
primarily in California, Oregon and Washington.
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 1998 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 branded canned solid tomato
products. These products generally have higher margins than paste-based tomato
products, and this is 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......................................... 16.5%
Hunt's (ConAgra)............................................ 11.4%
S&W (Tri Valley Growers).................................... 4.9%
All private label combined.................................. 31.0%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended September 26, 1998 (based on
equivalent cases).
With the Contadina Acquisition, the Company strengthened its position in
the branded paste-based tomato products categories in which it competes. The
Company markets its spaghetti 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
49
<PAGE> 55
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 September 26, 1998 of 4.9% in spaghetti sauce and 15.3% in tomato sauce),
it is the largest branded competitor in the solid tomato segment with a market
share of 16.5% for the 52 weeks ended September 26, 1998. Hunt's, the next
largest branded processor, possessed an 11.4% share of the solid tomato segment
for this period. In other key categories, for the 52 weeks ended September 26,
1998, Heinz was the market leader in ketchup with a 45.2% market share, and
Hunt's was the leader in tomato sauce with a 36.4% market share.
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
Can Affect Crop Supplies and Reduce Our Operating Results."
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 1998. 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 83% of
pineapple product sold is packed in juice. The remaining 17% is packed in heavy
syrup. Size offerings include the 20 oz. size, which accounts for 77% of
category sales. Other sizes include the 8 oz. and 15 oz. varieties.
The Company's retail pineapple line consists of sliced, chunk, tidbits,
crushed and juice products in a variety of container sizes. In addition to sales
by retailers, which totaled $33 million in fiscal 1998, the Company sells a
significant amount of juice concentrate and crushed pineapple through the food
ingredients channel. The Company also sells pineapple solids and juice products
to foodservice customers.
The Company is the second leading brand of canned pineapple, with a 14.2%
market share for the 52 weeks ended September 26, 1998. Dole is the industry
leader with a market share of 45.9%. Private label and foreign pack brands
comprise the low-price segment of this category and hold market shares of 28.3%
and 10.6%, 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................................................... 14.2%
Dole........................................................ 45.9%
Foreign pack................................................ 10.6%
All private label combined.................................. 28.3%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended September 26, 1998 (based on
equivalent cases).
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<PAGE> 56
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 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 these 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. The Company's 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 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 K to the Company's
consolidated financial statements for the year ended June 30, 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.
Fourteen 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.
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<PAGE> 57
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
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 the third quarter of fiscal 1998, the Company committed to a three-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. The plan involves suspending operations at
the Modesto facility for a year while the Company reconfigures that facility to
accommodate fruit processing that now takes place at the San Jose and Stockton
facilities. The Company began transferring its tomato processing operations at
its Modesto facility to the Company's newly acquired state-of-the-art Hanford
facility. The Company expects to close its San Jose facility after the
production season in 1999 and its Stockton facility after the production season
in 2000. 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. In August 1998,
management also announced its intention to close the Company's vegetable
processing plant located in Arlington, Wisconsin after the summer 1998 pack. The
Company plans an aggregate of approximately $136 million of capital spending
through 2001 to increase production efficiency 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 the Agreement, the Company must
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 these
requirements for any reason, the Company is entitled to purchase the excess from
another supplier. In addition, the Company is entitled to seek a competitive bid
for up to 50% of its requirements. Price levels were originally set based on
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<PAGE> 58
the Company's costs of self-manufactured containers. Price changes under the
contract reflect changes in the manufacturer's costs. 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 (currently, December 21, 2006). 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 1998, accounted for 67% of the
Company's total net sales. The Company retains its brokers through a
standardized retail grocery brokerage agreement. Brokers are typically paid at a
percentage of collected sales, generally 2.5%, which 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
1998, this group accounted for 12% of the Company's total net sales. The Company
makes foodservice, food ingredients, private label and military and other sales
through both direct sales and brokers. During fiscal 1998, these sales 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. The
Company uses consumer advertising and promotion support, 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
allow it to manage its customers' inventory requirements for its 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.
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<PAGE> 59
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. No single customer
accounted for more than 10% of fiscal 1998 sales. The Company's 15 largest
customers during fiscal 1998 represented approximately 44.2% 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 -- Our Business Is Highly
Competitive" 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 1996, 1997, and
1998 R&D expenditures (net of revenue for services to third parties) were $6
million, $5 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.
EMPLOYEES
At September 30, 1998 the Company had approximately 2,660 full-time
employees. In addition, approximately 12,000 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. Two
collective bargaining agreements expire in calendar 1999. The remaining
agreements expire in calendar 2000, 2001 and 2002.
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<PAGE> 60
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,
Contadina, Snack Cups, Fruit Cup, FreshCut, Fruit Naturals, Orchard Select, Can
Do and Del Monte Lite. These trademarks are important to the Company because
brand name recognition is a key factor in the success of the Company's products.
The 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 eight 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 2005 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 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 is no guarantee that these means will be
sufficient to protect the secrecy of these seed varieties. Others may also
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 a protection 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
protection certificate generally runs for 20 years from 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 these
licenses, the Company is generally entitled to reimbursement from the licensees
of certain of its expenses in maintaining trademark registrations. In
particular, with respect to all food and beverage products other than fresh
fruits, vegetables and produce, an affiliate of RJR Nabisco hold the rights to
use Del Monte trademarks 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. 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, Premier Valley Foods 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 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.
With the South America Acquisition, the Company reacquired the rights to the Del
Monte brand in South America. See "Risk Factors -- Our Brand Name Could Be
Confused with Names of Other Companies."
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.
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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 is no guarantee 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 of these 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
remediating conditions resulting from the release of petroleum from underground
storage tanks. 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, investigation and remediation of environmental conditions may in
the future 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 its
financial condition or results of operations.
Governmental authorities and private claimants have notified the Company
that it is a PRP or may otherwise be potentially responsible for environmental
investigation and remediation costs at certain contami-
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<PAGE> 62
nated 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. The
Company may 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 1996 through fiscal 1998,
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 1999 and 2000 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 its financial position or
results of operations.
PROPERTIES
As of September 30, 1998, the Company operated 14 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.
WHERE TO FIND MORE INFORMATION
Del Monte is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and files reports, proxy
statements and other information with the Commission. Del Monte has filed with
the Commission a registration statement on Form S-1 (including amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act and the
rules and regulations promulgated thereunder, covering the shares of common
stock Del Monte is offering. This prospectus does not contain all the
information set forth in the registration statement. For further information
with respect to Del Monte and this offering, 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 herein are not necessarily
complete. With respect to each contract, agreement or other document filed as an
exhibit to the registration statement, you should refer to the exhibit for a
more complete description of the document or matter involved, and each such
statement is qualified in its entirety by the complete documents. The
registration statement and the reports, proxy statements and other information
that Del Monte files with the Commission can be inspected and copied at the
public reference facilities of 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
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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.
Del Monte will furnish its stockholders with annual reports that include a
description of operations and annual audited consolidated financial statements
prepared in accordance with U.S. generally accepted accounting principles. The
financial statements included in the annual reports will be examined and
reported upon, with an opinion expressed, by Del Monte's independent auditors.
Del Monte will also furnish quarterly reports for the first three quarters of
each fiscal year containing unaudited consolidated financial statements prepared
in accordance with GAAP.
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CORPORATE HISTORY
The predecessor of RJR Nabisco acquired DMC in 1979. In 1990, DMC and
certain of its subsidiaries and affiliates were sold in the RJR Nabisco Sale for
$1.5 billion to Del Monte and DMPF Corp., a Delaware corporation, which were
organized by Merrill Lynch & Co. and capitalized by Merrill Lynch 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 RJR Nabisco
retained, 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. Polly
Peck 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 -- Our Brand Name Could Be Confused with the
Names of Other Companies" 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. The Company
applied substantially all of the proceeds from these 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 this 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 must
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
Premier Valley Foods 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 Premier Valley Foods.
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, Del Monte 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 Merger Agreement
provided that Del Monte was entitled to terminate the 1994 Merger Agreement if
the effective date of the Proposed Acquisition failed to occur on or prior to
September 19, 1994. The effective date of the Proposed Acquisition did not occur
on or prior to such date and, on September 21, 1994, Del Monte terminated the
1994 Merger Agreement in
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accordance with its terms. Pursuant to the 1994 Merger Agreement, because the
Proposed Acquisition failed to occur by September 19, 1994, Del Monte drew $30
million under a letter of credit issued by Banco Union, S.A., a bank affiliated
with Mr. Cabal. This 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, Del Monte was recapitalized through the merger of Shield
with and into Del Monte. Del Monte was the surviving corporation. By virtue of
the Company's recapitalization, shares of Del Monte's preferred stock having an
implied value of approximately $14 million held by certain of Del Monte's
stockholders who remained investors were cancelled and were converted into the
right to receive new Del Monte common stock. All other shares of Del Monte
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 Del Monte.
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, Del Monte merged with and into a newly created,
wholly-owned subsidiary incorporated under the laws of the State of Delaware to
change Del Monte's state of incorporation from Maryland to Delaware.
In August 1998, the Company reacquired the rights to the Del Monte brand in
South America from Nabisco.
Following the offering, TPG will own approximately 46.7% of the common
stock (approximately 42.9% if the underwriters' overallotment option is
exercised in full) and will continue to have the power to control the management
and policies of the Company and matters requiring stockholder approval. TPG is
part of Texas Pacific Group. David Bonderman, James G. Coulter and William S.
Price, III founded Texas Pacific Group 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 Del Monte. These
individuals hold the same positions with DMC. 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..................... 54 Chief Executive Officer; Director
Wesley J. Smith........................ 51 Chief Operating Officer; Director
Timothy G. Bruer....................... 41 Director
Al Carey............................... 47 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........................ 53 Executive Vice President,
Administration and Chief Financial
Officer
Glynn M. Phillips...................... 61 Executive Vice President, Sales
Brent D. Bailey........................ 46 Executive Vice President, Marketing
John Alfieri........................... 50 Senior Vice President, National Sales
Manager
Richard L. French...................... 41 Senior Vice President and Chief
Accounting Officer
Thomas E. Gibbons...................... 51 Senior Vice President and Treasurer
Irvin R. Holmes........................ 46 Senior Vice President, Marketing
William J. Spain....................... 56 Senior Vice President and Chief
Corporate Affairs 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 Del Monte in August 1997. Mr. Boyce has
been President of SRB, Inc., which provides management services to TPG and its
affiliated companies, since 1997. He currently serves as Chairman 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. He is also a director of
J. Crew Group, Inc.
Richard G. Wolford, Chief Executive Officer; Director. Mr. Wolford joined
Del Monte as Chief Executive Officer and a director in April 1997 upon
consummation of the Company's 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 Del
Monte as Chief Operating Officer and a director in April 1997 upon consummation
of the Company's 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 Del Monte 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.
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<PAGE> 67
Al Carey, Director. Mr. Carey became a director of Del Monte in November
1997. He is Senior Vice President of Sales and Retailer Strategies of PepsiCo,
Inc., and has been employed in various capacities with that company since 1981.
Patrick Foley, Director. Mr. Foley became a director of Del Monte 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 Del Monte in June 1995. He was elected as Co-Chairman and Co-Chief Executive
Officer of Del Monte in December 1995, and he served in those capacities until
the consummation of the Company's 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 Del Monte 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 Del Monte
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 AerFi Group plc, 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 Del Monte in May
1997. Mr. Shaw is a partner of TPG and has been an executive of TPG since 1992.
Prior to joining TPG, Mr. Shaw was a principal of Oak Hill Partners, L.P. and
Acadia Partners, L.P., investment partnerships 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 Del Monte in December 1992 and served as a member of the
Board of Directors of Del Monte from January 1994 until consummation of the
Company's 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 Del
Monte 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 Del
Monte 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.
John Alfieri, Senior Vice President, National Sales Manager. Mr. Alfieri
joined Del Monte in February 1995 and was elected to his current position in
June 1997. Prior to joining the Company, he was with Correy, Ahrens & Raynsford
since 1993 as Vice President, Finance and Operations. From 1973 to 1993 Mr.
Alfieri held sales positions with The Clorox Company and Proctor & Gamble.
62
<PAGE> 68
Richard L. French, Senior Vice President and Chief Accounting Officer. Mr.
French joined Del Monte in 1980 and was elected to his current position in May
1998. Mr. French was Vice President and Chief Accounting Officer of Del Monte
from August 1993 through May 1998 and has held a variety of positions within the
Company's financial organization.
Thomas E. Gibbons, Senior Vice President and Treasurer. Mr. Gibbons joined
Del Monte in 1969 and was elected to his current position in February 1995. He
was elected Vice President and Treasurer of Del Monte 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.
Irvin R. Holmes, Senior Vice President, Marketing. Mr. Holmes joined Del
Monte in November 1990 and was elected to his current position in May 1998.
Prior to that he was with Dole Foods since 1987 where he held a variety of sales
and marketing positions. From 1977 to 1987, Mr. Holmes held marketing positions
with James River/Crown Zellerbach, AMF Ben Hogan Company, and Brown & Williamson
Tobacco.
William J. Spain, Senior Vice President and Chief Corporate Affairs
Officer. Mr. Spain joined Del Monte in 1966 and was elected to his current
position in January 1999. Previously, he was Senior Vice President, Technology
of Del Monte. Mr. Spain has held various positions within Del Monte in corporate
affairs, production management, quality assurance, environmental and energy
management, and consumer services.
William R. Sawyers, Vice President, General Counsel and Secretary. Mr.
Sawyers joined Del Monte 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
Del Monte's Board of Directors has the committees described below.
The Nominating and 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). This 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. These directors are not
affiliated with the Company or TPG, in accordance with applicable New York Stock
Exchange requirements.
The Board of Directors of Del Monte 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 Del Monte's stockholders. Messrs. Foley, Shaw and
Smith are in the class of directors whose term expires at the annual meeting of
Del Monte'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 Del Monte's stockholders. At each annual meeting of Del
Monte'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.
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<PAGE> 69
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company for fiscal
years 1996, 1997 and 1998 to each individual serving as its Chief Executive
Officer during fiscal 1998 and to each of the four other most highly compensated
executive officers of the Company as of the end of fiscal 1998.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------------------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITIONS FISCAL YEAR SALARY(1) BONUS COMP.(2) OPTION AWARDS PAYOUTS(3) COMP.(4)
- ---------------------------- ----------- --------- -------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard G. Wolford(5)..... 1998 $500,000 $250,000 $ -- $569,071 $ -- $ 7,995
Chief Executive Officer 1997 100,641 -- -- -- -- 251,196
Wesley J. Smith(6)........ 1998 400,000 200,000 -- 569,071 -- 6,896
Chief Operating Officer 1997 80,513 -- -- -- -- 251,145
David L. Meyers........... 1998 298,000 149,000 151,701 -- -- 12,206
Executive Vice President, 1997 286,000 159,400 -- -- 421,000 2,959,771
Administration & CFO 1996 273,000 143,000 55,386 -- 421,000 11,242
Glynn M. Phillips......... 1998 238,795 118,300 -- 29,497 -- 11,838
Executive Vice President, 1997 239,118 118,300 -- -- 280,000 1,974,454
Sales 1996 225,750 118,250 -- -- 280,000 9,206
Thomas E. Gibbons......... 1998 191,467 57,200 -- 12,067 -- 4,800
Senior Vice President 1997 183,458 59,900 -- -- 210,000 115,829
and Treasurer 1996 175,600 63,900 -- -- 54,600 4,717
</TABLE>
- ---------------
(1) Reflects actual base earnings for the fiscal year specified.
(2) Fiscal 1996 reflects certain perquisites, including moving expenses for Mr.
Meyers ($33,091) and company car ($15,500).
(3) Reflects payments under the Company's Old Management Equity Plan and Long
Term Incentive Plan.
(4) For fiscal 1996: Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Meyers $4,500; Mr. Phillips $4,500; Mr. Gibbons $4,500; Company
paid term life premiums -- Mr. Meyers $3,407; Mr. Phillips $4,706; Mr.
Gibbons $217; amount paid under the nonqualified Additional Benefits
Plan -- Mr. Meyers $3,335.
For fiscal 1997; Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Meyers $4,500; Mr. Phillips $4,500; Mr. Gibbons $4,500; Company
paid term life premiums -- Mr. Wolford $1,196; Mr. Smith $1,145; Mr. Meyers
$4,198; Mr. Phillips $5,325; Mr. Gibbons $217; amount paid under the
nonqualified Additional Benefits Plan -- Mr. Meyers $4,130; amounts under
the New MEP (as defined below) paid April 1997 -- Mr. Meyers, $2,946,943;
Mr. Phillips $1,964,629; Mr. Gibbons $111,112. For Messrs. Wolford and
Smith, the fiscal 1997 amount includes a consulting fee of $250,000 each
paid in December 1997 for the period prior to April 18, 1997.
For fiscal 1998; Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Wolford $1,875; Mr. Smith $2,000; Mr. Meyers $4,800; Mr.
Phillips $4,800; Mr. Gibbons $4,800, Company paid term life premiums -- Mr.
Wolford $6,120; Mr. Smith $4,896; Mr. Meyers $3,585; Mr. Phillips $7,038;
amount paid under the nonqualified Additional Benefits Plan -- Mr. Meyers
$3,821.
(5) Mr. Wolford became Chief Executive Officer as of April 18, 1997.
(6) Mr. Smith became Chief Operating Officer as of April 18, 1997.
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<PAGE> 70
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR OPTION TERM
NUMBER OF SECURITIES GRANTED TO EXERCISE ---------------------------------------
UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR (PER SHARE) DATE 5% 10%
---- -------------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Wolford..... 569,071 32.8% $5.22 4/18/07 $1,866,553 $4,734,671
Wesley J. Smith........ 569,071 32.8 5.22 4/18/07 1,866,553 4,734,671
David L. Meyers........ 151,701 8.7 5.22 4/18/07 497,579 1,262,152
Glynn M. Phillips...... 29,497 1.7 5.22 4/18/07 96,750 245,415
Thomas E. Gibbons...... 12,067 0.7 5.22 4/18/07 39,580 100,397
</TABLE>
- ---------------
(1) Messrs. Wolford and Smith vest monthly on a proportionate basis over a four
(4) year period; Messrs. Meyers, Phillips and Gibbons vest annually on a
proportionate basis over a five (5) year period.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
JUNE 30, 1998 AT JUNE 30, 1998(1)
SHARES ---------------------- --------------------
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Richard G. Wolford.............. -- -- 166,777/402,294 --
Wesley J. Smith................. -- -- 166,777/402,294 --
David L. Meyers................. -- -- 29,881/121,820 --
Glynn M. Phillips............... -- -- 5,749/23,748 --
Thomas E. Gibbons............... -- -- 2,107/9,960 --
</TABLE>
- ---------------
(1) As of the end of fiscal 1998, there was no public market for the Company's
common stock. Under a stockholder's agreement between the Company and each
optionee, the Company has certain rights to acquire any common stock
issuable upon the exercise of an option. Such acquisition would be at a
price set by a formula which, as of the end of fiscal 1998, equaled $5.22
per share.
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 Company's
recapitalization.
