<PAGE>

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                                 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
                    For the fiscal year ended July 1, 2000

                                      OR

[_]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
            For the transition period from __________ to __________

              Commission file numbers 333-50305 and 333-50305-01
                       Eagle Family Foods Holdings, Inc.
            (Exact name of registrant as specified in its charter)

          Delaware                                              13-3983598
     (State or other jurisdiction                             (IRS Employer
  of incorporation or organization)                       Identification Number)

                           Eagle Family Foods, Inc.
            (Exact name of registrant as specified in its charter)

          Delaware                                              13-3982757
     (State or other jurisdiction                             (IRS Employer
  of incorporation or organization)                       Identification Number)

     220 White Plains Road                                         10591
         Tarrytown, NY                                           (Zip Code)
(Address of principal executive offices)

      Registrants' telephone number, including area code: (914) 631-3100

         Securities registered pursuant to Section 12(b) of the Act:

      Title of each class              Name of each exchange on which registered
            N/A                                           N/A
       Securities registered pursuant to Section 12(g) of the Act: None
                                Title of Class
                                      N/A

     Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have 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 (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants' 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. [X]

     State the aggregate market value of the voting and non-voting common equity
     held by non-affiliates. N/A.

     As of September 6, 2000, there were 1,116,704 shares of common stock, par
value $.01 per share, of Eagle Family Foods Holdings, Inc.("Common Stock") and
10,000 shares of common stock, par value $.01 per share, of Eagle Family Foods,
Inc. outstanding, respectively.
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<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                       Page
                                                                                                                       ----
<S>                                                                                                                    <C>
PART I
     Item 1.       Business.........................................................................................     2
     Item 2.       Properties.......................................................................................     6
     Item 3.       Legal Proceedings................................................................................     6

PART II
     Item 5.       Market for Registrants' Common Equity and Related Stockholder Matters............................     7
     Item 6.       Selected Financial Data..........................................................................     8
     Item 7.       Management's Discussion and Analysis of Financial Condition and Results of
                   Operations.......................................................................................     9
     Item 7A.      Quantitative and Qualitative Disclosures About Market Risk.......................................    17
     Item 8.       Financial Statements and Supplementary Data......................................................    17
     Item 9.       Changes in and Disagreements With Accountants on Accounting and Financial
                   Disclosure.......................................................................................    17

PART III
     Item 10.      Directors and Executive Officers of the Registrants..............................................    18
     Item 11.      Executive Compensation...........................................................................    21
     Item 12.      Security Ownership of Certain Beneficial Owners and Management...................................    23
     Item 13.      Certain Relationships and Related Transactions...................................................    25

PART IV
     Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................    26
</TABLE>
<PAGE>

PART I

Item 1:  Business

Business History

     On January 23, 1998 (the "Acquisition Closing"), Eagle Family Foods, Inc.
("Eagle") acquired certain assets of Borden Foods Corporation ("BFC"), BFC
Investments, L.P. ("BFC Investments") and certain of their affiliates for an
aggregate purchase price of $376.8 million (the "Acquisition"). The assets
acquired include, among other things: (i) four manufacturing facilities located
in Wellsboro, Pennsylvania; Starkville, Mississippi; Waterloo, New York; and
Chester, South Carolina; (ii) all machinery and equipment located at these
facilities; (iii) the trademarks Eagle; ReaLemon; ReaLime; Cremora; Kava; None
Such and certain other trademarks in North America and in certain foreign
territories; and (iv) a non-compete and non-solicitation agreement from BFC and
certain of its affiliates. Eagle is a wholly owned subsidiary of Eagle Family
Foods Holdings, Inc. ("Holdings"). Eagle and Holdings are collectively referred
to as the "Company", unless the context indicates otherwise. Eagle and Holdings
were incorporated in Delaware in 1997.

     Financing for the Acquisition and related fees and expenses consisted of
(i) $82.5 million of equity contribution from Holdings (which was financed by
Holdings' issuance of preferred and common stock in that amount to GE Investment
Private Placement Partners II, a Limited Partnership ("GEI") and Warburg, Pincus
Ventures, L.P. ("Warburg" and together with GEI, the "Equity Sponsors"), and
certain members of the Company's management, including John O'C. Nugent, the
Company's President and Chief Executive Officer (the "Management Investors"),
who contributed approximately $1.7 million of such amount (the "Equity
Contribution"); (ii) the issuance of $115.0 million of 8 3/4% senior
subordinated notes due 2008 (the "Senior Subordinated Notes"); and (iii) senior
secured credit facilities (the "Senior Credit Facilities") in an aggregate
principal amount of $245.0 million, consisting of a $175.0 million term loan
facility (the "Term Loan Facility") and a $70.0 million revolving credit
facility (the "Revolving Credit Facility"). The Senior Credit Facilities, the
Senior Subordinated Notes and the Equity Contribution are referred to herein as
the "Financing Transactions."

     Borden, Inc. was incorporated in 1889 and has engaged in the manufacture
and distribution of a broad range of products, including dairy products,
industrial chemicals, decorative products and a wide variety of food products,
such as the food products currently manufactured by the Company. In December
1994, investors led by affiliates of Kohlberg Kravis Roberts & Co. purchased
Borden, Inc. and the business was operated through BFC and BFC Investments until
the Acquisition.

     Since the Acquisition Closing, the Company established an experienced
management team, researched and installed a complete enterprise
hardware/software system to meet current and future business needs, and
implemented consumer-oriented marketing programs and strategies. Also, the
Company nationally launched Cremora Royale powdered non-dairy creamer, the Star
and Magnolia Hispanic brands of sweetened condensed milk and ReaLemonade
lemonade liquid concentrate.

     In September 1999, the Equity Sponsors contributed an aggregate of $10.0
million to Holdings in exchange for shares of a new series of Holdings preferred
stock and Holdings common stock. This contribution was made to finance the
marketing investment made by the Company in launching Cremora Royale and
ReaLemonade during its fiscal year ended July 3, 1999 (the "1999 fiscal year").

Products and Markets

     The Company manufactures and markets a portfolio of leading dry-grocery
food products with widely recognized and established brands, including Eagle
Brand sweetened condensed milk, ReaLemon lemon juice from concentrate and
Cremora powdered non-dairy creamer. The Company's primary distribution channel
is the retail grocery channel, but also has presence within mass merchandisers,
club stores, foodservice, the U.S. military, industrial and private label
businesses. The Company's U.S. food business is complemented by a strong
presence in Canada and Puerto Rico.
<PAGE>

     The Company sells its products in the U.S. to the retail grocery trade
through 24 independent food brokers and a national brokerage company with 39
brokerage houses. The Company is employing a national brokerage company to
address the current trend within the retail grocery businesses to purchase dry
grocery food products on a national level. The Company also sells its products
to non-grocery channels and to international markets. These sales are generated
through brokers, distributors, or directly, depending on the size and needs of
the customers.

     The Company's marketing programs consist of various combinations of media
advertising, consumer promotions, trade promotion and co-promotion of certain
products such as ingredients in recipes. Media advertising, such as television,
print or radio advertising are used for Eagle Brand, ReaLemon, ReaLemonade,
Cremora and Cremora Royale marketing in an effort to continue to build brand
equity and awareness. Since many of the Company's brands are purchased primarily
as ingredients for recipes, the Company frequently promotes recipes
incorporating its brands and has co-promoted these brands with other food
companies, such as Hershey Foods Corporation. The Company has established
Internet sites to promote recipes containing the Company's products. The Company
also promotes its seasonal brands, None Such mincemeat pie filling and Borden
eggnog, with recipe promotions during the holiday season.

     Sweetened condensed milk. The Company manufactures and markets Eagle Brand
and additional sweetened condensed milk products. In addition to classic Eagle
Brand sweetened condensed milk, the Company's other branded sweetened condensed
milk products include Eagle Brand low fat and fat free products Meadow Gold, and
Star and Magnolia Hispanic brands. The Company's Eagle brand products carry the
Borden and Elsie trademarks. The Company also manufactures sweetened condensed
milk under several labels for a customer who distributes and markets these
products to certain ethnic markets. In its fiscal year ended July 1, 2000
("fiscal year 2000") and fiscal year 1999, respectively, the Company's sweetened
condensed milk products accounted for 48% and 47% of the Company's net sales.

     Retail channels, including grocery and mass merchandisers, are the primary
outlet for the Company's sweetened condensed milk products and accounted for
approximately 84% and 83% of the Company's sweetened condensed milk net sales
for fiscal year 2000 and fiscal year 1999, respectively. The balance of the
Company's sweetened condensed milk net sales is made through other channels,
including foodservice customers, industrial customers and export markets.

     Lemon and lime juice and lemonade liquid concentrate. The Company
manufactures and markets ReaLemon lemon juice from concentrate and ReaLime lime
juice from concentrate. In fiscal year 2000 and fiscal year 1999, respectively,
the Company's lemon and lime juice products accounted for 28% and 25% of the
Company's net sales.

     Retail channels, including grocery and mass merchandisers, are the primary
outlet for the Company's ReaLemon and ReaLime products and accounted for
approximately 74% of ReaLemon and ReaLime net sales in fiscal year 2000 and
1999. The Company also markets the ReaLemon and ReaLime products to foodservice
customers, industrial customers and export markets.

     ReaLemonade lemonade liquid concentrate is marketed by the Company and
manufactured by a third party independent manufacturer. This product was
launched nationally by the Company in 1999. While an intensive marketing program
drove ReaLemonade to strong performance in its launch year relative to other
shelf-stable juice concentrates, sales in the second summer season have not met
expectations. The Company has determined that it cannot achieve the necessary
return on marketing investment on the ReaLemonade product line and, therefore,
will discontinue sales in the retail channel after the year 2000 summer selling
season. The Company will continue to market and manufacture ReaLemonade lemonade
liquid concentrate in the U.S. foodservice channel where the Company believes
there remains sufficient customer interest.

     Powdered non-dairy creamers. The Company manufactures and markets powdered
non-dairy creamer under the Cremora and Cremora Royale brand names and also
manufactures powdered non-dairy creamer for private label and industrial
customers. In fiscal year 2000 and fiscal year 1999, the Company's powder non-
dairy creamer products accounted for 17% of the Company's net sales.
<PAGE>

     Branded Cremora and Cremora Royale are sold primarily through retail
channels and accounted for 71% of the Company's fiscal year 2000 and fiscal year
1999 powdered non-dairy creamer net sales. Private label net sales accounted for
16% and 13.6% of the Company's net sales for fiscal year 2000 and fiscal year
1999, respectively, with the balance primarily attributable to export net sales
and to bulk net sales to industrial customers (who use non-dairy creamer in
producing other food products).

     Eggnog. Borden eggnog is manufactured by a third party through a seasonal
purchase order agreement. Borden eggnog is the only shelf-stable eggnog
available in the market and competes with refrigerated eggnog. Borden eggnog is
distributed through the retail grocery channel. Eggnog is generally consumed
during the November and December holiday season as a beverage or mixed with
liquor as a cocktail.

     Mincemeat pie filling. The Company manufactures and markets two flavors of
None Such: Regular and Brandy & Rum. None Such mincemeat is used in pies,
cookies and pastries, and is consumed primarily during the November and December
holiday season. None Such is distributed through the retail grocery channel.

     Instant Coffee. Kava is marketed by the Company and manufactured by a third
party independent manufacturer pursuant to the Kava Co-Pack Agreement. Kava is a
unique instant coffee, differentiated as the only coffee that is "90% acid-
neutralized." Management believes that Kava's customer loyalty is significantly
higher than that of most other instant coffee brands, and is well positioned to
remain high given the brand's unique position as an acid-neutralized product.

Industry Overview

     The U.S. food industry is characterized by relatively stable annual growth
based on modest price and population increases. Over the last ten years,
management believes the industry has experienced consolidation as competitors
have shed non-core business lines and made strategic acquisitions to strengthen
category positions, generate economies of scale in distribution, production and
raw material sourcing and create leverage relative to the retail grocery trade
through better service and broader market presence.

     Grocery retailers have also utilized mergers and acquisitions to
consolidate within their industry. Growth in the mass merchandiser channel has
outpaced growth in the retail grocery channel, and mass merchandisers have
consequently increased their share of food sales relative to the retail grocery
and drug store channels. Furthermore, the convenience store channel has
maintained a constant presence within the total grocery industry. To expand
their potential markets, management believes that food companies are broadening
their distribution channels to include greater focus on mass merchandisers and
other alternative distribution channels. In the opinion of management, another
growth opportunity in the U.S. for branded food companies is the foodservice
channel, which supplies restaurants, hospitals, schools and other institutions.
In addition to the U.S. market, management believes that certain international
markets with above average population growth and expanding economies offer
significant growth opportunities for U.S. companies. These international markets
include Latin America and the Pacific Rim.

Seasonality

     The Company's net sales, operating income and cash flows are affected by a
seasonal bias toward the fourth quarter of the calendar year due to increased
sales during the holiday season. Three of the Company's six major product lines
(Eagle Brand and the Company's other brands of sweetened condensed milk
products, Borden eggnog and None Such mincemeat pie filling) are consumed
primarily during the November and December holiday seasons. In recent years,
approximately 43% of the Company's net sales have occurred in the last quarter
of the calendar year. As a result of this seasonality, the Company's working
capital needs have historically increased throughout the year, normally peaking
in the September/October period, which requires the Company to draw additional
amounts on its Revolving Credit Facility in that period.

Raw Materials and Suppliers

     The primary raw materials used in the Company's operations include milk,
sugar, lemon and lime juice concentrate, vegetable oil, corn syrup and packaging
materials. The Company purchases its raw materials, all of which are widely
available, from numerous independent suppliers. Kava instant coffee and Borden
eggnog are
<PAGE>

obtained in final product form from third party manufacturers, traditionally
referred to as co-packers. ReaLemonade lemonade liquid concentrate is obtained
primarily from a third party manufacturer who produces the finished product
using lemon juice concentrate and other ingredients and packaging materials
provided by the Company.

Competition

     The food industry is highly competitive. Numerous brands and products
compete for shelf-space and sales, with competition based primarily on price and
quality. The Company competes with a significant number of competitors of
varying sizes, including divisions or subsidiaries of larger companies. The most
significant branded competition encountered by the Company is Nestle's Coffee-
mate, which competes with Cremora and Cremora Royale. However, most of the
competition encountered by the Company is from private label brands. A number of
these branded and private label competitors have broader product lines as well
as substantially greater financial and other resources available to them
compared to the Company.

Trademarks, Copyrights and Patents

     The Company owns a number of trademarks, licenses and patents. The
Company's principal trademarks include Eagle Brand; ReaLemon; ReaLime; Cremora;
and None Such which the Company has registered in the United States and various
foreign countries. The Company holds a perpetual, exclusive and royalty-free
license to use the Borden and Elsie trademarks on products on which they were
historically used in the BBNA Business (as defined below), together with certain
product extensions. The Borden and Elsie trademarks are currently used on (i)
the entire line of Eagle Brand products, including condensed or evaporated milk,
(ii) shelf-stable egg nog, and (iii) Cremora non-dairy creamer. The Borden
trademark is also currently used on Magnolia sweetened condensed milk. The
Company also holds a perpetual, exclusive and royalty-free license to use the
Borden trademark on None Such mincemeat, Magnolia condensed or evaporated milk,
and Kava acid-neutralized coffee. In addition, as assignee from BFC, the Company
holds an exclusive and royalty-free license from Southern Foods Group, L.P. to
use the Meadow Gold trademark on sweetened condensed milk in the United States
for a five year term, which is renewable automatically for subsequent five year
terms and terminable at the option of the Company upon one year's notice and,
under certain limited circumstances, by the licensor. Such brand names are
considered to be of fundamental importance to the business of the Company due to
their brand identification and ability to maintain brand loyalty. The Company
has granted BFC an exclusive, perpetual, royalty-free license to use the
ReaLemon and ReaLime trademarks in certain foreign markets including Europe, the
Middle East and Hong Kong. A third party owns the Cremora trademark in Africa
and the Middle East. The Company also owns various patents and copyrights
associated with the business.

Employees

     As of July 1, 2000, the Company employed approximately 380 people,
including 202 hourly and 178 salaried employees. The Wellsboro, Pennsylvania and
Starkville, Mississippi plants are the only unionized Company plants. As of July
1, 2000, union employees represented approximately 28% of the Company's total
work force. At Starkville, the Teamsters Local 984 has a contract expiring on
January 31, 2001 and at Wellsboro, the United Food and Commercial Workers Union-
Local 174 has a contract expiring on February 5, 2005. Management believes that
relations with the Company's employees and unions are generally good.

Certain Legal and Regulatory Matters

     Public Health. The Company is subject to the Federal Food, Drug and
Cosmetic Act and regulations promulgated thereunder by the Food and Drug
Administration. This comprehensive regulatory program governs, among other
things, the manufacturing, composition and ingredients, labeling, packaging and
safety of food. In addition, the Nutrition Labeling and Education Act of 1990,
as amended, prescribes the format and content of certain information required to
appear on the labels of food products. The Company is also subject to regulation
by certain other governmental agencies.

     The operations and the products of the Company are also subject to state
and local regulation through such measures as licensing of plants, enforcement
by state health agencies of various state standards and inspection of
facilities. Enforcement actions for violations of federal, state and local
regulations may include seizure and
<PAGE>

condemnation of volatile products, cease and desist orders, injunctions and/or
monetary penalties. Management believes that the Company's facilities and
practices are in compliance with applicable government regulations in all
material respects.

     The Company is subject to certain health and safety regulations, including
regulations issued pursuant to the Occupational Safety and Health Act. These
regulations require the Company to comply with certain manufacturing, health and
safety standards to protect its employees from accidents.

     Environmental Matters. The Company believes that it is substantially in
compliance with all applicable laws and regulations for the protection of the
environment and the health and safety of its employees. The Company's operations
and properties are subject to a wide variety of increasingly complex and
stringent federal, state and local environmental regulations governing the
storage, handling, generation, treatment, emission, and disposal of certain
substances and wastes, the remediation of contaminated soil and groundwater, and
the health and safety of employees. As such, the nature of the Company's
operations exposes it to the risk of claims with respect to environmental
matters. Based upon its experience to date, the Company believes that the future
cost of compliance with existing environmental laws and regulations and
liability for known environmental claims will not have a material adverse effect
on the Company's business or financial position. In connection with the
Acquisition, the Company assumed all past and future environmental liabilities
related to the acquired business. The Company will be indemnified, however, by
BFC and BFC Investments with respect to certain environmental liabilities
occurring prior to the Acquisition Closing. This indemnification is limited in
time and amount, and there can be no assurance that material environmental
liabilities will not be incurred after the indemnification period or in excess
of the indemnified amount or that the Company will be able to pursue
successfully any indemnification claims against BFC. In addition, future events,
such as changes in existing laws and regulations or their interpretation, and
more vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material.

Item 2:  Properties

     Except for Kava instant coffee, ReaLemonade lemonade liquid concentrate and
sweetened condensed milk in Canada, which are produced under co-pack agreements,
and Borden eggnog, which the Company obtains under a seasonal purchase order,
the Company produces all of its products in four Company-owned manufacturing
facilities, as described in the following table. Management believes that the
Company's manufacturing plants have sufficient capacity to accommodate the
Company's needs for the foreseeable future.


     Location        Square Feet           Products Manufactured
     --------        -----------           ---------------------
  Wellsboro, PA...   119,000     Sweetened condensed milk, mincemeat pie filling
  Starkville, MS..    49,000     Sweetened condensed milk
  Waterloo, NY....   112,000     Lemon juice and lime juice
  Chester, SC.....    77,300     Powdered non-dairy creamer

     In addition to the owned manufacturing facilities described above, the
Company leases 13,605 square feet of office space in Tarrytown, New York, 28,589
square feet of office and laboratory space in Columbus, Ohio, and uses public
warehouse space in numerous locations in variable amounts as needed.

Item 3:  Legal Proceedings

     The Company is subject to litigation in the ordinary course of its
business. The Company is not a party to any lawsuit or proceeding which, in the
opinion of management, is likely to have a material adverse effect on the
Company's financial condition or results of operations.

Item 4:  Submission of Matters to a Vote of the Security Holders

     Not applicable.
<PAGE>

PART II

Item 5:  Market for Registrants' Common Equity and Related Stockholder Matters

     There is no established public trading market for the common stock of
Holdings or Eagle. As of September 6, 2000, Holdings was the only holder of
Eagle common stock. As of September 6, 2000, there were approximately 50 holders
of Holdings' common stock.

     No cash dividends on common stock have been declared by either registrant
since their respective incorporations. Holdings and Eagle are restricted from
declaring dividends on their common stock by the Senior Credit Facilities. See
Note 6 of the Notes to the Financial Statements of Holdings and Eagle included
elsewhere in this Annual Report on Form 10-K.
<PAGE>

Item 6:  Selected Financial Data

         The selected financial data set forth below (dollars in thousands) as
of July 1, 2000 and July 3, 1999, and the fifty-two week period ended July 1,
2000, fifty-three week period ended July 3, 1999, one hundred fifty-five day
period ended June 27, 1998, twenty-three day period ended January 23, 1998, six
months ended December 31, 1997 and year ended December 31, 1997 are derived from
audited and unaudited financial statements included elsewhere herein. The
selected financial data set forth below as of December 31, 1997, 1996 and 1995
and as of January 23, 1998 and June 27, 1998 are derived from the financial
statements not included elsewhere herein. The predecessor data represents the
financial results related to Eagle Brand and other sweetened condensed milk
products, ReaLemon and ReaLime juice from concentrate, Cremora powdered non-
dairy creamer, None Such pie filling, Borden eggnog and Kava instant coffee
brands (the "BBNA Business" or the "Predecessor Company") acquired by the
Company for periods prior to the Acquisition.

