-----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, LXgC1K+tl+Vvzcv+hPEMfqYApQm8sDRhlT6l6ilm+CyS++q1xUglR5PXMzlTRyh4 kb1Z9R19dio8k1kbnfElfg== 0000893220-96-001117.txt : 19960703 0000893220-96-001117.hdr.sgml : 19960703 ACCESSION NUMBER: 0000893220-96-001117 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960702 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANOVER FOODS CORP /PA/ CENTRAL INDEX KEY: 0000853733 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 230670710 STATE OF INCORPORATION: PA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17896 FILM NUMBER: 96590280 BUSINESS ADDRESS: STREET 1: 1486 YORK ST STREET 2: PO BOX 334 CITY: HANOVER STATE: PA ZIP: 17331 BUSINESS PHONE: 7176326000 MAIL ADDRESS: STREET 1: 1486 YORK STREET STREET 2: P O BOX 334 CITY: HANOVER STATE: PA ZIP: 17331 FORMER COMPANY: FORMER CONFORMED NAME: HANOVER BRANDS INC /PA/ DATE OF NAME CHANGE: 19900815 10-K 1 FORM 10-K, HANOVER FOODS CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - ----- ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ___________________to _________________________ Commission file number 000-17896 -------------------------------------------------------- HANOVER FOODS CORPORATION (Exact name of Registrant as specified in its charter) PENNSYLVANIA 23-0670710 (State of Incorporation) (IRS Employer I.D. No.)
P.O. BOX 334, YORK STREET EXTENDED, HANOVER, PENNSYLVANIA 17331-0334 (Address of principal executive offices) Registrant's telephone number (717) 632-6000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Class A Nonvoting None Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ---------- As of June 1, 1996, the estimated aggregate market value of Class B Voting Common Stock held by non-affiliates of the Registrant was $510,518. (The exclusion of the market value of shares owned by any person shall not be deemed an admission that such person is an "affiliate" of the Registrant.) There were 427,350 shares of Class B Voting Common Stock outstanding as of June 1, 1996. There were 294,834 shares of Class A Nonvoting Common Stock outstanding as of June 1, 1996. 2 PART I ITEM 1. BUSINESS Hanover Foods Corporation (as used herein the term "Corporation" refers to Hanover Foods Corporation and its consolidated subsidiaries) was incorporated on December 12, 1924 in Harrisburg, Pennsylvania. The Corporation consists of two (2) operating divisions: Hanover and Myers. In addition, the Corporation has five (5) wholly-owned subsidiaries, Tri-Co. Foods Corp., Consumers Packing Company, d/b/a Hanover Foods - Lancaster Division, Spring Glen Fresh Foods, Inc., Hanover Insurance Corporation, Ltd., and Nittany Corporation. Tri-Co. Foods Corp. in turn has two (2) wholly- owned subsidiaries, Alimentos Congelados Monte Bello, S.A., and Sunwise Corporation. Originally, the Corporation was established to provide seasonal packing of locally grown peas, beans, and other vegetables. From this beginning, the Corporation has grown to become one of the leading independent processors of canned vegetables, frozen vegetables, frozen meat products, frozen entrees, frozen soft pretzels and fresh foods in the eastern United States. This growth has resulted from the Corporation's extended scope of operations, new product development and acquisitions. Currently, 60% of the Corporation's sales volume, primarily frozen sales, is transacted during the third and fourth quarters of the Corporation's fiscal year and 40% of the Corporation's sales volume, primarily canned sales, is transacted during the first and second quarters of the Corporation's fiscal year. The Corporation is a vertically integrated processor of vegetable products in one industry segment. It is involved in the growing, processing, canning, freezing, freeze-drying, packaging, marketing and distribution of its products under its own trademarks, as well as other branded, customer and private labels. The Corporation enjoys its strongest retail sales in the mid-Atlantic states and Florida. Introduction of frozen ethnic blends, specialty vegetables, canned pasta, and frozen soft pretzel products has enabled the Corporation to increase and expand its distribution throughout the eastern seaboard. Distribution in the remainder of the United States is limited to food service, military and industrial customers. OPERATIONS The Corporation has operations at five (5) plants in Pennsylvania, one (1) plant in Delaware and two (2) plants in Guatemala. PRODUCTS The Corporation markets its products under the brand names HANOVER, HANOVER FARMS, MYERS, PHILLIPS, GIBBS, SUPERFINE, MARYLAND CHIEF, MITCHELL'S, DUTCH FARMS, SUNWISE, O&C (jarred onions only), and SPRING GLEN FRESH FOODS. The products sold by the Corporation under these brand names include canned vegetables, beans and pasta as well as frozen vegetables, frozen meat products, food entrees, refrigerated and fresh foods. -1- 3 DISTRIBUTION The Corporation's products are marketed under its brand labels and customer private labels to the consumer for home use and also to the food service trade which includes restaurants, fast food chains, hospitals and schools as well as military and other governmental uses. The Corporation's products are distributed directly to its customers and indirectly via independent distributors. Sales activities are conducted via Corporation employed sales personnel and independent sales brokerage firms. The Corporation also manufactures private label food products for other food companies. COMPETITION The Corporation markets its food products to the retail and food service sectors in the northeastern, midatlantic, southeastern and midwestern areas of the United States. The Corporation competes with approximately eleven (11) national and five (5) regional food processors. The principal methods of competition within the food processing industry are: price, promotion, advertising, product quality and service. TRADEMARKS The Corporation has various registered and unregistered trademarks, service marks and licenses which are of material importance to the Corporation's business. BACKLOG OF ORDERS The Corporation manufactures against customer forecasts and orders. While at any given time there may be a backlog of orders, such backlog is not material to total sales, nor are the changes from time to time significant. RESEARCH AND DEVELOPMENT The Corporation engages in research and development of new products and improvement of existing products as well as the improvement and modernization of its operating plants and equipment. REGULATION The Corporation's operations, as is the case of all food companies, are subject to strict regulation by the U.S. Food and Drug Administration (FDA). The Corporation is also subject to inspection by the Food Safety and Quality Service Division (USDA), for its meat and poultry products. FDA regulates the safety of the food product, the identity of the product, its purity and identification of ingredients therein. USDA establishes grades for products and regulates sanitation. The appropriate state agencies regulate the sanitation of the Corporation's plants and the manufacture of food products utilizing flour in any baking process. The Corporation is also regulated by many other federal and state governmental agencies such as the Federal Trade Commission and the U.S. Environmental Protection Agency. -2- 4 ENVIRONMENTAL CONSIDERATIONS In the past and currently the Corporation is making investments to comply with all federal, state and local laws, rules and regulations. Such expenditures have not been material with respect to the Corporation's capital expenditures, earnings or competitive position, and are not expected to be in the future. SOURCES OF SUPPLY The Corporation maintains an intimate involvement in all phases of agricultural crop production as well as direct procurement of fresh vegetables. The Corporation procures all of its fresh vegetable requirements through direct contracts with farmers who cultivate and harvest the crops according to the Corporation's specifications. In addition, the Corporation directly procures beans, tomato based products, pasta, herbs and other ingredients, as well as containers and packaging materials from outside vendors throughout the world. EMPLOYEES The Corporation, its divisions and subsidiaries currently employ approximately 1,547 employees on a full- time and a seasonal basis. Approximately 1,271 employees are employed in the United States and 276 are employed in Guatemala. A total of 682 production workers at the Hanover, PA, Centre Hall, PA and Clayton, DE plants are members of the United Food and Commercial Workers Union - - Locals 1776, 72, and 56 respectively. The Hanover and Centre Hall, PA plants each have their own three (3) year contract beginning January 1, 1994 and ending December 31, 1996. The Clayton, Delaware plant has its own three (3) year contract beginning January 1, 1996 and ending December 31, 1998. There are no union contracts at any other plants or locations of the Corporation. The Corporation has never had any strikes or labor disputes interfering with its operations. FOREIGN OPERATIONS The Corporation's wholly-owned subsidiary, Tri-Co. Foods Corp., has two (2) wholly-owned subsidiaries, Alimentos Congelados Monte Bello, S.A., San Jose Pinula, Guatemala and Sunwise Corporation, Lakeland, Florida. Alimentos Congelados Monte Bello, S.A. procures, processes and ships vegetables produced in Guatemala. Alimentos Congelados Monte Bello, S.A. contracts with approximately 2,000 independent farmers in Guatemala for the growing and harvesting of broccoli, cauliflower, okra and Brussels sprouts. The raw vegetable product purchased by the Corporation is frozen at one of two Corporation plants located at San Jose Pinula, Guatemala and Teculutan, Guatemala. Sunwise Corporation imports and distributes the Guatemalan product to Hanover Foods Corporation. The business of the Corporation in Guatemala is subject to the laws of Guatemala which may place restrictions and controls on such matters as ownership, imports and exports, prices, product lines and transfer of funds, and is also subject to the fluctuating exchange rate between the Guatemalan quetzal and the U.S. dollar. -3- 5 Information with respect to the revenue, cost of sales and identifiable assets for the Corporation's foreign operations is set forth in Note 10 to the Consolidated Financial Statements entitled "Foreign Operations." WORKING CAPITAL Information relating to the Corporation's cash and other working capital items is set forth in Part II hereof on pages 9 through 14 in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 2. PROPERTIES The following is a list of the Corporation's principal manufacturing and processing properties. The Corporation owns each of the properties. UNITED STATES Hanover, PA - Canned and jarred products, repackaging of frozen vegetables, dry and frozen storage. Corporate research, new product development and quality assurance laboratory (corporate headquarters). Note: The industrial revenue bond financing by the York County Industrial Development Authority of the 18.6 acre site of the wastewater treatment plant adjacent to the canning plant was paid in full on October 1, 1995. The Agreement for Termination of Loan Documents and the Mortgage Satisfaction Piece were recorded on March 19, 1996. Centre Hall, PA - Frozen vegetables. Dry and frozen storage. Note: The industrial revenue bond financing by the College Township, Centre County Industrial Development Authority of the plant was paid in full and title to the property reverted to the Corporation by deed dated May 29, 1996 and recorded June 3, 1996. Lancaster, PA - Frozen mushrooms, peppers, onions and celery, freeze-dried food and ice manufacture. Dry and frozen storage. Plumsteadville, PA - Frozen food entrees, meat pies and soups. Dry and frozen storage. Ephrata, PA - Refrigerated and fresh foods and soups. Dry, refrigerated and frozen storage. Clayton, DE - Frozen vegetables, meat products, frozen food entrees and meat pies. Dry and frozen storage. -4- 6 GUATEMALA San Jose Pinula - Frozen vegetables, dry and frozen storage, research and quality assurance laboratory. Teculutan - Frozen vegetables, dry and frozen storage. ITEM 3. LEGAL PROCEEDINGS On February 1, 1995, Michael A. Warehime, J. William Warehime and Elizabeth W. Stick, three shareholders of the Corporation, filed a Complaint against the Corporation and its Chairman in the Court of Common Pleas of York County, Pennsylvania, Civil Action - Equity, No. SU-00471-07. The suit, when filed, sought various forms of relief including, but not limited to, an order that the court invalidate the Corporation's October 18, 1994 election of directors and reinstate the Board of Directors that existed prior to that date. In addition, the plaintiffs sought all costs and fees incident to bringing suit. On August 16, 1995, the court dismissed J. William Warehime and Elizabeth W. Stick as plaintiffs and the Corporation as a defendant in this case. The court also dismissed two of the four counts alleged by the plaintiffs. Subsequently, Michael A. Warehime, the remaining plaintiff, amended the Complaint to seek a judgment requiring John A. Warehime to reimburse the Corporation for certain compensation paid to him by the Corporation under a 1995 employment agreement. The case is in discovery and no trial date has been set. In addition, the Corporation is subject to routine claims and litigation incidental to its ordinary business operations, which in the opinion of management will not materially affect the Corporation's financial position or operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS There is no established public trading market for any class of the Corporation's capital stock. No class of capital stock is listed or traded on any stock exchange or with NASDAQ. Since March 1989 there has been limited trading in the outstanding shares of Class A Nonvoting Common Stock through stockbrokers. From April 4, 1994 to March 31, 1996, the Class A Nonvoting Common Stock has traded at prices ranging from $42.00 to $62.00. Due to the lack of an established public trading market, under certain circumstances the Corporation has promised to purchase shares of Class A Nonvoting Common Stock purchased or owned by employees prior to April 20, 1988. This promise of purchase by the Corporation is for an indefinite period of time. As of March 31, 1996, there were 11,808 shares outstanding which would be eligible for this plan. During the fiscal year ended March 31, 1996, the Corporation purchased 5,789 shares of Class A Common Stock -5- 7 at an aggregate cost of $392,000 or an average of approximately $68 per share. The repurchase price of the stock is the most recent independent appraised value. The appraisal was performed by Management Planning, Inc., Princeton, New Jersey. In addition, on July 27, 1995, the Corporation purchased 5,148 shares of the Company's Class B Voting Common Stock from Cyril T. Noel, individually, and Cyril T. Noel and Frances L. Noel, jointly, at $71.40 per share, as per the appraisal of Management Planning, Inc., Princeton, New Jersey. On April 1, 1996, the Corporation entered into a stock purchase agreement with John R. Miller, Jr. to purchase 1,210 shares of the Company's Voting Class B Common Stock and 5,990 shares of the Company's Nonvoting Class A Common Stock over a four year period. The agreement provides that John R. Miller, Jr. give a proxy to John A. Warehime, Chairman, to vote all shares of both classes of common stock beginning April 1, 1996 and ending March 31, 2001. The Corporation currently has no outstanding warrants to purchase shares of any class of its capital stock. The only securities convertible into common equity of the Corporation are 15,044 outstanding shares of Cumulative Convertible Preferred Stock (Series A and B). At any time, the holders of this class of stock have the option to convert their shares to shares of Class A Nonvoting Common Stock based on the book value of the Common Stock at the time of conversion. There is no common equity of the Corporation that is being, or has been proposed to be publicly offered by the Corporation which could have a material effect on the market price of the Corporation's common equity. As of June 1, 1996, there were 466 holders of record of Class A Nonvoting Common Stock and 37 holders of record of Class B Voting Common Stock. During the two most recent fiscal years ending March 31, 1996 and April 2, 1995, the Corporation paid cash dividends of $1.10 and $1.075 per share respectively to the Class A and Class B Common stockholders. Dividends of the Corporation are declared at the discretion of the Board of Directors in compliance with Pennsylvania law. The December 1, 1991 $25,000,000 long-term financing agreement between the Corporation and Allstate Life Insurance Corporation contains certain restrictions on the Corporation's payment of dividends and purchase of its stock. -6- 8 ITEM 6. SELECTED FINANCIAL DATA HANOVER FOODS CORPORATION AND SUBSIDIARIES Summary of Operations
- -------------------------------------------------------------------------------------------------- Fiscal years ended Dollars in thousands ------------------------------------------------------------------ (except per share data) 1996 1995 1994 1993 1992 Net sales $ 262,920 257,530 235,189 216,701 192,082 - -------------------------------------------------------------------------------------------------- Cost of goods sold 213,515 199,372 179,892 166,728 147,684 Selling expenses 35,067 42,089 32,154 27,236 26,850 Administrative expenses 9,706 9,699 9,525 9,890 9,511 - -------------------------------------------------------------------------------------------------- Operating profit 4,632 6,370 13,618 12,847 8,037 Interest expense 4,639 3,744 3,733 3,637 2,802 Other (income) expenses - net (640) (60) (343) (58) 190 - -------------------------------------------------------------------------------------------------- Earnings before income taxes and cumulative effect of change in accounting principle 633 2,686 10,228 9,268 5,045 Income taxes 213 798 4,067 3,672 2,199 - -------------------------------------------------------------------------------------------------- Earnings before cumulative effect of change in accounting principle 420 1,888 6,161 5,596 2,846 Cumulative effect of change in accounting principle - - - - 618 - -------------------------------------------------------------------------------------------------- Net earnings $ 420 1,888 6,161 5,596 3,464 - -------------------------------------------------------------------------------------------------- Net earnings applicable to common stock $ 389 1,855 6,127 5,562 3,430 - --------------------------------------------------------------------------------------------------
-7- 9 ITEM 6. SELECTED FINANCIAL DATA HANOVER FOODS CORPORATION AND SUBSIDIARIES Common Stock Data and Balance Sheet and Financial Data
- -------------------------------------------------------------------------------------------------------------- Fiscal years ended Dollars in thousands ------------------------------------------------------------------ (except per share data) 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------- COMMON STOCK DATA Per common share: Earnings before cumulative effect of change in accounting principle $ 0.53 2.53 8.29 7.48 3.70 Net earnings $ 0.53 2.53 8.29 7.48 4.51 Common dividends $ 1.10 1.075 1.00 1.00 1.00 Book value $ 58.27 59.32 57.89 50.59 44.32 Average shares outstanding 729,608 734,252 739,026 743,732 760,534 - -------------------------------------------------------------------------------------------------------------- BALANCE SHEET AND FINANCIAL DATA Working capital $ 15,044 19,569 22,279 21,796 20,474 Current ratio 1.25 1.32 1.44 1.52 1.56 Total assets $ 128,368 132,144 124,646 117,834 107,814 Long-term debt $ 18,453 20,658 24,436 31,056 31,262 Capital lease obligations -- long-term $ - 233 578 1,109 1,614 Stockholders' equity $ 42,509 43,920 42,990 37,920 33,557 - --------------------------------------------------------------------------------------------------------------
8 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OVERVIEW OF FISCAL 1996 RESULTS The results of operations for fiscal 1996 were dramatically impacted by the presence of intense competition from national branded companies and the need to manage higher frozen inventory levels which was caused by strong crop yields and production levels exceeding forecast. The increased competition and excess production was countered by strong promotional and discounted sales efforts in fiscal 1996. These programs generated strong sales volume, but at a much lower profit contribution. The Corporation and its subsidiaries, in the normal course of business, purchase and sell goods and services to related parties. The Corporation believes that the cost of such purchases and sales are competitive with alternate sources of supply and markets. (See note 5 to the consolidated financial statements). 1996 RESULTS OF OPERATIONS COMPARED WITH 1995 Net Sales Consolidated net sales were $262.9 million for fiscal 1996 compared to $257.5 million for fiscal 1995, an increase of $5.4 million or 2.1%. The 2.1% increase in consolidated net sales is comprised of the following volume and sales price components:
Year Ended March 31, 1996 Increase (Decrease) ------------------- Volume Sales Price Combined ------ ----------- -------- Frozen Sales 2.4% (1.7%) .7% Canned Sales 3.1% (2.4%) .7% Prepared Foods .5% .2% .7% ------ ------ ------ 6.0% (3.9%) 2.1%