65
<PAGE> 71
In connection with the Company's 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(1)............................................ $4,911,572
Mr. Mullan(1)............................................ 4,911,572
Mr. Little(2)............................................ 2,946,943
Mr. Meyers............................................... 2,946,943
Mr. Phillips............................................. 1,964,629
Other officers(3)........................................ 2,000,016
</TABLE>
- ---------------
(1) Messrs. Haycox's and Mullan's employment as Co-Chairman/Co-CEO terminated as
of April 18, 1997.
(2) Mr. Little's employment as Executive Vice President, Worldwide Operations
terminated as of April 30, 1997.
(3) Other officers includes Mr. Gibbons and 17 other senior officers.
Messrs. Meyers 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 and Phillips were paid installment
payments of the Old MEP awards in the amounts of $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 and $280,000, respectively, for fiscal
1997. The Company was obligated to pay 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 1996
award of $54,600. Mr. Gibbons received the final fiscal 1997 award in the amount
of $210,000 at the time of the Company's recapitalization. This plan was
terminated following the recapitalization.
The Annual Incentive Award Plan
The Annual Incentive Award Plan ("AIAP") provides annual cash bonuses to
certain management employees, including certain of the named senior executives.
The target bonus for each eligible employee is based on a percentage of base
salary. Actual payment amounts are based on the Company's achievement of annual
earnings objectives and individual performance objectives at fiscal year-end.
The targeted percentage of base salary is as follows: Mr. Wolford -- 75%; Mr.
Smith -- 50%; Mr. Meyers -- 50%; Mr. Phillips -- 50%; and Mr. Gibbons -- 35%.
Messrs. Wolford and Smith were not eligible for the AIAP for fiscal 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.
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<PAGE> 72
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 provide for monthly vesting on a proportionate basis over
four years. As of November 30, 1998, options for 1,690,162 shares of common
stock are held by eligible employees. 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 initially by the Board of Directors on April 24,
1998 and was modified on September 23, 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. The term of any Option or SAR may not be more than ten years
from the date of its grant. For each grant, 50% of the option shares vest
annually on a proportionate basis over a four-year period and 50% of the option
shares vest annually on a proportionate basis over a five-year period. 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 Awards. The
Chief Executive Officer also has limited authority to grant Awards. On December
4, 1998, Options for 1,824,433 shares were granted under the 1998 Stock
Incentive Plan at an exercise price of $13.00 per share.
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 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,
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<PAGE> 73
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 age 65 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. Smith..................................... 2012 127,143
Mr. Phillips.................................. 2002 28,260
Mr. Meyers.................................... 2010 186,356
Mr. Gibbons................................... 2012 178,762
</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 1998, the Company had employment
agreements with each of Messrs. Wolford, Smith, Meyers, Phillips and Gibbons.
The following summaries of the material provisions of the employment agreements
with Mr. Wolford and Mr. Smith (the "Wolford/Smith Employment Agreements"), the
employment agreement with Mr. Meyers (the "EVP Employment Agreement") 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 Company has filed employment agreements of Messrs. Wolford,
Smith, Meyers, Phillips and Gibbons as exhibits to the registration statement
for this offering.
On March 16, 1998, Del Monte entered into employment agreements with Mr.
Wolford and Mr. Smith 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 Employments 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 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
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<PAGE> 74
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.
The EVP Employment Agreement is for an indefinite term. Specifically, the
EVP Employment Agreement provides that if the executive's employment terminates
for any reason other than for Cause (as defined) or if the executive resigns for
Good Reason (as defined), such executive would receive as severance, subject to
the executive's not competing with the Company or disclosing confidential
information or trade secrets of the Company, severance payments over a
three-year period commencing on the date of such termination or resignation. The
aggregate amount of the severance payable to the executive over such three-year
period would equal two times the sum of (i) the executive's highest annual base
salary in effect during the 12-month period prior to such termination or
resignation and (ii) the target award (50% of annual base salary) under the AIAP
(or successor thereto) for the year in which such termination or resignation
occurs (or, if greater, the amount of the award for the next preceding year). In
addition, the executive would receive a pro rata annual bonus under the AIAP for
the year in which such termination or resignation occurs and would be entitled
to participate in the employee benefit plans and programs maintained by the
Company in which the executive participates until the earlier of (i) the end of
the three-year period and (ii) such time as the executive is covered by
comparable programs of a subsequent employer.
The Phillips Employment Agreement is for an indefinite term. The Phillips
Employment Agreement provides that if Mr. Phillips' employment terminates for
any reason other than for Cause (as defined) or if Mr. Phillips resigns for Good
Reason (as defined), Mr. Phillips would receive as severance three months of his
then current base pay. In addition, if Mr. Phillips executes and delivers to the
Company a written agreement confirming his commitment not to compete with the
Company and not to disclose confidential information or trade secrets of the
Company, the Company would then provide Mr. Phillips severance payments over an
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 (i) Mr. Phillips' highest annual rate of base
salary in effect during the 12-month period prior to such termination or
resignation and (ii) the target award under 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.
Mr. Gibbons' employment agreement is similar to that of Mr. Phillips except
that it does not require Mr. Gibbons to execute an agreement not to compete or
disclose confidential information in order to receive severance payments over an
18-month period.
DIRECTORS' COMPENSATION
Under Company policy, Messrs. Boyce, Bruer, 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.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the period following consummation of the Company's recapitalization
through the end of Del Monte's last completed fiscal year, Del Monte 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 "-- Directors and Executive
Officers" above. No person who was an officer, employee or former officer of Del
Monte or any of its subsidiaries participated in deliberations of Del Monte's
Board of Directors concerning executive officer compensation.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the common stock as of December 31, 1998, and as adjusted to
reflect the sale of the shares offered hereby (i) by each person who is known by
the Company to own beneficially more than 5% of the common stock; (ii) by each
of the Company's directors; (iii) by each of the executive officers of the
Company identified in the table set forth under the heading
"Management -- Executive Compensation"; (iv) by all executive officers and
directors as a group; and (v) by the Selling Stockholders (as defined below).
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(A) SHARES OFFERING(B)
NAME AND ADDRESS OF ------------------------- BEING -----------------------
BENEFICIAL OWNER NUMBER PERCENT(C) OFFERED NUMBER PERCENT(C)
------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS, DIRECTORS AND NAMED
EXECUTIVE OFFICERS:
TPG Partners, L.P..................... 24,682,809(d) 69.5% 2,531,735 22,151,074 42.5%
201 Main Street, Suite 2420
Fort Worth, TX 76102
TPG Parallel I, L.P................... 2,459,827(d) 6.9 252,306 2,207,521 4.2
201 Main Street, Suite 2420
Forth Worth, TX 76102
399 Venture Partners, Inc............. 2,490,046 7.0 -- 2,490,046 4.8
399 Park Avenue, 14th Floor
New York, NY 10043
Richard W. Boyce...................... 148,828(e) 0.4 -- 148,828 0.3
Richard G. Wolford.................... 937,110(f) 2.6 -- 937,110 1.7
Wesley J. Smith....................... 724,110(g) 2.0 -- 724,110 1.3
Timothy G. Bruer...................... -- -- -- -- --
Al Carey.............................. 3,161(h) 0.0 -- 3,161 0.0
Patrick Foley......................... 4,655(h) 0.0 -- 4,655 0.0
Brian E. Haycox....................... 5,363(h) 0.0 -- 5,363 0.0
Denise M. O'Leary..................... 4,809(h) 0.0 -- 4,809 0.0
William S. Price, III................. --(d) -- -- -- --
Jeffrey A. Shaw....................... -- -- -- -- --
David L. Meyers....................... 277,586(i) 0.8 -- 277,586 0.5
Glynn M. Phillips..................... 90,651(j) 0.3 -- 90,651 0.2
Thomas E. Gibbons..................... 74,578(k) 0.2 -- 74,578 0.1
All executive officers and directors
as a group (19 persons)............. 29,962,064(l) 78.8 2,784,041 27,178,023 49.7
OTHER SELLING STOCKHOLDERS:
Vencap Investment Pte Ltd ............ 1,335,239 3.8 136,956 1,198,283 2.3
255 Shoreline Drive, Suite 600
Redwood City, CA 94065
BT Investment Partners................ 957,710 2.7 98,233 859,477 1.6
130 Liberty Street
New York, NY 10006
Westar Capital........................ 957,710 2.7 98,233 859,477 1.6
949 South Coast Drive, Suite 650
Costa Mesa, CA 92626
BankAmerica Investment Corporation.... 861,939 2.4 88,410 773,529 1.5
231 South LaSalle Street, 7th Floor
Chicago, IL 60697
TCW/Crescent Mezzanine Partners,
L.P. ............................... 421,148 1.2 43,198 377,950 0.7
11100 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
</TABLE>
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<PAGE> 77
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(A) SHARES OFFERING(B)
NAME AND ADDRESS OF ------------------------- BEING -----------------------
BENEFICIAL OWNER NUMBER PERCENT(C) OFFERED NUMBER PERCENT(C)
------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Squam Lake Investors II, L.P. ........ 191,542 0.5 19,647 171,895 0.3
Two Copley Place
Boston, MA 02116
Sunapee Securities, Inc. ............. 191,542 0.5 19,647 171,895 0.3
Two Copley Place
Boston, MA 02116
TCW/Crescent Mezzanine Trust.......... 128,241 0.4 13,154 115,087 0.2
11100 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
MIG Partners III...................... 95,771 0.3 9,823 85,948 0.2
231 South LaSalle Street, 7th Floor
Chicago, IL 60697
TCW/Crescent Mezzanine
Investment Partners, L.P. ............ 11,554 0.0 1,186 10,368 0.0
11100 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
Robert J. Carbonell................... 149,369 0.4 15,321 134,048 0.3
Stephen Sherrill...................... 50,222 0.1 5,151 45,071 0.1
</TABLE>
- ---------------
(a) The persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in this table and these notes.
(b) Assumes no exercise of underwriters' overallotment option.
(c) Calculated excluding all shares issuable pursuant to agreements, options or
warrants of Del Monte, except as to each individual, entity or group, the
shares issuable to such individual, entity or group pursuant to agreements,
options or warrants of Del Monte, as described below in notes (e) through
(k), as the case may be.
(d) TPG Partners, L.P. and TPG Parallel I, L.P. are entities affiliated with
William S. Price, III. Mr. Price disclaims beneficial ownership of all
shares owned by such entities.
(e) Includes 148,828 shares issuable upon exercise of options issued to Mr.
Boyce.
(f) Includes 870,071 shares issuable upon exercise of options.
(g) Includes 657,071 shares issuable upon exercise of options.
(h) Messrs. Carey and Foley and Ms. O'Leary currently receive shares of common
stock in lieu of cash for their directors' fees. See "-- Directors'
Compensation."
(i) Includes 229,701 shares issuable upon exercise of options.
(j) Includes 71,497 shares issuable upon exercise of options.
(k) Includes 53,317 shares issuable upon exercise of options.
(l) Includes all shares held by entities affiliated with a director as described
in note (d) above and all shares issuable by Del Monte pursuant to
arrangements as described in notes (e) through (j) above.
Certain stockholders of Del Monte (the "Selling Stockholders") have granted
the underwriters an option to purchase up to the additional number of shares of
common stock set forth following its name solely to cover overallotments: TPG
Partners, 1,266,249 shares; TPG Parallel I, L.P., 126,191 shares; Vencap
Investment Pte Ltd, 68,499 shares; BT Investment Partners, 49,131 shares; Westar
Capital, 49,131 shares; BankAmerica Investment Corporation, 44,218 shares;
TCW/Crescent Mezzanine Partners, L.P., 21,605 shares; Squam Lake Investors II,
L.P., 9,826 shares; Sunapee Securities, Inc., 9,826 shares; TCW/Crescent
Mezzanine Trust, 6,579 shares; MIG Partners III, 4,913 shares; TCW/Crescent
Mezzanine Investment Partners, L.P., 593 shares; Robert J. Carbonell, 7,663
shares; and Stephen Sherrill, 2,576 shares. The Company has also
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<PAGE> 78
granted the underwriters an option to purchase up to 1,333,000 additional shares
of common stock but such option from the Company is exercisable (in whole or in
part) by the underwriters only if the underwriters have exercised all of the
options granted to the underwriters by the Selling Stockholders.
The 35,496,943 shares of common stock issued to and owned by TPG and other
existing stockholders prior to this offering were originally acquired in
connection with the Company's recapitalization and the Contadina Acquisition for
total consideration of approximately $182 million, or $5.13 per share, as
compared with new investors who will pay approximately $250 million, or $15.00
per share, for the 16,667,000 shares of common stock that Del Monte is offering
(assuming an initial public offering price of $15.00 per share). Accordingly,
TPG and other existing stockholders will benefit from an appreciation of $7.50
per share of common stock (approximately $266 million in the aggregate) in the
value of their shares of common stock as a result of this offering (assuming an
initial public offering price of $15.00 per share and no exercise of the
underwriters' overallotment option). See "Dilution."
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<PAGE> 79
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's recapitalization, the Company entered into
a ten-year agreement dated April 18, 1997 (the "Management Advisory Agreement")
with TPG. Under this agreement, 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. This indemnification
may not extend to actions arising under the U.S. federal securities laws. This
agreement of TPG makes its resources available 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 agreement does
not specify a minimum number of TPG personnel who must provide such services or
the individuals who must provide them. It also does not require that a minimum
amount of time be spent by such personnel on Company matters. The Company cannot
otherwise obtain the services that TPG will provide without the addition of
personnel or the engagement of outside professional advisors. In management's
opinion, the fees provided for under this 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 entered into a
ten-year advisory agreement dated April 18, 1997 with TPG. Under this agreement,
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. These services included assistance
in connection with the evaluation of the fairness of the recapitalization and
the valuation of the Company for those purposes. 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 this 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 advisory agreement includes indemnification
provisions similar to those described above. These provisions 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, and approximately $500,000 in connection with the
South America Acquisition. In connection with this offering, TPG expects to
receive approximately $4 million as compensation for its services as financial
advisor. In management's opinion, the fees provided for under the 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.
In connection with the recapitalization, Del Monte and the holders of the
common stock, including TPG and 399 Venture Partners, Inc., an affiliate of one
of the Company's bank lenders, entered into a stockholders' agreement dated as
of April 18, 1997. 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. Del
Monte 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 Del Monte preferred stock which were surrendered and were
cancelled by
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<PAGE> 80
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 arm's-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 arm's-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 September 30, 1998, these loans bore interest at a
rate of 5.41%, which rate is adjusted semi-annually. These loans are evidenced
by promissory notes that 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. 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. Following this offering, TPG will continue to have the power to
control the management and policies of the Company and 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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<PAGE> 81
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description summarizes Del Monte'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, a copy of
which has been filed as an exhibit to the registration statement.
COMMON STOCK
The certificate of incorporation authorizes the issuance of an aggregate of
500,000,000 shares of common stock. Upon consummation of this offering, of those
authorized shares of common stock, 52,163,943 will be validly issued, fully paid
and nonassessable. Prior to the consummation of this offering, there were 45
holders of record 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 Del Monte, after payment of the creditors of Del Monte, the
remaining assets and funds of Del Monte available for distribution to Del
Monte'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 common stock have the sole right and power to vote on all matters on
which a vote of Del Monte's stockholders is to be taken. At every meeting of the
stockholders, each holder 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 common stock are entitled, by a majority vote of those
present, to nominate and thereafter elect and remove directors to and from the
Board.
PREFERRED STOCK
The certificate of incorporation authorizes the issuance of an aggregate of
2,000,000 shares of preferred stock. Upon consummation of this offering, there
will be no shares of preferred stock outstanding.
Del Monte'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
preferred stock may be entitled to receive a preference payment in the event of
any liquidation, dissolution or winding-up of Del Monte before any payment is
made to the holders 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 Del Monte'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 may issue shares of preferred stock with voting and conversion rights
which could adversely affect the holders of shares of common stock.
Prior to the consummation of this offering, there were approximately 37,253
shares of Series A Preferred Stock outstanding. The Company intends to use a
portion of the proceeds of this offering to redeem these shares. See "Use of
Proceeds."
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 Del Monte, subject to availability of funds
and the terms of its indebtedness. The Series A Preferred Stock has an initial
liquidation preference of $1,000 per share, and may be redeemed at the option of
Del Monte, 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
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accumulated and unpaid dividends to the redemption date. Del Monte must 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 Del Monte, the holders of the Series A Preferred Stock have
the right to require Del Monte 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 do not have any voting rights with
respect thereto, except for those provided under applicable law, the right to
elect, as a class, two directors of Del Monte 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 holds
approximately 1,315 shares of the approximately 37,253 shares of Series A
Preferred Stock outstanding.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The certificate of incorporation provides for the Board to be divided into
three classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. 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 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 Del Monte and to increase the
likelihood that incumbent directors will retain their positions. See
"Management."
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 or by the Chairman
of the Board. Stockholders are not permitted to call a general meeting or to
require the Board to call a general meeting.
The bylaws establish an advance notice procedure for stockholder proposals
to be brought before a general meeting of stockholders, including proposed
nominations of persons for election to the Board.
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 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 Del Monte'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 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 Del Monte.
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 CERTAIN 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 for this offering.
BANK FINANCING
The Bank Financing consists of the Revolving Credit Facility and the Term
Loan Facility. The principal terms of the Bank Financing are summarized below.
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"). The margins on
outstanding balances under the Revolving Credit Facility are subject to
quarterly adjustment. In addition, DMC currently 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 currently 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 September 30, 1998, borrowings under the Revolving Credit
Facility were $202 million, and the weighted average interest rate thereon was
approximately 7.66%.
Term Loan Facility
At September 30, 1998, the outstanding principal amounts of the Tranche A
and B term loans were $193 million and $229 million, respectively, and the
weighted average rate on the Term Loan Facility was approximately 8.17%.
Interest rates per annum applicable to the Tranche A term loan are currently, 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 rate are, at DMC's option, either (i) the Base Rate plus
2.00% or (ii) the Offshore Rate plus 3.00%.
Consummation of the Contadina Acquisition required certain amendments under
the Bank Financing agreements to permit additional funding under the existing
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 commenced 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
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existing 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 Revolving Credit Facility and the
Term Loan Facility from excess cash flow, asset sales, issuance or condemnation
proceedings and issuances of debt and equity securities, including the offering.
Guarantees and Collateral
Del Monte has guaranteed DMC's obligations under the Bank Financing. DMC's
obligations are secured by substantially all personal property of DMC. Del
Monte'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 currently 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 5.00 times through March 28, 1999, 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 5.50
times through June 30, 1999, 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 $50 million at
June 30, 1999, 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 $120 million through March 28, 1999, 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 judgement
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 Del Monte or DMC.
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THE DMC NOTES AND THE DEL MONTE 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"). On
December 17, 1997, Del Monte issued and sold $230 million principal amount at
maturity of 12 1/2% Senior Discount Notes due 2007 (the "Original Del Monte
Notes"). Such notes were initially sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
pursuant to Section 4(2) thereof and Regulation S thereunder and applicable
state securities laws. On July 31, 1997, DMC completed an exchange offer whereby
the Original DMC Notes were exchanged into the DMC Notes, which are registered
under the Securities Act with terms substantially identical to the Original DMC
Notes. On September 25, 1998, Del Monte completed an exchange offer whereby the
Original Del Monte Notes were exchanged into the Del Monte Notes, which are
registered under the Securities Act with terms substantially identical to the
Original Del Monte Notes.