<TABLE>
<CAPTION>
                                                   Predecessor
                                --------------------------------------------------
                                                                        Twenty-
                                                                       Three Day         One Hundred
                                                          Six Months    Period          Fifty-Five Day  Fifty-Three     Fifty-Two
                                                             Ended       Ended          Period Ended    Week Period    Week Period
                                  Year Ended December 31,  December 31, January 23,        June 27,     Ended July 3,  Ended July 1,
                                 1995      1996      1997     1997        1998             1998(a)        1999(a)         2000(a)
                                 ----      ----      ----     ----        ----             ----           ----            ----
Statement of Operations Data:                              (Unaudited)
<S>                           <C>       <C>       <C>       <C>        <C>             <C>            <C>             <C>
Net sales.................... $ 225,263 $ 230,384 $ 229,370 $ 153,869  $   7,693       $  68,183      $   239,730     $ 224,733
Cost of goods sold...........   102,712   110,357   107,674    70,640      5,154          38,376 (b)      111,026       111,140
                               --------  --------  --------  --------    -------         -------       ----------      --------
Gross profit.................   122,551   120,027   121,696    83,229      2,539          29,807          128,704       113,593
Distribution expense.........    15,691    14,640    13,464     8,185        303           4,550           13,420        14,016
Marketing expense............    63,804    62,705    55,074    37,444      2,095          15,048           75,971        64,721
General and administrative
expense......................    10,364    10,558    10,259     5,271        767           3,691           12,406        13,580
Amortization of intangibles..     2,925     2,925     2,925     1,465        243          11,855           21,249        11,156
Other operating income.......        --        --        --        --         --              --               --        (1,212)
In-process research and
development write off........        --        --        --        --         --          23,900               --            --
                               --------  --------  --------  --------    -------         -------       ----------      --------
Operating income (loss)...... $  29,767 $  29,199 $  39,974 $  30,864  $    (869)      $ (29,237)     $     5,658     $  11,332
Other Financial Data:
Depreciation and
amortization................. $   6,010 $   5,937 $   6,174 $   3,148  $     512       $  13,755 (c)  $    26,491 (c) $  20,553 (c)
Capital expenditures.........     2,079     3,726     3,154     1,789         87           2,578           13,744         7,564
</TABLE>


<TABLE>
<CAPTION>
                                       Predecessor
                               ---------------------------
                                    As of December 31,                  As of              As of            As of          As of
                                                                      January 23,         June 27,         July 3,        July 1,
                                 1995      1996      1997              1998(a)(d)          1998(a)         1999(a)         2000(a)
                                 ----      ----      ----              ----                ----            ----            ----
Balance Sheet Data:
<S>                           <C>       <C>       <C>                  <C>               <C>           <C>             <C>
Inventories.................. $ 13,317  $ 13,239  $ 15,820             $   20,100        $  32,001     $    41,757     $     33,780
Net property and equipment...   16,044    16,649    16,070                 23,950           24,791          33,798           33,775
Total assets.................  160,586   157,857   153,786                380,047          399,240         417,286          396,670
Total debt, including                                                     306,500          318,250         338,500          327,500
current maturities...........       --        --        --
Stockholder's equity.........       --        --        --                 67,803 (e)    $  55,994          41,795           39,972
</TABLE>

(a)  The statement of operations data set forth above for the one hundred fifty-
     five day period ended June 27, 1998, fifty-three week period ended July 3,
     1999 and fifty-two week period ended July 1, 2000, and the balance sheet
     data set forth above as of January 23, 1998, June 27, 1998, July 3, 1999,
     and July 1, 2000 reflects the financial position and results of operations
     of Eagle. With the exception of stockholder's equity, Series A Non-Voting
     Preferred Stock ("Series A Preferred Stock") and the Series B Non-Voting
     Preferred Stock (the "Series B Preferred Stock," together with Series A
     Preferred Stock, "Redeemable Preferred Stock"), this information is
     substantially consistent with that of Holdings. The following represents
     stockholders' deficit and Redeemable Preferred Stock of Holdings:

                                    As of         As of         As of
                                   June 27,      July 3,       July 1,
                                     1998          1999          2000
                                     ----          ----          ----
Stockholders' deficit...........  $(29,159)     $(52,235)     $(74,314)
Redeemable Preferred Stock......    84,327        93,302       113,555

(b)  Includes the nonrecurring charge of $5.2 million of additional cost of
     sales related to the expensing of inventories stated at fair market value.
(c)  Includes the amortization of debt issuance cost of $371, $920 and $1,823
     for the one hundred fifty-five day period ended June 27, 1998, fifty-three
     week period ended July 3, 1999 and fifty-two week period ended July 1,
     2000.
(d)  Reflects the Acquisition and Financing Transactions resulting in a new
     basis of accounting.
(e)  Reflects initial Equity Contribution of $82.5 million less an after tax
     write-off of in-process research and development.
<PAGE>

Item 7:  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

General

     Set forth below is a discussion of the financial condition and results of
operations for the fifty-two week period ended July 1, 2000, the fifty-three
week period ended July 3, 1999 and the fifty-two week period ended June 27,
1998. The fifty-two week period ended June 27, 1998 includes the two hundred
nine day period ended January 23, 1998 managed by the BBNA Business and the one
hundred fifty-five day period ended June 27, 1998 managed by Eagle. The
following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and the Combined Financial Statements of the
BBNA Business and the notes thereto included elsewhere in the Annual Report on
Form 10-K.

     The following table sets forth the results of operations as a percentage of
net sales for the fifty-two week period ended July 1, 2000, the fifty-two week
period ended July 3, 1999 and the fifty-two week period ended June 27, 1998:

<TABLE>
<CAPTION>
                                             Results of Operations
          ----------------------------------------------------------------------------------------------------

                                                         Fifty-Two Week     Fifty-Three Week    Fifty-Two Week
                                                          Period Ended        Period Ended       Period Ended
                                                          July 1, 2000        July 3, 1999      June 27, 1998
                                                         --------------     ----------------    --------------
          <S>                                            <C>                <C>                 <C>
          Net sales...................................            100.0%               100.0%            100.0%
          Cost of goods sold..........................             49.4                 46.3              49.7
                                                         --------------     ----------------    --------------
          Gross profit................................             50.6                 53.7              50.3
          Distribution expense........................              6.2                  5.6               5.7
          Marketing expense...........................             28.8                 31.7              23.8
          General & administrative ("G&A") expense....              6.0                  5.2               4.2
          Amortization of intangibles.................              5.0                  8.9              16.3
          Other operating income......................             (0.5)                  --                --
                                                         --------------     ----------------    --------------
          Operating Income............................              5.1%                 2.3%              0.3%
                                                         ==============     ================    ==============
</TABLE>

     The Company entered the lemonade liquid concentrate market with the launch
of ReaLemonade in fiscal year 1999. While an intensive marketing program drove
ReaLemonade to strong performance in its launch year relative to other shelf-
stable juice concentrates, sales in the second summer season have not met
expectations. The Company has determined that it cannot achieve the necessary
return on the ReaLemonade product line and, therefore, will discontinue sales in
the retail channel after the calendar year 2000 summer selling season. The
following table sets forth the results of operations as a percentage of net
sales for the fifty-two week period ended July 1, 2000, the fifty-two week
period ended July 3, 1999 and the fifty-two week period ended June 27, 1999
excluding the retail channel ReaLemonade product line for each of the periods
presented.
<TABLE>
<CAPTION>
                                      Results of Operations Excluding the Retail
                                        ReaLemonade Discontinued Product Line
          -----------------------------------------------------------------------------------------------------

                                                         Fifty-Two Week    Fifty-Three Week      Fifty-Two Week
                                                         Period Ended       Period Ended          Period Ended
                                                         July 1, 2000       July 3, 1999          June 27, 1998
                                                        --------------     ----------------    ----------------
          <S>                                           <C>                <C>                 <C>
          Net sales..................................            100.0%               100.0%              100.0%
          Cost of goods sold.........................             45.5                 46.6                49.7
                                                        --------------     -----------------   ----------------
          Gross profit...............................             54.5                 53.4                50.3
          Distribution expense.......................              5.9                  5.3                 5.7
          Marketing expense..........................             24.8                 27.5                23.8
          General & administrative expense...........              6.2                  5.5                 4.2
          Amortization of intangibles................              5.1                  9.3                16.3
          Other operating income.....................             (0.5)                  --                  --
                                                        --------------      ---------------     ---------------
          Operating Income...........................             13.0%                 5.8%                0.3%
                                                        ==============     ================    ================
</TABLE>

<PAGE>

Results of Operations

     Fifty-Two Week Period Ended July 1, 2000 ("fiscal year 2000") and Fifty-
Three Week Period Ended July 3, 1999 ("fiscal year 1999").

     Net Sales.  The Company's net sales for fiscal year 2000 were $224.7
million as compared to $239.7 million for fiscal year 1999, a decrease of $15.0
million, or 6.3%. The table below sets forth the Company's net sales data for
each of the Company's product lines for fiscal year 2000 and fiscal year 1999
(dollars in millions):

<TABLE>
<CAPTION>
                                                                      Net Sales                    Net Sales
                                                                        Fiscal    Percentage        Fiscal     Percentage
                                                                         Year         of             Year          of
        Product Lines              Company's Principal Brands            2000      Net Sales          1999     Net Sales
--------------------------------------------------------------------  ----------- ------------     ----------  ---------------
<S>                           <C>                                    <C>          <C>            <C>           <C>
Sweetened condensed milk      Eagle Brand, Meadow Gold,
                              Magnolia, Star and other               $     107.5         47.8%   $     112.5         46.9%
Lemon and lime juices         ReaLemon and ReaLime                          61.7         27.5           60.7         25.3
Lemonade liquid concentrate   ReaLemonade                                    4.6          2.0           11.1          4.6
Non-dairy creamer             Cremora, Cremora Royale and other             37.7         16.8           40.5         16.9
Shelf-stable eggnog           Borden                                         5.1          2.3            5.6          2.4
Mincemeat pie filling         None Such                                      4.4          2.0            5.3          2.2
Acid neutralized coffee       Kava                                           3.7          1.6            4.0          1.7
                                                                      ----------- ------------     ----------  -----------
     Total                                                           $     224.7        100.0%   $     239.7        100.0%
                                                                      =========== ============     ==========  ===========
</TABLE>

     Of the $5.0 million decrease in net sales for sweetened condensed milk from
fiscal year 1999 to fiscal year 2000, $2.0 million was due to lower net sales of
the discontinued Eagle Brand chocolate flavored sweetened condensed milk, $2.5
million to lower net sales of lower margin private label sweetened condensed
milk and $0.7 million to higher sweetened condensed milk products returned to
reclamation centers. Higher returns to reclamation centers were primarily due to
customers returning outdated chocolate flavored sweetened condensed milk, as
well as removing products labeled with the predecessor's manufacturing code and
replacing with product labeled with the Company's new manufacturing codes.

     Net sales for ReaLemon and ReaLime increased by $1.0 million from fiscal
year 1999 to fiscal year 2000, while ReaLemonade lemonade liquid concentrate net
sales decreased by $6.5 million in that same period. As mentioned above, the
Company entered the lemonade liquid concentrate market with the launch of
ReaLemonade in fiscal year 1999. While an intensive marketing program and the
higher shipments to customers representing an initial one-time build of customer
warehouse and retail shelf inventories drove ReaLemonade to strong performance
in its launch year relative to other shelf-stable juice concentrates, sales in
the second summer season have not met expectations. The Company has determined
that it cannot achieve the necessary return on marketing investment on the
ReaLemonade product line and, therefore, will discontinue sales in the retail
channel after the calendar year 2000 summer selling season. The Company will
continue to market ReaLemonade in the U.S. foodservice channel.

     Non-dairy creamer net sales decreased by $2.8 million from fiscal year 1999
to fiscal year 2000. The decrease was partially due to $1.9 million in lower net
sales of Cremora and Cremora Royale. Cremora and Cremora Royale net sales were
higher in fiscal year 1999 as a result of significant trial-generating marketing
efforts, including the issuance of coupons, in-store demonstrations, and
television and print advertising. In fiscal year 2000, the Company reduced its
marketing investment to a level appropriate for on-going support of the brands.
Also, a temporary disruption in non-dairy creamer production due to a June 2,
1999 fire at the Company's Chester, South Carolina manufacturing plant resulted
in a decrease of $1.6 million in industrial net sales from fiscal year 1999 to
fiscal year 2000, primarily because certain industrial products could not be
outsourced during the production downtime. Production was resumed in mid-October
1999. Non-dairy creamer net sales decreases were partially offset by $0.9
million from growth in the private label non-dairy creamer business.

     Net sales of the Company's seasonal Borden eggnog and None Such pie filling
product decreased $1.4 million from fiscal year 1999 to fiscal year 2000. This
decrease was partially due to the elimination of low margin eggnog "special
packs" and the introduction of a smaller case size of mincemeat pie filling. The
smaller case size was
<PAGE>

introduced to reduce seasonal returns of this product. The Company has created
initiatives to expand the distribution base of these two seasonal products in
the fiscal year ending June 30, 2001.

     The table below sets forth the Company's net sales data by sales channel
for fiscal year 2000 and fiscal year 1999 (dollars in millions):

<TABLE>
<CAPTION>
                                                              Net Sales                      Net Sales
                                                                Fiscal    Percentage          Fiscal     Percentage
                                                                 Year         Of               Year          of
                                                                 2000      Net Sales            1999      Net Sales
                                                              ----------- ------------      ------------ ------------
<S>                                                         <C>           <C>             <C>            <C>
U.S. Retail
   Sweetened condensed milk..........................       $       90.3         40.2%    $        93.2         38.9%
   Lemon and lime juices.............................               45.8         20.4              45.0         18.8
   Lemonade liquid concentrate.......................                4.3          1.9              11.1          4.6
   Branded non-dairy creamer.........................               26.8         11.9              28.2         11.8
   Other products....................................               13.0          5.8              14.7          6.1
   Private label non-dairy creamer...................                6.0          2.7               5.5          2.3
                                                              ----------- ------------      ------------ ------------
     Total U.S. Retail...............................              186.2         82.9             197.7         82.5
                                                              ----------- ------------      ------------ ------------
U.S. Foodservice/Industrial..........................               24.9         11.1              25.1         10.5
International........................................               13.6          6.0              16.9          7.0
                                                              ----------- ------------      ------------ ------------
   Total.............................................       $      224.7        100.0%    $       239.7        100.0%
                                                              =========== ============      ============ ============
</TABLE>

     U.S. retail net sales were $186.2 million for fiscal year 2000 as compared
to $197.7 million for fiscal year 1999, a decrease of $11.5 million, or 5.8%. As
discussed above, the decrease was due to $2.9 million in lower net sales of
sweetened condensed milk, principally net sales of the discontinued Eagle Brand
chocolate flavored sweetened condensed milk, $6.8 million of ReaLemonade
lemonade liquid concentrate, $1.4 million of branded non-dairy creamer and $1.7
million of other products, including Borden eggnog and None Such pie filling.
The decrease was partially offset by an increase in net sales of $0.8 million of
ReaLemon and ReaLime and $0.5 million of private label non-dairy creamer.

     U.S. foodservice/industrial net sales were $24.9 million for fiscal year
2000 as compared to $25.1 million for fiscal year 1999, a decrease of $0.2
million, or 0.8%. The decrease was primarily a result of approximately $1.6
million of lower non-dairy creamer net sales, primarily due to the June 1999
plant fire discussed above. The decrease was partially offset by $1.4 million of
growth in U.S. foodservice distribution to new customers and increases in U.S.
foodservice/industrial sales to existing customers of sweetened condensed milk
and lemon and lime juice product lines.

     International net sales were $13.6 million for fiscal year 2000 compared to
$16.9 million for fiscal year 1999, a decrease of $3.3 million, or 19.5%. The
decrease was primarily due to $2.7 million in lower Canadian net sales. The
Company entered into a distribution agreement with a new distributor for its
Canadian business, pursuant to which the distributor purchased initial shipments
in the first half of fiscal 1999 to establish a base level of inventory. This
build up of inventory created a one time sales increase in fiscal year 1999.

     Cost of Goods Sold.  Cost of goods sold was $111.1 million for fiscal year
2000 as compared to $111.0 million for fiscal year 1999, an increase of $0.1
million, or 0.1%. Excluding the results of ReaLemonade, cost of goods sold was
$100.2 million for fiscal year 2000 as compared to $106.6 million for fiscal
year 1999, a decrease of $6.4 million, or 6.0%. Expressed as a percentage of net
sales, excluding the results of ReaLemonade for both periods, cost of goods sold
for fiscal year 2000 decreased to 45.5% from 46.6% for fiscal year 1999. The
decrease in cost of goods sold as a percentage of net sales was significantly
affected by lower raw material costs for the sweetened condensed milk and lemon
and lime juice product lines.

     Cost of goods sold for ReaLemonade was $10.9 million for fiscal year 2000
as compared to $4.5 million for fiscal year 1999, an increase of $6.4 million.
The increase was primarily due to charges to write off obsolete ReaLemonade
finished goods inventories and raw material inventories and other costs
associated with discontinuing the product in the U.S. retail sales channel.
<PAGE>

     Distribution Expense.  Distribution expense was $14.0 million for fiscal
year 2000 as compared to $13.4 million for fiscal year 1999, an increase of $0.6
million, or 4.5%. Expressed as a percentage of net sales, distribution expense
for fiscal year 2000 increased to 6.2% from 5.6% for fiscal year 1999. The
increase was driven partially by $0.2 million of higher warehousing costs in
fiscal year 2000 primarily associated with the level of inventory maintained to
support the launch of ReaLemonade and $0.5 million for costs reclassified from
marketing expense to distribution expense in fiscal year 2000 as a result of the
change in the distribution network for certain U.S. foodservice sales.

     Marketing Expense.  Marketing expense was $64.7 million for fiscal year
2000 as compared to $76.0 million for fiscal year 1999, a decrease of $11.3
million, or 14.9%. Expressed as a percentage of net sales, marketing expense for
fiscal year 2000 decreased to 28.8% from 31.7% for fiscal year 1999. The
decrease was partially due to $3.1 million and $6.0 million of lower
advertising, trade and consumer support for ReaLemonade and Cremora Royale,
respectively, which were launched in fiscal year 1999. In fiscal year 2000, the
Company reduced its marketing investment in these products to a level
appropriate for on-going support of the brands.

     General and Administrative Expense.  Total G&A expense was $13.6 million
for fiscal year 2000 as compared to $12.4 million for fiscal year 1999, an
increase of $1.2 million, or 9.7%. Expressed as a percentage of net sales,
excluding ReaLemonade, G&A expense for fiscal year 2000 increased to 6.2% from
5.5% for fiscal year 1999. The increase was primarily due to $1.2 million of
higher depreciation expense associated with the start up of the Company's
computer systems in January 1999.

     Other Operating Income.  Other operating income was $1.2 million for fiscal
year 2000, of which $0.5 million related to a product diversion lawsuit
settlement against a wholesale customer and $0.6 million for settlement from a
supplier for defective packaging materials.

     Amortization of Intangibles.  Amortization of intangibles was $11.2 million
for fiscal year 2000, as compared to $21.2 million for fiscal year 1999, a
decrease of $10.0 million. The decrease was due to the expiration of the one
year master customer services agreement entered into between the Company and BFC
in connection with the Acquisition.

     Operating Income.  Operating income was $11.3 million for fiscal year 2000
as compared to $5.6 million for fiscal year 1999, an increase of $5.7 million,
or 101.7%. Excluding the impact of $11.2 million and $21.2 million of
amortization expense for intangibles for fiscal year 2000 and fiscal year 1999,
respectively, and the impact of the loss of $17.5 million and $7.8 million for
the ReaLemonade business initiative for fiscal year 2000 and fiscal year 1999,
respectively, operating income was $40.0 million for fiscal year 2000 as
compared to $34.6 million for fiscal year 1999, an increase of $5.4 million, or
15.6%. Together with other factors discussed above, the significant factors
improving the Company's operating income, excluding ReaLemonade results, were
lower raw material costs for the sweetened condensed milk and lemon and lime
juice product lines and the reduced marketing investment in Cremora Royale.

     Interest Expense.  Net interest expense was $31.7 million for fiscal year
2000 as compared to net interest expense of $27.8 million for fiscal year 1999,
an increase of $3.9 million. The increase was primarily due to $0.4 million of
interest as a result of an increase in the average outstanding balance of the
Revolving Credit Facility, $2.6 million from higher interest rates during fiscal
year 2000 compared to fiscal year 1999, and $0.9 million of other miscellaneous
financing costs.

     Income Taxes.  The Company recorded an income tax benefit of $8.7 million
for fiscal year 2000 as compared to a $7.7 million income tax benefit for fiscal
year 1999. The increase of $1.0 million is primarily due to a revision in
estimates of state net operating loss carryforwards.
<PAGE>

     Fifty-Three Week Period Ended July 3, 1999 ("fiscal year 1999") and Fifty-
Two Week Period Ended June 27, 1998 ("fiscal year 1998").

     The Fifty-Two week period ended June 27, 1998 consists of the two hundred
nine day period ended January 23, 1998 managed by the BBNA Business and the one
hundred fifty-five day period ended June 27, 1998 managed by the Company.

     Net Sales.  The Company's net sales for fiscal year 1999 were $239.7
million as compared to $229.7 million for fiscal year 1998, an increase of $10.0
million, or 4.4%. The increase reflected $11.1 million in net sales resulting
from the launch of ReaLemonade, a $3.6 million increase in net sales of branded
non-dairy creamer resulting from the launch of Cremora Royale, a $1.7 million
net sales increase in ReaLemon lemon juice, a $0.5 million net sales increase in
sweetened condensed milk, primarily Eagle Brand, and $6.9 million in lower net
sales of private label non-dairy creamer.

     The decrease in the private label non-dairy creamer net sales is due to the
loss of two private label customers, who selected different suppliers prior to
the Acquisition Closing. In fiscal year 1999, these two customers substantially
reduced their volume of business with the Company.