The increased volume in Frozen Sales was principally due to higher sales levels in direct retail and foodservice products. The reduction in unit sales price was caused by intense competition to lower unit prices. Canned sales also showed a slight increase for fiscal 1996. Increased volume in foodservice and private label canned sales more than offset decreased volume in retail sales. The reduction in unit sales price was caused by intense competition to lower prices in the private label and foodservice sector. Cost of Goods Sold Consolidated cost of goods sold was 81.2% of consolidated net sales for fiscal 1996 compared to 77.4% for fiscal 1995. Total consolidated cost of sales increased $14.1 million over fiscal 1995 of which 92% was due to increased volume and 8% was due to increased raw material costs and outside frozen storage costs. -9- 11 Selling Expenses Consolidated selling expenses were 13.3% of consolidated net sales for fiscal 1996 and 16.3% for fiscal 1995. The Corporation's frozen products faced intense competition in the mid-Atlantic region from national branded companies attempting to gain market share. Promotion expense for fiscal 1996 was $23.2 million versus $31.9 million for fiscal 1995. In addition to promotion expense, the Corporation spent approximately $3.6 million in advertising expense, including $2.4 million relating to redeemed coupons, for fiscal 1996, compared to $3.1 million in advertising, including $2.0 million relating to redeemed coupons, for fiscal 1995. Looking to fiscal 1997 and beyond, management has revised market strategy to direct promotional dollars to value-added items and to geographic market areas that would be more receptive to its programs. Management is constantly reviewing the effectiveness of the promotional programs. Administrative Expenses Consolidated administrative expenses were $9.7 million in fiscal 1996 or 3.7% of consolidated net sales versus $9.7 million and 3.8% of consolidated net sales in 1995. The slight decrease in consolidated administrative expenses as a percent of net sales was the net result of reductions in personnel costs offset by increases in other expenses. Included in administrative expenses for fiscal 1996 are $300,000 in legal fees paid in connection with the litigation described in Item 3 above and notes 5 and 9 to the Consolidated Financial Statements. Interest Expense Consolidated interest expense for fiscal 1996 was $895,000 higher than fiscal 1995. Average seasonal borrowing was higher for an extended period of time to fund inventory levels during the fresh pack season and to carry the increased frozen inventory. The maximum amount of seasonal borrowing was approximately $45.9 million as compared to the maximum of $31.2 million in fiscal 1995. The additional expense due to increased average borrowing was partially offset by reduced cost of funds for short-term borrowings. Approximately $1.8 million in senior unsecured term debt that carried higher interest rates was repaid in 1996. Income Taxes The provision for corporate federal and state income taxes for fiscal 1996 was $213,000 or 34% of pretax earnings as compared to a provision of $798,000 or 30% of pretax earnings for fiscal 1995. The higher effective rate is due primarily to proportionately lower non-taxable foreign source earnings in fiscal 1996 offset by a reduction of deferred tax liabilities due to a change in state income tax rates. Net Earnings Consolidated net earnings for fiscal 1996 were $420,000 or .2% of consolidated net sales. This compares to $1.9 million or .7% of consolidated net sales for fiscal 1995. The reduced unit sales prices and higher interest expense described above were the contributing factors to the reduced net earnings. Earnings Per Share Earnings per share are computed on the weighted average number of shares outstanding after providing for preferred stock dividends. During fiscal 1996, 10,937 shares of common stock were redeemed by the -10- 12 Corporation compared to 2,152 shares in fiscal 1995. The redemption of these shares reduces the weighted average number of shares outstanding which is used in calculation of earnings per share. 1995 RESULTS OF OPERATIONS COMPARED WITH 1994 Net Sales Consolidated net sales were $257.5 for fiscal 1995 compared to $235.2 million for fiscal 1994, an increase of $22.3 million or 9.5%. The increase in consolidated net sales is more significant when taking into consideration that fiscal 1994 was comprised of fifty-three weeks whereas fiscal 1995 was only fifty-two weeks. The 9.5% increase in consolidated net sales is comprised of the following volume and sales price components:
Year Ended April 2, 1995 Increase (Decrease) ------------------- Volume Sales Price Combined ------ ----------- -------- Frozen Sales 7.0% (0.6%) 6.4% Canned Sales .9% 2.0% 2.9% Prepared Foods .2% 0.0% .2% ------ ----------- ------ 8.1% 1.4% 9.5%
The increased volume in Frozen Sales was principally due to higher sales levels in direct retail and the sale of excess frozen product. The reduction in unit sales price was caused by sales of excess frozen product at lower unit prices. Canned sales showed a slight net increase for fiscal 1995. Increased volume in the direct and private label canned sales volume more than offset decreased volume in co-pack sales. The volume shift to direct and private label sales which carry a higher unit sales price was the key factor in the increase of sales price variance. Cost of Goods Sold Consolidated cost of goods sold was 77.4% of consolidated net sales of fiscal 1995 compared to 76.5% for fiscal 1994. Total consolidated cost of sales increased $19.5 million over fiscal 1994 of which 75.9% was due to increased volume and 24.1% was due to increased raw material costs and outside frozen storage costs. Selling Expenses Consolidated selling expenses were 16.3% of consolidated net sales for fiscal 1995 and 13.7% for fiscal 1994. The Corporation's frozen products faced intense competition in the mid-Atlantic region from national branded companies attempting to gain market share. Promotion expense for fiscal 1995 was -11- 13 $31.9 million versus $21.4 million for fiscal 1994. In order to remain competitive and retain existing market share, the Corporation offered heavy promotional allowances commencing in the latter part of the third quarter, which were accelerated through the fourth quarter of fiscal 1995. Promotional programs were primarily "off-invoice" and "bill back" allowances granted to the customer. The amount of additional expense to reflect the impact of the increased promotion for fiscal 1995 was approximately $4.2 million. Approximately $1.2 million related to promotions that occurred in the latter part of the third quarter and approximately $3.0 million for the fourth quarter of fiscal 1995. The market has demanded promotional programs to move frozen product. Industry data reveals that over 38% of frozen volume was sold under promotional programs during the fourth quarter of 1994. In addition to promotion expense, the Corporation spent approximately $3.1 million in advertising expense, including $2.0 million relating to redeemed coupons, for fiscal 1995 compared to $2.9 million in advertising, including $1.6 million relating to redeemed coupons, for fiscal 1994. Administrative Expenses Consolidated administrative expenses were $9.7 million in fiscal 1995 or 3.8% of consolidated net sales versus $9.5 million in fiscal 1994 or 4.0% of consolidated net sales. The increase in consolidated administrative expenses was the net result of various increased expenses offset by reduction in other expenses. During fiscal 1995 legal and outside fees that were principally involved with ongoing corporate governance and litigation increased $400,000. Executive and management compensation, which included performance bonuses increased $390,000. Experimental product development costs relating to the frozen soft pretzel project, charitable contributions and pension expense each showed reduced expense for fiscal 1995 that totaled approximately $350,000. Interest Expense Consolidated interest expense for fiscal 1995 was slightly higher. Average seasonal borrowing was higher for an extended period of time to fund inventory levels during the fresh pack season and to carry the increased frozen inventory. The maximum amount of seasonal borrowing was approximately $31.2 million as compared to $25.2 million as the maximum level in fiscal 1994. The additional expense due to increased average borrowing was offset by the reduced cost of funds. Approximately $2.7 million in term debt that carried higher interest rates was repaid in fiscal 1995. Income Taxes The provision for corporate income taxes for fiscal 1995 was 30% of pretax earnings. The consolidated provision for corporate taxes was $798,000 or .3% of consolidated net sales. Net Earnings Consolidated net earnings for fiscal 1995 were $1.9 million or .7% of consolidated net sales. This compares to $6.2 million or 2.6% of consolidated net sales for fiscal 1994. The increase in expenses and reduced unit sales prices described above were the contributing factors to the reduced earnings. -12- 14 Earnings Per Share Earnings per share are computed on the weighted average number of shares outstanding after providing for preferred stock dividends. During fiscal 1995, 2,152 shares of common stock were redeemed by the corporation compared to 5,875 shares in fiscal 1994. The redemption of these shares reduces the average number of shares outstanding which is used in the calculation of earnings per share. LIQUIDITY AND FINANCIAL RESOURCES The discussion and analysis of the Corporation's liquidity and financial resources should be read in conjunction with the Consolidated Statement of Cash Flows. Net cash provided by operations for fiscal 1996 was $1.4 million, compared to $10,000 for fiscal 1995. Sources of funds totaled $11.6 million consisting of net earnings of $420,000, decreased accounts receivable of $388,000, decreased inventory of $2.8 million, decreased prepaid items of $1.9 million, an increase in other liabilities of $444,000 and depreciation and amortization of $5.6 million. The funds generated from these sources were applied toward the reduction in accounts payable and accrued expenses of $9.7 million. Net cash provided by operations for fiscal 1995 was $10,000, compared to $7.5 million for fiscal 1994. Sources of funds totaled $10.4 million consisting of net earnings of $1.9 million, increased accounts payable and accrued expenses of $2.8 million and depreciation and amortization of $5.7 million. The funds generated from these sources were applied toward the increased inventory levels of $7.9 million and the increase in prepaid items, principally corporate taxes, of $2.2 million. The primary components of the increased inventory were $5.8 million in frozen product and $1.7 million in ingredients for new frozen blends. Net cash used by investing activities for fiscal 1996 was $6.1 million as compared to $5.6 million for fiscal 1995. The principal use of funds was the upgrade and acquisition of property, plant and equipment. During fiscal 1996, $5.5 million was spent on development and modernization of equipment as compared to $6.2 million in fiscal 1995. These projects were funded by internally generated funds and external borrowing. The Corporation also uses operating leases to meet other equipment needs. The lease expense for fiscal 1996 was $4.0 million, up $395,000 from fiscal 1995. During the first quarter for fiscal 1996, the Corporation purchased a facility located in Teculutan, Guatemala for $250,000 from ARWCO Corporation, a related party, and purchased a tract of land near the Corporation's Centre Hall, Pennsylvania plant for $250,000 from Centre Foods Enterprises, Inc., a related party. Management anticipates capital expenditures of approximately $5.0 million for fiscal 1997 which will be funded internally. Additional borrowing is permitted within parameters prescribed in the existing debt arrangements. On June 1, 1996, the Corporation exercised its unilateral option to purchase land and a facility located in Hanover, Pennsylvania for $904,000 from Food Service East, Inc., a related party. Net cash provided by financing activities was $5.0 million for fiscal 1996 compared to $4.0 million in fiscal 1995. Seasonal borrowing was used throughout the fiscal year to fund operational needs. Seasonal borrowing, plus the cash overdraft, was $9.5 million higher at year end, while term debt and other obligations had been reduced by $3.3 million. Management continues to monitor and evaluate the most cost effective means to finance its operations. The weighted average cost of seasonal borrowing was 6.2% for fiscal 1996 compared to 7.5% for fiscal 1995. -13- 15 The Corporation has commitments from financial institutions to provide seasonal lines of credit in the amount of $55 million. Additional borrowing is permitted within prescribed parameters in existing debt agreements which contain certain performance covenants. At year end the Corporation requested and received waivers of compliance for the Interest Coverage Ratio Covenant from the respective lenders through July 10, 1996. Management and the senior unsecured lender are currently working towards an amendment to modify the Interest Charge Coverage Ratio through September 1, 1997 and management expects to finalize this amendment before the end of the next compliance period. The Corporation paid dividends of $831,000 during fiscal 1996 compared to $822,000 in fiscal 1995. This included a 10% increase in common stock dividend during the second quarter of fiscal 1995 to raise the quarterly dividend per share from $.025 to $0.275. In addition, the Corporation redeemed 5,789 shares of Class A Common stock at a cost of $392,000 (see note 9 to the consolidated financial statements). IMPACT OF EVENTS AND COMMITMENTS ON FUTURE OPERATIONS Competition in the Marketplace The Corporation faced stiff competition from national and regional branded companies during the entire fiscal 1996 in market areas where competition had not been as severe in prior years. Management anticipates the competitive environment will lessen in intensity in fiscal year 1997. Change in Corporate Year End Effective June 1, 1996, the Corporation's fiscal year will end at the close of operations on the Sunday nearest to May 31. Employees A total of 682 production workers of the Corporation are covered by collective bargaining agreements that expire on December 31, 1996 and December 31, 1998. The Corporation has never had any strikes or labor disputes interfering with its operations. Foreign Operations The Corporation has a foreign subsidiary in Guatemala that produces food products for export to the United States to be sold principally by the Corporation to its customers. The Corporation is exposed to foreign exchange risk and is subject to the laws of Guatemala which may place restrictions and controls on the Corporation's business. The Corporation contracts with independent growers to grow crops which are then harvested and sold to the Corporation. New Accounting Standards The Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" in March, 1995 and SFAS No. 123 "Accounting for Stock-Based Compensation" in October, 1995. SFAS No. 121 and 123 are required to be adopted for fiscal years beginning after December 15, 1995, and are not expected to have a significant effect on the Corporation's financial statements. -14- 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Pages ----- Financial Statements 16 Report of Independent Certified Public Accountants (KPMG Peat Marwick LLP) 16 Report of Independent Certified Public Accountants (Harry Ness & Company) 17 Consolidated Balance Sheets as of March 31, 1996 and April 2, 1995 18 Consolidated Statements of Earnings for Years Ended March 31, 1996, 20 April 2, 1995 and April 3, 1994 Consolidated Statements of Stockholders' Equity for Years Ended 21 March 31, 1996, April 2, 1995, and April 3, 1994 Consolidated Statements of Cash Flows for Years Ended March 31, 1996, 22 April 2, 1995, and April 3, 1994 Notes to Consolidated Financial Statements 24 Quarterly Financial Data 42
-15- 17 [KPMG Peat Marwick LLP Letterhead] INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Hanover Foods Corporation: We have audited the accompanying consolidated balance sheet of Hanover Foods Corporation and subsidiaries as of March 31, 1996 and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hanover Foods Corporation and subsidiaries as of March 31, 1996 and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Harrisburg, Pennsylvania July 2, 1996 -16- 18 [HARRY NESS & COMPANY LETTERHEAD] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Hanover Foods Corporation We have audited the accompanying consolidated balance sheet of Hanover Foods Corporation and subsidiaries as of April 2, 1995 and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the two years in the period ended April 2, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hanover Foods Corporation and subsidiaries as of April 2, 1995 and the consolidated results of their operations and their consolidated cash flows for each of the two years in the period ended April 2, 1995, in conformity with generally accepted accounting principles. /s/ HARRY NESS & COMPANY York, Pennsylvania May 26, 1995 -17- 19 HANOVER FOODS CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets March 31, 1996 and April 2, 1995
===================================================================================================== March 31, April 2, ASSETS 1996 1995 - ----------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 914,000 649,000 Accounts and notes receivable -- net 25,216,000 25,606,000 Accounts receivable from related parties -- net 18,000 16,000 Inventories: Finished goods 33,930,000 38,292,000 Raw materials and supplies 13,227,000 11,660,000 Prepaid corporate income taxes 541,000 2,224,000 Prepaid expenses 1,294,000 1,558,000 Other current assets -- 263,000 Deferred income taxes 885,000 467,000 - ----------------------------------------------------------------------------------------------------- Total current assets 76,025,000 80,735,000 - ----------------------------------------------------------------------------------------------------- Property, plant, and equipment -- at cost: Land and buildings 31,847,000 30,945,000 Machinery and equipment 77,210,000 72,622,000 Leasehold improvements 349,000 326,000 - ----------------------------------------------------------------------------------------------------- 109,406,000 103,893,000 Less accumulated depreciation and amortization 60,262,000 54,730,000 - ----------------------------------------------------------------------------------------------------- 49,144,000 49,163,000 Construction in progress 61,000 88,000 - ----------------------------------------------------------------------------------------------------- 49,205,000 49,251,000 - ----------------------------------------------------------------------------------------------------- Other assets: Intangible assets -- less accumulated amortization of $2,002,000 and $1,987,000 458,000 473,000 Other assets 2,680,000 1,685,000 - ----------------------------------------------------------------------------------------------------- Total assets $ 128,368,000 132,144,000 =====================================================================================================
See accompanying notes to consolidated financial statements. -18- 20 HANOVER FOODS CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets March 31, 1996 and April 2, 1995
===================================================================================================== March 31, April 2, LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 - ----------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 24,792,000 33,025,000 Notes payable -- banks 29,421,000 19,926,000 Accrued expenses 3,966,000 4,883,000 Current maturities of long-term debt 1,999,000 2,415,000 Current maturities of long-term debt to related party 500,000 500,000 Current maturities of capital lease obligations 210,000 300,000 Income taxes payable 93,000 117,000 - ----------------------------------------------------------------------------------------------------- Total current liabilities 60,981,000 61,166,000 Long-term debt, less current maturities 18,078,000 19,783,000 Long-term debt to related party, less current maturities 375,000 875,000 Long-term capital lease obligations, less current maturities -- 233,000 Deferred income taxes 5,689,000 5,875,000 Other liabilities 736,000 292,000 - ----------------------------------------------------------------------------------------------------- Total liabilities 85,859,000 88,224,000 - ----------------------------------------------------------------------------------------------------- Stockholders' equity: 8-1/4% cumulative convertible preferred -- $25 par value, issuable in series -- 120,000 shares authorized, 31,536 in 1996 and 31,816 in 1995 shares issued, 15,044 in 1996 and 15,324 in 1995 shares outstanding 788,000 795,000 Common stock, Class A -- non-voting -- $25 par value, 800,000 shares authorized, 349,210 in 1996 and 349,090 in 1995 shares issued, 295,649 in 1996 and 301,318 in 1995 shares outstanding 8,729,000 8,726,000 Common stock, Class B -- voting -- $25 par value, 880,000 shares authorized, 493,123 shares issued, 427,459 in 1996 and 432,607 in 1995 shares outstanding 12,328,000 12,328,000 Capital paid in excess of par value 1,623,000 1,619,000 Retained earnings 27,026,000 27,437,000 Treasury stock, at cost (7,708,000) (6,948,000) Other (277,000) (37,000) - ----------------------------------------------------------------------------------------------------- 42,509,000 43,920,000 - ----------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 128,368,000 132,144,000 =====================================================================================================
-19- 21 HANOVER FOODS CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings Fiscal years ended March 31, 1996, April 2, 1995, and April 3, 1994
========================================================================================================================= Fiscal years ended ----------------------------------------------------- March 31, April 2, April 3, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- Net sales $ 262,920,000 257,530,000 235,189,000 Cost of goods sold 213,515,000 199,372,000 179,892,000 - ------------------------------------------------------------------------------------------------------------------------- Gross profit 49,405,000 58,158,000 55,297,000 Selling expenses 35,067,000 42,089,000 32,154,000 Administrative expenses 9,706,000 9,699,000 9,525,000 - ------------------------------------------------------------------------------------------------------------------------- Operating profit 4,632,000 6,370,000 13,618,000 Interest expense 4,639,000 3,744,000 3,733,000 Other (income) expenses -- net (640,000) (60,000) (343,000) - ------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 633,000 2,686,000 10,228,000 Income taxes 213,000 798,000 4,067,000 - ------------------------------------------------------------------------------------------------------------------------- Net earnings 420,000 1,888,000 6,161,000 Dividends on preferred stock 31,000 33,000 34,000 - ------------------------------------------------------------------------------------------------------------------------- Net earnings applicable to common stock $ 389,000 1,855,000 6,127,000 ========================================================================================================================= Earnings per common share $ 0.53 2.53 8.29 ========================================================================================================================= Average common shares outstanding 729,608 734,252 739,026 =========================================================================================================================
See accompanying notes to consolidated financial statements. -20- 22 HANOVER FOODS CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Fiscal years ended March 31, 1996, April 2, 1995, and April 3, 1994
=============================================================================================================== Cumulative convertible preferred stock Common stock Total Series A and Series B Class A shareholders' --------------------- ---------------------- equity Shares Amount Shares Amount - --------------------------------------------------------------------------------------------------------------- Balance, March 29, 1993 $ 37,920,000 32,936 $ 823,000 348,515 $ 8,713,000 Net earnings 6,161,000 -- -- -- -- Cash dividends per share: Preferred -- $2.0625 (34,000) -- -- -- -- Common -- $1.00 (737,000) -- -- -- -- Common stock issuance 3,000 -- -- 46 1,000 Redemption of common stock (388,000) -- -- -- -- Unearned compensation 116,000 -- -- -- -- Unrealized loss on investments (51,000) -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Balance, April 3, 1994 42,990,000 32,936 823,000 348,561 8,714,000 Net earnings 1,888,000 -- -- -- -- Cash dividends per share: Preferred -- $2.0625 annually (33,000) -- -- -- -- Common -- $1.075 annually (789,000) -- -- -- -- Common stock issuance 3,000 -- -- 46 -- Redemption of common stock (142,000) -- -- -- -- Unrealized gain on investments 3,000 -- -- -- -- Conversion of preferred for Class A common -- (1,120) (28,000) 483 12,000 - --------------------------------------------------------------------------------------------------------------- Balance, April 2, 1995 43,920,000 31,816 795,000 349,090 8,726,000 Net earnings 420,000 -- -- -- -- Cash dividends per share: Preferred -- $2.0625 annually (31,000) -- -- -- -- Common -- $1.10 annually (800,000) -- -- -- -- Redemption of common stock -- Class A 5,789 shares, Class B 5,148 shares (760,000) -- -- -- -- Conversion of preferred for Class A common -- (280) (7,000) 120 3,000 Minimum pension liability adjustment (net of taxes of $235,000) (351,000) -- -- -- -- Unrealized gain on investments 111,000 -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Balance, March 31, 1996 $ 42,509,000 31,536 $ 788,000 349,210 $ 8,729,000 ===============================================================================================================