The DMC Notes and Del Monte Notes will mature on April 15, 2007 and
December 15, 2007, respectively. Interest accrues at the rate of 12 1/4% and
12 1/2% per annum on the DMC Notes and the Del Monte Notes, respectively.
Interest is payable on the DMC Notes in cash, while interest on the Del Monte
Notes accretes until December 15, 2002, after which date interest is payable in
cash. Payment of principal, premium and interest on the DMC Notes is
subordinated, as set forth in the indenture governing the DMC Notes, to the
prior payment in full of DMC's senior debt. The obligations of DMC under the DMC
Notes are unconditionally guaranteed on a senior subordinated basis by Del
Monte. The DMC Notes and Del Monte Notes are redeemable in whole or in part by
DMC and Del Monte, respectively, in certain circumstances, including upon a
change of control of Del Monte.
The indentures for the Del Monte Notes and the DMC Notes contain various
restrictive covenants that limit the ability of Del Monte and DMC and their
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 certain types of
indebtedness, incur liens, impose restrictions on the ability of a subsidiary to
pay dividends or make certain payments, merge or consolidate or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of Del Monte and DMC.
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CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the purchase, ownership and disposition of common
stock by a person that, for U.S. federal income tax purposes, is not a U.S.
Person (a "non-U.S. holder"). For purposes of this section, a "U.S. Person"
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source or a trust if (i)
a U.S. court is able to exercise primary supervision over the trust's
administration and (ii) one or more United States persons have the authority to
control all of the trust's substantial decisions, and the term "United States"
means the United States of America (including the States and the District of
Columbia).
THE DISCUSSION DOES NOT CONSIDER SPECIFIC FACTS AND CIRCUMSTANCES THAT MAY
BE RELEVANT TO A PARTICULAR NON-U.S. HOLDER'S TAX POSITION AND DOES NOT
CONSTITUTE AND IS NOT BASED UPON AN OPINION OF TAX COUNSEL. ACCORDINGLY, EACH
NON-U.S. HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE U.S.
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON STOCK, AS
WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE,
MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a non-U.S. holder of common stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30% rate, or at a lower
rate under an applicable income tax treaty that provides for a reduced rate of
withholding. However, if the dividends are effectively connected with the
conduct by the holder of a trade or business within the United States, then the
dividends will be exempt from the withholding tax described above and instead
will be subject to U.S. federal income tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain realized on a disposition of common stock, provided that (a)
the gain is not effectively connected with a trade or business conducted by the
non-U.S. holder in the United States and (b) in the case of a non-U.S. holder
who is an individual and who holds the common stock as a capital asset, such
holder is present in the United States for less than 183 days in the taxable
year of the sale and other conditions are met.
FEDERAL ESTATE TAXES
Common stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will not
apply to dividends paid on common stock to a non-U.S. holder at an address
outside the United States, except that with regard to payments made after
December 31, 1999, a non-U.S. holder will be entitled to such an exemption only
if it provides a Form W-8 (or satisfies certain documentary evidence
requirements for establishing that it is a non-United States person) or
otherwise establishes an exemption. As a general matter, information reporting
and backup withholding also will not apply to a payment of the proceeds of a
sale of common stock effected outside the United States by a foreign office of a
foreign broker. However, information reporting requirements (but not backup
withholding) will apply to a payment of the proceeds of a sale of common stock
effected outside the United States by a foreign office of a broker if the broker
(i) is a U.S. person, (ii) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, or (iii)
is a "controlled foreign corporation" as to the United States or (iv) with
respect to payments made after December 31, 1999, is a foreign partnership that,
at any time during its taxable year is 50% or more (by income or capital
interest) owned by U.S. persons or is engaged in the conduct of a U.S. trade or
business, unless the broker has documentary evidence in its records that the
holder is a non-U.S. holder and certain conditions are met, or the holder
otherwise establishes an exemption. Payment by a United States office of a
broker of the proceeds of a sale of common stock will be subject to both backup
withholding and information
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reporting unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the shares of
common stock. An active trading market for the common stock may not develop or
be sustained. Further, Del Monte cannot predict the effect, if any, of sales
under Rule 144 under the Securities Act or otherwise of "restricted" shares of
common stock or the availability of restricted shares of common stock for sale
in the public market. Sales of a substantial number of shares of common stock in
the public market following this offering could adversely affect the market
price of the shares of common stock prevailing from time to time.
Upon completion of this offering, Del Monte will have 52,163,943 shares of
common stock outstanding (assuming no exercise of the underwriters'
overallotment option). Of these shares, the 20,000,000 shares sold in this
offering will be freely transferable without restriction or registration under
the Securities Act, except for any shares purchased by an "affiliate" of Del
Monte, as that term is defined by the Securities Act, which shares will be
subject to the resale limitations of Rule 144 adopted under the Securities Act.
Substantially all of the remaining outstanding shares of common stock will be
owned by TPG and other existing stockholders of Del Monte and will be
"restricted securities" as defined in Rule 144. "Restricted securities" may not
be sold in the absence of an effective registration statement under the
Securities Act other than in accordance with Rule 144 or another exemption from
registration.
Each of Del Monte, TPG and certain other stockholders of Del Monte and each
of the directors and executive officers of Del Monte have agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, they will not, during the period ending 180 days after the date of
this prospectus, engage in specified transactions relating to the common stock.
See "Underwriters."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted securities for at least one year (including the holding period of any
prior owner except an affiliate) would be entitled to sell within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the number of shares of common stock then outstanding (approximately
521,639 shares immediately after this offering); or (ii) the average weekly
trading volume of the shares of common stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale and notice requirements and to
the availability of current public information about Del Monte. Under Rule
144(k), a person who is not deemed to have been an affiliate at any time during
the 90 days preceding a sale, and who has beneficially owned restricted
securities for at least two years (including the holding period of any prior
owner except an affiliate), is entitled to sell the shares without complying
with the manner of sale, public information requirements, volume limitations or
notice requirements of Rule 144. Accordingly, subject to the contractual
restrictions described above in the case of Del Monte, the "restricted" shares
of common stock held by TPG will be eligible for sale in the public market
without registration under the Securities Act, subject to compliance with the
resale volume limitations and other restrictions of Rule 144 under the
Securities Act.
REGISTRATION RIGHTS AGREEMENTS
Under a registration rights agreement between the Company and TPG Partners,
the Company has granted TPG Partners the right to require the Company to
register shares of common stock held by TPG Partners and its affiliates for
public sale (a "demand registration"). So long as TPG Partners and its
affiliates continue to hold at least 5% of the outstanding shares of common
stock, TPG will have the right to request one demand registration in each
nine-month period pursuant to the stockholders' agreement among some of the
current stockholders of the Company. In the event that the Company registers
shares of common stock held by TPG, the Company would also be required to
register shares of common stock held by other stockholders of the Company upon
their request. See "Certain Relationships and Related Transactions."
The Company is required to pay all expenses (other than underwriting
discounts and commissions) incurred by TPG in connection with each demand
registration.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
underwriters named below, for whom Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., Credit Suisse First Boston Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated and NationsBanc Montgomery Securities LLC are acting as U.S.
representatives, and the international underwriters named below, for whom Morgan
Stanley & Co. International Limited, Goldman Sachs International, Credit Suisse
First Boston (Europe) Limited, Merrill Lynch International, Bear, Stearns
International Limited, BT Alex. Brown International, a division of Bankers Trust
International PLC, and NationsBanc Montgomery Securities LLC are acting as
international representatives, have severally agreed to purchase, and Del Monte
and the Selling Stockholders have agreed to sell to them, severally, the
respective number of shares of common stock set forth opposite the names of such
underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Goldman, Sachs & Co.......................................
Credit Suisse First Boston Corporation....................
Merrill Lynch, Pierce, Fenner & Smith Incorporated........
Bear, Stearns & Co. Inc. .................................
BT Alex. Brown Incorporated...............................
NationsBanc Montgomery Securities LLC.....................
----------
Subtotal............................................... 16,000,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited................
Goldman Sachs International...............................
Credit Suisse First Boston (Europe) Limited...............
Merrill Lynch International...............................
Bear, Stearns International Limited.......................
BT Alex. Brown International, a division of Bankers Trust
International PLC......................................
NationsBanc Montgomery Securities LLC.....................
----------
Subtotal............................................... 4,000,000
----------
Total............................................. 20,000,000
==========
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the "underwriters" and the "representatives," respectively. The
underwriters are offering the shares of common stock subject to their acceptance
of the shares from the Company and subject to prior sale. The Underwriting
Agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered hereby are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered hereby (other than those covered by the underwriters'
over allotment option described below) if any of such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
shares or distribute any prospectus relating to the shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. and International Underwriters, each
international underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any shares for the account of any
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United States or Canadian Person and (ii) it has not offered or sold, and will
not offer or sell, directly or indirectly, any shares or distribute any
prospectus relating to the shares in the United States or Canada or to any
United States or Canadian Person. With respect to any underwriter that is a U.S.
underwriter and an international underwriter, the foregoing representations and
agreements (i) made by it in its capacity as a U.S. underwriter apply only to it
in its capacity as a U.S. underwriter and (ii) made by it in its capacity as an
international underwriter apply only to it in its capacity as an international
underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement Between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of common stock to be purchased by the underwriters under the
Underwriting Agreement are referred to herein as the "shares."
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. underwriters and international underwriters
of any number of shares as may be mutually agreed. The per share price of any
shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing such shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement Between U.S. and International Underwriters, each
international underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the shares to the international underwriters, will not offer or sell, any shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document may
otherwise lawfully be issued or passed on.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain
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<PAGE> 90
dealers. After the initial offering of the shares of common stock, the offering
price and other selling terms described above may from time to time be varied by
the representatives.
Del Monte and the Selling Stockholders have granted to the U.S.
underwriters an option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate of 3,000,000 additional shares of
common stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Company's portion of such
option (relating to 1,333,000 shares) is exercisable, in whole or in part, only
if all of the Selling Stockholders' portion of such option (relating to
1,667,000 shares) is exercised. See "Principal and Selling Stockholders." The
U.S. underwriters may exercise such option solely for the purpose of covering
overallotments, if any, made in connection with this offering. To the extent
such option is exercised, each U.S. underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of common stock as the number set forth next to such U.S.
underwriter's name in the preceding table bears to the total number of shares of
common stock set forth next to the names of all U.S. underwriters in the
preceding table. If the U.S. underwriters' option is exercised in full, the
total price to the public would be $ , the total underwriters'
discounts and commissions would be $ , total proceeds to Del Monte
would be $ and total proceeds to the Selling Stockholders would be
$ .
The underwriters have informed Del Monte that they do not intend sales to
discretionary accounts to exceed 5% of the total number of shares of common
stock offered by them.
The common stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange and the Pacific Exchange under the
symbol "DLM."
Each of Del Monte, TPG and certain other stockholders of Del Monte and each
of the directors and executive officers of Del Monte have agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, they will not, during the period ending 180 days after the date of
this prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the common stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of common stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to (w) the sale of the shares to the
underwriters, (x) the issuance by Del Monte of shares of common stock upon the
exercise of an option or a warrant or the conversion of a security outstanding
on the date of this prospectus, (y) the sale of any shares of common stock to
Del Monte or the purchase of any shares of common stock by Del Monte in
accordance with certain stockholders' agreements pursuant to Del Monte's
employee benefit plans or (z) transactions by any person other than the Company
relating to shares of common stock or other securities acquired in open market
transactions after the completion of this offering.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may overallot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in this offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
Pursuant to the application of the net proceeds of the offering, certain of
the underwriters or affiliates of the underwriters may receive in the aggregate
an amount greater than 10% of the net proceeds of this offering. Accordingly,
the underwriting arrangements for the offering will be made in compliance with
Rule 2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. (the
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"NASD"), which provides that, among other things, the initial public offering
price can be no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement,
A.G. Edwards & Sons, Inc. will serve in such role and will recommend a price in
compliance with the Conduct Rules of the NASD. In connection with the offering,
A.G. Edwards & Sons, Inc., in its role as a qualified independent underwriter,
has performed due diligence investigations and reviewed and participated in the
preparation of the prospectus and the registration statement.
From time to time, Morgan Stanley & Co. Incorporated has provided, and
continues to provide, certain financial advisory services to Del Monte and its
subsidiaries for which they have received customary fees and commissions.
Del Monte and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
DIRECTED SHARE PROGRAM
At the request of Del Monte, the underwriters have reserved for sale, at
the initial offering price, up to 1,000,000 shares, which may be offered to
directors, officers, employees, retirees and related persons of Del Monte. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Such
related persons include officers, partners and principals of independent brokers
that represent the Company's products to the grocery trade. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered hereby.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Del Monte, the Selling Stockholders and the U.S. representatives. Among
the factors to be considered in determining the initial public offering price
will be the future prospects of the Company and its industry in general, sales,
earnings and certain other financial and operating information of the Company in
recent periods, and the price-earnings ratios, price-sales ratios, market prices
of securities and certain financial and operating information of companies
engaged in activities similar to those of the Company. The estimated initial
public offering price range set forth on the cover page of this prospectus is
subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of common stock offered hereby and certain other
legal matters in connection with the offering will be passed upon for Del Monte
by Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York
10006, counsel for Del Monte. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Brown & Wood LLP, 555
California Street, San Francisco, California 94104.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1997
and 1998, and for the years then ended, appearing in this prospectus and
Registration Statement have been audited by KPMG LLP, independent certified
public accountants, and for the year ended June 30, 1996, by Ernst & Young LLP,
independent auditors, 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 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.
86
<PAGE> 92
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, 1997 and 1998....... F-3
Consolidated Statements of Operations -- Years ended June
30, 1996, 1997 and 1998................................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit) -- Years ended June 30, 1996, 1997 and 1998..... F-5
Consolidated Statements of Cash Flows -- Years ended June
30, 1996, 1997 and 1998................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Auditors.............................. F-29
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets -- June 30, 1998 and September
30, 1998.................................................. F-30
Consolidated Statements of Operations -- Three-month Periods
ended September 30, 1997 and September 30, 1998........... F-31
Consolidated Statements of Cash Flows -- Three-month Periods
ended September 30, 1997 and September 30, 1998........... F-32
Notes to Consolidated Financial Statements.................. F-33
CONTADINA (A DIVISION OF NESTLE USA, INC.)
Independent Auditors' Report................................ F-36
Combined Balance Sheets at December 31, 1996 and December
18, 1997.................................................. F-37
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-38
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-39
Notes to Combined Financial Statements for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-40
</TABLE>
F-1
<PAGE> 93
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated balance sheets of Del Monte
Foods Company and subsidiaries as of June 30, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years 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 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 as of June 30, 1997 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
KPMG LLP
July 24, 1998
San Francisco, California
F-2
<PAGE> 94
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1998
---------- -----
(RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5 $ 7
Trade accounts receivable, net of allowance............... 67 108
Other receivables......................................... 2 6
Inventories............................................... 339 366
Prepaid expenses and other current assets................. 9 14
----- -----
Total Current Assets.............................. 422 501
Property, plant and equipment, net.......................... 222 305
Intangibles................................................. -- 16
Other assets................................................ 23 23
----- -----
Total Assets...................................... $ 667 $ 845
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 220 $ 259
Short-term borrowings..................................... 82 --
Current portion of long-term debt......................... 2 32
----- -----
Total Current Liabilities......................... 304 291
Long-term debt.............................................. 526 677
Other noncurrent liabilities................................ 203 194
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding 35,000
in 1997 and 37,253 in 1998; aggregate liquidation
preference $36 in 1997 and $41 in 1998)................... 32 33
Stockholders' equity (deficit):
Common stock ($.01 par value per share, shares authorized:
191,542,000 in 1997 and 500,000,000 in 1998; issued and
outstanding: 26,815,880 in 1997 and 35,495,058 in 1998)
Paid-in capital........................................... 129 172
Retained earnings (deficit)............................... (527) (522)
----- -----
Total Stockholders' Equity (Deficit).............. (398) (350)
----- -----
Total Liabilities and Stockholders' Equity........ $ 667 $ 845
===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 95
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------
1996 1997 1998
---------- ---------- ------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Net sales................................................... $1,305 $1,217 $1,313
Cost of products sold....................................... 984 819 898
Selling, administrative and general expense................. 239 327 316
Special charges related to plant consolidation.............. -- -- 10
Acquisition expense......................................... -- -- 7
------ ------ ------
Operating income............................................ 82 71 82
Interest expense............................................ 67 52 77
Loss (gain) on sale of divested assets...................... (123) 5 --
Other (income) expense...................................... 3 30 (1)
------ ------ ------
Income (loss) before income taxes, minority interest,
extraordinary item and cumulative effect of accounting
change.................................................... 135 (16) 6
Minority interest in earnings of subsidiary................. 3 -- --
Provision for income taxes.................................. 11 -- 1
------ ------ ------
Income (loss) before extraordinary item and cumulative
effect of accounting change............................... 121 (16) 5
Extraordinary loss from early debt retirement............... 10 42 --
Cumulative effect of accounting change...................... 7 -- --
------ ------ ------
Net income (loss)........................................... $ 104 $ (58) $ 5
====== ====== ======
Basic net income (loss) per common share
Income (loss) before extraordinary item and cumulative
effect of accounting change............................... $ 0.52 $(1.40) $ 0.01
Net income (loss)........................................... 0.29 (2.07) 0.01
Diluted net income (loss) per common share
Income (loss) before extraordinary item and cumulative
effect of accounting change............................... $ 0.52 $(1.40) $ 0.01
Net income (loss)........................................... 0.29 (2.07) 0.01
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 96
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, 1995............ $ -- $ 3 $ (1) $(369) $(26) $(393)
Repayment of notes receivable from
stockholders...................... 1 1
Issuance 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 income (as restated)............ (58) (58)
Cumulative translation adjustment... 26 26
---- ---- ---- ----- ---- -----
Balance at June 30, 1997 (as
restated)......................... -- 129 -- (527) -- (398)
Amortization of redeemable preferred
stock discount.................... (1) (1)
Issuance of shares.................. 44 44
Net income.......................... 5 5
---- ---- ---- ----- ---- -----
Balance at June 30, 1998............ $ -- $172 $ -- $(522) $ -- $(350)
==== ==== ==== ===== ==== =====
</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, 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
Issuance of shares.................... 8,679,178 -- -- -- 8,679,178
---------- ----------- -- ---------- -----------
Shares issued and outstanding at June
30, 1998............................ 35,495,058 -- -- -- 35,495,058
========== =========== == ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 97
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1996 1997 1998
---------- ---------- -----
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 104 $ (58) $ 5
Adjustments to reconcile net income (loss) to net cash
flows:
Extraordinary loss from early debt retirement.......... 10 42 --
Cumulative effect of accounting change................. 7 -- --
Loss on sale of divested assets........................ (123) 5 --
Net loss on sales of assets............................ 2 3 1
Depreciation and amortization.......................... 31 29 35
Stock option compensation expense...................... -- -- 2
Changes in operating assets and liabilities net of
effects of acquisition:
Accounts receivable.................................. 33 24 (45)
Inventories.......................................... 11 (48) 74
Prepaid expenses and other current assets............ (2) 3 --
Other assets......................................... 1 6 --
Accounts payable and accrued expenses................ (28) 29 28
Other non-current liabilities........................ 14 (10) (3)
------- ------- -----
Net cash provided by operating activities............ 60 25 97
------- ------- -----
Investing activities:
Capital expenditures................................... (16) (20) (32)
Proceeds from sales of assets.......................... 4 9 5
Proceeds from sales of divested assets................. 182 48 --
Acquisition of business................................ -- -- (195)
------- ------- -----
Net cash provided by (used in) investing
activities........................................ 170 37 (222)
------- ------- -----
Financing activities:
Short-term borrowings.................................. 1,276 1,137 300
Payment on short-term borrowings....................... (1,354) (1,098) (382)
Proceeds from long-term borrowings..................... -- 582 176
Principal payments on long-term debt................... (108) (407) (2)
Deferred debt issuance costs........................... (2) (26) (7)
Prepayment penalty..................................... (5) (20) --
Payments to previous shareholders for cancellation of
stock................................................ -- (422) --
Issuance of common and preferred stock................. -- 161 42
Specific Proceeds Collateral Account................... (30) 30 --
Other.................................................. (1) -- --
------- ------- -----
Net cash provided by (used in) financing
activities........................................ (224) (63) 127
------- ------- -----
Effect of exchange rate changes on cash and cash
equivalents............................................... (8) -- --
------- ------- -----
Net change in cash and cash equivalents.............. (2) (1) 2
Cash and cash equivalents at beginning of period............ 8 6 5
------- ------- -----
Cash and cash equivalents at end of period........... $ 6 $ 5 $ 7
======= ======= =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 98
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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") operates
in one business segment: the manufacturing and marketing of processed foods,
primarily canned vegetables, fruit 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.