     The table sets forth the Company's net sales data for each of the Company's
product lines for fiscal year 1999 and fiscal year 1998 (dollars in millions):

<TABLE>
<CAPTION>
                                                                      Net Sales                     Net Sales
                                                                     Fiscal Year   Percentage       Fiscal Year   Percentage
         Product Line              Company's Principal Brands            1999     of Net Sales         1998      of Net Sales
         ------------              --------------------------        -----------  ------------     ------------  ------------
<S>                           <C>                                   <C>           <C>              <C>           <C>
Sweetened condensed milk      Eagle Brand, Meadow Gold,
                              Magnolia, Star and other              $     112.5        46.9%      $     112.0        48.8%
Lemon and lime juice          ReaLemon and ReaLime                         60.7        25.3              59.0        25.7
Lemonade liquid concentrate   ReaLemonade                                  11.1         4.6                --          --
Non-dairy creamer             Cremora, Cremora Royale and other            40.5        16.9              43.4        18.9
Shelf-stable egg nog          Borden                                        5.6         2.4               5.2         2.2
Mincemeat pie filling         None Such                                     5.3         2.2               6.2         2.7
Acid neutralized coffee       Kava                                          4.0         1.7               3.9         1.7
                                                                     -----------  ------------     ------------  -----------
     Total                                                          $     239.7       100.0%      $     229.7       100.0%
                                                                     ===========  ============     ============  ===========
</TABLE>

     The table sets forth the Company's net sales data by sales channels for
fiscal year 1999 and fiscal year 1998 (dollars in millions):

<TABLE>
<CAPTION>
                                      Net Sales                         Net Sales
                                      Fiscal      Percentage of          Fiscal       Percentage
                                      Year 1999     Net Sales           Year 1998    of Net Sales
                                      ----------- ---------------      ------------  --------------
<S>                                  <C>          <C>                 <C>            <C>
U.S. Retail
   Sweetened condensed milk......... $      93.2            38.9%     $       93.5            40.7%
   Lemon and lime juices............        45.0            18.8              42.5            18.5
   Lemonade liquid concentrate......        11.1             4.6                --             --
   Branded non-dairy creamer........        28.2            11.8              24.6            10.7
   Other products...................        14.7             6.1              15.2             6.6
   Private label non-dairy creamer..         5.5             2.3              12.4             5.4
                                      ----------- ---------------      ------------  --------------
     Total U.S. Retail.............. $     197.7            82.5%     $      188.2            81.9%
                                      ----------- ---------------      ------------  --------------
U.S. Foodservice/Industrial.........        25.1            10.5              21.7             9.4
International.......................        16.9             7.0              19.8             8.7
                                      ----------- ---------------     ------------  --------------
   Total............................ $     239.7           100.0%     $      229.7           100.0%
                                      =========== ===============      ============  ==============
</TABLE>

     Cost of Goods Sold.  Cost of goods sold was $111.0 million for fiscal year
1999 as compared to $114.2 million for fiscal year 1998, a decrease of $3.2
million, or 2.8%. Expressed as a percentage of net sales, cost of goods sold for
fiscal year 1999 decreased to 46.3% from 49.7% for fiscal year 1998. The
decrease in cost of goods sold in
<PAGE>

fiscal year 1999 is primarily attributable to recording a non-cash charge in
fiscal year 1998 of $5.2 million of additional cost of sales related to
expensing of inventories that were stated at fair market value. At the
Acquisition Closing, these inventories were valued at fair market value
(representing cost) in accordance with the purchase method of accounting. In
addition, cost of goods sold increased for fiscal year 1999, primarily, as a
result of incurring higher milk prices in manufacturing sweetened condensed
milk.

     Distribution Expense.  Distribution expense was $13.4 million for fiscal
year 1999 as compared to $13.0 million for fiscal year 1998, an increase of $0.4
million, or 3.0%. Expressed as a percentage of net sales, distribution expense
for fiscal year 1999 decreased to 5.6% from 5.7% for fiscal year 1998. The
increase of $0.4 million reflects higher warehousing costs which supported
higher inventory levels at public warehouses during the fourth quarter. The
total inventory increased from $32.0 million to $41.8 million, with ReaLemonade
representing the majority of the change.

     Marketing Expense.  Marketing expense was $76.0 million for fiscal year
1999 as compared to $54.6 million for fiscal year 1998, an increase of $21.4
million, or 39.2%. Expressed as a percentage of net sales, marketing expense for
fiscal year 1999 increased to 31.7% from 23.8% for fiscal year 1998. The
increase is primarily driven by $12.3 million in advertising, trade and consumer
support related to the launch of ReaLemonade, an increase of $7.9 million in
advertising, trade and consumer support for Cremora Royale and an increase of
$1.0 million in advertising, trade and consumer support to support foodservice
and industrial distribution channels.

     The Company invested in two national launches in fiscal year 1999, Cremora
Royale and ReaLemonade. Advertising, consumer promotion, brokerage, trade
support and marketing research costs were approximately $20.2 million in support
of these two launches. The significant investment in these two launches
increased the Company's expenses and reduced its operating income for fiscal
year 1999.

     General and Administrative Expense.  Total G&A expense was $12.4 million
for fiscal year 1999, as compared to $9.7 million for fiscal year 1998, an
increase of $2.7 million, or 27.8%. Expressed as a percentage of net sales, G&A
expense for fiscal year 1999 increased to 5.2% from 4.2% for fiscal year 1998.
The Company's G&A expenses for fiscal year 1999 and the one hundred fifty-five
day period ended June 27, 1998 were based on actual costs incurred by the
Company compared to the BBNA Business G&A expenses for the two hundred nine day
period ended January 23, 1998 which were based on an allocation methodology. In
addition, the Company's G&A expenses for fiscal year 1999 included $1.0 million
of depreciation expense associated with the start up of the Company's computer
systems.

     Amortization of Intangibles.  Amortization of intangibles was $21.2 million
for fiscal year 1999, as compared to $13.6 million for fiscal year 1998, an
increase of $7.6 million. As the intangibles were attributed to the Acquisition
on January 23, 1998, the increase reflects a full year of amortization expense
in fiscal year 1999 compared to a partial year of amortization expense in fiscal
year 1998.

     Operating Income.  Operating income was $5.7 million for fiscal year 1999
as compared to $0.8 million for fiscal year 1998, an increase of $4.9 million.
Excluding the impact of (i) $21.2 million and $13.6 million of amortization
expense for intangibles for fiscal year 1999 and fiscal year 1998, respectively;
(ii) $23.9 million for a non-recurring pre-tax charge in fiscal year 1998 for
investments in research and development that were in process at the Acquisition
Closing and deemed by management to have no alternative use; and (iii) the non-
cash charge in fiscal year 1998 of $5.2 million of additional cost of sales
related to expensing of inventories stated at fair market value, operating
income was $26.9 million for fiscal year 1999 as compared to $43.5 million for
fiscal year 1998, a decrease of $16.6 million, or 38.2%. Among other factors
discussed above, the Company's operating income was significantly reduced by the
marketing investment in the national launches of ReaLemonade and Cremora Royale.

     Interest Expense.  Net interest expense was $27.8 million for fiscal year
1999 as compared to net interest expense of $11.5 million for the one hundred
fifty-five day period ended June 27, 1998. The Company's interest expense
resulted from the debt structure established in connection with the Acquisition.
There was no interest expense in the two hundred nine day period ended January
23, 1998.
<PAGE>

     Income Taxes.  The Company recorded an income tax benefit of $7.7 million
for fiscal year 1999, as compared to a $14.2 million income tax benefit for the
one hundred fifty-five day period ended June 27, 1998 and an income tax
provision of $12.1 million for the two hundred nine day period ended January 23,
1998.

   Liquidity and Capital Resources

     Borrowings under the Senior Credit Facilities at July 1, 2000 and July 3,
1999 consisted of $172.5 million and $173.5 million, respectively, for the Term
Loan Facility maturing in 2005. The Term Loan Facility matures $1.0 million,
$0.8 million, $3.2 million, $27.5 million, $80.0 million and $60.0 million in
the fiscal years 2001 through 2005, respectively. In addition, the Senior Credit
Facilities include the $70.0 million Revolving Credit Facility maturing in 2004,
of which $40.0 million and $50.0 million were outstanding at July 1, 2000 and
July 3, 1999, respectively. The decrease in the amount outstanding under the
Revolving Credit Facility was principally due to the lower cash requirements for
marketing and inventory expenditures in fiscal year 2000 as compared to the
significant marketing investment made in launching Cremora Royale and
ReaLemonade, as well as carrying the higher level of inventory necessary to
support ReaLemonade in fiscal year 1999.

     On September 27, 1999, the Equity Sponsors agreed to contribute $10.0
million of additional equity prior to the period ended October 2, 1999. The
capital contribution by the Equity Sponsors was made in connection with the
significant investment the Company made in launching Cremora Royale and
ReaLemonade during fiscal year 1999.

     Interest payments on the Notes and interest and principal payments under
the Senior Credit Facilities represent significant cash requirements for the
Company. Borrowings under the Senior Credit Facilities bear interest at floating
rates and require interest payments on varying dates. However, on April 22,
1998, the Company entered into interest rate swap agreements in order to fix the
interest rate on $100 million of the Term Note Facility. These swap agreements
commenced on July 23, 1998.

     The Company's remaining liquidity needs are for capital expenditures and
operating requirements. The Company spent $7.6 million on capital projects in
fiscal year 2000 to fund management information systems initiatives,
expenditures in existing facilities and discretionary capital projects
associated with new products. The Company expects to spend approximately $5.5
million to $6.5 million on capital projects in fiscal year 2001 to fund
expenditures in existing facilities, information system initiatives and
discretionary capital projects associated with new or improved products. The
Company's primary sources of liquidity are cash flows from operations and
available borrowings under the Revolving Credit Facility.

     Net cash provided from operating activities was 10.6 million for fiscal
year 2000 and net cash used for operating activities was $8.0 million for fiscal
year 1999. The increase of $18.6 million was due primarily to non-recurrence of
certain marketing expenses and inventory costs expended in fiscal year 1999 that
supported the launches of Cremora Royale and ReaLemonade

     Cash used in financing activities for fiscal year 2000 was $3.4 million and
cash from financing activities for fiscal year 1999 was $20.3 million. For
fiscal year 2000, net payment of $10.0 million was applied against the Revolving
Credit Facility, whereas for fiscal year 1999 net borrowings from the Revolving
Credit Facility were $21.5 million. Additionally, the Company received $10.0
million in fiscal year 2000 associated with the issuance of Holdings capital
stock to the Equity Sponsors.

     Management believes that cash generated from operations, borrowings under
the Senior Credit Facilities and the additional capital contribution by the
Equity Sponsors will be sufficient to satisfy working capital requirements and
required capital expenditures. Further expansion of the business through
acquisitions may require the Company to incur additional indebtedness or to
issue equity securities.

   Other Information

     Plant Fire.  On June 2, 1999, a fire destroyed several critical pieces of
equipment at the Chester, South Carolina powdered non-dairy creamer
manufacturing plant. The plant operated at modified levels until production
resumed in mid-October 1999. The Company had temporarily engaged another
manufacturer to produce powdered
<PAGE>

non-dairy creamer in bulk. The Chester, South Carolina plant then packaged and
shipped the finished product to its customers. The Company estimated that total
lost sales associated with the fire were approximately $1.0 million.

     The Company completed its insurance claim for property damage, other
expenses related to the fire and business interruption. The claim did not
significantly impact the Company's results of operation or financial position.

     Senior Credit Facilities  Amendment.  The Company amended its Senior Credit
Facilities effective as of June 29, 2000. The Senior Credit Facilities contain
financial covenants which require the Company to meet certain financial tests
including debt coverage, interest expense coverage and capital expenditure
requirements. The debt coverage and interest expense coverage requirements were
amended for the four quarters ending July 1, 2000 and for each of the four
quarters thereafter through June 29, 2002. This change had taken into
consideration the Company's reduced operating performance for fiscal year 2000.
The capital expenditure covenant was amended to allow for carryover of a certain
amount of fiscal year 2000 unused capital expenditure into fiscal year 2001.

     The interest pricing table that is used to determine the Company's interest
rate was replaced. The Company had been paying interest at LIBOR plus 3.50% on
the Term Loan Facility and LIBOR plus 3.25% on the Revolving Credit Facility.
Based on the Company's current leverage ratio and the newly amended agreement,
the interest rate will now be at LIBOR plus 3.75% on the Term Loan Facility and
LIBOR plus 3.50% on the Revolving Credit Facility. These rates are subject to
performance step downs based on the Company's leverage ratio, with the lowest
leverage ratio category set at LIBOR plus 3.25% for the Term Loan Facility and
LIBOR plus 3.00% for the Revolving Credit Facility.

Seasonality

     The Company's net sales, net income and cash flows are affected by a
seasonal bias toward the fourth quarter of the calendar year due to increased
sales during the holiday season. Three of the Company's six major product lines
(Eagle Brand and the Company's other sweetened condensed milk products, Borden
eggnog and None Such) are consumed primarily during the November and December
holiday seasons. In recent years, approximately 43% of the Company's net sales
have occurred in the last quarter of the calendar year. As a result of this
seasonality, the Company's working capital needs have historically increased
throughout the year, normally peaking in the September/October period, requiring
the Company to draw additional amounts on its Revolving Credit Facility.

Recently Issued Accounting Statements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company has adopted this standard in the first
quarter of its fiscal year ending June 30, 2001. The management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of SFAS 133 will not have a significant effect on the Company's results of
operations or it financial position.

     On May 11, 2000, the FASB Emerging Issues Task Force ("EITF") issued EITF
Issue No. 00-14, "Accounting for Certain Sales Incentives" ("Issue 00-14").
Issue 00-14 addresses the recognition, measurement, and income statement
classification for sales incentives offered voluntarily by a vendor without
charge to customers that can be used in, or that are exercisable by a customer
as a result of, a single exchange transaction. The Company is evaluating this
pronouncement and has not yet determined its impact on future financial
statements. The pronouncement will be adopted during fourth quarter of the
fiscal year ending June 30, 2001.
<PAGE>

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

     Interest Rates

     The following table presents descriptions of the financial instruments and
derivative instruments that were held by the Company at July 1, 2000 and which
were sensitive to changes in interest rates. In the ordinary course of business
the Company enters into derivative financial instrument transactions in order to
manage or reduce market risk. Under interest-rate swaps, the Company agrees with
other parties to exchange, at specified intervals, the difference between fixed-
rate and floating-rate interest amounts calculated by reference to an agreed
notional principal amount. The Company does not enter into derivative financial
instrument transactions for speculative purposes.

     For the liabilities, the table represents principal fiscal year cash flows
that exist by maturity date and the related average interest rate. For the
interest rate derivatives, the table presents the notional amounts and expected
interest rates that exist by contractual dates; the notional amount is used to
calculate the contractual payments to be exchanged under the contract. The
variable rates are estimated based upon the six month forward LIBOR rate.

     All amounts are reflected in U.S. dollars (in thousands).

<TABLE>
<CAPTION>
                                                                                                                      Fair
                                      2001         2002         2003          2004      Thereafter       Total        Value
                                   -----------  -----------  ------------  -----------  ------------   -----------  -----------
<S>                               <C>          <C>          <C>           <C>          <C>            <C>          <C>
Liabilities
   Fixed Rate...................                                                       $   115,000    $  115,000   $   69,000
   Average Interest Rate........                                                             8.750%        8.750%
   Variable Rate................  $    1,000   $      750   $     3,250   $   27,500   $   180,000    $  212,500   $  212,500
   Average Interest Rate........      10.704%      10.704%       10.704%      10.704%        8.325%       10.605%
Interest-Rate Derivatives
Variable to fixed:
   Notional amount at the
   beginning of fiscal year.....  $  100,000   $   75,000   $    75,000                               $  100,000   $    2,003
   Maturities...................  $   25,000                $    75,000
   Average pay rate.............       5.943%       5.955%        5.955%                                   5.948%
   Average receive rate.........       6.780%       6.780%        6.780%                                   6.780%
</TABLE>

     On April 22, 1998, the Company entered into interest rate swap agreements
in order to fix the interest rate on a portion of the Term Loan Facility. The
Term Loan Facility bears interest at LIBOR plus 3.75%. These swap agreements
commenced on July 23, 1998 and fix the LIBOR rate at 5.955% on $75 million and
5.905% on $25 million of the $175 million Term Loan Facility. These swap
agreements expire on December 29, 2000 and December 31, 2002, respectively and
have been reflected in the table above. The estimated benefit to cancel the
interest rate swap agreements at July 1, 2000 was approximately $2.0 million
based on current interest rates for similar instruments.

     Milk Hedging

     The Company uses milk as a major ingredient in its sweetened condensed milk
product line and is subject to the risk of rising milk prices that increase
manufacturing costs and erode profit margins. By purchasing futures contracts,
however, the Company establishes a known price for future milk purchases in
order to protect against fluctuating milk prices. At July 1, 2000, the Company
had no outstanding milk futures contracts.

Item 8: Financial Statements and Supplementary Data

     See Item 14 "Exhibits, Financial Statement Schedules and Reports on Form 8-
     K."

Item 9: Changes in and Disagreements With Accountants on Accounting and
        Financial Disclosure

     Not applicable.
<PAGE>

PART III

Item 10:   Directors and Executive Officers of the Registrants

     The directors of the Company and executive officers of the Holdings and
Eagle are as follows:

<TABLE>
<CAPTION>
               Name                   Age      Position
<S>                                   <C>      <C>
John O'C. Nugent.................      58      Chief Executive Officer, President and Director*
Craig A. Steinke.................      43      Chief Financial Officer, Treasurer and Senior Vice President of
                                               Operations*
Mark J. Greatrex.................      37      Senior Vice President, Marketing and Sales*
Jonathan F. Rich.................      53      Vice President, General Counsel and Secretary*
Tamar K. Bernbaum................      49      Vice President, Customer Marketing
James A. Byrne...................      55      Vice President, Human Resources
Virginia Cappello................      48      Vice President, Market Research
Paul F. Keida....................      50      Vice President, Technology
Richard A. Lumpp.................      53      Vice President, Sales
Andreas T. Hildebrand............      32      Director
Kewsong Lee......................      35      Director
Howard H. Newman.................      53      Director
Donald W. Torey..................      43      Director
Paul W. Van Orden................      73      Director
</TABLE>

--------------
*    Messrs. Nugent, Steinke, Greatrex and Rich hold these same positions at
Holdings and are the executive officers of Holdings.

     John O'C. Nugent has served as a Director of Holdings and Eagle and Chief
Executive Officer and President of Holdings and Eagle since their respective
dates of formation. From 1993 through 1996, he served as the President of
Johnson & Johnson Consumer Products, Inc., where he was responsible for the
consumer business and pharmaceutical products division. Prior to that, Mr.
Nugent spent eight years with Unilever PLC occupying a series of marketing and
general management positions. Most recently, he served as Senior Vice President
(General Manager) of the Van den Bergh Foods, a consumer products division of
Unilever, USA prior to an assignment in the United Kingdom where he was Director
(COO position) of Van den Bergh, Ltd. Mr. Nugent's background in consumer
products extends over thirty years, with experience at Borden, Inc., Calgon
Consumer Products Company and The Procter & Gamble Company, where he held a
variety of marketing and management positions. His past service as a director
includes membership on the boards of the Association of National Advertisers,
Cosmetics Toiletries and Fragrance Association and the National Association of
Margarine Manufacturers.

     Craig A. Steinke has served as Chief Financial Officer, Vice President and
Treasurer of Holdings and Eagle since January 1998. On August 1, 2000, Mr.
Steinke was appointed to the additional office of Senior Vice President of
Operations of Holdings and Eagle. From 1996 through 1998, Mr. Steinke served as
Senior Vice President and Group General Manager of BHP Copper, a business group
of Broken Hill Proprietary Co., Ltd. From 1992 through 1996, Mr. Steinke held
President, Vice President and Controller positions at the Metals, a wholly owned
subsidiary of Magma Copper Co. Prior to 1992, Mr. Steinke held a variety of
positions at Arthur Andersen LLP.

     Mark J. Greatrex has served as Senior Vice President of Marketing and Sales
of Holdings and Eagle since April 2000. From 1998 to 2000, Mr. Greatrex served
as the Vice President/General Manager of the Lipton Tea business and as a board
member of the Lipton Company, a wholly owned subsidiary of Unilever PLC. From
1995 to 1998, Mr. Greatrex served as Vice President of Brand Marketing for
FRALIB, a consumer products subsidiary of Unilever based in Paris, France.
During this period, he also provided marketing leadership for one of Unilever's
International Innovation Centers. Prior to 1995, Mr. Greatrex held a variety of
marketing positions in several product categories at Van den Bergh Foods, a
consumer products division of Unilever, USA. His service as a director includes
past membership on the boards of the Pepsi Lipton Tea Partnership (a joint
venture) and the U.S. Tea Association. His present service as a director
includes membership on the board of Vision Associates Holdings, Inc.
<PAGE>

     Jonathan F. Rich has served as Vice President, General Counsel and
Secretary of Holdings and Eagle since their respective dates of formation. From
1990 through 1996, Mr. Rich served as Vice President and General Counsel of
Nabisco International. Prior to that, he served two years as the Associate
General Counsel for Del Monte Foods Company. Mr. Rich is a member of the New
York Bar.

     Tamar K. Bernbaum has served as Vice President, Customer Marketing of Eagle
since 2000. Prior to this, she served as Vice President, Marketing of Eagle from
January 1998 through 2000. From 1991 through 1997, Ms. Bernbaum held Director of
Trade Marketing and Category Manager for Trade Marketing positions at Unilever's
Van Den Bergh Foods division. From 1983 through 1991, Ms. Bernbaum served as
Senior Product Manager and Product Manager at Unilever's Ragu Foods Company
division. Prior to 1983, Ms. Bernbaum held a variety of management positions at
Colgate-Palmolive Company and Nestle Inc.

     James A. Byrne has served as Vice President, Human Resources of Eagle since
its formation in November 1997. From 1990 through 1995, Mr. Byrne served as the
Director of Human Resources for Wyeth-Lederle Vaccines and Pediatrics & Lederle
Consumer Health Products. Prior to that, Mr. Byrne spent 22 years at American
Cyanamid Co. in a variety of human resources management positions.

     Virginia Cappello has served as Vice President, Market Research of Eagle
since January 1998. From 1997 through January 1998, Ms. Cappello served as
Director of International Research for MasterCard International Inc. From 1987
through 1997, she served as Group Market Research Manager of Unilever's Van Den
Bergh Foods division. From 1980 through 1987, Ms. Cappello held Group Market
Research Manager and Senior Market Research Manager positions serving both the
domestic and international operations of International Playtex, Inc. Prior to
1980, Ms. Cappello held management positions at Evaluative Criteria, Inc.,
Lebhar Friedman Research, Erdos & Morgan, Inc. and O'Brian Sherwood Associated,
Inc.

