-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BK2qOl6EpWh1biQwrWIZ5jccNcovpvhKDwQ3AUlg53maiVi77b5FBU2Kb2KX5DJk OaqZvLVOj/e93YalXJyVug== 0000950172-03-002582.txt : 20030814 0000950172-03-002582.hdr.sgml : 20030814 20030814160220 ACCESSION NUMBER: 0000950172-03-002582 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AURORA FOODS INC /DE/ CENTRAL INDEX KEY: 0001060024 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 943303521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14255 FILM NUMBER: 03847699 BUSINESS ADDRESS: STREET 1: 11432 LACKLAND ROAD STREET 2: . CITY: ST LOUIS STATE: MO ZIP: 63146 BUSINESS PHONE: 3148012300 MAIL ADDRESS: STREET 1: 11432 LACKLAND ROAD STREET 2: . CITY: ST LOUIS STATE: MO ZIP: 63146 FORMER COMPANY: FORMER CONFORMED NAME: A FOODS INC DATE OF NAME CHANGE: 19980623 FORMER COMPANY: FORMER CONFORMED NAME: AURORA FOODS INC /MD/ DATE OF NAME CHANGE: 19980417 10-Q 1 s429451.txt FORM 10-Q ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission file number 001-14255 -------------------------------- AURORA FOODS INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 94-3303521 -------- ---------- (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 11432 Lackland Road, St. Louis, MO 63146 (Address of Principal Executive Office, Including Zip Code) (314) 801-2300 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes[X] No[ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes[ ] No [X] Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Shares outstanding as of August 6, 2003 ----------------------- Common stock, $0.01 par value..................... 77,155,022 ============================================================================== Explanatory Note On August 14, 2003, the Company announced that its financial results for the years ended December 31, 2002 and 2001, and interim quarters, would be restated to reflect additional deferred tax liabilities. The Company reevaluated its deferred tax accounting and determined that its valuation allowance for net deferred tax assets, which had been recorded by the Company at December 31, 2002, should have been recorded at December 31, 2001, and that the Company should have provided for ongoing deferred tax liabilities subsequent to January 1, 2002 (the effective date of the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142)) for certain of the differences between the book and tax amortization of the Company's goodwill and indefinite lived intangibles as defined by FAS 142. The impact of the adjustments is as follows: o For the year ended December 31, 2001, income tax expense and the net loss increases by $65.4 million. o For the year ended December 31, 2002, tax expense decreases by $30.9 million; the expense recorded for the cumulative effect of the change in accounting principle increases by $60.8 million; and net loss increases by $29.9 million. o For the three months ended March 31, 2003, income tax expense and net loss increases by $3.6 million. The foregoing adjustments do not affect previously recorded net sales, operating income (loss) or past or expected future cash tax obligations. While provision for this deferred liability is required by existing accounting literature, due to the existence of net operating tax loss carry forwards, which expire at various times through the year 2022, the Company does not expect that these potential taxes will be payable in the foreseeable future, if ever. As a result of the restatements, the Company intends to file amended Form 10-K and Form 10-Q for the periods affected by the restatement. PART I - FINANCIAL INFORMATION ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS See pages 2 through 23. 1 AURORA FOODS INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands except per share amounts) (unaudited)
June 30, December 31, 2003 2002 ------------- ------------- ASSETS (restated - ------ See Note 2) Current assets: Cash and cash equivalents ...................................... $ 21,566 $ 12,904 Accounts receivable, net of $1,452 and $412 allowance, respectively ................................................ 33,104 34,944 Inventories .................................................... 63,795 94,680 Prepaid expenses and other assets .............................. 5,289 2,984 ------------- ------------- Total current assets ........................................ 123,754 145,512 Property, plant and equipment, net .................................. 164,667 171,570 Goodwill and other intangible assets, net ........................... 899,236 903,870 Other assets ........................................................ 29,001 30,470 ------------- ------------- Total assets ................................................ $ 1,216,658 $ 1,251,422 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- Current liabilities: Senior secured term debt ....................................... $ 486,569 $ 43,150 Senior secured revolving debt facility ......................... 167,000 - Senior unsecured debt from related parties ..................... 22,258 - Senior subordinated notes ...................................... 401,209 - Current maturities of capital lease obligation ................. 119 109 Accounts payable ............................................... 23,585 45,596 Accumulated preferred dividends payable ........................ 3,656 2,939 Accrued liabilities ............................................ 70,299 60,408 ------------- ------------- Total current liabilities .................................. 1,174,695 152,202 Senior secured term debt ............................................ - 464,756 Senior secured revolving debt facility .............................. - 153,600 Senior unsecured debt to related parties ............................ - 21,951 Senior subordinated notes ........................................... - 401,349 Deferred tax liability .............................................. 105,561 94,491 Capital lease obligations ........................................... 1,707 1,724 Other liabilities ................................................... 12,324 15,421 ------------- ------------- Total liabilities ........................................... 1,294,287 1,305,494 ------------- ------------- Commitments and contingent liabilities: Stockholders' deficit: Preferred stock, $0.01 par value; 25,000,000 shares authorized; 3,750,000 shares, Series A Convertible Cumulative, issued and outstanding, with a liquidation preference value of $18,656 and $17,939, respectively........ 37 37 Common stock, $0.01 par value; 250,000,000 shares authorized; 77,155,022 and 77,155,622 shares issued, respectively ................................................ 772 772 Paid-in capital ............................................... 684,773 684,773 Accumulated deficit ........................................... (763,211) (739,598) Accumulated other comprehensive loss .......................... - (56) ------------- ------------- Total stockholders' deficit ................................ (77,629) (54,072) ------------- ------------- Total liabilities and stockholders' deficit ................ $ 1,216,658 $ 1,251,422 ============= =============
See accompanying notes to consolidated financial statements. 2 AURORA FOODS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) (unaudited)
Three Months Ended June 30, ------------------------------ 2003 2002 -------------- ------------- (restated - See Note 2) Net sales ....................................................... $ 161,092 $ 172,894 Cost of goods sold .............................................. (97,847) (112,091) ------------ ------------- Gross profit .............................................. 63,245 60,803 ------------ ------------- Brokerage, distribution and marketing expenses: Brokerage and distribution ................................ (21,191) (23,743) Consumer marketing ........................................ (1,971) (6,080) ------------ ------------- Total brokerage, distribution and marketing expenses .. (23,162) (29,823) Amortization of intangibles ..................................... (3,146) (2,579) Selling, general and administrative expenses .................... (13,191) (15,010) Administrative restructuring and retention costs ................ (4,440) - Financial restructuring and divestiture costs ................... (4,174) - Plant closures .................................................. 2,674 (29,900) ------------ ------------- Total operating expenses .............................. (45,439) (77,312) ------------ ------------- Operating income (loss) ................................... 17,806 (16,509) Interest and financing expenses: Interest expense, net ..................................... (21,564) (22,893) Excess leverage fee ....................................... (3,218) - Adjustment to value of derivatives ........................ (729) (4,063) Issuance of warrants ...................................... - (4,259) Amortization of discount, premium and financing costs ..... (1,209) (2,946) ------------ ------------- Total interest and financing expenses ................. (26,720) (34,161) ------------ ------------- Loss before income taxes .................................. (8,914) (50,670) Income tax expense .............................................. (6,032) (5,060) ------------ ------------- Net loss .............................................. (14,946) (55,730) Preferred dividends ............................................. (360) (332) ------------ ------------- Net loss available to common stockholders ................. $ (15,306) $ (56,062) ============ ============= Basic and diluted loss per share available to common stockholders $ (0.20) $ (0.78) ============ ============= Weighted average number of shares outstanding ................... 77,155 71,823 ============ =============
See accompanying notes to consolidated financial statements. 3 AURORA FOODS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) (unaudited)
Six Months Ended June 30, ------------------------------- 2003 2002 -------------- -------------- (restated - See Note 2) Net sales ....................................................... $ 351,299 $ 367,020 Cost of goods sold .............................................. (215,724) (246,550) ------------ ------------- Gross profit .............................................. 135,575 120,470 ------------ ------------- Brokerage, distribution and marketing expenses: Brokerage and distribution ................................ (47,948) (50,867) Consumer marketing ........................................ (6,749) (15,819) ------------ ------------- Total brokerage, distribution and marketing expenses... (54,697) (66,686) Amortization of intangibles ..................................... (6,445) (5,027) Selling, general and administrative expenses .................... (28,881) (32,350) Administrative restructuring and retention costs ................ (4,440) - Financial restructuring and divestiture costs ................... (4,174) - Plant closures .................................................. 2,674 (29,900) ------------ ------------- Total operating expenses .............................. (95,963) (133,963) ------------ ------------- Operating income (loss) ................................... 39,612 (13,493) Interest and financing expenses: Interest expense, net ..................................... (44,170) (45,162) Excess leverage fee ....................................... (4,633) - Adjustment to value of derivatives ........................ (1,622) (5,180) Issuance of warrants ..................................... - (4,259) Amortization of discount, premium and financing costs ..... (2,408) (3,749) ------------ ------------- Total interest and financing expenses ................. (52,833) (58,350) ------------ ------------- Loss before income taxes and cumulative effect of change in accounting.......................................... (13,221) (71,843) Income tax expense .............................................. (9,674) (109,578) ------------ ------------- Net loss before cumulative effect of change in accounting.. (22,895) (181,421) Cumulative effect of change in accounting, net of tax of $21,466. - (228,150) ------------ ------------- Net loss .............................................. (22,895) (409,571) Preferred dividends ............................................. (718) (663) ------------ ------------- Net loss available to common stockholders ................. $ (23,613) $ (410,234) ============ ============= Basic and diluted loss per share available to common stockholders before cumulative effect of change in accounting .......... $ (0.31) $ (2.54) Cumulative effect of change in accounting, net of tax.. - (3.17) ------------ ------------- Basic and diluted loss per share available to common stockholders ................................. $ (0.31) $ (5.71) ============ ============= Weighted average number of shares outstanding ................... 77,155 71,788 ============ =============
See accompanying notes to consolidated financial statements. 4 AURORA FOODS INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (in thousands) (unaudited)
Accumulated Other Preferred Common Paid-in Accumulated Comprehensive Stock Stock Capital Deficit Loss Total --------- ------- --------- ----------- ------------- --------- Balance at December 31, 2002 (restated - See Note 2) $ 37 $ 772 $ 684,773 $ (739,598) $ (56) $ (54,072) Net loss - - - (22,895) - (22,895) Cumulative preferred dividends - - - (718) - (718) Net deferred hedging adjustment - - - - 56 56 --------- ------- --------- ----------- ------------- --------- Balance at June 30, 2003 $ 37 $ 772 $ 684,773 $ (763,211) $ - $ (77,629) ========= ======= ========= =========== ============= =========
See accompanying notes to consolidated financial statements. 5 AURORA FOODS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, --------------------------- 2003 2002 ------------ ----------- (restated - Cash flows from operations: See Note 2) Net loss .................................................. $ (22,895) $ (409,571) Cumulative effect of change in accounting, net of tax ..... - 228,150 Adjustments to reconcile net loss to cash from operating activities: Depreciation .......................................... 10,720 16,158 Amortization .......................................... 8,853 8,776 Deferred income taxes ................................. 9,674 109,578 Recognition of loss on derivatives .................... 1,622 5,180 Issuance of warrants .................................. - 4,259 Non-cash plant closure items .......................... (2,368) 26,000 Excess leverage fee ................................... 4,633 - Other, net ............................................ 215 2 Changes to operating assets and liabilities: Accounts receivable ............................... 1,872 25,437 Accounts receivable sold .......................... (32) (2,053) Inventories ....................................... 30,885 11,548 Prepaid expenses and other assets ................. (4,146) (16,057) Accounts payable .................................. (22,011) (15,842) Accrued expenses .................................. 5,340 6,138 Other non-current liabilities ..................... (3,267) (3,500) ------------ ----------- Net cash from operations ........................................ 19,095 (5,797) ------------ ----------- Cash flows from investing activities: Asset additions .......................................... (4,203) (11,548) Proceeds from sale of assets ............................. 2,058 404 ------------ ----------- Net cash from investment activities ............................ (2,145) (11,144) ------------ ----------- Cash flows from financing activities: Proceeds from senior secured revolving debt facility, net. 13,400 30,300 Repayment of debt ........................................ (21,630) (16,463) Senior unsecured financing from related parties........... - 14,550 Other, net ............................................... (58) 391 ------------ ----------- Net cash from financing activities ............................. (8,288) 28,778 ------------ ----------- Increase in cash and cash equivalents .......................... 8,662 11,837 Cash and cash equivalents, beginning of period ................. 12,904 184 ------------ ----------- Cash and cash equivalents, end of period ....................... $ 21,566 $ 12,021 ============ ===========
See accompanying notes to consolidated financial statements. 6 AURORA FOODS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (unaudited) NOTE 1 - BASIS OF PRESENTATION Interim Financial Statements The interim consolidated financial statements of the Company included herein have not been audited by independent accountants. The statements include all adjustments, including normal recurring accruals, which management considers necessary for a fair presentation of the financial position and operating results of the Company for the periods presented. The statements have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission regarding the preparation of interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year. Certain prior period amounts have been reclassified to conform to the current period's presentation. For further information, reference should be made to the consolidated financial statements of the Company and notes thereto included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2002, however, certain amounts in the prior period financial statements relating to income taxes are being restated, as discussed in Note 2 - Restatement and an amended Form 10-K will be filed by the Company. The Company The Company has acquired premium, well recognized brands with strong brand equity that had been undermarketed, undermanaged, non-core businesses to their previous corporate parents. The Company's objective has been to renew the growth of its brands by giving them the focus, strategic direction, product development, and dedicated sales and marketing resources they had lacked. Each of the Company's brands is a leading brand with significant market share and strong consumer awareness. The Company primarily competes in the following three industry segments: retail, food service and other distribution channels. The Company's products are sold nationwide, primarily through food brokers to supermarkets, wholesale and retail grocery accounts and other retail channels, as well as food service distribution channels (restaurant chains, business/industry and schools) and club store, private label and military customers. Distribution is either directly to the customer or through independent wholesalers and distributors. Financial Restructuring and Divestiture Activities In July 2003, the Company announced that it is undertaking a comprehensive financial restructuring (the "Restructuring"), designed to reduce the Company's outstanding indebtedness, strengthen its balance sheet and improve its liquidity. As part of the Restructuring, the Company entered into a definitive agreement with J.W. Childs Equity Partners III, L.P. (the "Investor"), an affiliate of J.W. Childs Associates, L.P., pursuant to which the Investor will make a $200 million investment in the Company for a 65.6% equity interest in the reorganized company, subject to the terms and conditions contained therein. The equity transaction is contemplated to be effected through a pre-negotiated bankruptcy reorganization case under Chapter 11 of the U.S. Bankruptcy Code which the Company expects to commence during the second half of 2003. Under the terms of the definitive agreement with the Investor, the Restructuring would include the following proposed elements: o The Company's existing bank lenders will be paid in full, receiving approximately $458 million in cash and approximately $197 million in new senior unsecured notes with a 10-year maturity. Aurora and J.W. Childs intend to raise approximately $441 million of new bank financing in connection with the restructuring, including a $50 million revolving credit facility, and will seek to effect a high yield offering in an amount sufficient to pay cash to the bank lenders in lieu of the new senior unsecured notes. The definitive agreement 7 contemplates that the Company's existing bank lenders will waive any right to the excess leverage fee and the asset sale fee, which are provided for in the Company's credit agreement. o The Company's existing accounts receivable sales facility will be terminated. o Holders of the Company's 12% senior unsecured notes due 2006 will be paid in full, receiving approximately $29 million of new senior unsecured notes with a 10-year maturity, unless J.W. Childs effects a high yield offering in an amount sufficient to pay cash in lieu of such unsecured notes. o Holders of the Company's outstanding 8.75% and 9.875% senior subordinated notes due 2008 and 2007, respectively, will receive a 50% recovery through cash in the aggregate amount of approximately $110 million and approximately 29.5% (approximately $90 million) of the common stock of the reorganized Company. o Existing common and preferred stockholders will receive approximately 4.9% (approximately $15 million) of common stock of the reorganized Company, and the existing common and preferred shares will be cancelled in connection with the restructuring. The Company also launched, with the support of its senior lenders, a vendor lien program under which the Company is offering vendors and carriers of its goods the ability to obtain a junior lien on substantially all of the Company's assets for shipments made to the Company on agreed terms. In excess of 125 vendors with estimated annual purchases of $250 million are participating in the vendor lien program. The closing of the Restructuring is subject to a number of conditions, including the consent of the Company's senior lenders and bondholders to the plan of reorganization, bankruptcy court approval of the plan of reorganization, completion of the refinancing of the Company's existing indebtedness in accordance with the terms of the Restructuring, and customary regulatory approvals. Subject to the satisfaction of these conditions, the Company expects to complete the Restructuring in the fourth quarter of 2003. The Company is currently in discussions with its bank group and bondholders regarding the terms of the restructuring. However, no assurance can be given that these discussions will lead to an agreement, that the conditions to closing will be satisfied, or that the restructuring will ultimately be consummated. As of June 30, 2003, the Company had incurred and expensed approximately $1.9 million of related legal, consulting and investment banking costs related to the Restructuring. The Company will determine whether to continue with its previously announced divestiture process after the Restructuring is complete. As of June 30, 2003, the Company had incurred and deferred in other assets approximately $2.3 million of related legal, accounting and investment banking costs related to the divestiture process. Such costs have been expensed in the accompanying consolidated statement of operations during the second quarter due to the uncertainty that a divestiture transaction will be completed. Liquidity The Company continues to be highly leveraged. As of June 30, 2003, the Company had outstanding, approximately $1.08 billion in aggregate principal indebtedness for borrowed money, and had approximately $26.3 million of cash and available borrowing capacity under its accounts receivable sales facility. The Company has no availability under its revolving credit facility. The degree to which the Company is leveraged results in significant cash interest expense and principal repayment obligations and such interest expense may increase with respect to its senior secured credit facilities based on changes in prevailing interest rates. The Company believes its liquidity is sufficient to fund its operations up to the projected bankruptcy filing. In connection with the Restructuring, the Company elected not to pay the $8.8 million interest payment due on July 1, 2003, on the 2008 Subordinated Notes, which resulted in a default under its debt agreements. The June Bank Amendment also included a forbearance by the senior lenders under the Senior Secured Debt Facility providing that such lenders would not exercise any remedies available under any of the Loan Documents (as such 8 term is defined in the Senior Secured Debt Facility) solely as a result of any potential or actual event of default arising under the terms of the Senior Secured Debt Facility by virtue of the Company's failure to make the scheduled interest payment on the 2008 Subordinated Notes. As a result of this non-payment, the Company reclassified all outstanding debt to current liabilities as of June 30, 2003. Accounting Changes On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (FAS 142), "Goodwill and Other Intangible Assets." FAS 142 generally requires that (1) recorded amounts of goodwill no longer be amortized on a prospective basis, (2) the amount of goodwill recorded on the balance sheet of the Company be evaluated annually for impairment using a two-step method, (3) other identifiable intangible assets be categorized as to whether they have indefinite or finite lives, (4) intangibles having indefinite lives no longer be amortized on a prospective basis, and (5) the amount of intangibles having indefinite lives on the balance sheet of the Company be evaluated annually for impairment using a one-step method. As a result, the Company recorded an impairment charge of $228.2 million, net of tax of $21.5 million, as restated, effective January 1, 2002. See Note 2 - Restatement. Stock Option Plans At June 30, 2003, the Company has two stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and its related interpretations. No stock-based employee compensation costs are reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Restructuring contemplates that all currently outstanding stock options will be cancelled. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock Based Compensation," to stock-based employee compensation (in thousands, except per share).