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.
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
F-7
<PAGE> 99
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
equipment and leasehold amortization was $26, $24 and $32 for the years ended
June 30, 1996, 1997 and 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 product, and related cost of
products sold, 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 first takes place. Advertising
expense was $5, $6 and $2 for the years ended June 30, 1996, 1997 and 1998,
respectively.
Research and Development: Research and development costs are included as a
component of "Selling, administrative and general expense." Research and
development costs charged to operations were $6, $5 and $5 for the years ended
June 30, 1996, 1997 and 1998, respectively.
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.
Foreign Currency Translation: For the Company's operations in countries
where the functional currency is other than the U.S. dollar, revenue and expense
accounts were translated at the average rates during the period.
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 June 30, 1998, the fair value of the senior subordinated notes was $168 and
of the senior discount notes was $147, as estimated based on quoted market
prices from dealers.
The fair value of the interest rate swap agreements at June 30, 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.
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.
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
F-8
<PAGE> 100
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
income (loss) attributable to common shares by the weighted average number of
common and redeemable common shares outstanding during the period (Note F). 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.
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, including intangibles, 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.
NOTE B -- ACQUISITIONS
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 and vacation accruals. In
connection with the Contadina Acquisition, approximately $7 of
acquisition-related expenses were incurred.
The 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 adjusted
to actual amounts; however, any resulting adjustment is not expected to be
material. The allocation of the $195 purchase price is as follows: inventory
$93, prepaid expenses $5, property, plant and equipment $85, intangibles $16 and
accrued liabilities $4.
F-9
<PAGE> 101
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Results of operations of the Contadina Acquisition are included in the
Consolidated Statement of Operations for June 30, 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>
YEAR ENDED JUNE 30,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Net sales.................................................. $1,377 $1,405
Operating income........................................... 61 80
Net loss before extraordinary item......................... (48) (9)
Net loss................................................... $ (90) $ (9)
====== ======
Net loss attributable to common stockholders............... $ (160) $ (14)
====== ======
Loss per share............................................. $(2.51) $(0.41)
====== ======
</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.
NOTE C -- 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 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
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Net sales................................................... $55 $17
Costs and expenses.......................................... 50 17
--- ---
Income from operations before income taxes.................. 5 --
Provision for income taxes.................................. 1 --
--- ---
Income from Latin American operations....................... $ 4 $--
=== ===
</TABLE>
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 K).
F-10
<PAGE> 102
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The following results of the Del Monte Philippines operations are included
in the Consolidated Statement of Operations for the year ended June 30, 1996:
<TABLE>
<S> <C>
Net sales................................................... $102
Costs and expenses.......................................... 97
----
Income from operations before income taxes.................. 5
Provision for income taxes.................................. 2
----
Income from operations...................................... $ 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. for $89, net of $4 of related transaction expenses. The sale resulted in
the recognition of a $71 gain, reduced by $2 of taxes.
For the year ended June 30, 1996, net sales of $15, costs and expenses of
$11 and income from operations of $4 resulting from the pudding business are
included in the Consolidated Statement of Operations.
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.
NOTE D -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1998
---------- ----
(RESTATED)
<S> <C> <C>
Trade accounts receivable:
Trade..................................................... $ 68 $109
Allowance for doubtful accounts........................... (1) (1)
---- ----
Total trade accounts receivable................... $ 67 $108
==== ====
Inventories:
Finished product.......................................... $239 $237
Raw materials and supplies................................ 13 19
Other, principally packaging material..................... 87 110
---- ----
Total inventories................................. $339 $366
==== ====
Property, plant and equipment:
Land and land improvements................................ $ 37 $ 42
Buildings and leasehold improvements...................... 93 107
Machinery and equipment................................... 233 307
Construction in progress.................................. 10 24
---- ----
373 480
Accumulated depreciation.................................. (151) (175)
---- ----
Property, plant and equipment, net..................... $222 $305
==== ====
</TABLE>
F-11
<PAGE> 103
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1998
---------- ----
(RESTATED)
<S> <C> <C>
Intangible assets:
Trademark................................................. $ -- $ 16
Accumulated amortization.................................. -- --
---- ----
Intangible assets, net................................. $ -- $ 16
==== ====
Other assets:
Deferred debt issue costs................................. $ 19 $ 26
Other..................................................... 4 --
---- ----
23 26
Accumulated amortization.................................. -- (3)
---- ----
Total other assets................................ $ 23 $ 23
==== ====
Accounts payable and accrued expenses:
Accounts payable -- trade................................. $ 79 $ 99
Marketing and advertising................................. 59 80
Payroll and employee benefits............................. 17 18
Current portion of accrued pension liability.............. 12 9
Current portion of other noncurrent liabilities........... 19 12
Other..................................................... 34 41
---- ----
Total accounts payable and accrued expenses....... $220 $259
==== ====
Other noncurrent liabilities:
Accrued postretirement benefits........................... $145 $144
Accrued pension liability................................. 26 16
Self-insurance liabilities................................ 15 8
Other..................................................... 17 26
---- ----
Total other noncurrent liabilities................ $203 $194
==== ====
</TABLE>
NOTE E -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings under the revolving credit agreement were $82 at June
30, 1997 and zero at June 30, 1998. Unused amounts under the revolving credit
agreement at June 30, 1997 and 1998 totaled $242 and $327, respectively.
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 with an amended statement filed on July
10, 1998. Until the registration statement is declared effective, the Company
will be required to pay an additional
F-12
<PAGE> 104
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
.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 a 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 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 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. 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% (7.625%
at June 30, 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% (8.625%
at June 30, 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 June
30, 1998, a balance of $23 was outstanding on these letters of credit.
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.
F-13
<PAGE> 105
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------
1997 1998
---- ----
<S> <C> <C>
Term Loan................................................... $380 $429
Senior Subordinated Notes................................... 147 147
Senior Discount Notes....................................... -- 133
Other....................................................... 1 --
---- ----
528 709
Less current portion........................................ 2 32
---- ----
$526 $677
==== ====
</TABLE>
At June 30, 1998, scheduled maturities of long-term debt in each of the
next five fiscal years and thereafter will be as follows:
<TABLE>
<S> <C>
1999........................................................ $ 32
2000........................................................ 37
2001........................................................ 42
2002........................................................ 47
2003........................................................ 53
Thereafter.................................................. 598
----
809
Less discount on notes...................................... 100
----
$709
====
</TABLE>
The Term Loan and Revolver are collateralized by security interests in
certain of the Company's assets. At June 30, 1998, assets totaling $808 were
pledged as collateral for approximately $429 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 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, 1998.
The Company made cash interest payments of $30, $24 and $71 for the years
ended June 30, 1996, 1997 and 1998, 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 5.75%. The incremental effect on interest expense for the year
ended June 30, 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
F-14
<PAGE> 106
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
interest rate swap agreements. However, the Company does not anticipate
nonperformance by the counterparties.
NOTE F -- 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 191,542,000 shares
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 was reflected as
redeemable preferred stock. Effective May 1, 1998, all 547,262 warrants were
exercised with a resulting 547,262 shares of common stock issued to the holders
of the warrants.
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
F-15
<PAGE> 107
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 $1 for the year ended
June 30, 1997 and $5 for the year ended June 30, 1998 consisting of $1 of
additional shares issued and $4 of accretion.
For the years ended June 30, 1996 and 1997, the Company declared dividends
for the following series of then-outstanding redeemable preferred stock:
<TABLE>
<CAPTION>
DIVIDEND RATE
PER SHARE
YEAR ENDED
JUNE 30,
--------------
SERIES 1996 1997
------ ----- -----
<S> <C> <C>
A1................................................... $3.81 $1.92
B.................................................... $3.87 $1.95
D.................................................... $3.94 $1.98
E.................................................... $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,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Additional shares........................... 1,824,999 1,027,406
Total par value................... $ 0.018 $ 0.010
</TABLE>
In the Recapitalization, all of the redeemable preferred stock issued prior
to April 18, 1997 was either canceled and converted into the right to receive
new DMFC common stock or canceled and converted into the right to receive cash
consideration as set forth in the Merger Agreement.
F-16
<PAGE> 108
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE G -- EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Numerator:
Income (loss) per common share before extraordinary
item and cumulative effect of accounting change.... $ 121 $ (16) $ 5
Preferred stock dividends............................. (82) (70) (5)
------ ------ -----
Numerator for basic earnings (loss) per
share -- income (loss) attributable to common
shares before extraordinary items and cumulative
effect of accounting change........................ $ 39 $ (86) $ --
------ ------ -----
------ ------ -----
Denominator:
Denominator for basic earnings per share -- weighted
average shares..................................... 75,047,353 61,703,436 31,619,642
Basic income (loss) per common share before
extraordinary item and cumulative effect of accounting
change................................................ $ 0.52 $(1.40) $0.01
Extraordinary loss...................................... $ 10 $ 42 $ --
Extraordinary loss per common share..................... $(0.14) $(0.67) $ --
Cumulative effect of accounting change.................. $ 7 $ -- $ --
Cumulative effect of accounting change per common
share................................................. $(0.09) $ -- $ --
DILUTED EARNINGS PER SHARE
Numerator:
Income (loss) per common share before extraordinary
item and cumulative effect of accounting change.... $ 121 $ (16) $ 5
Preferred stock dividends............................. (82) (70) (5)
------ ------ -----
Numerator for diluted earnings (loss) per
share -- income (loss) attributable to common
shares before extraordinary items and cumulative
effect of accounting change........................ $ 39 $ (86) $ --
------ ------ -----
------ ------ -----
Denominator:
Denominator for diluted earnings per share -- weighted
average shares..................................... 75,047,353 61,840,245 32,355,131
Diluted income (loss) per common share before
extraordinary item and cumulative effect of accounting
change................................................ $ 0.52 $(1.40) $0.01
Extraordinary loss...................................... $ 10 $ 42 $ --
Extraordinary loss per common share..................... $(0.14) $(0.67) $ --
Cumulative effect of accounting change.................. $7 $ -- $ --
Cumulative effect of accounting change per common
share................................................. $(0.09) $ -- $ --
</TABLE>
NOTE H -- EMPLOYEE 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
F-17
<PAGE> 109
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
grant. Two different vesting schedules have been approved under the 1997 Stock
Incentive plan. Under the plan, 1,736,520 options were granted. 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. Options terminate 10 years from the date
of grant and vest monthly on a proportionate basis over four years.
The Del Monte Foods Company 1998 Stock Incentive Plan (the "1998 Stock
Incentive Plan") was approved in final form 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 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. At June 30, 1998, no Awards have
been made under the 1998 Stock Incentive Plan.
<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 June 30, 1998............ 5.22 1,838,995
Exercisable at June 30, 1998............ 5.22 452,422
Available for grant at June 30, 1998.... 13.31 3,195,687
</TABLE>
The weighted-average remaining contractual life for the above options is
8.8 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 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 SFAS 123, results in pro
forma net income of $5 and a pro forma loss per common share of $(0.01) for the
year ended June 30, 1998.
F-18
<PAGE> 110
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 June 30, 1998,
454,146 shares of the Company's common stock have been 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 stock-based awards
for the year ended June 30, 1998 was $2.
NOTE I -- 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.
The following table sets forth the pension plans' funding status and
amounts recognized on the Company's balance sheet:
<TABLE>
<CAPTION>
JUNE 30,
--------------
1997 1998
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(269) $(277)
===== =====
Accumulated benefit obligation.............................. $(274) $(286)
===== =====
Projected benefit obligation for services rendered to
date...................................................... $(279) $(292)
Plan assets at fair value................................... 276 299
----- -----
Plan assets in excess of (less than) projected benefit
obligation................................................ (3) 7
Unrecognized net actuarial gain............................. (34) (31)
Unrecognized prior service income........................... (1) (1)
----- -----
Accrued pension cost recognized in the consolidated balance
sheet..................................................... $ (38) $ (25)
===== =====
</TABLE>
F-19
<PAGE> 111
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
The components of net periodic pension cost for all defined benefit plans
are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during period.............. $ 4 $ 3 $ 3
Interest cost on projected benefit obligation............... 21 21 21
Actual return on plan assets................................ (32) (35) (35)
Net amortization and deferral............................... 11 13 10
---- ---- ----
Net periodic pension cost................................... $ 4 $ 2 $ (1)
==== ==== ====
</TABLE>
Significant rate assumptions used in determining net periodic pension cost
and related pension obligations are as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate used in determining projected benefit
obligation................................................ 8.0% 7.75% 7.0%
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 the year ended June 30, 1998 was $6.
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
year ended June 30, 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 included the following components:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $ 2 $ 1 $ 1
Interest cost............................................... 9 9 8
Amortization of prior service cost.......................... -- (1) (1)
Amortization of actuarial losses (gains).................... (3) (3) (3)
Curtailment gain............................................ (4) -- --
--- --- ---
Net periodic postretirement benefit cost.................... $ 4 $ 6 $ 5
=== === ===
</TABLE>
F-20
<PAGE> 112
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT 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:
<TABLE>
<CAPTION>
JUNE 30,
-----------
1997 1998
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees.......................................... $ 80 $ 83
Fully eligible active plan participants................... 11 7
Other active plan participants............................ 13 18
---- ----
104 108
Unrecognized prior service cost........................... 10 8
Unrecognized gain......................................... 38 35
---- ----
Accrued postretirement benefit cost....................... $152 $151
==== ====
</TABLE>
For the years ended June 30, 1997 and 1998, the weighted average annual
assumed rate of increase in the health care cost trend is 11.5%, 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, 1998 by $12 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 June 30, 1997 and 1998 was 7.75% and 7.00%,
respectively.
NOTE J - PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1997 1998
---------- ---------- ----
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Income before minority interest and taxes:
Domestic............................................ $106 $(58) $6
Foreign............................................. 12 1 --
---- ---- --
$118 $(57) $6
==== ==== ==
Income tax provision (benefit)
Current:
Federal........................................... $ 5 $ -- $1
State............................................. 6 -- --
---- ---- --
Total current.................................. 11 -- 1
---- ---- --
Deferred:
Federal........................................... -- -- --
State............................................. -- -- --
---- ---- --
Total deferred................................. -- -- --
---- ---- --
$ 11 $ -- $1
==== ==== ==
</TABLE>
F-21
<PAGE> 113
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997 1998
---------- -----
(RESTATED)
<S> <C> <C>
Deferred tax assets:
Post employment benefits.................................. $ 53 $ 53
Pension expense........................................... 16 12
Purchase accounting....................................... -- 7
Workers' compensation..................................... 8 4
Leases and patents........................................ 4 3
Interest.................................................. -- 3
State income taxes........................................ 14 11
Other..................................................... 24 17
Net operating loss and tax credit carry forward........... 33 31
----- -----
Gross deferred tax assets.............................. 152 141
Valuation allowance.................................... (122) (112)
----- -----
Net deferred tax assets................................ 30 29
Deferred tax liabilities:
Depreciation.............................................. 30 26
Intangible................................................ -- 3
----- -----
Gross deferred liabilities............................. 30 29
----- -----
Net deferred tax asset................................. $ -- $ --
===== =====
</TABLE>
The net change in the valuation allowance for the years ended June 30, 1997
and 1998 was an increase of $30 and a decrease of $10, respectively. 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 net deferred tax assets will not
be realized. Therefore, a full valuation allowance in the amount of $112 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,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Income taxes (benefit) computed at the statutory U.S.
federal income tax rates.................................. $ 42 $(19) $ 2
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) -- (1)
---- ---- ---
Provision for income taxes.................................. $ 11 $ -- $ 1
==== ==== ===
</TABLE>
As of June 30, 1998, the Company had operating loss carryforwards for tax
purposes available from domestic operations totaling $77 which will expire
between 2008 and 2012.
The Company made income tax payments of $5 and $4 for the years ended June
30, 1996 and 1997. The Company made no income tax payments for the year ended
June 30, 1998.
F-22
<PAGE> 114
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE K - COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment and office and plant
facilities. At June 30, 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>
1999........................................................ $15
2000........................................................ 13
2001........................................................ 11
2002........................................................ 6
2003........................................................ 5
Thereafter.................................................. 36
---
$86
===
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of $6
due through 2016 under noncancelable subleases. Rent expense was $28, $32 and
$35 for the fiscal years ended June 30, 1996, 1997 and 1998, 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 $54, $114, $66 for the
years ended June 30, 1996, 1997 and 1998. The Company also has commitments to
purchase certain finished goods.
At June 30, 1998, aggregate future payments under such purchase commitments
(priced at the June 30, 1998 estimated cost) are estimated as follows:
<TABLE>
<S> <C>
1999........................................................ $ 60
2000........................................................ 49
2001........................................................ 38
2002........................................................ 35
2003........................................................ 31
Thereafter.................................................. 73
----
$286
====
</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 $38 in
fiscal 1999 under this supply agreement for pineapple products. During the year
ended June 30, 1998, the Company purchased $38 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 year ended June 30, 1998 amounted to
$186. 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
F-23
<PAGE> 115
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 years ended June 30, 1996,
1997 and 1998 were $16, $18 and $16, respectively. The agreement expires in
November 2002 with optional successive one-year extensions.
At June 30, 1998, base payments under the agreement are as follows:
<TABLE>
<S> <C>
1999........................................................ $14
2000........................................................ 13
2001........................................................ 13
2002........................................................ 14
2003........................................................ 5
---
$59
===
</TABLE>
Del Monte has a concentration of labor supply in employees working under
union collective bargaining agreements, which represent approximately 79% of its
hourly and seasonal work force. Of these represented employees, 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.