     Paul F. Keida has served as Vice President, Technology of Eagle since
December 1997. From 1995 through 1997, Mr. Keida served as Vice President of
Research and Development of Borden, Inc. For 19 years prior to 1995, Mr. Keida
held a variety of management positions at Borden, Inc. in the technology
research and development areas.

     Richard A. Lumpp has served as Vice President, Sales of Eagle since
December 1997. From 1996 through 1997, Mr. Lumpp served as Senior Vice President
of Neo, Inc., an Information Resources, Inc. affiliate. Between 1995 and 1996,
Mr. Lumpp served as a Principal at CSC Weston Group. Between 1993 and 1995, Mr.
Lumpp held Senior Vice President of Client Service and Vice President of Sales
positions with Information Resources, Inc. Prior to 1993, Mr. Lumpp held a
variety of management positions at Unilever's Van den Bergh Foods and Ragu Foods
Company divisions, The Gillette Company and Johnson & Johnson.

     Andreas T. Hildebrand has served as a Director of Holdings and Eagle since
their respective dates of formation. Mr. Hildebrand has served as Managing
Director of the Private Equity Group of General Electric Asset Management
("GEAM") since July 2000, Vice President of GEAM since May 1997, and as an
Investment Manager and Senior Financial Analyst since 1993. Prior to joining
GEAM, Mr. Hildebrand was an Economic Analyst in the office of Massachusetts
Governor William Weld. Mr. Hildebrand presently serves as a director of several
privately held companies.

     Kewsong Lee has served as a Director of Holdings and Eagle since their
respective dates of formation. Mr. Lee has served as a Member and Managing
Director of EMW LLC and a general partner of Warburg, Pincus & Co. ( "WP ")
since January 1, 1997. Mr. Lee served as a Vice President of WPV from January
1995 to December 1996, and as an associate at E.M. Warburg, Pincus & Co., Inc. (
"EMW ") from 1992 until December 1994. Prior to joining EMW, Mr. Lee was a
consultant at McKinsey & Company, Inc., a management consulting company from
1990 to 1992. His present service as a director includes membership on the
boards of Knoll, Inc., RenaissanceRe Holdings Ltd. and several privately held
companies.

     Howard H. Newman has served as a Director of Holdings and Eagle since their
respective dates of formation. Mr. Newman has served as a Member and Managing
Director of EMW LLC (and its predecessor) and a general partner of WP since
1987. Prior to joining EMW LLC's predecessor in 1984 he was a Principal with
Morgan Stanley & Co., Incorporated. His present service as a director includes
membership on the boards of ADVO, Inc.,
<PAGE>

Newfield Exploration Company, Cox Insurance Holdings Plc, Comcast UK Cable
Partners Limited, RenaissanceRe Holdings Ltd. and several privately held
companies.

     Donald W. Torey has served as a Director of Holdings and Eagle since their
respective dates of formation. Mr. Torey has served as Executive Vice President
of GEAM and GE Investment Management Incorporated ("GEIM" and, together with
GEAM, "GE Investments") with responsibility for GE Investments' Private Equity
and Real Estate groups since January 1997. From 1993 through 1996, Mr. Torey
served as Chief Financial Officer of GE Investments. Prior to that, Mr. Torey
served as Manager of Mergers and Acquisition Finance for General Electric
Company ("GE"). Mr. Torey currently serves as a Trustee for the General Electric
Pension Trust ("GEPT") and as a director of a privately held company.

     Paul W. Van Orden has served as a Director of Holdings and Eagle since
April 1998. Mr. Van Orden has been a Special Student at the Yale Divinity School
since 1997. From 1991 through 1996, he was the Executive-In-Residence, the
Executive Director of the Chazen Institute for International Business and a
Visiting Professor at the Columbia University Graduate School of Business. Prior
to that, Mr. Van Orden was an Executive Vice President at GE. He currently
serves as a director of a privately held company.
<PAGE>

Item 11:   Executive Compensation

Summary Compensation Table

     The following summary  compensation table provides  information  concerning
compensation for the Company's chief executive officer and the five other most
highly compensated executive officers of Eagle (collectively, the "Named
Executive Officers") for the fiscal years ended June 27, 1998, July 3, 1999 and
July 1, 2000.

<TABLE>
<CAPTION>
                                                                                                          Long Term
                                                               Annual Compensation                      Compensation(3)
                                              -------------------------------------------------------   ---------------
                                                                                          Other           Restricted
                                               Fiscal                                   Compensation     Stock Awards
        Name and Principal Position             Year    Salary($)       Bonus ($) (1)     ($) (2)         ($)(4)(5)
-------------------------------------------- --------- -------------    -------------   --------------  ---------------
<S>                                            <C>   <C>              <C>             <C>             <C>
John O'C. Nugent...........................      1998 $     130,682    $         --    $    2,000      $        58,230
   Chief Executive Officer and President         1999       316,250          150,000        7,480                  --
                                                 2000       315,125           70,800        4,819                  --

Craig A. Steinke (6)........................     1998        78,750              --         2,363                4,835
  Chief Financial Officer, Treasurer and         1999       221,375          105,000        6,113                  --
   Senior Vice President of Operations           2000       232,667           59,483        3,736                  350

Richard A. Lumpp............................     1998        80,492              --        39,655(7)             4,835
   Vice President, Sales                         1999       179,208           85,000        3,167                  --
                                                 2000       178,600           32,000        2,732                  --

Jonathan F. Rich............................     1998        65,000              --         1,200                3,230
   Vice President, General Counsel and           1999       154,375           75,000        6,881                  --
   Secretary                                     2000       157,583           42,488        2,654                  175

Tamar K. Bernbaum...........................     1998        70,455              --         1,938                4,835
   Vice President, Customer Marketing            1999       165,625           77,500        6,485                  --
                                                 2000       165,000           22,688        2,533                  --

William A. Lynch (8)........................     1998       130,682              --         2,500               58,230
  Former Chairman of the Board and               1999       316,250          150,000        6,542                  --
   Former Chief Operating Officer                2000       315,125           70,800        1,881                  --
</TABLE>

---------------
(1)  The 1999 bonus represents the amount earned and paid to the Named Executive
     Officer for the Company's first full calendar year for which each executive
     could earn up to 100% of his or her base salary if certain performance
     targets were met. The 2000 bonus represents the amount earned and paid to
     the Named Executive for the six month period ended January 1, 2000. Each
     executive will also be entitled to receive a bonus for fiscal year 2000 of
     up to 100% of his or her base salary if certain performance targets are
     met.
(2)  Other compensation includes matching and profit sharing contributions made
     by the Company on behalf of each Named Executive Officer pursuant to the
     Eagle Family Foods, Inc. 401k Savings and Retirement Plan.
(3)  The Company has not awarded any stock options or stock appreciation rights
     to the Named Executive Officers.
(4)  Represents the approximate value of awards of restricted Common Stock (the
     "Restricted Shares ") issued to the Named Executive Officers on January 16,
     1998. The Restricted Shares will vest in equal installments over five years
     (the "Vesting Period"), beginning on the first anniversary of the date of
     issuance provided that such grantee is employed by the Company on such
     date. Upon the consummation of an initial public offering of Common Stock
     of Holdings registered under the Securities Act of 1933 meeting certain
     thresholds prior to the end of the Vesting Period, 20% of the Restricted
     Shares will vest. Any remaining unvested Restricted Shares would then vest
     in equal installments over the time remaining in the Vesting Period. The
     Board of Directors of Holdings may also establish certain performance
     criteria that could result in accelerated vesting of the Restricted Shares.
     As of June 27, 1998, the approximate value of each such award was $58,230,
     $4,835, $4,835, $3,230 and $4,835 for Messrs. Nugent, Steinke, Lumpp, Rich
     and Ms. Bernbaum respectively.
(5)  The restricted stock awards for fiscal year 2000 represent the approximate
     value of the Restricted Shares issued to the Named Executive Officers. The
     Restricted Shares carry the same vesting rules as mentioned in footnote 4
     above. As of July 1, 2000, the approximate value of each such award was
     $350 and $175 for Messrs. Steinke and Rich.
(6)  Mr. Steinke was appointed Senior Vice President of Operations on August 1,
     2000 and his annual salary was adjusted to $275,000. He remains Chief
     Financial Officer, Vice President and Treasurer of the Company.
(7)  Includes $34,020 related to a signing bonus.
(8)  Mr. Lynch resigned from Holdings and Eagle effective March 3, 2000.
<PAGE>

Compensation Committee Interlocks and Insider Participation

     Matters of compensation are reviewed and acted upon by the full Board of
Directors, consisting of John O'C. Nugent, Andreas T. Hildebrand, Kewsong Lee,
Howard H. Newman, Donald W. Torey and Paul W. Van Orden. Mr. Nugent is both an
executive officer of Holdings and the Company. See "Item 13. Certain
Relationships and Related Transactions."

Director Compensation

     The Directors of Holdings and Eagle have not received, and are not expected
in the future to receive, compensation for their service as directors. Directors
are entitled to reasonable out-of-pocket expenses in connection with their
travel to and attendance at meetings of the Boards of Directors or committees
thereof, except that directors who are employees of Holdings, Eagle, or a
stockholder of Holdings shall not be entitled to such reimbursement.

Employment Agreements

     The Company entered into employment agreement with Mr. John O'C. Nugent,
pursuant to which Mr. Nugent serves as Chief Executive Officer and President of
the Company. The initial annual base salary under such agreement for Mr. Nugent
was $300,000 with increases in the base salary to be determined by the Board of
Directors. In addition pursuant to the agreement, Mr. Nugent is entitled to
receive a bonus of up to 100% of his base salary if certain performance targets
are met. Bonuses for future periods are to be based on targets to be established
by the Board of Directors. The agreement has a term of two years, with automatic
annual renewals. In the event the employment agreement is terminated by the
Company without "cause" (as defined in such employment agreement), Mr. Nugent is
entitled to receive severance payments equal to the base salary then in effect
for the greater of the next 12 months or the remainder of the employment term.
The agreement provides for customary non-competition and non-solicitation
provisions. The Company entered into similar arrangements with its other
executive officers, including each of the Named Executive Officers.
<PAGE>

Item 12:   Security Ownership of Certain Beneficial Owners and Management

     All of the issued and outstanding shares of common stock of Eagle as of
September 6, 2000 are beneficially owned by Holdings. There are three classes of
capital stock of Holdings authorized and outstanding: the Common Stock, which
has full voting rights, the Series A Preferred Stock and the Series B Preferred
Stock, which each have limited voting rights. The following table sets forth, as
of September 6, 2000, certain information regarding the beneficial ownership of
Common Stock, Series A Preferred Stock and Series B Preferred Stock, as
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), with respect to (i) each person known by
the Company to be the beneficial owner of more than five percent of any class of
Holdings' voting securities, (ii) each of the directors and certain executive
officers of Holdings and Eagle and (iii) all directors and executive officers of
Holdings and Eagle, as a group:


<TABLE>
<CAPTION>
                                                                                Series A           Series B
                                                          Common Stock        Preferred Stock  Preferred Stock
                                                          ------------        ---------------  ---------------
                 Name and Address of                  Number of            Number of            Number of
                Beneficial Owner (1)                   Shares   Percentage  Shares   Percentage  Shares   Percentage
                --------------------                   ------   ----------  -------  ----------  ------   ----------
<S>                                                  <C>        <C>        <C>       <C>         <C>      <C>
GE Investment Private Placement Partners II,
   a Limited Partnership
   3003 Summer Street
   Stamford, CT 06905(2)............................. 458,200      41.0    402,399      49.5       49.5      50.0

Warburg, Pincus Ventures, L.P.
   466 Lexington Avenue
   New York, NY 10017(3)............................. 458,200      41.0    402,399      49.5       49.5      50.0

John O'C. Nugent(4)..................................  63,230       5.7      4,950         *         --        --
Craig A. Steinke(5)..................................  40,835       3.7        990         *         --        --
Mark J. Greatrex(5)..................................  27,500       2.5         --        --         --        --
Jonathan F. Rich(5) .................................  21,730       2.0        990         *         --        --
Richard A. Lumpp(5)..................................  10,000         *        990         *         --        --
Andreas T. Hildebrand(2)(6)..........................      --        --         --        --         --        --
Kewsong Lee(3)....................................... 458,200      41.0    402,399      49.5         --        --
Howard H. Newman(3).................................. 458,200      41.0    402,399      49.5         --        --
Donald W. Torey(2)(6)................................      --        --         --        --         --        --
Paul W. Van Orden(6).................................      --        --         --        --         --        --
All directors and executive officers as a
   Group (14 persons)(7)............................. 635,095      56.9    410,913      50.3       49.5      50.0
</TABLE>

---------------
* Less than 1%

(1)  Pursuant to the rules of the Securities and Exchange Commission, shares are
     deemed to be "beneficially owned" by a person if such person directly or
     indirectly has or shares (i) the power to vote or dispose of such shares,
     whether or not such person has any pecuniary interest in such shares, or
     (ii) the right to acquire the power to vote or dispose of such shares
     within 60 days, including any right to acquire through the exercise of any
     option, warrant or right. Unless otherwise indicated, each person's address
     is c/o Eagle Family Foods, 220 White Plain Road, Tarrytown, NY 10591.
     Messrs. Lee and Newman have the same address as Warburg. Messrs. Torey,
     Hildebrand and Van Orden have the same address as GEI.
(2)  Does not include any shares indirectly held by Trustees of GEPT by virtue
     of GEPT's limited partnership interest in Warburg. GEPT is also a limited
     partner in GEI. GEIM is the general partner of GEI and a wholly owned
     subsidiary of GE. As a result, each of GEIM and GE may be deemed to be the
     beneficial owner of the shares owned by GEI.
(3)  The sole general partner of Warburg is WP, a New York general partnership.
     EMW LLC, a New York limited liability company, manages Warburg. The members
     of EMW LLC are substantially the same as the partners of WP. Lionel I.
     Pincus is the managing partner of WP and the managing member of EMW LLC.
     WP, as the sole general partner of Warburg, has a 15% interest in the
     profits of Warburg. Messrs. Lee and Newman, directors of Holdings, are
     Managing Directors and members of EMW LLC and general partners of WP. As
     such, Messrs. Lee and Newman may be deemed to have an indirect pecuniary
     interest (within the meaning of Rule 16a-1 under the Exchange Act) in an
     indeterminate portion of the shares beneficially owned by Warburg and WP.
(4)  Includes 58,230 shares of restricted stock, subject to certain vesting and
     forfeiture requirements, issued to Mr. Nugent.
(5)  Includes 39,835, 20,730, 27,500 and 9,000 shares of restricted stock,
     subject to certain vesting and for future requirements, issued to each of
     Messrs. Steinke, Rich, Greatrex and Lumpp.
(6)  Excludes 458,200 shares of Common Stock, 402,399 shares of Series A
     Preferred Stock and 49.5 shares of Series B Preferred Stock beneficially
     owned by GEI and GEIM. As an executive officer and director of GEIM, Mr.
     Torey has shared voting and investment power with respect to the shares
     held by GEI, and therefore, may be deemed to be the beneficial owner of
     such shares. Messrs. Torey, Hildebrand and Van Orden disclaim beneficial
     ownership of all such shares owned by GEI and GEIM.
(7)  Includes 458,200 shares of Common Stock, 402,399 shares of Series A
     Preferred Stock and 49.5 shares of Series B Preferred Stock beneficially
     owned by Warburg. Excludes 458,200 shares of Common Stock, 402,399 shares
     of Series A Preferred Stock and 49.5 shares of Series B Preferred Stock
     beneficially owned by GEI. Includes 600 shares of Common Stock and 594
     shares of Series A Preferred Stock held by an executive officer not
     identified in the table and 13,000 shares of restricted stock, subject to
     certain vesting and forfeiture requirements, issued to executive officers
     not identified in the table.
<PAGE>

The Holdings Stockholders Agreement

     The relations among the Equity Sponsors and the Management Investors
(collectively, the "Investors"), and Holdings are governed by a Stockholders
Agreement, dated as of the Acquisition Closing and as amended (the "Holdings
Stockholders Agreement"). The following summary of certain provisions of the
Holdings Stockholders Agreement does not purport to be complete and is qualified
in its entirety by reference to all the provisions of the Holdings Stockholders
Agreement.

     Board of  Directors.  Holdings is managed by a Board of Directors not to
exceed nine members, three members of which may be designated by GEI and three
members of which may be designated by Warburg. For so long as GEI beneficially
owns at least 20% of the Common Stock outstanding on a fully diluted basis, GEI
has the right to designate three directors to the Board of Directors. For so
long as GEI beneficially owns at least 15% of the Common Stock outstanding on a
fully diluted basis, GEI has the right to designate two directors to the Board
of Directors. For so long as GEI beneficially owns at least 10% of the Common
Stock outstanding on a fully diluted basis, GEI has the right to designate one
director to the Board of Directors. For so long as Warburg beneficially owns at
least 20% of the Common Stock outstanding on a fully diluted basis, Warburg has
the right to designate three directors to the Board of Directors. For so long as
Warburg beneficially owns at least 15% of the Common Stock outstanding on a
fully diluted basis, Warburg has the right to designate two directors to the
Board of Directors. For so long as Warburg beneficially owns at least 10% of the
Common Stock outstanding on a fully diluted basis, Warburg has the right to
designate one director to the Board of Directors. Mr. Nugent will be entitled to
serve as directors for so long as he remains an executive officer of the
Company. In addition, as long as the Equity Sponsors in the aggregate
beneficially own more than 50% of the Common Stock outstanding on a fully
diluted basis, the Equity Sponsors have the right to designate a majority of the
directors to the Board of Directors. The Board of Directors will have at least
one director who is not an officer or employee of Holdings, the Company, or the
Equity Sponsors, appointed by unanimous approval of the Board of Directors. The
Holdings Stockholders Agreement provides that the Board of Directors of the
Company is identical to that of Holdings.

     The consent of a majority of the Board of Directors which includes at least
one of the directors designated by GEI and one of the directors designated by
Warburg is required for the approval of (i) the Company's or Holdings' annual
operating budget; (ii) capital expenditures or investments not approved in the
annual budget in amounts greater than $500,000; (iii) any merger or
consolidation involving the Company or Holdings; (iv) any acquisition by the
Company or Holdings of any assets or stock, other than acquisitions of assets in
the ordinary course of business; (v) any divestiture of assets in excess of
$500,000 by the Company or Holdings, other than sales of inventory in the
ordinary course of business; (vi) any liquidation, dissolution or winding up, or
any consent to a bankruptcy or insolvency or related proceeding involving, the
Company or Holdings; (vii) the issuance or sale of any debt or equity securities
for cash; (viii) any expansion into new lines of business; (ix) any joint
venture or strategic alliance; (x) the repurchase or redemption of any
outstanding shares of capital stock or the declaration or payment of any
dividends on any shares of capital stock of the Company or Holdings; (xi) the
amendment or modification of the certificate of incorporation or bylaws of the
Company or Holdings; (xii) the amendment, modification or termination of any
employment agreement with any executive officer of the Company or Holdings;
(xiii) the grant of any stock options or other equity-based compensation; (xiv)
the hiring or firing of any executive officer; (xv) any related party
transactions; (xvi) any loans or guarantees by the Company or Holdings outside
of the ordinary course of business; (xvii) any agreement having a duration in
excess of one year or cumulative obligations in excess of $1 million; (xviii)
the amendment, modification or termination of any agreement with any union;
(xix) the approval or adoption, amendment, modification or termination of
certain employee benefit plans; and (xx) any agreement to do any of the
foregoing.

     Restrictions on Transfer of Stock. Securities held by the Management
Investors, including any shares of Common Stock or Redeemable Preferred Stock
and any options to acquire shares of Common Stock, may only be sold or otherwise
transferred with the consent of the Board of Directors of Holdings.

     Tag-Along Rights. The Holdings Stockholders Agreement provides that in the
event any Investor chooses to sell or otherwise transfer more than 20% of its
shares of Common Stock or Redeemable Preferred Stock to a proposed transferee,
the selling Investor must offer to each of the other Investors the right to
participate in such sale on a pro rata basis based on ownership of the shares
being sold.
<PAGE>

     Subscription Rights. With certain exceptions, the Holdings Stockholders
Agreement provides each Investor with subscription rights in connection with any
issuance of equity securities by Holdings for cash whereby each Investor shall
have the right to purchase a pro rata portion of such equity securities.

     Certain Covenants. The Holdings Stockholders Agreement requires Holdings to
(i) provide certain financial and other information to the Investors concerning
Holdings and its subsidiaries, (ii) comply with applicable law and (iii)
maintain insurance.

     Termination. The tag-along rights and subscription rights described above
will terminate upon the completion of an initial public offering of Common
Stock.

The Registration Rights Agreement

     Holdings and the Investors entered into a Registration Rights Agreement,
dated as of the Acquisition Closing and as amended (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, each of the Equity
Sponsors has two demand registration rights for each of its Redeemable Preferred
Stock and Common Stock. In addition, the Equity Sponsors have unlimited Form S-3
registration rights and unlimited piggyback rights. The Management Investors
also have piggyback registration rights. All expenses related to these
registrations (other than underwriting discounts and commissions) will be borne
by Holdings. Holdings is required to use its best efforts to effect such
registrations, subject to certain conditions and limitations. Holdings has
agreed to indemnify the Investors for certain liabilities arising out of such
registrations, including liabilities under the Securities Act.

Item 13:   Certain Relationships and Related Transactions

     In connection with the portion of the Equity Contribution to Holdings made
by Mr. Lynch and Mr. Nugent, the Company lent an aggregate of $575,000 to Mr.
Lynch and $250,000 to Mr. Nugent in exchange for full recourse notes bearing
interest at a floating rate, set semi-annually, at The Chase Manhattan Bank's
then applicable prime rate, in effect for six month periods, plus 0.5%. Each
note matures on the fifth anniversary of the Acquisition Closing and is secured
by a pledge in favor of the Company of all of the shares of Common Stock and
Series A Preferred Stock owned by such Management Investor. Mr. Lynch, in
partial satisfaction of the aforementioned note, made a $200,000 principal and
interest payment. Upon Mr. Lynch's resignation from his position as Chairman and
Chief Operating Officer and as a member of the Board of Directors of Eagle and
Holdings effective as of March 3, 2000, Mr. Lynch repaid all remaining amounts
due under the aforementioned note. On April 10, 2000, Holdings purchased a
portion of Mr. Lynch's Series A Preferred Stock for a value of $423,000.