Three months ended June 30, Six months ended June 30, --------------------------- --------------------------- 2003 2002 2003 2002 ------------ ------------- ------------- ------------- (restated - (restated - See Note 2) See Note 2) Reported net loss available to common stockholders ..................... $ (15,306) $ (56,062) $ (23,613) $ (410,234) Total stock-based employee compensation expense determined under fair value based method for all awards ................... (341) (905) (1,027) (1,810) ------------ ------------- ------------- ------------- Pro forma net loss available to common stockholders ..................... $ (15,647) $ (56,967) $ (24,640) $ (412,044) ============ ============= ============= ============= Reported basic and diluted loss per share available to common stockholders ......... $ (0.20) $ (0.78) $ (0.31) $ (5.71) ============ ============= ============= ============= Pro forma basic and diluted loss per share available to common stockholders .................... $ (0.20) $ (0.79) $ (0.32) $ (5.74) ============ ============= ============= =============
NOTE 2 - RESTATEMENT The Company reevaluated its deferred tax accounting and determined that its valuation allowance for net deferred tax assets, which had been recorded by the Company at December 31, 2002, should have been recorded at December 31, 2001, and that the Company should have provided for ongoing deferred tax liabilities subsequent to 9 January 1, 2002 (the effective date of the adoption of FAS 142) for certain of the differences between the book and tax amortization of the Company's goodwill and indefinite lived intangibles as defined by FAS 142. The impact of the adjustments for the year ended December 31, 2001, was to increase income tax expense and net loss by $65.4 million. For the year ended December 31, 2002, the impact was to decrease tax expense by $30.9 million, increase the expense recorded for the cumulative effect of the change in accounting principle by $60.8 million, all of which increased the net loss by $29.9 million. In addition, the impact on the statement of operations for the three months ended March 31, 2003 was to increase income tax expense and the net loss by $3.6 million. These adjustments do not affect previously recorded net sales, operating income (loss) or past or expected future cash tax obligations. While provision for this deferred liability is required by existing accounting literature, due to the existence of net operating tax loss carry forwards, which expire at various times through the year 2022, the Company does not expect that these potential taxes will be payable in the foreseeable future, if ever. The following tables summarize, in a condensed format, the annual financial statements as previously reported and as restated as of and for the years ended December 31, 2002 and 2001(in thousands):
Years Ended December 31 ---------------------------------------------------------- 2002 2001 --------------------------- ---------------------------- As previously As previously reported As restated reported As restated -------------- ----------- ------------- ------------ Loss before income taxes and cumulative effect of change in accounting ........................ $ (169,015) $ (169,015) $ (24,407) $ (24,407) Income tax benefit (expense).... (146,756) (115,918) 6,828 (58,574) -------------- ----------- ------------- ------------ Net loss before cumulative effect of accounting change ........ (315,771) (284,933) (17,579) (82,981) Cumulative effect of change in accounting, net of tax of $82,237 and $21,466, as restated.......... (167,379) (228,150) - - -------------- ----------- ------------- ------------ Net loss ..................... (483,150) (513,083) (17,579) (82,981) Preferred dividends ............... (1,353) (1,353) (1,253) (1,253) -------------- ----------- ------------- ------------ Net loss available to common stockholders ............... $ (484,503) $(514,436) $ (18,832) $ (84,234) ============= ========== -============= ============ Basic and diluted net loss per share available to common stockholders before cumulative change in accounting ............. $ (4.31) $ (3.10) $ (0.26) $ (1.16) Cumulative effect of change in accounting .................. (2.28) (3.90) - - -------------- ----------- ------------- ------------ Basic and diluted loss per share available to common stockholders................. $ (6.59) $ (7.00) $ (0.26) $(1.16) ============= ========== -============= ============
10
December 31, 2002 December 31, 2001 ------------------------------------- ------------------------------------- As previously As previously reported As restated reported As restated --------------- -------------- -------------- ------------- ASSETS ------ Deferred tax asset ............................ $ - $ - $ 18,563 $ - Other current assets .......................... 145,512 145,512 163,195 163,195 --------------- -------------- -------------- ------------- Current assets .................... 145,512 145,512 181,758 163,195 Property, plant and equipment, net ............ 171,570 171,570 232,650 232,650 Deferred tax asset ............................ - - 47,799 - Goodwill and other intangible assets, net ..... 903,870 903,870 1,229,652 1,229,652 Other assets .................................. 30,470 30,470 31,181 31,181 --------------- -------------- -------------- ------------- Total assets ........................ $ 1,251,422 $ 1,251,422 $ 1,723,040 $ 1,656,678 =============== ============== ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities ........................... $ 152,202 $ 152,202 $ 192,974 $ $ 192,974 Deferred tax liabilities ...................... - 94,491 - - Other liabilities ............................. 15,421 15,421 16,683 16,683 Long term debt ................................ 1,021,429 1,021,429 1,003,931 1,003,931 Long term debt from related parties ........... 21,951 21,951 - - -------------- -------------- -------------- ------------- Total liabilities ................... 1,211,003 1,305,494 1,213,588 1,213,588 Stockholders' equity (deficit): Preferred stock .......................... 37 37 37 37 Common stock ............................. 772 772 743 743 Paid-in capital .......................... 684,773 684,773 685,582 685,582 Treasury stock ........................... - - (13,266) (13,266) Accumulated deficit ...................... (644,263) (739,598) (159,760) (225,162) Promissory notes ......................... - - (40) (40) Accumulated other comprehensive loss ..... (900) (56) (3,844) (4,804) --------------- -------------- -------------- ------------- Total stockholders' equity (deficit). 40,419 (54,072) 509,452 443,090 Total liabilities and stockholders'.. --------------- -------------- -------------- ------------- equity (deficit) ................... $ 1,251,422 $ 1,251,422 $ 1,723,040 $ 1,656,678 =============== ============== ============== =============
11 The following tables summarize, in a condensed format, the quarterly statements of operations as previously reported and restated for the quarters affected by the restatement (in thousands): Three Months Ended March 31, 2003 -------------------------------- As previously reported As restated --------------- ---------------- Loss before income taxes............. $ (4,307) $ (4,307) Income tax expense ............... - (3,642) --------------- ---------------- Net loss ......................... (4,307) (7,949) Preferred dividends ................. (358) (358) --------------- ---------------- Net loss available to common stockholders...................... $ (4,665) $ (8,307) =============== ================ Basic and diluted net loss per share available to common stockholders ..... $ (0.06) $ (0.11) =============== ================
Three Months Ended ------------------------------------------------------------------------ March 31, 2002 June 30, 2002 ------------------------------- ------------------------------ As As previously As previously As reported restated reported restated ---------- ---------- ---------- ---------- Loss before income taxes and cumulative effect of change in accounting ............................ $ (21,173) $ (21,173) $ (50,670) $ (50,670) Income tax benefit(expense) .................. 8,249 (104,518) 19,614 (5,060) ---------- ---------- ---------- ---------- Net loss before cumulative effect of accounting change ..................... (12,924) (125,691) (31,056) (55,730) Cumulative effect of change in accounting, net of tax of $82,237 and 21,466, as restated ......................... (167,379) (228,150) - - ---------- ---------- ---------- ---------- Net loss ............................... (180,303) (353,841) (31,056) (55,730) Preferred dividends (331) (331) (332) (332) Net loss available to ---------- ---------- ---------- ---------- common stockholders ................. $ (180,634) $(354,172) $ (31,388) $ (56,062) ========== ========== ========== ========== Basic and diluted net loss available to common stockholders before cumulative effect of accounting change ............................. $ (0.19) $ (1.76) $ (0.44) $ (0.78) Cumulative effect of change of accounting, net of tax ........................ (2.33) (3.18) - - Basic and diluted loss per share available to common ---------- ---------- ---------- ---------- stockholders .................................. $ (2.52) $ (4.94) $ (0.44) $ (0.78) ========== ========== ========== ========== [TABLE CONTINUED] ------------------------------------------------------------------------- September 30, 2002 December 31, 2002 ------------------------------ ------------------------------ As As previously As previously As reported restated reported restated ---------- ---------- ---------- ---------- Loss before income taxes and cumulative effect of change in accounting ............................ $ (845) $ (845) $ (96,327) $ (96,327) Income tax benefit(expense) .................. 289 (4,977) (174,908) (1,363) ---------- ---------- ---------- ---------- Net loss before cumulative effect of accounting change ..................... (556) (5,822) (271,235) (97,690) Cumulative effect of change in accounting, net of tax of $82,237 and 21,466, as restated ......................... - - - - ---------- ---------- ---------- ---------- Net loss ............................... (556) (5,822) (271,235) (97,690) Preferred dividends (344) (344) (346) (346) Net loss available to ---------- ---------- ---------- ---------- common stockholders ................. $ (900) $ (6,166) $(271,581) $ (98,036) ========== ========== ========== ========== Basic and diluted net loss available to common stockholders before cumulative effect of accounting change ............................. $ (0.01) $ (0.08) $ (3.52) $ (1.27) Cumulative effect of change of accounting, net of tax ........................ - - - - Basic and diluted loss per share available to common ---------- ---------- ---------- ---------- stockholders .................................. $ (0.01) $ (0.08) $ (3.52) $ (1.27) ========== ========== ========== ==========
12
Three Months Ended December 31, 2001 ------------------------------ As previously reported As restated ------------- ----------- Income before income taxes ........................... $ 4,698 $ 4,698 Income tax expense ....................... (2,316) (67,718) ------------- ----------- Net income (loss) ........................ 2,382 (63,020) Preferred dividends .................................. (320) (320) Net income (loss) available to common ------------ ----------- stockholders ........................... $ 2,062 $ (63,340) ============ =========== Basic and diluted net income (loss) per share available to common stockholders ........ $ 0.03 $ (0.88) ============ ===========
NOTE 3 - ACCOUNTS RECEIVABLE Accounts receivable at June 30, 2003, and December 31, 2002, are stated net of the proceeds received from the sale of accounts receivable pursuant to the Company's accounts receivable sales facility in the amount of $14.8 million at both dates. The Company's accounts receivable sales facility currently expires September 30, 2003. Under the plans of the Restructuring, the Company does not intend to seek an extension of this accounts receivable sales facility. NOTE 4 - INVENTORIES Inventories, net of reserves of $2.7 million and $9.9 million, respectively, consist of the following (in thousands): June 30, December 31, 2003 2002 ------------- -------------- Raw materials........................... $ 6,256 $ 11,966 Work in process......................... 265 281 Finished goods.......................... 49,921 75,480 Packaging and other supplies............ 7,353 6,953 ------------- -------------- $ 63,795 $ 94,680 ============= ============== NOTE 5 - EARNINGS PER SHARE AND NUMBER OF COMMON SHARES OUTSTANDING Basic earnings per share represents the income available to common stockholders divided by the weighted average number of common shares outstanding during the measurement period. Diluted earnings per share represents the income available to common stockholders divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period. Potentially dilutive common shares consist of stock options (the dilutive impact is calculated by applying the "treasury stock method"), the outstanding Convertible Cumulative Preferred Stock and common stock warrants. The Company has had net losses available to common stockholders in each period, 13 therefore the impact of these potentially dilutive common shares has been antidilutive and excluded from the determination of diluted loss per share. The net loss available to common stockholders and the weighted average shares outstanding contained in the consolidated statements of operations were used to compute both the basic and diluted loss per share. Common shares outstanding The number of shares of common stock outstanding and the transactions during the six-month period ended June 30, 2003, were as follows: Common Stock Outstanding ------------ Shares at December 31, 2002 ....................... 77,155,622 Forfeiture of unvested restricted stock awards .... (600) ------------ Shares at June 30, 2003 ........................... 77,155,022 ============ NOTE 6 - SEGMENT INFORMATION The Company groups its business in three operating segments: retail, foodservice and other distribution channels. Many of the Company's brands are sold through two or more of the segments. The retail distribution segment includes all of the Company's brands and products sold to customers who sell or distribute these products to consumers through supermarkets, grocery stores and normal grocery retail outlets. The foodservice segment includes both branded and non-branded products sold to customers such as restaurants, business/industry and schools. The other distribution channels segment includes sales of branded and private label products to club stores, the military, mass merchandisers, convenience, drug, discount and chain stores, as well as exports from the United States. The Company's definition of segment contribution differs from operating income as presented in its primary consolidated financial statements and a reconciliation of the segmented and consolidated results is provided in the following table. Interest expense, financing costs and income tax amounts are not allocated to the operating segments. The Company's assets are not managed or maintained on a segmented basis. Property, plant and equipment is used in the production and packaging of products for each of the segments. Cash, accounts receivable, prepaid expenses and other assets are maintained and managed on a consolidated basis and generally do not pertain to any particular segment. Inventories include primarily raw materials and packaged finished goods, which in most circumstances are sold through any or all of the segments. The Company's goodwill and other intangible assets, which include its tradenames, are used by and pertain to the activities and brands sold across all of its segments. As no segmentation of the Company's assets, depreciation expense (included in fixed manufacturing costs and general and administrative expenses) or capital expenditures is maintained by the Company, no allocation of these amounts has been made solely for purposes of segment disclosure requirements. Results for the six months ended June 30, 2002, include pretax adjustments of $20.1 million recorded during the first quarter of 2002 principally from changes in estimates. These adjustments consisted primarily of net sales adjustments of $17.7 million, principally for trade promotion costs, along with a charge to cost of sales of approximately $1.0 million for unresolved inventory disputes and $1.1 million charged to selling, general and administrative costs, principally associated with executive severance. 14 The following table presents a summary of operations by segment (in thousands):
Three months ended June 30, Six months ended June 30, ------------------------------ ------------------------------- 2003 2002 2003 2002 ---------- ---------- ----------- ---------- Net sales: Retail ........................................... $124,048 $134,718 $270,476 $289,168 Foodservice ...................................... 15,025 15,106 29,339 29,347 Other ............................................ 22,019 23,070 51,484 48,505 ---------- ---------- ----------- ---------- Total .................................. $161,092 $172,894 $351,299 $367,020 ========== ========== =========== ========== Segment contribution and operating income: Retail ........................................... $ 45,260 $ 39,390 $ 94,540 $ 71,794 Foodservice ...................................... 5,656 5,552 11,201 10,373 Other ............................................ 6,120 6,494 13,415 12,440 ---------- ---------- ----------- ---------- Segment contribution ................... 57,036 51,436 119,156 94,607 Fixed manufacturing costs ........................ (16,953) (20,456) (38,278) (40,823) Amortization of intangibles ...................... (3,146) (2,579) (6,445) (5,027) Selling, general and administrative expenses ..... (13,191) (15,010) (28,881) (32,350) Administrative restructuring and retention costs.. (4,440) - (4,440) - Financial restructuring and divestiture costs .... (4,174) - (4,174) - Plant closures ................................... 2,674 (29,900) 2,674 (29,900) ---------- ---------- ----------- ---------- Operating income (loss) ................ $ 17,806 $ (16,509) $ 39,612 $ (13,493) ========== ========== =========== ==========
NOTE 7 - LITIGATION AND CONTINGENCIES The Company is a defendant in an action filed by a former employee in the U. S. District Court in the Eastern District of Missouri. The plaintiff alleged breach of contract, fraud and negligent misrepresentation as well as state law securities claims, and alleged damages in the amount of $3.7 million. In the first quarter of 2002, the plaintiff's federal and state securities law claims were dismissed and the remaining claims were remanded to the Circuit Court for the City of St. Louis. Since the remand, the plaintiff has added claims for breach of contract and fiduciary duty, and for negligent misrepresentation and tortious interference with business expectancy. The case is set for trial in September 2003. The Company intends to defend the claims vigorously. The Company is a defendant in an action filed by the State of Illinois regarding the Company's St. Elmo facility. The Illinois Attorney General filed a complaint seeking a restraining order prohibiting further discharges by the City from its publicly owned wastewater treatment facility in violation of Illinois law and enjoining the Company from discharging its industrial waste into the City's treatment facility. The complaint also asked for fines and penalties associated with the City's discharge from its treatment facility and the Company's alleged operation of its production facility without obtaining a state environmental operating permit. On June 19, 2003, the Company and the Illinois Attorney General executed an Agreed Injunction Order settling all allegations in the complaint against the Company, other than any potential monetary fine or penalty. The Company intends to vigorously defend any future claim for fines or penalties. The Company is also subject to litigation in the ordinary course of business. In the opinion of management, the ultimate outcome of any existing litigation would not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 15 NOTE 8 - PREFERRED STOCK AND PREFERRED DIVIDENDS Dividends on the outstanding Series A Convertible Cumulative Preferred Stock are being accrued each period, but are not being paid in cash. Preferred dividends may be paid in additional preferred stock until such time as the restrictions on payment of dividends contained in the senior secured debt agreements are no longer in effect, at which time the Company will determine whether future dividends will be paid in cash or additional shares of preferred stock. The Restructuring contemplates that all currently outstanding preferred stock will be cancelled. NOTE 9 - DERIVATIVE INSTRUMENTS During the three and six month periods ended June 30, 2003, the Company recorded expense of approximately $0.7 million and $1.6 million, respectively, associated with the change in value of its interest rate collar agreement with a notional financial amount of $150.0 million, which the Company has determined is not an effective hedge under Statement of Financial Accounting Standard No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities." The change in value of this instrument was primarily due to lower expected future LIBOR rates used to compute the net liability to the Company. In 2002, the expenses related to the collar agreement for the three and six month periods were $4.3 million and $5.2 million, respectively. This agreement expires in November 2004. At June 30, 2003, the Company's liability reflected in the accompanying consolidated balance sheet associated with this interest rate derivative was approximately $10.9 million. Upon filing bankruptcy, the Company believes that the net market value of the derivative becomes due and payable. The Company's fixed to floating interest rate swap agreement with a notional principal amount of $150.0 million expired on March 17, 2003, when the Company made a final payment to the counterparty of $1.7 million. NOTE 10 - OTHER COMPREHENSIVE INCOME (LOSS) The components of total comprehensive income (loss) for the three and six month periods ended June 30, 2003 and 2002 (unaudited) were as follows (in thousands):
Three months ended June 30, Six months ended June 30, --------------------------------- ------------------------------ 2003 2002 2003 2002 ----------- ---------- ---------- ---------- (restated - (restated - See Note 2) See Note 2) Net loss ............................................ $ (14,946) $ (55,730) $ (22,895) $ (409,571) ----------- ---------- ---------- ---------- Other comprehensive income: Income deferred on qualifying cash flow hedges - (1,384) - (1,140) Reclassification adjustment for cash flow hedging losses realized in net loss ....... - 1,529 56 3,075 ----------- ---------- ---------- ---------- Total other comprehensive income .................... - 145 56 1,935 ----------- ---------- ---------- ---------- Total comprehensive loss ....................... $ (14,946) $ (55,585) $ (22,839) $ (407,636) =========== ========== ========== ==========