NOTE L -- FOREIGN OPERATIONS AND GEOGRAPHIC DATA
The Company's earnings in fiscal 1996 and 1997 were derived in part from
foreign operations. These operations, a significant factor in the economies of
the countries where the Company operates, were subject to the risks that are
inherent in operating in such foreign countries, including government
regulations, currency and ownership restrictions, risks of expropriation and
burdensome taxes. Certain of these operations were also dependent on leases and
other agreements with these governments. Transfers between geographic areas were
accounted for as intercompany sales, and transfer prices are based generally on
negotiated contracts. As of November 1996, the Company no longer had any
ownership in foreign operations.
F-24
<PAGE> 116
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,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Net sales
United States............................................. $1,147 $1,203
Philippines............................................... 142 --
Latin America............................................. 55 17
Transfer between geographic areas......................... (39) (3)
------ ------
Total net sales................................... $1,305 $1,217
====== ======
Operating income:
United States............................................. $ 65 $ 71
Philippines............................................... 12 --
Latin America............................................. 5 --
------ ------
Total operating income............................ $ 82 $ 71
====== ======
Assets:
United States............................................. $ 701 $ 667
Philippines............................................... -- --
Latin America............................................. 35 --
------ ------
$ 736 $ 667
====== ======
Liabilities of the Company's Operations Located in Foreign
Countries................................................. $ 7 $ --
====== ======
</TABLE>
NOTE M -- DEL MONTE CORPORATION
DMC is directly-owned and wholly-owned by DMFC. For the year ended June 30,
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 June 30, 1998, DMFC's sole asset, other than intercompany
receivables from DMC, was the stock of DMC. DMFC 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. DMFC is separately liable under
various guarantees of indebtedness of DMC, which guarantees of indebtedness are
full and unconditional.
NOTE N -- 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 year ended June 30,
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 the 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
F-25
<PAGE> 117
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 arms'-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
arms'-length transaction with an unaffiliated third party.
NOTE O -- PUBLIC OFFERING
In fiscal 1998, the Company filed a registration statement on Form S-1 with
the SEC for the purpose of making a public offering of shares of its Common
Stock (the "Offering"). The Offering, which was expected to close in July 1998,
was postponed due to conditions in the equity securities market.
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.
On July 22, 1998, the Company declared, by way of a stock dividend
effective July 24, 1998, 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 all periods have been retroactively adjusted to give
effect to the Stock Split.
NOTE P -- 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. These costs relate to severance and benefit costs for
433 employees to be terminated. No expenditures have been recorded against this
accrual as of June 30, 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
$36 as a result of these plant closures. These expenses include costs, net of
estimated salvage values, of $16 representing accelerated
F-26
<PAGE> 118
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
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 $13, 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. Total charges relating to plant closures recorded
in fiscal 1998 were $10 million (including depreciation expense of $3 million
recorded in the fourth quarter of fiscal 1998). These charges are expected to
affect the Company's results over the next four-year period as follows: $13 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
have begun to be reflected in operations during the fourth quarter of fiscal
1998 resulting in an additional depreciation charge of $3, consist primarily of
buildings and of machinery and equipment, which will no longer be needed due to
the consolidation of the operations of the two fruit processing plants and the
consolidation of the operations of two tomato processing plants. The remaining
useful lives of the buildings at the San Jose facility were decreased by
approximately 20 years due to this acceleration. 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.
NOTE Q -- SUBSEQUENT EVENT
On July 10, 1998, the Company entered into an agreement with Nabisco, Inc.
to reacquire rights to the Del Monte brand in South America and to purchase
Nabisco's canned fruit and vegetable business in Venezuela, including a food
processing plant in Venezuela. Nabisco had retained ownership of the Del Monte
brand in South American and the Venezuela Del Monte business when it sold other
Del Monte businesses in 1989.
NOTE R -- 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 C). 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-27
<PAGE> 119
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE S -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
1998(1)(2)
Net Sales....................................... $ 251 $ 369 $ 348 $ 345
Operating income................................ 17 20 20 25
Income (loss) before extraordinary item......... -- 2 (2) 5
Net income (loss)............................... -- 2 (2) 5
Per share data: (3)
Basic income (loss) per share before
extraordinary item......................... (0.06) 0.05 (0.10) 0.11
Diluted income (loss) per share before
extraordinary item......................... (0.06) 0.05 (0.10) 0.10
1997(4)(as restated)
Net Sales....................................... $ 264 $ 364 $ 308 $ 281
Operating income................................ 17 24 26 4
Income (loss) before extraordinary item......... 3 5 15 (39)
Net income (loss)............................... (1) 5 15 (77)
Per share data:(3)
Basic income (loss) per share before
extraordinary item......................... (0.27) (0.25) (0.12) (1.47)
Diluted income (loss) per share before
extraordinary item......................... (0.27) (0.25) (0.12) (1.44)
</TABLE>
- ---------------
(1) The third and fourth quarters of 1998 include $2 and $1, respectively, of
inventory step-up related to inventory purchased in the Contadina
Acquisition.
(2) The third and fourth quarters of 1998 include $7 and $3, respectively, of
charges related to the Company's plant consolidation program.
(3) Earnings per share is computed independently for each of the periods
presented; therefore, the sum of the earnings per share amounts for the
quarters may not equal the total for the year.
(4) The fourth quarter of 1997 includes $85 of expenses related to the
Recapitalization.
F-28
<PAGE> 120
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Del Monte Foods Company and
subsidiaries for the year ended June 30, 1996. 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 results of operations
and cash flows of Del Monte Foods Company and subsidiaries for the year ended
June 30, 1996 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 R, as to which the date is
June 29, 1998, and the third paragraph of Note O, as to which the date is
July 22, 1998
F-29
<PAGE> 121
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
-------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 7 $ 11
Trade accounts receivable, net of allowance............... 108 122
Other receivables......................................... 6 6
Inventories............................................... 366 693
Prepaid expenses and other current assets................. 14 7
----- ------
Total Current Assets.............................. 501 839
Property, plant and equipment, net.......................... 305 296
Intangibles................................................. 16 44
Other assets................................................ 23 22
----- ------
Total Assets...................................... $ 845 $1,201
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 259 $ 432
Short-term borrowings..................................... -- 202
Current portion of long-term debt......................... 32 34
----- ------
Total Current Liabilities......................... 291 668
Long-term debt.............................................. 677 668
Other noncurrent liabilities................................ 194 193
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding:
37,253 at June 30, 1998, aggregate liquidation preference:
$41 and 37,253 at September 30, 1998; aggregate
liquidation preference: $43).............................. 33 33
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 500,000,000 shares
authorized; issued and outstanding: 35,495,058 at June
30, 1998 and 35,496,943 at September 30, 1998)
Paid-in capital........................................... 172 172
Retained earnings (deficit)............................... (522) (533)
----- ------
Total Stockholders' Equity (Deficit).............. (350) (361)
----- ------
Total Liabilities and Stockholders' Equity........ $ 845 $1,201
===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-30
<PAGE> 122
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
----------------
1997 1998
------ ------
<S> <C> <C>
Net sales................................................... $ 251 $ 318
Cost of products sold....................................... 172 218
Selling, administrative and general expenses................ 62 80
Special charges related to plant consolidation.............. -- 7
Acquisition expense......................................... -- 1
------ ------
Operating Income.................................. 17 12
Interest expense............................................ 17 21
Other expense............................................... -- 2
------ ------
Income (Loss) Before Income Taxes................. -- (11)
Provision for income taxes.................................. -- --
------ ------
Net Income (Loss)................................. $ -- $ (11)
====== ======
Basic net loss per common shares............................ $(0.06) $(0.34)
====== ======
Diluted net loss per common shares.......................... $(0.06) $(0.34)
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-31
<PAGE> 123
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
--------------
1997 1998
----- -----
<S> <C> <C>
Operating Activities:
Net income (loss)......................................... $ -- $ (11)
Adjustments to reconcile net income (loss) to net cash
flows (used in) operating activities:
Depreciation and amortization.......................... 7 13
Loss on disposal of assets............................. -- 3
Changes in operating assets and liabilities:
Accounts receivable.................................... (15) (14)
Inventories............................................ (285) (324)
Prepaid expenses and other current assets.............. 6 7
Accounts payable and accrued expenses.................. 132 173
Other non-current liabilities.......................... 2 --
----- -----
Net Cash Used in Operating Activities............. (153) (153)
----- -----
Investing Activities:
Capital expenditures...................................... (2) (5)
Acquisition of business................................... -- (32)
----- -----
Net Cash Used in Investing Activities............. (2) (37)
Financing Activities:
Short-term borrowings..................................... 189 256
Payments on short-term borrowings......................... (34) (54)
Principal payments on long-term borrowings................ -- (8)
----- -----
Net Cash Provided by Financing Activities......... 155 194
----- -----
Effect of exchange rate changes on cash and cash
equivalents............................................... -- --
----- -----
Net Change in Cash and Cash Equivalents........... -- 4
Cash and cash equivalents at beginning of period............ 5 7
----- -----
Cash and Cash Equivalents at End of Period........ $ 5 $ 11
===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-32
<PAGE> 124
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 1 -- BASIS OF FINANCIAL STATEMENTS
Basis of Presentation: The accompanying consolidated financial statements
at September 30, 1998 and for the three-month periods ended September 30, 1997
and 1998, are unaudited, but are prepared in accordance with generally accepted
accounting principles for interim financial information and include all
adjustments (consisting only of normal recurring entries) which, in the opinion
of management, are necessary for a fair presentation of financial position,
results of operations and cash flows. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements as of and for the year ended June 30, 1998, and notes thereto,
included in the Annual Report on Form 10-K.
Stock Split. On July 22, 1998, the Company declared, by way of a stock
dividend effective July 24, 1998, 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 all prior periods presented herein have been
retroactively adjusted to give effect to the Stock Split.
Depreciation and amortization. Depreciation of plant and equipment and
leasehold amortization was $6 and $12 for the three months ended September 30,
1997 and 1998, respectively. For the three months ended September 30, 1998, $4
of depreciation is related to acceleration of depreciation resulting from the
effects of adjusting the assets' remaining useful lives to match the period of
use prior to plant closure. (The accelerated depreciation is included in the
caption "Special charges related to plant consolidation" in the Consolidated
Statement of Operations.) Depreciation and amortization also includes $1 of
amortization of deferred debt issuance costs for both three-month periods ended
September 30, 1997 and 1998.
NOTE 2 -- INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
-------- -------------
<S> <C> <C>
Finished product...................................... $237 $629
Raw materials and supplies............................ 19 27
Other, principally packaging material................. 110 37
---- ----
$366 $693
==== ====
</TABLE>
During the twelve months ended June 30, 1998 and the three months ended
September 30, 1997 and 1998, respectively, inflation had a minimal impact on
production costs. As a result, the effect of accounting for these inventories by
the LIFO method has had no material effect on inventories at June 30, 1998 and
September 30, 1998 or on results of operations for the three months ended
September 30, 1997 and 1998, respectively.
F-33
<PAGE> 125
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 3 -- EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Numerator:
Loss per common share................................... $ -- $ (11)
Preferred stock dividends............................... (2) (1)
----------- -----------
Numerator for basic and diluted loss per share -- loss
attributable to common shares........................ $ (2) $ (12)
=========== ===========
Denominator:
Denominator for basic and diluted earnings per share --
weighted average shares.............................. 26,815,880 35,495,683
Basic and diluted loss per common share................... $ (0.06) $ (0.34)
</TABLE>
The effect of outstanding options is not included in the computation of
diluted earnings per share as the result would be antidilutive due to a net
operating loss.
NOTE 4 -- ACQUISITIONS
On August 28, 1998, the Company reacquired rights to the Del Monte brand in
South America from Nabisco, Inc. and purchased Nabisco's canned fruit and
vegetable business in Venezuela, including a food processing plant in Venezuela,
for a cash purchase price of $32 (the "South America Acquisition"). In
connection with the South America Acquisition, approximately $1 of
acquisition-related expenses were incurred which included a transaction advisory
fee to a designee of Texas Pacific Group, who owns a controlling interest in the
Company. 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
1990. The purchase price is subject to adjustment based on the final calculation
of the closing inventory amount. Such adjustment is not expected to be material
to the financial statements taken as a whole.
The South America Acquisition has been reflected in the balance sheet at
September 30, 1998. The acquisition was accounted for using the purchase method
of accounting. The total purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed (consisting primarily of
inventory, property, plant and equipment, and tradename) based on preliminary
estimates of their respective fair values. Accordingly, adjustments will be made
based upon final determination of the purchase price adjustments and completion
of the valuations that are in progress. Results of operations of the acquired
business and any other expenses of the transaction are included in the
Consolidated Statement of Operations for the quarter ended September 30, 1998,
and did not significantly effect the results of operations of the Company for
the period.
NOTE 5 -- PLANT CONSOLIDATION
In the third quarter of fiscal 1998, management committed to a plan to
consolidate the Company's tomato and fruit processing operations. In connection
with this plan, the Company established an accrual of $7 in fiscal 1998 relating
to severance and benefit costs for employees to be terminated. No expenditures
have been recorded against this accrual as of September 30, 1998. At this time,
there have been no significant changes to this plan.
F-34
<PAGE> 126
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE DATA)
During the quarter, the Company incurred total charges of $4 representing
accelerated depreciation. This acceleration results from the effects of
adjusting the tomato and fruit processing assets' remaining useful lives to
match the period of use prior to the closures of these plants.
In August 1998, management announced its intention to close the Company's
vegetable processing plant located in Arlington, Wisconsin after the summer 1998
pack. Upon completion of this pack, a charge of $3 was taken during the quarter
representing the write-down to fair value of the assets held for sale. These
assets primarily include building, building improvements, and machinery and
equipment with a carrying value of $4. Fair value was based on current market
values of land and buildings in the area and estimates of market values of
equipment to be disposed of. Based on the level of interest already demonstrated
in the facility by third parties, it is expected that these assets will be
disposed of within a year.
NOTE 6 -- COMPREHENSIVE INCOME
The Company has no items of other comprehensive income in any period
presented. Therefore, net income (loss) as presented in the Consolidated
Statements of Operations equals comprehensive income.
NOTE 7 -- NEW ACCOUNTING STANDARDS
In March 1998, the AICPA Accounting Standards Executive Committee issued,
Statement of Position ("SOP") No. 98-1 "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." This SOP provides guidance
with respect to the recognition, measurement and disclosure of costs of computer
software developed or obtained for internal use. SOP 98-1 is required to be
adopted for fiscal years beginning after December 15, 1998. The Company will
adopt this statement in fiscal 2000 and, is currently evaluating the impact of
adoption on the Company's financial statements.
The Company will adopt Statement of Financial Accounting Standards ("SFAS")
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" for its 1999 fiscal year. This statement establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
The Company is not required to disclose segment information in accordance with
SFAS No. 131 until its fiscal June 30, 1999 year end and for subsequent interim
periods in fiscal 2000 with comparative fiscal 1999 interim disclosures.
Adoption will not impact the Company's consolidated financial position, results
of operations or cash flows, and any effect will be limited to the form and
content of its disclosures.
Effective July 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 is
required to be adopted for fiscal years beginning after December 15, 1997 and
amends only the disclosure requirements with respect to pensions and other
postretirement benefits. Adoption of this statement will not impact the
Company's consolidated financial position, results of operations or cash flows,
and any effect will be limited to the form and content of its disclosures.
In fiscal 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 is required to be adopted for all fiscal quarters and fiscal years
beginning after June 15, 1999 and relates to accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. The Company is currently reviewing the effect of adoption of this
statement on its financial statements.
F-35
<PAGE> 127
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 LLP
March 16, 1998
Los Angeles, California
F-36
<PAGE> 128
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-37
<PAGE> 129
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-38
<PAGE> 130
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-39
<PAGE> 131
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-40
<PAGE> 132
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-41
<PAGE> 133
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-42
<PAGE> 134
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-43
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the shares of
common stock being registered, other than underwriting discounts and
commissions.
<TABLE>
<S> <C>
SEC registration fee........................................ $110,258
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... 148,858
Legal fees and expenses..................................... 250,000
Transaction advisory expense................................ 3,750,000
Accounting fees and expenses................................ 200,000
Blue Sky fees and expenses.................................. 2,000
Printing and engraving expenses............................. 550,000
Registrar and transfer agent's fee.......................... 30,000
Miscellaneous............................................... 250,000
----------
Total............................................. $5,321,616
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant provides that the
Registrant will indemnify each of its directors and officers to the fullest
extent permitted by the General Corporation Law of the State of Delaware (the
"DGCL") and may indemnify certain other persons as authorized by the DGCL.
Section 145 of the DGCL provides as follows:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE. --
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect
II-1
<PAGE> 136
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person in any such capacity or arising out of such person's status as such
whether or not the corporation would have the power to indemnify such person
against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director,
II-2
<PAGE> 137
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Registrant also carries liability insurance covering officers and
directors.
Pursuant to the proposed form of Underwriting Agreement, the Underwriters
have agreed to indemnify the directors and officers of the Registrant in certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the recapitalization of the Company on April 18, 1997,
the predecessor of the Company issued and sold an aggregate of (i) 140,000
shares of its common stock; (ii) warrants to purchase an additional 2,857.14
shares of such common stock; and (iii) 35,000 shares of its preferred stock,
series A and B, each series par value $.01 per share, in each case directly to
affiliates of Texas Pacific Group and a limited group of private institutional
and individual investors in a private placement in accordance with Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"). The
consideration received for such shares of common stock was $140 million. The
consideration received for such preferred stock and such warrants was $35
million. Such common stock and preferred stock were converted by operation of
law into shares of the common stock, par value $.01 per share, and preferred
stock, series A and B, respectively, of the Company upon the merger of such
predecessor with and into the Company. The Company expressly assumed its
predecessor's obligations under such warrants, which thereupon became
convertible into shares of common stock of the Company.
On April 18, 1997, Del Monte Corporation, a wholly owned subsidiary of the
Company, issued and sold at par $150 million of its 12 1/4% Senior Subordinated
Notes due 2007, which are unconditionally guaranteed by the Company. The Notes
were sold in a private placement in accordance with Section 4(2) of the
Securities Act made to BT Securities Corporation, BancAmerica Securities, Inc.
and Bear, Stearns & Co. Inc., which acted as initial purchasers, for resale to
"qualified institutional buyers" within the meaning of Rule 144A under the
Securities Act and in offshore transactions to non-U.S. persons in compliance
with Regulation S under the Securities Act. The Company received none of the
proceeds from such sale.
On October 15, 1997, the Company issued 37,253.388 shares of its preferred
stock, series C, par value $.01 per share, in exchange for all outstanding
shares of its preferred stock, series A and B, which shares of preferred stock,
series A and B, were then canceled and returned to authorized but unissued
shares of the Company's preferred stock. Such exchange was effected in
accordance with Section 3(a)(9) of the Securities Act. Such preferred stock has
since been redesignated as Series A effective with the reincorporation of the
Company in Delaware.
On December 17, 1997, the Company issued and sold at a discount $230
million of its 12 1/2% Senior Discount Notes Due 2007 in a private placement in
accordance with Section 4(2) of the Securities Act made to Bear, Stearns & Co.
Inc., BancAmerica Robertson Stephens and BT Alex. Brown Incorporated, which
acted as initial purchasers, for resale to "qualified institutional buyers"
within the meaning of Rule 144A under the Securities Act and in offshore
transactions to non-U.S. persons in compliance with Regulation S under the
Securities Act. The consideration received by the Company upon the sale of such
Notes was approximately $125 million.