     On September 27, 1999, pursuant to a subscription agreement, each of
Warburg and GEI purchased (i) 50,000 shares of Common Stock and Warrants to
purchase 11,006.5 shares of Common Stock for a cash purchase price of $50,000
and (ii) 49.5 shares of Series B Preferred Stock for a cash purchase price of
$4,950,000. The Warrants may be exercised (x) for a purchase price of $1 per
share of Common Stock (subject to certain adjustments) and (y) only upon the
failure of the Company to achieve certain financial targets for fiscal year
2000. The Company did not meet the financial targets for fiscal year 2000.
Therefore, pursuant to the terms of the Warrants, the Warrants expire on
September 27, 2004.

     All future transactions between the Company and its officers, directors,
principal stockholders or their respective affiliates, will be on terms no less
favorable to the Company than can be obtained from unaffiliated third parties.
<PAGE>

PART IV

Item 14:   Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1)Financial Statements of the Company

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                              <C>
     Eagle Family Foods, Inc. and Eagle Family Foods Holdings, Inc.

     Report of Independent Accountants.......................................................................     32

     Eagle Family Foods, Inc. Statements of Operations and Comprehensive Loss for the Fifty-Two Week
          Period ended July 1, 2000, the Fifty-Three Week Period ended July 3, 1999 and the One Hundred
          Fifty-Five Day Period ended June 27, 1998..........................................................     33

     Eagle Family Foods, Inc. Balance Sheets as of July 1, 2000 and July 3, 1999.............................     34

     Eagle Family Foods, Inc. Statements of Cash Flows for the Fifty-Two Week Period ended July 1, 2000,
          the Fifty-Three Week Period ended July 3, 1999 and the One Hundred Fifty-Five Day Period ended
          June 27, 1998......................................................................................     35


     Eagle Family Foods, Inc. Statements of Changes in Stockholder's Equity for the Fifty-Two Week
          Period ended July 1, 2000, the Fifty-Three Week Period ended July 3, 1999 and the One Hundred
          Fifty-Five Day Period ended June 27, 1998..........................................................     36

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Operations and Comprehensive Loss for
          the Fifty-Two Week Period ended July 1, 2000, the Fifty-Three Week Period ended July 3, 1999 and
          the One Hundred Fifty-Five Day Period ended June 27, 1998..........................................     37

     Eagle Family Foods Holdings, Inc. Consolidated Balance Sheets as of July 1, 2000 and July 3, 1999.......     38

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Cash Flows for the Fifty-Two Week
          Period ended July 1, 2000, the Fifty-Three Week Period ended July 3, 1999 and the One Hundred
          Fifty-Five Day Period ended June 27, 1998..........................................................     39

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Changes in Stockholders' Equity
          (Deficit) for the Fifty-Two Week Period ended July 1, 2000, the Fifty-Three Week Period ended
          July 3, 1999 and the One Hundred Fifty-Five Day Period ended June 27, 1998.........................     40

     Notes to the Financial Statements.......................................................................     41

(b)(1) Financial Statements of the Predecessor Company

     Borden Brands North America

     Independent Auditors' Report............................................................................     53

     Combined Statements of Operations of the Predecessor Company for the six months ended December 31,
          1997 (unaudited) and the twenty-three day period ended January 23, 1998 and the year ended
          December 31, 1997..................................................................................     54

     Combined Statements of Cash Flows of the Predecessor Company, for the six months ended December
          31, 1997 (unaudited) and the twenty-three day period ended January 23, 1998 and the year ended
          December 31, 1997..................................................................................     55
</TABLE>
<PAGE>

<TABLE>
<S>                                                                                                               <C>
     Combined Statements of Owner's Investment of the Predecessor Company, for the twenty-three day
          period ended January 23, 1998 and for the year ended December 31, 1997.............................      56

     Notes to Combined Financial Statements of the Predecessor Company.......................................      57
</TABLE>

(a)(2) Financial Statement Schedules

     All schedules are omitted because the required information is either
     presented in the financial statements or notes thereto, or is not
     applicable, required or material.

(a)(3) Exhibits

  2.1     Asset Purchase Agreement, dated as of November 24, 1997, as amended as
          of December 9, 1997 and January 15, 1998, by and among Borden Foods
          Corporation, BFC Investments, L.P., and the Company (Incorporated by
          reference to Exhibit 2.1 to the Registration Statement on Form S-4 of
          Eagle and Holdings filed on June 17, 1998 (the "S-4"))

  3.1     Restated Certificate of Incorporation of Holdings (Incorporated by
          reference to Exhibit 3.1 of the S-4)

  3.2     Amended Bylaws of Holdings (Incorporated by reference to Exhibit 3.1
          of the Report on Form 10-Q, filed by Holdings and Eagle on May 14,
          1999)

  3.3     Restated Certificate of Incorporation, dated November 19, 1997
          (Incorporated by reference to Exhibit 3.3 of the S-4)

  3.4     Amended Bylaws of Eagle (Incorporated by reference to Exhibit 3.2 of
          the Report on Form 10-Q, filed by Holdings and Eagle on May 14, 1999)

  3.5     Certificate of Designation, Number, Voting Powers, Preferences and
          Rights of Series B Non-Voting Preferred Stock of Eagle Family Foods
          Holdings, Inc. dated September 24, 1999 (Incorporated by reference to
          Exhibit 3.1 of the Report on Form 10-Q, filed by Holdings and Eagle on
          October 27, 1999)

  4.1     Credit Agreement, dated January 23, 1998, by and among Holdings,
          Eagle, The Chase Manhattan Bank, Merrill Lynch Capital Corporation,
          Chase Securities, Inc., and Merrill Lynch, Pierce, Fenner & Smith
          Incorporated, as amended by Amendment No. 1, dated August 12, 1998, as
          amended by Amendment No. 2, dated November 30, 1998, as amended by
          Amendment No. 3, dated June 30, 1999, and as amended by Amendment No.
          4 dated June 29, 2000.

  4.2     Purchase Agreement, dated January 16, 1998, by and among Holdings,
          Eagle, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
          Incorporated (Incorporated by reference to Exhibit 4.1 of the S-4)

  4.3     Indenture, dated January 23, 1998, among Holdings, Eagle and IBJ
          Schroder Bank & Trust Company (including Specimen Certificates of 8
          3/4% Series Senior Subordinated Notes due 2008 and 8 3/4% Series B
          Senior Subordinated Notes due 2008) (Incorporated by reference to
          Exhibit 4.2 of the S-4)

  4.4     Registration Rights Agreement, dated January 23, 1998, by and among
          Holdings, Eagle, Chase Securities Inc. and Merrill Lynch, Pierce,
          Fenner & Smith Incorporated (Incorporated by reference to Exhibit 4.3
          of the S-4)

  4.5     Stockholders Agreement, dated as of January 23, 1998, by and among
          Holdings and certain stockholders of Holdings named therein
          (Incorporated by reference to Exhibit 4.5 of the S-4)
<PAGE>

  4.6     Exchange and Registration Rights Agreement, dated as of January 23,
          1998, by and among Holdings and certain stockholders of Holdings named
          therein (Incorporated by reference to Exhibit 4.6 of the S-4)

  4.7     Subscription Rights Agreement, dated as of January 23, 1998, by and
          among Holdings, GEI and Warburg (Incorporated by reference to Exhibit
          4.7 of the S-4)

  4.8     First Amendment to Registration Rights Agreement, dated September 27,
          1999, by and among Holdings and certain investors named therein
          (Incorporated by reference to Exhibit 4.1 of the 10-Q, filed on
          October 27, 1999)

  4.9     First Amendment to Stockholders Agreement, dated September 27, 1999,
          by and among Holdings and certain stockholders of Holdings named
          therein (Incorporated by reference to Exhibit 4.2 of the Report on
          Form 10-Q, filed by Holdings and Eagle on October 27, 1999)

 4.10     Subscription Agreement, dated September 27, 1999, by and among
          Holdings, GE Investment Private Placement Partners, II, a Limited
          Partnership and Warburg, Pincus Ventures, L. P. (Incorporated by
          reference to Exhibit 4.3 of the Report on Form 10-Q, filed by Holdings
          and Eagle on October 27, 1999)

 10.1     Employment Agreement, dated January 23, 1998, by and between Jonathan
          F. Rich and the Company

 10.2     Master Customer Services Agreement, dated as of January 23, 1998, by
          and between the Company and Borden Foods Corporation (Incorporated by
          reference to Exhibit 10.1 of the S-4)

 10.3     License Agreement dated January 23, 1998 by and among BDH Two, Inc.,
          Borden, Inc. and the Company (Incorporated by reference to Exhibit
          10.2 of the S-4)

 10.4     Assignment of Trademark License Agreement dated January 23, 1998, by
          and between BFC and the Company of BFC's License Agreement, dated as
          of September 4, 1997, by and between BFC and Southern Foods Group,
          L.P. (Incorporated by reference to Exhibit 10.3 of the S-4)

 10.5     License Agreement, dated January 23, 1998, by and between BFC and the
          Company (Incorporated by reference to Exhibit 10.4 of the S-4)

 10.6     The 1998 Stock Incentive Plan of Holdings (Incorporated by reference
          to Exhibit 10.5 of the S-4)

 10.7     Employment Agreement, dated January 23 1998, by and between John O'C.
          Nugent and the Company (Incorporated by reference to Exhibit 10.6 of
          the S-4)

 10.8     Employment Agreement, dated January 23, 1998, by and between William
          A. Lynch and the Company (Incorporated by reference to Exhibit 10.7 of
          the S-4)

 10.9     Employment Agreement, dated January 23, 1998, by and between Craig A.
          Steinke and the Company (Incorporated by reference to Exhibit 10.8 of
          the S-4)

10.10     Employment Agreement, dated January 23, 1998, by and between Tamar K.
          Bernbaum and the Company (Incorporated by reference to Exhibit 10.9 of
          the S-4)

10.11     Employment Agreement, dated January 23, 1998, by and between Richard
          A. Lumpp and the Company (Incorporated by reference to Exhibit 10.10
          of the S-4)

10.12     Pledge Agreement, dated January 23, 1998, by and between William A.
          Lynch and the Company (Incorporated by reference to Exhibit 10.11 of
          the S-4)
<PAGE>

10.13     Pledge Agreement, dated January 23, 1998, by and between John O'C.
          Nugent and the Company (Incorporated by reference to Exhibit 10.12 of
          the S-4)

10.14     Secured Recourse Promissory Note, dated January 23, 1998, from William
          A. Lynch to the Company (Incorporated by reference to Exhibit 10.13 of
          the S-4)

10.15     Secured Recourse Promissory Note, dated January 23, 1998, from John
          O'C. Nugent to the Company (Incorporated by reference to Exhibit 10.14
          of the S-4)

10.16     Amendment No. 1 to the Eagle Family Foods Holdings, Inc. 1998 Stock
          Incentive Plan, effective January 5, 2000 (Incorporated by reference
          to Exhibit 10.1 of the Report on Form 10-Q, filed by Holdings and
          Eagle on May 10, 2000)

12.1      Eagle Family Foods Holdings, Inc. Ratio of Earnings to Fixed Charges

12.2      Eagle Family Foods, Inc. Ratio of Earnings to Fixed Charges

27.1      Financial Data Schedule of Eagle Family Foods Holdings, Inc.

27.2      Financial Data Schedule of Eagle Family Foods, Inc.

 (b) Reports on Form 8-K

     None.
<PAGE>

                                  SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrants  have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.

                              Eagle Family Foods Holdings, Inc.


                              By:              /s/ John O'C. Nugent
                                  --------------------------------------------
                                            John O'C. Nugent
                                    President and Chief Executive Officer



                              Eagle Family Foods, Inc.


                              By:             /s/ John O'C. Nugent
                                  --------------------------------------------
                                           John O'C. Nugent
                                      President and Chief Executive Officer



     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrants and in their capacities indicated.

            Name                         Title                     Date
            ----                         -----                     ----

       /s/ John O'C. Nugent       President, Chief Executive   September 6, 2000
  -----------------------------     Officer and Director
         John O'C. Nugent           (principal executive
                                     officer)


       /s/ Craig A. Steinke       Chief Financial Officer      September 6, 2000
  -----------------------------   (principal financial and
              Craig A. Steinke     accounting officer)


     /s/ Andreas T. Hildebrand    Director                     September 6, 2000
  -----------------------------
           Andreas T. Hildebrand
<PAGE>

              /s/ Kewsong Lee             Director             September 6, 2000
   ------------------------------------
                Kewsong Lee

            /s/ Howard H. Newman          Director             September 6, 2000
   -------------------------------------
              Howard H. Newman

            /s/ Donald W. Torey           Director             September 6, 2000
   --------------------------------------
              Donald W. Torey

           /s/ Paul W. Van Orden          Director             September 6, 2000
   --------------------------------------
             Paul W. Van Orden


<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Eagle Family Foods, Inc. and
Eagle Family Foods Holdings, Inc.

In our opinion, the accompanying balance sheets and the related statements of
operations and comprehensive loss, of cash flows and of stockholder's equity of
Eagle Family Foods, Inc. and the accompanying consolidated balance sheets and
the related consolidated statements of operations and comprehensive loss, of
cash flows and of stockholders' deficit of Eagle Family Foods Holdings, Inc.
present fairly, in all material respects, the financial position of Eagle Family
Foods, Inc. and Eagle Family Foods Holdings, Inc. at July 1, 2000 and July 3,
1999, and the results of their operations and their cash flows for the fifty-two
week period ended July 1, 2000, the fifty-three week period ended July 3, 1999,
and the one hundred fifty-five day period ended June 27, 1998, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Companies' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PricewaterhouseCoopers LLP

Columbus, Ohio
July 28, 2000

                                       32
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                Statements of Operations and Comprehensive Loss
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                    One Hundred
                                                                Fifty-Two        Fifty-Three        Fifty-Five
                                                               Week Period       Week Period        Day Period
                                                                  Ended             Ended              Ended
                                                              July 1, 2000      July 3, 1999       June 27, 1998
                                                             ---------------   ---------------    ---------------
<S>                                                          <C>               <C>                <C>
Net sales.................................................    $      224,733    $      239,730     $       68,183
Cost of goods sold........................................           111,140           111,026             38,376
                                                             ---------------   ---------------    ---------------
   Gross margin...........................................           113,593           128,704             29,807
Distribution expense......................................            14,016            13,420              4,550
Marketing expense.........................................            64,721            75,971             15,048
General and administrative expense........................            13,580            12,406              3,691
Amortization of intangibles...............................            11,156            21,249             11,855
In-process research and development write-off.............                --                --             23,900
Other operating income....................................            (1,212)               --                 --
                                                             ---------------   ---------------    ---------------
   Operating income (loss)................................            11,332             5,658            (29,237)
Interest expense, net.....................................            31,669            27,798             11,453
                                                             ---------------   ---------------    ---------------
   Loss before income taxes...............................           (20,337)          (22,140)           (40,690)
Income tax benefit........................................             8,727             7,655             14,246
                                                             ---------------   ---------------    ---------------
   Net loss...............................................    $      (11,610)   $      (14,485)    $      (26,444)
                                                             ===============   ===============    ===============
Other comprehensive income (loss):
   Foreign translation adjustment.........................              (213)              286                (63)
                                                             ---------------   ---------------    ---------------
   Comprehensive loss.....................................    $      (11,823)   $      (14,199)    $      (26,507)
                                                             ===============   ===============    ===============
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                       33
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                                Balance Sheets
                   (Dollars in Thousands Except Share Data)

<TABLE>
<CAPTION>
                                                                                     July 1, 2000       July 3, 1999
                                                                                     -------------      -------------
<S>                                                                                  <C>                <C>
                                      Assets
Current assets
   Cash and cash equivalents.....................................................     $      1,197       $        972
   Accounts receivable, net......................................................           15,106             21,825
   Inventories...................................................................           33,780             41,757
   Intercompany receivable.......................................................              423                 --
   Other current assets..........................................................            1,279              5,269
                                                                                     -------------      -------------
     Total current assets........................................................           51,785             69,823

Property and equipment, net......................................................           33,775             33,798
Notes receivable from related parties............................................              308                728
Intangibles, net.................................................................          271,738            282,880
Deferred income taxes............................................................           30,795             22,006
Other non-current assets.........................................................            8,269              8,051
                                                                                     -------------      -------------
Total assets ....................................................................     $    396,670       $    417,286
                                                                                     =============      =============

                       Liabilities and Stockholder's Equity

Current liabilities
   Current portion of long-term debt.............................................     $      1,000       $      1,000
   Accounts payable..............................................................           12,015             16,070
   Other accrued liabilities.....................................................            8,232             12,793
   Accrued interest..............................................................            8,951              8,128
                                                                                     -------------      -------------
     Total current liabilities...................................................           30,198             37,991

Long-term debt...................................................................          326,500            337,500

Commitments and contingencies (Note 13)

Stockholder's equity
   Common stock, $.01 par value, 250,000 shares authorized, 10,000 shares
     issued and outstanding......................................................                1                  1
   Additional paid-in capital....................................................           92,500             82,500
   Accumulated deficit...........................................................          (52,539)           (40,929)
   Accumulated translation adjustment............................................               10                223
                                                                                     -------------      -------------
     Total stockholder's equity..................................................           39,972             41,795
                                                                                     -------------      -------------
Total liabilities and stockholder's equity.......................................     $    396,670       $    417,286
                                                                                     =============      =============
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                       34
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                           Statements of Cash Flows
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                   One Hundred
                                                                   Fifty-Two       Fifty-Three      Fifty-Five
                                                                  Week Period      Week Period      Day Period
                                                                     Ended            Ended           Ended
                                                                  July 1, 2000    July 3, 1999    June 27, 1998
                                                                 --------------   -------------   --------------
<S>                                                              <C>              <C>             <C>
Cash flows from (used in) operating activities:
   Net loss  .................................................    $     (11,610)   $    (14,485)   $     (26,444)
   Adjustments to reconcile net loss to net cash from (used
   in) operating activities
     Depreciation and amortization............................           18,730          25,571           13,384
     Amortization of deferred financing costs.................            1,823             920              371
     In-process research and development write off............               --              --           23,900
     Deferred taxes...........................................           (8,789)         (7,760)         (14,246)
     Gain on retirement/sale of fixed assets..................              (46)           (239)              --
   Net change in assets and liabilities:
     Accounts receivable......................................            6,719          (9,457)         (12,368)
     Inventories..............................................            7,977          (9,756)         (11,901)
     Accounts payable.........................................           (4,055)          6,405            9,665
     Other assets.............................................            3,439          (5,008)            (210)
     Other liabilities........................................           (3,976)          5,787            9,552
                                                                 --------------   -------------   --------------
   Cash from (used in) operating activities...................           10,212          (8,022)          (8,297)

Cash from (used in) investing activities:
   Capital expenditures.......................................           (7,564)        (13,744)          (2,578)
   Proceeds from the sale of assets...........................               85             641              180
   Repayment of notes and interest receivable.................              473             200               --
   Acquisition costs..........................................               --            (165)          (3,041)
                                                                 --------------   -------------   --------------
   Cash used in investing activities..........................           (7,006)        (13,068)          (5,439)

Cash from (used in) financing activities:
   Borrowings under revolving credit facility.................           65,500          64,500           12,000
   Payment under revolving credit facility....................          (75,500)        (43,000)              --
   Payments under term loan facility..........................           (1,000)         (1,250)            (250)
   Other financing costs......................................           (1,981)             --               --
   Capital contribution.......................................           10,000              --               --
                                                                 --------------   -------------   --------------
   Cash from (used in) financing activities...................           (2,981)         20,250           11,750

Increase (decrease) in cash and cash equivalents..............              225            (840)          (1,986)
Cash and cash equivalents at beginning of period..............              972           1,812            3,798
                                                                 --------------   -------------   --------------
Cash and cash equivalents at end of period....................    $       1,197    $        972    $       1,812
                                                                 ==============   =============   ==============

Supplemental disclosure:
   Interest paid..............................................    $      29,261    $     25,955    $       3,991
                                                                 ==============   =============   ==============
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                       35
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                 Statements of Changes in Stockholder's Equity
        For the One Hundred Fifty-Five Day Period Ended June 27, 1998,
                  Fifty-Three Week Period Ended July 3, 1999
                 and Fifty-Two Week Period Ended July 1, 2000
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                             Additional                      Accumulated
                                                 Common         Paid        Accumulated     Comprehensive
                                                  Stock      in Capital       Deficit           Income            Total
                                                ---------   ------------   -------------   ----------------   -------------
<S>                                             <C>         <C>            <C>             <C>                <C>
Balance, January 23, 1998....................   $       1   $     82,500   $          --    $            --   $      82,501
Net loss.....................................          --             --         (26,444)                --         (26,444)
Other comprehensive income:
  Accumulated translation adjustment.........          --             --              --                (63)            (63)
                                                ---------   ------------   -------------   ----------------   -------------
Balance, June 27, 1998.......................           1         82,500         (26,444)               (63)         55,994
Net loss.....................................          --             --         (14,485)                --         (14,485)
Other comprehensive income:
  Accumulated translation adjustment.........          --             --              --                286             286
                                                ---------   ------------   -------------   ----------------   -------------
Balance, July 3, 1999........................           1         82,500         (40,929)               223          41,795
Net loss.....................................          --             --         (11,610)                --         (11,610)
Capital contribution.........................          --         10,000              --                 --          10,000
Other comprehensive income:
  Accumulated translation adjustment.........          --             --              --               (213)           (213)
                                                ---------   ------------   -------------   ----------------   -------------
Balance, July 1, 2000........................   $       1   $     92,500   $     (52,539)  $             10   $      39,972
                                                =========   ============   =============   ================   =============
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                       36
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
         Consolidated Statements of Operations and Comprehensive Loss
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                 One Hundred
                                                              Fifty-Two         Fifty-Three       Fifty-Five
                                                             Week Period        Week Period       Day Period
                                                                Ended              Ended             Ended
                                                             July 1, 2000       July 3, 1999     June 27, 1998
                                                             ------------       ------------     -------------
<S>                                                          <C>                <C>              <C>