16 NOTE 11 - DEBT On February 21, 2003, the Company amended its Fifth Amended and Restated Credit Agreement, dated as of November 1, 1999, among the Company, the financial institutions parties thereto and the agents party thereto (as amended, supplemented or otherwise modified from time to time, the "Senior Secured Debt Facility"). The terms of this amendment to the Senior Secured Debt Facility are more fully described in the Company's annual report on Form 10-K for the year ended December 31, 2002. Among other provisions, the amendment: o provided for an excess leverage fee of 3.50% of the aggregate amount of term loan borrowings outstanding and the revolving credit facility on the amendment date. Such fee will not be required if the Company receives net cash proceeds from the sale of assets of at least $100.0 million by June 30, 2003, and an additional $125.0 million by September 30, 2003, or failing to meet the June 30, 2003, requirement, if aggregate net cash proceeds of $325.0 million are received by September 30, 2003; and o provided for an asset sale fee of 1.75% of the average term loan borrowings outstanding and the revolving credit facility from the amendment date through February 10, 2004, if the Company has not received an aggregate of $325.0 million from the sale of assets by March 31, 2004; o provided that any excess leverage or asset sale fees that become payable will be paid at the earlier of certain events of default, the time of sale of assets from cash proceeds, or on June 30, 2005. If the Company fails to meet the asset proceeds requirements described above, the amounts payable to the lenders under the Senior Secured Debt Facility for the excess leverage and asset sale fees could total approximately $36.0 million. At June 30, 2003, the Company had not received any net cash proceeds from the sale of assets. Since the Company has not yet met the requirements that would allow the Company to avoid paying these fees (whether in part or in whole), the potential fees are being accrued over the remaining life of the Senior Secured Debt Facility as excess leverage fees in interest and financing expenses. Accordingly, in the three and six months ended June 30, 2003, the Company recorded additional interest expense of $3.2 million and $4.6 million resulting in a current accrued liability related to the fees of $4.6 million as of June 30, 2003. If the Company does not meet the requirements to avoid payment of the fees, the interest expense and liability recorded in 2003 will be approximately $10.9 million and the interest expense and additional liability to be recorded in 2004, 2005 and 2006 will be $12.0 million, $9.2 million and $3.5 million, respectively. At the time the Company meets any or all of the asset sale requirements, interest expense will be adjusted prospectively to reflect the reduction in the fees to be paid. See "Financial Restructuring and Divestiture Activities" in Note 1. At June 30, 2003, the Company was in compliance with the provisions of the Senior Secured Debt Facility and its other debt agreements. On July 1, 2003, the Company elected not to pay the interest due on its outstanding 8.75% senior subordinated notes due 2008 (the "2008 Subordinated Notes"). However, the Company entered into an Amendment and Forbearance, dated as of June 30, 2003 (the "June Bank Amendment"), with the lenders holding more than 51% of the term loan and revolving credit facility borrowings under the Senior Secured Debt Facility, pursuant to which (among other things) the lenders under the Senior Secured Debt Facility temporarily agreed not to exercise remedies with respect to any default arising under any of the Loan Documents (as such term is defined in the Senior Secured Debt Facility) arising as a result of the failure to pay the interest due on the 2008 Subordinated Notes. See Note 16 for further discussion of the June Bank Amendment, the aforementioned election to withhold payment of interest on the 2008 Subordinated Notes and further amendments and forbearance agreements relating to the Senior Secured Debt Facility and the Company's outstanding senior subordinated notes. NOTE 12 - INCOME TAXES No net income tax benefit associated with the pretax losses have been recorded. The Company records deferred tax liabilities for the differences between the book and tax bases of certain goodwill and indefinite lived intangible assets. See Note 2 - Restatement. 17 NOTE 13 - PLANT CLOSURES In May 2002, the Company announced its intention to close its West Seneca, New York, Lender's bagel manufacturing facility. As a result of this decision, production at West Seneca ceased on May 31, 2002, with the formal closing on July 2, 2002. The closing resulted in the elimination of all 204 jobs. Affected employees received severance pay in accordance with the Company's policies and union agreements. The Company recorded charges of $32.4 million during 2002 in connection with the shutdown of the West Seneca facility. The non-cash portion of the charges was approximately $28.2 million and is attributable to the write-down of property, plant and equipment, with the remaining $4.2 million of cash costs related to severance and other employee related costs of $3.0 million, and other costs necessary to maintain and dispose of the facility of $1.2 million. During the six months ended June 30, 2003, the Company paid $0.1 million in severance and related costs and $0.6 million of other costs related to closing and sale of the facility. No adjustments were made to recorded liabilities and the remaining accrual is minimal. In October 2002, the Company announced its intention to close its Yuba City, California, facility where the Company manufactured specialty seafood and Chef's Choice products. As a result of this decision, production at the Yuba City facility ceased in early 2003. The closing resulted in the elimination of all 155 jobs. Affected employees received severance pay in accordance with the Company's policies. As a result, the Company recorded a charge of $6.7 million during the fourth quarter of 2002. The non-cash portion of the charge of approximately $4.9 million was attributable to the write-down of property, plant and equipment. The remaining $1.8 million of cash costs was related to severance and other employee related costs of $0.9 million and other costs necessary to maintain and dispose of the facility of $0.9 million. The facility was sold on June 30, 2003. During the six months ended June 30, 2003, the Company paid $0.6 million in severance and other employee related costs and $0.6 million in facility related costs. Approximately $2.7 million was recorded as an adjustment to the recorded liabilities and recorded as income in plant closures on the consolidated statement of operations as a result of higher than expected proceeds from the disposition of the assets and the reversal of reserves on assets previously identified for disposition, which are now being used in operations. The majority of the remaining liability of $0.6 million is expected to be paid during the second half of 2003. NOTE 14 - ADMINISTRATIVE RESTRUCTURING AND RETENTION COSTS On April 3, 2003, the Company announced that it had restructured its corporate organization and reduced its corporate staff by approximately 75 positions through terminations and the elimination of open positions. Impacted employees are receiving severance pay in accordance with the Company's policies. In addition, retention bonuses will be awarded to certain key employees who remain with the Company through June 1, 2004. The Company expects the restructuring, staff reductions and retention bonuses to result in a charge of approximately $7.0 million during periods through May 2004, and estimates that the cash impact in 2003 will be approximately $5.0 million. In the second quarter of 2003, the Company recorded an administrative restructuring and retention charge of $4.4 million associated with this program. NOTE 15 - RECENTLY ISSUED ACCOUNTING STANDARDS In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 149 (FAS 149), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." FAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FAS No. 133. FAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. FAS No. 149 will be adopted by the Company for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not expect the adoption of FAS No. 149 to have a material impact on the Company's financial condition and results of operations. In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." FAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. FAS No. 150 is effective 18 for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. FAS No. 150 will be adopted by the Company for financial instruments entered into or modified after May 31, 2003. Due to the Restructuring, the Company is still evaluating the impact of the adoption of FAS No. 150 on its financial condition and results of operations. NOTE 16 - Subsequent Events As discussed in Note 1, the Company is undertaking a comprehensive financial restructuring, including entering into a definitive agreement with the Investor. The closing of the Restructuring is subject to a number of conditions, including the consent of the Company's bank lenders and bondholders to the plan of reorganization, bankruptcy court approval of the plan of reorganization, completion of the refinancing of the Company's existing indebtedness in accordance with the terms of the Restructuring, and customary regulatory approvals. Subject to the satisfaction of these conditions, the Company expects to complete the Restructuring in the fourth quarter of 2003. The Company has also launched, with the support of its senior lenders under the Senior Secured Debt Facility, a vendor lien program under which the Company is offering vendors and carriers of its goods the ability to obtain a junior lien on substantially all of the Company's assets for shipments of goods made to, by or otherwise on behalf of the Company on agreed terms (the "Secured Trade Credit Program"). On June 30, 2003, the Company entered into the June Bank Amendment, in order to amend the Senior Secured Debt Facility to provide for the Secured Trade Credit Program, among other things. In connection with the Restructuring, the Company elected not to pay the $8.8 million interest payment due on July 1, 2003, on the 2008 Subordinated Notes, which resulted in a default under its debt agreements. The June Bank Amendment also included a forbearance by the senior lenders under the Senior Secured Debt Facility providing that such lenders would not exercise any remedies available under any of the Loan Documents (as such term is defined in the Senior Secured Debt Facility) solely as a result of any potential or actual event of default arising under the terms of the Senior Secured Debt Facility by virtue of the Company's failure to make the scheduled interest payment on the 2008 Subordinated Notes. As a result of this non-payment, the Company reclassified all outstanding debt to current liabilities as of June 30, 2003. The Company subsequently entered into two other forbearance agreements in anticipation of future elections by the Company to withhold payment of interest when due on each series of its outstanding 9.875% senior subordinated notes due 2007 (the "2007 Subordinated Notes", together with the 2008 Subordinated Notes, the "Subordinated Notes"). On July 30, 2003, the Company entered into an Amendment, Forbearance and Waiver (the "July Bank Amendment") that (i) extended the original forbearance granted under the June Bank Amendment, (ii) provided for the forbearance by the senior lenders from exercising remedies under the Senior Secured Debt Facility arising from the potential failure to pay interest on the Subordinated Notes and (iii) provided for a waiver of any default under the Senior Secured Debt Facility arising from the failure by the Company to conduct certain conference calls with, and provide certain progress reports to, the senior lenders with respect to the Company's asset sales. Additionally, on July 31, 2003, the Company entered into a forbearance agreement with noteholders possessing a majority in outstanding principal amount of the Subordinated Notes (the "Noteholder Forbearance Agreement") whereby such noteholders agreed to forbear from exercising any remedies available to them under any of the indentures governing the Subordinated Notes solely as a result of any potential or actual event of default arising by virtue of the Company's failure to make any scheduled interest payments on the Subordinated Notes. By their terms, these forbearance agreements are intended to expire on September 15, 2003, or earlier upon the happening of certain other events (e.g., the occurrence of any other potential or actual event of default). To facilitate the Restructuring, the Company has entered into certain confidentiality agreements with representatives of an ad hoc unofficial committee of certain holders of the Subordinated Notes, including Debevoise & Plimpton and Houlihan Lokey Howard & Zukin. In addition, certain holders of the Subordinated Notes have also agreed to be bound by confidentiality agreements in connection with their role as members of the unofficial committee. In connection with the Restructuring, the Company has entered into certain engagement letters with advisors and counsel acting on behalf of the holders of the Subordinated Notes pursuant to which the Company is 19 obligated to reimburse such advisors and counsel for their reasonable fees and expenses arising from their involvement with the Restructuring. Similarly, the Company is obligated under the terms of the Senior Secured Debt Facility to reimburse the reasonable fees and expenses of the advisors and counsel acting on behalf of the senior lenders party to the Senior Secured Debt Facility in connection with their involvement in the Restructuring. On July 2, 2003, the New York Stock Exchange (the "NYSE") announced that it was suspending the listing of the Company's common stock as a direct result of the Company's announcement regarding the Restructuring. Additional support for the NYSE's action came from the fact that the Company had fallen below the NYSE's continued listing standards regarding (i) average global market capitalization over a consecutive 30 day trading period less than $50 million, (ii) total stockholders' equity less than $50 million and (iii) average closing price less than $1.00 over a consecutive 30 trading day period. The Company advised the NYSE that it would not challenge the action. Subsequently, the Company was able to obtain a listing of its common stock on the OTC Bulletin Board under the ticker symbol, "AURF". The restatement (as discussed in Note 2) will result in a technical default under the Senior Secured Debt Facility. However, the Company has had discussions with the senior lenders under the Senior Secured Debt Facility about the restatement, and anticipates obtaining a waiver or forbearance agreement from the senior lenders with respect to any default under the Senior Secured Debt Facility resulting from the restatement. NOTE 17 - CONDENSED FINANCIAL STATEMENTS OF SUBSIDIARY Sea Coast is the Company's only subsidiary and is a guarantor of all of the Company's indebtedness, except the senior unsecured promissory notes. As a result, the condensed financial statements as of June 30, 2003 and December 31, 2002, and for the three and six months ended June 30, 2003 and 2002, are included below: 20 SEA COAST FOODS, INC. BALANCE SHEET (dollars in thousands) (unaudited)
June 30, December 31, 2003 2002 ---------- ---------- ASSETS ------ Current assets: Accounts receivable (net of allowance of $72 and $34, respectively).. $ 3,201 $ 1,845 Inventories .......................................................... 8,594 13,764 ------------ ---------- Total current assets ....................................... 11,795 15,609 Property, plant and equipment, net ................................... 1,545 - Goodwill and intangible assets, net .................................. 6,667 8,000 Other assets ......................................................... 173 168 ------------ --------- Total assets................................................ $ 20,180 $ 23,777 ============ ========== LIABILITIES AND STOCKHOLDER'S DEFICIT ------------------------------------- Current liabilities: Accounts payable ..................................................... $ 930 $ 206 Accrued expenses ..................................................... 311 443 ------------ ---------- Total current liabilities .................................. 1,241 649 Due to parent .................................................................... 72,123 74,695 ------------ ---------- Total liabilities .......................................... 73,364 75,344 ------------ ---------- Stockholder's deficit: Common stock ......................................................... 1 1 Paid-in capital ...................................................... 200 200 Accumulated deficit .................................................. (53,385) (51,768) ------------ ---------- Total stockholder's deficit ................................ (53,184) (51,567) ------------ ---------- Total liabilities and stockholder's deficit ................ $ 20,180 $ 23,777 ============ ==========
21
SEA COAST FOODS, INC. STATEMENT OF OPERATIONS (dollars in thousands) (unaudited) Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------- 2003 2002 2003 2002 ---------- ---------- ----------- ---------- Net sales ............................................ $ 7,346 $ 9,606 $ 16,582 $ 23,337 Cost of goods sold ................................... (5,486) (7,730) (11,399) (17,438) ---------- ---------- ----------- ---------- Gross profit ............................. 1,860 1,876 5,183 5,899 ---------- ---------- ----------- ---------- Brokerage, distribution and marketing expenses: Brokerage and distribution ............... (642) (1,250) (1,956) (2,638) Consumer marketing ....................... (129) (267) (274) (766) ---------- ---------- ----------- ---------- Total brokerage, distribution and marketing expenses ............................................ (771) (1,517) (2,230) (3,404) Amortization of goodwill and other intangibles ....... (701) (30) (1,403) (60) Selling, general and administrative expenses ......... (749) (772) (1,321) (1,583) Plant closures ....................................... 1,045 - 1,045 - ---------- ---------- ----------- ---------- Total operating expenses ............................. (1,176) (2,319) (3,909) (5,047) ---------- ---------- ----------- ---------- Operating income ......................... 684 (443) 1,274 852 Interest expense, net ................................ (1,446) (1,402) (2,891) (2,827) ---------- ---------- ----------- ---------- Loss before income taxes ................. (762) (1,845) (1,617) (1,975) Income tax expense ................................... - - - (3,674) ---------- ---------- ----------- ---------- Net loss before cumulative effect of change in accounting .................... (762) (1,845) (1,617) (5,649) Cumulative effect of change in accounting ............ - - - (37,298) ---------- ---------- ----------- ---------- Net loss ...................... $ (762) $ (1,845) $ (1,617) $ (42,947) ========== ========== =========== ==========
22
SEA COAST FOODS, INC. STATEMENT OF CASH FLOWS (dollars in thousands) (unaudited) Six Months Ended June 30, ------------------------------ 2003 2002 ---------- ---------- Cash flows from operating activities: Net loss .............................................. $ (1,617) $ (42,947) Cumulative effect of change in accounting ............. - 37,298 Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization ................. 1,485 80 Plant closures ................................ (1,045) - Change in assets and liabilities: Accounts receivables ................ (1,356) (815) Inventories ......................... 5,170 1,809 Accounts payable .................... 724 (1,310) Accrued expenses .................... (132) (128) ---------- ---------- Net cash from operating activities ............................. 3,229 (6,013) ---------- ---------- Cash flow used in investing activities: Asset additions ....................................... (74) (959) ---------- ---------- Net cash from investing activities ............................. (74) - (959) ---------- ---------- Cash flows from financing activities: Intercompany borrowings ............................... (3,155) 6,972 ---------- ---------- Net cash from financing activities ............................. (3,155) - 6,972 ---------- ---------- Net change in cash ............................................. - - Beginning cash and cash equivalents ............................ - - ---------- ---------- Ending cash and cash equivalents ............................... $ - $ - ========== ==========
23 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the Notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. The Company reevaluated its deferred tax accounting and determined that its valuation allowance for net deferred tax assets, which had been recorded by the Company at December 31, 2002, should have been recorded at December 31, 2001, and that the Company should have provided for ongoing deferred tax liabilities subsequent to January 1, 2002 (the effective date of the adoption of FAS 142) for certain of the differences between the book and tax amortization of the Company's goodwill and indefinite lived intangibles as defined by FAS 142. The impact of the adjustments for the year ended December 31, 2001, was to increase income tax expense and net loss by $65.4 million. For the year ended December 31, 2002, the impact was to decrease tax expense by $30.9 million, increase the expense recorded for the cumulative effect of the change in accounting principle by $60.8 million, all of which increased the net loss by $29.9 million. In addition, the impact on the statement of operations for the three months ended March 31, 2003, was to increase income tax expense and the net loss by $3.6 million. These adjustments do not affect previously recorded net sales, operating income (loss) or past or expected future cash tax obligations. While provision for this deferred liability is required by existing accounting literature, due to the existence of net operating tax loss carry forwards, which expire at various times through the year 2022, the Company does not expect that these potential taxes will be payable in the foreseeable future, if ever. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the historical financial information included in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements in Item 1 included herein. Unless otherwise noted, periods (2003 and 2002) in this discussion refer to the Company's three and six month periods ended on June 30, respectively. Amounts for the three and six months ended June 30, 2002 and the three months ended June 30, 2003, have been restated. See Note 2 - Restatement in Item 1 for additional information. Results of Operations for the Three Months Ended June 30 The Company manages its business in three operating segments: retail, foodservice and other channels. The separate financial information of each segment is presented consistently with the manner in which results are evaluated by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Net sales decreased $11.8 million, or 6.8%, to $161.1 million in 2003 from $172.9 million in 2002. Total unit volume was down 12.0% during 2003 versus the prior year. In the retail segment, volume declined 14.2% from the prior year, primarily in Duncan Hines, Lender's and syrup. The Company's shipments to its retail customers materially lagged consumption as the trade reduced inventory levels and overall weeks of supply versus the previous year. Also, the Company's unit volume was affected by reduced marketing spending and increased competitive activity in the baking mix category as well as planned changes in the pricing strategy for the Company's syrup business. Unit volume for the foodservice segment increased 3.4% during 2003 versus the prior year, primarily due to increased shipments of Duncan Hines. Gross profit increased $2.4 million, or 4.0%, to $63.2 million in 2003 from $60.8 million in 2002. Gross profit in 2003 as compared to 2002 was impacted by the decline in net sales described above. Relative improvement in gross profit was realized due to more efficient trade spending and reduced slotting costs. In addition, manufacturing efficiencies and cost savings from plant closures positively impacted gross profit, offset by increased prices of flour and cocoa. Brokerage and distribution expenses decreased $2.5 million, or 10.8%, to $21.2 million from $23.7 million in 2002. Brokerage and distribution expenses were lower than the prior year due to reduced brokerage costs, principally due to the lower sales volumes and lower costs of storing inventory at third party distributors due to the Company's efforts to reduce inventory, offset by higher per unit freight costs resulting from higher fuel costs. 