II-3
<PAGE> 138
On December 19, 1997, the Company issued 40,000 shares of common stock
directly to affiliates of Texas Pacific Group and a limited number of
institutional investors in a private placement in accordance with Section 4(2)
of the Securities Act. The consideration received by the Company for such common
stock was $40 million.
On May 1, 1998, to change its state of incorporation from Maryland to
Delaware, the predecessor of the Company merged with and into a newly created,
wholly-owned subsidiary incorporated under the laws of the State of Delaware and
such subsidiary was the surviving corporation. In connection with the
reincorporation, each issued and outstanding share of common stock of the
predecessor of the Company was converted into one share of common stock of the
surviving corporation. Also in connection with the reincorporation, each issued
and outstanding share of preferred stock of the predecessor of the Company was
converted into one share of preferred stock of the surviving corporation
containing substantially the same preferences, rights and powers.
As of June 2, 1998, all of the Company's outstanding warrants issued as
described above were exercised in transactions made in reliance on Section 4(2)
of the Securities Act.
ITEM 16. EXHIBITS.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement among Del Monte Foods Company
and the several underwriters listed therein
2.1 Asset Purchase Agreement, dated as of November 12, 1997,
among Nestle USA, Inc., Contadina Services, Inc., Del Monte
Corporation and Del Monte Foods Company (the "Asset Purchase
Agreement") (incorporated by reference to Exhibit 10.1 to
Report on Form 8-K No. 33-36374-01 filed January 5, 1998)
2.2 Agreement and Plan of Merger, dated as of February 21, 1997,
amended and restated as of April 14, 1997, among TPG
Partners, L.P., TPG Shield Acquisition Corporation and Del
Monte Foods Company (the "Agreement and Plan of Merger")
(incorporated by reference to Exhibit 2.1 to Registration
Statement on Form S-4 No. 333-29079, filed June 12, 1997
(the "DMC Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Agreement and Plan of Merger.
3.1 Certificate of Incorporation of Del Monte Foods Company
3.2 Bylaws of Del Monte Foods Company, as amended
3.3 Certificate of Designations filed May 4, 1998
3.4 Certificate of Merger between Del Monte Foods Company, a
Maryland corporation, and Del Monte Foods Company, a
Delaware corporation, filed May 1, 1998
3.5 Articles of Merger between Del Monte Foods Company, a
Maryland corporation, and Del Monte Foods Company, a
Delaware corporation, filed May 1, 1998
4.1 Specimen Certificate of Common Stock of Del Monte Foods
Company
4.2 Stockholders' Agreement, dated as of April 18, 1997, among
Del Monte Foods Company and its Stockholders (incorporated
by reference to Exhibit 3.6 to the DMC Registration
Statement)
</TABLE>
II-4
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of
Item 601 of Regulation S-K, the Registrant hereby undertakes
to furnish to the Commission upon request copies of the
instruments pursuant to which various entities hold
long-term debt of the Company or its parent or subsidiaries,
none of which instruments govern indebtedness exceeding 10%
of the total assets of the Company and its parent or
subsidiaries on a consolidated basis
4.3 Form of Stockholders' Agreement among Del Monte Foods
Company and its employee stockholders (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form
S-8 filed November 24, 1997 File No. 333-40867 (the
"Registration Statement on Form S-8"))
4.4 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors
4.5 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors -- Directors' Fee
Arrangement
4.6 Form of Registration Rights Agreement by and among TPG
Partners, L.P., TPG Parallel I, L.P. and Del Monte Foods
Company
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton
10.1 Indenture, dated as of December 17, 1997, among Del Monte
Foods Company, as issuer, and Marine Midland Bank, as
trustee, relating to the Notes (the "Indenture")
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 No. 333-47289, filed
March 4, 1998 (the "Exchange Offer Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Indenture.
10.2 Registration Rights Agreement, dated as of December 17,
1997, by and among Del Monte Foods Company and the Initial
Purchasers listed therein, relating to the Notes (the
"Registration Rights Agreement") (incorporated by reference
to Exhibit 4.3 to the Exchange Offer Registration Statement)
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Registration Rights Agreement.
10.3 Amended and Restated Credit Agreement, dated as of December
17, 1997, among Del Monte Corporation, ("BofA") Bank of
America National Trust and Savings Association, as
Administrative Agent, and the other financial institutions
parties thereto (the "Amended Credit Agreement")
(incorporated by reference to Exhibit 4.4 to the Exchange
Offer Registration Statement)
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Amended Credit Agreement.
10.4 Amended and Restated Parent Guaranty, dated December 17,
1997, executed by Del Monte Foods Company, with respect to
the obligations under the Amended Credit Agreement (the
"Restated Parent Guaranty") (incorporated by reference to
Exhibit 4.5 to the Exchange Offer Registration Statement)
10.5 Security Agreement, dated April 18, 1997, between Del Monte
Corporation and Del Monte Foods Company and Bank of America
National Trust and Savings Association (incorporated by
reference to Exhibit 4.6 to the DMC Registration Statement)
</TABLE>
II-5
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.6 Pledge Agreement, dated April 18, 1997, between Del Monte
Corporation and Bank of America National Trust and Savings
Association (incorporated by reference to Exhibit 4.7 to the
DMC Registration Statement)
10.7 Parent Pledge Agreement, dated April 18, 1997, between Del
Monte Foods Company and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit
4.8 to the DMC Registration Statement)
10.8 Indenture, dated as of April 18, 1997, among Del Monte
Corporation, as issuer, Del Monte Foods Company, as
guarantor, and Marine Midland Bank, as trustee, relating to
the 12 1/4% Senior Subordinated Notes Due 2007 (incorporated
by reference to Exhibit 4.2 to the DMC Registration
Statement)
10.9 Registration Rights Agreement, dated as of April 18, 1997,
by and among Del Monte Corporation and the Purchasers listed
therein, relating to the 12 1/4% Senior Subordinated Notes
Due 2007 (incorporated by reference to Exhibit 4.9 to the
DMC Registration Statement)
10.10 Transaction Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.1 to the DMC
Registration Statement)
10.11 Management Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.2 to the DMC
Registration Statement)
10.12 Retention Agreement between Del Monte Corporation and David
L. Meyers, dated November 1, 1991 (incorporated by reference
to Exhibit 10.3 to the DMC Registration Statement)
10.13 Retention Agreement between Del Monte Corporation and Glynn
M. Phillips, dated October 5, 1994 (incorporated by
reference to Exhibit 10.4 to the DMC Registration Statement)
10.14 Retention Agreement between Del Monte Corporation and Thomas
E. Gibbons, dated January 1, 1992 (incorporated by reference
to Exhibit 10.5 to the DMC Registration Statement)
10.15 Del Monte Foods Annual Incentive Award Plan and 1997 Plan
Year Amendments (incorporated by reference to Exhibit 10.8
to the DMC Registration Statement)
10.16 Additional Benefits Plan of Del Monte Corporation, as
amended and restated effective January 1, 1996 (incorporated
by reference to Exhibit 10.9 to the DMC Registration
Statement)
10.17 Supplemental Benefits Plan of Del Monte Corporation,
effective as of January 1, 1990, as amended as of January 1,
1992 and May 30, 1996 (incorporated by reference to Exhibit
10.10 to the DMC Registration Statement)
10.18 Del Monte Foods Company Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8)
10.19 Del Monte Foods Company 1997 Stock Incentive Plan
(incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-8)
10.20 Agreement for Information Technology Services between Del
Monte Corporation and Electronic Data Systems Corporation,
dated November 1, 1992, as amended as of September 1, 1993
and as of September 15, 1993 (incorporated by reference to
Exhibit 10.11 to the DMC Registration Statement)
</TABLE>
II-6
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.21 Supply Agreement between Del Monte Corporation and Silgan
Containers Corporation, dated as of September 3, 1993, as
amended as of December 21, 1993 (incorporated by reference
to Exhibit 10.12 to the DMC Registration Statement)
10.22 Del Monte Foods Company Non-Employee Directors and
Independent Contractors 1997 Stock Incentive Plan
10.23 Del Monte Foods Company 1998 Stock Incentive Plan, as
amended
10.24 Supplemental Indenture, dated as of April 24, 1998, among
Del Monte Corporation, as Issuer, Del Monte Foods Company,
as Guarantor, and Marine Midland Bank, as Trustee
10.25 Supplemental Indenture, dated as of April 24, 1998, between
Del Monte Foods Company, as Guarantor, and Marine Midland
Bank, as Trustee
10.26 Amendment and Waiver, dated as of April 16, 1998, to the
Amended Credit Agreement and the Restated Parent Guaranty,
by Del Monte Corporation and the financial institutions
party thereto
10.27 Employment Agreement and Promissory Note of Richard Wolford
(incorporated by reference to Exhibit 10.25 to Form 10-K for
the year ended June 30, 1998, filed September 22, 1998, File
No. 001-14335 (the "1998 Form 10-K))
10.28 Employment Agreement and Promissory Note of Wesley Smith
(incorporated by reference to Exhibit 10.26 to the 1998 Form
10-K)
10.29 Supplemental Indenture, dated as of December 19, 1997, among
Del Monte Corporation, as Issuer, Del Monte Foods Company,
as Guarantor, and Marine Midland Bank, as Trustee
10.30 Master Lease, dated as of November 19, 1998, between State
Street Bank and Trust Company of California, N.A., and Del
Monte Corporation
10.31 Participation Agreement, dated as of November 19, 1998,
among Del Monte Corporation, Del Monte Foods Company, State
Street Bank and Trust Company of California, N.A., State
Street Bank and Trust Company and the other parties named
therein.
NOTE: Pursuant to paragraph (b)(2) of Item 601 of Regulation
S-K, the Registrant hereby undertakes to furnish to the
Commission upon request copies of any schedule to the
Participation Agreement.
11.1 Statement re Computation of Earnings Per Share
12.1 Statement re Computation of Ratios
21.1 Subsidiaries of Del Monte Foods Company
23.1* Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of KPMG LLP, Independent Accountants
23.3* Consent of KPMG LLP, Independent Accountants
23.4 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibit 5.1)
23.5 Consent of A. C. Nielsen Company
</TABLE>
- ---------------
* Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-7
<PAGE> 142
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(b)(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Post-Effective Amendment No. 2 to this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Francisco, State of California, on January 19, 1999.
DEL MONTE FOODS COMPANY
By: /s/ RICHARD G. WOLFORD
------------------------------------
Richard G. Wolford
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Richard G. Wolford, David L. Meyers and Wesley
J. Smith, and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (unless revoked in writing) to sign any and all amendments (including
post-effective amendments thereto) to this Registration Statement to which this
power of attorney is attached, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting to such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, Post-Effective
Amendment No. 2 to this registration statement has been signed by the following
persons in the capacities indicated on January 19, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD G. WOLFORD* Chief Executive Officer (Principal Executive
- ----------------------------------------------------- Officer) and Director
Richard G. Wolford
/s/ DAVID L. MEYERS Executive Vice President, Administration and
- ----------------------------------------------------- Chief Financial Officer (Principal Financial
David L. Meyers Officer)
/s/ RICHARD L. FRENCH* Senior Vice President and Chief Accounting
- ----------------------------------------------------- Officer (Principal Accounting Officer)
Richard L. French
/s/ RICHARD W. BOYCE* Chairman of the Board and Director
- -----------------------------------------------------
Richard W. Boyce
/s/ TIMOTHY G. BRUER* Director
- -----------------------------------------------------
Timothy G. Bruer
/s/ AL CAREY* Director
- -----------------------------------------------------
Al Carey
</TABLE>
S-1
<PAGE> 144
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ PATRICK FOLEY* Director
- -----------------------------------------------------
Patrick Foley
/s/ BRIAN E. HAYCOX* Director
- -----------------------------------------------------
Brian E. Haycox
/s/ JEFFREY A. SHAW* Director
- -----------------------------------------------------
Jeffrey A. Shaw
/s/ WESLEY J. SMITH* Chief Operating Officer and Director
- -----------------------------------------------------
Wesley J. Smith
/s/ DENISE M. O'LEARY* Director
- -----------------------------------------------------
Denise M. O'Leary
/s/ WILLIAM S. PRICE, III* Director
- -----------------------------------------------------
William S. Price, III
</TABLE>
- --------------------------------------
*By: /s/ DAVID L. MEYERS
---------------------------------
David L. Meyers
S-2
<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement among Del Monte Foods Company
and the several underwriters listed therein
2.1 Asset Purchase Agreement, dated as of November 12, 1997,
among Nestle USA, Inc., Contadina Services, Inc., Del Monte
Corporation and Del Monte Foods Company (the "Asset Purchase
Agreement") (incorporated by reference to Exhibit 10.1 to
Report on Form 8-K No. 33-36374-01 filed January 5, 1998)
2.2 Agreement and Plan of Merger, dated as of February 21, 1997,
amended and restated as of April 14, 1997, among TPG
Partners, L.P., TPG Shield Acquisition Corporation and Del
Monte Foods Company (the "Agreement and Plan of Merger")
(incorporated by reference to Exhibit 2.1 to Registration
Statement on Form S-4 No. 333-29079, filed June 12, 1997
(the "DMC Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Agreement and Plan of Merger.
3.1 Certificate of Incorporation of Del Monte Foods Company
3.2 Bylaws of Del Monte Foods Company, as amended
3.3 Certificate of Designations filed May 4, 1998
3.4 Certificate of Merger between Del Monte Foods Company, a
Maryland corporation, and Del Monte Foods Company, a
Delaware corporation, filed May 1, 1998
3.5 Articles of Merger between Del Monte Foods Company, a
Maryland corporation, and Del Monte Foods Company, a
Delaware corporation, filed May 1, 1998
4.1 Specimen Certificate of Common Stock of Del Monte Foods
Company
4.2 Stockholders' Agreement, dated as of April 18, 1997, among
Del Monte Foods Company and its Stockholders (incorporated
by reference to Exhibit 3.6 to the DMC Registration
Statement)
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of
Item 601 of Regulation S-K, the Registrant hereby undertakes
to furnish to the Commission upon request copies of the
instruments pursuant to which various entities hold
long-term debt of the Company or its parent or subsidiaries,
none of which instruments govern indebtedness exceeding 10%
of the total assets of the Company and its parent or
subsidiaries on a consolidated basis
4.3 Form of Stockholders' Agreement among Del Monte Foods
Company and its employee stockholders (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form
S-8 filed November 24, 1997 File No. 333-40867 (the
"Registration Statement on Form S-8"))
4.4 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors
4.5 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors -- Directors' Fee
Arrangement
4.6 Form of Registration Rights Agreement by and between TPG
Partners, L.P., TPG Parallel I, L.P. and Del Monte Foods
Company
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton
10.1 Indenture, dated as of December 17, 1997, among Del Monte
Foods Company, as issuer, and Marine Midland Bank, as
trustee, relating to the Notes (the "Indenture")
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 No. 333-47289, filed
March 4, 1998 (the "Exchange Offer Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Indenture.
10.2 Registration Rights Agreement, dated as of December 17,
1997, by and among Del Monte Foods Company and the Initial
Purchasers listed therein, relating to the Notes (the
"Registration Rights Agreement") (incorporated by reference
to Exhibit 4.3 to the Exchange Offer Registration Statement)
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Registration Rights Agreement.
10.3 Amended and Restated Credit Agreement, dated as of December
17, 1997, among Del Monte Corporation, Bank of America
National Trust and Savings Association, as Administrative
Agent ("BofA"), and the other financial institutions parties
thereto (the "Amended Credit Agreement") (incorporated by
reference to Exhibit 4.4 to the Exchange Offer Registration
Statement)
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Amended Credit Agreement.
10.4 Amended and Restated Parent Guaranty, dated December 17,
1997, executed by Del Monte Foods Company, with respect to
the obligations under the Amended Credit Agreement (the
"Restated Parent Guaranty") (incorporated by reference to
Exhibit 4.5 to the Exchange Offer Registration Statement)
10.5 Security Agreement, dated April 18, 1997, between Del Monte
Corporation and Del Monte Foods Company and Bank of America
National Trust and Savings Association (incorporated by
reference to Exhibit 4.6 to the DMC Registration Statement)
10.6 Pledge Agreement, dated April 18, 1997, between Del Monte
Corporation and Bank of America National Trust and Savings
Association (incorporated by reference to Exhibit 4.7 to the
DMC Registration Statement)
10.7 Parent Pledge Agreement, dated April 18, 1997, between Del
Monte Foods Company and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit
4.8 to the DMC Registration Statement)
10.8 Indenture, dated as of April 18, 1997, among Del Monte
Corporation, as issuer, Del Monte Foods Company, as
guarantor, and Marine Midland Bank, as trustee, relating to
the 12 1/4 Senior Subordinated Notes Due 2007 (incorporated
by reference to Exhibit 4.2 to the DMC Registration
Statement)
10.9 Registration Rights Agreement, dated as of April 18, 1997,
by and among Del Monte Corporation and the Purchasers listed
therein, relating to the 12 1/4 Senior Subordinated Notes
Due 2007 (incorporated by reference to Exhibit 4.9 to the
DMC Registration Statement)
10.10 Transaction Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.1 to the DMC
Registration Statement)
10.11 Management Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.2 to the DMC
Registration Statement)
10.12 Retention Agreement between Del Monte Corporation and David
L. Meyers, dated November 1, 1991 (incorporated by reference
to Exhibit 10.3 to the DMC Registration Statement)
10.13 Retention Agreement between Del Monte Corporation and Glynn
M. Phillips, dated October 5, 1994 (incorporated by
reference to Exhibit 10.4 to the DMC Registration Statement)
10.14 Retention Agreement between Del Monte Corporation and Thomas
E. Gibbons, dated January 1, 1992 (incorporated by reference
to Exhibit 10.5 to the DMC Registration Statement)
10.15 Del Monte Foods Annual Incentive Award Plan and 1997 Plan
Year Amendments (incorporated by reference to Exhibit 10.8
to the DMC Registration Statement)
10.16 Additional Benefits Plan of Del Monte Corporation, as
amended and restated effective January 1, 1996 (incorporated
by reference to Exhibit 10.9 to the DMC Registration
Statement)
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.17 Supplemental Benefits Plan of Del Monte Corporation,
effective as of January 1, 1990, as amended as of January 1,
1992 and May 30, 1996 (incorporated by reference to Exhibit
10.10 to the DMC Registration Statement)
10.18 Del Monte Foods Company Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8)
10.19 Del Monte Foods Company 1997 Stock Incentive Plan
(incorporated by reference to Exhibit 4.2 to Registration
Statement on Form S-8)
10.20 Agreement for Information Technology Services between Del
Monte Corporation and Electronic Data Systems Corporation,
dated November 1, 1992, as amended as of September 1, 1993
and as of September 15, 1993 (incorporated by reference to
Exhibit 10.11 to the DMC Registration Statement)
10.21 Supply Agreement between Del Monte Corporation and Silgan
Containers Corporation, dated as of September 3, 1993, as
amended as of December 21, 1993 (incorporated by reference
to Exhibit 10.12 to the DMC Registration Statement)
10.22 Del Monte Foods Company Non-Employee Director and
Independent Contractor 1997 Stock Incentive Plan
10.23 Del Monte Foods Company 1998 Stock Incentive Plan, as
amended
10.24 Supplemental Indenture, dated as of April 24, 1998, among
Del Monte Corporation, as Issuer, Del Monte Foods Company,
as Guarantor, and Marine Midland Bank, as Trustee
10.25 Supplemental Indenture, dated as of April 24, 1998, between
Del Monte Foods Company and Marine Midland Bank, as Trustee
10.26 Amendment and Waiver, dated as of April 16, 1998, to the
Amended Credit Agreement and the Restated Parent Guaranty,
by Del Monte Corporation and the Financial institutions
party thereto
10.27 Employment Agreement and Promissory Note of Richard Wolford
(incorporated by reference to Exhibit 10.25 to Form 10-K for
the year ended June 30, 1998, filed September 22, 1998, File
No. 001-14335 (the "1998 Form 10-K"))
10.28 Employment Agreement and Promissory Note of Wesley Smith
(incorporated by reference to Exhibit 10.26 to the 1998 Form
10-K)
10.29 Supplemental Indenture, dated as of December 19, 1997, among
Del Monte Corporation, as Issuer, Del Monte Foods Company,
as Guarantor, and Marine Midland Bank, as Trustee
10.30 Master Lease dated as of November 19, 1998, between State
Street Bank and Trust Company of California, N.A., and Del
Monte Corporation
10.31 Participation Agreement dated as of November 19, 1998, among
Del Monte Corporation, Del Monte Foods Company, State Street
Bank and Trust Company of California, N.A., State Street
Bank and Trust Company and the other parties named therein.