Net sales..................................................  $    224,733       $    239,730     $      68,183
Cost of goods sold.........................................       111,140            111,026            38,376
                                                             ------------       ------------     -------------
  Gross margin.............................................       113,593            128,704            29,807
Distribution expense.......................................        14,016             13,420             4,550
Marketing expense..........................................        64,721             75,971            15,048
General and administrative expense.........................        13,601             12,436             3,703
Amortization of intangibles................................        11,156             21,249            11,855
In-process research and development write-off..............            --                 --            23,900
Other operating income.....................................        (1,212)                --                --
                                                             ------------       ------------     -------------
  Operating income (loss)..................................        11,311              5,628           (29,249)
Interest expense, net......................................        31,669             27,798            11,453
                                                             ------------       ------------     -------------
  Loss before income taxes.................................       (20,358)           (22,170)          (40,702)
Income tax benefit.........................................         8,727              7,655            14,246
                                                             ------------       ------------     -------------
  Net loss.................................................  $    (11,631)      $    (14,515)    $     (26,456)
                                                             ============       ============     =============
Other comprehensive income (loss)..........................
  Foreign translation adjustment...........................          (213)               286               (63)
                                                             ------------       ------------     -------------
  Comprehensive loss.......................................  $    (11,844)      $    (14,229)    $     (26,519)
                                                             ============       ============     =============
</TABLE>


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       37
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
                          Consolidated Balance Sheets
                   (Dollars in Thousands Except Share Data)

<TABLE>
<CAPTION>
                                                                                    July 1, 2000     July 3, 1999
                                                                                    ------------     ------------
<S>                                                                                 <C>              <C>
                                      Assets

Current assets
  Cash and cash equivalents.....................................................    $      1,197     $        972
  Accounts receivable, net......................................................          15,106           21,825
  Inventories...................................................................          33,780           41,757
  Other current assets..........................................................           1,279            5,269
                                                                                    ------------     ------------
    Total current assets........................................................          51,362           69,823

Property and equipment, net.....................................................          33,775           33,798
Intangibles, net................................................................         271,738          282,880
Deferred income taxes...........................................................          30,795           22,006
Other non-current assets........................................................           8,269            8,051
                                                                                    ------------     ------------
Total assets ...................................................................    $    395,939     $    416,558
                                                                                    ============     ============

                     Liabilities and Stockholders' Deficit

Current liabilities
  Current portion of long-term debt.............................................    $      1,000     $      1,000
  Accounts payable..............................................................          12,015           16,070
  Other accrued liabilities.....................................................           8,232           12,793
  Accrued interest..............................................................           8,951            8,128
                                                                                    ------------     ------------
    Total current liabilities...................................................          30,198           37,991

Long-term debt..................................................................         326,500          337,500

Commitments and contingencies (Note 13)

Redeemable preferred stock, 1,000,000 shares authorized:
  Series A preferred stock, $100 stated value, 816,750 shares issued, 813,312
     and 816,750 shares outstanding, respectively, at redemption value..........         103,616           94,023
  Treasury stock, 3,438 and 0 shares, respectively, at cost.....................            (423)              --
  Subscription receivable.......................................................            (305)            (721)
                                                                                    ------------     ------------
                                                                                         102,888           93,302
  Series B preferred stock, $100,000 stated value, 99 shares issued and
     outstanding, at redemption value...........................................          10,667               --
                                                                                    ------------     ------------
     Total redeemable preferred stock...........................................         113,555           93,302

Stockholders' deficit
  Common stock $0.01 par value, 1,200,000 shares authorized, 1,063,559 and
  975,980 issued and outstanding................................................              11               10
  Additional paid-in capital....................................................           1,001              966
  Unearned compensation.........................................................             (24)            (109)
  Accumulated deficit...........................................................         (75,309)         (53,318)
  Subscription receivable.......................................................              (3)              (7)
  Accumulated translation adjustment............................................              10              223
                                                                                    ------------     ------------
     Total stockholders' deficit................................................         (74,314)         (52,235)
                                                                                    ------------     ------------
Total liabilities and stockholders' deficit.....................................    $    395,939     $    416,558
                                                                                    ============     ============
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       38
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
                     Consolidated Statements of Cash Flows
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                      One Hundred
                                                                    Fifty-Two        Fifty-Three       Fifty-Five
                                                                   Week Period       Week Period       Day Period
                                                                      Ended             Ended            Ended
                                                                   July 1, 2000      July 3, 1999    June 27, 1998
                                                                  -------------      ------------    -------------
<S>                                                               <C>                <C>             <C>
Cash flows from (used in) operating activities:
  Net loss....................................................    $     (11,631)     $    (14,515)   $     (26,456)
  Adjustments to reconcile net loss to net cash from (used in)
  operating activities
    Depreciation and amortization............................            18,752            25,601           13,396
    Amortization of deferred financing costs................              1,823               920              371
    In-process research and development write off...........                 --                --           23,900
    Deferred taxes...........................................            (8,789)           (7,760)         (14,246)
    Gain on retirement/sale of fixed assets..................               (46)             (239)              --
  Net change in assets and liabilities:
    Accounts receivable......................................             6,719            (9,457)         (12,368)
    Inventories..............................................             7,977            (9,756)         (11,901)
    Accounts payable.........................................            (4,055)            6,404            9,666
    Other assets.............................................             3,861            (5,008)            (211)
    Other liabilities........................................            (3,976)            5,788            9,522
                                                                  -------------      ------------    -------------
  Cash from (used in) operating activities...................            10,635            (8,022)          (8,297)

Cash from (used in) investing activities:
  Capital expenditures.......................................            (7,564)          (13,744)          (2,578)
  Proceeds from sale of assets...............................                85               641              180
  Repayment of subscription and interest receivable..........               473               200               --
  Acquisition costs..........................................                --              (165)          (3,041)
                                                                  -------------      ------------    -------------
  Cash used in investing activities..........................            (7,006)          (13,068)          (5,439)

Cash from (used in) financing activities:
  Borrowings under revolving credit facility.................            65,500            64,500           12,000
  Payment under revolving credit facility....................           (75,500)          (43,000)              --
  Payments under term loan facility..........................            (1,000)           (1,250)            (250)
  Other financing costs......................................            (1,981)               --               --
  Purchase of Series A Preferred Stock.......................              (423)               --               --
  Issuance of Series B Preferred Stock and Common Stock......            10,000                --               --
                                                                  -------------      ------------    -------------
  Cash from (used in) financing activities...................            (3,404)           20,250           11,750

Increase (decrease) in cash and cash equivalents..............              225              (840)          (1,986)
Cash and cash equivalents at beginning of period..............              972             1,812            3,798
                                                                  -------------      ------------    -------------
Cash and cash equivalents at end of period....................    $       1,197      $        972    $       1,812
                                                                  =============      ============    =============

Supplemental disclosure:
  Interest paid..............................................     $      29,261      $     25,955    $       3,991
                                                                  =============      ============    =============
  Non-cash financing activities include dividends accrued on
   Redeemable Preferred Stock................................     $      10,360      $      8,878    $       3,469
                                                                  =============      ============    =============
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       39
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
     Consolidated Statements of Changes in Stockholders' Equity (Deficit)
        For the One Hundred Fifty-Five Day Period Ended June 27, 1998,
                  Fifty-Three Week Period Ended July 3, 1999
                 and Fifty-Two Week Period Ended July 1, 2000
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                       Additional                                            Accumulated
                              Common      Paid       Unearned    Accumulated  Subscription   Translation
                              Stock    In Capital  Compensation    Deficit     Receivable    Adjustment       Total
                              -----    ---------   ------------    -------     ----------    ----------    --------
<S>                          <C>        <C>       <C>             <C>         <C>           <C>            <C>
Balance, January 23, 1998...  $  10      $   962   $       (147)  $     --    $        (8)   $       --    $    817
Net loss....................     --           --             --    (26,456)            --            --     (26,456)
Preferred stock dividend....     --           --             --     (3,469)            --            --      (3,469)
Amortization of unearned
 compensation...............     --           --             12         --             --            --          12
Other comprehensive income
 Accumulated translation
 adjustment.................     --           --             --         --             --           (63)        (63)
                              -----      -------   ------------   --------     ----------    ----------    --------
Balance, June 27, 1998......     10          962           (135)   (29,925)            (8)          (63)    (29,159)
Net loss....................     --           --             --    (14,515)            --            --     (14,515)
Preferred stock dividend....     --           --             --     (8,878)            --            --      (8,878)
Subscription receivable:
 Interest Income............     --           --             --         --             (1)           --          (1)
Payment on subscription
 receivable.................     --           --             --         --              2            --           2
Grant and issue of
 restricted common stock,
 net of termination.........     --            4             (4)        --             --            --          --
Amortization of unearned
 compensation...............     --           --             30         --             --            --          30
Other comprehensive loss:
Foreign translation
 adjustment.................     --           --             --         --             --           286         286
                              -----      -------   ------------   --------     ----------    ----------    --------
Balance, July 3, 1999.......     10          966           (109)   (53,318)            (7)          223     (52,235)
Net loss....................     --           --             --    (11,631)            --            --     (11,631)
Preferred stock dividend....     --           --             --    (10,360)            --            --     (10,360)
Subscription receivable:
 Interest Income............     --           --             --         --             (5)           --          (5)
Infusion of capital.........      1           99             --         --             --            --         100
Cancellation of restricted
common stock grants.........     --          (64)            64         --             --            --          --
Payment on subscription
 receivable.................     --           --             --         --              9            --           9
Amortization of unearned
 compensation...............     --           --             21         --             --            --          21
Other comprehensive loss:
Foreign translation
 adjustment.................     --           --             --         --             --          (213)       (213)
                              -----      -------   ------------   --------    -----------    ----------    --------
Balance, July 1, 2000.......  $  11      $ 1,001   $        (24)  $(75,309)   $        (3)   $       10    $(74,314)
                              =====      =======   ============   ========    ===========    ==========    ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       40
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                       Notes to the Financial Statements

1. Basis of Presentation:

     The accompanying financial statements as of July 1, 2000 and July 3, 1999
and for the fifty-two week period ended July 1, 2000, fifty-three week period
ended July 3, 1999 and one hundred fifty-five day period ended June 27, 1998
present the financial position, results of operations and cash flows of Eagle
Family Foods, Inc. ("Eagle" or the "Company") and the consolidated financial
position, results of operations and cash flows of Eagle Family Foods Holdings,
Inc. ("Holdings") and its wholly owned subsidiary, Eagle. Eagle and Holdings are
collectively referred to as the "Company", unless the context indicates
otherwise. All significant Intercompany balances and transactions have been
eliminated in consolidation. Certain prior year amounts have been reclassified
to conform with the current year's presentation. The Company's and Holdings'
fiscal year end is the Saturday closest to June 30. Fiscal years are designated
in the financial statements and notes by the calendar year in which the fiscal
year ends.

     Eagle was incorporated on November 14, 1997 and Holdings was incorporated
on December 22, 1997. On December 30, 1997, Eagle issued 10,000 shares of common
stock, par value $.01 per share, for $1,000 to Holdings. Holdings and Eagle did
not realize any income or incur any expenses until commencement of operations on
January 23, 1998. On January 23, 1998, Holdings received $82.5 million from GE
Investment Private Placement Partners II ("GEI"), Warburg, Pincus Ventures, L.P.
("Warburg") and certain members of management in exchange for 825,000 shares of
common stock and 816,750 shares of Series A preferred stock. On January 23,
1998, Eagle acquired certain assets of Borden Foods Corporation ("BFC") and
certain of their affiliates for $376.8 million. Financing for the acquisition
and related fees consisted of (i) $82.5 million equity contribution from
Holdings, (ii) $115.0 million of 8 3/4% senior subordinated notes and (iii)
senior secured credit facilities in the aggregate principal amount of $245.0
million, consisting of a $175.0 million term loan facility and a $70.0 million
revolving credit facility, under which $16.5 million was drawn at the time of
the acquisition closing. (See Note 6.)

     The acquisition was reflected in the financial statements using the
purchase method of accounting. The purchase price was allocated to the assets of
Eagle on the basis of their fair values. The fair values of assets were
determined based on independent appraisals and management estimates.

     Eagle operates in a single segment which manufactures and markets a
portfolio of leading dry-grocery food products with widely recognized and
established brands, primarily in the United States with limited sales and
manufacturing in Canada. The Company's portfolio of products includes Eagle
Brand sweetened condensed milk, ReaLemon and ReaLime lemon and lime juice from
concentrate, None Such mincemeat pie filling, Cremora powdered non-dairy
creamer, Kava acid-neutralized coffee and Borden eggnog.

2. Summary of Significant Accounting Policies:

   Revenue Recognition

     Revenues are recognized when products are shipped. Liabilities are
established for estimated returns, allowances, consumer and certain trade
promotions and discounts when revenues are recognized.

   Research and Development

     Research and development costs are charged to general and administrative
expense when incurred. Research and development costs amounted to $1,718,000,
$2,208,000 and $845,000 for the periods ended July 1, 2000, July 3, 1999 and
June 27, 1998.

                                       41
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

     Advertising and Promotion

     Production costs of future media advertising and consumer promotion events
are deferred until the advertising or promotion first occurs. All other
advertising and promotion costs are expensed when incurred. Advertising and
promotional expenses were $49,002,000, $59,953,000 and $9,679,000 for the
periods ended July 1, 2000, July 3, 1999 and June 27, 1998, respectively.

   Cash and Cash Equivalents

     The Company considers all liquid investments purchased with an initial term
to maturity of three months or less when purchased to be cash equivalents.

   Inventories

     Inventories are stated at the lower of cost or market, with cost of goods
sold principally being determined using the first-in, first-out method.

   Slotting Allowance

     The costs of obtaining shelf space (slotting) are expensed over a period
not to exceed twelve months.

   Property and Equipment

     Property and equipment is stated at cost. Depreciation of property and
equipment is calculated for financial reporting purposes on a straight-line
method using estimated service lives ranging principally from 8-20 years for
buildings and improvements and 3-10 years for other property and equipment. When
assets are sold, retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any related gain or
loss is recorded in the statement of operations. Normal maintenance and repairs
are expensed as incurred, while major renewals and betterments which extend
service lives are capitalized.

   Capitalized Software Development Costs

     Certain external costs and internal payroll and payroll related costs
incurred during the application development and implementation stages of a
software project are capitalized and amortized on a straight-line basis over the
useful life of the software. Costs incurred during the preliminary project and
post-implementation stages are expensed as incurred. At July 1, 2000 and July 3,
1999, capitalized software costs, net of accumulated amortization, amounted to
$6,489,000 and $7,624,000, respectively.

   Intangibles

     Intangibles are stated at cost and are being amortized on a straight-line
basis over their estimated useful lives. Goodwill represents the excess of
purchase price over fair value of identifiable assets and liabilities acquired.

   Impairment

     Long-lived assets including goodwill are reviewed for impairment whenever
events or changes indicate that full recoverability is questionable. Factors
used in the valuation include, but are not limited to, management's plans for
future operations, recent operating results and projected undiscounted cash
flows.

                                       42
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

   Other Non-current Assets

     Other non-current assets at July 1, 2000 and July 3, 1999 consisted
primarily of net deferred financing costs amounting to approximately $8,157,000
and $7,999,000, respectively. Such costs are amortized over the term of the
related debt using the interest method.

   Start up Costs

     Costs for start up activities are expensed as incurred.

   Income Taxes

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the liability method. Under this method, deferred tax
assets and liabilities are recognized based on the difference between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect in the years in which those temporary
differences are expected to reverse. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.

   Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results may differ from those estimates.

   Foreign Currency Translation

     All assets and liabilities of Canadian operations are translated into U.S.
dollars using the rate at the end of the fiscal period. Income and expense items
are translated at average exchange rates prevailing during the fiscal period.
Foreign currency assets, liabilities, income and expenses were not significant
to the Company's financial position or results of operations.

   Fair Value of Financial Instruments

     The carrying value of cash equivalents, accounts receivable, accounts
payable and accrued expenses as stated on the balance sheets approximates their
fair market values because of their short maturities. The fair value of the
Company's debt is estimated based on the current rates offered to the Company
for debt of the same remaining maturities. The fair value of the Company's
derivatives are estimated based on dealer quotes for those instruments.

   Hedging

     The Company enters into derivative financial instrument transactions in
order to manage or reduce market risk. The Company's current policy is to
recognize differences between the amount of interest to be paid and the amount
of interest to be received under interest rate swap agreements as an adjustment
to interest expense over the life of the swap agreement.

     The Company uses milk as a major ingredient in its sweetened condensed milk
product line and is subject to the risk of rising milk prices that increase
manufacturing costs and erode profit margins. By purchasing futures contracts,
however, the Company establishes a known price for future milk purchases in
order to protect against dramatic milk price increases. The value of futures
contracts is recorded to cost of production in the month the

                                       43
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

future contract expires and cash settlement occurs. The Company does not enter
into commodity futures contracts for speculative purposes. At July 1, 2000, the
Company had no outstanding milk futures contracts.

   Environmental Matters

     The Company, like others in similar businesses, is subject to extensive
Federal, state and local environmental laws and regulations. Although the
Company's environmental policies and practices are designed to ensure compliance
with these laws and regulations, future developments and increasingly stringent
regulations could require the Company to incur additional unforeseen
environmental expenditures. Environmental remediation costs are accrued when
environmental assessments and/or remedial efforts are probable and the cost or a
reasonable range can be estimated. Environmental expenditures which improve the
condition of the property are capitalized and amortized over their estimated
useful life.

   Recently Issued Accounting Statements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments as fair value. The Company has adopted this standard in the first
quarter of the fiscal year ending June 30, 2001.

     On May 11, 2000, the FASB Emerging Issues Task Force (EITF) issued EITF
Issue No. 00-14, Accounting for Certain Sales Incentives (Issue 00-14). Issue
00-14 addresses the recognition, measurement, and income statement
classification for sales incentives offered voluntarily by a vendor without
charge to customers that can be used in, or that are exercisable by a customer
as a result of, a single exchange transaction. The pronouncement will be adopted
during the fourth quarter of the fiscal year ending June 30, 2001.

3. Inventories:

     Inventories are stated at lower of cost or market and at July 1, 2000 and
July 3, 1999 consisted of the following (in thousands):

                                              July 1, 2000  July 3, 1999
                                              ------------  ------------
          Finished goods...................   $     30,811  $     36,886
          Raw material.....................          2,969         4,871
                                              ------------  ------------
            Total inventories..............   $     33,780  $     41,757
                                              ============  ============

                                       44
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

4. Property and Equipment:

     Property and equipment is recorded at cost and at July 1, 2000 and July 3,
1999 consisted of the following (in thousands):

                                                  July 1, 2000    July 3, 1999
                                                  ------------    ------------
       Land....................................   $        470    $        470
       Buildings and improvements..............          7,393           6,653
       Machinery and equipment.................         22,495          19,907
       Computers...............................         11,375          10,531
       Construction in progress................          4,280           1,913
                                                  ------------    ------------
         Total property and equipment..........         46,013          39,474
       Accumulated depreciation................        (12,238)         (5,676)
                                                  ------------    ------------
         Net property and equipment............   $     33,775    $     33,798
                                                  ============    ============

5. Intangible Assets:

     Intangible assets are amortized on a straight-line basis over their
estimated useful lives and consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                           Estimated Useful
                                             July 1, 2000   July 3, 1999         Lives
                                             ------------   ------------   ----------------
       <S>                                   <C>           <C>             <C>
       Tradenames...........................  $   141,000   $    141,000       40 years
       Goodwill.............................      136,664        136,664       40 years
       Covenant not to compete..............       21,000         21,000        5 years
       Master customer services agreement...           --         17,300        1 year
                                              -----------   ------------
         Total intangible assets............      298,664        315,964
       Accumulated amortization.............      (26,926)       (33,084)
                                              -----------   ------------
         Net intangible assets..............  $   271,738   $    282,880
                                              ===========   ============
</TABLE>

     Pursuant to the acquisition, the Company and BFC entered into a master
customer services agreement ("Services Agreement") whereby BFC and its
affiliates provided various trade marketing, distribution, transactions
processing, information systems and accounting services for a period of up to 18
months after the acquisition closing based on predetermined below market rates.
The fair value of the Services Agreement was determined by an independent
appraisal and was based primarily on the value provided through the below market
terms and the value provided because the arrangement allowed the Company to
continue to do business as it built an infrastructure which has allowed it to
operate on a stand alone basis. The Services Agreement was amortized on a
straight-line basis over one year from the acquisition closing based on
management's estimate of the timeframe for establishing its own infrastructure.

     At the time of Acquisition, the Company allocated $23.9 million of purchase
price to acquired in-process research and development reflecting the fair market
value of certain products in development. These products had not reached
technological feasibility and had no alternative future use. Concurrent with the
acquisition on January 23, 1998, the Company recorded a non-recurring pre-tax
charge of $23.9 million to write-off the aforementioned acquired in-process
research and development.

                                       45
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

6. Debt Obligations:

     Debt obligations consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                         July 1, 2000    July 3, 1999
                                                                         ------------    ------------
         <S>                                                             <C>             <C>
         Term loan facility due December 31, 2005...................     $    172,500    $    173,500
         Senior subordinated notes due January 15, 2008.............          115,000         115,000
         Revolving credit facility due December 31, 2004............           40,000          50,000
                                                                         ------------    ------------
           Total debt obligations...................................          327,500         338,500
         Less: Current portion of long-term debt....................           (1,000)         (1,000)
                                                                         ------------    ------------
           Long-term debt obligations...............................     $    326,500    $    337,500
                                                                         ============    ============
</TABLE>

   Senior Credit Facilities

     Eagle received senior bank financing from a group of lenders in an
aggregate principal amount of up to $245 million (the "Senior Credit
Facilities"). The Senior Credit Facilities consist of (i) a $70 million seven-
year revolving credit facility (the "Revolving Credit Facility") and (ii) a $175
million eight-year term loan (the "Term Loan Facility"). The Senior Credit
Facilities are guaranteed by Holdings and all future domestic subsidiaries of
the Company.