24 Consumer marketing expenses declined $4.1 million, or 67.6%, to $2.0 million in 2003 from $6.1 million in 2002. This decrease was due largely to reduced consumer spending on seafood, Lenders and Duncan Hines including less media advertising and reduced couponing activity as the Company introduced fewer new products in 2003. Amortization expense increased $0.6 million, primarily due to amortization of the Chef's Choice trademark, which was not amortized during 2002. During the fourth quarter of 2002, the Company determined that this trademark had a finite life and it is being amortized over a three-year period. Selling, general and administrative expenses decreased $1.8 million, or 12.1%, to $13.2 million in 2003 from $15.0 million in 2002 primarily due to corporate staff reductions and reduction in costs for market research and share data, offset in part by an increase in consulting costs. Administrative restructuring and retention costs of $4.4 million were recorded during 2003 related to the corporate staff reductions. Affected employees are receiving severance pay in accordance with the Company's policies. In addition, retention bonuses were awarded to certain key employees who remain with the Company through June 1, 2004, which are being charged to expense ratably over that period. The Company expects the restructuring and retention costs to result in a total charge by June 1, 2004, of approximately $7.0 million and estimates that the cash impact in 2003 will be approximately $5.0 million. Management expects annualized savings of approximately $10 million. Financial restructuring and divestiture costs. As of June 30, 2003, the Company had incurred and expensed approximately $1.9 million of related legal, consulting and investment banking costs related to the Restructuring. As of June 30, 2003, the Company had incurred approximately $2.3 million of legal, accounting and investment banking costs related to the divestiture process. Such costs were expensed in the accompanying consolidated statement of operations during the second quarter due to the uncertainty that a divestiture transaction will be completed. Plant closures. During October 2002, the Company announced its intention to close its Yuba City, California, facility where the Company manufactured specialty seafood and Chef's Choice products. As a result of this decision, production at the Yuba City facility ceased in early 2003. The closing resulted in the elimination of all 155 jobs. Affected employees received severance pay in accordance with the Company's policies. As a result the Company recorded a charge of $6.7 million during the fourth quarter of 2002. The non-cash portion of the charge of approximately $4.9 million was attributable to the write-down of property, plant and equipment. The remaining $1.8 million of cash costs related to severance and other employee related costs of $0.9 million and other costs necessary to maintain and dispose of the facility of $0.9 million. The facility was sold on June 30, 2003. During the three months ended June 30, 2003, the Company paid $0.2 million in severance and other employee related costs and $0.4 million in facility related costs. Approximately $2.7 million was recorded as an adjustment to the recorded liabilities and recorded as income in plant closures on the consolidated statement of operations as a result of higher than expected proceeds from the disposition of the assets and the reinstatement of assets previously anticipated to be sold. The majority of the remaining liability of $0.6 million is expected to be paid during the second half of 2003. During the second quarter of 2002, the Company announced its intention to close its West Seneca, New York, Lender's bagel manufacturing facility. As a result of this decision, production at West Seneca ceased on May 31, 2002, with the formal closing on July 2, 2002. The closing resulted in the elimination of 204 jobs. Affected employees received severance pay in accordance with the Company's policies and union agreements. The Company recorded a pre-tax charge of approximately $30 million in connection with the shutdown of the West Seneca facility. The non-cash portion of the charge is approximately $26 million and is primarily attributable to the write-down of property, plant and equipment, with the remaining $4 million primarily related to severance and other employee related costs. Interest and financing expenses. Total interest and financing expemses decreased $7.4 million, or 21.8%, to $26.7 million in 2003 from $34.2 million last year primarily as a result of a decrease in the net market adjustment 25 associated with the Company's derivative instrument, which was not effective as a hedge as determined by FAS 133 and $4.2 million of expense recorded in 2002 related to the value of warrants issued on May 1, 2002, offset by $3.2 million of interest expense associated with potential additional senior debt fees. See Note 10 to the Consolidated Financial Statements included in Item 1 of this Form 10-Q. Income tax expense. Income tax expense increased $1.0 million to $6.0 million in 2003, from $5.0 million in 2002, due to additional expense for deferred tax liabilities related to goodwill and certain other indefinite lived intangibles. Results of Operations for the Six Months Ended June 30 Results for the six months ended June 30, 2002, include pretax adjustments of $20.1 million principally from changes in estimates. These adjustments consisted primarily of net sales adjustments of $17.7 million, principally for trade promotion costs, along with a charge to cost of sales of approximately $1 million for unresolved inventory disputes and $1.1 million charged to selling, general and administrative costs, principally associated with executive severance. Net sales decreased $15.7 million, or 4.3%, to $351.3 million in 2003 from $367.0 million in 2002. The 2002 net sales included $17.7 million in net sales adjustments, principally for retail trade promotion costs, which were a result of updated evaluations of the Company's reserves and assumptions for such costs. Total unit volume was down 10.6% in 2003 versus the prior year. In the retail segment, volume declined 14.3% from the prior year, primarily in Duncan Hines, Lender's, and syrup due to reduced marketing spending and increased competitive activity in the baking mix category as well as planned changes in the pricing strategy for the Company's syrup business. Net sales in other distribution channels remained consistent with the prior year. Gross profit increased $15.1 million, or 12.5%, to $135.6 million in 2003 from $120.5 million in 2002. Gross profit in 2003 as compared to 2002 was impacted by the decline in net sales and the net sales adjustments described above. Relative improvement in gross profit was realized due to more efficient trade spending and reduced slotting costs. In addition, manufacturing efficiencies and cost savings from plant closures positively impacted gross profit, offset by increased prices of flour and cocoa. Brokerage and distribution expenses decreased $2.9 million to $48.0 million in 2003 from $50.9 million in prior year. Brokerage and distribution expenses were lower than the prior year due to reduced brokerage costs, principally due to the lower sales volumes and lower costs of storing inventory at third-party distributors due to the Company's efforts to reduce inventory, offset by higher per unit freight costs from higher fuel costs. Consumer marketing expenses declined $9.1 million to $6.7 million in 2003 from $15.8 million in 2002. This decrease was due largely to reduced consumer spending on seafood, Lenders, syrups and Duncan Hines including less media advertising, less couponing activity as the Company introduced fewer new products in 2003, and a reduction of in-store seafood promotional events. Amortization expense increased $1.4 million, primarily due to amortization of the Chef's Choice trademark, which was not being amortized during 2002. During the fourth quarter of 2002, the Company determined that this trademark had a finite life and it is being amortized over a three-year period. Selling, general and administrative expenses decreased $3.5 million, or 10.7%, to $28.9 million in 2003 from $32.4 million in 2002 primarily due to corporate staff reductions and reduction in costs for market research and share data, offset in part by an increase in consulting costs. Administrative restructuring and retention costs of $4.4 million were recorded during 2003 related to the reduction of corporate staff by approximately 75 positions through terminations and the elimination of open positions. Affected employees are receiving severance pay in accordance with the Company's policies. In addition, retention bonuses were awarded to key employees. 26 Financial restructuring and divestiture costs. As of June 30, 2003, the Company had incurred and expensed approximately $1.9 million of related legal, consulting and investment banking costs related to the Restructuring. As of June 30, 2003, the Company had incurred approximately $2.3 million of related legal, accounting and investment banking costs related to the divestiture process. Such costs were expensed in the accompanying consolidated statement of operations during the second quarter due to the uncertainty that a divestiture transaction will be completed. Plant closures. During October 2002, the Company announced its intention to close its Yuba City, California, facility where the Company manufactured specialty seafood and Chef's Choice products. As a result of this decision, production at the Yuba City facility ceased in early 2003. The closing resulted in the elimination of all 155 jobs. Impacted employees received severance pay in accordance with the Company's policies. As a result the Company recorded a charge of $6.7 million during the fourth quarter of 2002. The non-cash portion of the charge of approximately $4.9 million was attributable to the write-down of property, plant and equipment. The remaining $1.8 million of cash costs related to severance and other employee related costs of $0.9 million and other costs necessary to maintain and dispose of the facility of $0.9 million. The facility was sold on June 30, 2003. During the six months ended June 30, 2003, the Company paid $0.6 million in severance and other employee related costs and $0.6 million in facility related costs. Approximately $2.7 million was recorded as an adjustment to the recorded liabilities and recorded in plant closures on the consolidated statement of operations as a result of higher than expected proceeds from the disposition of the assets and the reinstatement of assets previously anticipated to be sold. The majority of the remaining liability of $0.6 million is expected to be paid during the second half of 2003. During the second quarter of 2002, the Company announced its intention to close its West Seneca, New York, Lender's bagel manufacturing facility. As a result of this decision, production at West Seneca ceased on May 31, 2002, with the formal closing on July 2, 2002. The closing resulted in the elimination of 204 jobs. Impacted employees received severance pay in accordance with the Company's policies and union agreements. The Company recorded a pre-tax charge of approximately $30 million in connection with the shutdown of the West Seneca facility. The non-cash portion of the charge is approximately $26 million and is primarily attributable to write-down of property, plant and equipment, with the remaining $4 million primarily related to severance and other employee related costs. Interest and financing expenses. Total interest and financing expenses decreased $5.5 million to $52.8 million in 2003 from $58.3 million last year primarily as a result of a decrease in the net market adjustment associated with the Company's derivative instrument, which was not effective as a hedge as determined by FAS 133 and $4.3 million of expense recorded in 2002 related to the value of warrants issued on May 1, 2002, offset by $4.6 million of interest expense associated with potential additional senior debt fees. See Note 10 to the Consolidated Financial Statements included in this Form 10-Q. Income tax expense. Income tax expense decreased $99.9 million from $109.6 million to $9.7 million. The decrease is primarily due to a non-cash tax adjustment in the first quarter of 2002 to establish a valuation allowance against the deferred tax assets, as it was considered no longer reasonable to estimate the period of reversal, if any, for deferred tax liabilities related to goodwill as the result of the adoption of FAS 142. No income tax benefit was recorded in 2003. The Company records deferred tax liabilities for differences between certain goodwill and indefinite lived intangible assets. Liquidity and Capital Resources For the six months ended June 30, 2003, the Company generated $19.1 million from operations versus using $5.8 million in the prior year. This $24.9 million improvement in cash provided by operations was primarily the result of an increase in operating earnings of $53.1 million over the prior year to $39.6 million from an operating loss of $13.5 million in 2002. The 2002 operating loss included non-cash plant closure charges of $26.0 million, while the 2003 operating earnings included a non-cash plant closure gain of $2.4 million. After taking into account these non-cash items, the difference in cash generated from operating activities between years is $24.7 million. Working capital changes provided $8.6 million in 2003 versus $5.7 million in 2002. 27 Cash used for asset additions declined to $4.2 million in 2003 from $11.5 million in the first half of 2002. There were no major capital expenditures in 2003, while 2002 included expenditures related to the move of syrup production to the Company's St. Elmo, Illinois, facility. The proceeds from the sale of assets increased to $2.1 million from $0.4 million in 2002 primarily due to the sale of the Company's Yuba City, California, facility in the second quarter of 2003. In the six months ended June 30, 2003, the Company repaid a total of $21.6 million of borrowings for scheduled senior secured debt repayments and borrowed an additional $13.4 million under its revolving credit facility. In 2002, the Company borrowed an additional $30.3 million under the revolving credit facility and $14.6 million from the issuance of senior unsecured promissory notes to related parties, while repaying $16.4 million of scheduled senior secured debt payments. The Company continues to be highly leveraged. At August 6, 2003, the Company had outstanding approximately $1.08 billion in aggregate principal indebtedness for borrowed money and had approximately $24.1 million of cash and available borrowing capacity under its accounts receivable sales facility. The Company has no availability under its revolving credit facility. The degree to which the Company is leveraged results in significant cash interest expense and principal repayment obligations and such interest expense may increase with respect to its senior secured credit facilities based on changes in prevailing interest rates. As discussed in Note 1 of the consolidated financial statements, the Company has announced that it is undertaking a comprehensive financial restructuring ("Restructuring"), designed to reduce the Company's outstanding indebtedness, strengthen its balance sheet and improve its liquidity. As part of the Restructuring the Company entered into a definitive agreement with J.W. Childs Equity Partners III, L.P. ("Investor"), an affiliate of J.W. Childs Associates, L.P. Under the definitive agreement, the Investor will make a $200 million investment in the Company for a 65.6% equity interest in the reorganized company, subject to the terms and conditions contained therein. The equity transaction is contemplated to be effected through a pre-negotiated bankruptcy reorganization case under Chapter 11 of the U.S. Bankruptcy Code which the Company expects to commence during the second half of 2003. The Company believes its liquidity is sufficient to fund its operations up to the projected bankruptcy filing. In connection with the Restructuring, the Company elected not to pay the $8.8 million interest payment due on July 1, 2003, on the 2008 Subordinated Notes, which resulted in a default under its debt agreements. The June Bank Amendment also included a forbearance by the senior lenders under the Senior Secured Debt Facility providing that such lenders would not exercise any remedies available under any of the Loan Documents (as such term is defined in the Senior Secured Debt Facility) solely as a result of any potential or actual event of default arising under the terms of the Senior Secured Debt Facility by virtue of the Company's failure to make the scheduled interest payment on the 2008 Subordinated Notes. As a result of this non-payment, the Company reclassified all outstanding debt to current liabilities as of June 30, 2003. The Company subsequently entered into two other forbearance agreements in anticipation of future elections by the Company to withhold payment of interest when due on each series of its outstanding 9.875% senior subordinated notes due 2007 (the "2007 Subordinated Notes", together with the 2008 Subordinated Notes, the "Subordinated Notes"). On July 30, 2003, the Company entered into an Amendment, Forbearance and Waiver (the "July Bank Amendment") that (i) extended the original forbearance granted under the June Bank Amendment, (ii) provided for the forbearance by the senior lenders from exercising remedies under the Senior Secured Debt Facility arising from the potential failure to pay interest on the Subordinated Notes and (iii) provided for a waiver of any default under the Senior Secured Debt Facility arising from the failure by the Company to conduct certain conference calls with, and provide certain progress reports to, the senior lenders with respect to the Company's asset sales. Additionally, on July 31, 2003, the Company entered into a forbearance agreement with noteholders possessing a majority in outstanding principal amount of the Subordinated Notes (the "Noteholder Forbearance Agreement") whereby such noteholders agreed to forbear from exercising any remedies available to them under any of the indentures governing the Subordinated Notes solely as a result of any potential or actual event of default arising by virtue of the Company's failure to make any scheduled interest payments on the Subordinated Notes. By their terms, these forbearance agreements are intended to expire on September 15, 2003, or earlier upon the happening of certain other events (e.g., the occurrence of any other potential or actual event of default). Upon expiration of the forbearance agreements or earlier termination thereof, an aggregate of $1.1 billion of outstanding indebtedness would become due and payable by the Company. The restatement will result in a technical default under the Senior Secured Debt Facility. However, the Company has had discussions with the senior lenders under the Senior Secured Debt Facility about the restatement, and anticipates obtaining a waiver or forbearance agreement from the senior lenders with respect to any default under the Senior Secured Debt Facility resulting from the restatement. 28 Interest Rate Agreements At June 30, 2003, the Company was party to a single interest rate collar agreement. On March 17, 2003, the Company's fixed to floating interest rate swap agreement with a notional principal amount of $150.0 million expired. Risks associated with the interest rate collar agreement include those associated with changes in the market value and interest rates. The Company has determined that the interest rate collar agreement is not effective as a hedge under FAS 133 and changes in its fair value are recognized in current period earnings. The Company is generally a beneficiary of lower interest rates. To reduce the risk associated with rising interest rates, the Company has entered into swap and collar agreements, which have the effect of fixing the interest rates or limiting this risk on a portion of its variable rate debt. Conversely, when interest rates decline, the Company benefits, but on a reduced basis on the amounts subject to these interest rate agreements. As the Company's debt financing portfolio has not changed significantly since December 31, 2002, the risks associated with fluctuations in market interest rates have not changed significantly in 2003 except to the extent that $150 million of variable rate debt is no longer subject to the interest rate swap which expired on March 17, 2003. Financial Restructuring and Divestiture Activities In July 2003, the Company announced that it is undertaking a comprehensive financial restructuring designed to reduce the Company's outstanding indebtedness, strengthen its balance sheet and improve its liquidity. As part of the restructuring, the Company entered into the definitive agreement with the Investor pursuant to which the Investor will make a $200 million equity investment in the Company, subject to the terms and conditions contained therein. See "Financial Restructuring and Divestiture Activities" under Note 1 to the Company's notes to the Consolidated Financial Statements. Immediately following the closing under the definitive agreement, the Investor will own 65.6% of the Company's outstanding common stock on a fully diluted basis, subject to adjustment as described in the definitive agreement. In addition, the Investor will have certain rights under an investor agreement, including the right to designate a majority of the members of the Board of Directors of the Company. Plant Closures In May 2002, the Company announced its intention to close its West Seneca, New York, Lender's bagel manufacturing facility. As a result of this decision, production at West Seneca ceased on May 31, 2002, with the formal closing on July 2, 2002. The closing resulted in the elimination of all 204 jobs. Affected employees received severance pay in accordance with the Company's policies and union agreements. The Company recorded charges of $32.4 million during 2002 in connection with the shutdown of the West Seneca facility. The non-cash portion of the charges was approximately $28.2 million and is attributable to the write-down of property, plant and equipment, with the remaining $4.2 million of cash costs related to severance and other employee related costs of $3.0 million, and other costs necessary to maintain and dispose of the facility of $1.2 million. During the six months ended June 30, 2003, the Company paid $0.1 million in severance and related costs and $0.6 million of other costs related to closing and sale of the facility. No adjustments were made to recorded liabilities and the remaining accrual is minimal. On October 30, 2002, the Company announced its intention to close its Yuba City, California, facility where the Company manufactured specialty seafood and Chef's Choice products. As a result of this decision, production at the Yuba City facility ceased in early 2003. The closing resulted in the elimination of all 155 jobs. Affected employees received severance pay in accordance with the Company's policies. As a result, the Company recorded a charge of $6.7 million during the fourth quarter of 2002. The non-cash portion of the charge of approximately $4.9 million was attributable to the write-down of property, plant and equipment. The remaining $1.8 million of cash costs was related to severance and other employee related costs of $0.9 million and other costs necessary to maintain and dispose of the facility of $0.9 million. During the six months ended June 30, 2003, the Company paid $0.6 million in severance and other employee related costs and $0.6 million in facility related costs. Approximately $2.7 million was recorded as an adjustment to the recorded liabilities and recorded in plant closures on the consolidated statement of operations as a result of higher than expected proceeds from the disposition of the assets and the 29 reinstatement of assets previously anticipated to be sold. The majority of the remaining liability of $0.6 million is expected to be paid during the second half of 2003. Recently Issued Accounting Standards In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 149 (FAS 149), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." FAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FAS No. 133. FAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. FAS No. 149 will be adopted by the Company for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not expect the adoption of FAS No. 149 to have a material impact on the Company's financial condition and results of operations. In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." FAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. FAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. FAS No. 150 will be adopted by the Company for financial instruments entered into or modified after May 31, 2003. Due to the Restructuring, the Company is still evaluating the impact of the adoption of FAS No. 150 on its financial condition and results of operations. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are "forward-looking," including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to the Company's stockholders. Certain statements, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "estimates" and words of similar import constitute "forward-looking statements" and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors could include, among others: the Company's ability to successfully complete the amount and timing of required asset divestitures; Company's ability to complete its financial restructuring; changes in interest rates; the availability of funding for operations; the ability of the Company to service its high level of indebtedness; the ability of management to implement a successful strategy; the ability of the Company to develop and maintain effective internal controls; the ability of the Company to successfully integrate the Company's brands; the ability of the Company to reduce expenses; the ability of the Company to retain key personnel; the ability of the Company to retain key customers; the ability of the Company to successfully introduce new products; the Company's success in increasing volume; the effectiveness of the Company's advertising campaigns; the ability of the Company to successfully leverage its brands; the ability of the Company to develop and maintain effective distribution channels; the ability of the Company to grow and maintain its market share; the actions of the Company's competitors; general economic and business conditions; industry trends; demographics; raw material costs; terms and development of capital; the ultimate outcome of asserted and unasserted claims against the Company; and changes in, or the failure or inability to comply with, governmental rules and regulations, including, without limitation, FDA and environmental rules and regulations. Given these uncertainties, undue reliance should not be placed on such forward-looking statements. Unless otherwise required by law, the Company disclaims an obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein to reflect future events or developments. 