<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                            ----------------------
                                   FORM 10-K
                                        
                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                                  (Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                      OR

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

                       Commission file number 333-50681
                               AURORA FOODS INC.
            (Exact Name of Registrant as Specified in Its Charter)

<TABLE> 
<CAPTION> 
                         DELAWARE                                          94-3303521
                         --------                                          ----------
<S>                                                             <C>       
(State or Other Jurisdiction of Incorporation or Organization)  (IRS Employer Identification No.)
</TABLE> 

                       456 Montgomery Street, Suite 2200
                           San Francisco, CA  94104
          (Address of Principal Executive Office, Including Zip Code)

                                (415) 982-3019
             (Registrant's Telephone Number, Including Area Code)

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

     Title of Each Class               Name of Each Exchange on Which Registered
     -------------------               -----------------------------------------
     Common Stock, par value           New York Stock Exchange
     $0.01 per share                   Pacific Exchange
     -----------------------           -----------------------------------------

     Securities registered pursuant to Section 12(g) of the Act
     None                        (Title of Class)
     ----------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes X   No __
                                        -        

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 17, 1999, based upon the closing price of the Common
Stock as reported on the New York Stock Exchange on such date, was approximately
$235,625,000.

Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock as of the latest practicable date.

                                                              Shares Outstanding
                                                               February 17, 1999
Common Stock, $0.01 par value                                         67,016,173
<PAGE>
 
PART I
------

ITEM 1: BUSINESS
----------------

Aurora Foods Inc. (the "Company") is a leading producer and marketer of premium
branded food products including Duncan Hines(R) baking mix products, Mrs.
Butterworth's(R) and Log Cabin(R) syrup products, Van de Kamp's(R) and Mrs.
Paul's(R) frozen seafood products, Aunt Jemima(R) frozen breakfast products and
Celeste(R) frozen pizza.  The Company's brands are among the most widely
recognized food brands in the United States and have leading market positions.
The Company groups its brands into two general divisions: dry grocery division
and frozen food division.

Products and Markets
--------------------

The Company seeks to acquire brands with strong brand equity which have been
undermarketed and undermanaged in recent years and have become non-core
businesses to their corporate parents.  The Company's objective is to renew the
growth of its brands by giving them the focus, strategic direction, marketing
resources and dedicated sales and marketing organization they have lacked in
recent years. The Company then sustains the growth of the brands with high
levels of marketing support directed towards media, consumer promotions and new
products.  Each of the Company's brands is a leading national brand with
significant market share and strong consumer awareness.  The Company competes in
two segments of the food industry: dry grocery and frozen food.

[LOGO OF MRS. BUTTERWORTH'S(R) APPEARS HERE] [LOGO OF LOG CABIN(R) APPEARS HERE]

[LOGO OF VAN DE KAMP'S(R) APPEARS HERE]      [LOGO OF CELESTE(R) APPEARS HERE]

[LOGO OF MRS. PAUL'S(R) HERE]             [LOGO OF DUNCAN HINES(R) APPEARS HERE]

[LOGO OF AUNT JEMIMA(R) APPEARS HERE]

References to market, category and segment sales, market share percentages and
market positions reflect U.S. retail supermarket sales dollars for the 52-week
period ended December 27, 1998, as gathered by Information Resources
Incorporated for the frozen food division and for the 52-week period ended
December 26, 1998, as gathered by A.C. Nielsen Company for the dry grocery
division.

Dry Grocery
-----------

The Company has three brands in the dry grocery segment: Mrs. Butterworth's(R),
Log Cabin(R) and Duncan Hines(R).

Mrs. Butterworth's(R) and Log Cabin(R)

Together, the Mrs. Butterworth's(R) and Log Cabin(R) syrup products have a
leading 33% share of the syrup category. Log Cabin(R) and Mrs. Butterworth's(R)
Original 24-ounce bottles are the number one and number two selling stock
keeping units, respectively, in the syrup category. Different consumer
perceptions of these two brands offer unique opportunities for consumer
targeting. Mrs. Butterworth's(R) distinctive, grandmother-shaped bottle
represents a fun image to the family with children. The strong heritage of Log
Cabin(R), which dates back to 1888, represents an authentic, rich maple brand
targeted more to traditional, "warm, cozy" breakfast occasions. The Company also
sells Country Kitchen(R), a value priced syrup, to target the economy segment.
Introduced in 1954, Country Kitchen(R) has the highest share in the economy
segment. The Company's products are sold to the retail, club store, restaurant
and

                                       1
<PAGE>
 
institutional channels. Mrs. Butterworth's(R), Log Cabin(R), and Country
Kitchen(R) are offered in regular and lite versions. The Company also sells
pancake mixes under the Mrs. Butterworth's(R) brand. In 1998, a sugar-free syrup
was introduced under the Log Cabin(R) label to target health-conscious and
diabetic consumers. In 1999, the Company will introduce flavored syrups
targeting children under the Mrs. Butterworth's(R) brand.

Duncan Hines(R)

For over 40 years, the Duncan Hines(R) brand has represented excellence in
baking mixes. The Duncan Hines(R) product line consists of cake mix, ready-to-
spread frosting, brownie mix, muffin mix, and cookie and other specialty mixes.
The Duncan Hines(R) trademark is among the most widely recognized in the U.S.
with 92% unaided brand awareness. Duncan Hines(R) cake mix products have a 100%
all commodity volume distribution and a market share of 37%. Duncan Hines(R)
baking mixes enjoy consumer satisfaction ratings that are superior to those of
its principal competitors, Betty Crocker(R) and Pillsbury(R) brand baking mixes.
Consumer test results show the Duncan Hines(R) brand appeals to the consumer who
wants to bake a "quality, good as homemade" product. The brownie mix product was
reformulated in 1998. In 1999, cookie and other specialty mixes will be
reformulated and packaging for the entire Duncan Hines(R) product line will be
restaged.

Frozen Food
-----------

The Company has four brands in the frozen food segment: Van de Kamp's(R), Mrs.
Paul's(R), Aunt Jemima(R) and Celeste(R).

Van de Kamp's(R) and Mrs. Paul's(R)

The Company manufactures and markets frozen seafood products under the Van de
Kamp's(R) and Mrs. Paul's(R) brands, which together command a leading market
share position of 25%. The frozen seafood product line includes breaded and
battered fish sticks and fish fillets, grilled and plain fish fillets, "healthy"
breaded fish, and specialty seafood items. The Company's dual brand strategy
emphasizes both the brands' respective regional strengths (Van de Kamp's(R) is
stronger in the West and Central U.S., while Mrs. Paul's(R) is stronger in the
Northeast and Southeast) and brand positioning (Van de Kamp's(R) targets
families with children while Mrs. Paul's(R) targets adults). The Van de 
Kamp's(R) trademark dates back over 40 years and is recognized as a fun,
"contemporary" image that appeals to families with children. The Mrs. Paul's(R)
franchise began in the mid-1940's with the introduction of deviled crab cakes
and has grown to include a wide range of specialty seafood items that target the
adult consumer. The Company introduced premium grilled products in 1998 and will
introduce new "Tenders" and "Selects" products under both brands in 1999.

Aunt Jemima(R)

Aunt Jemima(R) was established as a brand over 100 years ago. Aunt Jemima(R)
frozen breakfast products are offered in three categories: french toast,
pancakes and waffles. Aunt Jemima(R) has a number one market share position in
french toast, a number two position in pancakes and is the number three brand in
the frozen waffle category. Aunt Jemima(R) waffle and pancake products are
offered in four varieties: original, blueberry, buttermilk and lowfat. The
french toast product is offered in two flavors: regular and cinnamon. The
Company will expand its offerings in frozen breakfast products with the launch
of french toast sticks and mini pancakes in 1999.

Celeste(R)

For over 36 years, Celeste(R) frozen pizza has been a prominent regional brand
in the Northeast. Celeste(R) frozen pizzas are offered in small and large sizes
and a rising crust pizza is offered under the Mama Celeste(TM) label. Celeste(R)
small pizzas (marketed as Celeste(R) Pizza for One) and large pizzas are economy
priced, while the Mama Celeste(TM) Fresh-Baked Rising Crust pizza is premium
priced. In the markets in which it competes, Celeste(R) Pizza for One is the
leading brand of small pizzas. Celeste(R) products are primarily sold in the
Northeast, Florida and California.

The Company's products are sold nationwide to supermarkets and other retail
channels.  The Company sells its products through a network of food brokers to
wholesale and retail grocery accounts.  The products are distributed either
directly to the customer or through independent wholesalers.

                                       2
<PAGE>
 
The Company also sells its syrup and frozen food products in the foodservice
distribution channel through a foodservice distributor.  Customers include
military bases, restaurant chains and business/industry.

Industry
--------

The U.S. food industry is relatively stable with growth based on modest price
and population increases.  Over the last ten years, food companies have been
divesting non-core business lines and making strategic acquisitions.

The desire for nutrition and convenience strongly affects consumer demand for
food products.  Increasingly, consumers want nutritious food that is convenient
to prepare and can be served as a meal occasion.  The Company targets consumers
between the ages of 18 and 48 and particularly households with children.  There
are approximately 39 million children between the ages of 5 and 14, which
represent a growing target market for the Company.

The Company competes in the dry grocery and frozen food categories of the retail
food industry.  The Company is expanding its presence in the foodservice
markets, which offer further growth opportunities.

Financial Information About Industry Segments
---------------------------------------------

See "Item 14(a) 1.a. Financial Statements of the Company".

Trademarks
----------

The Company's principal trademarks are Duncan Hines(R), Log Cabin(R), Mrs.
Butterworth's(R), Van de Kamp's(R), Mrs. Paul's(R), Celeste(R) and Mama 
Celeste(TM). The Company licenses the Aunt Jemima(R) trademark pursuant to a
perpetual, royalty-free, license agreement with The Quaker Oats Company ("Quaker
Oats"). The license agreement requires the Company to obtain the approval of
Quaker Oats for any material change to any labels, packaging, advertising, and
promotional materials bearing the Aunt Jemima(R) trademark. Quaker Oats can only
withhold approval if such proposed use violates the license agreement. The
registrations for the Company's trademarks expire from time to time and the
Company renews them in the ordinary course of business prior to the expiration
dates.

Competition
-----------

The food industry is highly competitive. Numerous brands and products compete
for shelf space and sales, with competition based primarily on brand recognition
and loyalty, price, quality, and convenience.  The Company competes with a
significant number of companies of varying sizes, including divisions or
subsidiaries of larger companies.  A number of these competitors have broader
product lines, substantially greater financial and other resources available to
them, lower fixed costs and/or longer operating histories.

Production
----------

The Company produces its Van de Kamp's(R) and Mrs. Paul's(R) frozen seafood
products at its Erie, Pennsylvania, Jackson, Tennessee and Yuba City, California
manufacturing facilities. Certain specialty seafood items such as shrimp and
clams are contract manufactured by third parties. The Company produces its Aunt
Jemima(R) frozen breakfast and Celeste(R) frozen pizza products at its Jackson,
Tennessee facility. The Company's syrup products are produced by contract
manufacturers at various manufacturing facilities pursuant to syrup co-pack
agreements. These agreements have terms of five to seven years and automatic
renewal provisions for one year unless cancelled by either party. All of the
Company's syrup production equipment, including batching, filling and case-
packing equipment, is located at the contract manufacturers' facilities. Duncan
Hines(R) brownie mixes, specialty mixes and frosting products are also produced
by contract manufacturers pursuant to co-pack agreements. These agreements have
terms of five years and automatic renewal provisions for one year unless
cancelled by either party. All of the Company's brownie mixes, specialty mixes
and frosting production equipment including co-milling, blending and packaging
equipment is located at the contract manufacturers' facilities. Duncan Hines(R)
cake mix products are contract manufactured by The Procter & Gamble Company
("P&G") pursuant to a co-pack agreement. The Company entered into a long-term 
co-pack agreement for its Duncan Hines(R) cake mixes with a contract
manufacturer and is in the process of relocating and installing the Duncan
Hines(R) manufacturing assets from P&G's Jackson, Tennessee plant to production
facilities owned or leased by such contract manufacturer. This agreement has a
term of five years and automatic renewal provisions for one year unless
cancelled by either party.

                                       3
<PAGE>
 
Quality Control
---------------

Quality control processes at the Company's principal manufacturing facilities
and at the production facilities where the Company's products are contract
manufactured emphasize applied research and technical services directed at
quality control and product improvement.

The Company's products and the facilities where the products are manufactured
are subject to various laws and regulations administered by the Federal Food and
Drug Administration, the United States Department of Agriculture, and other
federal, state, and local governmental agencies relating to the quality of
products, safety and sanitation.  The Company believes that it complies with
such laws and regulations in all material respects.

Customers
---------

The Company's business is not dependent upon a single customer or a small number
of customers, the loss of whom would have a material adverse effect on the
Company's operations.

Seasonality
-----------

The Company does not experience any material effects of seasonality in its
business.  However, the first and fourth quarters generally experience higher
levels of sales.  There are no material backlogs.

Raw Materials and Supplies
--------------------------

The principal raw materials used by the Company are corn syrup, flour, sugar,
fish, eggs, cheese, vegetable oils, shortening, other agricultural products and
paper and plastic for packaging materials.  All such materials and supplies are
available from numerous independent suppliers.  The Company procures ingredients
through its contract manufacturer partners for most of the dry grocery division
and manages the procurement process for its frozen food division and the
production of brownie mixes.  The Company's objective is to meet both the
Company's production needs and its quality standards, while at the lowest
aggregate cost to the Company.

Research and Development
------------------------

The Company maintains its primary research and development departments for its
dry grocery division in Columbus, Ohio and for its frozen food division in St.
Louis, Missouri.  The departments are responsible for nearly all of the food
research and product development for the Company.  The Company uses food
technology consultants where appropriate.  The Company's research and
development resources are focused on new product development, product
enhancement, process design and improvement, packaging, and exploratory research
in new business areas.

Employees
---------

As of February 17, 1999, the Company had a total of approximately 1,311
employees, none of whom are represented by unions.  Management of the Company
believes it generally has good relations with its employees.

Business History
----------------

The Company was incorporated in Delaware on June 19, 1998, as the successor to
Aurora Foods Holdings Inc. ("Holdings") and its subsidiary, AurFoods Operating
Co., Inc. (formerly known as Aurora Foods Inc.) ("AurFoods"), both of which were
incorporated in Delaware in December 1996.  AurFoods was wholly-owned by
Holdings, which in turn was wholly-owned by MBW Investors LLC ("MBW LLC").
AurFoods was formed for the purpose of acquiring the Mrs. Butterworth's(R) syrup
business ("MBW") from Conopco, Inc., a subsidiary of Unilever United States,
Inc. ("Conopco" or the "Predecessor").  AurFoods subsequently acquired the Log
Cabin(R) syrup business ("LC") from Kraft Foods, Inc. ("Kraft") in July 1997 and
the Duncan Hines(R) baking mix business ("DH") from P&G in January 1998.

Van de Kamp's, Inc. ("VDK") was a wholly-owned subsidiary of VDK Holdings, Inc.,
a Delaware corporation ("VDK Holdings"), and was incorporated in Delaware in
July 1995 for the purpose of acquiring the Van de Kamp's(R) frozen seafood and
frozen dessert businesses from The Pillsbury Company in September 1995.  VDK
then acquired the Mrs. Paul's(R) frozen seafood business from the Campbell Soup
Company in May 1996 and the Aunt Jemima(R) frozen breakfast and Celeste(R)
frozen pizza businesses from Quaker Oats in July 1996.  VDK Holdings was wholly-
owned by VDK Foods LLC ("VDK LLC").  On April 8, 1998, MBW LLC and VDK LLC

                                       4
<PAGE>
 
formed Aurora/VDK LLC ("New LLC").  MBW LLC contributed all of the capital stock
of Holdings and VDK LLC contributed all of the capital stock of VDK Holdings to
New LLC (the "Contribution").

On July 1, 1998, Holdings, AurFoods, VDK Holdings and VDK merged with and into
the Company and the initial public offering of 12,909,372 shares of Common Stock
of the Company and 1,590,628 shares of the Company's Common Stock sold by New
LLC was consummated at an initial public offering price of $21.00 per share (the
"IPO" or "Equity Offerings").  Also, concurrently with the IPO, the Company
issued $200.0 million aggregate principal amount of 8.75% senior subordinated
notes due 2008 (the "Notes Offering" or "New Notes") and borrowed $225.0 million
of senior secured term debt and $99.0 million out of the total available of
$175.0 million of senior secured revolving debt under the Third Amended and
Restated Credit Agreement, dated as of July 1, 1998, among the Company, as
borrower, the lenders listed therein, The Chase Manhattan Bank, as
Administrative Agent, The National Westminster Bank PLC, as Syndication Agent
and Swiss Bank Corporation, as Documentation Agent (the "New Senior Bank
Facilities").