     The Company amended its Senior Credit Facilities effective as of June 29,
2000. The Senior Credit Facilities contain financial covenants which require the
Company to meet certain financial tests including debt coverage, interest
expense coverage and capital expenditure requirements. The debt coverage and
interest expense coverage requirements were amended for the four quarters ending
July 1, 2000 and for each of the four quarters thereafter through June 29, 2002,
and have taken into consideration the Company's reduced operating performance
for fiscal year 2000. The capital expenditure covenant was amended to allow for
carryover of a certain amount of fiscal year 2000 unused capital expenditure
into fiscal year 2001. The Senior Credit Facilities also contain covenants
including limitations on additional indebtedness, liens, asset sales, capital
expenditures, sale and leaseback transactions, dividends, loans and investments,
modification of material agreements, transactions with affiliates, acquisitions,
mergers and consolidations and prepayment of subordinated indebtedness. The
Senior Credit Facilities agreement provides that neither Holdings or Eagle will,
nor will they permit any subsidiary of Eagle to, declare or make, or agree to
pay or make, directly or indirectly, any Restricted Payment, as defined, except
primarily (i) Holdings may declare and pay dividends with respect to its capital
stock payable solely in additional shares of its capital stock (other than
redeemable preferred stock) and (ii) subsidiaries of Eagle may declare and pay
dividends ratably with respect to their capital stock. The Senior Credit
Facilities agreement also requires the Company to pledge assets acquired after
the acquisition closing, including stock of after-acquired or formed
subsidiaries, to deliver guarantees by wholly owned domestic subsidiaries and to
maintain insurance. The Senior Credit Facilities contain customary events of
default, including certain changes of control of the Company.

     The interest pricing table that is used to determine the Company's interest
rate was replaced. The Company had been paying interest at LIBOR plus 3.5% on
the Term Loan Facility and LIBOR plus 3.25% on the Revolving Credit Facility.
Based on the Company's current leverage ratio and the newly amended agreement,
the interest rate will now be at LIBOR plus 3.75% on the Term Loan Facility and
LIBOR plus 3.50% on the Revolving Credit Facility. These rates are subject to
performance step downs based on the Company's leverage ratio, with the lowest
leverage ratio category set at LIBOR plus 3.25% for the Term Loan Facility and
LIBOR plus 3.00% for the Revolving Credit Facility.

     The obligations of Eagle under the Senior Credit Facilities are
collateralized by (i) 100% of the capital stock of the Company and each of its
subsidiaries and (ii) a first priority collateral interest in substantially all
assets and properties of the Company and its future domestic subsidiaries. The
fair market value of the senior credit facilities at July 1, 2000 approximates
the carrying value.

                                       46
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

     On April 22, 1998, the Company entered into interest rate swap agreements
in order to fix the interest rate on a portion of the Term Loan Facility. The
Term Loan Facility bears interest at LIBOR plus 2.50% to 3.75%. These swap
agreements commenced on July 23, 1998 and fix the LIBOR rate at 5.955% on $75
million and 5.905% on $25 million of the $175 million Term Loan Facility. These
swap agreements expire on December 29, 2000 and December 31, 2002, respectively.
The fair value of the interest rate swaps at July 1, 2000 and July 3, 1999
totaled approximately $2,003,000 and $299,000, respectively.

   Senior Subordinated Notes

     Eagle issued $115 million of senior subordinated notes (the "Notes") and
received cash proceeds of approximately $112 million net of underwriting
discount. The Notes are due January 15, 2008 and bear interest of 8 3/4% per
annum payable on January 15 and July 15, commencing July 15, 1998.

     The Notes are unconditionally guaranteed by Holdings (the "Parent
Guarantee") and by each future Domestic Subsidiary of the Company (each, a
"Domestic Subsidiary Guarantee" and, collectively, the "Domestic Subsidiary
Guarantees") and the Company will cause each such future Domestic Subsidiary of
the Company to enter into a supplemental indenture providing for such Domestic
Subsidiary to guarantee payment of the Notes as required in the indenture. The
Company currently has no domestic subsidiaries and therefore none which
guarantee the Notes. The Parent Guarantee and the Domestic Subsidiary Guarantees
are joint and several as well as full and unconditional. The Notes are unsecured
and subordinated in right of payment to all existing and future senior
indebtedness of the Company. The Notes include certain covenants including
limitations on indebtedness, dividends and other payment restrictions affecting
subsidiaries, subordinated liens, sale and leaseback transactions, sale or
issuance of capital stock of subsidiaries, merger, consolidation or sale of
assets, transactions with affiliates and layering debt. The indenture provides
that the Company will not, and will not permit any of its subsidiaries, directly
or indirectly, to declare or pay any dividend or make any distribution on or in
respect of its capital stock except dividends or distributions payable solely in
its capital stock (other than redeemable stock) and except dividends or
distributions payable solely to the Company or any wholly-owned subsidiary of
the Company. Furthermore, Holdings' ability to obtain funds from its
subsidiaries is restricted by the Notes because (i) Holdings may not hold assets
other than Company capital stock and other minimal assets related to the
business of holding such stock and (ii) Holdings may not incur any additional
liabilities other than in the ordinary course of business. The fair market value
of the senior subordinated notes was approximately $69.0 million and $100.0
million at July 1, 2000 and July 3, 1999, respectively.

     On April 16, 1998, the Company and Holdings filed a Registration Statement
on Form S-4 to offer to exchange (the "Exchange Offer") up to $115 million of
its 8 3/4% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes")
for up to $115 million of its outstanding 8 3/4% Senior Subordinated Notes due
2008 (the "Original Notes").

     Upon consummation of the Exchange Offer, the terms of the Exchange Notes
were substantially identical in all respects to the term of the Original Notes.
The Exchange Notes are unconditionally guaranteed on a senior subordinated and
unsecured basis by Holdings and all future Domestic Subsidiaries.

     Annual principal payments for the next five fiscal years and thereafter
consisted of the following (in thousands):

          2001.............................. $     1,000
          2002..............................         750
          2003..............................       3,250
          2004..............................      27,500
          2005..............................     120,000
          Thereafter........................     175,000
                                              ----------
                                             $   327,500
                                              ==========

                                       47
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

7. Income Taxes

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the liability method. Under this method, deferred tax
assets and liabilities are recognized based on the difference between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect in the years in which those temporary
differences are expected to reverse. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.

     A comparative analysis of the Company's provision (benefit) for income
taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
           Deferred tax provision (benefit):                         July 1, 2000    July 3, 1999     June 27, 1998
           --------------------------------                          ------------    ------------     -------------
<S>                                                                 <C>             <C>              <C>
                                                                    $
           Federal .............................................           (6,229)  $      (7,655)   $      (14,246)
           State   .............................................           (2,498)             --                --
                                                                     ------------    ------------     -------------

                                                                    $      (8,727)  $      (7,655)   $      (14,246)
                                                                     ============    ============     =============
</TABLE>

     At July 1, 2000, the Company had $83.2 million of accumulated net operating
losses for financial statement purposes and $69.9 million of accumulated net
operating loss carryforwards for tax reporting purposes. The tax net operating
losses expire, if unused, beginning in 2018. The Company believes that these
carryforwards will be available to reduce future federal income tax liabilities
and has recorded the benefit of these carryforwards as a noncurrent deferred tax
asset. During the period ended July 1, 2000, the Company revised its previous
estimates for state net operating loss carryforwards and recorded an accumulated
tax benefit for state net operating loss carryforwards of $1.7 million. The
Company's net operating loss carryforwards for foreign purposes are not
material.

     Reconciliations of the differences between income taxes computed at Federal
statutory rates and the consolidated provision (benefit) for income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
                                                                     July 1, 2000    July 3, 1999     June 27, 1998
                                                                     ------------    ------------     -------------
<S>                                                                <C>              <C>              <C>
           Income tax provision (benefit) computed at the          $
             Federal statutory tax rate.........................           (7,125)  $      (7,655)   $      (14,246)
           State tax provision (benefit), net of Federal
             tax benefits.......................................           (1,602)             --                --
                                                                     ------------    ------------     -------------
                                                                   $       (8,727)  $      (7,655)   $      (14,246)
                                                                     ============    ============     =============
</TABLE>

<TABLE>
<CAPTION>
     Deferred tax assets and liabilities consisted of the following (in
thousands):

                                                                     July 1, 2000    July 3, 1999     June 27, 1998
                                                                     ------------    ------------     -------------
<S>                                                                <C>              <C>              <C>
           Net operating loss carryforward......................   $       25,855   $      15,610    $        4,209
           Intangible assets....................................            3,108           7,002             9,066
           Property, plant and equipment........................           (1,677)         (2,979)              117
           All other assets.....................................            3,813           3,608             1,259
           All other liabilities................................             (304)         (1,235)             (405)
                                                                     ------------    ------------     -------------
             Net deferred tax asset.............................   $       30,795   $      22,006    $       14,246
                                                                     ============    ============     =============
</TABLE>

                                       48
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

8. Discontinued Product Line

     In May 2000, the Company committed to a plan to exit the retail ReaLemonade
market as a result of disappointing sales results. The Company plans to exit
this market and complete the plan during the fiscal year ending June 30, 2001.
Costs incurred related to the plan totaled approximately $1,095,000, and was
related to unfulfilled purchase commitments, impaired assets and other
contractual obligations. Cash requirements of the plan are estimated to be
approximately $630,000.

9. Supplemental Information

     Other accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                                       July 1, 2000     July 3, 1999
                                                                       ------------     ------------
<S>                                                                  <C>              <C>
      Other accrued liabilities:
           Customer allowances..................................     $        2,142   $        5,608
           Coupon accrual.......................................              2,399            4,281
           Broker commissions...................................              1,205            1,025
           Compensation and related accruals....................              1,653              660
           Other................................................                833            1,219
                                                                       ------------     ------------
             Total other accrued liabilities....................     $        8,232    $      12,793
                                                                       ============     ============
</TABLE>

10. Redeemable Preferred Stock

     On September 24, 1999, 99 shares of Series B Non-Voting Preferred Stock
(the "Series B Preferred Stock") were issued by Holdings at a stated value of
$100,000 per share (the "Series B Stated Value"), and on January 23, 1998,
816,750 shares of Series A Non-Voting Preferred Stock (the "Series A Preferred
Stock" and together with the Series B Preferred Stock, the "Preferred Stock")
were issued by Holdings at a stated value of $100 per share (the "Series A
Stated Value", and together with the Series B Stated Value, the "Stated Value")

     Together, the Preferred Stock ranks as to dividends and on liquidation on
parity. The Preferred Stock provides for preferential cumulative dividends at
the rate of 10% per share per annum of the Stated Value for each series of
Preferred Stock. Dividends are payable as declared by the Holdings Board of
Directors and shall be paid before any dividends shall be set apart for or paid
upon the Common Stock of Holdings, par value $0.01 per share (the "Common
Stock"). In the event of liquidation, dissolution or winding up, the holders of
shares of Preferred Stock are entitled to be paid out of the assets of Holdings
available for distribution to its stockholders before any payment is made to the
holders of stock junior to the Preferred Stock. Holders of Preferred Stock are
not entitled to vote on any matters presented to the stockholders of Holdings.
However, the affirmative vote or written consent of the holders of at least two-
thirds of the then outstanding shares of Preferred Stock is required to amend,
alter or repeal the preferences, special rights or other powers of the Preferred
Stock. The Preferred Stock is subject to mandatory redemption at a price per
share equal to the Stated Value for each series of Preferred Stock plus all
dividends accrued and unpaid thereon up (1) the closing of a public offering
pursuant to an effective registration statement under the Securities Act of
1933, (2) the sale of all or substantially all of the assets of Holdings or the
merger or consolidation of Holdings with or into any other corporation or other
entity in which the holders of Holdings' outstanding shares before the merger or
consolidation do not retain a majority of the voting power of the surviving
corporation or other entity or (3) the acquisition by any person of shares of
Common Stock representing a majority of the issued and outstanding shares of
Common Stock then outstanding.

     Cumulative accrued dividends totaled $22,707,000 and $12,347,000 at July 1,
2000 and July 3, 1999, respectively. They are classified with Redeemable
Preferred Stock in the consolidated balance sheet of Holdings.

                                       49
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


11. Stockholders and Registration Rights Agreements

     The Stockholders Agreement, dated as of January 23, 1998, by and among
Holdings and the stockholders named therein (the "Stockholders Agreement") and
the Registration Rights Agreement, dated as of January 23, 1998, by and among
Holdings and the investors named therein (the "Registration Rights Agreement")
were each amended as of September 27, 1999, to reflect a Subscription Agreement
with GE Investment Private Placement Partners II, a Limited Partnership ("GEI")
and Warburg, Pincus Ventures, L.P. ("Warburg") (as described in Note 12) for the
offer and sale of a total of 99 shares of Series B Preferred Stock and a total
of 100,000 shares of Common Stock with accompanying warrants to purchase a total
of 22,013 shares of Common Stock (the "Warrants") (collectively, the "Offered
Securities"). As a result of such amendments, all covenants and agreements set
forth in the initial Stockholders Agreement and Registration Rights Agreement
will apply to the newly issued Series B Preferred Stock, Common Stock and Common
Stock issuable upon exercise of the Warrants.

12. Stock Subscription Agreement

     On September 27, 1999, GEI and Warburg subscribed to purchase a total of 99
shares of Series B Preferred  Stock at $100,000 per share and a total of 100,000
shares of Common Stock at $1 per share with accompanying Warrants to purchase up
to 22,013 additional shares of Common Stock. The Warrants may be exercised for a
purchase price of $1 per share of Common Stock (subject to certain  adjustments)
and only upon failure of the Company to achieve  certain  financial  targets for
the  fiscal  year  ended July 1, 2000.  The  Warrants  would have  automatically
terminated if the Company had achieved certain financial targets for fiscal year
ended July 1, 2000.  The Company did not meet the  financial  targets for fiscal
year ended July 1, 2000. Therefore,  pursuant to the terms of the Warrants,  the
Warrants  expire on  September  27, 2004.  Holdings  received  $10.0  million in
exchange  for the Offered  Securities.  In  connection  with the issuance of the
Offered Securities, Holdings made a $10.0 million capital contribution to Eagle.

     On January 23, 1998, GEI, Warburg, and several officers of Holdings
subscribed to purchase a combined 816,750 shares of Series A Preferred Stock at
$100 per share and 825,000 shares of Common Stock at $1 per share. Full payment
for the stock was received from all but two of the officers, who subscribed to
purchase an aggregate of 13,117.5 shares of Series A Preferred Stock and 13,250
shares of Common Stock. Notes aggregating $825,000 were received from the two
officers as partial consideration for the subscription. These notes are
collateralized by the shares issued. They have a stated interest rate of prime
(as defined) plus 0.5%, with a maturity date of January 23, 2003. The notes have
been assigned between Common and Preferred Stock in accordance with the
management subscription agreements. Accordingly, notes related to Common Stock
have been presented in the consolidated balance sheet as a reduction of
Stockholders' Equity while notes related to the Preferred Stock have been
presented as a reduction of Redeemable Preferred Stock.

     During the third quarter of fiscal 1999, one officer, in partial
satisfaction, made a $200,000 principal and interest payment. Upon resignation
of said officer from various positions within Eagle and Holdings effective March
3, 2000, all remaining amounts were satisfied.

     On April 10, 2000, in connection with said resignation above, Holdings
purchased into treasury 3,438 shares of said officer's Series A Preferred Stock
for a value of $423,000.

13. Commitments and Contingencies

     Commitments. The Company has entered into long-term contracts for the
purchase of certain raw materials. Minimum purchase commitments, at current
prices, are approximately $12.2 million and $6.9 million at July 1, 2000 and
July 3, 1999, respectively.

                                       50
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                  Notes to the Financial Statements - continued

     The Company leases buildings and equipment under various noncancellable
lease agreements for periods of one to five years. The lease agreements
generally provide that the Company pays taxes, insurance and maintenance
expenses related to the leased assets. Rent expense for the periods ended July
1, 2000, July 3, 1999 and June 27, 1998 totaled $888,000, $693,000 and $229,000,
respectively.

     At July 1, 2000, future minimum lease payments were as follows (in
thousands):

                                2001...............................  $   875
                                2002...............................      849
                                2003...............................      712
                                2004...............................      346
                                2005...............................       29
                                                                     -------
                                Total minimum lease payments         $ 2,811
                                                                     =======

     Employment Agreements. The Company has entered into employment agreements
with certain key executives. Such agreements provide for annual salaries and
bonuses and include non-compete and non-solicitation provisions.

14. Stock Options and Restricted Stock

     On January 14, 1998, Holdings' Board of Directors adopted the 1998 Stock
Incentive Plan (the "Plan"). The Plan provides for the granting of incentive
stock options, non-qualified stock options, and restricted stock to officers,
key employees, directors and consultants of the Company at the discretion of a
committee of the Board of Directors. A total of 206,150 shares of common stock,
as amended on January 5, 2000, may be awarded under the Plan, subject to certain
adjustments reflecting changes in Holdings' capitalization.

     Grants of options and the periods during which such options can be
exercised, and grants of restricted stock and the periods during which such
grants become unrestricted and vest are at the discretion of a committee. As of
July 1, 2000, the committee has not granted any stock options.

     The committee has granted and issued shares of restricted stock to
Holdings' officers and other key employees. Holders of the restricted stock are
not entitled to (i) receive dividends until such shares vest or (ii) vote their
respective shares during the restricted period. The restricted stock vests in
installments of 20% per year on each of the first five anniversaries of the
issue date, provided that the recipient is employed by Holdings as of each such
date. Additionally, the sale, transfer, pledge, exchange or disposal of
restricted shares during the restricted period is not permitted except as
otherwise allowed by the Holdings Stockholders Agreement.

     A summary of restricted stock transactions for the fiscal years 1999 and
2000 is as follows:


                                                                   Fair Market
                                                      Shares of       Value
                                                      Restricted   at Issuance
                                                        Stock         Date
                                                      ----------   -----------
     Outstanding at June 28, 1998...................     146,839   $   146,839
        Granted.....................................       5,100         5,100
        Cancelled...................................        (959)         (959)
                                                      ----------   -----------
     Outstanding at July 3, 1999....................     150,980       150,980
        Granted.....................................      52,500           525
        Cancelled...................................     (64,921)      (64,921)
                                                      ----------   -----------
     Outstanding at July 1, 2000....................     138,559   $    86,584
                                                      ==========   ===========

                                       51
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                  Notes to the Financial Statements - continued

     Unearned compensation is charged for the fair value of the restricted
shares granted and issued in accordance with the Plan. The unearned compensation
is shown as a reduction of stockholders' equity (deficit) in the accompanying
Consolidated Balance Sheets of Holdings. Unearned compensation is amortized
ratably over the restricted period.

15. Retirement Plan

     The Company sponsors a defined contribution 401(k) retirement plan.
Participation in this plan is available to all employees who have completed
certain minimum service requirements. Company contributions to this plan are
based on a percentage of employees' annual compensation. The costs of this plan
were $476,000, $441,000 and $178,000 for the periods ended July 1, 2000, July 3,
1999 and June 27, 1998, respectively.

                                       52
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
and Shareholders of
Borden Foods Corporation

     We have audited the accompanying combined statements of operations, owner's
investment and cash flows, of Borden Brands North America ("BBNA"), which
comprises certain operating businesses of Borden Foods Corporation and
affiliates, for the twenty-three day period ended January 23, 1998 and the year
ended December 31, 1997. These financial statements are the responsibility of
Borden Food's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such financial statements present fairly, in all material
respects, the combined results of BBNA's operations and their combined cash
flows for the twenty-three day period ended January 23, 1998 and the year ended
December 31, 1997 in conformity with generally accepted accounting principles.

Deloitte & Touche LLP

May 22, 1998
Columbus, Ohio

                                       53
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
                       Combined Statements of Operations
                  For the Six Months Ended December 31, 1997,
          For the Twenty-Three Day Period Ended January 23, 1998 and
                     For the Year Ended December 31, 1997


                                                       Twenty-Three
                                         Six Months     Day Period
                                           Ended           Ended     Year Ended
                                         December 31,   January 23,  December 31
                                            1997           1998          1997
                                         -----------   ------------  -----------
                                          (Unaudited)
                                                      (In thousands)

Net sales.............................   $   153,869   $      7,693  $   229,370
Cost of goods sold....................        70,640          5,154      107,674
                                         -----------   ------------   ----------
   Gross margin.......................        83,229          2,539      121,696
Distribution expense..................         8,185            303       13,464
Marketing expense.....................        37,444          2,095       55,074
General & administrative expense......         6,736          1,010       13,184
                                         -----------   ------------   ----------
   Operating income (loss)........... .       30,864           (869)      39,974
Other income......................... .           56             --           79
                                         -----------   ------------   ----------
   Income (loss) before income taxes. .       30,920           (869)      40,053
Income tax expense (benefit)......... .       12,356           (287)      16,236
                                         -----------   ------------   ----------
   Net income (loss)................. .  $    18,564   $       (582) $    23,817
                                         ===========   ============   ==========

                   See Notes to Combined Financial Statements

                                       54
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
                       Combined Statements of Cash Flows
                  For the Six Months Ended December 31, 1997,
          For the Twenty-three Day Period Ended January 23, 1998 and
                     For the Year Ended December 31, 1997

<TABLE>
<CAPTION>
                                                                    Twenty-
                                                    Six Months     Three Day
                                                      Ended      Period Ended        Year Ended
                                                   December 31,   January 23,        December 31,
                                                       1997          1998               1997
                                                   -----------   -------------     ---------------
                                                    (Unaudited)
                                                                 (In thousands)
<S>                                                <C>           <C>               <C>
Cash Flows From (Used In) Operating Activities
Net income (loss)...............................   $    18,564   $       (582)       $    23,817
Adjustments to reconcile net income to net cash
from operating activities
   Depreciation and amortization................         3,148            512              6,174
   Loss on sale of fixed assets.................           312                               312
Net change in assets and liabilities
   Accounts receivable..........................        (2,164)         6,630              3,091
   Inventories..................................        24,329            610             (2,581)
   Accounts payable.............................           680         (3,282)              (456)
   Other assets.................................          (260)           183                 30
   Other liabilities............................         4,697         (2,350)               509
                                                   -----------   ------------        -----------
Cash flows from operating activities............        49,306          1,721             30,896
Cash Flows Used In Investing Activities
   Capital expenditures.........................        (1,789)           (87)            (3,154)
Cash Flows Used In Financing Activities
   Net decrease in intercompany investment......       (47,515)        (1,616)           (27,769)
                                                   -----------   ------------        -----------
(Decrease) increase in cash.....................             2             18                (27)
Cash at beginning of period.....................             4              6                 33
                                                   -----------   ------------        -----------
Cash at end of period...........................   $         6   $         24        $         6
                                                   ===========   ============        ===========
</TABLE>
                   See Notes to Combined Financial Statements

                                       55
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
                   Combined Statements of Owner's Investment
            For the Twenty-three Day Period Ended January 23, 1998
                   And for the Year Ended December 31, 1997

<TABLE>
<CAPTION>
                                                              Retained      Intercompany
                                                              Earnings       Investment         Total
                                                              ---------     ------------     ----------
<S>                                                           <C>           <C>              <C>
Balance, December 31, 1996.........................           $  34,735     $     87,355     $  122,090
Net income.........................................              23,817                          23,817
Cash collected on behalf of BBNA...................                             (232,052)      (232,052)
Cash disbursed on behalf of BBNA...................                              204,585        204,585
Translation adjustments and other..................                                 (302)          (302)
                                                              ---------     ------------     ----------
Balance, December 31, 1997.........................              58,552           59,586        118,138
Net loss...........................................                (582)                           (582)
Cash collected on behalf of BBNA...................                              (14,164)       (14,164)
Cash disbursed on behalf of BBNA...................                               12,550         12,550
Translation adjustments and other..................                                   (2)            (2)
                                                              ---------     ------------     ----------
Balance, January 23, 1998..........................           $  57,970     $     57,970     $  115,940
                                                              =========     ============     ==========
</TABLE>

                   See Notes to Combined Financial Statements

                                       56
<PAGE>

                           BORDEN BRANDS NORTH AMERICA
                              (Predecessor Company)
                     Notes to Combined Financial Statements
                             (Dollars in thousands)


1. Nature of Operations, Basis of Presentation and Significant Accounting
   Policies

     Nature of Operations and Basis of Presentation. The accompanying combined
financial statements present results of operations, cash flows and owner's
investment of Borden Brands North America of Borden Foods Corporation ("BBNA" or
the "Company"). These financial statements have been prepared on a purchase
accounting basis which reflects an allocation of a portion of the acquisition
cost relating to the 1994 acquisition by an affiliate of Kohlberg Kravis Roberts
("KKR") of Borden, Inc. ("Borden") to BBNA.