30 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has entered into interest rate swap and collar agreements for non-trading purposes. At June 30, 2003, the Company was party to a single interest rate collar agreement, as its interest rate swap agreement with a notional principal amount of $150.0 million expired on March 17, 2003. Risks associated with the collar agreement include those associated with changes in the market value and interest rates. The Company is generally a beneficiary of lower interest rates. To reduce the risk associated with rising interest rates, the Company entered into swap and collar agreements, which have the effect of fixing the interest rates or limiting this risk on a portion of its variable rate debt. Conversely, when interest rates decline, the Company benefits, but on a reduced basis on the amounts subject to these interest rate agreements. As the Company's debt financing portfolio has not changed significantly since December 31, 2002, the risks associated with fluctuations in market interest rates have not changed significantly in 2003 except to the extent that $150 million of variable rate debt is no longer subject to the interest rate swap which expired on March 17, 2003. ITEM 4: CONTROLS AND PROCEDURES The Company's management, with the participation of the Company's interim chief executive officer and chief financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's interim chief executive officer and chief financial officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 31 PART II--OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The Company is a defendant in an action filed by a former employee in the U. S. District Court in the Eastern District of Missouri. The plaintiff alleged breach of contract, fraud and negligent misrepresentation as well as state law securities claims, and alleged damages in the amount of $3.7 million. In the first quarter of 2002, the plaintiff's federal and state securities law claims were dismissed and the remaining claims were remanded to the Circuit Court for the City of St. Louis. Since the remand, the plaintiff has added claims for breach of contract and fiduciary duty, and for negligent misrepresentation and tortious interference with business expectancy. The case is set for trial in September 2003. The Company intends to defend the claims vigorously. The Company is a defendant in an action filed by the State of Illinois regarding the Company's St. Elmo facility. The Illinois Attorney General filed a complaint seeking a restraining order prohibiting further discharges by the City from its publicly owned wastewater treatment facility in violation of Illinois law and enjoining the Company from discharging its industrial waste into the City's treatment facility. The complaint also asked for fines and penalties associated with the City's discharge from its treatment facility and the Company's alleged operation of its production facility without obtaining a state environmental operating permit. On June 19, 2003, the Company and the Illinois Attorney General executed an Agreed Injunction Order settling all allegations in the complaint against the Company, other than any potential monetary fine or penalty. The Company intends to vigorously defend any future claim for fines or penalties. The Company is also subject to litigation in the ordinary course of business. In the opinion of management, the ultimate outcome of any existing litigation would not have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3: DEFAULTS UPON SENIOR SECURITIES In connection with the Restructuring, the Company elected not to pay the $8.8 million interest payment due on July 1, 2003, on the 2008 Subordinated Notes, which resulted in a default under its debt agreements. The June Bank Amendment also included a forbearance by the senior lenders under the Senior Secured Debt Facility providing that such lenders would not exercise any remedies available under any of the Loan Documents (as such term is defined in the Senior Secured Debt Facility) solely as a result of any potential or actual event of default arising under the terms of the Senior Secured Debt Facility by virtue of the Company's failure to make the scheduled interest payment on the 2008 Subordinated Notes. As a result of this non-payment, the Company reclassified all outstanding debt to current liabilities as of June 30, 2003. As of August 14, 2003, the total arrearage is $8.8 million. The Company subsequently entered into two (2) other forbearance agreements in anticipation of future elections by the Company to withhold payment of interest when due on each series of its outstanding 9.875% senior subordinated notes due 2007 (the "2007 Subordinated Notes", together with the 2008 Subordinated Notes, the "Subordinated Notes"). On July 30, 2003, the Company entered into an Amendment, Forbearance and Waiver (the "July Bank Amendment") that (i) extended the original forbearance granted under the June Bank Amendment, (ii) provided for the forbearance by the senior lenders from exercising remedies under the Senior Secured Debt Facility arising from the potential failure to pay interest on the Subordinated Notes and (iii) provided for a waiver of any default under the Senior Secured Debt Facility arising from the failure by the Company to conduct certain conference calls with, and provide certain progress reports to, the senior lenders with respect to the Company's asset sales. Additionally, on July 31, 2003, the Company entered into a forbearance agreement with noteholders possessing a majority in outstanding principal amount of the Subordinated Notes (the "Noteholder Forbearance Agreement") whereby such noteholders agreed to forbear from exercising any remedies available to them under any 32 of the indentures governing the Subordinated Notes solely as a result of any potential or actual event of default arising by virtue of the Company's failure to make any scheduled interest payments on the Subordinated Notes. By their terms, these forbearance agreements are intended to expire on September 15, 2003, or earlier upon the happening of certain other events (e.g., the occurrence of any other potential or actual event of default). ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's annual meeting on May 6, 2003, stockholders voted for the election of all nominees for the Board of Directors, approval of a proposal to authorize the Board of Directors, in its sole discretion, to effect a reverse split at one of three ratios and the approval of an amendment to the Company's 2000 Equity Incentive Plan to increase the number of shares of common stock reserved for issuance under the Plan and to increase the maximum number of shares as to which awards may be granted to any participant in any one calendar year, as described in the Company's Proxy Statement for such meeting. Vote tabulations were as follows: Board of Directors: Name For Against Withheld - --------------------------- ------------- ------------ ------------- William B. Connell 62,109,682 - 4,311,313 Richard C. Dresdale 62,079,515 - 4,341,480 Andrea Geisser 62,117,471 - 4,303,524 Robert B. Hellman, Jr. 62,122,162 - 4,298,833 Thomas M. Hudgins 62,829,194 - 3,591,801 Stephen L. Key 62,841,385 - 3,579,610 Peter Lamm 62,100,644 - 4,320,351 George E. McCown 62,113,903 - 4,307,092 Dale F. Morrison 61,984,423 - 4,436,572 John E. Murphy 62,102,074 - 4,318,921 Amendment to the Certificate of Incorporation: For Against Abstained ------------- ------------ ------------- 65,162,520 1,207,585 50,890 Amendment to the 2000 Equity Incentive Plan: For Against Abstained Not Voted ------------- ------------- ------------- ------------- 43,531,362 6,971,944 77,549 15,840,140 ITEM 5: OTHER INFORMATION None. 33 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Exhibit Index. (b) Reports on Form 8-K during the quarter ended June 30, 2003: April 4, 2003 Press release issued by Aurora Foods Inc. on April 3, 2003, announcing its restructuring of its organization and reduction of its corporate staff. May 1, 2003 Press release issued by Aurora Foods Inc. on April 30, 2003, announcing its financial results for the first quarter ended March 31, 2003. 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. AURORA FOODS INC. By: /s/ Dale F. Morrison ----------------------------- Dale F. Morrison Chairman of the Board and Interim Chief Executive Officer (Principal Executive Officer) By: /s/ William R. McManaman ----------------------------- William R. McManaman Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: August 14, 2003 35 EXHIBIT INDEX Exhibit Number Exhibit - ------ ------- 3.1 Certificate of Incorporation of Aurora Foods Inc., as amended. (Incorporated by reference to Exhibit 3.1 to the Aurora Foods Inc. Form 10-K for the year ended December 31, 2001). 3.2 Amended and Restated By-laws of Aurora Foods Inc. (Incorporated by reference to Exhibit 3.2 to the Aurora Foods Inc. Form 10-Q for the quarter ended June 30, 2000). 3.3 Certificate of Designation for the Company's Series A Preferred Stock filed with the Secretary of State of Delaware on September 7, 2000. (Incorporated by reference to Exhibit 3.1 to the Aurora Foods Inc. Form 8-K filed on September 21, 2000). 10.1 Amendment and Forbearance, dated as of June 30, 2003, to the Fifth Amended and Restated Credit Agreement, dated as of November 1, 1999, among Aurora Foods Inc., the financial institutions parties thereto and the Agents. (Incorporated by reference to Exhibit 10.2 to Aurora Foods Inc.'s Form 8-K, dated July 3, 2003). 10.2 Amendment, Forbearance and Waiver, dated as of July 30, 2003, to the Fifth Amended and Restated Credit Agreement, dated as of November 1, 1999, among Aurora Foods Inc., the financial institutions parties thereto and the Agents. 10.3 Noteholder Forbearance Agreement, dated as of July 31, 2003, among Aurora Foods Inc., Sea Coast Foods, Inc. and the holder of the Subordinated Notes party thereto. 10.4 Change of Control Agreement, made as of June 2, 2003, between Aurora Foods Inc. and Richard A. Keffer. 10.5 Indemnity Agreement, made and entered into as of March 17, 2003, by and between Aurora Foods Inc. and Richard A. Keffer. 10.6 Change of Control Agreement, made as of March 25, 2003, between Aurora Foods Inc. and Michael J. Hojnacki. 10.7 Employment Agreement, made as of July 1, 2003, between Aurora Foods Inc. and Ronald B. Hutchison. 31.1 Certification of Chairman of the Board and Interim Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 31.2 Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. EX-10 3 ex10_2.txt EXHIBIT 10.2 Exhibit 10.2 EXECUTION COPY AMENDMENT, FORBEARANCE AND WAIVER AMENDMENT, FORBEARANCE AND WAIVER, dated as of July 30, 2003 (this "Amendment"), to the Fifth Amended and Restated Credit Agreement, dated as of November 1, 1999 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Aurora Foods Inc. (the "Company"), the financial institutions parties thereto (the "Lenders") and the Agents. W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to Company; WHEREAS, Company has requested, and, upon this Amendment becoming effective, the Lenders have agreed, that certain provisions of the Credit Agreement be modified as set forth below; WHEREAS, Company, Lenders and Agents have entered into an Amendment and Forbearance dated as of June 30, 2003 (the "June 2003 Forbearance"); and WHEREAS, Company has requested, and, upon this Amendment becoming effective, the Lenders have agreed, that the forbearance granted pursuant to the June 2003 Forbearance be modified and extended as set forth below; NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. Defined Terms. Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. SECTION 2. Amendments to Credit Agreement. (a) Amendments to Subsection 1.1. Subsection 1.1 of the Credit Agreement is hereby amended as follows: (i) The term "Secured Trade Credit Program" is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Secured Trade Credit Program" means the business plan whereby Company has granted, in accordance with the terms of subsection 7.2A(vii), to the Credit Program Collateral Agent, for the ratable benefit of the Vendors, a second-priority lien on the Collateral pursuant to the Summary of Trade Creditor Lien attached hereto as Annex I in order to secure each Vendor's accounts payable due from Company arising in connection with the shipments of goods from such Vendor to Company, or the shipments of goods by such Vendor to, from or otherwise on behalf of Company. (ii) The term "Vendors" is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Vendors" means those parties from time to time identified as vendors or carriers party to a Letter Agreement, dated as of July 2, 2003, from Company to such Vendor. (b) Amendments to Subsection 6.5. Subsection 6.5 of the Credit Agreement is hereby amended by deleting the last two sentences thereof in their entirety and inserting in lieu thereof the following: In addition, Company shall make its senior management (including, without limitation, its chief restructuring officer and chief financial officer), financial advisors and legal counsel available by phone or in person to the Lenders for discussion of its planned restructuring upon reasonable advance notice as often as may be requested; provided that Company shall have the right to participate in any such discussion with its financial advisors and legal counsel. SECTION 3. Extension of Initial Forbearance; Additional Forbearance. (a) Each of the Lenders agrees that, for the period from the Amendment Effective Date to the Section 3 Termination Date (as defined below), it will not exercise any of the remedies available to it, and will not instruct the Administrative Agent to exercise or consent to the Administrative Agent exercising any of the remedies available to it, in either case, under any of the Loan Documents (including, without limitation, to accelerate the Loans or terminate the Commitments as contemplated in Section 8 of the Credit Agreement) solely as a result of the occurrence of any Event of Default or Potential Event of Default arising under subsection 8.2(i) of the Credit Agreement by virtue of the failure of Company to make any scheduled interest payment required under (i) the Indenture dated as of July 1, 1998 with Wilmington Trust Company, as Trustee, (ii) the Indenture dated as of February 10, 1997 with Wilmington Trust Company, as Trustee or (iii) the Indenture dated as of July 1, 1997 with Wilmington Trust Company, as Trustee (collectively, the "Specified Indentures"; and any such non-payment, the "Specified Indenture Defaults"). The "Section 3 Termination Date" shall be the earliest of (i) September 15, 2003, (ii) the date on which each Specified Indenture Default has been cured or waived, through amendments to the Specified Indentures or otherwise, so long as Company has delivered to the Administrative Agent five days' prior written notice of its intent to cure any Specified Indenture Default by payment, (iii) the date on which a notice of acceleration under any Specified Indenture has been delivered to Company, (iv) the date on which any other Event of Default or Potential Event of Default shall arise or (v) the date on which Company shall fail to satisfy any of its obligations set forth in Section 6 of this Amendment or the Requisite Lenders provide a notice of termination as contemplated by paragraph (e) thereof. (b) Each of the Lenders further agrees that any interest that would otherwise accrue pursuant to subsection 2.2E of the Credit Agreement as a result of any Specified Indenture Default shall not accrue so long as no other Event of Default or Potential Event of Default has occurred and is continuing. (c) For the avoidance of doubt and notwithstanding the forbearance as granted or extended in the foregoing Section 3(a), the parties hereto hereby agree that if an Event of Default or Potential Event of Default arising as a result of any Specified Indenture Default has occurred and is continuing, in accordance with subsection 2.2D of the Credit Agreement, each Eurodollar Rate Loan shall be converted into a Base Rate Loan on the expiration date of the Interest Period applicable thereto and no Base Rate Loan may be converted into a Eurodollar Rate Loan. SECTION 4. Waiver. Any breach by Company of subsection 6.5 of the Credit Agreement as a result of its failure to conduct the monthly conference calls or provide progress reports regarding the completion of potential Asset Sales as described therein, and any Event of Default or Potential Event of Default arising therefrom, is hereby waived. SECTION 5. Conditions to Effectiveness of Amendment. This Amendment shall be effective on the date on which all of the following conditions precedent have been satisfied or waived (the "Amendment Effective Date"): (a) The Administrative Agent shall have received this Amendment, executed and delivered by a duly authorized officer of each of (i) Company, (ii) the Guarantor and (iii) the Requisite Lenders; (b) Holders of the Subordinated Notes under each Specified Indenture representing a majority of the principal amount of such Subordinated Notes (or such holders representing a lesser percentage of such Subordinated Notes as shall be acceptable to the Administrative Agent) shall have agreed to forbear with respect to each Specified Indenture Default (any such forbearance to extend at least until the Section 3 Termination Date, as defined herein); (c) Company shall have paid all accrued fees and expenses of counsel and other advisors to or for the benefit of the Administrative Agent then due and payable for which invoices have been presented to Company, and all interest required to be paid on the Loans in accordance with the terms of the Credit Agreement; and (d) After giving effect to the Amendment, no Event of Default or Potential Event of Default shall have occurred and be continuing, other than any Event of Default or Potential Event of Default referred to in Section 3 hereof. SECTION 6. Covenants of Company. To induce the Lenders parties hereto to enter into this Amendment, Company hereby covenants and agrees that, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform all covenants in this Section 6. Failure to comply with any of these covenants will constitute an immediate Event of Default. (a) Company shall deliver to the Administrative Agent, in form and substance reasonably satisfactory to the steering committee of the Lenders (the "Steering Committee"), any first-day orders, whether in draft or final form, that contemplate payments in respect of pre-petition obligations, including any "critical vendor" motions, on or before August 15, 2003; (b) Company shall deliver to the Administrative Agent, in form and substance reasonably satisfactory to the Steering Committee, any documents, whether in draft or final form, related to a plan of reorganization (a "Plan of Reorganization") and any disclosure statement in connection with a petition under Chapter 11 of the United States Bankruptcy Code contemporaneously with the delivery of such documents to J.W. Childs Equity Partners III, L.P. ("J.W. Childs"), and in any event by no later than August 15, 2003; (c) Company shall make its senior management (including, without limitation, its chief restructuring officer and chief financial officer), financial advisors and legal counsel available by phone or in person to the steering committee representing the Lenders for an update with respect to pending restructuring matters by no later than August 22, 2003; provided that Company shall have the right to participate in any such discussion with its financial advisors and legal counsel; (d) Company shall promptly deliver to the Administrative Agent any and all term sheets, letters of interest and other expressions of interest relating to a "stand-alone" proposal and any Plan of Reorganization or counterproposals relating to restructuring matters of Company, in each case offered by the holders of Company's Subordinated Notes or their affiliates or representatives; and (e) Company shall use its reasonable best efforts (i) to obtain a commitment in respect of a new credit facility that will provide Company with the appropriate level of liquidity needed as a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code, and (ii) to assist J.W. Childs concerning, and to engage in discussions with one or more financial institutions concerning, the new financings to be contemplated by the Plan of Reorganization to be submitted by Company to the United States Bankruptcy Court for the District of Delaware or any other court having jurisdiction. Company shall provide regular updates to FTI Consulting with respect to the foregoing, and shall provide such information and materials relating thereto as may be reasonably requested by FTI Consulting and may be disclosed to FTI Consulting, it being understood that if the Requisite Lenders, as advised by FTI Consulting, determine that they are not reasonably satisfied with the progress being made for such new credit facility and such new financings, the Requisite Lenders may terminate the agreement set forth in Section 3(a) of this Amendment by written notice to Company. SECTION 7. Representations and Warranties. As further consideration to induce the Lenders parties hereto to enter into this Amendment, Company hereby represents and warrants to the Administrative Agent and all of the Lenders that the execution, delivery and performance of this Amendment and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate or other action and is the legally valid and binding obligation of Company, enforceable against Company in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. SECTION 8. Release. As further consideration to induce the Lenders parties hereto to enter into this Amendment, Company, on behalf of itself and each of its subsidiaries, represents and warrants that there are no claims, causes of action, suits, debts, obligations, liabilities or demands of any kind, character or nature whatsoever, fixed or contingent, which Company or any of its subsidiaries may have, or claim to have, against the Administrative Agent or any Lender with respect to the Credit Agreement, any other Loan Document or the transactions contemplated hereby or thereby, and Company, on behalf of itself and each of its subsidiaries, hereby releases, acquits and forever discharges the Administrative Agent and each Lender, and their respective agents, employees, officers, directors, representatives, attorneys, affiliates, successor and assigns (collectively, the "Released Parties") from any and all claims, causes of action, suits, debts, obligations, liabilities or demands of any kind, character or nature whatsoever, known or unknown, fixed or contingent, that Company or any of its subsidiaries may have, or claim to have, against each of such Released Parties with respect to the Credit Agreement, the other Loan Documents and the transactions contemplated hereby and thereby as of the Amendment Effective Date. SECTION 9. Effect on the Loan Documents. (a) Except as specifically amended above, the Credit Agreement and all other Loan Documents shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (b) The execution, delivery and effectiveness of this Amendment, including the forbearance set forth in Section 3 hereof and the waiver set forth in Section 4 hereof, shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 10. Acknowledgment of Performance Under Letter Agreement. The Lenders and the Agents acknowledge and agree that all obligations and undertakings set forth in that certain letter agreement dated June 30, 2003 have been satisfied; provided that with respect to the documents required to be delivered pursuant to paragraphs (1) and (2) therein, Company shall cause such documents to be updated, in form and substance satisfactory to the Steering Committee, by no later than August 31, 2003. SECTION 11. Costs, Expenses and Taxes. Company agrees to pay on demand all actual and reasonable and documented out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Amendment and the other instruments and documents to be delivered thereunder and hereunder, including, without limitation, the reasonable and documented fees and out-of-pocket expenses of counsel for the Administrative Agent (including allocated costs of internal counsel) with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities hereunder and thereunder. Company further agrees to pay on demand all costs and expenses of the Administrative Agent and each of the Lenders, if any (including, without limitation, counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses (including allocated costs of internal counsel) in connection with the enforcement of rights under this Section 11. SECTION 12. Affirmation of Subsidiary Guaranty, Pledge Agreement and Credit Agreement. The Guarantor hereby consents to the modification of the Credit Agreement contemplated hereby and each of Company and the Guarantor hereby acknowledge and agree that the guarantees contained in the Subsidiary Guaranty, the pledge of stock contained in the Pledge Agreement and the obligations contained in the Credit Agreement as modified hereby are, and shall remain, in full force and effect. SECTION 13. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 14. Execution in Counterparts. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Amendment signed by all the parties shall be lodged with Company and the Administrative Agent. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. AURORA FOODS INC. By: /s/ Ronald B. Hutchison --------------------------- Name: Ronald B. Hutchison Title: CRO SEA COAST FOODS, INC. By: /s/ Ronald B. Hutchison --------------------------- Name: Ronald B. Hutchison Title: CRO JP MORGAN CHASE BANK (formerly known as The Chase Manhattan Bank), as Administrative Agent an Lender By: /s/ Thomas F. Maher --------------------------- Name: Thomas F. Maher Title: Managing Director EX-10 4 ex10_3.txt EXHIBIT 10.3 - NOTEHOLDER FORBEARANCE AGREEMENT EXHIBIT 10.3 EXECUTION COPY NOTEHOLDER FORBEARANCE AGREEMENT NOTEHOLDER FORBEARANCE AGREEMENT, dated as of July 31, 2003 (this "Agreement") among Aurora Foods Inc. (the "Company"), Sea Coast Foods, Inc. (the "Subsidiary Guarantor") and the holder of the Subordinated Notes (as defined below) party hereto (the "Noteholder") issued pursuant to the Indentures (as defined below). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and Wilmington Trust Company, as Trustee (the "Trustee") have heretofore executed and delivered one or more of the Indentures dated as of February 10, 1997, July 1, 1997, and July 1, 1998 (as amended, supplemented or otherwise modified from time to time, the "Indentures") providing for the issuance of (i) 9 7/8% Senior Subordinated Notes due 2007, (ii) 9 7/8% Series C Senior Subordinated Notes due 2007, and (iii) 8 3/4% Senior Subordinated Notes due 2008, respectively, of the Company (collectively, the "Subordinated Notes") to the Noteholder; WHEREAS, pursuant to (i) the Indentures and (ii) the Supplemental Indentures, dated as of April 1, 1999, by and among the Subsidiary Guarantor, the Company and the Trustee, the Subsidiary Guarantor has, among other things, become a party to the Indentures as a Subsidiary Guarantor thereunder, and has fully, unconditionally and irrevocably guaranteed the full and punctual payment when due, whether by acceleration, by redemption or otherwise, of all the Obligations pursuant to Article XI of the Indentures; WHEREAS, the Noteholder holds Subordinated Notes issued pursuant to one or more of the Indentures and has delivered to Debevoise & Plimpton a statement of the amount of its holdings with respect to each of the Subordinated Notes issued pursuant to the Indentures; WHEREAS, certain Defaults and Events of Default have occurred and are continuing under Section 6.1of the Indentures by virtue of the failure of the Company to make scheduled interest payments required under the Indentures (such non-payments, the "Specified Indenture Defaults"); and WHEREAS, the Company has requested, and the Noteholder has indicated its willingness to agree, in consideration of the agreements of the Company set forth in this Agreement and on the terms and subject to the satisfaction of the conditions set forth in this Agreement, to forbear from any remedies with respect to the Specified Indenture Defaults, NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. Defined Terms. Terms defined in the Indentures and used herein and in the recitals hereto shall have the meanings given to them in the Indentures. SECTION 2. Forbearance. (a) The Noteholder agrees that, for the period from the Effective Date to the Termination Date (as defined below), it will not exercise any of the remedies available to it, nor will it instruct the Trustee to exercise any of the remedies available to it, and it hereby instructs the Trustee to not exercise any of the remedies available to it, in each case, under the Indentures (including, without limitation, the right to accelerate the Notes as contemplated in Section 6.2 of the Indentures) solely as a result of the occurrence of any Specified Indenture Default. On the Termination Date, all of the terms and provisions of the Indentures with respect to the Specified Indenture Defaults shall have the same force and effect as if this Agreement had not been entered into by the parties hereto, and the Noteholder and the Trustee shall have all of the rights and remedies afforded to them under the Indentures and under applicable law with respect to the Specified Indenture Defaults as though no forbearance had been granted by them as provided hereunder, without any further action by the Noteholder or the Trustee. Nothing in this Section 2 shall affect, or shall be deemed to affect, any of the rights and remedies of the Noteholder or the Trustee under, or in connection with, the Indentures with respect to any Default or Event of Default, other than the Specified Indenture Defaults, or any other event or occurrence. The "Termination Date" shall be the earliest of (i) September 15, 2003, (ii) the date on which each Specified Indenture Default has been cured or waived, which cure or waiver shall have become effective, through amendments to the Indentures or otherwise or (iii) the date on which the Bank Forbearance (as defined below) is terminated in accordance with the terms thereof. SECTION 3. Rescission. The forbearance provisions set forth in Section 2 of this Agreement may be rescinded by the Noteholder by written notice, which rescission shall become effective as of 9:00am prevailing Eastern time on: (a) the date on which any Event of Default (other than the Specified Indenture Defaults) occurs; (b) the date on which (i) the Company or any of its Subsidiaries pays any sum in excess of $1,000,000 pursuant to any judgment or order for the payment of money entered against the Company or any such Subsidiary or (ii) a lien or attachment (other than in favor of any of the Agents or any Lender, as defined below) on any material portion of any material assets or property of the Company or any of its Subsidiaries has occurred pursuant to any foreclosure proceeding or otherwise; (c) the date on which any of the Agents or any Lender (i) commences or files any suit, action, proceeding or litigation in or with any court, governmental agency or arbitrator against or affecting the Company or any of its Subsidiaries in any way relating to the Credit Agreement or (ii) exercises any of its rights or remedies under or in respect of the Credit Agreement; (d) the date on which the Company or any of its Subsidiaries commences or files any suit, action, proceeding or litigation in or with any court, governmental agency or arbitrator against any Holder party to this Agreement or any similar forbearance agreement or any of their affiliates under or in connection with the Indentures or the Securities; or (e) the date on which the Company declares or pays any dividends, or purchases, redeems, retires, defeases or otherwise acquires for value any of its equity interests now or hereafter outstanding, or returns any capital to its stockholders, or makes any distribution of its assets, equity interests, obligations or securities to its stockholders. SECTION 4. Conditions to Effectiveness of Forbearance. This Agreement shall be effective on the date on which all of the following conditions precedent have been satisfied or waived (the "Effective Date"): (a) this Agreement shall have been executed and delivered by a duly authorized officer of each of (i) the Company, (ii) the Subsidiary Guarantor and (iii) the Noteholder; (b) the financial institutions (the "Lenders") and the agents (the "Agents") party to that certain Fifth Amended and Restated Credit Agreement, dated as of November 1, 1999 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Company, the Lenders and the Agents, shall have executed and delivered to the Company an agreement, pursuant to which the Lenders agree to forbear from exercising any of their remedies under the Credit Agreement with respect to each default referenced therein (such agreement, the "Bank Forbearance"), which Bank Forbearance (i) shall not contain any condition or provision for the payment of any fees, compensation or other remuneration to the Lenders or Agents by Aurora in consideration of the Lenders' agreement to forbear from exercising such remedies and (ii) shall have become effective and shall remain effective at least until the Termination Date; and (c) no Default or Event of Default shall have occurred and be continuing, other than the Specified Indenture Defaults. SECTION 5. Representations and Warranties. To induce the Noteholder to enter into this Agreement, the Company hereby represents and warrants to the Noteholder that the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate or other action and is the legally valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. SECTION 6. Effect on Indentures. (a) Notwithstanding any contrary provision set forth herein, the Indentures and the Securities shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (b) The execution, delivery and effectiveness of this Agreement, including the forbearance set forth in Section 2 hereof, shall not operate as a waiver of any right, power or remedy of any Noteholder under the Indentures or the Securities, nor constitute a waiver of any provision of the Indentures or the Securities. SECTION 7. Affirmation of Subsidiary Guaranty and Indentures. The Subsidiary Guarantor hereby consents to this Agreement and each of the Company and the Subsidiary Guarantor hereby acknowledges and agrees that all the Obligations contained in the Indentures and all the obligations contained in the Supplemental Indentures, as modified hereby are, and shall remain, in full force and effect. SECTION 8. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ANY LAWS OR RULES RELATING TO CONFLICTS OF LAWS THAT WOULD CAUSE THE APPLICATION OF LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK). SECTION 9. Execution in Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart to this Agreement. Signature Pages Follow IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. AURORA FOODS INC. By: /s/ Ronald B. Hutchison ---------------------------- Name: Ronald B. Hutchison Title: CRO SEA COAST FOODS, INC. By: /s/ Ronald B. Hutchison ---------------------------- Name: Ronald B. Hutchison Title: CRO HILL STREET FUNDING III By: AEGON USA Investment Management, LLC, not in its individual capacity but solely as Adviser By: /s/ Clint Woods ---------------------------- Name: Clint Woods Title: Associate General Counsel CATALYST INVESTMENT MANAGEMENT, LLC on behalf of certain managed accounts By: /s/ Francis X. Gallagher ---------------------------- Name: Francis X. Gallagher Title: Principal GSC RECOVERY II, L.P. By: GSC RECOVERY II GP, L.P., its General Partner By: GSC RII, LLC, its General Partner By: GSCP (NJ) Holdings, L.P., its Member By: GSCP (NJ), Inc., its General Partner By: /s/ Robert Hamwee ---------------------------- Name: Robert Hamwee Title: Managing Director GSC RECOVERY IIA, L.P. By: GSC RECOVERY IIA GP, L.P., its General Partner By: GSC RIIA, LLC, its General Partner By: GSCP (NJ) Holdings, L.P., its Member By: GSCP (NJ), Inc., its General Partner By: /s/ Robert Hamwee ----------------------- Name: Robert Hamwee Title: Managing Director LEHMAN BROTHERS INC. By: /s/ James P. Seery, Jr. ----------------------- Name: James P. Seery, Jr. Title: SVP NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION By: New York Life Investment Management LLC, its Investment Manager By: /s/ Ronald G. Brandon ----------------------- Name: Ronald G. Brandon Title: Investment Vice President OAKTREE CAPITAL MANAGEMENT, LLC as general partner and investment manager of certain OCM High Yield funds and accounts By: /s/ Michael C. Watchorn --------------------------- Name: Michael C. Watchorn Title: Managing Director By: /s/ Francie C. Nelson --------------------------- Name: Francie C. Nelson Title: Senior Vice President OAKTREE CAPITAL MANAGEMENT, LLC as general partner and investment manager of certain OCM Opportunities funds and accounts By: /s/ Ken Liang --------------------------- Name: Ken Liang Title: Managing Director By: /s/ Lowell Hill --------------------------- Name: Lowell Hill Title: Managing Director GOLDMAN SACHS PROFIT SHARING MASTER TRUST PEQUOT ENDOWMENT FUND L.P. PEQUOT INTERNATIONAL FUND, INC. PEQUOT PARTNERS FUND, L.P. PEQUOT SPECIAL OPPORTUNITIES FUND, L.P. PEQUOT INSTITUTIONAL FUND, INC. By: Pequot Capital Management, Inc., its Investment Manager/Advisor By: /s/ Lawrence Cutler ----------------------- Name: Lawrence Cutler Title: Authorized Signatory YORK CAPITAL MANAGEMENT By: /s/ Eric Edidin ------------------- Name: Eric Edidin Title: Sr. VP OZ MASTER FUND, LTD. By: OZ Management, LLC as Investment Manager By: /s/ Joel Frank --------------------- Name: Joel Frank Title: CFO FLEET MARITIME, INC. By: OZ Management, LLC as Investment Manager By: /s/ Joel Frank --------------------- Name: Joel Frank Title: CFO OZ MAC 13 LTD. By: OZ Management, LLC as Investment Manager By: /s/ Joel Frank --------------------- Name: Joel Frank Title: CFO GOLDMAN SACHS & CO. PROFIT SHARING MASTER TRUST By: OZ Management, LLC as Investment Manager By: /s/ Joel Frank --------------------- Name: Joel Frank Title: CFO OZF CREDIT OPPORTUNITIES MASTER FUND, LTD. By: OZF Management, L.P. as Investment Manager By: OZF Management, LLC General Partner By: /s/ Joel Frank --------------------- Name: Joel Frank Title: CFO OZF CREDIT OPPORTUNITIES MASTER FUND II, LTD. By: OZF Management, L.P. as Investment Manager By: OZF Management, LLC General Partner By: /s/ Joel Frank --------------------- Name: Joel Frank Title: CFO EX-10 5 ex10_4.txt EXHIBIT 10.4 - CHANGE OF CONTROL AGREEMENT Exhibit 10.4 CHANGE OF CONTROL AGREEMENT This CHANGE OF CONTROL agreement is made as of June 2, 2003 between Aurora Foods Inc. (the "Company") and Richard A. Keffer (the "Executive"). WHEREAS, the Executive is currently employed by the Company; and WHEREAS, the Company wishes to provide the Executive with certain additional benefits exclusively in the event of a Change of Control in return for the Executive not competing with the Company. NOW, THEREFORE, the parties agree as follows: 1. If within two years of a Change-Of-Control the executive's employment is terminated involuntarily and without Cause, or, the Executive voluntarily terminates his employment for Good Reason, the Company shall have no further obligations under this Agreement other than (i) a lump sum payment equal to one-times the Executive's annual salary and target bonus; and (ii) medical and dental coverage for 18 months, or until Executive secures other employment (whichever is less) at the same rate in effect for all active plan participants; and (iii) Rights Not Subject to Release. COBRA coverage during this time will be counted as part of the maximum COBRA period of 18 months. 2. As an executive officer of Aurora Foods and in consideration of the enhanced severance and Change-Of-Control provision outlined above, the Company will require the following: a. While the Executive is employed by the Company and for a period of one years immediately following his termination date, the Executive agrees not to compete with Aurora Foods or undertake any planning for any competitive business either directly or indirectly whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise. b. The Executive will not solicit or encourage any person who is a customer of Aurora Foods to terminate its relationship with any of them or to conduct with any other person any business or activity which that customer conducted with Aurora Foods or which is detrimental to the Company. 3. Capitalized terms in this Agreement shall have the meaning as set forth below: a. Affiliate. "Affiliate" shall mean (a) any Person directly or indirectly controlling, controlled by or under direct or indirect common control with the Company (or other specified Person) (b) any other Person which, together with its Affiliates (as defined in clause (a) above) shall, directly or indirectly, own beneficially or control the voting of at least 10% of the ownership interest in the Company (or other specified Person) and (c) ay other Person of which the Company (or other specified Person) and its Affiliates (as defined in clauses (a) and (b) above) shall, directly or indirectly, own beneficially or control the voting of at least 10% of any class of outstanding capital stock or other evidence of beneficial interest or of any interest as a general partner or joint venturer. b. Beneficial Owner. "Beneficial Owner" shall have the meaning in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have a "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is excercisable immediately or only after the passage of time. c. Board. "Board" shall mean the Board of Directors of the Company. d. Cause. For the purposes of this Agreement, the Company shall have "Cause" to terminate the executive's employment hereunder upon: (a) the Executive's breach of his fiduciary duties as an officer or director of the Company or any of its Subsidiaries or Affiliates, or as an officer, trustee, or director thereof; (b) the Executive's commission of a felony involving fraud, personal dishonesty or moral turpitude (whether or not in connection with his employment); or (c) the Executive's failure to follow the reasonable instructions of the Board; provided, that the Executive shall receive written notice of the occurrence of any event contemplated under section (c) hereunder and Executive shall have failed to cure the conduct, activity or event thereunder within 30 days. e. Change of Control. "Change of Control" means (i) any person (used as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) other than one of more Permitted Holders, is or becomes the Beneficial Owner, directly or indirectly, of more than 25% of the total voting power of the Voting Stock of the Company; provided that the Permitted Holders are Beneficial Owners of, directly or indirectly, in the aggregate, a lesser percentage of the total voting power of the Voting Stock of the Company than such other person (used as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board; provided, further, that a person (used as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) shall be deemed to be the Beneficial Owner of any Voting Stock of a Person held by any other Person (the "Parent Corporation") if such other person (used as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) is the Beneficial Owner of, directly or indirectly, more than 35% of the voting power of the Voting Stock of the Parent Corporation and the Permitted Holders are Beneficial Owners of, directly or indirectly, in the aggregate, a lesser percentage of the voting power of the Voting Stock of the Parent Corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Parent Corporation; or (ii) the consummation, through one transaction of a series of related transaction, of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation are the Beneficial Owners, directly or indirectly, or more than 50% of, respectively, the then outstanding shares of Common Stock resulting from such reorganization, merger or consolidation and the combined voting power of the Voting Stock of the Company; or (iii) the consummation, through one transaction or a series of related transactions, of (i) a complete liquidation or dissolution of the Company or (ii) the sale, disposition or other transfer or removal of assets of the Company to which 40% of the Company's annualized revenues as of December 31, 2001 are directly attributable; provided, that a Change of Control shall not be deemed to have occurred if the entity or entities acquiring control is such sale or disposition are the Permitted Holders or their Affiliates; or (iv) within any twenty-four (24) consecutive month period, persons who were members of the Board immediately prior to such twenty-four (24) month period, together with any persons who were first elected as directors (other than as a result of any settlement or proxy or consent solicitation contest or any action taken to avoid such a contest) during such twenty-four (24) month period and who constituted a majority of the Board at the time of such election, cease to constitute a majority of the Board. f. Exchange Act. "Exchange Act" means the Securities and Exchange Act of 1934, as amended. g. Fenway. "Fenway" means Fenway Capital Partners Fund, L.P., a Delaware limited partnership, and Fenway Capital Partners Fund II. L.P. a Delaware limited partnership. h. Good Reason. For the purposes of this Agreement, the Executive shall have "Good Reason" to terminate the Executive's employment hereunder upon: (a) material diminution in the nature or scope of Executive's responsibilities, duties or powers, (b) a reduction in the amount of the Executive's salary, (c) the failure by the Company to pay the Executive his salary, long term incentive bonus or annual bonus, respectively (provided, that in the case of the annual bonus or long term incentive bonus, the Company is not required to pay any part of such bonus that is conditioned upon certain events, including without limitation, the achievement of Board-specified performance targets, unless such events have occurred, (d) the material reduction, individually or in the aggregate, by the Company to provide the Executive with Company benefits, (e) the relocation of Executive's current principal place of business to a location that is more than fifty (50) miles from Executive's current location, or (f) a Change of Control in which the successor company, if any, to the Company fails to assume this agreement in its entirety. i. McCown. "McCown" means McCown De Leeuw & Co. II, McCown De Leeuw & Co. III (Europe), L.P., McCown De Leeuw & Co. III (Asia), L.P., Gamma Fund LLC, McCown De Leeuw & Co. IV, L. P., McCown De Leeuw & Co. IV Associates, L.P. j. Permitted Holders. "Permitted Holders" means Fenway, McCown, Delta Fund LLC, California Public Employees Retirement System, Tiger Oats Limited and UBS Capital LLC. k. Person. "Person" means any individual, partnership, corporation, association, trust, joint venture, limited liability company, unincorporated organization or entity, and any government, governmental department or agency or political subdivision thereof. l. Rights Not Subject to Release. "Rights Not Subject to Release" shall mean (1) any future claim to enforce rights of Executive under this Agreement, (2) any rights to indemnification under any bylaws, certificate of incorporation or an agreement between the Company or its subsidiaries and Executive, respecting indemnification of directors and officers, (3) any rights under any directors and officers liability insurance policies maintained by the Company or its Subsidiaries, and (4) any vested rights under any employee benefit or pension benefit plan of the Company or its subsidiaries in accordance with the terms and conditions of such plan. m. Voting Stock. "Voting Stock" of a Person means all classes of capital stock of such Person then outstanding and normally entitle to vote in the election of directors or managers. 4. Entire Agreement. This Agreement represents the entire agreement of the parties regarding separation pay and benefits pursuant to any termination of the Executive subsequent to a Change of Control and may not be modified, altered or amended except by a subsequent written agreement signed by both parties. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. The Company: The Executive: Aurora Foods Inc. By: /s/ Dale F. Morrison By: /s/ Richard A. Keffer --------------------------------- ----------------------- Dale F. Morrison Richard A. Keffer Chairman and Chief Executive Officer EX-10 6 ex10_5.txt EXHIBIT 10.5 - INDEMNITY AGREEMENT EXHIBIT 10.5 INDEMNITY AGREEMENT THIS INDEMNITY AGREEMENT (the "Agreement") is made and entered into as of this 17th day of March, 2003 by and between Aurora Foods Inc., a Delaware corporation (the "Company"), and Richard A. Keffer, an officer of the Company (the "Officer"). W I T N E S S E T H: WHEREAS, the Company and the Officer recognize that the legal risks and potential liabilities associated with lawsuits filed against the officers of the Company pose a significant deterrent to experienced and capable individuals serving as officers of the Company; WHEREAS, the Company recognizes that the result of the foregoing maybe to encourage those officers who nonetheless determine to serve the Company in such capacity to act with undue conservatism in the performance of their duties to the Company and, thus, may result in less effective direction, supervision and management of the Company's business and operations; WHEREAS, Section 145 of the Delaware General Corporation Law is not exclusive of other rights to which those indemnified thereunder may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise and, thus, does not by itself limit the extent to which the Company may indemnify (and advance expenses to) persons serving as its officers; WHEREAS, the Company desires to have the Officer begin or continue to serve as an officer of the Company, free from undue concern for unpredictable, inappropriate or unreasonable legal risks and personal liabilities by reason of performing his duty to the Company or his status as an officer, and the Officer desires to begin or continue to serve as an Officer of the Company. NOW, THEREFORE, in consideration of the premises, mutual covenants and agreements of the parties contained herein and the mutual benefits to be derived from this Agreement, the parties hereto covenant and agree as follows: 1. Agreement to Serve. The Officer agrees to begin or to continue to serve the Company as an officer, provided, however, that nothing contained in this Agreement shall create or supersede or amend any existing contract of employment between the Company and the Officer, or the Securityholders Agreement dated as of April 8, 1998 and the termination of the Officer's relationship with the Company by either party hereto shall not be restricted by this Agreement. Should the Officer and the Company agree and subject to any written employment agreement between the Officer and the Company, the Officer may also serve another corporation, limited liability company, partnership, joint venture, employee benefit plan, trust including, without limitation, any subsidiary or other enterprise affiliated with the Company (any and all of which are collectively referred to herein as an "Affiliate"), in which event the terms and provisions of this Agreement shall automatically apply to any such other service to the full extent permitted by applicable law without the need for any additional action on the part of the Officer or the Company. 