ITEM 2: PROPERTIES
------------------

The Company owns and operates three manufacturing facilities for its frozen food
products described in the following table.  The Company also owns a 175,000
square foot manufacturing facility located in Chambersburg, Pennsylvania, which
the Company has made available for sale.  The Company manufactured its frozen
desserts product line, which it sold on May 1, 1998, at this facility.  The
Company's headquarters are leased by Dartford Partnership L.L.C. ("Dartford")
pursuant to a lease that expires February 2002.  See "Certain Relationships and
Related Transactions".  The frozen food division's corporate office lease will
expire in March 2001.  The dry grocery division's corporate office lease will
expire in March 2004.  The Company's facilities, equipment and offices are
subject to security interests granted to its lenders.

<TABLE>
<CAPTION>
                                                                         Approximate 
         Location                         Principal Use                 Square Footage           Owned/Leased
---------------------------  ---------------------------------------   ------------------    --------------------
  <S>                        <C>                                       <C>                   <C>
  Jackson, TN                Frozen breakfast, frozen pizza and              302,000                 Owned
                             grilled fish production
  Erie, PA                   Frozen seafood production                       116,000                 Owned
  Yuba City, CA              Frozen seafood production                        56,000                 Owned
  St. Louis, MO              Frozen food division corporate office            36,000                 Leased
  Columbus, OH               Dry grocery division corporate office            10,500                 Leased
  San Francisco, CA          Company headquarters                              7,000                 Leased
</TABLE>

All of the Company's equipment is generally in good physical condition, well
maintained and suitable for the manufacture of the particular product line for
which it is used.  The Company's equipment generally operates with some
available capacity.

ITEM 3: LEGAL PROCEEDINGS
-------------------------

The Company is subject to litigation in the ordinary course of business. In the
opinion of management, the ultimate outcome of any existing litigation would not
have a material adverse effect on the Company's financial condition or results
of operations.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------

Not applicable.

                                       5
<PAGE>
 
PART II
-------

ITEM 5: MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------------------

The Company's common stock is traded on the New York Stock Exchange and the
Pacific Exchange under the symbol AOR.  The table below states the high and low
closing prices by quarter on the New York Stock Exchange from the date of the
Company's IPO through December 31, 1998:

<TABLE>
<CAPTION>
              1998                               High                           Low                                  
     ------------------------                -------------                 --------------                       
     <S>                                     <C>                           <C>                                             
     June 26-  June 30                          $21.1250                      $21.0000                              
     July 1-   September 30                     $22.3750                      $12.6250                              
     October 1- December 31                     $19.8750                      $ 9.9375                              
</TABLE>

As of December 31, 1998, there were approximately 140 holders of record of the
Company's common stock.  The Company has not paid any cash dividends since its
inception.  Due to restrictions imposed by the New Senior Bank Facilities, the
Company cannot declare dividends.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

ITEM 6: SELECTED FINANCIAL DATA
-------------------------------

The selected financial data presented below, as of December 31, 1998 and
December 27, 1997 and for the years ended December 31, 1998 and December 27,
1997, is derived from the Company's audited financial statements.  The selected
financial data of the Predecessor for the years ended December 31, 1996, 1995,
and 1994 is derived from the audited Statements of Operations of the
Predecessor.  The selected financial data should be read in conjunction with the
Company's financial statements and the Predecessor's Statement of Operations and
notes thereto, included in Item 14.

<TABLE>
<CAPTION>
                                     Aurora Foods Inc.                              Predecessor 
                       -------------------------------------------     -----------------------------------------            
                                        Years Ended                                 Years Ended                             
                       -------------------------------------------     -----------------------------------------            
                           December 31,             December 27,                                                            
(dollars in thousands)         1998                     1997                  1996          1995        1994               
                       --------------------        ---------------     --------------   -----------  -----------            
<S>                    <C>                         <C>                 <C>              <C>          <C>
Net sales                    $  789,193                $143,020              $89,541      $91,302      $96,729              
Gross profit                    471,646                  97,291               60,586       63,559       66,799              
Operating income                 44,762                  23,398               17,186       17,185       14,100              
Net (loss) income               (45,377)                  1,235               10,570       10,569        8,671              
Total assets (1)              1,433,882                 372,739                    -            -            -              
Total debt (1)                  708,092                 279,919                    -            -            -              
</TABLE>

(1)    Total assets and total debt of the Predecessor for the years ended
       December 31, 1996, 1995, and 1994 are not available. The Predecessor did
       not operate MBW as a separate division or business entity and therefore
       maintained debt and certain other components of assets and liabilities on
       a consolidated basis. See Note 1 to the Notes to Statement of Operations
       of Mrs. Butterworth's Business contained in Item 14.

                                       6
<PAGE>
 
ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------

The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the historical
financial information included in the financial statements and notes to the
financial statements.  Unless otherwise noted, fiscal years in this discussion
refer to the Company's December-ending fiscal years.

Certain statements contained in this report, including, without limitation,
statements containing the words "believes," "anticipates," "intends," "expects,"
"estimates" and words of similar import, constitute "forward-looking statements"
and involve known and unknown risk, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.  Such factors include,
among others, the following: the actions of the Company's competitors; general
economic and business conditions; industry trends; demographics; raw material
costs and availability; the continued success of management's strategy;
integration of acquired businesses into the Company; terms and development of
capital; and changes in, or the failure or inability to comply with,
governmental rules and regulations, including, without limitation, FDA and
environmental rules and regulations.  Given these uncertainties, undue reliance
should not be placed on such forward looking statements.  The Company disclaims
an obligation to update any such factors or to publicly announce the results of
any revisions to any other forward-looking statements contained herein to
reflect future events or developments.

Results of Operations
---------------------

The following tables set forth for the periods indicated the historical and pro
forma results of operations as well as the percentage, which the historical and
pro forma items in the Statements of Operations bear to net sales.  The pro
forma results of operations are presented as if the VDK Holdings and DH
acquisitions had taken place January 1, 1998 and the VDK Holdings, DH and LC
acquisitions had taken place January 1, 1997 for the years ended December 31,
1998 and December 27, 1997, respectively.  Certain amounts from prior years have
been reclassified to conform to the Company's current year presentation. The
Statement of Operations column for the year ended December 31, 1996 is that of
the Predecessor.

                                       7
<PAGE>
 
Statements of Operations
------------------------
(in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                           Actual                                          Pro Forma               
                                 ---------------------------------------------------------      ---------------------------------  
                                          Aurora Foods Inc.                    Predecessor              Aurora Foods Inc.          
                                 --------------------------------------       ------------      ---------------------------------  
                                                         Years Ended                                      Years Ended              
                                 ---------------------------------------------------------      ---------------------------------  
                                     December 31,      December 27,           December 31,        December 31,      December 27,    
                                         1998              1997                   1996                1998              1997        
                                 ------------------   -------------         --------------      ---------------    --------------
<S>                              <C>                  <C>                   <C>                 <C>                <C> 
Net sales                                 $ 789,193      $ 143,020              $  91,581 (1)        $ 946,984       $ 874,230
Cost of goods sold                          317,547         45,729                 28,955              377,769         373,101
                                      -------------   -------------         --------------      ---------------    --------------
        Gross profit                        471,646         97,291                 62,626              569,215         501,129
                                      -------------   -------------         --------------      ---------------    --------------
                                                                                                                                   
Brokerage, distribution and                                                                                                        
    marketing expenses:                                                                                                            
        Brokerage and                                                                                                              
         distribution                        74,703         17,096                 10,180 (1)           89,616          88,187
        Trade promotions                    173,467         26,075                 17,672              217,859         172,487
        Consumer marketing                   56,683         15,142                 10,835               70,163          65,718
                                      -------------   -------------         --------------      ---------------    --------------  
                              
Total brokerage, distribution and
    marketing expenses                      304,853         58,313                 38,687              377,638         326,392

Amortization of goodwill and
    other intangibles                        30,048          5,938                      -               34,105          33,424
Selling, general and administrative      
    expenses                                 25,043          5,229                  6,753               30,325          34,426
Incentive plan expense                       56,583          2,300                      -              121,323           2,300
Transition expenses                          10,357          2,113                      -               10,357           3,405
                                      -------------   -------------         --------------      ---------------    --------------
        Total operating expenses            426,884         73,893                 45,440              573,748         399,947
                                      -------------   -------------         --------------      ---------------    --------------

        Operating income (loss)              44,762         23,398                 17,186               (4,533)        101,182
 
Interest expense, net                        64,487         18,242                      -               58,474          58,233
Amortization of deferred financing                                                                                             
    expense                                   1,872          3,059                      -                1,491           1,491
Other bank and financing expenses               263             83                      -                  339             304
                                      -------------   -------------         --------------      ---------------    --------------
        (Loss) income before income 
         taxes and extraordinary item       (21,860)         2,014                 17,186              (64,837)         41,154
Income tax expense                           14,306            779                  6,616               22,312          16,256
                                      -------------   -------------         --------------      ---------------    --------------
        Net (loss) income before
         extraordinary item                 (36,166)         1,235                 10,570              (87,149)         24,898
 
Extraordinary loss on early
    extinguishment of debt, net of
    tax of $5,632                             9,211              -                      -                9,211               -
                                      -------------   -------------         --------------      ----------------    --------------

        Net (loss) income                 $ (45,377)     $   1,235              $  10,570            $ (96,360)      $  24,898
                                      =============   =============         ==============      ================    ============== 
 
Earnings per share                        $   (0.85)     $    0.04                    n/a            $   (1.44)      $    0.37
                                      =============   =============         ==============      ================    ============== 

Adjusted EBITDA (2)                       $ 151,702      $  34,809              $  17,463            $ 173,473       $ 154,403
                                      =============   =============         ==============      ================    ============== 
 
Adjusted EPS (3)                          $    0.51      $    0.14                    n/a            $    0.60       $    0.42
                                      =============   =============         ==============      ================    ==============  
</TABLE> 

     (1)   Cash discounts of the Predecessor for the year ended December 31,
           1996 have been reclassified from net sales to brokerage and
           distribution expenses to provide consistency with the Company's
           presentation and accounting policy and to facilitate comparison
           between periods.

     (2)   Adjusted EBITDA is defined as operating income before incentive plan
           expense, transition expense, depreciation and amortization of
           goodwill and other intangibles.
           
     (3)   Adjusted EPS is defined as EPS plus the per share after tax effect of
           incentive plan expense, transition expense and extraordinary item.

                                       8
<PAGE>
 
Statements of Operations
------------------------
(as a percentage of net sales)


<TABLE>
<CAPTION>
                                                                     Actual                                    Pro Forma
                                              -------------------------------------------------    ---------------------------------
                                                  Aurora Foods Inc.                Predecessor               Aurora Foods Inc.
                                              ----------------------------        -------------    ---------------------------------
                                                               Years Ended                                    Years Ended
                                              -------------------------------------------------    ---------------------------------
                                                December 31,    December 27,      December 31,      December 31,       December 27,
                                                    1998            1997             1996               1998               1997
                                              -------------------------------------------------    ---------------------------------
<S>                                           <C>              <C>                <C>              <C>                 <C> 
Net sales                                          100.0%          100.0%            100.0%  (1)        100.0%            100.0%
Cost of goods sold                                  40.2            32.0              31.6               39.9              42.7
                                              ------------      ----------        ----------         ----------         ----------- 
     Gross profit                                   59.8            68.0              68.4               60.1              57.3
                                              ------------      ----------        ----------         ----------         ------------
                                               
Brokerage, distribution and         
  marketing expenses:               
     Brokerage and distribution                      9.5            12.0              11.1   (1)          9.5              10.1
     Trade promotions                               22.0            18.2              19.3               23.0              19.7
     Consumer marketing                              7.2            10.6              11.8                7.4               7.5
                                              ------------      ----------        ----------         ----------         ------------

Total brokerage, distribution and   
  marketing expenses                                38.7            40.8              42.2               39.9              37.3

Amortization of goodwill and        
  other intangibles                                  3.8             4.1               0.0                3.6               3.8
Selling, general and administrative 
  expenses                                           3.2             3.6               7.4                3.2               3.9
Incentive plan expense                               7.2             1.6               0.0               12.8               0.3
Transition  expenses                                 1.3             1.5               0.0                1.1               0.4
                                              ------------      ----------        ----------         ----------         ------------
     Total operating expenses                       54.2            51.6              49.6               60.6              45.7
                                              ------------      ----------        ----------         ----------         ------------
                                                          
     Operating income (loss)                         5.6            16.4              18.8               (0.5)             11.6
                                    
Interest expense, net                                8.1            12.8               0.0                6.2               6.7
Amortization of deferred financing  
  expense                                            0.2             2.1               0.0                0.1               0.2
Other bank and financing expenses                    0.0             0.1               0.0                0.0               0.0
                                              ------------      ----------        ----------         ----------         ------------
                                             
     (Loss) income before income    
        taxes and extraordinary item                (2.7)            1.4              18.8               (6.8)              4.7
Income tax expense                                   1.8             0.5               7.2                2.4               1.9
                                              ------------      ----------        ----------         ----------         ------------
                                            
     Net (loss) income before       
        extraordinary item                          (4.5)            0.9              11.6               (9.2)              2.8
                                    
Extraordinary loss on early         
  extinguishment of debt, net of    
  tax of $5,632                                      1.2             0.0               0.0                1.0               0.0
                                              ------------      ----------        ----------         ----------         ------------
                                                  
     Net (loss) income                              (5.7%)           0.9%             11.6%             (10.2%)             2.8%
                                              ============      ==========        ==========         ==========         ============
</TABLE> 

   (1)  Cash discounts of the Predecessor for the year ended December 31, 1996
        have been reclassified from net sales to brokerage and distribution
        expenses to provide consistency with the Company's presentation and
        accounting policy and to facilitate comparison between periods.

                                       9
<PAGE>
 
                             RESULTS OF OPERATIONS
                                        
   YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 27, 1997
                                        
Net Sales. Net sales for the year ended December 31, 1998 were $789.2 million,
which was an increase of $646.2 million as compared to net sales in 1997 of
$143.0 million. The 1997 year included results of the Mrs. Butterworth's(R)
brand from January 1, 1997 and the Log Cabin(R) brand from July 1, 1997, which
were the only businesses owned by the Company at the time. The year ended
December 31, 1998 included the results of the Mrs. Butterworth's(R) brand, the
Log Cabin(R) brand, the Duncan Hines(R) brand from January 16, 1998 and the VDK
business from April 9, 1998.

  Pro Forma Net Sales. Pro forma net sales (which reflect all the acquisitions
  noted previously as if they had occurred on January 1 for both 1998 and 1997)
  for the year ended December 31, 1998 were $947.0 million, which represented an
  8.3% increase over net sales in the comparable 1997 year of $874.2 million.
  Sales growth in the year ended December 31, 1998 was due to unit volume growth
  in both the frozen food and dry grocery divisions and higher prices for the
  Company's Duncan Hines(R) baking mix products.

  Unit volumes increased 5.0% to 51.4 million cases from 49.0 million cases in
  the prior year. The frozen food division unit volumes increased 9.7% versus
  last year, driven by a 6.2% increase in frozen breakfast products, a 2.9%
  increase in Celeste(R) frozen pizza and a 63.5% increase in foodservice
  volumes compared to a relatively low sales base in 1997. Unit volumes for
  frozen seafood declined by 2.6% due to difficult comparisons with the prior
  year, which featured a number of new product introductions, as well as slower
  category growth relative to 1997. Unit volumes for the dry grocery division
  increased by 1.6% versus the prior year. Unit volumes of the Company's syrup
  brands increased by 0.9% and volumes of Duncan Hines(R) baking mix products
  increased 1.9%. Unit volumes for Duncan Hines(R) were negatively impacted in
  the first half of 1998 by a case load into retail channels initiated by P&G in
  the latter part of 1997 prior to P&G's divestiture of the business.

  The Company's net sales growth included a 3.3% increase related to pricing,
  which was primarily attributable to the competitive price equalization program
  initiated on the Duncan Hines(R) brand in March 1998 whereby the Company
  increased the list price on cake and frosting products to parity with the
  competition. The price equalization program generated approximately $40.5
  million in net sales for the year ended December 31, 1998. A price increase
  was also taken on syrup products in July 1998 in order to offset a cost
  increase in corn syrup. In addition, product mix shifts in both the frozen
  pizza and frozen seafood product lines have caused dollar sales for those
  segments to increase at a higher rate than unit sales. The dollar sales
  increase for the Celeste(R) business was 10.4% due to increased sales of
  premium Mama Celeste(TM) Fresh-Baked Rising Crust frozen pizza products, which
  sell at a higher list price per case than other Celeste(R) frozen pizza
  products. Sales of premium frozen fish fillets for the Company's frozen
  seafood brands (Van de Kamp's(R) and Mrs. Paul's(R)) resulted in greater
  dollar sales, which mitigated the volume shortfall for the frozen seafood
  business. Product mix shifts to higher priced items and higher prices on
  baking mix and syrup products were partially offset by lower average prices on
  the Company's foodservice volumes.