NOTE: Pursuant to paragraph (b)(2) of Item 601 of Regulation
S-K, the Registrant hereby undertakes to furnish to the
Commission upon request copies of any schedule to the
Participation Agreement.
11.1 Statement re Computation of Earnings Per Share
12.1 Statement re Computation of Ratios
21.1 Subsidiaries of Del Monte Foods Company
23.1* Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of KPMG LLP, Independent Accountants
23.3* Consent of KPMG LLP, Independent Accountants
23.4 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibit 5.1)
23.5 Consent of A. C. Nielsen Company
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 1.1
______ Shares
DEL MONTE FOODS COMPANY
COMMON STOCK, PAR VALUE $0.01 PER SHARE
UNDERWRITING AGREEMENT
______, 1999
<PAGE> 2
______, 1999
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Credit Suisse First Boston Corporation
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
NationsBanc Montgomery Securities LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Goldman Sachs International
Credit Suisse First Boston (Europe) Limited
Merrill Lynch International
Bear, Stearns International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
NationsBanc Montgomery Securities LLC
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 1QA
England
Dear Sirs and Mesdames:
Del Monte Foods Company, a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters (as defined below), and
certain stockholders of the Company (the "SELLING STOCKHOLDERS") named in
Schedule I hereto severally propose to sell to the several Underwriters, an
aggregate of ______ shares of the Common Stock, par value $0.01 per share of the
Company (the "FIRM SHARES"), of which ______ shares are to be issued and sold by
the Company and ______ shares are to be sold by the Selling Stockholders, each
Selling Stockholder selling the amount set forth opposite such Selling
Stockholder's name in Schedule I hereto. The Company and the Selling
Stockholders are hereinafter sometimes collectively referred to as the
"SELLERS".
It is understood that, subject to the conditions hereinafter stated,
_________ Firm Shares (the "U.S. FIRM SHARES") will be sold to the several U.S.
Underwriters named in Schedule II hereto (the "U.S. UNDERWRITERS") in connection
with the offering and sale of such U.S. Firm Shares in the
<PAGE> 3
United States and Canada to United States and Canadian Persons (as such terms
are defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and ______ Firm Shares (the "INTERNATIONAL SHARES") will be sold
to the several International Underwriters named in Schedule III hereto (the
"INTERNATIONAL UNDERWRITERS") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons.
Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Credit Suisse
First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Bear, Stearns & Co. Inc., BT Alex. Brown Incorporated and NationsBanc Montgomery
Securities LLC shall act as representatives (the "U.S. REPRESENTATIVES") of the
several U.S. Underwriters, and Morgan Stanley & Co. International Limited,
Goldman Sachs International, Credit Suisse First Boston (Europe) Limited,
Merrill Lynch International, Bear, Stearns International Limited, BT Alex. Brown
International, a division of Bankers Trust International PLC, and NationsBanc
Montgomery Securities LLC shall act as representatives (the "INTERNATIONAL
REPRESENTATIVES") of the several International Underwriters. The U.S.
Underwriters and the International Underwriters are hereinafter collectively
referred to as the "UNDERWRITERS".
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional ______ shares of its Common Stock, par
value $0.01 per share (the "COMPANY ADDITIONAL SHARES") if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf of
the U.S. Underwriters, the right to purchase such shares of common stock granted
to the U.S. Underwriters in Section 3 hereof. In addition, on the terms and
subject to the conditions in Section 3 hereof, the Selling Stockholders propose
to sell to the several U.S. Underwriters not more than an additional ______
shares of the Company's Common Stock, par value $0.01 per share (the "SELLING
STOCKHOLDERS' ADDITIONAL SHARES") if and to the extent that the U.S.
Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of common stock granted to the
U.S. Underwriters in Section 3 hereof. The Company Additional Shares and the
Selling Stockholders' Additional Shares are hereinafter collectively referred to
as the "ADDITIONAL SHARES". The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES". The shares of Common
Stock, par value $0.01 per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"COMMON STOCK".
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it became
effective and any post-effective amendment to such registration statement at the
time it becomes effective, including the information (if any) deemed to be part
of the registration statement and any post-effective amendment to such
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the U.S.
2
<PAGE> 4
prospectus and the international prospectus in the respective forms first used
to confirm sales of Shares are hereinafter collectively referred to as the
"PROSPECTUS". If the Company has filed an abbreviated registration statement to
register additional shares of Common Stock pursuant to Rule 462(b) under the
Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462 Registration Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley &
Co. Incorporated ("MORGAN STANLEY") has agreed to reserve out of the Shares set
forth opposite its name on Schedule II to this Agreement, up to ______ shares,
for sale to the Company's directors, officers, employees, retirees and related
persons of the Company (collectively, "PARTICIPANTS"), as set forth in the
Prospectus under the heading "Underwriters--Directed Share Program" (the
"DIRECTED SHARE PROGRAM"). The Shares to be sold by Morgan Stanley pursuant to
the Directed Share Program (the "DIRECTED SHARES") will be sold by Morgan
Stanley pursuant to this Agreement at the public offering price. Any Directed
Shares not orally confirmed for purchase by any Participants by the end of the
first business day after the date on which this Agreement is executed will be
offered to the public by Morgan Stanley as set forth in the Prospectus.
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating
to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be
3
<PAGE> 5
so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be sold
by the Selling Stockholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus.
4
<PAGE> 6
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its subsidiaries
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not described or
filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company
and its subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (2) the Company has
not purchased any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and customary dividends; and (3) there
has not been any material adverse change in the capital stock,
short-term debt or long-term debt of the Company and its consolidated
subsidiaries, except in each case as described in the Prospectus.
(o) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings
by the Company and its subsidiaries, in each case except as described in
the Prospectus.
(p) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names currently employed by them in connection with the business now
operated by them, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted
rights of others with respect to any of the
5
<PAGE> 7
foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole.
(q) No material labor dispute with the employees of the Company
or any of its subsidiaries exists, except as described in the
Prospectus, or, to the knowledge of the Company or any of its
subsidiaries, is imminent; and the Company or any of its subsidiaries
are not aware of any existing, threatened or imminent labor disturbance
by the employees of any of its principal suppliers, manufactures or
contractors that could result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(r) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which they are engaged; neither the Company nor any such subsidiary
has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, except as described in the
Prospectus.
(s) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign authorities necessary to conduct their respective businesses,
and neither the Company nor any such subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, except as described in the
Prospectus.
(t) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(u) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required
6
<PAGE> 8
for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on
operating activities and any potential liabilities to third parties)
which would, singly or in the aggregate, have a material adverse effect
on the Company and its subsidiaries, taken as a whole.
(v) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's
general or specific authorizations; (2) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (3) access to assets is permitted only in accordance
with management's general or specific authorization; and (4) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(w) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except as described in the Registration
Statement and the Prospectus.
(x) The Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program with
the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company, or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its
products.
2. Representations and Warranties of the Selling Stockholders. Each of
the Selling Stockholders represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Stockholder and The Bank of New York, as Custodian, relating to the
deposit of the Shares to be sold by such Selling Stockholder (the
"CUSTODY AGREEMENT") and the Power of Attorney appointing certain
individuals as such Selling Stockholder's attorneys-in-fact to the
extent set forth therein, relating to the transactions contemplated
hereby and by the Registration Statement (the "POWER OF ATTORNEY")
will not contravene any provision of applicable law,
or the certificate of incorporation or by-laws of such Selling
Stockholder (if such Selling Stockholder is a corporation), or the
certificate of limited partnership, limited partnership agreement or
other organizational documents (if any) of such Selling Stockholder or
any agreement or other instrument binding upon such Selling Stockholder
or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling
7
<PAGE> 9
Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by such Selling Stockholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of such Selling
Stockholder, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of
the Shares.
(c) Such Selling Stockholder has, and on the Closing Date and any
Option Closing Date (as defined in Section 5) will have, valid title to
the Shares to be sold by such Selling Stockholder and the legal right
and power, and all authorization and approval required by law, to enter
into this Agreement, the Custody Agreement and the Power of Attorney and
to sell, transfer and deliver the Shares to be sold by such Selling
Stockholder.
(d) The Custody Agreement and the Power of Attorney have been
duly authorized, executed and delivered by such Selling Stockholder and
are valid and binding agreements of such Selling Stockholder.
(e) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear
of any security interests, claims, liens, equities and other
encumbrances.
(f) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph 2(f) only
apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Selling Stockholder
furnished to the Company in writing by such Selling Stockholder through
you expressly for use therein.
3. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at U.S.$ ______ a share (the
"PURCHASE PRICE") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the number of Firm Shares to be sold by such Seller as the number of Firm
Shares set forth in Schedules II and III hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company and the Selling
Stockholders agree to sell to the U.S. Underwriters the Company Additional
Shares and the Selling Stockholders' Additional Shares, respectively, and the
U.S. Underwriters shall have a one-time right to purchase, severally and not
jointly, up to ______ Additional Shares from the Sellers at the Purchase Price.
The U.S.
8
<PAGE> 10
Representatives, on behalf of the U.S. Underwriters, may elect to exercise the
portion of such option to purchase the Company Additional Shares, in whole or in
part, only if the U.S. Representatives, on behalf of the U.S. Underwriters,
elect to exercise the portion of such option to purchase all of the Selling
Stockholders' Additional Shares. If the U.S. Representatives, on behalf of the
U.S. Underwriters, elect to exercise such option, the U.S. Representatives shall
so notify the Sellers in writing not later than 30 days after the date of this
Agreement, which notice shall specify the number of Additional Shares to be
purchased by the U.S. Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined below) but
not earlier than the Closing Date nor later than ten business days after the
date of such notice. Additional Shares may be purchased as provided in Section 5
hereof solely for the purpose of covering overallotments made in connection with
the offering of the Firm Shares. If any Additional Shares are to be purchased,
each U.S. Underwriter agrees, severally and not jointly, to purchase the number
of Additional Shares (subject to such adjustments to eliminate fractional shares
as the U.S. Representatives may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of U.S. Firm
Shares set forth in Schedule II hereto opposite the name of such U.S.
Underwriter bears to the total number of U.S. Firm Shares, and each of the
Sellers agrees, severally and not jointly, to sell up to the number of
Additional Shares set forth on Schedule IV opposite the name of such Seller.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to
be sold hereunder, (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and which option, warrant or conversion feature
is described in the Prospectus, (C) the sale of any shares of Common Stock to
the Company or the purchase of any shares of Common Stock by the Company in
accordance with certain Stockholders' Agreements pursuant to the Company's
employee benefit plans or (D) transactions by any person other than the Company
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the offering of the Shares. In addition,
each Selling Stockholder, agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock which would cause the Company to file a registration statement with the
Commission prior to the expiration of such 180 day period.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public
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<PAGE> 11
initially at U.S.$______ a share (the "PUBLIC OFFERING PRICE") and to certain
dealers selected by you at a price that represents a concession not in excess of
U.S.$______ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$______ a share, to any Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by each
Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on ______, 1999, or at such other time on the same or such other date, not
later than ______, 1999 [INSERT DATE 5 BUSINESS DAYS AFTER THE IMMEDIATELY
PRECEDING DATE], as shall be designated in writing by you. The time and date of
such payment are hereinafter referred to as the "CLOSING DATE".
Payment for any Additional Shares to be sold by each Seller shall be
made to such Seller in Federal or other funds immediately available in New York
City against delivery of such Additional Shares for the respective accounts of
the several U.S. Underwriters at 10:00 a.m., New York City time, on the date
specified in the notice described in Section 3 or at such other time on the same
or on such other date, in any event not later than ______, 1999 [INSERT DATE 10
BUSINESS DAYS AFTER THE EXPIRATION OF THE GREENSHOE OPTION], as shall be
designated in writing by you. The time and date of such payment are hereinafter
referred to as the "OPTION CLOSING DATE".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act;
and
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<PAGE> 12
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the
Prospectus.
(b) (i) The Underwriters shall have received on the Closing Date
a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in Section
6(a)(i) above and to the effect that the representations and
warranties of the Company contained in this Agreement are true
and correct as of the Closing Date and that the Company has
complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on
or before the Closing Date.
(ii) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date from each Selling
Stockholder signed by an officer of a corporation, a general
partner of a limited partnership, a member of a limited liability
company or a trustee of a trust from each Selling Stockholder
that is a corporation, limited partnership or trust,
respectively, to the effect that the representations and
warranties of each Selling Stockholder contained in Section 2 of
this Agreement are true and correct as of the Closing Date and
that each Selling Stockholder has complied with all of the
agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officer, general partner or trustee, as the case may be,
signing and delivering such certificate may rely upon the best of
his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Cleary, Gottlieb, Steen & Hamilton, outside counsel for the
Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation;
(ii) the Company has corporate power to own its
properties and conduct its business as described in the
Prospectus, and the Company has corporate power to issue the
Shares to be issued by it in the offering contemplated by this
Agreement, to enter into the this Agreement and to perform its
obligations hereunder;
(iii) the Shares have been duly authorized by all
necessary corporate action of the Company, have been validly
issued by the Company and are fully paid and nonassessable; and
the holders of outstanding shares of capital stock of the Company
are not entitled to any preemptive or similar rights to subscribe
for
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<PAGE> 13
the Shares under the Certificate of Incorporation or Bylaws of
the Company or the laws of the State of Delaware;
(iv) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the
Company, and this Agreement has been duly executed and delivered
by the Company;
(v) the issuance and sale of the Shares to the
Underwriters pursuant to this Agreement, and the performance by
the Company of its obligations in this Agreement and the Shares
(A) do not require any consent, approval, authorization,
registration or qualification of or with any governmental
authority of the United States or the State of New York, except
such as have been obtained or effected under the Securities Act
and the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") (but such counsel need express no opinion as to
any consent, approval, authorization, registration or
qualification that may be required under state securities or Blue
Sky laws); and (B) do not result in a breach or violation of any
of the terms and provisions of, or constitute a default under,
the Certificate of Incorporation or Bylaws of the Company;
(vi) the statements made in the Prospectus under the
heading "Description of Capital Stock", insofar as such
statements purport to summarize certain provisions of the Common
Stock, the preferred stock of the Company, warrants to purchase
Common Stock and the Certificate of Incorporation and Bylaws of
the Company, provide a fair summary of such provisions;
(vii) the statements made in the Prospectus under the
heading "Certain U.S. Tax Consequences to Non-U.S. Holders",
insofar as such statements purport to summarize certain federal
income tax laws of the United States, constitute a fair summary
of the principal U.S. federal income tax consequences of an
investment in the Shares;
(viii) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as such term is defined in the Investment
Company Act of 1940, as amended; and
(ix) (A) the Registration Statement (except the
financial statements and schedules and other financial data
included therein, as to which such counsel need express no view),
at the time it became effective, and the Prospectus (except as
aforesaid), as of the date thereof, appeared on their face to be
appropriately responsive in all material respects to the
requirements of the Securities Act and the rules and regulations
of the Commission thereunder, and such counsel knows of no
contracts or other documents of a character required to be filed
as exhibits to the Registration Statement or required to be
described in the Registration Statement or the Prospectus that
are not so filed or described as required; (B) no information has
come to the attention of such counsel that causes it to believe
that the Registration Statement (except the financial statements
and schedules and
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<PAGE> 14
other financial data included therein, as to which such counsel
need express no view), at the time it became effective,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and (C) no
information has come to the attention of such counsel that
causes it to believe that the Prospectus (except the financial
statements and schedules and other financial data included
therein, as to which such counsel need express no view), as of
the date thereof or the Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state
a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of William R. Sawyers, Vice President, General Counsel and
Secretary of the Company, dated the Closing Date, to the effect that:
(i) the Company is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to be
so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a
whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, has
corporate power to own its property and to conduct its business
as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(iii) the shares of Common Stock (excluding the Shares)
outstanding prior to the issuance of the Shares to be sold by the
Company have been duly authorized and are validly issued and are
fully paid and non-assessable;
(iv) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized
and issued and are fully paid and non-assessable and are owned,
directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims, except as described in
the Prospectus;
(v) the issuance and sale of the Shares to be issued
and sold by the Company to the Underwriters pursuant to this
Agreement, and the performance by the Company of its obligations
in this Agreement and the Shares (A) will not contravene any
provision of applicable law that is material to the Company and
its subsidiaries, taken as a whole; (B) do not require any
consent, approval, authorization, registration or qualification
of or with any governmental authority that is material to the
Company and its subsidiaries, taken as a whole, except such
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<PAGE> 15
as have been obtained or effected under the Securities Act and
the Exchange Act (but such counsel need express no opinion as to
any consent, approval, authorization, registration or
qualification that may be required under state securities or
Blue Sky laws); and (C) do not result in a breach or violation
of any of the terms or provisions of, or constitute a default
under, any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or any judgment,
decree or order of any governmental body, agency or court having
jurisdiction over the Company or any of its subsidiaries;
(vi) the statements made (A) in the Prospectus under the
headings "Description of Certain Indebtedness" and "Shares
Eligible for Future Sale" and (B) in the Registration Statement
in Item 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings;
(vii) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to
which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described
or of any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required; and
(viii) the Company and its subsidiaries (A) are in
compliance with any and all applicable Environmental Laws, (B)
have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their
respective businesses and (C) are in compliance with all terms
and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure
to comply with the terms and conditions of such permits, licenses
or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries,
taken as a whole.