2. Indemnity. (a) Subject to the conditions and limitations of this Paragraph 2 (including without limitation Paragraph 2(b) below), the Company shall, to the fullest extent permitted by the Delaware General Corporation Law as it may then be in effect, indemnify and hold the Officer and his estate, heirs and legal representatives (each an "Indemnified Party") harmless if any of them is, becomes or was a party to or witness or other participant in, or is or was threatened to be made a party to or witness or other participant in, any Claim (as defined below) by reason of (or arising in part out of) an Indemnifiable Event (as defined below) against any and all expenses (including attorneys', accountants' and other experts' fees, disbursements and expenses), judgments, fines, penalties, excise taxes and amounts paid or to be paid in settlement incurred by the Indemnified Party in connection with preparation for or in defense of such Claim (collectively, "Indemnified Amounts"). "Claim" means any threatened, pending or completed action, cause of action, suit or proceeding, whether civil, criminal, administrative or investigative or other, including, without limitation, an action by or in the right of any corporation (including without limitation, the Company) of any type or kind, domestic or foreign, or any limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, whether predicated on foreign, federal, state or local law and whether formal or informal. "Indemnifiable Event" means any event or occurrence related to the fact that the Officer is or was or has agreed to become an Officer or other representative of the Company, or is or was serving or has agreed to serve in any capacity, at the request of the Company, in any other corporation, limited liability company, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by the Officer in any such capacity. (b) Any indemnification under paragraph (a) of this Paragraph 2 shall be made by the Company only as authorized in the specific case upon a determination that the Officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; provided, however, that no indemnification shall be made in respect of any Claim as to which the Officer shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery of the State of Delaware 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, the Indemnified Party is fairly and reasonably entitled to indemnity for such Indemnified Amounts which the Court of Chancery of the State of Delaware or such other court shall deem proper. Such determination (each, a "Board Action") shall be made (1) by the Board of Directors a majority vote of the directors who are not a party to such Claim with respect to an Indemnifiable Event, even if less than a quorum, or (2) by a committee of such directors appointed by a majority vote of such directors, even if less than a quorum, or (3) by the Board of Directors acting upon an opinion in writing of independent legal counsel, if there are no such directors or if a majority of such directors so direct. (c) Notwithstanding anything in the Company's Certificate of Incorporation, By-Laws, or this Agreement to the contrary, if so requested by an Indemnified Party the Company shall advance (an "Expense Advance") (within 30 days of such request) any and all Indemnified Amounts relating to a Claim to such Indemnified Party, upon the receipt of a written undertaking by or on behalf of such Indemnified Party to repay such Expense Advance if a judgment or other final adjudication adverse to such Indemnified Party (as to which all rights or appeal therefrom have been exhausted or lapsed) establishes that such Indemnified Party, with respect to such Claim, is not eligible for indemnification. (d) The indemnification and advancement of expenses provided by, or granted pursuant to, this Paragraph 2 shall not be deemed exclusive of any other rights to which an Indemnified Party seeking indemnification or advancement of expenses may be entitled under any by-law, other agreement, vote of stockholders or disinterested directors, policy of insurance or otherwise, both as to action of the Officer in his official capacity and as to action in another capacity while holding such office. (e) For the purposes of this Paragraph 2, references to "the Company" shall include, in addition to the resulting corporation or limited liability company, any constituent corporation or limited liability company (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, employees or agents, so that the Officer if he is or was a director, officer, employee or agent of such constituent entity, or is or was serving at the request of such constituent entity as a director, officer, employee, agent, trustee, fiduciary or other representative of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Paragraph 2 with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (f) Any repeal or modification of relevant provisions of the Delaware General Corporation Law or any other applicable laws shall not in any way diminish any rights to indemnification of an Indemnified Party or the obligations of the Company arising hereunder except to the extent required by law. All rights and obligations of the Company and the Officer and the other Indemnified Parties under this Agreement shall continue in full force and effect despite the subsequent amendment or modification of the Company's Certificate of Incorporation or Bylaws, as such are in effect on the date hereof, and such rights and obligations shall not be affected by any such amendment or modification, any resolution of the Board of Directors or the stockholders of the Company, or any other corporate action which in any way seeks to diminish any of the rights of the Officer and the other Indemnified Parties or the obligations of the Company under this Agreement. If this Paragraph 2 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify each Indemnified Party as to Indemnified Amounts with respect to any Claim, no matter by whom brought, and advance expenses (including attorneys', accountants' and other experts' fees, disbursements and expenses), in each such Claim to the full extent permitted by any applicable portion of this Paragraph 2 that shall not have been invalidated and to the full extent permitted by applicable law. (g) Anything herein to the contrary notwithstanding, the settlement of any Claim that is entered into without the prior written consent of the Company shall be covered by the terms hereof as determined by the Company in its sole discretion pursuant to Paragraph 2(b). (h) Notwithstanding any other provision of this Agreement, to the extent that the Indemnified Party has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including, without limitation, dismissal without prejudice, the Indemnified Party shall be indemnified against any and all Indemnified Amounts paid or to be paid in settlement of such Claim. In connection with any determination by Board Action or by a court of competent jurisdiction that the Indemnified Party is not entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that the Indemnified Party is not so entitled. 3. Payment of Indemnity. Indemnified Amounts and Expense Advances, if any, provided to any Indemnified Party by the Company under this Agreement upon the final disposition or conclusion of a Claim unless otherwise ordered by the court before which such Claim was brought, shall be paid by the Company (net of all amounts, if any, previously advanced to the Indemnified Parry or Parties pursuant to Paragraph 2(c)) to the Indemnified Party (or to such other person as the Indemnified Party may designate in writing to the Company) within 30 days after the receipt of the Indemnified Party's written request therefor, which request shall include a reasonably comprehensive accounting of amounts for which indemnification is being sought and shall refer to one or more of the provision(s) of this Agreement pursuant to which such claim is being made. All expenses associated with the indemnification process set forth in this Agreement or enforcements of rights hereunder shall be paid by the Company. 4. Termination of an Action is Nonconclusive. The termination of any Action, no matter by whom brought, by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Officer has not met the applicable standard(s) of conduct set forth in Paragraph 2 of this Agreement. 5. Partial Indemnification; Interest. (a) If it is determined by the court before which a Claim is brought or a court having competent jurisdiction that the Indemnified Party is entitled to indemnification as to some claims, issues or matters, but not as to other claims, issues or matters involved in such Claim, no matter by whom brought, the court shall authorize the reasonable proration of the Indemnified Amounts with respect to which indemnification is sought by the Indemnified Party, among such claims, issues or matters as the court shall deem appropriate in light of all of the circumstances of such Claim. (b) If it is determined by the court before which such Claim was brought or a court having competent jurisdiction that certain Indemnified Amounts incurred by the Indemnified Party are, for whatever reason, unreasonable in amount, the court shall authorize indemnification to be paid by the Company to the Indemnified Party for only such amounts as the court shall deem reasonable in light of all of the circumstances of such Claim. 6. Representation of Company. The Company represents and warrants to the Officer that neither the execution and delivery of this Agreement by the Company nor the consummation of the transactions set forth herein or contemplated hereby will conflict with or result in any violation of, or constitute a breach of, or a default under, the Certificate of Incorporation or Bylaws of the Company, or under any contract, instrument, agreement, understanding, mortgage, indenture, lease, insurance policy, permit, concession, grant, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company. 7. Insurance. (a) To the extent the Company maintains at any time an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any other Company director or officer under such insurance policy. The purchase and maintenance of such insurance shall not in any way limit or affect the rights and obligations of the parties hereto, and the execution and delivery of this Agreement shall not in any way be construed to limit or affect the rights and obligations of the Company or of the other parties under any such insurance policy. (b) In the event of payment to an Indemnified Party under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery with respect to such payment of the Indemnified Party, who shall execute and deliver all instruments, documents, and other papers and shall perform any and all acts or deeds reasonably necessary or advisable to secure such rights. 8. Notice to the Company by Officer. The Officer agrees to, and each other Indemnified Party shall, notify the Company promptly upon being served with or having knowledge of any citation, summons, complaint, indictment or any other similar document relating to any Action which is reasonably likely to result in a claim of indemnification under this Agreement. 9. Continuation of Rights and Obligations. The terms and provisions of this Agreement shall survive and continue as to the Officer and the other Indemnified Parties notwithstanding whether the Officer ceases to be an Officer of the Company or of an Affiliate. 10. Amendment and Modification. This Agreement may be amended, modified or supplemented only by the written agreement of the Officer and the Company (subject to approval by the Board of Directors). 11. Assignment. This Agreement shall not be assigned (including without limitation by operation of law or merger) by the Company or the Officer without the prior written consent of the other party hereto, except that the Company may assign its rights and obligations under this Agreement to any Affiliate for whom the Officer is serving as an executive thereof, provided, however, that no permitted assignment shall release the assignor from its obligations hereunder. Subject to the foregoing, this Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, including, without limitation, any successor to the Company by way of merger, consolidation and/or disposition of all or substantially all of the capital stock or assets of the Company. 12. Governing Law. All matters with respect to this Agreement, including, without limitation, matters of validity, construction, effect and performance, shall be governed by the internal laws of the State of Delaware applicable to contracts made and to be performed therein between the residents thereof (regardless of the laws that might otherwise be applicable under principles of conflicts of law). 13. Headings. The headings used in this Agreement are for convenience and reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14. Severability. Without limiting the provisions of Paragraph 2(f) hereof, if any provision of this Agreement shall be deemed invalid, unenforceable or inoperative, or if a court of competent jurisdiction determines that any of the provisions of this Agreement contravene public policy, this Agreement shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are held to be invalid, unenforceable or inoperative or which contravene public policy by such court shall be deemed, without further action, to be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable, and the Company shall thereafter indemnify the Indemnified Party against reasonable expenses (including attorneys', accountants' and other experts' fees, disbursements and expenses), judgments, fines and amounts incurred in settlement with respect to any Action, no matter by whom brought, to the full extent permitted by any applicable provisions of this Agreement that shall not have been invalidated and to the full extent otherwise permitted by the Delaware General Corporation Law as it may then be in effect. 15. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given when delivered by hand or two (2) business days after being mailed by a recognized international private courier (by way of example, FedEx and UPS) or by certified or registered mail, return receipt requested, with postage prepaid: If to the Officer, to: Richard A. Keffer 274 Greenbriar Estates Drive Des Peres, Missouri 63122 or to such other person or address as the Officer shall furnish to the Company in writing. If to the Company, to: Aurora Foods Inc. 11432 Lackland Road St. Louis, Missouri 63146 Attention: Chief Executive Officer or to such other person or address as the Company shall furnish to the Officer in writing. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. OFFICER: AURORA FOODS INC. /s/ Richard A. Keffer By: /s/ William R. McManaman - -------------------------- -------------------------- Name: Richard A. Keffer Name: William R. McManaman Title: Executive Vice President and Chief Financial Officer EX-10 7 ex10_6.txt EXHIBIT 10. 6 - CHANGE OF CONTROL AGREEMENT Exhibit 10.6 CHANGE OF CONTROL AGREEMENT This CHANGE OF CONTROL agreement is made as of March 25, 2003 between Aurora Foods Inc. (the "Company") and Michael J. Hojnacki (the "Executive"). WHEREAS, the Executive is currently employed by the Company; and WHEREAS, the Executive and the Company entered into an Enhanced Severance Agreement dated July 12, 2002; and WHEREAS, the Company wishes to provide the Executive with certain additional benefits exclusively in the event of a Change of Control in return for the Executive not competing with the Company. NOW, THEREFORE, the parties agree as follows: 1. If within two years of a Change-Of-Control the executive's employment is terminated involuntarily and without Cause, or, the Executive voluntarily terminates his employment for Good Reason, the Company shall have no further obligations under this Agreement other than (i) a lump sum payment equal to two-times the Executive's annual salary and target bonus; and (ii) medical and dental coverage for 18 months, or until Executive secures other employment (whichever is less) at the same rate in effect for all active plan participants; and (iii) Rights Not Subject to Release. COBRA coverage during this time will be counted as part of the maximum COBRA period of 18 months. 2. As an executive officer of Aurora Foods and in consideration of the enhanced severance and Change-Of-Control provision outlined above, the Company will require the following: a. While the Executive is employed by the Company and for a period of two years immediately following his termination date, the Executive agrees not to compete with Aurora Foods or undertake any planning for any competitive business either directly or indirectly whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise. b. The Executive will not solicit or encourage any person who is a customer of Aurora Foods to terminate its relationship with any of them or to conduct with any other person any business or activity which that customer conducted with Aurora Foods or which is detrimental to the Company. 3. Capitalized terms in this Agreement shall have the meaning as set forth below: a. Affiliate. "Affiliate" shall mean (a) any Person directly or indirectly controlling, controlled by or under direct or indirect common control with the Company (or other specified Person) (b) any other Person which, together with its Affiliates (as defined in clause (a) above) shall, directly or indirectly, own beneficially or control the voting of at least 10% of the ownership interest in the Company (or other specified Person) and (c) ay other Person of which the Company (or other specified Person) and its Affiliates (as defined in clauses (a) and (b) above) shall, directly or indirectly, own beneficially or control the voting of at least 10% of any class of outstanding capital stock or other evidence of beneficial interest or of any interest as a general partner or joint venturer. b. Beneficial Owner. "Beneficial Owner" shall have the meaning in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have a "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is excercisable immediately or only after the passage of time. c. Board. "Board" shall mean the Board of Directors of the Company. d. Cause. For the purposes of this Agreement, the Company shall have "Cause" to terminate the executive's employment hereunder upon: (a) the Executive's breach of his fiduciary duties as an officer or director of the Company or any of its Subsidiaries or Affiliates, or as an officer, trustee, or director thereof; (b) the Executive's commission of a felony involving fraud, personal dishonesty or moral turpitude (whether or not in connection with his employment); or (c) the Executive's failure to follow the reasonable instructions of the Board; provided, that the Executive shall receive written notice of the occurrence of any event contemplated under section (c) hereunder and Executive shall have failed to cure the conduct, activity or event thereunder within 30 days. e. Change of Control. "Change of Control" means (i) any person (used as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) other than one of more Permitted Holders, is or becomes the Beneficial Owner, directly or indirectly, of more than 25% of the total voting power of the Voting Stock of the Company; provided that the Permitted Holders are Beneficial Owners of, directly or indirectly, in the aggregate, a lesser percentage of the total voting power of the Voting Stock of the Company than such other person (used as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board; provided, further, that a person (used as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) shall be deemed to be the Beneficial Owner of any Voting Stock of a Person held by any other Person (the "Parent Corporation") if such other person (used as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) is the Beneficial Owner of, directly or indirectly, more than 35% of the voting power of the Voting Stock of the Parent Corporation and the Permitted Holders are Beneficial Owners of, directly or indirectly, in the aggregate, a lesser percentage of the voting power of the Voting Stock of the Parent Corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Parent Corporation; or (ii) the consummation, through one transaction of a series of related transaction, of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation are the Beneficial Owners, directly or indirectly, or more than 50% of, respectively, the then outstanding shares of Common Stock resulting from such reorganization, merger or consolidation and the combined voting power of the Voting Stock of the Company; or (iii) the consummation, through one transaction or a series of related transactions, of (i) a complete liquidation or dissolution of the Company or (ii) the sale, disposition or other transfer or removal of assets of the Company to which 40% of the Company's annualized revenues as of December 31, 2001 are directly attributable; provided, that a Change of Control shall not be deemed to have occurred if the entity or entities acquiring control is such sale or disposition are the Permitted Holders or their Affiliates; or (iv) within any twenty-four (24) consecutive month period, persons who were members of the Board immediately prior to such twenty-four (24) month period, together with any persons who were first elected as directors (other than as a result of any settlement or proxy or consent solicitation contest or any action taken to avoid such a contest) during such twenty-four (24) month period and who constituted a majority of the Board at the time of such election, cease to constitute a majority of the Board. f. Exchange Act. "Exchange Act" means the Securities and Exchange Act of 1934, as amended. g. Fenway. "Fenway" means Fenway Capital Partners Fund, L.P., a Delaware limited partnership, and Fenway Capital Partners Fund II. L.P. a Delaware limited partnership. h. Good Reason. For the purposes of this Agreement, the Executive shall have "Good Reason" to terminate the Executive's employment hereunder upon: (a) material diminution in the nature or scope of Executive's responsibilities, duties or powers, (b) a reduction in the amount of the Executive's salary, (c) the failure by the Company to pay the Executive his salary, long term incentive bonus or annual bonus, respectively (provided, that in the case of the annual bonus or long term incentive bonus, the Company is not required to pay any part of such bonus that is conditioned upon certain events, including without limitation, the achievement of Board-specified performance targets, unless such events have occurred, (d) the material reduction, individually or in the aggregate, by the Company to provide the Executive with Company benefits, (e) the relocation of Executive's current principal place of business to a location that is more than fifty (50) miles from Executive's current location, or (f) a Change of Control in which the successor company, if any, to the Company fails to assume this agreement in its entirety. i. McCown. "McCown" means McCown De Leeuw & Co. II, McCown De Leeuw & Co. III (Europe), L.P., McCown De Leeuw & Co. III (Asia), L.P., Gamma Fund LLC, McCown De Leeuw & Co. IV, L. P., McCown De Leeuw & Co. IV Associates, L.P. j. Permitted Holders. "Permitted Holders" means Fenway, McCown, Delta Fund LLC, California Public Employees Retirement System, Tiger Oats Limited and UBS Capital LLC. k. Person. "Person" means any individual, partnership, corporation, association, trust, joint venture, limited liability company, unincorporated organization or entity, and any government, governmental department or agency or political subdivision thereof. l. Rights Not Subject to Release. "Rights Not Subject to Release" shall mean (1) any future claim to enforce rights of Executive under this Agreement, (2) any rights to indemnification under any bylaws, certificate of incorporation or an agreement between the Company or its subsidiaries and Executive, respecting indemnification of directors and officers, (3) any rights under any directors and officers liability insurance policies maintained by the Company or its Subsidiaries, and (4) any vested rights under any employee benefit or pension benefit plan of the Company or its subsidiaries in accordance with the terms and conditions of such plan. m. Voting Stock. "Voting Stock" of a Person means all classes of capital stock of such Person then outstanding and normally entitle to vote in the election of directors or managers. 