================================================================================================================================== Common stock Class B Capital paid Treasury stock ---------------------- in excess of Retained ---------------------- Shares Amount par value earnings Shares Amount Other - ---------------------------------------------------------------------------------------------------------------------------------- Balance, March 29, 1993 493,123 $ 12,328,000 1,601,000 20,981,000 116,757 $ (6,421,000) (105,000) Net earnings -- -- -- 6,161,000 -- -- -- Cash dividends per share: Preferred -- $2.0625 -- -- -- (34,000) -- -- -- Common -- $1.00 -- -- -- (737,000) -- -- -- Common stock issuance -- -- 2,000 -- -- -- -- Redemption of common stock -- -- -- -- 5,875 (388,000) -- Unearned compensation -- -- -- -- -- -- 116,000 Unrealized loss on investments -- -- -- -- -- -- (51,000) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, April 3, 1994 493,123 12,328,000 1,603,000 26,371,000 122,632 (6,809,000) (40,000) Net earnings -- -- -- 1,888,000 -- -- -- Cash dividends per share: Preferred -- $2.0625 annually -- -- -- (33,000) -- -- -- Common -- $1.075 annually -- -- -- (789,000) -- -- -- Common stock issuance -- -- -- -- (46) 3,000 -- Redemption of common stock -- -- -- -- 2,152 (142,000) -- Unrealized gain on investments -- -- -- -- -- -- 3,000 Conversion of preferred for Class A common -- -- 16,000 -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Balance, April 2, 1995 493,123 12,328,000 1,619,000 27,437,000 124,738 (6,948,000) (37,000) Net earnings -- -- -- 420,000 -- -- -- Cash dividends per share: Preferred -- $2.0625 annually -- -- -- (31,000) -- -- -- Common -- $1.10 annually -- -- -- (800,000) -- -- -- Redemption of common stock -- Class A 5,789 shares, Class B 5,148 shares -- -- -- -- 10,937 (760,000) -- Conversion of preferred for Class A common -- -- 4,000 -- -- -- -- Minimum pension liability adjustment (net of taxes of $235,000) -- -- -- -- -- -- (351,000) Unrealized gain on investments -- -- -- -- -- -- 111,000 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, March 31, 1996 493,123 $ 12,328,000 1,623,000 27,026,000 135,675 $ (7,708,000) (277,000) ==================================================================================================================================
See accompanying notes to consolidated financial statements. -21- 23 HANOVER FOODS CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal years ended March 31, 1996, April 2, 1995, and April 3, 1994
========================================================================================================================= Fiscal years ended -------------------------------------------------- March 31, April 2, April 3, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 420,000 1,888,000 6,161,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,582,000 5,652,000 6,167,000 (Gain) loss on sale of property, plant, and equipment (25,000) (10,000) 104,000 Deferred income taxes (369,000) 22,000 593,000 Change in assets and liabilities: Accounts receivable 388,000 187,000 (505,000) Inventory 2,795,000 (7,887,000) (8,607,000) Prepaid items 1,947,000 (1,892,000) (231,000) Accounts payable and accrued expenses (9,736,000) 2,680,000 3,240,000 Dividends payable -- (192,000) (2,000) Income taxes payable (24,000) (577,000) 398,000 Other liabilities 444,000 139,000 153,000 - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,422,000 10,000 7,471,000 - ------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Decrease (increase) in other current assets 263,000 -- (80,000) Decrease (increase) in other noncurrent assets, net (884,000) 600,000 436,000 Acquisitions of property, plant, and equipment (5,527,000) (6,235,000) (4,585,000) Proceeds from dispositions of property, plant, and equipment 31,000 30,000 234,000 - ------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (6,117,000) (5,605,000) (3,995,000) - -------------------------------------------------------------------------------------------------------------------------
(Continued) -22- 24 HANOVER FOODS CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued
========================================================================================================================= Fiscal years ended ----------------------------------------------------- March 31, April 2, April 3, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from notes payable $ 131,244,000 119,109,000 90,941,000 Payment on notes payable (121,749,000) (107,849,000) (87,570,000) Payment on long-term debt (2,989,000) (5,838,000) (5,402,000) Payment on long-term capital lease obligations (323,000) (474,000) (588,000) Payment of dividends (831,000) (822,000) (771,000) Common stock redemption (392,000) (142,000) (388,000) Common stock issuance -- 3,000 3,000 - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 4,960,000 3,987,000 (3,775,000) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 265,000 (1,608,000) (299,000) Cash and cash equivalents, beginning of year 649,000 2,257,000 2,556,000 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 914,000 649,000 2,257,000 ========================================================================================================================= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 4,660,000 3,721,000 3,838,000 Income taxes 462,000 3,452,000 2,850,000 Non-cash financing activities: The Corporation entered into a note payable agreement to purchase 5,148 shares of Class B common stock for $368,000 from a director of the Corporation. =========================================================================================================================
See accompanying notes to consolidated financial statements. -23- 25 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 1996, April 2, 1995, and April 3, 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES DESCRIPTION OF BUSINESS Hanover Foods Corporation is a processing, manufacturing, and distribution concern. The Company's principal line of business is the processing and sales of canned and frozen vegetables, frozen entrees, and prepared foods primarily in the Eastern United States. The Company's primary customers include regional grocery and other wholesale and retail food outlets and other food processors and distributors. The Company's ten largest customers account for approximately 40% of the Company's net sales and accounts receivable with no single customer accounting for more than 10% of net sales for the fiscal years ended March 31, 1996, April 2, 1995, and April 3, 1994. The Company's raw materials are readily available, and the Company is not dependent on a single supplier or a few suppliers. Revenue is recognized from sales when products are shipped. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Hanover Foods Corporation and its subsidiaries, which are Consumers Packing Company (T/A Hanover Foods - Lancaster Division), Spring Glen Fresh Foods, Inc., Hanover Insurance Company, Ltd., The Nittany Corporation, and Tri-Co. Foods Corp. and its subsidiaries - Alimentos Congelados Monte Bellos, S.A. (ALCOSA) and Sunwise Corporation, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Corporation to credit risk consist of trade receivables. Wholesale and retail food distributors comprise a significant portion of the trade receivables; collateral is not required. The risk associated with the concentration is limited due to the large number of wholesalers and retailers and their geographic dispersion. CASH AND CASH EQUIVALENTS Cash equivalents of $796,000 and $327,000 at March 31, 1996 and April 2, 1995, respectively, consist of short-term interest-bearing investments of less than three months. For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. INVESTMENTS Investments of $1,195,000 and $1,154,000 at March 31, 1996 and April 2, 1995, respectively, classified as available-for-sale securities, are included in other noncurrent assets and measured at fair value. Net unrealized gains and losses are reported as a separate component of stockholders'equity until realized. (Continued) - 24 - 26 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (1) CONTINUED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, accounts and notes receivable, and accounts payable approximates fair values due to the short-term maturities of these instruments. The fair values of each of the Company's long-term debt instruments are based on the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of comparable maturity. The amount reported in the consolidated balance sheet for long-term debt approximates fair value. INVENTORIES Inventories are stated at the lower of cost (determined by average cost which approximates the first-in, first-out method of accounting) or market. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost. Plant and equipment under capital leases are stated at the present value of minimum lease payments. Expenditures for maintenance and repairs are charged to expense as incurred; additions and betterments that materially increase the lives of the related assets are capitalized. Upon retirement, sale, or other disposition of buildings and equipment, cost and accumulated depreciation are eliminated from the accounts and gain or loss is included in operations. Depreciation on property, plant, and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from approximately 3 years to 12 years for equipment and up to 40 years for buildings. Accelerated methods are used for tax reporting purposes. Plant and equipment held under capital leases are amortized straight-line over the shorter of the lease term or estimated useful life of the asset. INTANGIBLE ASSETS It is the Corporation's policy to amortize intangible assets, primarily covenants not to compete, purchased trademarks and goodwill, over periods not in excess of 40 years. The Company assesses the recoverability of intangible assets by determining whether the amortization of the balance over its remaining life can be recovered through undiscounted future operating cash flows. The amount of impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability will be impacted if estimated future operating cash flows are not achieved. (Continued) -25- 27 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (1) CONTINUED INSURANCE The Company, through its wholly-owned insurance subsidiary, is self-insured with respect to certain general liability and workers' compensation claims. Excess insurance coverage is maintained for general liability and workers' compensation claims. Accrued expenses include provision for unpaid claims reported and claims incurred but not reported. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. Research and development costs amounted to $725,000, $691,000, and $932,000 for the years ended March 31, 1996, April 2, 1995, and April 3, 1994. PROMOTIONAL COSTS Promotional costs are expensed as incurred. Accounts and notes receivable are presented net of allowances for bad debts and promotional programs. ADVERTISING COSTS Advertising costs are expensed as incurred. Manufacturer coupons are expensed when payable by the Company (note 9). Advertising expenses amounted to $3,565,000, $3,122,000, and $3,049,000 for the years ended March 31, 1996, April 2, 1995, and April 3, 1994, respectively (including manufacturer coupon expense of $2,407,000, $2,026,000, and $1,604,000, respectively). EARNINGS PER SHARE Earnings per common share are computed on the weighted average number of common shares outstanding during each period after providing for preferred stock dividend requirements. The dilutive effect on earnings per share for conversion of preferred stock is not presented because it results in either dilution of less than 3% or anti-dilution. (Continued) -26- 28 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (1) CONTINUED FISCAL YEAR END The Corporation's current and past fiscal years ended at the close of operations on the Sunday nearest to March 31. The fiscal year ended April 3, 1994 consisted of 53 weeks and the fiscal years ended April 2, 1995 and March 31, 1996 were comprised of 52 weeks. Effective June 1, 1996 the Corporation's fiscal year will end at the close of operations on the Sunday nearest to May 31. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATIONS Certain prior amounts have been reclassified to conform to classifications adopted in the current year. (2) NOTES PAYABLE - BANKS The Corporation maintains short-term unsecured lines of credit with various banks providing credit availability amounting to $55,000,000, of which $29,421,000 was borrowed (including an overdraft of $5,164,000) at March 31, 1996 and $19,926,000 was borrowed (including an overdraft of $3,318,000) at April 2, 1995. The Corporation borrows funds under these lines of credit under two methods of cost of funds. The first method used to price the cost of short-term borrowings is based upon LIBOR plus sixty to seventy-five basis points. The second method is based upon the financial institution's "calculated cost of funds" plus an earnings modification. The weighted-average interest rate on short-term borrowings at March 31, 1996 and April 2, 1995 was 6.2% and 7.5%, respectively. The maximum amount of borrowings outstanding under short-term lines of credit at any one time during the years ended March 31, 1996 and April 2, 1995 was approximately $45,900,000 and $31,200,000, respectively. (Continued) -27- 29 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (3) LONG-TERM DEBT The long-term debt of the Corporation and its subsidiaries consists of:
March 31, April 2, 1996 1995 - ------------------------------------------------------------------------------------------------------ 8.74% - 9.24% unsecured senior notes payable to an insurance company, due fiscal years ending 1996-2007 $ 19,643,000 21,429,000 7.0% and 7.2% installment obligations payable to industrial development authorities, due fiscal year ending 1995-96 - 454,000 8.5% installment obligation payable to a municipality, due fiscal years ending 1996-1997 140,000 269,000 Installment obligation payable to a related party, due in equal annual installments in fiscal years ending 1996-2000, interest at prime rate (8.25% at March 31, 1996) 294,000 - 6.33% installment obligation payable to a related party, due fiscal years ending 1996-1998 875,000 1,375,000 Various installment obligations and other notes payable - 46,000 - ------------------------------------------------------------------------------------------------------ Total long-term debt 20,952,000 23,573,000 Less current maturities 2,499,000 2,915,000 - ------------------------------------------------------------------------------------------------------ Long-term debt, excluding current maturities $ 18,453,000 20,658,000 - ------------------------------------------------------------------------------------------------------
The term loan agreements with the insurance company, seasonal borrowing with financial institutions (note 2), and installment agreements with industrial development authorities contain various restrictive provisions including those relating to mergers and acquisitions, additional borrowing, guarantee of obligations, lease commitments, limitations to declare or pay dividends, repurchase stock, and the maintenance of working capital and certain financial ratios. Based on the requirements of the agreements, at March 31, 1996, $19,797,000 of retained earnings are restricted from distribution. The Corporation is in compliance with the restrictive provisions in the agreements except for the Interest Charge Coverage Ratio for which the Corporation has received waivers to this provision through July 10, 1996 from the respective lenders holding debt outstanding of $49,064,000. The interest rate on the unsecured senior notes payable has been increased from 8.74% to 9.24% from December 31, 1995 to July 10, 1996. Management and the senior unsecured lender are currently working towards an amendment to modify the Interest Charge Coverage Ratio through September 1, 1997 and management expects to finalize this amendment before the end of the next compliance period. Property, plant, and equipment at cost of approximately $2,500,000 was pledged to secure $875,000 of the long-term obligations at March 31, 1996. (Continued) -28- 30 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (3) CONTINUED The aggregate long-term debt maturing during the next five years is as follows:
For the fiscal year ending: 1997 $ 2,499,000 1998 2,234,000 1999 1,859,000 2000 1,859,000 2001 1,786,000 Thereafter 10,715,000 --------------------------------------------- Total $ 20,952,000 ---------------------------------------------
(4) LEASES The Company is obligated under a noncancelable capital lease for machinery and equipment that expires in 1997. At March 31, 1996 and April 2, 1995, the gross amount of plant and equipment and related accumulated amortization recorded under the capital lease were as follows:
March 31, April 2, 1996 1995 - -------------------------------------------------------------------- Machinery and equipment $ 2,383,000 2,383,000 Less accumulated amortization 894,000 695,000 - -------------------------------------------------------------------- $ 1,489,000 1,688,000 - --------------------------------------------------------------------
Amortization of assets held under capital leases is included with depreciation expense. (Continued) -29- 31 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (4) CONTINUED The Company also has several noncancelable operating leases, primarily for equipment, that expire over the next three years. These leases generally contain renewal options for periods ranging from three to five years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases (except those with lease terms of a month or less that were not renewed) during the years ended March 31, 1996, April 2, 1995, and April 3, 1994 consisted of the following:
March 31, April 2, April 3, 1996 1995 1994 - ---------------------------------------------------------------------- Minimum rentals $ 3,964,000 3,480,000 1,809,000 Contingent rentals - 89,000 498,000 - ---------------------------------------------------------------------- Rental expense $ 3,964,000 3,569,000 2,307,000 - ----------------------------------------------------------------------
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of March 31, 1996 are:
Capital Operating leases leases --------------------------------------------------------------------------- For the fiscal year ending: 1997 $ 224,000 1,654,000 1998 - 1,235,000 1999 - 895,000 2000 - 695,000 2001 - 442,000 Thereafter - 271,000 --------------------------------------------------------------------------- Total minimum lease payments 224,000 $ 5,192,000 Less amount representing interest (at 6% rate) 14,000 ============ ------------------------------------------------------------- Present value of net minimum capital lease payments 210,000 Less current installments of obligations under capital leases 210,000 ------------------------------------------------------------- Obligations under capital leases, excluding current installments $ - -------------------------------------------------------------
(Continued) -30- 32 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (5) RELATED PARTY TRANSACTIONS The Corporation and its subsidiaries, in the normal course of business, purchase and sell goods and services to related parties. The Corporation believes that the cost of such purchases and sales are competitive with alternative sources of supply and markets. Transactions with related parties are summarized below:
Fiscal year ended -------------------------------------------- March 31, April 2, April 3, 1996 1995 1994 - --------------------------------------------------------------------------------- Revenues: Food Service East, Inc. $ - 9,000 1,205,000 Corporate charges: Warehime Enterprises, Inc. 2,000 3,000 2,000 Snyder's of Hanover, Inc. 175,000 337,000 370,000 Expenditures: The Cannery Press, Inc. 346,000 387,000 455,000 Patti & John's, Inc. 29,000 30,000 26,000 Lippy Brothers, Inc. 752,000 1,350,000 - James G. Sturgill 65,000 - - ARWCO Corporation 43,000 - - Warehime Enterprises, Inc. 227,000 - - John A. and Patricia M. Warehime 42,000 - - Snyder's of Hanover, Inc. 17,000 - - George E. Lawrence 70,000 - - Accounts receivable: Snyder's of Hanover, Inc. 24,000 23,000 206,000 Patti & John's, Inc. 3,000 3,000 - Food Service East Inc. - 3,000 - Accounts payable: Warehime Enterprises, Inc. 5,000 - - The Cannery Press, Inc. 4,000 13,000 7,000 Notes receivable: Food Service East, Inc. - - 3,253,000 Notes payable: Warehime Enterprises, Inc. 875,000 1,375,000 1,875,000 Cyril T. Noel 294,000 - - - ---------------------------------------------------------------------------------
In April 1994, the notes receivable from Food Service East, Inc. and subsidiaries for $3,253,000 were assigned to John A. (Chairman) and Patricia M. Warehime. The notes receivable, classified as a current asset at April 3, 1994, were paid by John A. and Patricia M. Warehime in April 1994. (Continued) -31- 33 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (5) CONTINUED The Corporation purchased the Teculutan, Guatemala plant property from ARWCO Corporation on April 5, 1995 for $250,000. On June 20, 1995, the Corporation purchased real estate near the Centre Hall facility from Centre Foods Enterprises, Inc. for $250,000. On June 1, 1994, the Corporation entered into a one year lease with Food Service East, Inc. to lease 20,931 square feet of dry warehouse and production, refrigerated and frozen storage space. Pursuant to the lease, the Corporation has two unilateral options to extend the term of the lease for two successive one year terms or until May 31, 1997 and an option to purchase based on an independent appraisal. On October 1, 1994 the Corporation increased the rental space to 28,501 square feet for a total annual rent of $96,703. On June 1, 1996, the Corporation exercised its unilateral option to purchase for $904,000 approximately 10.3 acres of land improved by an office/warehouse facility free and clear of all liens, encumbrances and security interests. In connection with the amended complaint filed by Michael A. Warehime versus John A. Warehime (note 9), pursuant to applicable state law, the Corporation has agreed to pay directly all expenses (including attorney's fees) and costs in advance of the final disposition of the litigation or any substantially similar or related action, suit, or proceeding. The Corporation has received an undertaking from John A. Warehime to repay all costs and expenses if it is ultimately determined that he is not entitled to be indemnified by the Corporation. The amount paid and expensed by the Corporation under this arrangement for the year ended March 31, 1996 was approximately $300,000. On April 1, 1996, the Corporation entered into a stock purchase agreement with John R. Miller, Jr. to purchase 1,210 shares of the Company's Voting Class B Common Stock and 5,990 shares of the Company's Nonvoting Class A Common Stock over a four year period. The agreement provides that John R. Miller, Jr. give a proxy to John A. Warehime, Chairman, to vote all shares of both classes of common stock beginning April 1, 1996 and ending March 31, 2001. A portion of rental expense included in note 4 was paid to ARWCO Corporation, Warehime Enterprises, Inc., Centre Foods Enterprises, Inc., and Food Service East, Inc., all of which are related companies through common control. The amounts were $340,000, $654,000, and $739,000 for the years ended March 31, 1996, April 2, 1995, and April 3, 1994, respectively. The portion of rental commitments included in note 4 due these companies is summarized as follows:
For the fiscal years ending: 1997 $ 215,000 1998 13,236 1999 14,000 2000 15,000 2001 15,000 --------------------------------------------
(Continued) -32- 34 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (6) BENEFIT PLANS FROZEN DEFINED BENEFIT RETIREMENT PLANS The Corporation previously amended its noncontributory defined benefit plans to freeze benefit accruals effective August 31, 1992 and also took action to terminate the plans effective August 31, 1992. On November 12, 1993, the Board of Directors rescinded its previous action to terminate the plans and has placed the plans in a frozen status. The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheet as of:
March 31, 1996 ----------------------- Fully Under April 2, funded plan funded plan 1995 - ------------------------------------------------------------------------------------------------------------ Actuarial present value of benefit obligations: Accumulated benefit obligation: Vested $(623,000) (6,594,000) (6,573,000) - ------------------------------------------------------------------------------------------------------------ Projected benefit obligation for service rendered to date (623,000) (6,594,000) (6,573,000) Plan assets at fair value 669,000 6,508,000 6,784,000 - ------------------------------------------------------------------------------------------------------------ Plan assets in excess of (less than) projected benefit obligation 46,000 (86,000) 211,000 Unrecognized (gains) losses 162,000 586,000 227,000 Adjustment to recognize required minimum liability - (586,000) - - ------------------------------------------------------------------------------------------------------------ Prepaid (accrued) pension cost $ 208,000 (86,000) 438,000 - ------------------------------------------------------------------------------------------------------------
Net periodic pension cost (income) included the following components:
March 31, April 2, April 3, 1996 1995 1994 - ---------------------------------------------------------------------------------------- Interest cost $ 496,000 440,000 382,000 Actual return on plan assets (464,000) 80,000 (290,000) Amortization of transition obligation - - 4,000 Amortization of unrecognized loss 6,000 6,000 - Deferral of asset loss (15,000) (580,000) (165,000) - ---------------------------------------------------------------------------------------- Net pension cost (income) $ 23,000 (54,000) (69,000) - ----------------------------------------------------------------------------------------
The plans' assets include mutual funds, bonds, cash, and cash equivalents. The Corporation funding policy is to contribute annually those amounts necessary to meet ERISA funding requirements. (Continued) -33- 35 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (6) CONTINUED Assumptions used in accounting for the pension plans as of March 31, 1996 and April 2, 1995 were:
March 31, April 2, 1996 1995 - --------------------------------------------------------------------------------------- Discount rates 7.25 % 7.75 % Expected long-term rate of return on assets 7.0 8.0 - ---------------------------------------------------------------------------------------
The assumed rates used above have a significant effect on the amounts reported. For example, decreasing the assumed discount rates by one percentage point at March 31, 1996 would increase the projected benefit obligation and the additional minimum liability by approximately $1,024,000. DEFINED CONTRIBUTION PLAN The Corporation offers a 401(k) plan covering certain of its employees. Effective January 1, 1993, the Corporation has agreed to contribute an amount equal to 100% of each employee's deferral up to 5%. The Corporation's contribution to the 401(k) plan for the fiscal years ended March 31, 1996, April 2, 1995, and April 3, 1994 was $539,000, $506,000, and $543,000, respectively. (Continued) -34- 36 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (6) CONTINUED POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Certain employees receive postretirement benefits other than pensions. This plan is currently not funded. The Company accounts for these costs by accruing for them over the employee service period. The status of the plan, based on the most recent measurement dates, is as follows:
January 1, January 2, 1996 1995 - ------------------------------------------------------------------------------------------------------------- Actuarial present value of accumulated postretirement benefit obligation: Actives eligible to retire $ (117,000) (98,000) Other actives (254,000) (192,000) - ------------------------------------------------------------------------------------------------------------- Total actives (371,000) (290,000) Current retirees and disables (1,306,000) (1,295,000) - ------------------------------------------------------------------------------------------------------------- Total obligation (1,677,000) (1,585,000) Plan assets at fair value - - - ------------------------------------------------------------------------------------------------------------- Funded status (1,677,000) (1,585,000) Unrecognized net (gain) loss (75,000) (91,000) Unrecognized transition liability, amortized over 20 years 1,311,000 1,384,000 - ------------------------------------------------------------------------------------------------------------- Accrued postretirement benefit cost $ (441,000) (292,000) - -------------------------------------------------------------------------------------------------------------
A discount rate of 7.25%, 8.5%, and 7.50% for January 1, 1996, January 2, 1995, and January 3, 1994, respectively, was used in determining the actuarial present value of the accumulated postretirement benefit obligation. The cost of postretirement benefits other than pensions consisted of the following components:
1996 1995 1994 - ---------------------------------------------------------------------------------------------- Service cost $ 16,000 20,000 11,000 Interest cost 121,000 124,000 124,000 Amortization of transition obligation 73,000 73,000 73,000 - ---------------------------------------------------------------------------------------------- $ 210,000 217,000 208,000 - ----------------------------------------------------------------------------------------------
(Continued) -35- 37 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (6) CONTINUED The assumed postretirement health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9% for fiscal year March 31, 1996, decreasing each year to an ultimate rate of 5% in 2002 and thereafter over the projected payout period of benefits. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of March 31, 1996 by $110,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended March 31, 1996 by $8,000. EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS Effective April 4, 1994, the Corporation entered into an employment contract with the Chief Executive Officer which contains self- renewing terms of five years (evergreen). The agreement provides for payment of the stipulated compensation over no more than the remaining term in the event of death, disability, or termination. In addition, the agreement also provides for the annual reimbursement of certain expenses. As of March 31, 1996, the estimated aggregate liability for the next five years could be $3,300,000, excluding annual performance bonuses. Annual performance bonuses are based upon attaining prescribed pre-tax earnings levels and can be paid in cash or Class B-Common (voting) stock at the option of the officer. For the years ended March 31, 1996 and April 2, 1995, the performance bonus recognized under this agreement was $0 and $659,500, respectively. Effective April 3, 1995, the agreement was amended to also provide a deferred compensation program for the Chief Executive Officer. The deferred compensation program provides for payment to commence upon termination, death, or disability and is payable during the lives of the officer and/or his spouse. The agreement provides for the annual deferred compensation to be based upon 60% of the average of the latest three years of total compensation (including performance bonuses). The net present value of the cost of providing this future benefit is recognized over the remaining expected years of service. The expense recognized under this agreement was approximately $295,000 for the year ended March 31, 1996. Based on the estimated present value of the deferred compensation, the estimated present value at retirement (assuming retirement at age seventy) could amount to approximately $9,700,000. The Corporation is also committed to another employee, Patricia H. Townsend, under a previous employment contract, which provides for minimum salary levels, annual adjustments, as well as incentive bonuses and expires in March 2004. Provisions contained in the agreement provide for continuation of the remuneration in the event of termination, incapacity, death, or disability. The estimated commitment for future salaries through the duration of the agreement as of March 31, 1996 was approximately $480,000. (Continued) -36- 38 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (7) INCOME TAXES Total income taxes (benefit) for the year ended March 31, 1996, April 2, 1995, and April 3, 1994, were attributable to the following:
March 31 April 2, April 3, 1996 1995 1994 - ---------------------------------------------------------------------------------------- Income from operations $ 213,000 798,000 4,067,000 Minimum pension liability adjustment (235,000) - - - ---------------------------------------------------------------------------------------- $ (22,000) 798,000 4,067,000 - ----------------------------------------------------------------------------------------
Income tax expense (benefit) attributable to income from operations consists of:
Fiscal years ended --------------------------------------------------------------------------- March 31, 1996 April 2, 1995 April 3, 1994 -------------------------- ---------------------- ---------------------- Federal State Federal State Federal State - ---------------------------------------------------------------------------------------- Current $ 448,000 134,000 696,000 80,000 2,867,000 806,000 Deferred (205,000) (164,000) 86,000 (64,000) 334,000 60,000 - ---------------------------------------------------------------------------------------- $ 243,000 (30,000) 782,000 16,000 3,201,000 866,000 - ----------------------------------------------------------------------------------------
There is no income tax attributable to the income from foreign subsidiaries since the foreign entities were not subject to taxes on income in 1996, 1995, and 1994. The significant components of deferred income tax expense attributable to income from operations for the years ended March 31, 1996, April 2, 1995, and April 3, 1994 are as follows:
Fiscal year ended --------------------------------------------- March 31 April 2, April 3, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------ Depreciation expense $ 20,000 84,000 168,000 Package design expense (95,000) - 71,000 Inventory valuation 6,000 (134,000) 20,000 Group insurance expense (245,000) 25,000 (22,000) Compensated absences (20,000) 174,000 (35,000) Pension and postretirement benefits (88,000) 57,000 (21,000) Effect of change in state tax rate on deferred taxes (121,000) - - Other, net 174,000 (184,000) 213,000 - ------------------------------------------------------------------------------------------------------ $ (369,000) 22,000 394,000 - ------------------------------------------------------------------------------------------------------
(Continued) -37- 39 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (7) (CONTINUED) A reconciliation of the Corporation's effective tax rate to the amount computed by applying the federal income tax rate of 34% to income before taxes expressed in percentages, follows:
Fiscal year ended ----------------------------------------- March 31 April 2, April 3, 1996 1995 1994 - --------------------------------------------------------------------------------------------- Federal income tax rate 34.0 % 34.0 % 34.0 % Increase (decrease) in taxes: State taxes - net of federal tax 9.5 3.4 5.6 Effect of change in state tax rate on deferred taxes (12.6) - - Loss (income) in foreign subsidiary with no current tax 2.8 (10.9) (2.5) Other items - net (0.1) 3.2 2.7 - --------------------------------------------------------------------------------------------- Effective income tax rate 33.6 % 29.7 % 39.8 % - ---------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions of deferred tax liabilities and deferred tax assets at March 31, 1996, April 2, 1995, and April 3, 1994, are as follows:
March 31 April 2, April 3, 1996 1995 1994 - --------------------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation $ (5,630,000) (5,334,000) (5,250,000) Employee benefit obligations (146,000) (183,000) (126,000) Capital lease obligations (519,000) (432,000) (338,000) Other (147,000) (591,000) (592,000) - --------------------------------------------------------------------------------------------- Total gross deferred tax liabilities (6,442,000) (6,540,000) (6,306,000) - --------------------------------------------------------------------------------------------- Deferred tax assets: Package design costs 185,000 93,000 71,000 Inventory valuation 102,000 112,000 20,000 Group insurance expense 400,000 162,000 86,000 Compensated absences 229,000 213,000 304,000 Pension and postretirement benefits 420,000 123,000 38,000 Compensation expense 236,000 405,000 - Other 66,000 24,000 401,000 - --------------------------------------------------------------------------------------------- Total gross deferred tax assets 1,638,000 1,132,000 920,000 - --------------------------------------------------------------------------------------------- Net deferred tax liability $ (4,804,000) (5,408,000) (5,386,000) - ---------------------------------------------------------------------------------------------
(Continued) - 38 - 40 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (7) (CONTINUED) In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The Company has not recognized a deferred tax liability for the undistributed earnings and tax basis differences of its investment in foreign subsidiaries since the earnings and investment are considered to be permanently invested in the businesses and, under the tax laws, are not subject to such taxes until distributed. The accumulated amount of such undistributed earnings was approximately $3,076,000 at March 31, 1996. (8) CUMULATIVE CONVERTIBLE PREFERRED STOCK The Company has outstanding 15,044 shares of cumulative convertible preferred stock. Cumulative dividends of $.515625 per share are payable quarterly. Each share of preferred stock may be converted at the option of the holder into Class A common stock based on the book value of the common stock at the time of the conversion. At March 31, 1996, the outstanding preferred stock could be converted into 6,454 shares of common stock. (9) COMMITMENTS AND CONTINGENCIES LETTER OF CREDIT As of March 31, 1996, the Corporation's wholly-owned reinsurance company had outstanding a letter of credit in the sum of $1,200,000 which is secured by its investment assets of the same amount. (Continued) - 39 - 41 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (9) CONTINUED LEGAL MATTERS On February 1, 1995, Michael A. Warehime, J. William Warehime, and Elizabeth W. Stick, three shareholders of the Corporation, filed a Complaint against the Corporation and its Chairman in the Court of Common Pleas of York County, Pennsylvania. The suit, when filed, sought various forms of relief including, but not limited to, an order that the court invalidate the Corporation's October 18, 1994 election of directors and reinstate the Board of Directors that existed prior to that date. In addition, the plaintiffs sought all costs and fees incident to bringing suit. On August 16, 1995, the court dismissed J. William Warehime and Elizabeth W. Stick as plaintiffs and the Corporation as a defendant in this case. The court also dismissed two of the four counts alleged by the plaintiffs. Subsequently, Michael A. Warehime, the remaining plaintiff, amended the complaint to seek a judgment requiring John A. Warehime to reimburse the Corporation for certain compensation paid to him by the Corporation under its employment agreement (note 6). The case is in discovery and no trial date has been set. On April 29, 1996 the Corporation settled out of court with federal and Delaware environmental authorities regarding investigations of alleged violations of environmental laws at its Clayton, Delaware facility. As a result of the settlement the Company paid $60,000 in civil penalties and agreed to undertake certain tasks within eighteen months including upgrading its refrigeration system and providing refrigeration training to its personnel. The approximate cost for training and capital expenditure is $400,000. The Company has made substantially all of the required capital expenditures to upgrade the refrigeration system and is performing the required refrigeration training at its Delaware facility. The Corporation's actions taken as a result of this settlement are subject to the review of the environmental authorities. The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. MANUFACTURER COUPONS The Corporation is contingently liable for unredeemed manufacturer coupons on various products at March 31, 1996 which will expire during 1996. STOCK REPURCHASE PLAN The Corporation has agreed to purchase Hanover Foods Corporation Class A Common Stock purchased or owned by employees prior to April 20, 1988. This guarantee of repurchase by Hanover Foods Corporation is for an indefinite period of time. As of March 31, 1996, there are 11,808 shares outstanding which would be eligible for this plan. The maximum commitment, if requested, for all eligible shares would be approximately $803,000, based on the most recent appraised value per share. (Continued) - 40 - 42 HANOVER FOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (10) FOREIGN OPERATIONS AND EXCHANGE RESTRICTIONS FOREIGN OPERATIONS The Corporation's foreign subsidiary, Alimentos Congelados Monte Bello, S.A.. (ALCOSA) produces food products in Guatemala which are sold to Sunwise Corporation in the United States. The revenues generated by the operations in Guatemala and the assets employed in generating those revenues are as follows:
March 31, April 2, April 3, 1996 1995 1994 - ------------------------------------------------------------------------------- Revenues $ 18,155,000 20,320,000 15,781,000 Cost of goods sold 17,311,000 17,674,000 13,784,000 Assets 10,756,000 10,760,000 8,884,000 - -------------------------------------------------------------------------------
ALCOSA maintains its accounting records in quetzales, although, for financial reporting purposes, the accounting records have been remeasured to be expressed in U.S. dollars. The financial statements of ALCOSA have been translated to their U.S. dollar equivalents prior to being consolidated. Assets and liabilities have been translated to their U.S. dollar equivalents based on rates of exchange prevailing at the end of the period except for inventories, fixed assets, deferred and prepaid expenses, and other assets, which have been translated at historical rates. Revenue and expense accounts have been translated at average exchange rates during the period except for depreciation of fixed assets, which is based on the historical rate. The aggregate exchange gains and losses arising from the translation of foreign assets and liabilities and from foreign currency transactions are included in income under the caption of Other Expenses, Net and amount to a loss of $190,000, a gain of $9,000, and a loss of $49,000 for the years ended March 31, 1996, April 2, 1995, and April 3, 1994, respectively. At March 31, 1996, the prevailing exchange rate was Q 6.10 to U.S. $1.00. - -------------------------------------------------------------------------------- -41- 43 HANOVER FOODS CORPORATION AND SUBSIDIARIES Quarterly Financial Data
- -------------------------------------------------------------------------------------------------------- Dollars in thousands First Second Third Fourth (except per share) quarter (1) quarter (1) quarter (2) quarter (3) - -------------------------------------------------------------------------------------------------------- 1996 Net sales $ 52,306 58,847 75,093 76,674 Gross profit 11,030 12,140 11,874 14,361 Net earnings (loss) (1,351) 205 1,397 169 Net earnings (loss) per common share (1.84) .28 1.91 0.18 Cash dividends per common share .275 .275 .275 .275 - -------------------------------------------------------------------------------------------------------- 1995 Net sales $ 50,045 54,163 70,075 83,247 Gross profit 11,486 13,389 16,553 16,730 Net earnings (loss) 360 695 2,030 (897) Net earnings (loss) per common share .48 .93 2.75 (1.64) Cash dividends per common share .25 .275 .275 .275 - --------------------------------------------------------------------------------------------------------
(1) First and second quarter amounts for fiscal 1996 are restated to correct recognition of certain expenses principally related to promotional programs. Net earnings for the first quarter of fiscal 1996 were previously reported as $411,000, and earnings per share for the quarter were $.55 per share. The second quarter of fiscal 1996 previously reported a loss of $940,000 or $1.29 per share. (2) Third quarter amounts for fiscal 1995 are restated to record the promotional expense for the programs offered during the latter part of the third quarter. The adjustment of $1.2 million represents "billbacks" on sales in November and December 1994 that were not processed until the early part of the fourth quarter. Net earnings for the third quarter of fiscal 1995 were previously reported as $2.8 million, and earnings per share for the quarter were $3.83 per share. (3) Fourth quarter results for fiscal 1995 include the additional promotional expense for the period of $3.0 million and the sale of excess frozen inventory. -42- 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On June 13, 1995 at the annual meeting of the Class B Common stockholders, KPMG Peat Marwick LLP, Certified Public Accountants, were appointed auditors for the Corporation for the fiscal year ended March 31, 1996. There were no disagreements between the Corporation and its prior auditor regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. -43- 45 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CORPORATION (a) DIRECTORS OF THE CORPORATION (AS OF JUNE 24, 1996)