(e) The Underwriters shall have received on the Closing Date an
opinion of the counsels named in Schedule V hereto (the "SELLING
STOCKHOLDERS' COUNSELS") for each of the Selling Stockholders, dated the
Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed
and delivered by or on behalf of each of the Selling
Stockholders;
(ii) the execution and delivery by each Selling
Stockholder of, and the performance by such Selling Stockholder
of its obligations under, this Agreement and the Custody
Agreement and Power of Attorney of such Selling Stockholder will
not contravene any provision of applicable law, or the
certificate of
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<PAGE> 16
incorporation or by-laws of such Selling Stockholder (if such
Selling Stockholder is a corporation), or the certificate of
limited partnership, limited partnership agreement or other
organizational documents (if such Selling Stockholder is a limited
partnership, limited liability company or trust), or, to the best
of such counsel's knowledge, any agreement or other instrument
binding upon such Selling Stockholder or, to the best of such
counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such
Selling Stockholder, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency
is required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power
of Attorney of such Selling Stockholder, except such as may be
required by the Securities Act or the securities or Blue Sky laws
of the various states in connection with offer and sale of the
Shares;
(iii) each of the Selling Stockholders has valid title to
the Shares to be sold by such Selling Stockholder and the legal
right and power, and all authorization and approval required by
law, to enter into this Agreement and the Custody Agreement and
Power of Attorney of such Selling Stockholder and to sell,
transfer and deliver the Shares to be sold by such Selling
Stockholder;
(iv) the Custody Agreement and the Power of Attorney of
each Selling Stockholder have been duly authorized, executed and
delivered by such Selling Stockholder and are valid and binding
agreements of such Selling Stockholder;
(v) delivery of the Shares to be sold by each Selling
Stockholder pursuant to this Agreement will pass title to such
Shares free and clear of any security interests, claims, liens,
equities and other encumbrances to the Underwriters who have
purchased such Shares in good faith and without notice of any
adverse claim (as such term is used in the Uniform Commercial Code
as in effect in the State of New York); and
(vi) such counsel shall state that it (A) has no reason to
believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need
not express any belief) the Registration Statement and the
prospectus included therein at the time the Registration Statement
became effective contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (B)
has no reason to believe that (except for financial statements and
schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus contains
any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the statements set forth in this paragraph
6(e)(vi) only apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any
Selling Stockholder furnished to the Company in writing by such
Selling Stockholder through you expressly for use therein.
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<PAGE> 17
(f) The Underwriters shall have received on the Closing Date an
opinion of Brown & Wood LLP, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 6(c)(iii),
6(c)(iv), 6(c)(vi) and 6(c)(ix) above.
With respect to Section 6(c)(ix) above, Cleary, Gottlieb, Steen &
Hamilton and Brown & Wood LLP and with respect to Section 6(e)(vi)
above, the Selling Stockholders' Counsels, may state that their opinion
and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are
without independent check or verification, except as specified. With
respect to Section 6(e) above, the Selling Stockholders' Counsels may
rely upon an opinion or opinions of counsel for any Selling Stockholders
and, with respect to factual matters and to the extent such counsel
deems appropriate, upon the representations of each Selling Stockholder
contained herein and in the Custody Agreement and Power of Attorney of
such Selling Stockholder and in other documents and instruments;
provided that (A) each such counsel for the Selling Stockholders is
satisfactory to your counsel, (B) a copy of each opinion so relied upon
is delivered to you and is in form and substance satisfactory to your
counsel, (C) copies of such Custody Agreements and Powers of Attorney
and of any such other documents and instruments shall be delivered to
you and shall be in form and substance satisfactory to your counsel and
(D) the Selling Stockholders' Counsels shall state in their opinion that
they are justified in relying on each such other opinion.
The opinions of Cleary, Gottlieb, Steen & Hamilton, William R.
Sawyers, Vice President, General Counsel and Secretary of the Company,
and the Selling Stockholders' Counsels described in Sections 6(c), 6(d)
and 6(e) above (and any opinions of counsel for any Selling Stockholder
referred to in the immediately preceding paragraph) shall be rendered to
the Underwriters at the request of the Company or one or more of the
Selling Stockholders, as the case may be, and shall so state therein.
(g) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from KPMG LLP, independent public accountants, and
Ernst & Young LLP, independent auditors, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing
Date shall use a "cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force
and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and
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<PAGE> 18
issuance of the Additional Shares and other matters related to the issuance of
the Additional Shares.
7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, ten signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City,
without charge, prior to 10:00 a.m. New York City time on the business
day next succeeding the date of this Agreement and during the period
mentioned in Section 7(c) below, as many copies of the Prospectus and
any supplements and amendments thereto or to the Registration Statement
as you may reasonably request.
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the
Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to such
Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with
sales by an Underwriter or dealer, any event shall occur or condition
exist as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of counsel for the Underwriters, it is
necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare, file with the Commission and
furnish to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been
sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law. If, in accordance with the preceding
sentence, it shall be necessary to amend or supplement the Prospectus at
any time prior to the expiration of nine months after the first date of
the public offering of the Shares, the Company shall prepare, file and
furnish such amendment or supplement at its own expense. Thereafter, the
Underwriters shall bear the expense of preparing, filing and furnishing
any such amendment or supplement.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending June 30, 1999 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of
the Commission thereunder.
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<PAGE> 19
(f) In connection with the Directed Share Program, to ensure that
the Directed Shares will be restricted to the extent required by the
National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for
a period of three months following the date of the effectiveness of the
Registration Statement. Morgan Stanley will notify the Company as to
which Participants will need to be so restricted. The Company will
direct the transfer agent to place stop transfer restrictions upon such
securities for such period of time.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and counsel for the
Selling Stockholders in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., including any fees and disbursements of counsel
incurred on behalf of or disbursements by A.G. Edwards & Sons, Inc. ("A.G.
EDWARDS") in its capacity as "qualified independent underwriter", (v) all fees
and expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the NYSE and the Pacific Exchange, (vi) the
cost of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, (ix) all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program, and (x) all other
costs and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section 8. It is
understood, however, that except as provided in this Section 8, Section 9
entitled "Indemnity and Contribution", and the last paragraph of Section 11
below, the Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes
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<PAGE> 20
payable on resale of any of the Shares by them and any advertising expenses
connected with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
9. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages
and liabilities (including, without limitation, any reasonable legal or
other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages
or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(b) The Company agrees to indemnify and hold harmless Morgan
Stanley and each person, if any, who controls Morgan Stanley within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act ("MORGAN STANLEY ENTITIES"), from and against any and all
losses, claims, damages, liabilities and judgments (including, without
limitation, any reasonable legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim)
(i) caused by the failure of any Participant to pay for and accept
delivery of the shares which, immediately following the effectiveness of
the Registration Statement, were subject to a properly confirmed
agreement to purchase; or (ii) related to, arising out of, or in
connection with the Directed Share Program, provided that, the Company
shall not be responsible under this subparagraph (ii) for any losses,
claims, damages, liabilities or judgments (or expenses relating thereto)
that are finally judicially determined to have resulted from the bad
faith or gross negligence of Morgan Stanley Entities.
(c) The Company agrees to indemnify and hold harmless A.G.
Edwards and each person, if any, who controls A.G. Edwards within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act ("A.G. EDWARDS ENTITIES"), from and against any and all
losses, claims, damages, liabilities and judgments (including, without
limitation, any reasonable legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim)
related to, arising out of, or in connection with A.G. Edwards'
participation as a "qualified independent underwriter" within the
meaning of Rule 2720 of the National Association of Securities Dealers'
Conduct Rules in connection with the offering of the Shares, provided
that, the
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<PAGE> 21
Company shall not be responsible under this Section 9(c) for any losses,
claims, damages, liabilities or judgments (or expenses relating thereto)
that are finally judicially determined to have resulted from the bad
faith or gross negligence of A.G. Edwards Entities.
(d) Each Selling Stockholder agrees, severally and not jointly,
to indemnify and hold harmless (i) the Company, its directors, its
officers who sign the Registration Statement and each person, if any,
who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages
and liabilities (including, without limitation, any reasonable legal or
other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating
to such Selling Stockholder furnished in writing by or on behalf of such
Selling Stockholder expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(e) The Company agrees to indemnify and hold harmless each
Selling Stockholder and each person, if any, who controls each Selling
Stockholder within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation,
any reasonable legal or other expenses reasonably incurred in connection
with defending or investigating any such action or claim) caused by any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto),
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon
information relating to any Selling Stockholder furnished to the Company
in writing by such Selling Stockholder expressly for use therein.
(f) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the Company
or any Selling Stockholder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act from and against
any and all losses, claims, damages and liabilities (including, without
limitation, any reasonable legal or other expenses reasonably incurred
in connection with defending or
20
<PAGE> 22
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating
to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(g) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 9(a), 9(b), 9(c),
9(d), 9(e) or 9(f), such person (the "INDEMNIFIED PARTY") shall promptly
notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the reasonable
fees and expenses of more than one separate firm (in addition to any
local counsel) for all Underwriters and all persons, if any, who control
any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the reasonable
fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company
within the meaning of either such Section and (iii) the reasonable fees
and expenses of more than one separate firm (in addition to any local
counsel) for all Selling Stockholders and all persons, if any, who
control any Selling Stockholder within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they
are incurred. In the case of any such separate firm for the Underwriters
and such control persons of any Underwriters, such firm shall be
designated in writing by Morgan Stanley. In the case of any such
separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for the Selling
Stockholders and such control persons of any Selling Stockholders, such
firm shall be designated in writing by the Selling Stockholders holding
a majority of the outstanding shares of Common Stock held by the Selling
Stockholders considered as a group. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to
21
<PAGE> 23
indemnify the indemnified party from and against any loss or liability
by reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel as contemplated by the second and third sentences of
this paragraph, the indemnifying party agrees that it shall be liable
for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 90 days after
receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are
the subject matter of such proceeding. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to
Section 9(b) hereof in respect of such action or proceeding, then in
addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses
of not more than one separate firm (in addition to any local counsel)
for Morgan Stanley and the Morgan Stanley Entities for the defense of
any losses, claims, damages and liabilities arising out of the Directed
Share Program, if the representation of Morgan Stanley or the Morgan
Stanley Entities by such separate firm for the indemnified parties with
respect to such defense relating to the Directed Share Program would be
inappropriate due to actual or potential differing interests between
Morgan Stanley or the Morgan Stanley Entities on the one hand and the
other indemnified parties on the other hand. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to
Section 9(c) hereof in respect of such action or proceeding, then in
addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses
of not more than one separate firm (in addition to any local counsel)
for A.G. Edwards and the A.G. Edwards Entities in their capacity as a
"qualified independent underwriter."
(h) To the extent the indemnification provided for in Section
9(a), 9(b), 9(c), 9(d), 9(e) or 9(f) is unavailable to an indemnified
party or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received
by the indemnifying party or parties on the one hand and the indemnified
party or parties on the other hand from the offering of the Shares or
(ii) if the allocation provided by clause 9(h)(i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 9(h)(i) above but also
the relative fault of the indemnifying party or parties on the one hand
and of the indemnified party or parties on the other hand in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers on the one
hand and the Underwriters on the other hand in connection with the
22
<PAGE> 24
offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as
set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the
Sellers on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Sellers or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not
joint.
(i) The Sellers and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to
in Section 9(h). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. Notwithstanding the
provisions of this Section 9, no Selling Stockholder shall be required
to indemnify or contribute any amount in excess of the net proceeds from
the offering of the Shares (before deducting expenses) received by such
Selling Stockholder, by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 9 are not exclusive and shall not limit any
rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
(j) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of
the Company and the Selling Stockholders contained in this Agreement
shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter, any
Selling Stockholder or any person controlling any Selling Stockholder,
or the Company, its officers or directors or any person controlling the
Company and (iii) acceptance of and payment for any of the Shares.
23
<PAGE> 25
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule II or Schedule III bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you, the
Company and the Selling Stockholders for the purchase of such Firm Shares are
not made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case either you or the relevant Sellers
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default.
24
<PAGE> 26
Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the reasonable fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
25
<PAGE> 27
Very truly yours,
DEL MONTE FOODS COMPANY
By:
-------------------------------------------
Name:
Title:
The Selling Stockholders named in Schedule I
hereto, acting severally
By:
-------------------------------------------
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Credit Suisse First Boston Corporation
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
NationsBanc Montgomery Securities LLC
Acting severally on behalf of
themselves and the several U.S.
Underwriters named in Schedule II
hereto.
By: Morgan Stanley & Co. Incorporated
By:
------------------------------------
Name:
Title:
26
<PAGE> 28
Morgan Stanley & Co. International Limited
Goldman Sachs International
Credit Suisse First Boston (Europe) Limited
Merrill Lynch International
Bear, Stearns International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
NationsBanc Montgomery Securities LLC
Acting severally on behalf of
themselves and the several
International Underwriters named
in Schedule III hereto
By: Morgan Stanley & Co. International Limited
By:
---------------------------------------
Name:
Title:
27
<PAGE> 29
SCHEDULE I
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF FIRM
SHARES TO BE
SELLING STOCKHOLDER SOLD
<S> <C>
TPG Partners, L.P....................................................
TPG Parallel I, L.P..................................................
Squam Lake Investors II, L.P.........................................
Sunapee Securities, Inc..............................................
MIG Partners III.....................................................
BankAmerica Investment Corporation...................................
Westar Capital.......................................................
TCW/Crescent Mezzanine Partners, L.P.................................
TCW/Crescent Mezzanine
Investment Partners, L.P..........................................
TCW/Crescent Mezzanine Trust.........................................
Vencap Investment Pte Ltd............................................
BT Investment Partners...............................................
Robert J. Carbonell..................................................
Stephen Sherrill.....................................................
-----------------
Total.........................................................
=================
</TABLE>
<PAGE> 30
SCHEDULE II
U.S. UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM
SHARES TO BE
UNDERWRITER PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated....................................
Goldman, Sachs & Co. ................................................
Credit Suisse First Boston Corporation...............................
Merrill Lynch, Pierce, Fenner & Smith Incorporated...................
Bear, Stearns & Co. Inc..............................................
BT Alex. Brown Incorporated..........................................
NationsBanc Montgomery Securities LLC................................
[NAMES OF OTHER U.S. UNDERWRITERS]
--------------
Total U.S. Firm Shares.......................................
==============
</TABLE>
<PAGE> 31
SCHEDULE III
INTERNATIONAL UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM
SHARES TO BE
UNDERWRITER PURCHASED
<S> <C>
Morgan Stanley & Co. International Limited...........................
Goldman Sachs International
Credit Suisse First Boston (Europe) Limited..........................
Merrill Lynch International..........................................
Bear, Stearns International Limited..................................
BT Alex. Brown International, a division of Bankers Trust
International PLC................................................
NationsBanc Montgomery Securities LLC................................
[NAMES OF OTHER INTERNATIONAL UNDERWRITERS]
-----------
Total International Firm Shares...................................
===========
</TABLE>
<PAGE> 32
SCHEDULE IV
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
ADDITIONAL SHARES
NAME OF SELLER TO BE SOLD
<S> <C>
Del Monte Foods Company...........................................
TPG Partners, L.P.................................................
TPG Parallel I, L.P...............................................
Squam Lake Investors II, L.P......................................
Sunapee Securities, Inc...........................................
MIG Partners III..................................................
BankAmerica Investment Corporation................................
Westar Capital....................................................
TCW/Crescent Mezzanine Partners, L.P..............................
TCW/Crescent Mezzanine
Investment Partners, L.P......................................
TCW/Crescent Mezzanine Trust......................................
Vencap Investment Pte Ltd.........................................
BT Investment Partners............................................
Robert J. Carbonell...............................................
Stephen Sherrill..................................................
------------------
Total.....................................................
==================
</TABLE>
<PAGE> 33
SCHEDULE V
SELLING STOCKHOLDERS' COUNSELS
[TO BE REVISED AS IS APPROPRIATE]
<TABLE>
<CAPTION>
NAME OF COUNSEL TO SUCH SELLING
SELLING STOCKHOLDER STOCKHOLDER
<S> <C>
TPG Partners, L.P..................................
TPG Parallel I, L.P................................
Squam Lake Investors II, L.P.......................
Sunapee Securities, Inc............................
MIG Partners III...................................
BankAmerica Investment Corporation.................
Westar Capital.....................................
TCW/Crescent Mezzanine Partners, L.P............... O'Melveny & Myers LLP
(Washington, D.C.)
TCW/Crescent Mezzanine O'Melveny & Myers LLP
Investment Partners, L.P........................ (Washington, D.C.)
TCW/Crescent Mezzanine Trust....................... O'Melveny & Myers LLP
(Washington, D.C.)
Vencap Investment Pte Ltd.......................... Heller Ehrman White & McAuliffe
(San Francisco, California)
BT Investment Partners.............................
Robert J. Carbonell................................
Stephen Sherrill...................................
</TABLE>
<PAGE> 34
EXHIBIT A
[FORM OF LOCK-UP LETTER]
______, 1999
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Credit Suisse First Boston Corporation
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
NationsBanc Montgomery Securities LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Goldman Sachs International
Credit Suisse First Boston (Europe) Limited
Merrill Lynch International
Bear, Stearns International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
NationsBanc Montgomery Securities LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") and Morgan Stanley & Co. International Limited ("MSIL")
propose to enter into an Underwriting Agreement (the "UNDERWRITING AGREEMENT")
with Del Monte Foods Company, a Delaware corporation (the "COMPANY") and certain
stockholders of the Company (the "SELLING STOCKHOLDERS") providing for the
public offering (the "PUBLIC OFFERING") by the several Underwriters, including
Morgan Stanley and MSIL (the "UNDERWRITERS") of ______ shares (the "SHARES") of
the common stock, par value $0.01 per share, of the Company (the "COMMON
STOCK").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final U.S. and
International prospectuses relating to the Public Offering (the "Prospectuses"),
(1) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to
A-1
<PAGE> 35
sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement, (b) the issuance by
the Company of the shares of Common Stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date of the
Prospectuses and which option, warrant or conversion feature is described in the
Prospectuses, (c) if applicable, the sale of any shares of Common Stock to the
Company or the purchase of any shares of Common Stock by the Company in
accordance with the undersigned's Stockholders' Agreement pursuant to the
Company's employee benefit plans or (d) transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the Public Offering. In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectuses, make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock which would cause the Company to file a registration statement with the
Securities and Exchange Commission prior to the expiration of such 180 day
period.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to the Underwriting Agreement, the terms of which are subject to
negotiation between the Company, the Selling Stockholders and the Underwriters.
Very truly yours,
---------------------------------------
(Name)
---------------------------------------
(Address)
A-2
<PAGE> 1
EXHIBIT 23.1
Conformed Copy
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated August 29, 1996 (except for Note R, as to which
the date is June 29, 1998, and the third paragraph of Note O, as to which the
date is July 22, 1998), in Post-Effective Amendment No. 2 to the Registration
Statement (Form S-1 No. 333-48235) and related Prospectus of Del Monte Foods
Company.
/s/ Ernst & Young LLP
San Francisco, California
January 14, 1999
<PAGE> 1
EXHIBIT 23.2
Conformed Copy
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Del Monte Foods Company:
We consent to the use of our report dated July 24, 1998 with respect to Del
Monte Foods Company included herein and to the reference to our firm under the
headings "Selected Consolidated Financial Data" and "Experts" in the
Registration Statement (Form S-1) and related Prospectus of Del Monte Foods
Company.
/s/ KPMG LLP
San Francisco, California
January 14, 1999
<PAGE> 1
EXHIBIT 23.3
Conformed Copy
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Del Monte Foods Company
We consent to the inclusion in the registration statement on Form S-1 of
Del Monte Foods Company of our report dated March 16, 1998, with respect to the
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 to
December 18, 1997 and for the year ended December 31, 1996.
/s/ KPMG LLP
Los Angeles, California
January 14, 1999
