Steve Wright General Manager & CEO Pro-Fac Cooperative Executing Difficult Strategies: Changing Business Structures

Steven Wright

n The colder the x-ray table, the more of your body is required to be on it. n To steal ideas from one person is plagiarism; to steal from many is research. n The sooner you fall behind, the more time you’ll have to catch up. Wrightisms

n Borrow money from pessimists - they don’t expect it back n 42.7% of all statistics are made up on the spot n The early bird may get the worm, but the second mouse gets the cheese. n Depression is merely anger without enthusiasm. Wrightisms

n I intend to live forever - so far, so good. n What happens if you get scared half to death twice? n My mechanic told me, “I couldn’t repair your brakes, so I made your horn louder.” Wrightisms

History n Pro-Fac Cooperative – Present

Our beginnings... n Western N.Y. growers formed partnership with local food processors n Cooperative named “Pro-Fac,” to symbolize producers and facilities n Agway played significant role in start-up n Company - Curtice-Burns - assured of supply n Grower/members assured of markets n 700+ growers in New York State joined by buying stock

Innovators from the start... n Members bought stock to join Co-op n Operated under detailed agreement between Co-op and processor partner n Separate responsibilities –Curtice Burns - processed and marketed products (Brand, Private Label, Food Service) –Pro-Fac–Supplied Raw Product –Link to Farm Credit Financing n Profits and losses shared equally by series of agreements

Growth through expansion... n Company grew through acquisitions - expanding grower opportunities and regions n corporation became public - listed first on NASDAQ, then AMEX n Grower needs began to compete with public stockholders n Acquisitions of regional companies continued through 70’s & 80’s

Strategic changes... n Restructuring began in 90’s n Majority owner Agway decided to sell food businesses n Lengthy change-of-control battle began n Pro-Fac ultimately acquired Curtice-Burns to maintain members’ markets… took public company private (Coop.) n With acquisition came significant debt –Debt $328 million –Interest Expense $42 million

Consolidations... n Divisional consolidations n Company name changed to “Agrilink Foods” n acquired DFVC & Birds Eye brand - increased debt load –Debt $679 million –Interest Expense $83.5 million n Voila! successful national introduction n Remaining operations combined under one company

The need for change within Pro- Fac and Agrilink n Highly leveraged n Inadequate resources to grow the business –Marketing –New products –Capital expenditures n Approaching deadline for refinancing

American National Bank & Trust Hamilton Bank Bank of AmericaJP Morgan Bank of BostonManufacturers Hanover Trust Bank of New EnglandMaryland National Bank Bank OneMercantile Bank Bank SouthMeridian Bank Bankers TrustMontgomery Securities Barclays Business CreditNations Bank Casco Northern BankNBD Bank N.A. Central Fidelity BankNCNB Chase Manhattan BankNew Jersey National Bank Chemical BankNorstar Bank CitibankOFFITBANK Holdings Citizens and SouthernPhiladelphia National Bank Congress Financial Corp.Republic Security Financial Connecticut National BankRIHT National Bank Continental BankSalomon Smith Barney Corestates BankSeattle-First National Bank CresatarSecurity Pacific Deutsche BankShawmut Bank First Bank SystemSignet Banking Corporation First City BankCorporationSovran Bank First Fidelity BancorporationStar Bank First National Bank of ChicagoSummit Bancorp First Pennsylvania BankTexas Commerce Bank First UnionTravelers FirstarTrust Company of Georgia Fleet BankU.S. Bancorp Bank of America Bank One Citigroup Deutsche Bank FleetBoston J.P. Morgan SunTrust U.S. Bancorp Wachovia Merged Into Bank Consolidation

Major Cooperatives in Trouble January 1999-Agripac declared bankruptcy July Tri-Valley declared bankruptcy May Farmland Industries declared bankruptcy (largest coop in U.S.) May 2002-Mason County Fruit Packers declared bankruptcy (Michigan fruit cooperative) September Agway declared bankruptcy October 2002-Spring Wheat Bakers closed (N.D. based coop)

Options Explored n Management and board explored alternatives –IPO –Sale of the company –Strategic investor –Synergistic partner (LLC) –Private equity infusion –Tough it out

Tough it out n Jeopardized –100% CMV –future dividend payments –value of preferred investment –retention of key management talent

What was the deal? n A recapitalization that did the following –$175 mm capital infusion to reduce debt –Established Pro-Fac as a separate entity –Supply Agreement < 10 years with liquidated damages < Maintained the CMV process < Payment to Pro-Fac of $10 mm/year for 5 years (for terminating the previous supply agreement) –Transition Services Agreement (24 months) –Use of the Ag. Services staff –$1 million annual credit facility (5 years)

What has changed for Pro-Fac? Pre-Vestar Post-Vestar Pro-Fac ownership of Birds Eye 100%40% Pro-Fac Board Members 1215 Member-owned delivery rights YESYES Annual marketing plan YESYES Payment of full CMV At RiskLess Risk Annual earnings distribution YESNO Preferred stock Dividends YESYES Member equity At RiskLess Risk/ Growth Potential

What was in it for Birds Eye Foods? n The opportunity to create more value for all stakeholders –new products –capital investment –marketing to enhance its brands –potential for acquisitions –attract and retain talent –enhancing the viable employment opportunity for our associates

Pro-Fac transformation has commenced n Pro-Fac Board began the strategic planning process November, 2002 –Use “expert” reactor panel < Agriculture < Academia < Coop. structure/organization

Strategic Direction Maintain cooperative structure - n $10 million annual payment from Birds Eye Foods n Maintain membership base for supply agreement n Assure SEC and NASDAQ requirements are met (Sarbanes-Oxley Act) n Ownership in Birds Eye Holdings, LLC

Strategic Direction Establish healthy capital structure - n Credit facility costly n Suspend common stock dividend n Hold back 1% of raw product payment - July, 2003 and July, 2004 n 20% reduction in board stipend - follows earlier 50% reduction

Strategic Direction Develop regional business opportunities - n Expand importance to Birds Eye Foods n Develop new customers n Working groups of members, directors, management n Engage Birds Eye Ag. Services group n Leverage Ag. Services Information System (ASIS) - Traceability, HACCP, Food Safety - leading edge software n Raw product/producer consolidation based on performance (annual evaluations)

Mission Statement “To be the acknowledged leader in supplying the food industry with dependable, superior quality, efficiently and safely produced fruits, vegetables and other agricultural products.”

Business Objectives n Support the growth and value creation of Birds Eye Foods by maintaining a close partnership arrangement as an important stakeholder and supplier. n Build a financially sound cooperative, supporting shareholder value by being a reliable, efficient supplier of raw products and services to food processors and marketers. n Expand the Cooperative’s geographic breadth, business portfolio and membership base to promote growth, flexibility and financial strength.

CAHOON FARMS Pro-Fac Geographic Breadth and Customers

Results to Date - Birds Eye Foods (Dollars in Millions) Net Sales$964.4$878.3 Net Earnings$6.8$20.8 Cash$14.7$153.8 Interest Expense$63.0$40.8 Debt$623.1$459.9

Down the Road... n Provide return to Vestar Capital Partners and their investors (State pension funds and University endowments) n Provide return to Pro-Fac Cooperative –Supply Agreement in new business structure –Consider equity redemption –Recapitalize the entity (Coop.? LLC? Other?) < Investment - Business ventures < Growth - New customers, areas and members n Provide return to management investors “The Birds Eye business will be harvested someday” J.P. Morgan Advisor

“ If you want the rainbow, you gotta put up with the rain” The Last Wrightism:

Thank you for inviting me to your meeting and for your kind attention this morning...