NAME, AGE AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE (5) YEARS - ---------------------------- ----------------------------------------------- JOHN A. WAREHIME Chairman - 1989 to Present; Director - 1985-Present; Director - 1985-Present; Mr. Warehime has 45 years' experience in the food Chairman - 1989-Present processing industry. Age: 58 CLAYTON J. ROHRBACH, JR. Retired Businessman; Vice President - Marketing - CPC Director - 1984-Present International - 1984-1985 Age: 76 JAMES G. STURGILL, CPA Managing Partner - Sturgill & Associates - 1993- Director - 1994-Present Present; 1980-1993 - Sturgill, Rager & Lehman - Age: 55 Chartered and Consultants ARTHUR S. SCHAIER Owner/Vice President and General Manager - Earnhardt's Director - 1994-Present Gilbert Dodge, Inc. - 1981-Present Age: 54 T. EDWARD LIPPY Vice President - Lippy Brothers, Inc., Hampstead, MD - Director 1994-Present, President - 1992-1994; Vice Chairman & Age: 66 Director - Farmers & Merchants Bank - 1989-Present; Director - Ag First Farm Credit Bank - 1988-Present; Chairman - Baltimore Farm Credit Bank - 1990-1992; Chairman - Farm Credit Council, Washington, D.C. - 1993-Present CYRIL T. NOEL Retired Businessman; Vice President - Finance - Hanover Director Foods - 1985-1991 Age: 71 JAMES A. WASHBURN President & Chief Executive Officer - Park 100 Foods, Director (Elected April 26, 1996) Tipton, IN - 1991-Present; President & Chief Executive Age: 46 Officer - Hamilton Medaris Corporation, Fishers, IN; President & Chief Executive Officer - H.M.C. Transportation, Fishers, IN
-44- 46 (b) EXECUTIVE OFFICERS OF THE CORPORATION (AS OF JUNE 24, 1996)
NAME, AGE AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE (5) YEARS - ---------------------------- ----------------------------------------------- JOHN A. WAREHIME Chairman - 1989 to Present; Director -1985-Present; Mr. Chairman - 1989-Present Warehime has 45 years' experience in the food Director - 1985-Present processing industry. Age: 58 GARY T. KNISELY, ESQUIRE Executive Vice President - 1995-Present; Vice President Executive Vice President & Secretary - Administration - 1989-1995; Counsel - 1987-Present; 1995-Present Secretary - 1987-Present Age: 47 CLEMENT A. CALABRESE Vice President - Sales & Trade Marketing - 1995- Vice President - Sales & Trade Marketing Present; Vice President - Sales - American Home Foods, 1995-Present Inc. - 1993-1995; Vice President - Retail Sales - Age: 53 Sunshine Biscuits, Inc. - 1988-1993 PIETRO D. GIRAFFA Vice President - Controller - 1996-Present; Controller Vice President - Controller - 1984-1996 1984-Present Age: 50 WHITNEY J. COOMBS Vice President - Marketing - 1987-Present; Vice Vice President - Marketing President of Marketing - Progresso Foods Division - 1987-Present Ogden Foods, Inc. - 1984-1987; Mr. Coombs has 16 years Age: 55 of marketing experience in the food processing industry. BERKLEY F. CONE President - Clayton Foods Division - 1995-Present; President - Clayton Division President - Alimentos Congelados Monte Bello, S.A. - 1996-Present 1991-Present President - Alimentos Congelados Monte Bello S.A. 1991-Present Age: 47 LESLIE GENSON Vice President - Manufacturing - hired June 24, 1996; Vice President - Manufacturing Director of Operations - Seneca Foods Corp. - Marion, (Hired - June 24, 1996) NY - 1995-1996; Director of Operations - Seneca Foods Age: 41 Corp. - Glencoe, MN; Manufacturing Planning Manager - Pillsbury Co. - 1991-1995 ALAN T. YOUNG Vice President - Transportation - 1996-Present; Vice Vice President - Transportation President - Operations - 1991-1996; Director of 1996-Present Corporate Logistics - 1990-1991; Manager of Corporate Age: 53 Systems - 1986-1990
-45- 47
NAME, AGE AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE (5) YEARS - ---------------------------- ----------------------------------------------- JACK A. BROWN Vice President - Treasury Services & Treasurer - Vice President - Treasury Services 1991-Present; Treasurer - 1987-Present; Director of and Treasurer Administration - 1987-1988; Manager of Employee 1991-Present Benefits and Compensation - 1988-1990 Age: 66
(d) FAMILIAL RELATIONSHIPS OF DIRECTORS AND EXECUTIVE OFFICERS None. (h) SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires that directors and certain officers of the Corporation file reports of ownership and changes in ownership with the Securities and Exchange Commission as to the shares of Corporation Common Stock beneficially owned by them. Based solely on its review of copies of such forms received by it, the Corporation believes that during the Corporation's fiscal year ended March 31, 1996, all filing requirements applicable to its directors and officers were complied with in a timely fashion. ITEM 11. EXECUTIVE COMPENSATION (b) The following table shows, for the fiscal years ended April 3, 1994, April 2, 1995 and March 31, 1996, the cash compensation paid or accrued, as well as certain other compensation paid or accrued, to the Chief Executive Officer, and the next four highly compensated executive officers of the Corporation in all capacities in which they served. Summary Compensation Table - See Next Page -46- 48 Table 1: Summary Compensation Table
Long-Term Compensation Annual Compensation Awards - ------------------------------------------------------------------------------------------------------------------------------------ (a) (b) (c) (d) (e) (f) (i) - ------------------------------------------------------------------------------------------------------------------------------------ Name and Principal Year Salary ($'s) Bonus ($'s) Other Annual Restricted Stock All Other Position Compensation ($'s) Awards ($'s) Compensation ($'s) ==================================================================================================================================== John A. Warehime 95-96 614,600(2)(10) -0- 62,146(11) $332,983(4)(9) Chairman 94-95 650,000(2) 659,500(1)(2) 33,982(4)(9) 93-94 350,000 122,500 8,994 - ------------------------------------------------------------------------------------------------------------------------------------ Berkley F. Cone 95-96 156,800 - 0- -0- 9,391(5) President - Clayton 94-95 144,000 52,624(1) 3,000(3) 7,500(5) Division; President - 93-94 139,000 50,050 3,000 7,994 Alimentos Congelados Monte Bello, S.A. - ------------------------------------------------------------------------------------------------------------------------------------ Gary T. Knisely 95-96 129,900 -0- 7,416(6) Executive Vice 94-95 117,000 18,428(1) 7,500(6) President, 93-94 110,400 38,640 7,263 Secretary & Counsel - ------------------------------------------------------------------------------------------------------------------------------------ Alan T. Young 95-96 113,800 -0- 6,531(7) Vice President - 94-95 106,700 16,805 6,887(7) Transportion 93-94 95,617 31,850 6,165 - ------------------------------------------------------------------------------------------------------------------------------------ Whitney J. Coombs 95-96 113,700 -0- 6,634(8) VP Marketing 94-95 120,600 18,995(1) 7,500(8) 93-94 113,800 39,830 7,555 - ------------------------------------------------------------------------------------------------------------------------------------
-47- 49 FOOTNOTES: (1) Reflects bonus earned during the fiscal year and paid during the next fiscal year computed on fiscal 1995 pre-tax earnings prior to taking into account the accounting charge for expanded promotion expenses. (2) Pursuant to the June 12, 1995 Employment Agreement between the Corporation and John A. Warehime, Chairman, and the resolution of the Board of Directors adopted April 28, 1995. (3) Pursuant to an Employment Agreement which is further discussed on page 49, Mr. Cone has been issued 297 shares of Class A Nonvoting Common Stock to date. Mr. Cone receives dividends on said stock. (4, 5, 6, 7, 8) Corporate matching contributions to the Corporation's 401(k) Savings Plan. (9) Corporation's payment for premiums of $27,160 for Split-Dollar life insurance policy and the accrual of $295,000 for deferred compensation to be paid pursuant to the June 12, 1995 Employment Agreement. (10) John A. Warehime voluntarily reduced his salary for fiscal 1996 by 10% from October, 1995 through May, 1996. Mr. Warehime believed that this reduction was appropriate given the demands on the Corporation's employees during this period. (11) Legal and accounting fees in the amount of $49,865 and other perquisites paid pursuant to the June 12, 1995 Employment Agreement. -48- 50 (f) COMPENSATION PURSUANT TO PLANS (1) RETIREMENT BENEFITS The Corporation currently provides retirement benefits via a frozen non-contributory defined benefit pension plan ("Pension Plan") and a 401(k) defined contribution benefit plan. PENSION PLAN On June 5, 1992, the Corporation amended its Pension Plan to freeze benefit accruals effective August 31, 1992 and also took action to terminate the Pension Plan effective August 31, 1992. On November 12, 1993 the Board of Directors rescinded its previous action to terminate the Pension Plan. The Pension Plan continues to be maintained as a frozen plan with benefits frozen as of August 31, 1992. The frozen Pension Plan provides for the payment of a retirement benefit upon attainment of the normal retirement age of 65 and actual retirement from the Corporation. The normal form of benefit under the frozen Pension Plan is a qualified joint and survivor annuity for a married participant and a single life annuity for an unmarried participant. Certain optional methods of payment are also available. If a participant dies after having met the service requirements for a vested retirement benefit, a survivor benefit is payable under certain conditions. The executive officers of the Corporation listed in the Summary Compensation Table have the following frozen credited years of service and frozen accrued benefits (single life) under the frozen Pension Plan:
YEARS OF ACCRUED CREDITED MONTHLY EXECUTIVE OFFICER SERVICE BENEFITS ----------------- ------- -------- John A. Warehime 22.67 $ 4,629 Whitney J. Coombs 6.92 773 Berkley F. Cone 3.00 346 Gary T. Knisely 12.00 1,457 Alan T. Young 6.50 638
401(k) PLAN The 401(k) defined contribution benefit plan, known as the Corporation's Retirement Savings Plan, was instituted on April 2, 1990, and amended June 5, 1992, April 4, 1994, and April 28, 1995. Certain full-time domestic employees are eligible to participate after completion of one (1) year of service. Each eligible employee has the option to defer up to sixteen (16%) percent of his or her total annual cash compensation per year. On December 31st of each year, the Corporation makes a one hundred (100%) percent matching contribution to each contributing employee's account for the first five (5%) percent deferred by each employee. Each employee has various investment options. The Plan does not permit any loans or early withdrawals. -49- 51 (g) DIRECTOR FEES During fiscal year 1995-1996, the policy of Board compensation was as follows: the directors of the Corporation are paid an annual retainer of $12,000 payable in equal monthly installments of $1,000 and a fee of $1,500 for each quarterly Board Meeting attended, plus an annual fee of $1,000 per year for service as a committee chairman and a fee of $1,000 for each Committee Meeting attended (if the Committee Meeting is held on a different day than the Board Meeting). The amounts paid to a director for attendance at Board or Committee Meetings shall not exceed in the aggregate $10,000 in any calendar year. The directors of the Corporation were paid $150,729 as a group for fiscal year 1995-1996 for attendance at thirteen (13) meetings of the Board and Board Committees, including reimbursement for air travel. (h) EMPLOYMENT AGREEMENTS The August 3, 1989 Employment Agreement between the Corporation and Berkley F. Cone, President of Alimentos Congelados Monte Bello, S.A., Guatemala City, Guatemala provided for annual salary, housing, schooling and car allowances. In addition, Mr. Cone has received $15,000 of Class A Nonvoting Common Stock. The June 12, 1995 Employment Agreement between the Corporation and John A. Warehime, Chairman, provides for a base salary of $650,000; a five-year annually self-renewing term; a performance bonus of increasing percentages of pre-tax earnings in excess of $5,000,000; deferred compensation of 60% of the average of the latest 3 years of total compensation commencing on death, disability or termination of employee; and additional benefits. The November 14, 1986 Employment Agreement between the Corporation and Patricia H. Townsend, Assistant Secretary, provides for a base salary of $40,000 for the period from November 14, 1986 up to and including March 31, 2004. (j) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION James G. Sturgill and the late George E. Lawrence each served as members of the Compensation Committee at various times during the fiscal year. During the 1996 fiscal year, the Corporation retained James G. Sturgill and the late George E. Lawrence as financial and sales consultants, respectively. See "Certain Relationships and Related Transactions - Transactions with Management and Others." (k) (1) COMPENSATION POLICY Compensation for Officers other than the Chairman is recommended by the Chairman and approved by the Compensation Committee and the full Board of Directors. Compensation for the Chairman is proposed by the Compensation Committee and approved by the full Board of Directors. The Corporation's executive compensation program, particularly the annual bonus, is designed to be closely linked to corporate performance and returns to shareholders. The overall objectives of -50- 52 this strategy are to attract and retain the best possible executive talent, to motivate these executives to achieve the goals inherent in the Corporation's business strategy, to link executive and shareholder interests through plans and finally to provide a compensation package that recognizes individual contributions as well as overall business results. (2) Prior to Mr. Lawrence's death, the Compensation Committee approved the recommendations of the Chairman for compensation of other officers after giving consideration to the overall objectives of the Corporation's compensation program for executives. The Chairman's compensation was pursuant to the June 12, 1995 Employment Agreement. ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS The following table sets forth information regarding beneficial ownership of all classes of capital stock of the Corporation by the directors, executive officers, and owners of five (5%) percent or more of any class of capital stock, as well as any future rights of ownership by such individuals, as of June 24, 1996. AS OF JUNE 24, 1996 (a) BENEFICIAL OWNERS
NAME AND ADDRESS AMOUNT & CLASS OF BENEFICIAL OWNER NATURE OF BENEFICIAL INTEREST % OF CLASS - ----- ------------------- ----------------------------- ---------- Common A J. William Warehime 8,834 3.0% Common B 257 Frederick Street 78,408 18.3% Hanover, Pennsylvania 17331 Common A Elizabeth W. Stick 15,002 5.0% Common B 35 Peyton Road 44,244 10.3% York, Pennsylvania 17403 Common A Centre Foods Enterprises, Inc. 19,607 6.6% 120 Paul Street Hanover, Pennsylvania 17331 Common A Meta L. Frey 3,872 1.3% Common B 425 Westminster Avenue, Cottage 22 27,720 6.5% Hanover, Pennsylvania 17331 Common A Heartland Advisors, Inc. 40,000 13.3% 790 N. Milwaukee Street Milwaukee, WI 53202
-51- 53
NAME AND ADDRESS AMOUNT & CLASS OF BENEFICIAL OWNER NATURE OF BENEFICIAL INTEREST % OF CLASS - ----- ------------------- ----------------------------- ---------- (b) MANAGEMENT ---------- DIRECTORS - --------- Common A John A. Warehime 44 .01% Common B RD 3, Box 481 223,079(1) 52.2% Hanover, Pennsylvania 17331 Common A Clayton J. Rohrbach, Jr. 88 .03% The Barclay, Apartment 724 3546 South Ocean Boulevard Palm Beach, Florida 33480 Common A Cyril T. Noel 301 .10% 344-1/2 North Street McSherrystown, Pennsylvania 17344 Common A T. Edward Lippy 385 .13% 209 Lees Mill Road Hampstead, Maryland 21074 Common A Arthur S. Schaier 500 .17% 1301 N. Arizona Avenue Gilbert, Arizona 85234 None James G. Sturgill 4833 Wentz Road Manchester, Maryland 21102 None James A. Washburn 12643 Royce Court Carmel, Indiana 46033
EXECUTIVE OFFICERS (NOT DIRECTORS) - ---------------------------------- Common A Gary T. Knisely, Esq. 1,688 .5% Executive Vice President 1051 Cherry Orchard Road Dover, Pennsylvania 17315 None Pietro D. Giraffa, Jr. Vice President - Controller 281 Mt. Pleasant Road Hanover, Pennsylvania 17331
-52- 54
NAME AND ADDRESS AMOUNT & CLASS OF BENEFICIAL OWNER NATURE OF BENEFICIAL INTEREST % OF CLASS - ----- ------------------- ----------------------------- ---------- None Clement A. Calabrese V.P. Sales & Trade Marketing 24 Meadow Lane Pennington, New Jersey 08534 Common A Whitney J. Coombs 451 .15% V.P. Marketing 86 Roberts Road Littlestown, Pennsylvania 17340 Common A Jack A. Brown 820 .28% Common B V.P. Treasury Services 154 .04% 120 Paul Street Hanover, Pennsylvania 17331 Common A Berkley F. Cone 297 .1% President - Clayton Division President - Alimentos Congelados Monte Bello S.A. 153 Dewberry Drive Ramsey Ridge Hockessin, Delaware 19707 None Leslie Genson V.P. Manufacturing P.O. Box 334 Hanover, Pennsylvania 17331 None Alan T. Young V.P. Transportation 21 Laurel Woods Hanover, Pennsylvania 17331
DIRECTORS AND OFFICERS AS A GROUP - --------------------------------- Common A 4,277 1.45% Common B 223,233 52.24%
Footnote: (1) Currently, John A. Warehime owns directly 8,558 shares or 2.0% of the Class B Common Voting Stock. Mr. Warehime is Sole Voting Trustee with regard to the balance of Class B Common Stock shares listed (214,521) (50.2%), pursuant to Voting Trust Agreements dated April 5, 1988 and December 1, 1988, respectively, copies of which are incorporated herein by reference as Exhibits 9(a) and 9(b). Said trusts expire April 5, 1998 and December 1, 1998 respectively. -53- 55 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH MANAGEMENT AND OTHERS During the fiscal year ended March 31, 1996, the Corporation and its subsidiaries, in the normal course of business sold finished goods, provided administrative and manufacturing services to, and leased buildings, equipment and land, purchased contracted vegetables and received printing, travel and restaurant services from related companies. These transactions are as follows: 1. The Corporation received printing and travel services from The Cannery Press, Inc. in the amount of $346,000 for fiscal year 1995-1996. The Corporation also received restaurant services from Patti & John's, Inc. in the amount of $29,000 for fiscal year 1995-1996. 2. The Corporation stored raw potatoes at its Centre Hall, Pennsylvania plant for Snyder's of Hanover, Inc., Hanover, Pennsylvania, for a total rental of $175,000. 3. On April 28, 1988, the Corporation entered into an Agreement of Sale with Warehime Enterprises, Inc. to purchase a frozen food facility for the total sum of $2,500,000. Effective March 1, 1993, the Corporation is obligated to make twenty (20) quarterly principal payments in the amount of $125,000. Interest at the greater of the prime rate or the imputed interest of the Internal Revenue Service accrues on the unpaid balance and is paid monthly. 4. During fiscal year 1995-1996 the Corporation rented equipment from two related parties, ARWCO Corporation and Warehime Enterprises, Inc. The rental payments pursuant to such lease agreements totaled $270,000 for fiscal year 1995-1996. 5. On June 1, 1994, the Corporation entered into a one (1) year lease with Food Service East, Inc., Hanover, PA, for 20,931 square feet of dry warehouse, production, refrigerated and frozen storage space at Smith Station Road and Route 116, Hanover, PA. Pursuant to the lease, the Corporation has two unilateral options to extend the term of the lease for two (2) successive one (1) year terms or until May 31,1997 and an option to purchase based on an independent appraisal. On October 1, 1994 the Corporation increased the rental space to 28,501 square fee for a total annual rent of $96,703. On June 1, 1996, the Corporation exercised its unilateral option to purchase for $904,058 approximately 10.3 acres of land improved by an office/warehouse facility free and clear of all liens, encumbrances and security interests. 6. On April 5, 1995, the Corporation purchased a facility located in Teculutan, Guatemala, for $250,000 from ARWCO Corporation. A deed of transfer dated October 13, 1995 was recorded March 21, 1996. 7. During fiscal year 1996, the Corporation leased a two story farm house, adjoining one story guest house and adjoining ground located on Trolley Road, R.D. #3, Hanover, Heidelberg Township, Pennsylvania, for customer housing -54- 56 and entertainment and temporary new employee housing from John A. and Patricia M. Warehime for a total of $42,000. 8. Pursuant to the March 3, 1989 Agreement of Sale (Exhibit 10(c)), the Corporation purchased 71.8 acres of real estate located in Penn Township, York County, from Warehime Enterprises, Inc. The total consideration, $460,000, had been paid in full as of April 1, 1993. The Corporation acquired title to the property by deed dated June 13, 1995 and recorded July 7, 1995. 9. During the fiscal year 1996, the Corporation purchased $752,000 of contracted vegetables from Lippy Brothers, Inc. 10. During the fiscal year 1996, the Corporation retained director James G. Sturgill, as a financial consultant and paid him a total of $65,000 in fees plus reimbursable expenses. Prior to his death in December, 1995, director George E. Lawrence was paid $70,000 as a sales consultant. 11. The Corporation repurchased 5,148 shares of the Corporation's Class B Common Stock from Cyril T. Noel, individually, and from Cyril T. Noel and Frances L. Noel, jointly, for $367,567. See "Security Ownership of Management and Certain Security Holders." 12. During the fiscal year 1996, the Corporation sold $536,388 of frozen food products to Park 100 Foods, Tipton, Indiana. (See pages 43 and 55) NOTE: The following executive officers, directors or beneficial owners of more than five (5%) percent of the Corporation's Class B Voting Common Stocks are also beneficial owners of the following related parties with which the Corporation has and currently does business:
PERCENTAGE OF VOTING STOCK/ BENEFICIAL INTEREST OF RELATED PARTY RELATED PARTY JUNE 1, 1996 ------------- ------------ 1. ARWCO CORPORATION ----------------- John A. Warehime . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.3% 2. CENTRE FOODS ENTERPRISES, INC. ------------------------------ ARWCO Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.0% John R. Miller, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.0% 3. PATTI & JOHN'S, INC. -------------------- John A. & Patricia M. Warehime . . . . . . . . . . . . . . . . . . . . . 100.0%
-55- 57
PERCENTAGE OF VOTING STOCK/ BENEFICIAL INTEREST OF RELATED PARTY RELATED PARTY JUNE 1, 1996 ------------- ------------ 4. FOOD SERVICE EAST, INC. AND SUBSIDIARIES (1) ---------------------------------------- John A. & Patricia M. Warehime . . . . . . . . . . . . . . . . . . . . . 100.0% 5. SNYDER'S OF HANOVER, INC. ------------------------- J. William Warehime . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7% Jane Elizabeth Stick . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0% John A. & Patricia M. Warehime . . . . . . . . . . . . . . . . . . . . . . 7.2% 6. WAREHIME ENTERPRISES, INC. -------------------------- J. William Warehime . . . . . . . . . . . . . . . . . . . . . . . . . . 44.4% John A. Warehime . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8% 7. LIPPY BROTHERS, INC. -------------------- T. Edward Lippy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.0% 8. PARK 100 FOODS -------------- James A. Washburn . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70.0%
(1) Food Service East filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code on April 22, 1994. This bankruptcy was subsequently converted to Chapter 7 on October 11, 1994. -56- 58 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. All Financial Statements Hanover Foods Corporation and Subsidiaries (See Part II, Item 8, Pages 16 through 42) 2. Financial Statement Schedules None All other schedules are omitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto. 3. Exhibits The following exhibits are filed herein or have been previously filed with the Securities and Exchange Commission and are incorporated by reference herein.