Gross Profit.  Gross profit was 59.8% of net sales, which was lower than the
gross profit in 1997 of 68.0%. The decline was due to the inclusion of Duncan
Hines(R) baking mix products and the VDK business, both of which have lower
gross profit margins than syrup products.  Also, the cost of corn syrup
increased over the 1997 year, which the Company has offset with a price increase
as previously described.

  Pro Forma Gross Profit.  On a pro forma basis, gross profit was 60.1% of net
  sales as compared to the prior year gross profit margin of 57.3%.  The
  increase was due to the pricing action initiated on the Duncan Hines(R)
  business, which elevated the gross margin on baking mix products, and cost
  savings achieved from outsourcing the production of syrup and baking mix
  products.

Brokerage, Distribution and Marketing Expenses.  Brokerage, distribution and
marketing expenses for the 1998 year increased $246.5 million as compared to the
prior year due to the inclusion of the acquired businesses.  As a percentage of
net sales, brokerage, distribution and marketing expenses were 38.7%, which was
2.1 percentage points lower than the prior year of 40.8%.

  Pro Forma Brokerage, Distribution and Marketing Expenses.  On a pro forma
  basis, brokerage, distribution and marketing expenses increased to $377.6
  million, or 39.9% of net sales, which was above the prior year of

                                       10
<PAGE>
 
  37.3%. Brokerage and distribution expenses increased $1.4 million over last
  year and decreased as a percentage of net sales to 9.5% from 10.1% in the
  prior year. The decrease as a percent of net sales was mainly the result of
  lower average brokerage commissions. Marketing expenses increased $49.8
  million and were 30.4% of net sales, which was 3.2 percentage points higher
  than the prior year of 27.2%. The increase was primarily attributable to trade
  and consumer marketing programs implemented on the Duncan Hines(R) business to
  compensate for the higher list pricing strategy initiated on cake and frosting
  products. The prior owners, P&G, followed an every-day-low-price ("EDLP")
  strategy and, consequently, the prior year included comparatively little
  marketing support. The balance of the increase was due to consumer promotions
  and media support for the Log Cabin(R) brand where none existed in the prior
  year and consumer promotions and slotting expenses related to the Company's
  new pizza product, Mama Celeste(TM) Fresh-Baked Rising Crust, and new premium
  grilled frozen seafood products.

Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased to $30.0 million from $5.9 million in 1997. The
increase of $24.1 million was due to the additional amortization expense
generated by the goodwill recorded in connection with the brands acquired by the
Company over the past year.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses of $25.0 million were $19.8 million higher than the
prior year expense of $5.2 million. The increase was due to the inclusion of VDK
and the additional infrastructure and staffing required by the dry grocery
division to operate the Log Cabin(R) and Duncan Hines(R) businesses, which were
newly integrated in 1998. Selling, general and administrative expenses were 3.2%
of net sales, which was 0.4 percentage points lower than the 3.6% experienced in
the prior year. The decrease as a percentage of net sales reflects the
efficiency gained as the size of the Company has grown dramatically over the
prior year.

Incentive Plan Expense. For the year ended December 31, 1998, the Company
recorded non-cash incentive plan expense of $56.6 million in accordance with the
Aurora Plan contained in the MBW LLC Agreement (See Financial Statement Note 14 
- Incentive Plan Expense).

Transition Expenses. Transition expenses were $10.3 million as compared to $2.1
million recorded in the prior year and represent one-time costs incurred to
establish the Company's operations and integrate the acquired businesses. The
increase was due to the acquisitions of the Log Cabin(R) and Duncan Hines(R)
brands.

Operating Income. Operating income was $44.8 million as compared to operating
income in the prior year of $23.4 million. Excluding the effects of the
incentive plan expense and transition expenses, the Company would have achieved
operating income of $111.7 million in 1998 versus operating income of $27.8
million in the prior year. The significant increase versus the prior year was
due to the inclusion of operating income generated by the acquired businesses.

  Pro Forma Operating (Loss) Income. On a pro forma basis, the Company incurred
  an operating loss of $4.5 million as compared to operating income in the prior
  year of $101.2 million. Excluding the effects of the incentive plan expense
  and transition expenses, the Company would have achieved operating income of
  $127.1 million in 1998 versus the prior year operating income of $106.9
  million. The increase in operating income was due to the improvement in gross
  profit margins and a reduction in selling, general and administrative expenses
  as a percentage of net sales, which were partially offset by higher marketing
  expenses. Marketing expenses were increased to establish media programs where
  none existed in the past, support the change to a high-low pricing strategy
  for Duncan Hines(R) and support the introduction of new products in the frozen
  food division.

Interest Expense and Amortization of Deferred Financing Expense. The aggregate
of net interest expense and amortization of deferred financing expense in 1998
of $66.4 million was higher than the prior year amount of $21.3 million. The
increase was due to the additional debt associated with the acquisitions over
the past year.

Income Tax Expense.  The income tax expense recorded for the 1998 year was $14.3
million and the prior year income tax expense was $0.8 million.  The effective
tax rate for the current year was different than the statutory rate primarily
due to the effect of the non-deductible incentive plan expense.

Net (Loss) Income.  The Company incurred a net loss of $45.4 million as compared
to net income recorded for the prior year of $1.2 million.  In addition to the
incentive plan expense recorded in the current year, the Company also

                                       11
<PAGE>
 
incurred an extraordinary charge in the net of tax amount of $9.2 million as a
result of the write-off of deferred financing charges associated with the early
extinguishment of debt facilities.

  Pro Forma Net (Loss) Income. On a pro forma basis, the Company incurred a pro
  forma loss of $96.4 million. Excluding the effects of the incentive plan
  expense and transition expenses, adjusted net income would have been $34.2
  million and earnings per share would have been $0.60.

   YEAR ENDED DECEMBER 27, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
                                        
Net Sales. Net sales for the period increased $51.4 million versus the prior
year to $143.0 million. The increase was due primarily to the acquisition of Log
Cabin(R), which added $50.4 million in net sales. Net dollar sales for Mrs.
Butterworth's(R) increased 1.0% to $92.6 million for the year ended December 27,
1997 from $91.6 million for the 1996 period, while case volume increased 5.4% to
4.14 million standard cases.

Syrup sales increased $52.1 million to $133.2 million in 1997 from $81.1 million
in 1996. The increase was due primarily to the Log Cabin(R) acquisition, which
added $50.4 million in sales during 1997. Mrs. Butterworth's(R) syrup dollar
sales increased $1.7 million, or 2.1%, to $82.8 million in 1997. Mrs.
Butterworth's(R) syrup case volume increased 7.6% to 3.52 million standard cases
in 1997 from 3.27 million standard cases in 1996. The percentage increase in
Mrs. Butterworth's(R) syrup case volume exceeded the percentage increase in
dollar sales because the Predecessor adopted a value pricing strategy in mid-
1996, which lowered the list cost on 90% of its retail syrup volume by 10%. The
increase in syrup volume was attributable to increases in the Company's Mrs.
Butterworth's(R) Original brand and foodservice and club products. The volume
increase was partially offset by a decrease in sales of Mrs. Butterworth's(R)
Country Best Recipe and Mrs. Butterworth's(R) Lite brands.

Pancake mix sales of $9.8 million in 1997 were down by $0.7 million as compared
to the 1996 period and pancake mix volume decreased 7.0% to 611,000 standard
cases. The overall pancake mix category was down approximately 4.0% in 1997 from
the prior year.

Gross Profit. Gross profit as a percentage of net sales was 68.0% for the 1997
period as compared to 68.4% for the 1996 period. The gross margin percentage in
the 1996 period was impacted by the value pricing strategy implemented in mid-
year 1996. The change to value pricing caused net revenues and gross profits to
be reduced in 1997 relative to the prior year, which only included a partial
year impact of value pricing.

Brokerage, Distribution, and Marketing Expenses. Brokerage, distribution, and
marketing expenses for 1997 were 40.8% of net sales as compared to 42.2% for
1996. The improvement was due to lower trade promotions in 1997 as a result of
the value pricing strategy as well as a reduction in high value in-ad coupons
compared to 1996.

Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles of $5.9 million was attributable to amortization of goodwill
associated with the acquisitions of Mrs. Butterworth's(R) on December 31, 1996
and Log Cabin(R) on July 1, 1997.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses of $5.2 million for 1997 were $1.6 million less than the
$6.8 million of expense incurred for 1996. The favorable variance was due to
lower overhead spending associated with the Company's stand-alone structure as
compared to amounts allocated to Mrs. Butterworth's(R) during the Predecessor's
ownership period.

Transition Expenses.  Transition related costs consist of one-time costs
incurred to establish the Company's operations and integrate the acquired
businesses, including relocation expenses, recruiting fees, sales support and
other unique transitional expenses.

Operating Income. Operating income as a percentage of net sales was 16.4% for
1997 as compared to 18.8% for 1996. The decrease in the Company's operating
profit margin was primarily due to amortization of goodwill and other
intangibles (4.1%), incentive plan expense (1.6%) and transition expenses
(1.5%), which were not incurred under the Predecessor's ownership. Excluding the
impact of these expenses, the operating margin increased to 23.6% of net sales
because trade promotions, consumer marketing and selling, general and
administrative expenses were lower than the prior year as a percentage of net
sales. Overall, operating income increased $6.2 million, or 36.1%, to $23.4
million as compared to $17.2 million in 1996.

                                       12
<PAGE>
 
Interest Expense and Amortization of Deferred Financing Expense. Net interest
expense and amortization of deferred financing expense was $21.3 million in
1997. These expenses were related to the financing of the acquired businesses.
The Predecessor did not separately allocate these respective costs to Mrs.
Butterworth's(R).

Income Tax Expense. The Company has a combined federal and state tax rate of
approximately 38.7% in 1997 as compared to the Predecessor's effective rate in
1996 of 38.5%.

Net Income. Net income was $1.2 million in 1997, which was $9.3 million lower
than the prior year. The decline in net income was attributable to the interest
expense, financing and goodwill expenses incurred during 1997.

                        LIQUIDITY AND CAPITAL RESOURCES
                                        
For the year ended December 31, 1998, cash provided by operations was $50.2
million. Net loss plus non-cash charges provided $76.1 million of operating cash
flow and an increase in net working capital used $25.9 million of cash during
the current year. As compared to December 27, 1997, current assets, excluding
cash and current deferred tax assets, increased $150.0 million and current
liabilities, excluding current maturities of senior secured debt, increased
$85.1 million. The increase in both current assets and current liabilities was
the result of three factors: (1) the inclusion of items of working capital
related to the Log Cabin(R) and Duncan Hines(R) businesses, which had previously
been recorded on the prior owners' books in accordance with the respective
transition services agreements, (2) the inclusion of all items of working
capital related to the VDK business acquired on April 8, 1998 and (3) increased
inventory levels of certain Duncan Hines(R) products produced by P&G in advance
of relocating certain production equipment to the Company's contract
manufacturers' production facilities, which have been financed mainly from the
Company's senior secured revolving debt facility. The increase in current
assets, primarily additional receivable balances and higher inventory levels,
was greater than the inclusion of current liability balances from the respective
acquisitions, which caused the use of cash for working capital needs to be $25.9
million. Inventory balances are expected to remain near current levels as the
Company continues to carry Duncan Hines(R) transitional inventories while
production equipment is decommissioned and relocated to the Company's contract
manufacturers' production facilities over the next six months.

Net cash used in investing activities was $478.7 million for the year ended
December 31, 1998. The acquisitions of Duncan Hines(R) and VDK Holdings used
cash of $454.3 million and $8.4 million, respectively. On May 1, 1998, VDK
completed the sale of its frozen desserts product line (the "Desserts Sale"),
which generated net proceeds of $28.0 million. During the year, the Company
spent $39.8 million on capital expenditures and received $10.0 million from P&G
as a contractual reimbursement, which offset capital costs incurred in
connection with the relocation of manufacturing equipment to the Company's
contract manufacturers' production facilities. Capital expenditures were
incurred to expand capacity for its frozen breakfast products, establish
internal production of its new rising crust frozen pizza product and relocate
and install acquired manufacturing equipment. The Company expects to spend
approximately $17.0 million on capital projects in 1999.

During the year ended December 31, 1998, financing activities provided cash of
$424.2 million. To finance the acquisition on January 16, 1998 of the Duncan
Hines(R) business and related expenses, the Company borrowed $450.0 million of
senior secured term debt under the Aurora Senior Bank Facilities and received a
$93.8 million capital contribution from Holdings (See Financial Statement Note 
3 - Business Acquisitions). The Company repaid the senior secured term debt and
senior secured revolving debt facility that existed prior to the Aurora Senior
Bank Facilities in the amount of $77.5 million and incurred an extraordinary
charge for the write-off of deferred financing charges in connection with the
early extinguishment of debt in the net of tax amount of $1.9 million. The
Company used the net proceeds from the Desserts Sale to repay $25.0 million on
the VDK Senior Bank Facilities.

In conjunction with the consummation of the IPO on July 1, 1998 (See Financial
Statement Note 1 - The Company), the Company used net proceeds from the sale of
12,909,372 of common equity securities in the amount of $254.8 million and
proceeds from the Company's New Senior Bank Facilities and New Notes in the
amount of $324.0 million and $200.0 million, respectively, to repay $647.8
million of senior secured debt and $114.5 million of senior subordinated notes,
including the associated redemption premium, and pay associated fees and
expenses. As a result of the early extinguishment of senior secured debt, the
Company recorded an extraordinary charge of $7.3 million, net of income tax of
$4.4 million, for the write-off of deferred financing charges. The remaining
proceeds and repayments during the year ended December 31, 1998 were periodic
draws and repayments under the Company's senior secured revolving debt
facilities.

At December 31, 1998, the Company had $0.4 million of cash and cash equivalents
and an unused commitment of $89.2 million on its senior secured revolving debt
facility under the Company's New Senior Bank Facilities. The

                                       13
<PAGE>
 
Company's primary sources of liquidity are cash flows from operations and
available borrowings under the $175.0 million revolving debt facility.
Management believes the available borrowing capacity under the revolving debt
facility combined with cash provided by operations will provide the Company with
sufficient cash to fund operations as well as to meet existing obligations.

Other Information
-----------------

Year 2000.

The dates on which the Company believes Year 2000 compliance will be completed
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, or that there will not be
a delay in, or increased costs associated with, the implementation of Year 2000
compliance. Specific factors that might cause differences between the estimates
and actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability to locate and correct all relevant
computer code, timely responses to and corrections by third-parties and
suppliers, the ability to implement interfaces between the new systems and the
systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-parties, the Company cannot
ensure its ability to resolve problems associated with the Year 2000 issue that
may affect its operations and business, or expose it to third-party liability in
a timely and cost-effective manner.

The Year 2000 issue, which is common to most corporations, concerns the
inability of information systems, including computer software programs as well
as non-information technology systems, to properly recognize and process date-
sensitive information related to the Year 2000 and beyond. The Company believes
that it will be able to achieve Year 2000 compliance by the end of 1999 and does
not currently anticipate any material disruption of its operations as a result
of any failure by the Company to be Year 2000 compliant. However, to the extent
the Company is unable to achieve Year 2000 compliance, the Company's business
and results of operations could be materially affected. This could be caused by
computer-related failures in a number of areas including, but not limited to,
the failure of the Company's financial systems or manufacturing and inventory
management systems.

Efforts to identify the risks associated with Year 2000 compliance began in 1997
by identifying the potential areas of exposure. The Company's information
technology was split into three areas of concern: internal mission-critical
systems and applications, internal non-mission-critical systems and applications
and external data sources and trading partners.

Compliance within internal mission-critical systems and applications is nearly
complete. Given the relatively recent incorporation of the Company, most systems
and applications have been purchased within the last year or two. All purchases
made were for systems that were Year 2000 compliant or for those that had
documented plans and dates for future compliance. Currently, the Warehouse
Management System in the frozen food division, which accesses a compliant
information database, is the only remaining mission-critical application not
compliant. The Company has elected to upgrade the functionality of its current
Warehouse Management System and, therefore, will be replacing the entire system.
The new system has been selected and is scheduled to have installation and
testing completed by June 1999. Internal non-mission-critical systems and
applications are currently being analyzed and are presently expected to be
compliant by the middle of 1999.