4. Entire Agreement. This Agreement represents the entire agreement of the parties regarding separation pay and benefits pursuant to any termination of the Executive subsequent to a Change of Control and may not be modified, altered or amended except by a subsequent written agreement signed by both parties. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. The Company: The Executive: Aurora Foods Inc. By: /s/ Dale F. Morrison By: /s/ Michael J. Hojnacki -------------------------------- ------------------------- Dale F. Morrison Michael J. Hojnacki Chairman and Chief Executive Officer EX-10 8 ex10_7.txt EXHIBIT 10.7 - EMPLOYMENT AGREEMENT Exhibit 10.7 EMPLOYMENT AGREEMENT This AGREEMENT, made and entered into by and between Aurora Foods Inc., a Delaware corporation (together with its successors and assigns permitted under this Agreement, the "Company"), and Ronald Hutchison (the "Executive"). WHEREAS, in light of current conditions, the Company is considering various strategic initiatives, including but not limited to a financial restructuring; WHEREAS, the Company believes that the Executive's knowledge, skill and experience will be essential in enabling the Company to successfully implement any such strategic initiatives; WHEREAS, the Company desires to employ the Executive and to enter into an agreement embodying the terms of such employment (this "Agreement") and the Executive desires to accept such employment, subject to the terms and provisions of this Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a "Party" and together the "Parties") agree as follows: 1. Definitions. (a) "Base Salary" shall mean the salary granted to the Executive pursuant to Section 4. (b) "Board" shall mean the Board of Directors of the Company. (c) "Cause" shall mean termination of the Executive based on (i) conduct which is a material violation of Company policy or which is fraudulent or unlawful or which materially interferes with the ability of the Executive to perform his duties, (ii) misconduct which results in damage or injury to the Company, including damage to its reputation, or (iii) negligence in the performance of, or willful failure to perform, the Executive's duties and responsibilities. (d) "Chairman" shall mean the Chairman of the Board. (e) "Constructive Termination" by the Executive shall mean termination based on the occurrence without the Executive's express consent of any of the following: (i) a significant diminution by the Company of the Executive's role with the Company or a significant detrimental change in the nature and/or scope of the Executive's status with the Company, other than for Cause or Disability or (ii) a reduction in the Executive's Base Salary, other than for Cause or Disability. The Executive shall further be required to comply with the provisions of Section 8(d)(j) of this Agreement with respect to a Constructive Termination. (f) "Disability" shall mean the Executive's inability to substantial1y perform his duties and responsibilities under this Agreement by reason of any physical or mental incapacity for a period of 180 consecutive days. (g) "Effective Date" shall mean the date of execution of this Agreement. Change in Control has occurred (h) "Restructuring Date" shall mean the earlier of the following dates: (x) the date on which a recapitalization or restructuring (including, without limitation, through any exchange, conversion, cancellation, forgiveness, retirement and/or a material modification or amendment to the terms, conditions or covenants thereof) of the Company's indebtedness for borrowed money (including debt securities and trade debt), including pursuant to a repurchase or an exchange transaction, or a solicitation of consents, waivers, acceptances or authorizations is consummated or (y) the date on which a plan of reorganization that is confirmed by a bankruptcy court becomes effective or the Company otherwise emerges from Chapter 11, as a result of which the business of the Company is maintained on an ongoing basis, whether maintained by the Company, the debtor in possession or by an entity that has acquired all or substantially all of the Company's or debtor in possession's assets, or (z) the disposition to one or more third parties in one or a series of related transactions of (i) all or a significant portion of the equity securities of the Company by the security holders of the Company or (ii) all or a significant portion of the assets (including the assignement of any executory contracts) or businesses of the Company or its subsidiaries (other than the sale of frozen pizza and home meal replacement businesses), in either case, including through a sale or exchange of capital stock, options or assets, a lease of assets with or without a purchase option, a merger, consolidation or other business combination, an exchange or tender offer, a recapitalization, the formation of a joint venture, partnership or similar entity, or any similar transaction.. (i) "Term of Employment" shall mean the period commencing on the Effective Date and ending on the earlier of (i) the Restructuring Date or (ii) any date after December 31, 2003, of which either party provides the other with ninety (90) days advance written notice of the expiration of the term. 2. Term of Employment. Subject to Section 9, the Company hereby employs the Executive, and the Executive hereby accepts such employment for the Term of Employment. 3. Position, Duties and Responsibilities. (a) During the Term of Employment, the Executive shall be, employed and serve as the Chief Restructuring Officer of the Company (or such other position or positions as may be agreed upon in writing by the Executive and the Company) and be responsible for managing and implementing the restructuring of the Company as directed by the Chairman and the Board. The Executive shall devote substantially all of his business time, attention and skill to the performance of such duties and responsibilities, and shall use his best efforts to promote the interests of the Company. The Executive shall have all authority commensurate with such position. The Executive shall not without the prior written approval of the Board, engage in any other business activity which is in violation of policies established from time to time by the Company. (b) Anything herein to the contrary notwithstanding, nothing shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of other corporations or the boards of a reasonable number of trade associations and/or charitable organizations (subject to the reasonable approval of the Board), (ii) engaging in charitable activities and community affairs, and (iii) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his duties and responsibilities as an executive officer of the Company. (c) The Executive is expected to perform his services hereunder primarily at the Company's headquarters. To that end, the Company shall provide the Executive with office space at its headquarters in St. Louis, Missouri that are commensurate with the Executive's duties hereunder. 4. Base Salary. During the Term of Employment, the Executive shall be paid an annualized Base Salary, payable in bi-weekly installments, of three hundred thousand dollars ($300,000.00). 5. Success Payment. Provided the Executive is employed by the Company on the Restructuring Date, the Executive shall be entitled to receive, promptly, not later than ten business days following the Restructuring Date, a lump sum cash payment of five hundred thousand dollars ($500,000.00) 6. Employee Benefit Programs. During the Term of Employment, the Executive shall be eligible to participate in all employee pension and welfare benefit plans and programs made available generally to the Company's senior-level executives (other than the CEO) or to its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, pension, profit sharing, savings and other retirement plans or programs, medical (including annual executive physicals), dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection, travel accident insurance, and any other pension or retirement plans or programs and any other employee welfare benefit plans or programs that may be sponsored by the Company from time to time, including any plans that supplement the above-listed types of plans or programs, whether funded or unfunded; provided, however, that the Executive shall not be eligible to participate in any annual performance bonus or long term incentive plan or program. At Executive's request, the Company shall provide an extension of medical benefits for twelve (12) months after termination, and Executive shall have the option to pay for an additional twelve (12) months of COBRA coverage, the first six (6) of which shall be reimbursed to Executive by the Company ; provided, that such medical benefits coverage shall cease if Executive obtains employment with another company that provides medical coverage. 7. Reimbursement of Business and Other Expenses; Perquisites; Vacations. (a) The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement and the Company shall promptly reimburse him for all reasonable business expenses incurred in connection with carrying out the business of the Company, subject to documentation in accordance with the Company's policy. The Company shall pay all reasonable legal and financial advisor expenses not to exceed two thousand five hundred dollars ($2,500) incurred in connection with the preparation of this Agreement. (b) Through April 30, 2004, the Company shall reimburse the Executive for personal financial (including tax) counseling (other than legal fees) not to exceed five thousand dollars ($5,000) by a firm or consultant to be chosen by the Executive. (c) The Executive shall be entitled to three weeks paid vacation per year. (d) The Company agrees to continue and maintain a directors' and officers' liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers or former officers. (e) During the Term of Employment, the Company shall reimburse the Executive for reasonable living expenses incurred by the Executive while residing in the St. Louis, Missouri area. The Company shall make to the Executive additional payments on a fully grossed-up basis to cover applicable federal, state and local income and excise taxes, when and to the extent, if any, that such taxes are payable by the Executive with respect to benefits provided under this Section (e). 8. Termination of Employment. (a) Termination Due to Death. In the event the Executive's employment is terminated due to his death, his estate or his beneficiaries as the case may be, shall be entitled to the following: (i) Base Salary through the date of death; (ii) any amounts earned, accrued or owing to the Executive but not yet paid under this Agreement; and (iii) other or additional benefits in accordance with applicable plans and programs of the Company. (b) Termination Due to Disability. In the event the Executive's employment is terminated due to his Disability, he shall be entitled to (i) any amounts earned, accrued or owing to the Executive but not yet paid under this agreement; and (ii) any benefits through the Company's long-term disability plans and programs of the Company. (c) Termination by the Company for Cause. In the event the Company terminates the Executive's employment for Cause, he shall be entitled to: (i) Base Salary through the date of the termination; (ii) any amounts eamed, accrued or owing to the Executive but not yet paid under this Agreement; and (iii) other or additional benefits in accordance with applicable plans or programs of the Company. (d) Termination Without Cause or Constructive Termination. (i) A Constructive Termination shall not take effect unless the provisions of this paragraph 8(d)(i) are complied with. The Company shall be given written notice by the Executive of the intention to terminate his employment on account of a Constructive Termination, such notice (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed Constructive Termination is based and (B) to be given upon the Executive learning of such act or acts of failure or failures to act. The Company shall have 30 days after the date that such written notice has been given to the Company in which to cure such conduct, to the extent such cure is possible. (ii) In the event the Executive's employment is terminated by the Company without Cause, other than due to Disability or death, or in the event there is a Constructive Termination, the Executive shall be entitled to receive: (A) Base Salary through the date of termination of the Executive's employment; (B) if such termination occurs prior to the Restructuring Date, a lump sum cash payment equal to the Executive's annual Base Salary in effect on the date of termination of the Executive's employment (or in the event a reduction in Base Salary is the basis for a Constructive Termination, then the Base Salary in effect immediately prior to such reduction); (C) if such termination occurs prior to the Restructuring Date and the Restructuring Date occurs within 12 months following such termination, a lump sum cash payment of two hundred thousand dollars ($200,000) be paid promptly, but in no event later than 10 business days, following the Restructuring Date; (D) any amounts earned, accrued or owing to the Executive but not yet paid under this Agreement; and (E) continued participation in all medical, dental, hospitalization and life insurance coverage and in other employee welfare benefit plans or programs in which he was participating on the date of the termination of his employment for twelve (12) months after termination, and Executive shall have the option to pay for an additional twelve (12) months of COBRA coverage; provided, that such benefits coverage shall cease if Executive obtains employment with another company that provides medical coverage; and provided, further, that (x) if the Executive is precluded from continuing his participation in an employee benefit plan or program as provided in this clause, he shall be provided with the after-tax economic equivalent of the benefits provided under the plan or program in which he is unable to participate for the period specified in this clause (E) of this Section 8(d), (y) the economic equivalent of any benefit foregone shall be deemed to be the lowest cost that would be incurred by the Executive in obtaining such benefit himself on an individual basis, and (z) payment of such after-tax economic equivalent shall be made quarterly in advance. (e) Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative, other than a termination due to death or Disability or a Constructive Termination, the Executive shall have the same entitlements as provided in Section 8(c) above for a termination for Cause. A voluntary termination under this Section 8(f) shall be effective upon 30 days' prior written notice to the Company and shall not be deemed a breach of this Agreement. (f) Nature of Payments. Any amounts due under this Section 8 are in the nature of severance payments considered to be reasonable by the Company. Failure to qualify for any such payment is not in the nature of a penalty. (g) Exclusivity of Severance Payments. Upon termination of the Executive's employment during the Term of Employment, he shall not be entitled to any payments or benefits from the Company, other than as provided herein, or any payments by the Company on account of any claim by him of wrongful termination, including claims under any federal, state or local human and civil rights or labor laws, other than the payments and benefits provided hereunder, except for any benefits which may be due the Executive in normal course under any employee benefit plan of the Company which provides benefits after termination of employment. (h) Restrictive Covenants. The Executive agrees that any right to receive any payments and/or benefits hereunder, other than Base Salary and/or any other compensation already earned by the Executive and required to be paid by state law other than under this Agreement, will cease and be immediately forfeited if the Executive breaches the provisions of Section 9 below. The foregoing is in addition to the rights of the Company under Section 9. (i) Release of Claims. As a condition of the Executive's entitlement to the payment and/or delivery of any of the severance rights and benefits provided in this Section 8 (other than in the event of the Executive's death), the Executive shall be required to execute and honor a release of claims in the form reasonably requested by the Company. (j) Termination at Will, Notwithstanding anything herein to the contrary, the Executive's employment with the Company is terminable at will with or without Cause; provided, however, that a termination of the Executive's employment shall be governed in accordance with the terms hereof. 9. Restrictive Covenants. (a) Confidential Information. During the Term of Employment and at all times thereafter, Executive agrees that he will not divulge to anyone or make use of any Confidential Information except in the performance of his duties as an executive of the Company or when legally required to do so (in which case the Executive shall give prompt written notice to the Company in order to allow the Company the opportunity to object or otherwise resist such disclosure). "Confidential Information" shall mean any knowledge or information of any type relating to the business of the Company or any of its subsidiaries or affiliates, as well as any information obtained from customers, clients or other third parties, including, without limitation, all types of trade secrets and confidential commercial information. The Executive agrees that he will return to the Company immediately upon termination, any and all documents, records or reports (including electronic information) that contain any Confidential Information. Confidential Information shall not include information (i) that is or becomes part of the public domain, other than through the breach of this Agreement by the Executive or (ii) regarding the Company's business or industry properly acquired by the Executive in the course of his career as an executive in the Company's industry and independent of the Executive's employment by the Company. The Executive acknowledges that the Company has expended, and will continue to expend, significant amounts of time, effort and money in the procurement of its Confidential Information, that the Company has taken all reasonable steps in protecting the secrecy of the Confidential Information, that said Confidential Information is of critical importance to the Company. (b) Non-Disparagement. The Executive agrees that, during the term of employment and thereafter (including following the Executive's termination of employment for any reason), the Executive will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or any subsidiary or affiliate or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing in this Agreement shall preclude either the Executive or the Company from making truthful statements or disclosures that are required by applicable law, regulation or legal process. (c) Cooperation. The Executive agrees to cooperate with the Company, during the term of employment and thereafter (including following the Executive's termination of employment for any reason), by being reasonably available to testify on behalf of the Company or any subsidiary or affiliate in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate, in any such action, suit or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any subsidiary or affiliate, as reasonably requested. The Company agrees to reimburse the Executive for all expenses actually incurred in connection with his provision of testimony or assistance. (d) Remedies. The Executive agrees that any breach of the terms of this Section 9 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any reasonable threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, but not limited to, remedies available under this Agreement and the recovery of damages. (e) Continuing Operation. The provisions of this Section 9 shall survive any termination of this Agreement and the Term of Employment, and the existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section. The Executive agrees to cooperate with the Company, during the term of employment and thereafter (including following the Executive's termination of employment for any reason), by being reasonably available to testify on behalf of the Company or any subsidiary or affiliate in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate, in any such action, suit or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any subsidiary or affiliate, as reasonably requested. The Company agrees to reimburse the Executive for all expenses actually incurred in connection with his provision of testimony or assistance. 10. Assignability; Binding Nature. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of the Executive) and assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or reorganization transaction as described in the preceding sentence, it shall take whatever action it legally can in order to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder. No rights Or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or operation of law, except as otherwise provided herein. 11. Entire Agreement This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto provided, however, that this Agreement shall not supersede any separate written commitments by the Company with respect to indemnification. 12. Miscellaneous Provisions. (a) No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case may be. (b) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. (c) The respective rights and obligations of the Parties hereunder shall survive any termination of the Executive's employment to the extent necessary to the intended preservation of such rights and obligations. (d) The Executive shall be entitled, to the extent provided under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death by giving the Company written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. (e) All amounts required to be paid by the Company shall be subject to reduction in order to comply with applicable Federal, state and local tax withholding requirements, except as otherwise provided herein. (f) The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. (g) This Agreement may be executed in two or more counterparts. 13. Governing Law/Jurisdiction. This Agreement shall be governed by and construed and interpreted in accordance with the laws of Missouri without reference to principles of conflict of laws. Subject to Section 14, the Company and the Executive hereby consent to the jurisdiction the United States District Court of St. Louis, Missouri for purposes of resolving any dispute under this Agreement. The Company and the Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and the Executive hereby waive, to the fullest extent provided by applicable law, any objection which it or the Executive may now or hereafter have to such jurisdiction and any defense of inconvenient forum, pursuant to Section 9( d) hereof. 14. Notices. Any notice given to a party shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give such notice of: If to the Company: Aurora Foods Inc. 11432 Lackland Road St. Louis, Missouri 631146 Attention: General Counsel If to the Executive: Ronald Hutchison C/o Aurora Foods Inc. 11432 Lackland Road St. Louis, Missouri 631146 IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date provided below. Aurora Foods Inc. Date: July 1, 2003 By: /s/ Dale Morrison ------------------------- Executive Date: July 1, 2003 By: /s/ Ronald Hutchison ------------------------- Ronald Hutchison EX-31 9 ex31_1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION I, Dale F. Morrison, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Aurora Foods Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Dale F. Morrison ----------------------------- Chairman of the Board and Interim Chief Executive Officer EX-31 10 ex31_2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION I, William R. McManaman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Aurora Foods Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ William R. McManaman ---------------------------- Executive Vice President and Chief Financial Officer EX-32 11 ex32.txt EXHIBIT 32 Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Aurora Foods Inc. (the "Company") for the quarterly period ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Dale F. Morrison, as Chief Executive Officer of the Company, and William R. McManaman, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Dale F. Morrison - -------------------- Dale F. Morrison Chairman of the Board and Interim Chief Executive Officer August 14, 2003 /s/ William R. McManaman - ------------------------ William R. McManaman Executive Vice President and Chief Financial Officer August 14, 2003 This certification accompanies each Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of ss. 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. ______________________________________________________________________________ -----END PRIVACY-ENHANCED MESSAGE-----