     BBNA is engaged in the business of developing, manufacturing, marketing,
distributing and selling certain food products primarily in the United States
with limited sales and manufacturing activity in Canada. The BBNA products
include "Eagle Brand" sweetened condensed milk, "ReaLemon" reconstituted lemon
and lime juice, "Nonesuch" mincemeat, "Cremora" non-dairy creamer, "Kava" acid-
neutralized coffee and "Borden" egg nog.

     In 1996, an affiliate of KKR, Borden Foods Holdings, LLC ("Foods Holdings")
formed Borden Foods Corporation ("BFC") for the purposes of acquiring and
operating certain of Borden's food businesses, including BBNA. In addition,
Foods Holdings together with BFC, invested in Borden Foods Investment LP for the
purposes of acquiring and holding certain trademarks associated with BBNA and
the other Borden food businesses. The acquisition from Borden was a taxable
transaction effective October 1, 1996.

     In March 1997, BFC announced its intention to sell certain businesses from
its current portfolio, which were considered not to be aligned with their
ongoing strategy. Among these businesses were the BBNA business, FunCheese and
the Puerto Rican distribution business. Subsequent to December 31, 1997, BBNA
was purchased by Eagle Family Foods, Inc., a newly formed entity sponsored by GE
Investment Private Placement Partners II, a Limited Partnership, and Warburg,
Pincus Ventures, L.P.

     BBNA operates as a business unit of BFC, which is an affiliate of Borden.
Under this structure, BFC incurs various administrative costs in connection with
the operation of the BBNA business, such as accounting, legal, tax, credit and
information services departments and executive management. In addition, BBNA
utilizes shared sales and administrative resources with other BFC business
units. These costs were allocated to BBNA through intercompany expense charges
and the intercompany liability is accumulated in the owner's investment account.

     Unaudited Interim Results. The accompanying unaudited financial statements
contain all adjustments, consisting only of normal adjustments, which in the
opinion of management are necessary for the fair presentation of operating
results for the interim period. Results for the interim period are subject to
seasonal variations and are not necessarily indicative of the results for the
full year.

     Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. The most significant estimates in BBNA
financial statements are the provision for doubtful accounts, provision for
inventory obsolescence, provision for trade promotions and deductions, general
and group insurance expense and Borden and BFC corporate allocations. Actual
results could differ from those estimates.

     Summary of Significant Accounting Policies. Significant accounting policies
followed by BBNA, as summarized below, are in conformity with generally accepted
accounting principles.

     Principles of Combination. The combined financial statements include the
accounts of BBNA after elimination of material inter and intracompany accounts
and transactions.

                                       57
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
              Notes to Combined Financial Statements - continued
                            (Dollars in thousands)

     Revenue Recognition. Revenues are recognized when products are shipped.
Provisions are recorded for estimated returns, allowances and consumer and
certain trade promotions and discounts when revenues are recognized.

     Research and Development. Research and development costs are charged to
general and administrative expense when incurred. Research and development costs
amounted to $104 and $1,781 for the twenty-three day period ended January 23,
1998 and for the year ended December 31, 1997, respectively.

     Advertising and Promotion Expense. Production costs of future media
advertising are deferred until the advertising first occurs. All other
advertising costs are expensed when incurred. Promotional expenses are generally
expensed ratably over the year in relation to revenues or other performance
measures. Advertising and promotional expenses were $1,389 and $28,245 for the
twenty-three day period ended January 23, 1998 and year ended December 31, 1997,
respectively.

     Cash. BBNA considers all highly liquid investments purchased with a term to
maturity of three months or less when purchased to be cash equivalents.

     Property and Equipment. Depreciation is recorded on the straight-line basis
over useful lives of 30 years for buildings and 3 to 10 years for equipment.
Major renewals and betterments are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When properties are retired or otherwise
disposed of, related cost and accumulated depreciation are removed from the
accounts and any related gain or loss in recorded in the statement of
operations.

     Intangibles. Trademarks are amortized on a straight-line basis over the
shorter of forty years or their useful lives; goodwill represents the excess of
purchase price over fair value of identifiable assets of businesses acquired and
is amortized on a straight-line basis over forty years.

     Slotting Allowances. The costs of obtaining shelf space (slotting) are
accrued when committed and amortized over the period of benefit, which is
generally twelve months.

     Income Taxes. The results of the domestic and Canadian operations of BBNA
are included in BFC's or Borden Canada Limited's consolidated tax returns. BFC
uses the liability method of accounting for deferred income taxes.

     For purposes of these stand-alone financial statements, income taxes are
determined as though BBNA filed separate U.S. federal, Canadian and state
corporate income tax returns. Because all income tax liabilities (current and
deferred) are paid to BBNA's owner such amounts are included as a component of
owner's investment in the accompanying financial statements.

     Foreign Currency Translation. Income and expense items are translated at
average exchange rates prevailing during the fiscal period. The resulting
translation adjustments are considered insignificant and are recorded in owner's
investment.

     Concentrations of Credit Risk. Financial instruments which potentially
subject BBNA to concentrations of credit risk consist principally of temporary
cash investments and accounts receivable. The majority of BBNA cash activity is
managed by BFC. BFC and BBNA places its temporary cash investments with high
quality institutions and, by policy, limits the amount of credit exposure to any
one institution. Concentrations of credit risk with respect to accounts
receivable are limited, due to the large number of customers comprising BBNA's
customer base and their dispersion across many different geographies primarily
within North America. BBNA generally does not require collateral or other
security to support customer receivables.

                                       58
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
              Notes to Combined Financial Statements - continued
                             (Dollars in thousands)

     Pension and Retirement Savings Plans. Most of BBNA's employees are covered
under the Borden Employee Retirement Income Plan pension plan. A portion of
BFC's total liability has been allocated to BBNA based on allocations provided
by Borden's actuary, which were based on actual employee census data. BBNA's
share of the allocated cost to fund and administer these plans is recorded in
the statements of operations in the year the cost is incurred.

     Substantially all domestic employees of BBNA participate in Borden's
retirement savings plans. BBNA's cost of providing the retirement savings plan
is the amount by which it matches eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.

     Non-pension Postemployment and Postretirement Benefits. BFC provides
certain health and life insurance benefits for eligible retirees and their
dependents. The cost of postretirement benefits is accrued during the employees'
working careers. BBNA's share of the allocated cost to fund and administer these
plans, based on allocations provided by Borden's actuary, is recorded in the
statements of operations in the year the cost is incurred.

     Borden provides certain other postemployment benefits to qualified former
or inactive employees. BBNA's share of the cost to fund and administer these
plans, based on allocations provided by Borden's actuary, is recorded in the
statements of operations in the year the cost is incurred.

     Group and General Insurance Reserve. BFC is generally self-insured for
losses relating to workers' compensation, health and welfare claims, physical
damage to property, business interruption and comprehensive general, product and
vehicle liability. BFC or Borden maintains insurance policies for certain items
exceeding deductible limits. Losses are accrued for the estimated aggregate
liability for claims using certain actuarial assumptions followed in the
insurance industry and BFC's experience.

     Stock Options. The Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, Accounting for Stock-Based Compensation, which was adopted for
disclosure only by BFC, effective January 1, 1996. As permitted by SFAS No. 123,
BFC continues to apply its current accounting policy of the intrinsic value
method under Accounting Principles Board Opinion No. 25.

2. Related Parties and Intercompany Allocations

     BBNA is engaged in various transactions with BFC, Borden and its affiliates
in the ordinary course of business. Certain general and administrative costs,
such as group and general insurance, retirement benefits, and corporate
administrative departments, were allocated to BBNA. A description of the
allocation methods of these costs follows.

     For all periods, pension and postemployment and postretirement group
insurance benefits were charged to BBNA based on allocations provided by
Borden's actuary, which were based on actual employee census data. General and
group insurance expenses, which include liability and property damage insurance,
were allocated based on actual claims costs and a pro-rata share of Borden's
catastrophic insurance coverage premiums in 1997 and 1998. For all periods,
corporate information services and corporate staff department services were
allocated based on usage of resources such as personnel and data processing
equipment. A subsidiary of Borden provided certain administrative services to
BBNA at negotiated fees. These services include: processing of payroll, active
and retiree group insurance claims administration, administration of workers
compensation claims, and securing insurance coverage for catastrophic claims.
BBNA reimburses the Borden subsidiary for payments made on BBNA's behalf and for
services provided.

                                       59
<PAGE>

                           BORDEN BRANDS NORTH AMERICA
                              (Predecessor Company)
               Notes to Combined Financial Statements - continued
                             (Dollars in thousands)


     Management believes the allocations of these costs for all periods
presented are reasonable based upon the circumstances, however, the allocated
amounts are not necessarily indicative of costs that would have been incurred if
BBNA operated on a stand alone basis since the BBNA business has historically
been operated as a division of BFC and/or Borden. Amounts due to Borden
resulting from these allocations, as well as sales and purchases of products and
materials to or from other operations, are reflected in owner's investment.

     BBNA is generally self-insured for general insurance claims and
postemployment benefits other than pensions.

     BBNA utilizes the BFC shared sales force for its retail grocery and private
label sales activity. Costs are allocated to BBNA based on the proportion of the
BBNA sales dollars to the total domestic BFC sales.

     The provision for the allowance for doubtful accounts and the provision for
customer allowances and credits are managed by customer in total for BBNA. An
allocation of the provision for the allowance for doubtful accounts has been
made to BBNA based on a proportion of the BBNA sales dollars to the total sales
of the group. An allocation of the provision for customer allowances and credits
has been allocated to BBNA based on a proportion of actual customer deductions
taken by BBNA customers to the total deductions taken by customers of all
businesses in the group.

     Employee pension benefits are provided under the Borden Employee Retirement
Income Plan to which BBNA contributes. The employees may also participate in the
Borden retirement savings plan. Borden also provides certain health and life
insurance benefits for eligible employees. BBNA has recognized expenses
associated with these benefits, certain of which are determined and allocated by
Borden's actuary.

     The following table summarizes the charges for these costs to BBNA in 1998
and 1997:

<TABLE>
<CAPTION>
                                                                       Twenty-Three
                                                                        Day Period          Year
                                                                          Ended            Ended
                                                                        January 23,      December 31,
                                                                          1998              1997
                                                                       -----------       -----------
               <S>                                                     <C>               <C>
               Pension and other employee benefits.................        $ 44             $ 524
               Group and general insurance.........................         193             2,314
               Corporate information services......................         265             3,201
               Shared sales force..................................         196             5,011
               Executive compensation, corporate staff, research
                  department services and division overhead........         619             8,385
</TABLE>


     Of the total amounts in 1998 and 1997, $220 and $2,761, respectively, was
included in cost of goods sold and $412 and $7,890, respectively, was included
in marketing expense, while the majority of the remaining amount was included in
general and administrative expense.

     BFC manages disbursements and the net cash position. Accordingly, both cash
generated and required by BBNA's operations are recorded in owner's investment
for such periods. An allocation of interest was not practical because Borden and
BFC had not historically identified a capital structure comprised of separate
elements of debt and equity applicable to BBNA as a separate entity.

     BBNA had sales to affiliates of KKR of $204 and $6,678 for the twenty-three
day period ended January 23, 1998 and the year ended December 31,1997,
respectively.

                                       60
<PAGE>

                           BORDEN BRANDS NORTH AMERICA
                              (Predecessor Company)
                     Notes to Combined Financial Statements
                             (Dollars in thousands)


3. Leases

     BBNA currently leases warehouse space, production facilities and vehicles
under long-term or month-to-month arrangements. Rental expense amounted to $10
and $110 for the twenty-three day period ended January 23, 1998 and the year
December 31, 1997, respectively.

4. Income Taxes

     Income tax expense for domestic and foreign operations that file a
consolidated tax return with other entities was calculated utilizing statutory
rates multiplied by pretax income as adjusted for known book to tax differences.
As discussed in Note 1, BBNA tax accounts have been prepared as though BBNA
filed separate income tax returns and may not necessarily represent the tax
position as prepared on a consolidated basis with BFC or Borden.

     Income tax expense (benefit) is comprised of the following:

<TABLE>
<CAPTION>
                                                                        Twenty-Three
                                                                         Day Period
                                                                           Ended           Year Ended
                                                                         January 23,       December 31,
                                                                            1998              1997
                                                                      --------------      ------------
                         <S>                                          <C>                 <C>
                         Current:
                              Federal..............                   $          (79)     $     13,891
                              State and local......                              (28)            2,551
                              Foreign..............                               27               523
                                                                      --------------      ------------
                                                                                 (80)           16,965
                         Deferred:
                              Federal..............                             (185)             (656)
                              State and local......                              (22)              (73)
                                                                      --------------      ------------
                                                                                (207)             (729)
                                                                      --------------      ------------
                         Total Current and Deferred                   $         (287)     $     16,236
                                                                      ==============      ============
</TABLE>

     The following table reconciles the maximum statutory U.S. Federal income
tax rate multiplied by BBNA's income (loss) before taxes to the recorded income
tax benefit:

<TABLE>
<CAPTION>
                                                                              Twenty-Three
                                                                               Day Period
                                                                                 Ended         Year Ended
                                                                              January 23,      December 31,
                                                                                  1998             1997
                                                                           ----------------   --------------
                       <S>                                                 <C>                <C>
                       U.S. Federal income tax (benefit) at 35%.......     $           (304)  $       14,019
                       State income tax, net of Federal benefit.......                  (32)           1,610
                       Foreign rate differentials.....................                    2               41
                       Goodwill amortization and other
                          nondeductible expenses......................                   47              566
                                                                           ----------------   --------------
                       Provision (credit) for income taxes............     $           (287)  $       16,236
                                                                           ================   ==============
</TABLE>

                                       61
<PAGE>

                           BORDEN BRANDS NORTH AMERICA
                              (Predecessor Company)
                     Notes to Combined Financial Statements
                            (Dollars in thousands)

     Domestic and foreign components of income (loss) before taxes are as
follows:


                                   Twenty-Three
                                    Day Period
                                      Ended         Year Ended
                                   January 23,      December 31,
                                      1998            1997
                                   ------------     -----------
           Domestic............    $       (938)    $    38,676
           Foreign.............              69           1,377
                                   ------------     -----------
                                   $       (869)    $    40,053
                                   ============     ===========

5. Pension and Retirement Savings Plans

     Most employees of BBNA participate in the Borden Employee Retirement Income
Plan. For most salaried employees, benefits under the plan generally are based
on compensation and credited service. For most hourly employees, benefits under
the plan are based on specified amounts per year of credited service. A portion
of Borden's expense for the domestic retirement plan was allocated to BBNA based
on allocations provided by Borden's actuary. (see Note 2).

     The rates used to determine pension expense for the plan shared with other
Borden affiliates were as follows:


                                                              December 31,
                                                                 1997
                                                              -----------
     Discount rate.........................................      7.5%
     Rate of increase in future compensation levels........      4.5%
     Expected long-term rate of return on plan assets......      8.5%


     Eligible salaried and hourly non-bargaining employees may contribute up to
5% of their pay to Borden sponsored retirement savings plans (7% for certain
longer service salaried employees), which was matched 50% by Borden in 1998 and
1997.

6. Non-pension Postemployment and Postretirement Benefits

     BBNA participates in Borden-sponsored non-pension postemployment and
postretirement benefit plans. The postretirement plans provide certain health
and life insurance benefits for eligible domestic retirees and their dependents.

     Participants who are not eligible for Medicare are provided with the same
medical benefits as active employees, while those who are eligible for Medicare
are provided with supplemental benefits. The postretirement medical benefits are
contributory for retirements after 1983; the postretirement life insurance
benefit is noncontributory.

     A portion of Borden's expense for postemployment and postretirement
benefits was allocated annually to BBNA (see Note 2). The discount rate used in
determining the accumulated postretirement benefit obligation at December 31,
1997 was 7.3%.

     The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1997 was 8.8% for 1998,
gradually declining to 5.3% by the year 2004.

                                       62
<PAGE>

                           BORDEN BRANDS NORTH AMERICA
                              (Predecessor Company)
                     Notes to Combined Financial Statements
                             (Dollars in thousands)


     Borden also provides certain postemployment benefits, primarily medical and
life insurance benefits for long-term disabled employees, to qualified former or
inactive employees. The costs of benefits provided to former or inactive
employees after employment, but before retirement, are accrued when it is
probable that a benefit will be provided. The amounts of such charges are not
considered significant.

     Management does not believe that these allocations are materially different
from amounts that would be calculated historically for BBNA on a stand-alone
basis.

7. Units and Unit Appreciation Rights

     During 1996, a Unit Incentive Plan was formed which provides for the
granting of options, unit appreciation rights ("UAR's"), units and other unit-
based equity interests in Foods Holdings to key employees of BFC, which included
certain BBNA employees, and associated persons at the discretion of the Board of
Directors of BFC.

     During 1996, Foods Holdings sold 1,080,000 Class A units to certain
management employees of BFC under this Unit Incentive Plan. The units are
generally restricted as to transfer and allow for Foods Holdings, at its
discretion, to repurchase the units, upon certain conditions including
termination of the unitholders' employment prior to full vesting after five
years. In 1997, Foods Holdings sold an additional 20,000 Class A units to
management, none of which were sold to BBNA employees, and repurchased 81,000
Class A units from management, of which 10,000 units were repurchased from BBNA
employees. There was no compensation expense attributable to the units since the
repurchase price was equal to or less than the sales price to employees. Class A
units outstanding at December 31, 1997 was 1,019,000, of which 65,000 were held
by BBNA employees at December 31, 1997.

     Although no options have been issued under the Unit Incentive Plan, BFC has
issued UAR's to unitholders. The UAR entitles the holder to receive an amount in
cash equal to the excess of the market price (as defined in the UAR agreement)
of the Class A unit over the exercise price of the UAR. The UAR's vest ratably
over five years and expire upon certain events, including termination of the
unitholders' employment, but in no case to exceed ten years. Four UAR's were
issued for each unit purchased: one UAR with an exercise price of $10 per unit
and three UAR's with an exercise price of $20 per unit. At December 31, 1997,
there were 1,019,000 UAR's outstanding with an exercise price of $10 and
3,057,000 UAR's outstanding with an exercise price of $20. For 1997, there was
no compensation expense attributable to the UAR's since the exercise price
exceeded the underlying value of the UAR's.

     As the UAR's are settled in cash, the change in value of the UAR's is
accounted for under the liability method as prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). Due
to the cash nature of the award, treatment under SFAS No. 123, Accounting for
Stock-Based Compensation, would be synonymous with APB No. 25 and accordingly,
no fair-market value disclosures are applicable.

                                       63
<PAGE>

                           BORDEN BRANDS NORTH AMERICA
                              (Predecessor Company)
                     Notes to Combined Financial Statements
                             (Dollars in thousands)

8. Unaudited Interim Financial Statements

     For the unaudited six months ended December 31, 1997, related party
transactions and intercompany allocations were consistent with those described
in Note 2.

     The following table summarizes the allocation of costs to BBNA for the
unaudited six months ended December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                                                                      Six Months
                                                                                                        Ended
                                                                                                  December 31, 1997
                                                                                                 -------------------
     <S>                                                                                         <C>
     Pension and other employee benefits.....................................................    $          209
     Group and general insurance.............................................................             1,378
     Corporate information services..........................................................             2,066
     Shared sales force......................................................................             2,480
     Executive compensation, corporate staff, research department services and division
        overhead.............................................................................             4,872
</TABLE>

     Of the total amount in the six months ended December 31, 1997, $1,784 was
included in costs of goods sold and $4,557 was included in marketing expense,
while the majority of the remaining amount was included in general and
administrative expense.

     BBNA had sales to affiliates of KKR of $5,233 for the six months ended
December 31, 1997.

                                       64