In addition to reviewing its internal systems, the Company has polled or is in
the process of polling its third-party vendors, customers and freight carriers
to determine whether they are Year 2000 compliant and to attempt to identify any
potential issues. If the Company's customers and vendors do not achieve Year
2000 compliance before the end of 1999, the Company may experience a variety of
problems, which may have a material adverse effect on the Company. Among other
things, to the extent the Company's customers are not Year 2000 compliant by the
end of 1999, such customers may lose electronic data interchange ("EDI")
capabilities at the beginning of the Year 2000. Where EDI communication would no
longer be available, the Company expects to utilize voice, facsimile and/or mail
communications in order to receive customer orders and process customer
billings. To the extent the Company's vendors or co-packers are not Year 2000
compliant by the end of 1999, such vendors or co-packers may fail to deliver
ordered materials and products to the Company and may fail to bill the Company
properly and promptly. Consequently, the Company may not have the correct
inventory to send to its customers and may experience a shortage or surplus of
inventory which could materially adversely affect the Company's business and
results of operations. The Company is in the process of developing a plan to
address potential problems with respect to its vendors; however, the Company
believes it has access to sufficient alternative sources of supply.

                                       14
<PAGE>
 
To date, the Company has incurred and expensed approximately $0.1 million
related to the assessment and development of the remediation plan and the
purchase of new compliant hardware and software. Management anticipates spending
and expensing an additional $0.5 million through the end of 1999 to implement
its entire Year 2000 plan. The costs of the project and the date on which the
Company plans to complete the Year 2000 modifications are based on management's
best estimates, which were derived using numerous assumptions of future events
including the continued availability of certain resources, third-parties' Year
2000 readiness and other factors.

The Company is in the process of developing contingency plans so that the
Company's critical business processes can be expected to continue to function on
January 1, 2000 and beyond. The Company's contingency plans will be structured
to address both remediation of systems and their components and overall business
operating risk. These plans are intended to mitigate both internal risks as well
as potential risks in the supply chain of the Company's suppliers and customers.

Acquisitions.

Growth of the Company through acquisitions may require the Company to incur
additional indebtedness or issue equity securities. There can be no assurance
that additional debt or equity will be available to the Company or, if
available, on terms acceptable to the Company.

Impact of New Accounting Pronouncements.

On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). FAS 133 requires that all derivatives be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Company's results of
operations or its financial position.

The Company currently does not use derivative financial instruments for trading
or speculative purposes. In accordance with the New Senior Bank Facilities, the
Company is required to enter into interest rate protection agreements to the
extent necessary to provide that, when combined with the Company's senior
subordinated notes, at least 50% of the Company's aggregate indebtedness is
subject to either a fixed interest rate or interest rate protection agreements.
Accordingly, the Company's interest rate agreements are as follows:

Interest Rate Collar Agreements.

At December 31, 1998, the Company was party to two interest rate collar
agreements. On August 22, 1996, the Company entered into a three year interest
rate collar agreement with a notional principal amount of $70.0 million, a cap
rate of 6.5% (plus the applicable margin) and a floor rate of 5.75% (plus the
applicable margin). On November 26, 1996, the Company entered into a three year
interest rate collar agreement with a notional principal amount of $50.0
million, a cap rate of 7.5% (plus the applicable margin) and a floor rate of
5.5% (plus the applicable margin).

Interest Rate Swap Agreement.

The Company entered into an interest rate swap agreement on March 17, 1998. The
notional principal amount covered under the interest rate swap agreement is
$150.0 million and the term is three years. The effective swap rate was 5.81%.

On November 30, 1998, the Company amended the existing interest agreement
whereby the counterparty received the option to extend the termination date to
March 17, 2003. The new effective swap rate through the termination date of the
interest rate swap agreement is 5.37%.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
------------------------------------------------------------------

The Company entered into interest rate swap and collar agreements for non-
trading purposes. Risks associated with the interest rate swap and collar
agreements include those associated with changes in the market value and
interest

                                       15
<PAGE>
 
rates. Management considers the potential loss in future earnings and cash flows
attributable to the interest rate swap and collar agreements not to be material.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

Reference is made to Item 14.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

Not applicable.

                                       16
<PAGE>
 
PART III
--------

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------------------------------

The names, ages and positions of all directors and executive officers of Aurora
Foods Inc., as of February 17, 1999, are listed below, followed by a brief
account of their business experience for at least the past five years. Directors
and officers serve in their positions until their resignation or removal.
Officers serve at the pleasure of the Board of Directors.

<TABLE>
<CAPTION>
 
     Name                                         Age           Position(s)
     ----                                         ---           -----------
<S>                                               <C>           <C>
     Ian R. Wilson                                69             Chairman of the Board and Chief Executive Officer
     James B. Ardrey                              40             Vice Chairman and Director
     Ray Chung                                    50             Executive Vice President
     M. Laurie Cummings                           35             Chief Financial Officer and Secretary
     Thomas O. Ellinwood                          44             President, Frozen Food Division
     Thomas J. Ferraro                            50             President, Dry Grocery Division
     Anthony A. Bevilacqua                        42             Executive Vice President, Sales and
                                                                       Marketing, Frozen Food Division
     C. Gary Willett                              44             Executive Vice President, Dry Grocery
                                                                       Division
     Clive A. Apsey                               49             Director
     Charles Ayres                                38             Director
     David E. De Leeuw                            53             Director
     Charles J. Delaney                           37             Director
     Richard C. Dresdale                          42             Director
     Andrea Geisser                               55             Director
     Peter Lamm                                   46             Director
     Tyler T. Zachem                              32             Director
</TABLE>

IAN R. WILSON - CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER

Mr. Wilson has served as Chairman of the Board and Chief Executive Officer of
the Company since June 1998. Prior to that time, Mr. Wilson was Chairman of both
AurFoods from December 1996 to June 1998 and VDK from September 1995 to June
1998. Mr. Wilson is the Managing Partner of Dartford, a private partnership
focused on the food and beverage industries. From 1995 to 1998, Mr. Wilson was
the Chairman of Windy Hill Pet Food Company, Inc. ("Windy Hill"). From 1989
through 1995, Mr. Wilson was Chairman and Chief Executive Officer of Windmill
Holdings Corporation ("Windmill"), a leading specialty miller and supplier of
branded food products. From 1985 through 1989, Mr. Wilson was Chairman and Chief
Executive Officer of Wyndham Foods, Inc. ("Wyndham"), a major cookie company he
founded and positioned as a leading popular priced cookie company in the United
States. From 1983 to 1984, Mr. Wilson was the Chairman and Chief Executive
Officer of Castle & Cooke, Inc. (now known as Dole Food Company, Inc.), an
international food and real estate concern. Prior to Castle & Cooke, Inc., Mr.
Wilson spent 25 years with The Coca-Cola Company, serving in a series of
international operating management positions. Ultimately, Mr. Wilson served as
Vice Chairman of The Coca-Cola Company and President of the Pacific Group. Mr.
Wilson's past service as a director includes Chairman of the Board of Wyndham,
Windmill and Windy Hill and membership on the boards of Novell, Inc., Revlon,
Inc., Crown Zellerbach Corporation and Castle & Cooke, Inc.

JAMES B. ARDREY - VICE CHAIRMAN AND DIRECTOR

Mr. Ardrey has served as Vice Chairman and Director of the Company since June
1998. Prior to that time, Mr. Ardrey was Executive Vice President and Director
of VDK from September 1995 to June 1998 and Executive Vice President and
Director of AurFoods from December 1996 to June 1998. Mr. Ardrey is a partner of
Dartford. From 1996 to 1998, Mr. Ardrey was Executive Vice President of Windy
Hill. From 1993 to 1995, Mr. Ardrey was a consultant to Windmill, conducting its
divestiture program. From 1984 to 1992, Mr. Ardrey was an investment banker with
PaineWebber Incorporated, serving as Managing Director from 1990 to 1992. Prior
to joining PaineWebber, Mr. Ardrey was a consultant with Booz, Allen & Hamilton.

                                       17
<PAGE>
 
RAY CHUNG - EXECUTIVE VICE PRESIDENT

Mr. Chung has served as Executive Vice President of the Company since June 1998.
Prior to that time, Mr. Chung was Executive Vice President of VDK and Director
of VDK Holdings, Inc. from September 1995 to June 1998 and Executive Vice
President and Director of AurFoods from December 1996 to June 1998. Mr. Chung is
a founding partner of Dartford. Mr. Chung has previously served as a Director
and Executive Vice President of Windy Hill from 1995 to 1998, as a Director,
Executive Vice President and Chief Financial Officer of Windmill from 1989 to
1995 and as a Director, Executive Vice President and Chief Financial Officer of
Wyndham from 1985 to 1990. From May 1984 to September 1985, Mr. Chung served as
Vice President-Finance for the Kendall Company (Colgate-Palmolive). Between 1981
and 1984, Mr. Chung served as Vice President-Finance for Riviana Foods, Inc. He
currently serves as a director of Doane Pet Care Enterprises, Inc.

M. LAURIE CUMMINGS - CHIEF FINANCIAL OFFICER AND SECRETARY

Ms. Cummings has served as Chief Financial Officer and Secretary of the Company
since June 1998. Prior to that time, Ms. Cummings was Vice President and
Secretary of VDK from September 1995 to June 1998 and Vice President and
Secretary of AurFoods from December 1996 to June 1998. Ms. Cummings is a partner
of Dartford. Ms. Cummings served as Vice President and Secretary of Windy Hill
from 1995 to 1998. Ms. Cummings was Vice President, Controller and Treasurer of
Windmill from 1989 to 1995. Between 1987 and 1990, Ms. Cummings was the
Controller and Assistant Treasurer of Wyndham.

THOMAS O. ELLINWOOD - PRESIDENT, FROZEN FOOD DIVISION

Mr. Ellinwood has been with VDK since 1995. Mr. Ellinwood has been responsible
for the management of VDK since Pet Incorporated ("Pet") acquired Van de Kamp's,
Inc. from Grand Metropolitan, PLC in October 1989, when he headed the
acquisition and integration team as Director/Marketing Manager. Mr. Ellinwood
was Vice President and General Manager of Pet from March 1992 until VDK bought
the Van de Kamp's, Inc. business in 1995. Between 1990 and 1992, Mr. Ellinwood
held the position of Vice President, Marketing at Pet. Prior to Pet's
acquisition of Van de Kamp's, from 1986 to 1989, Mr. Ellinwood held various
positions of increasing responsibility with Pet's sales and marketing
departments. Mr. Ellinwood served as General Manager of Omar, Inc., a privately
owned aerospace manufacturing company, from 1983 to 1986.

THOMAS J. FERRARO - PRESIDENT, DRY GROCERY DIVISION

Prior to joining AurFoods in December 1996, from September 1994 to June 1996,
Mr. Ferraro served as President of Campfire, Inc., which merged into
International Home Foods, Inc. Prior to joining Campfire, Inc. he was Vice
President of Sales for the Niche Grocery division of Borden, Inc. from 1991 to
1994. Mr. Ferraro's experience with niche grocery products extends back to his
early career with RJR Nabisco Inc. and Dracket products, a division of Bristol-
Meyers Squibb Company, where he held a variety of marketing and sales positions.

ANTHONY A. BEVILACQUA - EXECUTIVE VICE PRESIDENT, SALES AND MARKETING, FROZEN
FOOD DIVISION

Mr. Bevilacqua joined VDK in February 1998 and is responsible for the frozen
food division's sales and marketing functions. Prior to joining VDK, Mr.
Bevilacqua was Senior Vice President at Aramark's Spectrum Healthcare Services
from September 1994 to December 1997. Between 1980 and 1994, Mr. Bevilacqua held
various positions of increasing responsibility in sales and marketing with
Ralston Purina Company ("Ralston"). In 1992, he was promoted to Vice President
of Marketing at Ralston's Eveready Battery Canadian division.

C. GARY WILLETT - EXECUTIVE VICE PRESIDENT, DRY GROCERY DIVISION

Mr. Willett joined AurFoods in December 1996. From August 1995 to September
1996, he served as Executive Vice President/General Manager of Campfire, Inc.,
which merged into International Home Foods, Inc. Prior to joining Campfire,
Inc., Mr. Willett spent 12 years with Borden, Inc., from June 1983 to August
1995, in a series of marketing and general management positions, most recently
as Vice President/General Manager of Elmer's, a division of Borden, Inc.

                                       18
<PAGE>
 
CLIVE A. APSEY - DIRECTOR

Mr. Apsey has served as a Director of the Company since June 1998. Prior to that
time, Mr. Apsey was a Director of VDK from September 1995 to June 1998. Mr.
Apsey was an Executive Director of Tiger Oats Ltd. ("Tiger Oats") from 1987 to
1998 and currently serves as a non-Executive Director and consultant to the
group.

CHARLES AYRES - DIRECTOR

Mr. Ayres has served as a Director of the Company since June 1998. Prior to that
time, Mr. Ayres was a Director of AurFoods from December 1996 to June 1998. Mr.
Ayres is a managing director of McCown De Leeuw & Co., Inc. ("MDC"). Mr. Ayres
has been associated with MDC since 1991. Prior to joining MDC, Mr. Ayres was a
founding partner of HMA Investments, Inc., a private investment firm focused on
middle market management buyouts. Mr. Ayres began his career as an investment
banker with Lazard Freres & Co. He currently serves as a director of The Brown
Schools, Inc.

David E. De Leeuw - Director

Mr. De Leeuw has served as a Director of the Company since June 1998. Prior to
that time, Mr. De Leeuw was a Director of AurFoods from December 1996 to June
1998. Mr. De Leeuw is a managing director of MDC. Prior to founding MDC with
George E. McCown in 1984, Mr. De Leeuw was Manager of the Leveraged Acquisition
Unit and Vice President in the Capital Markets Group at Citibank, N.A. Mr. De
Leeuw also worked with W.R. Grace & Co. where he was Assistant Treasurer and
Manager of Corporate Finance. Mr. De Leeuw began his career as an investment
banker with Paine Webber Incorporated. He currently serves as a director of
Outsourcing Solutions Inc., American Residential Investment Trust and DIMAC
Holdings, Inc.

CHARLES J. DELANEY - DIRECTOR

Mr. Delaney has served as a Director of the Company since June 1998. Prior to
that time, Mr. Delaney was a Director of VDK from September 1995 to June 1998.
Mr. Delaney has been the President of UBS Capital LLC ("UBS") since it was
established in 1993 as a subsidiary of Union Bank of Switzerland (now UBS AG).
From 1989 to 1993, Mr. Delaney headed the UBS Leverage Finance Group of the
Corporate Banking Division. Mr. Delaney is also a director of ETM Entertainment
Network, Inc. and Peoples Telephone Company, Inc.

RICHARD C. DRESDALE - DIRECTOR

Mr. Dresdale has served as a Director of the Company since June 1998. Prior to
that time, Mr. Dresdale was a Director of AurFoods from December 1996 to June
1998. Mr. Dresdale is President of Fenway Partners, Inc. ("Fenway") and was a
founding partner. Fenway is a New York-based private equity firm for
institutional investors with the primary objective of acquiring leading middle-
market companies. Prior to founding Fenway with Messrs. Lamm and Geisser, Mr.
Dresdale was employed by Clayton, Dubilier and Rice, Inc. from June 1985 to
March 1994, most recently as a Principal. Mr. Dresdale serves as a director of a
number of Fenway's portfolio companies, including Blue Capital Management, LLC,
Central Tractor Farm & Country, Inc., Delimex Holdings, Inc. and Simmons
Company.

ANDREA GEISSER - DIRECTOR

Mr. Geisser has served as a Director of the Company since June 1998. Prior to
that time, Mr. Geisser was a Director of VDK from September 1995 to June 1998
and a Director of AurFoods from December 1996 to June 1998. Mr. Geisser has been
a Managing Director of Fenway since the firm's founding in 1994. Prior to
founding Fenway with Messrs. Lamm and Dresdale, Mr. Geisser was employed by
Butler Capital Corporation ("BCC") from February 1989 to June 1994, most
recently as Managing Director and General Partner of each of the management
partnerships of the investment partnerships sponsored by BCC. From 1986 to 1989,
Mr. Geisser was a Managing Director of Onex Investment Corporation, the largest
Canadian leveraged buyout company, and prior to that started the U.S. operations
of EXOR, a European investment company, where he was a Senior Vice President and
Director. Mr. Geisser serves as a director of a number of Fenway's portfolio
companies, including Decorative Concepts, Inc., New Creative Enterprises, Inc.,
Iron Age Corporation, Simmons Company and Valley Recreation Products, Inc.