Number Description ------ ----------- 3(a) The Registrant's Articles of Incorporation, as amended, are incorporated by reference to Exhibit 3(a) of the Form 10-Q filed for the quarterly period ended October 2, 1994. 3(b) Registrant's Amended and Restated By-laws enacted April 28, 1995 are incorporated by reference to Exhibit 3(b) of the Form 10-K filed July 3, 1995. 3(c) Registrant's Amended and Restated By-laws enacted April 26, 1996 and June 26, 1996 are attached as Exhibit 3(c). 4(a) Note Agreement dated as of December 1, 1991, between the Corporation and Allstate Life Insurance Company, with regard to the Corporation's $25,000,000, 8.74% Senior Notes Due March 15, 2007, is incorporated herein by reference to the Form 10-K filed June, 1992 wherein such Exhibit is designated as 4. 4(b) June 20, 1995 First Amendment to December 1, 1991 Note Agreement between the Corporation and Allstate Life Insurance Company (the "Note Agreement") and Waiver of Compliance with Section 5.9 of the Note Agreement is incorporated herein by reference to Exhibit 4(b) of the Form 10-K filed on July 3, 1995.
-57- 59 4(c) June 24, 1996 waiver to covenants in the December 1, 1991 Note Agreement between the Corporation and Allstate Life Insurance Company (the "Note Agreement") is attached as Exhibit 4(c). 9(a) April 5, 1988 Voting Trust Agreement is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 9(a). 9(b) December 1, 1988 Voting Trust Agreement is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 9(b). 9(c) Writing dated April 5, 1988 appointing John A. Warehime as Successor Voting Trustee under Voting Trust Agreement dated December 1, 1988, is incorporated herein by reference to the Form 8-K filed June 1, 1990, wherein such Exhibit is designated as 9(c). 9(d) Writing dated December 1, 1988 appointing John A. Warehime as Successor Voting Trustee under Voting Trust Agreement dated December 1, 1988, is incorporated herein by reference to the Form 8-K filed June 1, 1990, wherein such Exhibit is designated as 9(d). 10(a) April 28, 1988 Sublease Agreement between Warehime Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(a). 10(b) April 28, 1988 Agreement of Sale between Warehime Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(b). 10(c) March 3, 1989 Agreement of Sale between Warehime Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(c). 10(d) April 1, 1985 Lease Agreement between ARWCO Corporation and Alimentos Congelados Monte Bello S.A., is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(d). 10(i) November 14, 1986 Employment Agreement between Hanover Brands, Inc., and Patricia H. Townsend is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(i).
-58- 60 10(j) August 3, 1989 Employment Agreement between Hanover Brands, Inc. and Berkley F. Cone, is incorporated herein by reference to the Form 8 Amendment to the July 28, 1989 Form 10, which Amendment was filed on November 17, 1989, wherein such Exhibit is designated as 10(j). 10(k) May 10, 1991 Amendment to April 28, 1988 Agreement of Sale between Warehime Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference to the Form 10-K filed June 29, 1991, wherein such Exhibit is designated as 10(k). 10(l) November 26, 1990 Deed conveying title to real estate known as Unit #720, Century I Condominium, Ocean City, Maryland from Estate of Alan R. Warehime to Hanover Foods Corporation, is incorporated herein by reference to the Form 10-K filed on June 29, 1991, wherein such Exhibit is designated as 10(l). 10(m) Bill of Sale conveying title to furniture and furnishings to Unit #720, Century I Condominium, Ocean City, Maryland from Estate of Alan R. Warehime to Hanover Foods Corporation, is incorporated herein by reference to the Form 10-K filed on June 29, 1991, wherein such Exhibit is designated as 10(m). 10(n) October 31, 1993 Severance Agreement and Release between John E. Denton and Hanover Foods Corporation is incorporated herein by reference to the Form 10-Q filed on February 9, 1994, wherein such Exhibit is designated as 10(n). 10(o) June 1, 1994 Lease Agreement with unilateral option to purchase between Hanover Foods Corporation and Food Service East, Inc. is incorporated herein by reference to the Form 10-K filed on June 30, 1994, wherein such Exhibit is designated as 10(o). 10(p) October 1, 1994 Amendment to the June 1, 1994 Lease Agreement between Hanover Foods Corporation and Food Service East, Inc. is incorporated herein by reference to Exhibit 10(p) of the Form 10-K filed on July 3, 1995. 10(q) April 4, 1994 Agreement of Sale between ARWCO Corporation and Alimentos Congelados Monte Bello, S.A. is incorporated herein by reference to Exhibit 10(q) of the Form 10-K filed on July 3, 1995.
-59- 61 10(r) June 12, 1995 Employment Agreement between Hanover Foods Corporation and John A. Warehime is incorporated herein by reference to Exhibit 10(r) of the Form 10-K filed on July 3, 1995. 10(s) June 20, 1995 Deed conveying title to real estate from Centre Foods Enterprises, Inc. to Hanover Foods Corporation is incorporated herein by reference to Exhibit 10(s) of the Form 10-K filed on July 3, 1995. 10(t) April 4, 1994 Lease Agreement between John A. and Patricia M. Warehime and Hanover Foods Corporation is attached as Exhibit 10(t). 10(u) July 27, 1995 Installment Sales Agreement for the purchase of 5,148 shares of Hanover Foods Class B Voting Common Stock from Cyril T. Noel, individually, and Cyril T. Noel and Frances L. Noel, jointly, is attached at Exhibit 10(u). 10(v) April 1, 1996 Installment Sales Agreement for the purchase of 1,210 shares of Hanover Foods Class B Voting Common Stock and 5,990 shares of Hanover Foods Class A Nonvoting Common Stock from John R. Miller, Jr. is attached as Exhibit 10(v). 10(w) June 1, 1996 letter to Food Service East, Inc. exercising Hanover Foods' unilateral option to purchase real estate from Food Service East, Inc. is attached as Exhibit 10(w). 11 Computation of Earnings Per Share is attached as Exhibit 11. 21 A list setting forth subsidiaries of the Registrant is attached as Exhibit 21. 27 The Financial Data Schedule is attached as Exhibit 27. 99 Annual Top Management Cash Bonus Program is attached as Exhibit 99.
(b) Reports on Form 8-K Form 8-K relating to the change in the Corporation's fiscal year was filed on May 3, 1996. -60- 62 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of Hanover Foods Corporation in the capacity and on the date indicated. DATE: JUNE 28, 1996 HANOVER FOODS CORPORATION BY: /s/ JOHN A. WAREHIME ------------------------- JOHN A. WAREHIME CHAIRMAN -61- 63 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Hanover Foods Corporation and in the capacities and on the date indicated. DATE: JUNE 28, 1996 By: /s/John A. Warehime By: /s/Cyril T. Noel ---------------------------------------------- ---------------------------------------------- John A. Warehime Cyril T. Noel Chairman, Director Director (Chief Executive Officer) By: /s/Gary T. Knisely By: /s/T. Edward Lippy ---------------------------------------------- ---------------------------------------------- Gary T. Knisely T. Edward Lippy Executive Vice President and Director Chief Financial Officer By: /s/Pietro D. Giraffa By: /s/Clayton J. Rohrbach, Jr . ---------------------------------------------- --------------------------------------------- Pietro D. Giraffa Clayton J. Rohrbach, Jr. Vice President - Controller Director (Chief Accounting Officer) By: /s/Jack A. Brown By: /s/James G. Sturgill ---------------------------------------------- --------------------------------------------- Jack A. Brown James G. Sturgill Vice President - Treasury Services Director and Treasurer By: /s/Arthur S. Schaier By: /s/James A. Washburn ---------------------------------------------- -------------------------------------------- Arthur S. Schaier James A. Washburn Director Director
-62- 64 HANOVER FOODS CORPORATION EXHIBIT INDEX
- ------------------------------------------------------------------------------------------------------------------------ Number Description - ------------------------------------------------------------------------------------------------------------------------ 3(a) The Registrant's Articles of Incorporation, as amended, are incorporated by reference to Exhibit 3(a) of the Form 10-Q filed for the quarterly period ended October 2, 1994. - ------------------------------------------------------------------------------------------------------------------------ 3(b) Registrant's Amended and Restated By-Laws enacted April 28, 1995 are incorporated by reference to Exhibit 3(b) of the Form 10-K filed July 3, 1995. - ------------------------------------------------------------------------------------------------------------------------ 3(c) Registrant's Amended and Restated By-Laws enacted April 26, 1996 and June 26, 1996 are attached as Exhibit 3(c). - ------------------------------------------------------------------------------------------------------------------------ 4(a) Note Agreement dated as of December 1, 1991, between the Corporation and Allstate Life Insurance Company, with regard to the Corporation's $25,000,000, 8.74% Senior Notes Due March 15, 2007, is incorporated herein by reference to the Form 10-K filed June, 1992 wherein such Exhibit is designated as 4. - ------------------------------------------------------------------------------------------------------------------------ 4(b) June 20, 1995 First Amendment to December 1, 1991 Note Agreement between the Corporation and Allstate Life Insurance Company (the "Note Agreement") and Waiver of Compliance with Section 5.9 of the Note Agreement is attached as Exhibit 4(b) of the Form 10-K filed on July 3, 1995. - ------------------------------------------------------------------------------------------------------------------------ 4(c) June 24, 1996 waiver to covenants in the December 1, 1991 Note Agreement between the Corporation and Allstate Life Insurance Company (the "Note Agreement") is attached as Exhibit 4(c). - ------------------------------------------------------------------------------------------------------------------------ 9(a) April 5, 1988 Voting Trust Agreement is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 9(a). - ------------------------------------------------------------------------------------------------------------------------ 9(b) December 1, 1988 Voting Trust Agreement is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 9(b). - ------------------------------------------------------------------------------------------------------------------------
-63- 65
- ------------------------------------------------------------------------------------------------------------------------ Number Description - ------------------------------------------------------------------------------------------------------------------------ 9(c) Writing dated April 5, 1988 appointing John A. Warehime as Successor Voting Trustee under Voting Trust Agreement dated December 1, 1988, is incorporated herein by reference to the Form 8-K filed June 1, 1990, wherein such Exhibit is designated as 9(c). - ------------------------------------------------------------------------------------------------------------------------ 9(d) Writing dated December 1, 1988 appointing John A. Warehime as Successor Voting Trustee under Voting Trust Agreement dated December 1, 1988, is incorporated herein by reference to the Form 8-K filed June 1, 1990, wherein such Exhibit is designated as 9(d). - ------------------------------------------------------------------------------------------------------------------------ 10(a) April 28, 1988 Sublease Agreement between Warehime Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(a). - ------------------------------------------------------------------------------------------------------------------------ 10(b) April 28, 1988 Agreement of Sale between Warehime Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(b). - ------------------------------------------------------------------------------------------------------------------------ 10(c) March 3, 1989 Agreement of Sale between Warehime Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(c). - ------------------------------------------------------------------------------------------------------------------------ 10(d) April 1, 1985 Lease Agreement between ARWCO Corporation and Alimentos Congelados Monte Bello S.A., is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(d). - ------------------------------------------------------------------------------------------------------------------------ 10(i) November 14, 1986 Employment Agreement between Hanover Brands, Inc., and Patricia H. Townsend is incorporated herein by reference to the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 10(i). - ------------------------------------------------------------------------------------------------------------------------
-64- 66
- ------------------------------------------------------------------------------------------------------------------------ Number Description - ------------------------------------------------------------------------------------------------------------------------ 10(j) August 3, 1989 Employment Agreement between Hanover Brands, Inc. and Berkley F. Cone, is incorporated herein by reference to the Form 8 Amendment to the July 28, 1989 Form 10, which Amendment was filed on November 17, 1989, wherein such Exhibit is designated as 10(j). - ------------------------------------------------------------------------------------------------------------------------ 10(k) May 10, 1991 Amendment to April 28, 1988 Agreement of Sale between Warehime Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference to the Form 10-K filed June 29, 1991, wherein such Exhibit is designated as 10(k). - ------------------------------------------------------------------------------------------------------------------------ 10(l) November 26, 1990 Deed conveying title to real estate known as Unit #720, Century I Condominium, Ocean City, Maryland from Estate of Alan R. Warehime to Hanover Foods Corporation, is incorporated herein by reference to the Form 10-K filed on June 29, 1991, wherein such Exhibit is designated as 10(l). - ------------------------------------------------------------------------------------------------------------------------ 10(m) Bill of Sale conveying title to furniture and furnishings to Unit #720, Century I Condominium, Ocean City, Maryland from Estate of Alan R. Warehime to Hanover Foods Corporation, is incorporated herein by reference to the Form 10-K filed on June 29, 1991, wherein such Exhibit is designated as 10(m). - ------------------------------------------------------------------------------------------------------------------------ 10(n) October 31, 1993 Severance Agreement and Release between John E. Denton and Hanover Foods Corporation is incorporated herein by reference to the Form 10-Q filed on February 9, 1994, wherein such Exhibit is designated as 10(n). - ------------------------------------------------------------------------------------------------------------------------ 10(o) June 1, 1994 Lease Agreement with unilateral option to purchase between Hanover Foods Corporation and Food Service East, Inc. is incorporated herein by reference to the Form 10-K filed on June 30, 1994, where such Exhibit is designated as Exhibit 10(o). - ------------------------------------------------------------------------------------------------------------------------ 10(p) October 1, 1994 Amendment to the June 1, 1994 Lease Agreement between Hanover Foods Corporation and Food Service East, Inc. is incorporated herein by reference to Exhibit 10(p) of the Form 10-K filed on July 3, 1995. - ------------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------------ Number Description - ------------------------------------------------------------------------------------------------------------------------ 10(q) April 4, 1994 Agreement of Sale between ARWCO Corporation and Alimentos Congelados Monte Bello, S.A. is incorporated herein by reference to Exhibit 10(q) of the Form 10-K filed on July 3, 1995. - ------------------------------------------------------------------------------------------------------------------------ 10(r) June 12, 1995 Employment Agreement between Hanover Foods Corporation and John A. Warehime is incorporated herein by reference to Exhibit 10(r) of the Form 10-K filed on July 3, 1995. - ------------------------------------------------------------------------------------------------------------------------ 10(s) June 20, 1995 Deed conveying title to real estate from Centre Foods Enterprises, Inc. to Hanover Foods Corporation is incorporated herein by reference to Exhibit 10(s) of the Form 10-K filed on July 3, 1995. - ------------------------------------------------------------------------------------------------------------------------ 10(t) April 4, 1994 Lease Agreement between John A. and Patricia M. Warehime and Hanover Foods Corporation is attached as Exhibit 10(t). - ------------------------------------------------------------------------------------------------------------------------ 10(u) July 27, 1995 Installment Sales Agreement for the purchase of 5,148 shares of Hanover Foods Class B Voting Common Stock from Cyril T. Noel, individually, and Cyril T. Noel and Frances L. Noel, jointly, is attached as Exhibit 10(u). - ------------------------------------------------------------------------------------------------------------------------ 10(v) April 1, 1996 Installment Sales Agreement for the purchase of 1,210 shares of Hanover Foods Class B Voting Common Stock and 5,990 shares of Hanover Foods Class A Nonvoting Common Stock from John R. Miller, Jr. is attached as Exhibit 10(v). - ------------------------------------------------------------------------------------------------------------------------ 10(w) June 1, 1996 letter to Food Service East, Inc. exercising Hanover Foods' unilateral option to purchase real estate from Food Service East, Inc. is attached as Exhibit 10(w). - ------------------------------------------------------------------------------------------------------------------------ 11 Computation of Earnings Per Share is attached as Exhibit 11. - ------------------------------------------------------------------------------------------------------------------------ 21 A list setting forth subsidiaries of the Registrant is attached as Exhibit 21. - ------------------------------------------------------------------------------------------------------------------------ 27 The Financial Data Schedule is attached as Exhibit 27 - ------------------------------------------------------------------------------------------------------------------------ 99 Annual Top Management Cash Bonus Program is attached as Exhibit 99. - ------------------------------------------------------------------------------------------------------------------------
-66- EX-3.C 2 AMENDED AND RESTATED BY-LAWS 1 EXHIBIT 3(c) AMENDED AND RESTATED BY-LAWS OF HANOVER FOODS CORPORATION These Bylaws are adopted by this Corporation and are supplemental to the Pennsylvania Business Corporation Law of 1988 as it may from time to time be amended. ARTICLE I. GENERAL Section 1. Office The principal office of Hanover Foods Corporation (the "Company") shall be in Penn Township, York County, Pennsylvania. (Post Office Hanover, Pa.) Section 2. Seal The Company shall have a common seal containing the words "Hanover Foods Corporation - Pennsylvania" in a circle within which the word "SEAL" is contained. Section 3. Fiscal Year The fiscal year of the Company shall end with the close of business on the Sunday nearest May 31st. ARTICLE II. SHAREHOLDERS Section 1. Place of Meetings All meetings of the shareholders shall be held at the principal office of the Company or at any other place, within or without the Commonwealth of Pennsylvania, designated in the notice of the meeting. Section 2. Annual Meeting The annual meeting of the shareholders shall be held each year on a date and at the time and place set by the Board of Directors; or if no date or time is set, on the third Friday of August at 10:00 a.m. 2 Section 3. Special Meetings Special meetings of the shareholders may be called at any time by the Chairman, or at the request of either a majority of the directors, or shareholders representing twenty percent (20%) of the issued and outstanding Class B Common Stock or that higher percentage prescribed by the Articles. At any time, upon written request of any person entitled to call a special meeting, the Secretary shall call a special meeting of the shareholders to be held at the time as the Secretary may fix, not less than five (5) nor more than sixty (60) days after the receipt of the request. If the Secretary does not call the meeting, the person making the request may do so. Section 4. Notice of Meetings The Secretary shall give written notice of shareholders meetings to shareholders of record entitled to vote at the meeting, at least five (5) days prior to the date fixed for the meeting unless a greater period of notice in a particular case is required by law. Ten (10) days notice shall be given if it is a special meeting called to elect directors. Notice may be given either personally or by mail, telegram, or facsimile to each shareholder at his address appearing on the books of the Company. The notice shall specify the place, day, and hour of the meeting and, in the case of a special meeting, the general nature of the business to be transacted. No notice of an adjourned meeting or of the business to be transacted at an adjourned meeting need be given other than by announcement at the meeting at which adjournment is taken. Section 5. Waiver of Notice A waiver of notice in writing signed by the person entitled to notice, whether before or after the time stated for the meeting, shall be deemed equivalent to the giving of notice. Attendance of a person either in person or by proxy at any meeting shall constitute a waiver of notice of the meeting, except where the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. -2- 3 Section 6. Quorum The presence in person or by proxy at a shareholders' meeting of a majority of all votes entitled to be cast with respect to each class of stock shall constitute a quorum. Shareholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of shareholders which leaves less than a quorum. Section 7. Adjournment of Meeting If a meeting cannot be organized because a quorum has not attended, those present may adjourn the meeting to any time and place they determine. In the case of any meeting called for the election of directors, those present at the adjourned meeting and who attend the second of any adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors. Any meeting at which directors are to be elected shall be adjourned only from day to day until the directors have been elected. Section 8. Voting Power All voting power incident to the Company's stock shall be vested in the holders of the Class B common stock. The holders of the Class A common stock shall have no right to vote at any meeting of shareholders, except as may be specifically required by law or the Articles of the Company. All questions shall be decided by the vote of the holders of shares constituting a majority of the voting power of all shares represented and entitled to vote at any meeting unless otherwise specifically provided by law or by the Articles of the Company. Section 9. Proxies Every shareholder may vote either in person or by proxy. Every proxy shall be executed in writing by the shareholder or by his duly authorized attorney in fact and filed with the Secretary of the Company. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given -3- 4 to the Secretary of the Company. No unrevoked proxy shall be valid after eleven (11) months from the date of its execution. Section 10. Determination of Shareholders of Record The Board of Directors may set, in advance, a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or to receive payment of any dividend or to make a determination of shareholders for any other proper purpose. The date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than sixty (60) days, and in the case of a meeting of shareholders not less than ten (10) days, before the date on which the meeting or particular action requiring the determination of shareholders is to be held or taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not longer than twenty (20) days. If the stock transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, the books shall be closed for at least ten (10) days before the date of the meeting. Section 11. Voting Lists The officer or agent having charge of the transfer books for shares of the Company shall make a complete list of the shareholders entitled to vote at each meeting of shareholders. The list shall be produced and kept open at the time and place of the meeting, and shall be subject to the inspection of any shareholder during the whole time of the meeting. The list shall be arranged in alphabetical order with the address of and the number of shares held by each shareholder. Section 12. Presiding Officer All meetings of the shareholders shall be called to order and presided over by the Chairman, or in his absence, by the Secretary, or if neither of them is present, by a chairman elected by the shareholders. -4- 5 ARTICLE III. DIRECTORS Section 1. Number The business and affairs of the Company shall be managed by a Board of Directors, who need not be residents of the Commonwealth of Pennsylvania or shareholders of the Company. The Board of Directors shall have the power to fix the number of directors and, from time to time, by proper resolution, to increase or decrease the number without a vote of the shareholders, provided that the number so determined shall not be less than seven (7) nor more than fifteen (15). Section 2. Election and Term The board of directors shall be classified into three annual classes, with three directors in class 1, two directors in class 2, and two directors in class 3. In the first year of such classification, class 1 directors shall be elected for a one year term, class 2 directors shall be elected for a two year term and class three directors shall be elected for a three year term. Following this initial election, each class of directors shall be elected for terms of three years. Each term shall continue for the number of years stated and until their successors are elected and have qualified. Their terms of office shall begin immediately after election. The directors shall be elected at the annual meeting of shareholders, or if not so elected, at a special meeting of shareholders called for that purpose. Each director shall hold office until his term is ended and his successor is elected, or until his resignation, removal from office, or death, whichever is earlier. Section 3. Nominations Nominations for election to the Board of Directors may be made by the Board of Directors or by any shareholder of a class of stock entitled to vote for the election of directors. Nominations, other than those made by or on behalf of the Board of Directors, shall be made in writing, and shall be delivered to the Chairman, at least three (3) days prior to the date of the meeting at which the directors are to be elected. A nomination shall contain the following information to the extent known to the shareholder: (a) The name and address of each proposed nominee; -5- 6 (b) The qualifications of each proposed nominee; (c) Confirmation that the proposed nominee has agreed to serve if elected. Nominations not made in accordance with this Section may be disregarded by the Chairman of the meeting and upon his instructions, the judges of elections may disregard all votes cast for that nominee. Section 4. Vacancies Vacancies in the Board of Directors shall be filled by a majority vote of the remaining members of the Board even though less than a quorum, and each person so elected shall serve until his successor is elected. Any vacancy, including vacancies resulting from death, resignation or an increase in the number of directors may be filled by the vote of a majority of the remaining directors though less than a quorum. Section 5. Regular Meetings The Board of Directors shall hold an annual meeting within two (2) days after the annual meeting of the shareholders and may hold other meetings at any time and place the Board may determine. Section 6. Special Meetings The Board of Directors may hold special meetings called by the Chairman, the Secretary or a majority of the directors. Each meeting shall be held at a time and place designated in the notice of the meeting. Section 7. Notice of Meetings Written notice of all meetings except the annual meeting of the Board of Directors shall be given by, or at the direction of, the person calling the meeting at least one (1) day prior to the day named for the meeting. -6- 7 Section 8. Quorum A majority of the directors in office shall constitute a quorum for the transaction of business and the acts of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors. If all directors consent in writing to any action to be taken by the Company, that action shall be as valid a corporate action as though it had been authorized at a meeting of the Board of Directors. The consent signed by all directors shall be filed with the Secretary. Section 9. Powers of Board of Directors Except as otherwise provided by law or by the Articles or by-laws of the Company, all general and special powers of the Company shall be exercised by or under the authority of the Board of Directors of the Company. The Board of Directors may from time to time adopt regulations with respect to the powers and duties of the officers of the Company and the conduct and management of the Company's business as the Board deems proper. Section 10. Financial Report to Shareholders The Board of Directors shall cause a financial report as of the closing date of the preceding fiscal year to be sent to the shareholders within 120 days after the close of the Company's fiscal year. The report shall give a full, clear and complete statement of the business and conditions of the Company. The report shall set forth a balance sheet as of the closing date of the preceding fiscal year together with a statement of income and profit and loss for the year ended on that date prepared in the form ordinarily used by accountants for the particular kind of business carried on by the Company. All reports shall be verified by a certified public accountant who is not a director or full time employee of the Company or by a firm of practicing public accountants, at least one member of which is a certified public accountant. Section 11. Committees The Board of Directors may from time to time appoint standing or special committees as it may deem for the best interests of the -7- 8 Company. No committee shall have any powers except that expressly conferred upon it by the Board of Directors. Section 12. Personal Liability of Directors A Director of this Company shall not be personally liable as such for monetary damages for any action taken, or any failure to take any action, unless: (1) the Director has breached or failed to perform the duties of his office in good faith, in a manner he reasonably believes to be in the best interests of the Company, and with that care, including reasonable inquiry, skill and diligence, a person of ordinary prudence would use under similar circumstances; and (2) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. This section shall not limit a Director's liability for monetary damages to the extent prohibited by the Pennsylvania Business Corporation Law of 1988. Section 13. Mandatory Indemnification of Directors, and Officers The Company shall indemnify any person who is or was a director or officer, or is or was serving at the request of the company as a director or officer of another corporation, or fiduciary of an employee benefit plan or trust ("Indemnified Person"), for direct third-party actions and derivative and corporate actions to the maximum extent permitted by the Pennsylvania Business Corporation Law of 1988 (as amended from time to time), the Directors Liability Act or otherwise. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Company, in advance of the final disposition of any action, suit or proceeding upon receipt of an undertaking by or on behalf of the Indemnified Person to repay the amount if it is ultimately determined that he is not entitled to be indemnified by the Company. Persons who were directors or officers of the Company prior to the date these by-laws are approved by the Board of Directors of the Company, but who do not hold that office on or after such date, shall not be covered by this Section. -8- 9 No indemnification or advancement or reimbursement of expenses shall be provided to an Indemnified Person (a) for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, and amounts paid in settlement) which have been paid directly to, or for the benefit of, the Indemnified Person by an insurance carrier under a policy of officers' and directors' liability insurance whose premiums are paid by the Company or by an individual or entity other than the Indemnified Person; and (b) for amounts paid in settlement of any threatened, pending or completed action, suit or proceeding without the written consent of the Company, which shall not be unreasonably withheld. The right of an Indemnified Person to be indemnified or to receive an advancement or reimbursement of expenses (i) may be enforced as a contract right pursuant to which the Indemnified Person may bring suit as if the right were set forth in a separate written contract between the Corporation and the Indemnified Person, (ii) to the fullest extent permitted by applicable law, is intended to be retroactive and shall be available with respect to events occurring prior to the adoption of this Article, and (iii) shall continue to exist after the rescission or restrictive modification (as determined by the Indemnified Person) of this Article with respect to events, acts or omissions occurring before the rescission or restrictive modification is adopted. If a request for indemnification or for the advancement or reimbursement of expenses is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation together with all supporting information reasonably requested by the Corporation, the Indemnified Person may thereafter bring suit to recover the unpaid amount of the claim (plus interest at the prime rate announced from time to time by the Corporation's primary banker) and, if successful, the expenses (including, but not limited to, attorney's fees) of prosecuting the claim. Nothing contained in this Article shall be construed to limit the rights and powers the Corporation possesses under the Pennsylvania Business Corporation Law of 1988 (as amended from time to time), the Directors' Liability Act or otherwise, including, but not limited to, the powers to purchase and maintain insurance, create funds to secure or insure its -9- 10 indemnification obligations, and any other rights or powers the Corporation may otherwise have under applicable law. Section 14. Telephone Meetings Members of the Board of Directors and its committees may participate in meetings by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 15. Compensation Directors may receive an annual fee for their services as directors. In addition, a fixed sum and expenses of attendance, if any, may be allowed to directors for attendance at each meeting of the Board of Directors or of any committee. The amount of the fee, if any, shall be fixed by the Board of Directors. A director shall not be precluded from serving the Company in any other capacity and receiving compensation in that capacity. ARTICLE IV. OFFICERS Section 1. Election of Officers and Agents At its annual meeting, the Board of Directors shall elect a Chairman, a President, one or more Vice Presidents as from time to time may be fixed by the Board of Directors, a Secretary, a Treasurer, and one or more other officers as the Board may deem proper. Any two or more offices may be held by the same person. Section 2. Term and Compensation All officers shall be elected for the term and receive compensation as the Board of Directors may determine. Unless the Board of Directors shall authorize or approve a written contract for a longer term, each officer shall hold office until the next annual meeting of the Board of Directors and until his successor is elected and qualified. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the -10- 11 Company will be served, but removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 3. Chairman The Chairman shall be the chief executive officer of the Company. He shall preside at all meetings of shareholders and directors at which he is present. He shall be ex-officio a member of all standing committees. He shall make reports of the Company's business to the Board of Directors as the Board may require. He shall have the duties and authority incident to the office of Chairman. Section 4. President In the event of the incapacity of the Chairman to act, his duties shall be performed by the President. The President shall have the duties and authority assigned by the Chairman or the Board of Directors. Section 5. Vice-Presidents The Vice-Presidents shall have the duties and authority assigned to each of them by the Chairman or the Board of Directors. Section 6. Secretary The Secretary shall attend the meetings of the shareholders and of the directors and keep minutes thereof in suitable books. Unless some other person is delegated to give notice, the Secretary shall send out notices of all meetings of shareholders and of directors which may be called or held in accordance with the provisions of the law and these by-laws. He shall perform all the usual duties incident to the office of Secretary. He shall have custody of the corporate seal. Section 7. Treasurer The Treasurer shall have custody of the corporate funds of the Company and keep, or cause to be kept, accurate accounts of all receipts and payments made in books kept for that purpose. He shall deposit all money received in the name and to the credit of the Company in depositories the Board of Directors may designate. -11- 12 He shall give bond for the faithful discharge of his duties in an amount and with sureties as the Board of Directors may require. He shall perform the duties assigned to him by the Chairman or the officer designated by the Board of Directors as the Chief Financial Officer of the Company. ARTICLE V. EXECUTION OF DOCUMENTS Section 1. Checks, Notes, Etc. The Board of Directors shall from time to time designate the officers or agents of the Company who shall have power, in its name, to sign and endorse checks and other negotiable instruments and to borrow money for the Company, and in its name, to make notes or other evidences of indebtedness. Section 2. Other Documents Unless otherwise authorized by the Board of Directors, all contracts, leases, deeds, deeds of trust, mortgages, powers of attorney to transfer stock and for other purposes, and all other documents requiring the seal of the Company shall be executed for and on behalf of the Company by the Chairman, the President or any Vice President, all of which shall be attested to by the Secretary, and the corporate seal shall be affixed at his direction. ARTICLE VI. SHARE CERTIFICATES AND TRANSFERS Section 1. Share Certificates Share certificates of the Company shall be in the form that the Board of Directors may from time to time determine. Every share certificate shall be signed by the Chairman, or in the absence of the Chairman, by the President, or any other officer designated by the Board of Directors, and shall be countersigned by the Secretary, or in the absence of the Secretary, by the Treasurer, and sealed with the corporate seal. -12- 13 Section 2. Transfer of Shares The shares of the capital stock of the Company shall, upon the surrender and cancellation of the certificate or certificates representing the same, be transferred upon the books of the Company at the request of the holder named in the surrendered certificate in person or by his legal representatives or attorney duly authorized by a written power of attorney filed with the Company's transfer agent. Section 3. Loss or Destruction of Share Certificate In case of loss or destruction of a share certificate, another may be issued in lieu thereof in the manner and upon those terms as the Board of Directors shall authorize in each particular case. Section 4. Transfer Agents and Registrars The Board of Directors may appoint an incorporated bank or trust company to act as registrar of transfers, and also an incorporated bank or trust company to act as transfer agent. In that event no share certificate thereafter issued shall be valid or binding upon the Company unless registered by one of the Company registrars or countersigned by the Company transfer agent before being issued by one of such registrars. ARTICLE VII. AMENDMENTS These by-laws may be altered or amended by a vote of a majority of the members of the Board of Directors at any regular or special meeting duly convened after notice of that purpose; subject, however, to the power of the shareholders to change or repeal the by-laws at any annual or special meeting duly convened after notice of that purpose. Hanover, Pennsylvania DATE: June 26, 1996 --------------- -13- 14 I hereby certify that the foregoing is a true and correct copy of the by-laws (as amended) of Hanover Foods Corporation, a Pennsylvania corporation, and that the by-laws are in full force and effect as of this date. /s/ Gary T. Knisely ----------------------------- Gary T. Knisely, Secretary -14- EX-4.C 3 WAIVER DATED JUNE 24, 1996 1 EXHIBIT 4(c) June 24, 1996 Hanover Foods Corporation 1486 York Road P. O. Box 334 Hanover, Pennsylvania 17331 Re: Waiver $25,000,000 8.74% Senior Notes Due March 15, 2007 of Hanover Foods Corporation Ladies and Gentlemen: Reference is hereby made to that certain Note Agreement dated as of December 1, 1991, as amended by the First Amendment dated as of June 20, 1995 (collectively, the "Note Agreement") between Hanover Foods Corporation, a Pennsylvania corporation (the "Company"), and Allstate Life Insurance Company ("Allstate"). Capitalized terms used herein that are not otherwise defined shall have the meanings assigned thereto in the Note Agreement. You have advised us that the following Event of Default has occurred: As of September 31, 1995 and to and including the date hereof, default has occurred in the observance of the covenant contained in Section 5.9 of the Note Agreement which requires the Company to maintain a minimum ratio, as set forth therein, of Net Income Available for Interest Charges to Interest Charges for each period of four consecutive fiscal quarters most recently ended. By its execution hereof the Company hereby represents and warrants that other than the default specified above, no Default or Event of Default exists. The Company also agrees that from and after December 31, 1995 to July 10, 1996, interest on the Note shall accrue at a rate per annum equal to 9.24%. Upon the execution by the financial institutions which are parties to the credit agreements (the "Bank Agreements") with the Company of waivers of any defaults or events of default thereunder and upon the execution of this letter, Allstate hereby waives the default specified above; provided however, that such waiver shall be effective only until the earliest of the following to occur: (i) July 10, 1996, (ii) the occurrence of any default or event of default under the Bank Agreements, (iii) the expiration or termination of any waiver of any defaults under the Bank Agreements, or (iv) the termination or material modification of the Bank Agreements. 2 The Company further understands and agrees that such waiver pertains only to the matters and to the extent herein described and not to any other actions of the Company or to any other rights of the undersigned. The Waiver shall be governed by and construed in accordance with Pennsylvania law. Very truly yours, ALLSTATE LIFE INSURANCE COMPANY By: /s/ Patricia W. Wilson --------------------------------- Authorized Officer By:/s/ Steven M. Loude --------------------------------- Authorized Officer Agreed to and acknowledged by: HANOVER FOODS CORPORATION By: /s/ Gary T. Knisely --------------------------------- Gary T. Knisely Executive Vice President EX-10.T 4 LEASE AGREEMENT 1 EXHIBIT 10(t) LEASE AGREEMENT THIS AGREEMENT, made this 4th day of April 1994, by and between JOHN A. WAREHIME and PATRICIA M. WAREHIME, husband and wife, R.D. #3, Hanover, Pennsylvania, hereinafter referred to as "LESSOR"; and HANOVER FOODS CORPORATION, a duly organized Pennsylvania corporation, having its principal office located at 1486 York Street, Hanover, Pennsylvania, hereinafter referred to as "LESSEE". W I T N E S S E T H: 1. Leased Premises LESSOR does hereby lease to LESSEE and LESSEE does hereby lease from LESSOR one two story stone farm house and adjoining one story guest house located on Trolley Road, R.D. #3, Hanover, Heidelberg Township, Pennsylvania. 