                                       19
<PAGE>
 
PETER LAMM - DIRECTOR

Mr. Lamm has served as a Director of the Company since June 1998. Prior to that
time, Mr. Lamm was a Director of VDK from September 1995 to June 1998 and a
director of AurFoods from December 1996 to June 1998. Mr. Lamm is Chairman and
Chief Executive Officer of Fenway and was a founding partner. Prior to founding
Fenway with Messrs. Dresdale and Geisser, Mr. Lamm was employed by Butler
Capital Corporation from February 1982 to April 1994, most recently as Managing
Director and General Partner of each of the management partnerships of the
investment partnerships sponsored by BCC. Mr. Lamm serves as a director of a
number of Fenway's portfolio companies, including Blue Capital Management, LLC,
Central Tractor Farm & Country, Inc., Delimex Holdings, Inc., Iron Age
Corporation and Simmons Company.

TYLER T. ZACHEM - DIRECTOR

Mr. Zachem has served as a Director of the Company since June 1998. Prior to
that time, Mr. Zachem was a Director of AurFoods from December 1996 to June
1998. Mr. Zachem is a managing director of MDC. Mr. Zachem has been associated
with MDC since July 1993. Mr. Zachem previously worked as a consultant with
McKinsey & Co. and as an investment banker with McDonald & Company. He currently
serves as a director of Outsourcing Solutions Inc., RSP Manufacturing
Corporation, The Brown Schools, Inc. and Papa Gino's, Inc.

There are no family relationships between any directors or executive officers of
the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Each of the entities and individuals who are signatories to the Securityholders
Agreement (defined below) filed a Form 3 in either July or August 1998 instead
of on the due date of June 25, 1998 and filed a Form 4 several days after the
due date August 10, 1998.

ITEM 11:  EXECUTIVE COMPENSATION
--------------------------------

The following Summary Compensation Table sets forth the compensation received by
the officers of the Company (together, the "Named Executive Officers"), during
the years ended December 31, 1998 and December 27, 1997.

Summary Compensation Table
--------------------------

<TABLE>
<CAPTION>
                                                                             Long-term
                                                Annual Compensation         Compensation                                            
                                                -------------------         ------------                                            
                                                                             Securities     
Name and Principal Position                                                  Underlying      All Other                              
as of December 31, 1998                Year    Salary (1)      Bonus (1)       Options      Compensation    
----------------------------------    ------   ------------    -----------    ----------   --------------   
<S>                                   <C>      <C>             <C>          <C>           <C>                                       
Ian R. Wilson                          1998    $ 1,000,000     $ 450,000            -     $        -                                
Chairman of the Board and                                                                                                           
   Chief Executive Officer                                                                                                          
                                                                                                                                    

James B. Ardrey                        1998        600,000       270,000            -              -                                
Vice Chairman                                                                                                                       
                                                                                                                                    

Ray Chung                              1998        350,000       157,500            -              -                                
Executive Vice President                                                                                                            
                                                                                                                                    

M. Laurie Cummings                     1998        250,000       112,500            -              -                                
Chief Financial Officer and                                                                                                         
   Secretary                                                                                                                        
                                                                                                                                    

Thomas O. Ellinwood                    1998        275,000       123,750      175,000          8,895                                
President, Frozen Food Division                                                                                                     
                                                                                                                                    

Thomas J. Ferraro                      1998        275,000       165,000      175,000          9,000                                
President, Dry Grocery Division        1997        175,000       143,000            -          9,000                                
</TABLE>

 (1)   Amounts have been annualized.

                                       20
<PAGE>
 
Other compensation includes Company contributions on behalf of the officers to
profit sharing and savings plans and other related benefits.

The following table sets forth information with respect to stock option grants
to the Named Executive Officers during 1998. The options were granted at an
exercise price equal to 100% of the fair market value of the common stock on the
date of grant. The options vest ratably over three years beginning in the third
year after the date of grant and expire ten years after the date of grant.

Option Grants in the Last Fiscal Year
-------------------------------------

<TABLE>
<CAPTION>
                                                     Individual Grants
                            -----------------------------------------------------------------
                                Number of
                               Securities        Percent of Total
                               Underlying       Options Granted to                                     
                                 Options           Employees in      Exercise    Expiration    Grant Date Present            
         Name                  Granted (1)          Fiscal Year        Price        Date           Value (2)              
-------------------------   -----------------   ------------------  ----------  -------------  ------------------            
<S>                         <C>                 <C>                 <C>         <C>            <C>                           
Ian R. Wilson                       -                    -          $    -            -        $       -                     
James B. Ardrey                     -                    -               -            -                -                     
Ray Chung                           -                    -               -            -                -                     
M. Laurie Cummings                  -                    -               -            -                -                     
Thomas O. Ellinwood             175,000                8.6%           21.00        7/1/08            5.96                    
Thomas J. Ferraro               175,000                8.6%           21.00        7/1/08            5.96                    
</TABLE>

(1)    Options were granted pursuant to the Company's 1998 Incentive Plan dated
       July 1, 1998 and vest ratably over three years beginning with the third
       year after the date of grant.

(2)    Present value was calculated using the Black-Scholes single option
       pricing model with the following weighted-average assumptions: dividend
       yield of 0%, expected volatility of 0.20, a risk-free interest rate of
       4.8% and expected option lives of five years.

The following table sets forth information with respect to each exercise of
stock options during the 1998 fiscal year by a Named Executive Officer and the
number and value of unexercised stock options held by the Named Executive
Officers at December 31, 1998.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
--------------------------------------------------------------------------
Values
------

<TABLE>
<CAPTION>
                                                                Number of Securities        Value of Unexercised In-the-
                                                              Underlying Unexercised        Money Options at Fiscal Year 
                                                            Options at Fiscal Year End                 End (2)  
                                                          --------------------------------  --------------------------------
                             Shares              
                           Acquired on      Value                      
         Name                Exercise     Realized (1)     Exercisable     Unexercisable     Exercisable     Unexercisable 
------------------------  -------------  ---------------  --------------  ----------------  --------------  ----------------
<S>                       <C>            <C>              <C>             <C>               <C>             <C> 
Ian R. Wilson                        -   $          -               -                  -    $          -    $          - 
James B. Ardrey                      -              -               -                  -               -               -
Ray Chung                            -              -               -                  -               -               -
M. Laurie Cummings                   -              -               -                  -               -               -
Thomas O. Ellinwood                  -              -               -            175,000               -               -
Thomas J. Ferraro                    -              -               -            175,000               -               -
</TABLE>

 (1)  The Value Realized is equal to the fair market value on the date of
      exercise, less the exercise price, times the number of shares acquired. No
      options were exercised during the last fiscal year.

 (2)  The Value of Unexercised In-the-Money Options at Fiscal Year End is equal
      to $19.8125, the fair market value of each share underlying the options at
      December 31, 1998, less the exercise price, times the number of options.
      No options were in-the-money at December 31, 1998.

                                       21

<PAGE>
 
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

The Board of Directors has appointed Messrs. Lamm, Ayres and Dresdale as members
of its Compensation Committee.  Mr. Wilson, the Chairman of the Board and Chief
Executive Officer of the Company, is an ex officio member of the Compensation
Committee.  The Compensation Committee governs the compensation of the executive
officers of the Company subject to ratification by the Board of Directors.
Messrs. Apsey and Delaney are the members of the Compensation Subcommittee.  The
Compensation Subcommittee administers the Company's 1998 Incentive Plan and the
1998 Employee Stock Purchase Plan.

Mr. Wilson is the managing partner of Dartford and, until August 1998, was the
Chairman of the Board of Directors and Chief Executive Officer of Windy Hill.
Mr. Ardrey, Vice Chairman of the Company, is also a partner of Dartford and,
until August 1998, was an Executive Vice President of Windy Hill.  Pursuant to
an agreement, dated September 19, 1995 and terminated on June 26, 1998, Dartford
provided management oversight on financial and operational matters to the
Company with respect to VDK. Dartford received $900,000, $1,800,000 and $631,000
during 1998, 1997 and 1996, respectively, under such agreement. Further,
pursuant to an agreement with the Company, dated December 31, 1996 and
terminated on July 1, 1998, Dartford provided management oversight to the
Company with respect to AurFoods. Dartford received $951,419 and $768,000 for
1998 and 1997, respectively, under such agreement. Also, Dartford earned
$1,500,000 in fees in connection with the Contribution.

From December 31, 1996 through January 16, 1998, the Company paid Dartford
$1,250,000 in fees for services rendered in connection with the acquisitions of
MBW, LC and DH. Also, from September 1995 through July 9, 1996, VDK paid
Dartford $1,950,000 in fees for services rendered in connection with
acquisitions and related financings by VDK.

The Company has entered into agreements pursuant to which it agreed to pay
transaction fees to each of Dartford, MDC, and Fenway of 0.333% of the
acquisition price for future acquisitions by the Company.

The Company has agreed to pay Dartford $800,000 per year as reimbursement of
corporate headquarters expenses which include staff salaries, miscellaneous
office expenses related to the administration of the Company's corporate
headquarters, and rent for the space leased by Dartford and used by the Company
as its corporate headquarters for a term ending the earlier of July 1, 2000 or
the date that Mr. Wilson is no longer Chairman or Chief Executive Officer of the
Company.

Messrs. Ayres, De Leeuw and Zachem are general partners of MDC.  Pursuant to an
agreement, dated December 31, 1996 and terminated on July 1, 1998, MDC
Management Company III, L.P. ("MDC III"), an affiliate of MDC, a beneficial
owner of the Company, advised the Company as to the structuring of the Company's
bank financing and the capital structure of the Company, identification and
financing of future acquisitions, and general management advice relating to the
overall strategy and positioning of the Company.  MDC III received $318,000 and
$293,000 during 1998 and 1997, respectively, under such agreement.  From
December 31, 1996 through January 16, 1998 the Company paid MDC III $5,700,000
in fees for services rendered in connection with the acquisitions of MBW, LC and
DH.  Also, MDC III earned $1,500,000 in fees in connection with the
Contribution.

Messrs. Dresdale, Geisser and Lamm are partners of Fenway.  From December 31,
1996 through January 16, 1998, the Company paid Fenway $1,500,000 in fees for
services rendered in connection with the acquisitions of the MBW, LC and DH.
Also, from September 1995 through July 9, 1996, VDK paid Fenway $1,474,000 in
fees for services rendered in connection with acquisitions and related
financings by VDK.  Fenway earned $1,500,000 in fees in connection with the
Contribution.

Employment Agreements
---------------------

Mr. Ian R. Wilson serves as the Chairman of the Board and the Chief Executive
Officer of the Company pursuant to an employment agreement dated July 1, 1998.
Under the agreement, Mr. Wilson receives an annual base salary of $1.0 million
during the term of the agreement and is eligible to receive a bonus of up to 80%
of his base salary based on certain earnings criteria.  The employment agreement
provides for a term of two years and a non-compete covenant for the term of his
employment and thereafter, if applicable, until the earlier of July 1, 2000 or
the first anniversary of employing a Chief Executive Officer other than Mr.
Wilson.  Upon termination by the Company other than for cause (as defined in the
employment agreement), Mr. Wilson shall receive his salary and shall be eligible
to receive his bonus through the remaining term of the non-compete period.  In
addition, a termination of Mr. Wilson by the Company other than for cause shall
also constitute a termination of Messrs. Ardrey and Chung and Ms. Cummings other
than for cause under the employment agreements described below.

                                       22
<PAGE>
 
Mr. James B. Ardrey serves as the Vice Chairman of the Company pursuant to an
employment agreement dated July 1, 1998.  Under the agreement, Mr. Ardrey
receives an annual base salary of $600,000 during the term of the agreement and
is eligible to receive a bonus of up to 80% of his base salary based on certain
earnings criteria.  The employment agreement provides for a term of two years
and a non-compete covenant for the term of his employment and thereafter, if
applicable, until the earlier of July 1, 2000 or the first anniversary of
employing a Chief Executive Officer other than Mr. Wilson.  Upon termination by
the Company of Mr. Ardrey or Mr. Wilson other than for cause, Mr. Ardrey shall
receive his salary and shall be eligible to receive his bonus through the
remaining term of the non-compete period.

Mr. Ray Chung serves as the Executive Vice President of the Company pursuant to
an employment agreement dated July 1, 1998.  Under the agreement, Mr. Chung
receives an annual base salary of $350,000 during the term of the agreement and
is eligible to receive a bonus of up to 80% of his base salary based on certain
earnings criteria.  The employment agreement provides for a term of two years
and a non-compete covenant for the term of his employment and thereafter, if
applicable, until the earlier of July 1, 2000 or the first anniversary of
employing a Chief Executive Officer other than Mr. Wilson.  Upon termination by
the Company of Mr. Chung or Mr. Wilson other than for cause, Mr. Chung shall
receive his salary and shall be eligible to receive his bonus through the
remaining term of the non-compete period.

Ms. M. Laurie Cummings serves as the Chief Financial Officer and Secretary of
the Company pursuant to an employment agreement dated July 1, 1998.  Under the
agreement, Ms. Cummings receives an annual base salary of $250,000 during the
term of the agreement and is eligible to receive a bonus of up to 80% of her
base salary based on certain earnings criteria.  The employment agreement
provides for a term of two years and a non-compete covenant for the term of her
employment and thereafter, if applicable, until the earlier of July 1, 2000 or
the first anniversary of employing a Chief Executive Officer other than Mr.
Wilson.  Upon termination by the Company of Ms. Cummings or Mr. Wilson other
than for cause, Ms. Cummings shall receive her salary and shall be eligible to
receive her bonus through the remaining term of the non-compete period.

Mr. Thomas J. Ferraro serves as the President of the Dry Grocery Division
pursuant to an employment agreement, dated as of December 31, 1996, as amended
(the "Ferraro Employment Agreement").  He receives an annual base salary of
$290,000 (subject to annual adjustment) during the term of the agreement and is
eligible to receive a bonus of up to 80% of his base salary based upon certain
earnings criteria.  The Ferraro Employment Agreement provides for a two-year
term ending December 31, 2000; however, on each December 31st, the term
automatically extends for one additional year so that the term ends three years
after such December 31st unless notice by either the Company or Mr. Ferraro to
terminate is given 30 days prior to the automatic extension.  If the Company
terminates Mr. Ferraro's employment without cause, the Ferraro Employment
Agreement requires the Company to pay him an amount equal to the base salary he
would have been entitled to receive through the end of the current term of his
employment agreement.  Mr. Ferraro is also entitled to receive any bonus for the
preceding fiscal year which has not been paid as of the date of his termination
plus a pro rata portion of any base and supplemental bonus with respect to such
fiscal year based upon the actual number of days the Company employed Mr.
Ferraro during such fiscal year.  Mr. Ferraro may not compete with or solicit
employees from the Company until the later of the first anniversary of his
termination and the end of the current term of his employment agreement.

Mr. Thomas O. Ellinwood serves as the President of the Frozen Food Division
pursuant to an employment agreement, dated as of March 1, 1997 as amended (the
"Ellinwood Employment Agreement").  The Ellinwood Employment Agreement provides
for a three-year term; however, on each September 30th, the term automatically
extends for one additional year so that the term ends three years after such
September 30th unless notice by either the Company or Mr. Ellinwood to terminate
is given 30 days prior to the automatic extension.  Mr. Ellinwood receives an
annual base salary of $290,000 (subject to annual adjustment) during the term of
the agreement and is eligible to receive a bonus of up to 80% of his base salary
based upon certain earnings criteria.  If the Company terminates Mr. Ellinwood's
employment without cause before a change of control (as defined in the
agreement), the Company is required to pay him the greater of (i) 200% of his
base salary then in effect or (ii) the base salary he would have been entitled
to receive through the end of the current term of the employment agreement plus
his base bonus pro rated according to the actual number of days the Company
employed him for such fiscal year.  If the Company terminates Mr. Ellinwood's
employment without cause after a change of control (as defined in the agreement)
or Mr. Ellinwood terminates his employment with the Company for "Good Reason"
(as defined in the agreement) after a change of control, the Company must pay
him the sum of 200% of his base salary then in effect plus his bonus pro rated
according to the actual number of days the Company employed him for such fiscal
year.  The pro rated portion of his bonus is payable as if the Company's
financial results equal exactly 100% of the EBITDA target for that year.  Mr.
Ellinwood's employment agreement also provides that for one year following his

                                       23
<PAGE>
 
termination of employment with the Company (other than a termination by the
Company without cause), Mr. Ellinwood may not compete with or solicit employees
from the Company.

Directors' Compensation
-----------------------

Directors who are officers, employees, or otherwise affiliates of the Company do
not receive compensation for their services as directors.  Non-employee
directors receive an annual retainer of $20,000, plus $2,000 for attending each
committee meeting of the Board of Directors and $5,000 per annum for serving as
a Chairman of any committee of the Board of Directors.  Directors of the Company
are entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof.

Aurora Incentive Plan
---------------------

The Amended and Restated Limited Liability Company Agreement of MBW LLC contains
an incentive plan (the "Aurora Plan") as a means by which certain key employees
and other specifically designated persons ("Aurora Covered Employees") of
AurFoods and/or affiliated with Aurora, were given an opportunity to benefit
from appreciation in the value of AurFoods.  Under the Aurora Plan, Aurora
Covered Employees were issued a specific class of limited liability company
member units ("Management Units"), at a nominal value, as a means to participate
in the appreciation of the equity value of AurFoods.  The Management Units were
subject to vesting requirements based on terms of employment or other factors.

Prior to the closing of the Equity Offerings, the final value of all classes of
Management Units were determined based on the valuation of the Common Stock held
indirectly by MBW LLC, and upon the closing of the Equity Offerings all unvested
Management Units became fully vested.  The aggregate value of all Management
Units was $58.9 million.  Through December 27, 1997, the Company had recorded
estimated incentive plan expense of $2.3 million based on the estimated
valuation of the Company at that time.  Additional incentive plan expense of
$56.6 million was recorded in the first and second quarters of 1998.

The incentive plan expense was recorded as a liability of MBW LLC as sponsor of
the Aurora Plan.  However, because the Aurora Plan was for the benefit of Aurora
Covered Employees, expense recognized under the Aurora Plan has been pushed down
to the Company as incentive plan expense and as additional paid-in capital from
its parent. No additional incentive plan expense will be recorded under the
Aurora Plan.

MBW LLC satisfied its liability under the Aurora Plan by distributing 4,152,417
shares of Common Stock of the Company based on the valuation of the Management
Units at the initial public offering price of the Company's Common Stock on the
dissolution of MBW LLC.

Pursuant to the Aurora Plan, Dartford, Thomas J. Ferraro and C. Gary Willett
received 2,699,071, 427,454, and 267,158 shares of Common Stock, respectively,
on the closing of the Equity Offerings in respect of the Aurora Plan. In
addition, 56 other employees received an aggregate of 758,734 shares pursuant to
the Aurora Plan.

VDK Incentive Plan
------------------

VDK LLC provided a compensation arrangement (the "VDK Plan") as a means by which
certain key employees, and other specifically designated persons ("VDK Covered
Employees") of VDK and/or affiliated with VDK, were given an opportunity to
benefit from appreciation in the equity value of VDK.  Under the VDK Plan, VDK
Covered Employees were issued a specific class of limited liability company
member units and/or performance-based units (collectively, "VDK Management
Units"), at a nominal value, as a means to participate in the appreciation of
the equity value of VDK.  The VDK Management Units were subject to vesting
requirement based on terms of employment or other factors.

Prior to the closing of the Equity Offerings, the final value of all classes of
VDK Management Units were determined based on the valuation of the shares of the
Company held indirectly by VDK LLC, and upon the closing of the Equity Offerings
all unvested VDK Management Units became fully vested.  The aggregate value of
all VDK Management Units was $66.7 million.  Through December 31, 1997, no
incentive plan expense had been recorded by VDK based on the estimated valuation
of VDK at that time.  Incentive plan expense of $66.7 million was recorded in
the first and second quarters of 1998.  The incentive plan expense was recorded
as a liability of VDK LLC as sponsor of the VDK Plan.  However, because the VDK
Plan was for the benefit of VDK Covered Employees, expense recognized under the
VDK Plan was pushed down to VDK as incentive plan expense and as 

                                       24
<PAGE>
 
additional paid-in capital from its parent. All expense recognized was recorded
on VDK's books prior to its acquisition by the Company; no expense has been
recorded on the Company's books. No additional incentive plan expense will be
recorded under the VDK Plan.

VDK LLC (or the Company as described below) will distribute a fixed number of
shares of Common Stock of the Company upon the dissolution of VDK LLC, based on
the valuation of the VDK Management Units at the initial public offering price
of the Company's Common Stock.

The VDK Plan provides for tax gross-up payments on certain distributions.
Because the Company will receive the tax benefit of such distributions and
related tax gross-up payments, and because the tax benefit is expected to exceed
the amount of the tax gross-up payments, the Company will bear the liability for
any such tax gross-up payments due.  The estimated tax gross-up payment is $12.4
million and has been recorded as additional incentive plan expense and other
liabilities.  The tax benefit of the tax gross-up payment and related
distributions of $19.6 million, which more than offsets the gross-up payments,
has been recorded to income tax expense and as a deferred tax asset.

To facilitate payment of the tax gross-up obligation and recognition of related
tax benefits, VDK adopted a new incentive plan (the "New VDK Plan" and together
with the VDK Plan, the "VDK Plans"), which was assumed by the Company in
connection with the Contribution. Under the New VDK Plan, the Company is
obligated to distribute no later than July 1, 1999 1,801,769 shares of the
Company's Common Stock to VDK Covered Employees who were granted certain types
of VDK Management Units under the VDK Plan.  The issuance of such shares (the
"MC Shares") will not increase the number of outstanding shares of Common Stock
because the Company's obligations to issue the MC Shares is contingent upon the
Company's receiving from VDK LLC, as a contribution, a number of shares of the
Company's Common Stock owned by VDK LLC equal to the number of MC Shares.  The
Company will have no obligation to issue MC Shares unless it receives a
contribution of an equal number of shares from VDK LLC.  VDK LLC is obligated to
contribute such shares to the Company after the closing of the Equity Offerings.
The Company's obligation to make the tax gross up payments referred to above is
subject to the Company being allowed a deduction for federal income tax purposes
with respect to the payment of the MC Shares and tax gross up payment.

Pursuant to the VDK Plan, Dartford, Thomas O. Ellinwood, and Anthony A.
Bevilacqua are entitled to receive 2,255,334, 244,072, and 91,756 shares of
Common Stock, respectively, under the VDK Plans no later than July 1, 1999.  In
addition, 27 employees and other persons are entitled to receive an aggregate of
979,067 shares pursuant to the VDK Plans no later than July 1, 1999.

Compensation Committee Report on Executive Compensation
-------------------------------------------------------

The Compensation Committee of the Board of Directors consists exclusively of
non-employee directors and is responsible for setting and administering the
policies that govern the compensation of executive officers of the Company.  The
Compensation Committee also administers the Company's 1998 Incentive Plan and
the 1998 Employee Stock Purchase Plan.

Compensation Philosophy

The Company's compensation program for its executive officers is based on the
following objectives:

  .  Total compensation of the executive officers should be linked to the
     financial performance of the Company.

  .  The compensation paid to the executive officers of the Company should
     compare favorably with executive compensation levels of other similarly-
     sized companies so that the Company can continue to attract and retain
     outstanding executives.

  .  The compensation program should reward outstanding individual performance
     and contributions as well as experience.

                                       25
<PAGE>
 
Compensation Methodology

The Company's executive compensation program has three components:  base salary,
annual bonus and stock options.

The Compensation Committee reviews executive compensation in light of the
Company's performance during the fiscal year and compensation data at companies
that are considered comparable.  In reviewing the Company's performance during
1998, the Compensation Committee considered a variety of factors:  Pro forma net
sales increased 8.3% to $947.0 million in 1998 from $874.2 million in 1997; pro
forma operating income increased 12.7% to $116.8 million in 1998 from $103.5
million in 1997 excluding non-cash incentive plan expense; and adjusted pro
forma EBITDA increased 12.4% to $173.5 million in 1998 from $154.4 million in
1997.  During 1998, the Company also consummated the purchase of the Duncan
Hines(R) brand in January, the merger with VDK in April and the initial public
offering of its common stock in July. The Compensation Committee considered
these strong operating results as a whole without assigning specific weights to
particular factors.  The Company, however, sets aggressive standards in
determining executive compensation and, as such, annual bonuses earned were
generally not the maximum allowable under the respective employment agreements.

Base Salary

The annual base salary is designed to compensate executives for their sustained
performance and level of responsibility.  The Compensation Committee approves
all salary increases for executive officers, which is then subject to
ratification by the Board of Directors.  The salaries of all executive officers
are established by employment agreements as previously discussed.

Annual Bonus

The annual bonus is given to promote the achievement of the Company's
performance objectives.  The specific performance objectives for each executive
officer and the payments made relative thereto are governed by earnings criteria
as established in the employment agreements.  Such criteria are primarily
measured by Company and/or divisional operating earnings and working capital
targets established in the annual operating budget process.  The annual bonus
also takes into consideration any major acquisitions and the executive's
performance in integrating such acquisition into the Company's operations.

Stock Options

Stock options are designed to provide long-term incentives and rewards tied to
the price of the Company's Common Stock.  The Compensation Committee believes
that stock options, which provide value to participants only when the Company's
shareholders benefit from stock price appreciation, are an important component
of the Company's executive compensation program.  The Compensation Committee has
not established any target level of ownership of the Company's Common Stock by
the Company's executives.  Retention of shares of the Company's Common Stock,
however, is encouraged.   Stock options are awarded under the Company's 1998
Incentive Plan.  Stock options granted to executive officers have exercise
prices equal to the market price of the Company's Common Stock on the date of
grant, vest over five years and have terms of ten years.  The Compensation
Subcommittee approves all stock option grants, which is then subject to
ratification by the Board of Directors.

Concurrent with the Company's initial public offering, Messrs. Ellinwood and
Ferraro were each granted options to purchase 175,000 shares of the Company's
Common Stock.  The grants were made to give Messrs. Ellinwood and Ferraro
incentives tied to the long-term price of the Company's Common Stock.  Messrs.
Wilson, Ardrey and Chung and Ms. Cummings were not granted any stock options
under the 1998 Incentive Plan due to their pre-existing ownership of the
Company's Common Stock through Dartford (See "Security Ownership of Certain
Beneficial Owners and Management").

Compensation of the Chief Executive Officer

Mr. Wilson became Chairman of the Board and Chief Executive Officer of the
Company in June 1998.  Mr. Wilson and the Company entered into an employment
agreement dated July 1, 1998 as described in "Executive Compensation -
Employment Agreements".

                                       26
<PAGE>
 
The Compensation Committee and the Board of Directors approved a total
compensation package that was designed to be competitive with compensation
provided to chief executive officers at companies of comparable size to the
Company as well as provide a compensation level and structure necessary to
obtain an executive with Mr. Wilson's experience and credentials.

Tax Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code of 1986 ("Section 162(m)"), as
amended, limits the federal income tax deductibility of compensation paid to the
executive officers named in the Summary Compensation Table on page 20.  The
Company generally may deduct compensation to such an officer only if the
compensation does not exceed $1,000,000 during any fiscal year or is
"performance-based" as defined in Section 162(m).  The Compensation Committee
intends to design the Company's compensation programs so that total compensation
paid to any employee will not exceed $1,000,000 in any one year, except for
compensation payments in excess of $1,000,000 which qualify as "performance-
based." However, the Company may pay compensation that is not deductible in
limited circumstances when prudent management of the Company so requires.

The Compensation Committee believes these executive compensation policies and
programs effectively serve the interests of shareholders and the Company and are
appropriately balanced to provide increased motivation for executives to
contribute to the Company's future success.

THE COMPENSATION COMMITTEE

Charles Ayres
Richard C. Dresdale
Peter Lamm

Performance Graph
-----------------

The following graph compares the cumulative total return to stockholders of the
Company's Common Stock from July 1, 1998 through December 31, 1998 to the
cumulative total return of (1) the Russell 2000 Index and (2) the S&P Mid Cap
Food Index over the same period (assuming the investment of $100 in the
Company's Common Stock and in each of the other indexes and reinvestment of all
dividends).


      COMPARISON OF CUMULATIVE TOTAL RETURN AMONG AURORA FOODS INC., THE 
               RUSSEL 2000 INDEX AND THE S&P MID CAP FOOD INDEX

                                        
                             [GRAPH APPEARS HERE]

<TABLE> 
<CAPTION> 
                  7/1/98    7/31/98    8/31/98     9/30/98     10/30/98    11/30/98     12/31/98
<S>               <C>       <C>        <C>         <C>         <C>         <C>          <C> 
AOR                 100.0   83.3       69.6        65.5        83.3        93.2          94.3     
Russell 2000        100.0   91.3       73.5        79.1        82.2        86.4          91.8
S&P Mid Cap Food    100.0   89.9       72.6        77.1        85.8        87.0          91.2     
</TABLE> 

                                       27
<PAGE>
 
ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of February 17, 1999 by (a) each
person who is known to the Company to be the beneficial owner of more than five
percent of the Company's Common Stock, (b) each director and executive officer
of the Company, and (c) all directors and executive officers of the Company as a
group.  Except as otherwise indicated, the Company believes that the persons or
entities listed below have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them, except to the extent such
power may be shared with a spouse.

<TABLE>
<CAPTION>
                                                                           SHARE BENEFICIALLY OWNED (1)
                                                                   --------------------------------------
NAME AND ADDRESS OF OWNER                                                  NUMBER              PERCENT  
                                                                   -----------------       --------------
<S>                                                                <C>                     <C>
VDK Foods LLC (2)                                                         22,949,265             34.2%        
Fenway Partners Capital Fund, L.P. (3)                                    16,626,412             24.8%       
McCown De Leeuw & Co. entities (4) (5)                                    16,384,371             24.4%       
California Public Employees Retirement System (5)                          3,737,581              5.6%       
Dartford Partnership L.L.C. (6)                                            7,275,685             10.9%       
Tiger Oats Limited (7)                                                     4,237,394              6.3%       
UBS Capital LLC (8)                                                        4,237,394              6.3%       
OFFICERS AND DIRECTORS:                                                                                      
Ian R. Wilson (6)                                                          7,275,685             10.9%       
James B. Ardrey (6)                                                        7,275,685             10.9%       
Ray Chung (6)                                                              7,275,685             10.9%       
M. Laurie Cummings (6)                                                     7,275,685             10.9%       
Thomas O. Ellinwood (9)                                                      280,514                *                      
Thomas J. Ferraro (10)                                                       486,444                *                      
Clive A. Apsey (7)                                                         4,237,394              6.3%       
Charles Ayres (4)                                                         16,384,371             24.4%       
David E. De Leeuw (4)                                                     16,384,371             24.4%       
Charles J. Delaney (8)                                                     4,237,394              6.3%       
Richard C. Dresdale (3)                                                   16,626,412             24.8%       
Andrea Geisser (3)                                                        16,626,412             24.8%       
Peter Lamm (3)                                                            16,626,412             24.8%       
Tyler T. Zachem (4)                                                       16,384,371             24.4%       
All directors and executive officers of the Company as a                                               
group (14 persons)                                                        49,528,214             73.9%        
</TABLE>

*   Less than 1%.

 (1)   As used in this table, beneficial ownership means the sole or shared
       power to vote, or to direct the voting of a security, or the sole or
       shared power to dispose, or direct the disposition of, a security. The
       table above assumes that VDK LLC was dissolved on July 1, 1998 and
       22,949,265 shares of Common Stock were distributed to the members of VDK
       LLC based on the $21.00 per share initial public offering price of the
       Common Stock. Of the 22,949,265 shares directly held by VDK LLC,
       2,470,132 shares are distributable under the VDK Plans and the remaining
       shares are distributable by VDK LLC to its members upon its dissolution,
       which will occur no later than July 1, 1999. The number of shares of
       Common Stock distributable to the members of VDK LLC upon its dissolution
       will be based on the average closing sales price of the Common Stock for
       the actual number of trading days during the 60-day period immediately
       preceding the actual date of dissolution.

 (2)   Immediately prior to the closing of the Equity Offerings, New LLC was the
       sole stockholder of the Company. New LLC has been dissolved and its
       shares of Common Stock were distributed to MBW LLC and VDK LLC, its sole
       members. MBW LLC was dissolved after the dissolution of New LLC and its
       shares of Common Stock were distributed to its members including MDC,
       Fenway Partners Capital Fund, L.P., Dartford, California Public Employees
       Retirement System ("CALPERS"), Sunapee Securities Inc. and Squam Lake
       Investors II, L.P., and certain divisional management. Each of these
       beneficial owners is party to the Securityholders Agreement dated April
       8, 1998 (the "Securityholders Agreement"). The address of VDK LLC is 456
       Montgomery Street, Suite 2200, San Francisco, CA 94104.