2. Term of Lease The term of this lease shall be from April 1, 1994 to March 31, 1995. Said lease shall automatically renew from year to year on the same terms and conditions unless either party gives the other party at least thirty (30) days written notice prior to the end of the term of this Lease Agreement. 2 3. Rent LESSEE shall pay rent for the use of the demised premises at the rate of Four Thousand Five Hundred ($4,500.00) Dollars per month due on or before the 10th of the month for the month of use. (One Thousand ($1,000.00) Dollars per month to be retained for escrow.) 4. Real Estate Taxes, Insurance, Utilities LESSOR shall be responsible for all real estate taxes and owner's fire, casualty and liability insurance on said demised premises. LESSEE shall be responsible for the payment of all utility bills incurred in LESSEE's use of the demised premises. LESSEE shall be responsible for any insurance necessary to protect any LESSEE's personal property located on the demised premises. LESSEE shall carry general liability insurance on said demised premises in the minimum amount of $500,000 per occurrence and $1,000,000 per aggregate. 5. Repairs and Maintenance LESSEE shall be responsible and pay the cost of all repairs necessary to maintain the premises, except major structural repairs which will be the obligation of the LESSOR. LESSEE shall be responsible for all snow removal on adjoining walkways to said demised premises. -2- 3 IN WITNESS WHEREOF, the parties to this Agreement have hereunto set their hands and seals, the date above written. /s/ Patricia H. Townsend /s/ John A. Warehime - ------------------------------ ------------------------------------ WITNESS JOHN A. WAREHIME, LESSOR /s/ Patricia H. Townsend /s/ Patricia M. Warehime - ------------------------------ ----------------------------------- WITNESS PATRICIA M. WAREHIME, LESSOR ATTEST: HANOVER FOODS CORPORATION /s/ Gary T. Knisely /s/ David M. Suchniak - ------------------------------ ------------------------------------ GARY T. KNISELY DAVID M. SUCHNIAK SECRETARY VICE PRESIDENT - FINANCE & CFO -3- EX-10.U 5 INSTALLMENT SALES AGREEMENT DATED JULY 27, 1995 1 EXHIBIT 10(u) INSTALLMENT SALES AGREEMENT THIS AGREEMENT, made this 27th day of July, 1995, by and between HANOVER FOODS CORPORATION, a duly organized Pennsylvania corporation having its principal office located at 1486 York Street, Hanover, Pennsylvania 17331, hereinafter referred to as "HANOVER", and CYRIL T. NOEL and FRANCES L. NOEL, husband and wife, residing at 344 1/2 North Street, McSherrystown, Pennsylvania 17344, hereinafter referred to as "NOEL". WHEREAS, NOEL desires to sell Five Thousand One Hundred Forty-Eight (5,148) shares of HANOVER Class B Common Stock currently owned by Cyril T. Noel individually, and Cyril T. Noel and Frances L. Noel, jointly; WHEREAS, HANOVER is willing to repurchase said shares of Class B Common Stock from NOEL; WITNESSETH: NOW THEREFORE, in consideration of the mutual covenants hereinafter contained, the parties hereto, intending to be legally bound, do hereby agree as follows: -1- 2 1. On July 27, 1995, NOEL shall convey and transfer all legal title and right to the Five Thousand One Hundred Forty-Eight (5,148) shares of HANOVER Class B Common Stock by endorsing and surrendering the following stock certificates owned by the following individuals to HANOVER:
Stock Certificate Number Number Name of Shares ------ ---- --------- 852 Cyril T. Noel 80 891 Cyril T. Noel 8 853 Cyril T. Noel and Frances L. Noel 4,600 892 Cyril T. Noel and Frances L. Noel 460 ----- Total 5,148
2. Pursuant to its employee stock repurchase plan, HANOVER agrees to repurchase the Five Thousand One Hundred Forty-Eight (5,148) shares of HANOVER Class B Common Stock from NOEL at the most recently appraised value of Seventy-One Dollars and Forty Cents ($71.40) per share as per Management Planning, Inc., Princeton, New Jersey, for a total consideration of Three Hundred Sixty-Seven Thousand Five Hundred Sixty-Seven Dollars and Twenty Cents ($367,567.20). 3. The total consideration shall be paid in five (5) equal annual installments -2- 3 each in the amount of Seventy-Three Thousand Five Hundred Thirteen Dollars and Forty-Four Cents ($73,513.44). The first payment shall be paid on January 1, 1996 and on January 1st of each year thereafter with the final payment made on January 1, 2000. Interest at the prime rate of CoreStates Bank. The interest rate for each calendar year shall be the rate as of January 1st of the applicable year and shall be paid quarterly on the outstanding unpaid principal balance. HANOVER reserves the right to prepay the unpaid principal balance and accrued interest at any time upon providing thirty (30) days prior notice to NOEL. However, HANOVER shall pay five (5%) percent of the outstanding unpaid principal as a prepayment penalty. 4. NOEL agrees to deliver and transfer the aforesaid Five Thousand One Hundred Forty-Eight (5,148) shares of HANOVER Class B Common Stock to HANOVER on July 27, 1995. HANOVER agrees to execute and deliver to NOEL a collateral judgment note to secure the balance of the payments, and which note shall not be entered of record unless default occurs. 5. NOEL shall not be entitled to any dividends on said shares of stock effective upon execution of this Agreement. 6. On July 27, 1995, HANOVER agrees to transfer and deliver to NOEL a Promissory Note to secure the balance of payments of principal and accrued interest, and which -3- 4 note shall not be entered of record unless default occurs. A copy of said Promissory Note is attached hereto and made a part hereof, marked Exhibit A. 7. A cash payment schedule specifying the required payments of principal and interest is attached hereto and made a part hereof, marked Exhibit B. The installment cash payments for the purchase of said stock shall be applied in the following order: first to the purchase of the shares held in the name of Cyril T. Noel; and second to the purchase of the shares in the name of Cyril T. Noel and Frances L. Noel, jointly. 8. To the best of the parties' knowledge and belief, HANOVER Class A Common Stock is not traded on any stock exchange or established securities market. 9. This Agreement represents the entire agreement between the parties and supersedes any prior or contemporaneous oral or written understandings and representations between the parties regarding this matter. This Agreement may not be modified except in a written document signed by both parties. -4- 5 IN WITNESS WHEREOF, the parties have set their hands and seals the day and year first above written intending to bind themselves, their heirs, executors, administrators, successors and assigns. ATTEST: HANOVER FOODS CORPORATION /s/ Gary T. Kinsely By: /s/ John A. Warehime - --------------------------------- ----------------------------------- Gary T. Knisely John A. Warehime Secretary Chairman /s/ Patricia A. Hagerman /s/ Cyril T. Noel - --------------------------------- ------------------------------------ Cyril T. Noel /s/ Patricia A. Hagerman /s/ Frances L. Noel - --------------------------------- ------------------------------------ Frances L. Noel -5- 6 PROMISSORY NOTE $367,567.20 July 27, 1995 Hanover, Pennsylvania The undersigned, HANOVER FOODS CORPORATION, a corporation organized and existing under the laws of the Commonwealth of Pennsylvania ("HANOVER") promises to pay to the order of CYRIL T. NOEL and FRANCES L. NOEL, husband and wife, of 344 1/2 North Street, McSherrystown, Pennsylvania 17344 ("NOEL") the principal amount of Three Hundred Sixty-Seven Thousand Five Hundred Sixty-Seven Dollars and Twenty Cents ($367,567.20). The unrepaid balance of the principal amount outstanding will bear interest at the prime rate of CoreStates Bank. The interest rate for each calendar year shall be the rate as of January 1 of the applicable year. The principal of this note shall be paid in five (5) equal, annual installments in the amount of Seventy-Three Thousand Five Hundred Thirteen Dollars and Forty-Four Cents ($73,513.44) each beginning January 1, 1996 and on January 1 each year thereafter with the fifth payment on January 1, 2000. Interest on the outstanding unpaid balance shall be paid quarterly on April 1, July 1, October 1 and January 1. HANOVER shall have the right to prepay the unpaid principal balance and accrued interest at any time, upon providing thirty (30) days prior notice to NOEL. However, HANOVER shall pay five (5%) percent of the outstanding unpaid EXHIBIT A -1- 7 principal as a prepayment penalty. This Note is given as collateral security for an Agreement, dated July 27, 1995, where Cyril T. Noel and Frances L. Noel, individually and jointly agreed to sell to HANOVER Five Thousand One Hundred Forty-Eight (5,148) shares of HANOVER's Class B Common Stock. NOEL agrees to not enter this Note of Record unless HANOVER defaults. In the event of default in the payments herein required to be made, HANOVER does hereby authorize and empower any attorney of any Court of Record in Pennsylvania or elsewhere, to appear for it at any time and confess judgment for release of errors, without stay of execution, and with fifteen percent (15%) added for collection fees, and also waives the right of inquisition on any real estate that may be levied upon to collect this Note, and do hereby voluntarily condemn the same and authorize the Prothonotary to enter upon the writ of execution, said voluntary condemnation; and further agrees that said estate may be sold on a writ of execution, and hereby waives and releases all relief from any and all appraisement, stay or exemption laws of the State now in force or hereinafter to be passed; and also waives the benefit of the present and any future bankruptcy law that may be passed by the United States. All matters pertaining to this Note will be governed by the laws of Pennsylvania. -2- 8 IN WITNESS WHEREOF, and intending to be legally bound hereby, the undersigned has executed this Promissory Note under seal. ATTEST: HANOVER FOODS CORPORATION /s/ Gary T. Knisely By: /s/ David M. Suchniak - ---------------------------------- -------------------------------- Gary T. Knisely David M. Suchniak Secretary Vice President - Finance and Chief Financial Officer -3- 9 Cash Payment Schedule (assuming prime at 8.75%) --------------------------------- 5,148 shares $71.40 $367,567.20 Total Consideration Interest 10-1-95 5,639.39 Interest 1-1-96 8,106.62 Principal (1) 1-1-96 73,513.44 ------------ 294,053.76 Interest 4-1-96 6,432.43 Interest 7-1-96 6,432.43 Interest 10-1-96 6,432.43 Interest 1-1-97 6,432.43 Principal (2) 1-1-97 73,513.44 ------------ 220,540.32 Interest 4-1-97 4,824.32 Interest 7-1-97 4,824.32 Interest 10-1-97 4,824.32 Interest 1-1-98 4,824.32 Principal (3) 1-1-98 73,513.44 ------------ 147,026.88 Interest 4-1-98 3,216.21 Interest 7-1-98 3,216.21 Interest 10-1-98 3,216.21 Interest 1-1-99 3,216.21 Principal (4) 1-1-98 73,513.44 ------------ 73,513.44 Interest 4-1-99 1,608.11 Interest 7-1-99 1,608.11 Interest 10-1-99 1,608.11 Interest 1-1-2000 1,608.11 Principal (5) 1-1-2000 73,513.44 ------------ Balance 0.00
EXHIBIT B EX-10.V 6 INSTALLMENT SALES AGREEMENT DATED APRIL 1,1996 1 EXHIBIT 10(v) INSTALLMENT SALES AGREEMENT THIS AGREEMENT, made this 1st day of April, 1996, by and between HANOVER FOODS CORPORATION, a duly organized Pennsylvania corporation having its principal office located at 1486 York Street, Hanover, Pennsylvania 17331, hereinafter referred to as "HANOVER", and JOHN R. MILLER, JR., residing at 1115 Outer Drive, State College, Pennsylvania 16801, hereinafter referred to as "MILLER". WHEREAS, MILLER desires to sell One Thousand Two Hundred Ten (1,210) shares of HANOVER Class B Voting Common Stock and Five Thousand Nine Hundred Ninety (5,990) shares of HANOVER Class A Nonvoting Common Stock; WHEREAS, HANOVER is willing to repurchase said shares of HANOVER Class B and A Common Stock from MILLER; WITNESSETH: NOW THEREFORE, in consideration of the mutual covenants hereinafter contained, the parties, intending to be legally bound, agree as follows: -1- 2 1. During term from March 29, 1996 up to and including March 1, 2000 as per Exhibit A, HANOVER agrees to repurchase: (1) One Thousand Two Hundred Ten (1,210) shares of HANOVER Class B Common Stock from MILLER at the most recently appraised value of Seventy-One Dollars and Forty Cents ($71.40) per share as per Management Planning, Inc., Princeton, New Jersey, for a total consideration of Eighty-Six Thousand Three Hundred Ninety- Four Dollars ($86,394.00); and (2) Five Thousand Nine Hundred Ninety (5,990) shares of HANOVER Class A Common Stock for the price of Forty-Two Dollars ($42.00) per share for a total consideration of Two Hundred Fifty-One Thousand Five Hundred Eighty Dollars ($251,580.00). 2. MILLER shall convey and transfer all legal title and right to the One Thousand Two Hundred Ten (1,210) shares of HANOVER Class B Common Stock and Five Thousand Nine Hundred Ninety (5,990) shares of HANOVER Class A Common Stock as payment is received per Exhibit A. 3. MILLER shall continue to receive dividends on all shares of common stock until purchased by HANOVER. MILLER shall execute the proxy attached as Exhibit B granting to John A. Warehime the right to vote the shares of HANOVER Common Stock, Class A and Class B, owned by MILLER and which is the subject of this Agreement. -2- 3 4. To the best of the parties' knowledge and belief, HANOVER Class A and Class B Common Stock are not traded on any stock exchange or established securities market. 5. This Agreement represents the entire agreement between the parties and supersedes any prior or contemporaneous oral or written understandings and representations between the parties regarding this matter. This Agreement may not be modified except in a written document signed by both parties. IN WITNESS WHEREOF, the parties have set their hands and seals the day and year first above written intending to bind themselves, their heirs, executors, administrators, successors and assigns. WITNESS HANOVER FOODS CORPORATION /s/ JoAnn Gabrovsek By: /s/ Gary T. Knisely (SEAL) - --------------------------------- ------------------------ Gary T. Knisely Executive Vice President /s/ Joann Gabrovsek /s/ John R. Miller, Jr. - --------------------------------- -----------------------------(SEAL) John R. Miller, Jr. -3- 4 JOHN R. MILLER, JR. / HANOVER FOODS CORPORATION HANOVER CLASS B AND CLASS A COMMON STOCK REPURCHASE SCHEDULE -------------------
# Shares Per Share Total # Shares Per Share Total -------- --------- ----- -------- --------- ----- April 1, 1996 36 B $71.40 $ 2,570.40 1998 296 A $42.00 $12,432.00 March 1 73 B $71.40 $ 5,212.20 ========== 356 A $42.00 $14,952.00 $15,002.40 ========== $20,164.20 16 Quarterly Installments - ------------------------- June 1 73 B $71.40 $5,212.20 1996 356 A $42.00 $14,952.00 - ---- ========== June 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== September 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== September 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== December 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== December 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== 1999 $20,164.20 March 1 73 B $71.40 $5,212.20 356 A $42.00 $14,952.00 1997 ========== March 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== June 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== June 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== September 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== September 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== December 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== December 1 73 B $71.40 $5,212.20 $20,164.20 356 A $42.00 $14,952.00 ========== 2000 $20,164.20 March 1 79 B $71.40 $5,640.60 354 A $42.00 $14,868.00 ========== $20,508.60 TOTAL $337,974.00
EXHIBIT A 5 HANOVER FOODS CORPORATION FIVE-YEAR PROXY The undersigned stockholder of Hanover Foods Corporation, a Pennsylvania corporation (the "Corporation"), appoints John A. Warehime, as the proxy of the undersigned, for the five-year period beginning on April 1, 1996 and ending on March 31, 2001, with full power of substitution, to attend all meetings of the stockholders of the Corporation and to vote any and all shares of stock of the Corporation at the time standing in the name of the undersigned, at any and all meetings of the stockholders or adjournment of the meetings. The undersigned revokes any proxy previously given with respect to that stock, and authorizes the above-named proxy to vote in the proxy's discretion upon any business as may properly be brought before the meetings. /s/ John R. Miller ------------------------------------ John R. Miller, Jr. Dated: April 4, 1996 ------------- EXHIBIT B EX-10.W 7 LETTER TO FOOD SERVICE EAST, INC. DATED 6/1/96 1 [HANOVER LETTERHEAD] EXHIBIT 10(w) June 1, 1996 Food Service East, Inc. c/o Steven M. Carr, Esquire, Trustee Thompson & Carr 11 E. Market Street York, PA 17401-1249 RE: REAL PROPERTY LOCATED AT SMITH STATION ROAD AND ROUTE 116 IN HEIDELBERG TOWNSHIP, YORK COUNTY, PENNSYLVANIA Gentlemen: Pursuant to Paragraph 14 of the Lease Agreement dated June 1, 1994, by and between Hanover Foods Corporation ("Hanover") and Food Service East, Inc. (Debtor in Possession) ("FSE") as amended October 1, 1994, Hanover hereby exercises its unilateral option to purchase all of the real estate currently owned by FSE located at Smith Station Road and Route 116 (Tax Map Parcel DE-75A) in Heidelberg Township, York County, Pennsylvania, comprised of approximately 10.3 acres of land and improved by an office/warehouse facility, free and clear of all liens, encumbrances, and security interests whatsoever for $904,058.22. The closing of this transaction shall occur on the latter of thirty (30) days from the date of this letter or completion of a comprehensive title search concerning the property. If you have any questions, please call me. Very truly yours, /s/ Gary T. Knisely Gary T. Knisely, Esq. Executive Vice President GTK:dcb cc: Robert M. Hankin, Esquire John A. Warehime EX-11 8 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 HANOVER FOODS CORPORATION AND SUBSIDIARIES Computations of Per Share Earnings
- --------------------------------------------------------------------------------------------- Fiscal years ended -------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------- Primary: Net earnings $ 420,000 1,888,000 6,161,000 Preferred stock dividends (31,000) (33,000) (34,000) - --------------------------------------------------------------------------------------------- Net earnings applicable to common stock $ 389,000 1,855,000 6,127,000 - --------------------------------------------------------------------------------------------- Shares: Weighted average number of shares outstanding 729,608 734,252 739,026 - --------------------------------------------------------------------------------------------- Primary earnings per share $ 0.53 2.53 8.29 - --------------------------------------------------------------------------------------------- Fully diluted: Net earnings $ 420,000 1,888,000 6,161,000 - --------------------------------------------------------------------------------------------- Shares: Weighted average number of shares outstanding 729,608 734,252 739,026 Assuming conversion of preferred stock into common stock 6,340 6,458 7,100 - --------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 735,948 740,710 746,126 - --------------------------------------------------------------------------------------------- Earnings per share assuming full dilution $ 0.57 2.55 8.26 - ---------------------------------------------------------------------------------------------
This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3% or in anti-dilution EX-21 9 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT
NAME OF SUBSIDIARY STATE OF INCORPORATION - ------------------ ---------------------- - - Tri-Co. Foods Corp. Pennsylvania - - Spring Glen Fresh Foods, Inc. Pennsylvania - - Consumers Packing Company Pennsylvania d/b/a Hanover Foods - Lancaster Division - - Hanover Insurance Company Ltd. Grand Cayman, B.W.I. - - Nittany Corporation Delaware NOTE: Tri-Co. Foods Corporation has two wholly-owned subsidiaries: - - Alimentos Congelados Monte Bello S.A. Republic of Guatemala - - Sunwise Corporation Florida
EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAR-31-1996 APR-03-1995 MAR-31-1996 914 0 25,216 0 47,157 76,025 109,406 60,262 128,368 60,981 20,952 0 788 21,057 20,664 128,368 262,920 262,920 213,515 213,515 44,133 0 4,639 633 213 420 0 0 0 420 0.53 0.53
EX-99 11 ANNUAL TOP MANAGEMENT CASH BONUS PROGRAM 1 EXHIBIT 99 ANNUAL TOP MANAGEMENT CASH BONUS PROGRAM The Company maintains a cash bonus plan whereby the executive officers and salaried marketing department personnel are eligible to receive cash bonuses equal to a percentage of the executive officer's base salary if certain corporate pretax profit objectives are achieved. The executive officers selected each year to participate in the cash bonus plan, as well as the performance targets on which the cash bonuses are based and the amount of the cash bonuses are determined each year at the discretion of the Chairman and the Board of Directors. Specifically, the Chairman recommends to the Board of Directors certain executive officers who will participate in the plan each year. Such executive officers who will participate in the plan as evidenced by written notice from the Company. The amount of the actual cash bonus paid to the various executive officers participating in the cash bonus plan is calculated based on the attainment of the corporate pretax profit objectives for domestic operations only set at the commencement of each fiscal year. The cash bonuses are normally paid within the sixty (60) days after the end of the fiscal year. -----END PRIVACY-ENHANCED MESSAGE-----