 (3)   Includes 16,301,510, 194,619 and 130,283 shares of Common Stock owned
       directly or indirectly by the Fenway Partners Capital Fund, L.P. (the
       "Fenway Fund"), FPIP, LLC and FPIP Trust, LLC, respectively (assuming the
       dissolution VDK LLC). Does not include shares of Common Stock directly
       owned by VDK LLC resulting from the dissolution of New LLC in respect of
       which Fenway does not have an economic interest and as to which Fenway
       disclaims beneficial ownership. The Fenway Fund holds a majority of the
       voting interests of VDK LLC, and as such may be deemed to have the power
       to

                                       28
<PAGE>
 
       vote or dispose of the shares of Common Stock held directly by VDK LLC.
       FPIP, LLC and FPIP Trust, LLC are entities formed by the investment
       professionals of Fenway to make co-investments alongside the Fenway Fund.
       The managing member of each of FPIP, LLC, and FPIP Trust, LLC is Fenway.
       The general partner of the Fenway Fund is Fenway Partners, L.P., a
       Delaware limited partnership, whose general partner is Fenway Partners
       Management, Inc., a Delaware corporation. Peter Lamm, Richard Dresdale,
       and Andrea Geisser are directors and officers of each of Fenway Partners
       Management, Inc. and Fenway, and as such may be deemed to have or share
       the power to vote or dispose of the shares of Common Stock held by the
       Fenway Fund, FPIP, LLC and FPIP Trust, LLC. Each of Messrs. Lamm,
       Dresdale, and Geisser has no direct ownership of any shares of the Common
       Stock and disclaims beneficial ownership of any of such shares except to
       the extent of their direct or indirect partnership or membership
       interests in the Fenway Fund, FPIP, LLC and FPIP Trust, LLC. The address
       of Fenway is 152 West 57th Street, New York, New York 10019.

 (4)   Includes 5,897,598 shares of Common Stock owned by McCown De Leeuw & Co.
       III, L.P., an investment partnership whose general partner is MDC III,
       418,687 shares of Common Stock owned by McCown De Leeuw & Co. III
       (Europe), L.P., an investment partnership whose general partner is MDC
       III, 98,124 shares of Common Stock owned by McCown De Leeuw & Co. III
       (Asia), L.P., an investment partnership whose general partner is MDC
       Management Company IIIA, L.P. ("MDC IIIA"), 127,571 shares of Common
       Stock owned by Gamma Fund LLC, a California limited liability company,
       5,885,400 shares of Common Stock owned by McCown De Leeuw & Co. IV, L.P.,
       an investment partnership whose general partner is MDC Management Company
       IV, LLC ("MDC IV"), 95,308 shares of Common Stock owned by Delta Fund
       LLC, a California limited liability company and 124,102 shares of Common
       Stock owned by McCown De Leeuw & Co. IV Associates, L.P. In addition,
       includes 3,737,581 shares of Common Stock held by CALPERS for which
       McCown De Leeuw & Co. III, L.P. has an irrevocable proxy which provides
       the power to vote all of the securities held by CALPERS. The voting
       members of Gamma Fund LLC and Delta Fund LLC are George E. McCown, David
       E. De Leeuw, David E. King, Robert B. Hellman, Jr., Charles Ayres, and
       Steven A. Zuckerman, who are also the only general partners of MDC III
       and MDC IIIA and the only managing members of MDC IV. Voting and
       dispositive decisions regarding the securities are made by Mr. McCown and
       Mr. De Leeuw, as Managing General Partners of each of MDC III and MDC
       IIIA who together have more than the required two-thirds-in-interest vote
       of the Managing General Partners necessary to effect such decision on
       behalf of such entity and by a vote or consent of all of the managing
       members of MDC IV. Voting and dispositive decisions regarding securities
       owned by Delta Fund LLC and Gamma Fund LLC are made by a vote or consent
       of a majority in number of the voting members of Gamma Fund LLC and Delta
       Fund LLC. Messrs. McCown, De Leeuw, King, Hellman, Ayres and Zuckerman
       have no direct ownership of any securities and disclaim beneficial
       ownership of such shares except, in the case of Gamma Fund LLC and Delta
       Fund LLC, to the extent of their proportionate membership interests. The
       address of each of the above referenced entities is c/o McCown De Leeuw &
       Co., 3000 Sand Hill Road, Building 3, Suite 290, Menlo Park, CA 94025.

 (5)   Under an irrevocable proxy, CALPERS has granted McCown De Leeuw & Co.
       III, L.P. the right to vote all of the shares of Common Stock it holds.
       The address of California Public Employees Retirement System is Lincoln
       Plaza, 400 P Street, Sacramento, CA 95814.

 (6)   Includes 1,249,031 shares, 796,268 shares, 776,942 shares, 510,800 shares
       and 519,292 shares held directly by Ian R. Wilson, James B. Ardrey, Ray
       Chung, M. Laurie Cummings and Cary S. Fitchey, respectively. Also
       includes 903,595 shares of Common Stock held directly by VDK LLC and
       indirectly by Dartford, and 2,255,334 shares of Common Stock to be
       distributed to Dartford under the VDK Plan no later than July 1, 1999.
       Assuming the dissolution of VDK LLC, also includes 130,017 shares of
       Common Stock held directly or indirectly by a trust for the benefit of
       certain family members of Ian R. Wilson, an aggregate of 101,526 shares
       of Common Stock held directly or indirectly by trusts for the benefit of
       certain family members of Ray Chung, and 32,880 shares of Common Stock
       held directly or indirectly by certain family members and trusts for the
       benefit of certain family members of James B. Ardrey. Pursuant to the
       Securityholders Agreement, such permitted transferees of Dartford are
       included for the purpose of determining the number of persons Dartford
       may designate to the Board of Directors of the Company. Mr. Ian R. Wilson
       is the managing partner, and Messrs. James B. Ardrey and Ray Chung and
       Ms. M. Laurie Cummings are partners, of Dartford and, as such, they may
       be deemed to have or share the power to vote or dispose of the Company's
       Common Stock beneficially owned by Dartford. Each of Messrs. Wilson,
       Ardrey, and Chung and Ms. Cummings disclaim beneficial ownership of any
       such shares of the Company's Common Stock except for those shares held
       directly by him or her, respectively, or otherwise in which they have a
       pecuniary interest. Does not include shares of Common Stock directly
       owned by VDK LLC resulting from the dissolution of New LLC in respect of
       which Dartford does not have an economic interest. Dartford is a member
       manager of VDK LLC, together with UBS, Gloriande (Luxembourg) SarL
       ("Gloriande"), and Fenway and as such, may be deemed to have the shared
       power to vote or dispose of such shares. Dartford disclaims beneficial
       ownership of any such shares. The address of Dartford is 456 Montgomery
       Street, Suite 2200, San Francisco, CA 94104.

 (7)   Includes 3,773,085 shares held directly by VDK LLC. Tiger Oats' shares
       are held by Gloriande, a corporation organized under the laws of
       Luxembourg, which is the record owner of the Company's Common Stock.
       Gloriande is an indirect wholly-owned subsidiary of Tiger Oats. The
       shares of capital stock of Tiger Oats are traded publicly on the
       Johannesburg Stock Exchange. Mr. Clive A. Apsey is a director of Tiger
       Oats and as such may be deemed to have the power to vote or dispose of
       the Company's Common Stock held by Tiger Oats. Mr. Apsey disclaims
       beneficial ownership of any such shares. Does not include shares directly
       owned by VDK LLC resulting from the dissolution of New LLC in respect of
       which Tiger Oats does not have an economic interest. Gloriande is a
       member manager of VDK LLC, together with Dartford, UBS and Fenway and as
       such may be deemed to have or share the power to vote or dispose of the
       Company's

                                       29
<PAGE>
 
       Common Stock distributed to VDK LLC. Gloriande disclaims beneficial
       ownership of any such shares. The address of Tiger Oats Limited is 85
       Bute Lane, Sandown, Sandton 2196, Republic of South Africa.

 (8)   Includes 3,773,085 shares held directly by VDK LLC. UBS is a member
       manager of VDK LLC, together with Dartford, Gloriande, and Fenway and as
       such may be deemed to have or share the power to vote or dispose of the
       Company's Common Stock distributed to VDK LLC. UBS disclaims beneficial
       ownership of any such shares. UBS is a wholly-owned indirect subsidiary
       of Union Bank of Switzerland. Does not include shares directly owned by
       VDK LLC resulting from the dissolution of New LLC in respect of which UBS
       does not have an economic interest and UBS disclaims any beneficial
       ownership as to such shares. The shares of capital stock of Union Bank of
       Switzerland (now UBS AG) are publicly held. Mr. Charles J. Delaney, a
       director of the Company, is the president of UBS and disclaims beneficial
       ownership of the Company's Common Stock held by UBS. The address of UBS
       is 299 Park Avenue, 34th Floor, New York, NY 10171.

 (9)   Includes 244,072 shares of Common Stock to be distributed to Mr.
       Ellinwood under the VDK Plan no later than July 1, 1999.

 (10)  Includes 427,454 shares of Common Stock distributed to Mr. Ferraro under
       the Aurora Plan and trusts for the benefit of certain of his family
       members. Mr. Ferraro disclaims beneficial ownership as to the 128,236 of
       such shares which were transferred to trusts for the benefit of certain
       of his family members.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

As of February 17, 1999, Aurora Foods Inc. has maintained business relationships
and engaged in certain transactions described below.

Pursuant to an agreement, dated September 19, 1995 and terminated on the closing
of the Equity Offerings, Dartford, a beneficial owner of the Company, provided
management oversight on financial and operational matters to the Company with
respect to VDK.  Dartford received $900,000, $1,800,000 and $631,000 for 1998,
1997 and 1996, respectively, under such agreement.

Pursuant to an agreement with the Company, dated December 31, 1996 and
terminated on the closing of the Equity Offerings, Dartford, a beneficial owner
of the Company, provided management oversight to the Company with respect to
AurFoods.  Dartford received $951,419 and $768,000 for 1998 and 1997,
respectively, under such agreement.

Pursuant to an agreement, dated December 31, 1996 and terminated on the closing
of the Equity Offerings, MDC III, an affiliate of MDC, a beneficial owner of the
Company, advised the Company as to the structuring of the Company's bank
financing and the capital structure of the Company, identification and financing
of future acquisitions, and general management advice relating to the overall
strategy and positioning of the Company.  MDC III received $318,000 and $293,000
for 1998 and 1997, respectively, under such agreement.

From December 31, 1996 through January 16, 1998, the Company paid the following
fees for services rendered in connection with the acquisitions of MBW, LC and
DH:  $1,250,000 to Dartford, whose partners, Messrs. Wilson, Ardrey and Chung,
and Ms. Cummings are executive officers and directors of the Company; $184,000
to Mr. Ferraro (President, Dry Grocery Division) and $75,000 to Mr. Willett
(Executive Vice President, Dry Grocery Division); $5,700,000 to MDC III, whose
general partners and principal include Messrs. Ayres, De Leeuw and Zachem (all
directors of the Company); and $1,500,000 was paid to Fenway, whose partners
include Messrs. Dresdale, Geisser and Lamm (all directors of the Company).
Services provided in connection with such fees included the identification and
analysis of the acquisition opportunity, the negotiation of the acquisition and
the raising of financing for such acquisition.  Fees of $1,500,000, $2,925,000,
and $4,025,000, in the aggregate, were paid in connection with the acquisitions
of MBW, LC and DH, respectively.

Also, from September 1995 through July 9, 1996, the Company paid the following
fees for services rendered in connection with acquisitions and related
financings of VDK's acquisitions:  $1,950,000 to Dartford; $1,474,000 to Fenway;
$294,000 to National Sun Industries Inc., an indirect wholly-owned subsidiary of
Tiger Oats, whose director is Mr. Apsey (a director of the Company); and
$294,000 to UBS, whose president is Mr. Delaney (a director of the Company).
Services provided in connection with such fees included the identification and
analysis of the acquisition opportunity, the negotiation of the acquisition and
the raising of financing for such acquisition.  Fees of $1,012,500, $950,000,
and $2,050,000 in the aggregate were paid in connection with the acquisitions of
Van de Kamp's(R) and Mrs. Paul's(R) frozen food business and the Quaker Oats
frozen breakfast and pizza business, respectively.

                                       30
<PAGE>
 
Pursuant to an agreement with Windy Hill, dated as of September 5, 1995, the
Company paid $198,000 in both 1996 and 1997 for computer support services. Prior
to its merger with Doane Products Company in August 1998, Dartford (of which Mr.
Wilson is the managing partner) and its partners owned 14.2% of Windy Hill and
Mr. Wilson was the Chairman of the Board and Chief Executive Officer of Windy
Hill.

Each of Fenway, MDC III, and Dartford earned $1,500,000, UBS earned $150,000,
and each of Tiger Oats and CALPERS earned $75,000 in fees in connection with the
Contribution.

The Company has entered into agreements pursuant to which it agreed to pay
transaction fees to each of Fenway, MDC and Dartford of 0.333% of the
acquisition price for future acquisitions by the Company.  Acquisition price is
the sum of (i) the cash purchase price actually received by the seller, (ii) the
fair market value of any equity securities issued by the seller, (iii) the face
value of any debt securities issued to the seller less any discounts, (iv) the
amount of liabilities assumed by the Company plus (v) the fair market value of
any other property or consideration paid in connection with the acquisition,
with installment or deferred payments to be calculated using the present value
thereof.

The Company has agreed to pay Dartford $800,000 per year as reimbursement of
corporate headquarters expenses which include staff salaries, miscellaneous
office expenses related to the administration of the Company's corporate
headquarters, and rent for the space leased by Dartford and used by the Company
as its corporate headquarters for a term ending the earlier of July 1, 2000 and
the date that Mr. Wilson is no longer Chief Executive Officer of the Company.

The Company and the Stockholders have entered into the Securityholders Agreement
which provides for certain rights, including registration rights of the
Stockholders.

On December 31, 1996 and January 16, 1998, Mr. Thomas J. Ferraro, President, Dry
Grocery Division, executed promissory notes in the amount of $60,000 and
$131,000, respectively, in favor of the Company to evidence monies borrowed to
assist in the capitalization of his limited liability company interests held in
MBW LLC.  The promissory notes mature December 31, 1999 and January 16, 2001.
Interest is due and payable quarterly at the rate of 8% per annum and there are
required annual principal payments.  The aggregate balance outstanding on his
promissory notes was $151,000 as of December 31, 1998 and was $40,000 as of
December 27, 1997.

On September 19, 1995, Mr. Thomas O. Ellinwood, President, Frozen Food Division,
executed a promissory note in the amount of $125,000 in favor of the Company to
evidence monies borrowed to assist in the capitalization of his limited
liability company interests held in VDK LLC.  The promissory note matures March
31, 1999 with required annual payments.  Interest is due and payable quarterly
at the rate of 8.5% per annum.  The balance outstanding on his promissory note
as of December 31, 1998 and December 27, 1997 was $41,666.

Pursuant to the VDK Plans, Dartford, Thomas O. Ellinwood, and Anthony A.
Bevilacqua are entitled to receive 2,255,334, 244,072, and 91,756 shares of
Common Stock, respectively, no later than July 1, 1999.  See "Executive
Compensation - VDK Incentive Plan".

                                       31
<PAGE>
 
PART IV
-------

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>                                                                             <C>   
(a)  1.a.      Financial Statements of the Company

               Report of Independent Accountants                                39           
               Balance Sheets as of December 31, 1998                                        
                 and December 27, 1997                                          40           
               Statements of Operations for the years ended                                  
                 December 31, 1998 and December 27, 1997                        41           
               Statements of Changes in Stockholders' Equity                                 
                 as of December 31, 1998 and December 27, 1997                  42           
               Statements of Cash Flows for the years ended                                  
                 December 31, 1998 and December 27, 1997                        43           
               Notes to Financial Statements                                    44 through 61 
 
     b.        Financial Statements of the Predecessor
 
               Mrs. Butterworth's Business (A Component of CONOPCO, Inc.):
 
               Report of Independent Accountants                                62
               Statement of Operations for the year
                 ended December 31, 1996                                        63
               Notes to Financial Statements                                    64 through 66
 
     2.        Financial Statement Schedule

               Schedule IX - Valuation Reserves                                 67

     3.        Exhibits                                                         68
</TABLE> 

                                       32
<PAGE>
 
(a)  Exhibits

Exhibit
Number    Exhibit
------    -------

2.1       Asset Purchase Agreement, dated as of December 18, 1996, by and
          between MBW Foods Inc. (as successor-in-interest to MBW Acquisition
          Corp.) and Conopco, Inc., as amended. (Incorporated by reference to
          Exhibit 2.1 to Aurora Foods Inc.'s Form S-4 filed on August 21, 1997,
          File No. 333-24715 ("Aurora S-4")).

2.2       Asset Purchase Agreement, dated as of March 7, 1997, by and between
          Aurora Foods Inc. and Kraft Foods, Inc. (Incorporated by reference to
          Exhibit 2.2 to the Aurora S-4).

2.3       Asset Purchase Agreement, dated as of November 26, 1997, by and
          between Aurora Foods Inc. and The Procter & Gamble Company.
          (Incorporated by reference to Exhibit 2.1 to the Aurora Foods Inc.'s
          Form 8-K filed on January 30, 1998 (the "Form 8-K")).

2.4       Merger Agreement, dated as of June 22, 1998, between the Aurora Foods
          Inc. and A Foods Inc. (Incorporated by reference to Exhibit 2.1 to the
          Aurora Foods Inc.'s Form S-1 filed on April 22, 1998, as amended, File
          No. 338-50681 (the "S-1")).

2.5       Merger Agreement, dated as of June 25, 1998, among Aurora Foods
          Holdings Inc., AurFoods Operating Co. Inc., VDK Holdings, Inc., Van de
          Kamp's, Inc. and A Foods Inc. (Incorporated by reference to Exhibit
          2.2 to the S-1).

2.6       Certificate of Merger, dated June 23, 1998, of Aurora Foods Inc. with
          and into A Foods Inc. (Incorporated by reference to Exhibit 2.14 to
          the S-1).

2.7       Amendment to Asset Purchase Agreement, dated as of February 13, 1997,
          between Van de Kamp's, Inc. and Morningstar Foods, Inc. (Incorporated
          by reference to Exhibit 2.2 to Van de Kamp's, Inc.'s Form 10-Q for the
          quarter ended March 31, 1997).

2.8       Asset Purchase Agreement, dated as of February 3, 1997, between Van de
          Kamp's, Inc. and Morningstar Foods, Inc. (Incorporated by reference to
          Exhibit 2.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended
          March 31, 1997).

2.10      Supplement No. 1 to Asset Purchase and Sales Agreement, dated as of
          July 9, 1996, between Van de Kamp's, Inc. and the Quaker Oats Company
          ("Quaker Oats"). (Incorporated by reference to Exhibit 2.2 to Van de
          Kamp's, Inc.'s Form 8-K dated July 9, 1996).

2.11      Asset Purchase and Sales Agreement, dated as of May 15, 1996 between
          Van de Kamp's, Inc. and Quaker Oats. (Incorporated by reference to
          Exhibit 2.1 to Van de Kamp's, Inc.'s Form 8-K dated July 9, 1996).

2.12      Asset Purchase and Sale Agreement, dated as of January 17, 1996,
          between Shellfish Acquisition Company, LLC ("Shellfish") and Campbell
          Soup Company ("Campbell"). (Incorporated by reference to the text of
          which and Exhibits to which are incorporated by reference to Exhibit
          2.1 to Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 30,
          1996 and a list of the contents of the schedule of which is
          incorporated by reference to Exhibit 2.1 to Van de Kamp's, Inc.'s Form
          8-K dated May 6, 1996).

2.13      Asset Purchase Agreement, dated as of January 17, 1996, between Van de
          Kamp's, Inc. and Shellfish.  (Incorporated by reference to Exhibit 2.2
          to the Van de Kamp's, Inc.'s Form 10-Q for the quarter ended March 20,
          1996).

2.14      Agreement and Amendment No. 1, dated September 19, 1995, to the Asset
          Purchase Agreement among Van de Kamp's, Inc., the Pillsbury Company
          and PET Incorporated.  (Incorporated by reference to Exhibit 2.2 to
          Van de Kamp's, Inc.'s Form S-4 filed on October 4, 1995 (the "Van de
          Kamp's S-4")).

                                       33
<PAGE>
 
2.15      Asset Purchase Agreement, dated as of July 7, 1995 among Van de
          Kamp's, Inc., the Pillsbury Company and PET Incorporated.
          (Incorporated by reference to Exhibit 2.1 to the Van de Kamp's S-4).

3.1       Certificate of Incorporation of A Foods Inc., filed with the Secretary
          of State of the State of Delaware on June 19, 1998. (Incorporated by
          reference to Exhibit 3.1 to the S-1).

3.2       Amended and Restated By-laws of Aurora Foods Inc. (Incorporated by
          reference to exhibit 3.2 to the S-1).

4.1       Indenture dated as of February 10, 1997, by and between Aurora Foods
          Inc. and Wilmington Trust Company. (Incorporated by reference to
          Exhibit 4.1 to the Aurora S-4).

4.2       Specimen Certificate of 9 7/8% Series B Senior Subordinated Note due
          2007 (included in Exhibit 4.1 hereto). (Incorporated by reference to
          Exhibit 4.2 to the Aurora S-4).

4.3       Form of Note Guarantee to be issued by future subsidiaries of Aurora
          Foods Inc. pursuant to the Indenture (included in Exhibit 4.1 hereto).
          (Incorporated by reference to Exhibit 4.4 to the Aurora S-4).

4.4       Indenture dated as of July 1, 1997 by and between Aurora Foods Inc.
          and Wilmington Trust Company (the "Series D Indenture"). (Incorporated
          by reference to Exhibit 4.6 to the Aurora S-4).

4.5       Specimen Certificate of 9 7/8% Series D Senior Subordinated Note due
          2007 (included in Exhibit 4.4 hereto). (Incorporated by reference to
          Exhibit 4.3 to the Aurora S-4).

4.6       Form of Note Guarantee to be issued by future subsidiaries of Aurora
          Foods Inc. pursuant to the Series D Indenture (included in Exhibit 4.4
          hereto). (Incorporated by reference to Exhibit 4.8 to the Aurora S-4).

4.7       Securityholders Agreement, dated as of April 8, 1998, by and among
          Aurora/VDK LLC, MBW Investors LLC, VDK Foods LLC and the other parties
          signatory thereto. (Incorporated by reference to Exhibit 4.2 to the S-
          1).

4.8       Indenture dated as of July 1, 1998 by and between Aurora Foods Inc.
          and Wilmington Trust Company (Incorporated by reference to Exhibit
          4.13 to the S-1).

4.9       Specimen Certificate of 8 3/4% Senior Subordinated Notes due 2008.
          (Included in Exhibit 4.8 hereto).

4.10      Specimen Certificate of the Common Stock. (Incorporated by reference
          to Exhibit 4.1 to the S-1).

4.11      Registration Rights Agreement, dated July 1, 1998, between Aurora
          Foods Inc. and Chase Securities Inc., Goldman, Sachs & Co. and Natwest
          Capital Markets Limited (Incorporated by reference to Exhibit 4.15 to
          the S-1).

4.12      Indenture, dated as of September 15, 1995, between Van de Kamp's, Inc.
          and Harris Trust and Savings Bank. (Incorporated by reference to
          Exhibit 4.1 to the Van de Kamp's S-4).

4.13      Global Note, dated September 19, 1995, issued by Van de Kamp's, Inc.
          to the Depository Trust Company and registered in the name of Cede &
          Co. in the principal amount of $100,000,000. (Incorporated by
          reference to Exhibit 4.2 to the Van de Kamp's S-4).

10.1      VDK Holdings, Inc. Incentive Compensation Plan.  (Incorporated by
          reference to Exhibit 10.1 to S-1).

                                       34
<PAGE>
 
10.2      Purchase Agreement, dated June 25, 1998, between Aurora Foods Inc. and
          Chase Securities Inc., Goldman, Sachs & Co. and NatWest Capital
          Markets Limited.  (Incorporated by reference to Exhibit 10.3 to S-1).

10.3      Purchase Agreement, dated June 18, 1997, by and among Aurora Foods
          Inc., Chase Securities, Inc. and Credit Suisse First Boston
          Corporation. (Incorporated by reference to Exhibit 1.2 to the Aurora 
          S-4).

10.4      Purchase Agreement, dated February 5, 1997, by and between Aurora
          Foods Inc. and Chase Securities, Inc. (Incorporated by reference to
          Exhibit 1.1 to the Aurora S-4).

10.5      Employment Agreement, dated as of December 31, 1996, by and between
          Aurora Foods Inc. and Thomas J. Ferraro (Incorporated by reference to
          Exhibit 10.5 to the Aurora S-4).

10.6      Employment Agreement, dated as of December 31, 1996, by and between
          Aurora Foods Inc. and C. Gary Willett. (Incorporated by reference to
          Exhibit 10.6 to the Aurora S-4).

10.7      Purchase Agreement, dated September 14, 1995, between Van de Kamp's,
          Inc. and Chemical Securities, Inc. (Incorporated by reference to
          Exhibit 10.6 to S-1).

10.8      Flavor Supply Agreement, dated as of December 31, 1996, by and between
          Aurora Foods Inc. and Quest International Flavors & Food Ingredients
          Company. (Incorporated by reference to Exhibit 10.8 to the Aurora S-
          4).

10.9      License Agreement, dated as of February 21, 1979, between General Host
          Corporation and VDK Acquisition Corporation.  (Incorporated by
          reference to Exhibit 10.27 to the Van de Kamp's S-4).

10.10     License Agreement, dated as of October 14, 1978, between General Host
          Corporation and Van de Kamp's Dutch Bakeries.  (Incorporated by
          reference to Exhibit 10.28 to the Van de Kamp's S-4).

10.11     Trademark License Agreement, dated July 9, 1996 among Quaker Oats, The
          Quaker Oats Company of Canada Limited and Van de Kamp's, Inc.
          (Incorporated by reference to Exhibit H to Exhibit 2.1 to Van de
          Kamp's, Inc.'s Form 8-K dated July 9, 1996).

10.13     Amended Transitional Co-Pack Agreement, dated as of July 1, 1997, by
          and between Aurora Foods Inc. and Kraft Foods, Inc. (Incorporated by
          reference to Exhibit 10.13 to the Aurora S-4).

10.16     First Amended and Restated Red Wing Co-Pack Agreement, dated as of
          November 19, 1997, by and between Aurora Foods Inc. and The Red Wing
          Company, Inc. (Confidential treatment for a portion of this document
          has been requested by the Company). (Incorporated by reference to
          Exhibit 10.16 to Aurora Foods Inc.'s Form 10-K, filed on March 27,
          1998 (the "Aurora 10-K")).

10.18     Production Agreement, dated November 19, 1997, by and between Aurora
          Foods Inc. and The Red Wing Company, Inc. (Confidential treatment for
          a portion of this document has been requested by the Company).
          (Incorporated by reference to Exhibit 10.18 to the Aurora 10-K).

10.19     Transitional Supply Agreement, dated January 16, 1998, by and between
          Aurora Foods Inc. and The Procter & Gamble Manufacturing Company.
          (Confidential treatment for a portion of this document has been
          requested by the Company). (Incorporated by reference to Exhibit 10.20
          to the Aurora 10-K).

10.20     Amendment No. 1 to Ferraro Employment Agreement, dated as of January
          1, 1998, between Aurora Foods Inc. and Thomas J. Ferraro.
          (Incorporated by reference to Exhibit 10.10 to the S-1).

10.21     Amendment No. 1 to Willett Employment Agreement, dated as of January
          1, 1998, between C. Gary Willett and Aurora Foods Inc. (Incorporated
          by reference to Exhibit 10.13 to the S-1).

10.22     Third Amended and Restated Credit Agreement, dated as of July 1, 1998,
          among Aurora Foods Inc., as borrower, the Lenders listed therein, The
          Chase Manhattan Bank, as Administrative

                                       35
<PAGE>
 
          Agent, National Westminster Bank PLC, as Syndication Agent and Swiss
          Bank Corporation, as Documentation Agent. (Incorporated by reference
          to Exhibit 10.20 to the S-1).

10.26     Employment Agreement between Ian R. Wilson and Aurora Foods Inc.
          (Incorporated by reference to Exhibit 10.7 to the S-1).

10.27     Employment Agreement between James B. Ardrey and Aurora Foods Inc.
          (Incorporated by reference to Exhibit 10.8 to the S-1).

10.28     Employment Agreement between Ray Chung and Aurora Foods Inc.
          (Incorporated by reference to Exhibit 10.9 to the S-1).

10.29     Employment Agreement between M. Laurie Cummings and Aurora Foods Inc.
          (Incorporated by reference to Exhibit 10.10 to the S-1).

10.30     Amendment No. 1 to Ellinwood Amended and Restated Employment
          Agreement, dated as of January 1, 1998, between Thomas O. Ellinwood
          and Van de Kamp's, Inc. (Incorporated by reference to Exhibit 10.15 to
          the S-1).

10.31     Amended and Restated Employment Agreement, dated as of March 11, 1997,
          by and between Thomas O. Ellinwood and Van de Kamp's, Inc.
          (Incorporated by reference to Exhibit 10.16 to the S-1).

10.32     Employment Agreement, dated as of February 16, 1998, by and between
          Van de Kamp's, Inc. and Anthony A. Bevilacqua. (Incorporated by
          reference to Exhibit 10.17 to the S-1).

10.33     Expense Agreement, made as of July 1, 1998, between Aurora Foods Inc.
          and Dartford Partnership L.L.C. (Incorporated by reference to Exhibit
          10.32 to the S-1).

10.34     Advisory Agreement, made as of April 8, 1998, among Aurora/VDK LLC,
          Van de Kamp's, Inc., VDK Holdings, Inc., Aurora Foods Inc. and Aurora
          Foods Holdings Inc. and Dartford Partnership L.L.C. (Incorporated by
          reference to Exhibit 10.33 to the S-1).

10.35     Advisory Agreement, made as of April 8, 1998, among Aurora/VDK LLC,
          Van de Kamp's, Inc., VDK Holdings, Inc., Aurora Foods Inc. and Aurora
          Foods Holdings Inc. and MDC Management Company III, L.P. (Incorporated
          by reference to Exhibit 10.34 to the S-1).

10.36     Advisory Agreement, made as of April 8, 1998, between Fenway Partners,
          Inc. and Aurora/VDK LLC, Van de Kamp's, Inc., VDK Holdings, Inc.,
          Aurora Foods Inc. and Aurora Foods Holdings Inc. (Incorporated by
          reference to Exhibit 10.35 to the S-1).

10.37     Indemnity Agreement, dated as of July 1, 1998, between Ian R. Wilson
          and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.46 to
          the S-1).

10.38     Indemnity Agreement, dated as of July 1, 1998, between James B. Ardrey
          and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.49 to
          the S-1).

10.39     Indemnity Agreement, dated as of July 1, 1998, between Clive A. Apsey
          and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.50 to
          the S-1).

10.40     Indemnity Agreement, dated as of July 1, 1998, between Charles Ayres
          and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.51 to
          the S-1).

10.41     Indemnity Agreement, dated as of July 1, 1998, between David E. De
          Leeuw and Aurora Foods Inc. (Incorporated by reference to Exhibit
          10.52 to the S-1).

10.42     Indemnity Agreement, dated as of July 1, 1998, between Charles J.
          Delaney and Aurora Foods Inc. (Incorporated by reference to Exhibit
          10.53 to the S-1).

                                       36
<PAGE>
 
10.43     Indemnity Agreement, dated as of July 1, 1998, between Richard C.
          Dresdale and Aurora Foods Inc. (Incorporated by reference to Exhibit
          10.54 to the S-1).

10.44     Indemnity Agreement, dated as of July 1, 1998, between Andrea Geisser
          and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.55 to
          the S-1).

10.45     Indemnity Agreement, dated as of July 1, 1998, between Peter Lamm and
          Aurora Foods Inc. (Incorporated by reference to Exhibit 10.56 to the
          S-1).

10.46     Indemnity Agreement, dated as of July 1, 1998, between Tyler T. Zachem
          and Aurora Foods Inc. (Incorporated by reference to Exhibit 10.57 to
          the S-1).

10.48     1998 Employee Stock Purchase Plan.

10.49     Production Agreement, dated as of June 4, 1998, by and between Aurora
          Foods Inc. and Gilster-Mary Lee Corporation. (Incorporated by
          reference to Exhibit 10.48 to the S-1).

10.50     1998 Incentive Plan.

12.1      Ratio of Earnings to Fixed Charges

23.1      Consent of PricewaterhouseCoopers LLP

23.2      Consent of PricewaterhouseCoopers LLP

27.1      Financial Data Schedule.

(b)  Reports on Form 8-K

None.

                                       37
<PAGE>
 
SIGNATURES
----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

AURORA FOODS INC.
By:   /s/ Ian R. Wilson
      -----------------
          Ian R. Wilson      Chief Executive Officer

Date:  March 12, 1999

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 registrant and
in the capacities indicated on March 12, 1999.

/s/   Ian R. Wilson
      -------------
      Ian R. Wilson          Chairman of the Board of Directors and
                             Chief Executive Officer (Principal Executive 
                             Officer)

/s/   James B. Ardrey
      ---------------
      James B. Ardrey        Vice Chairman and Director

/s/   Ray Chung
      ---------
      Ray Chung              Executive Vice President

/s/   M. Laurie Cummings
      ------------------
      M. Laurie Cummings     Chief Financial Officer and Secretary
                             (Principal Finance and Accounting Officer)

/s/   Clive A. Apsey
      --------------
      Clive A. Apsey         Director

/s/   Charles Ayres
      -------------
      Charles Ayres          Director

/s/   Charles J. Delaney
      ------------------
      Charles J. Delaney     Director

/s/   David E. De Leeuw
      -----------------
      David E. De Leeuw      Director

/s/   Richard C. Dresdale
      -------------------
      Richard C. Dresdale    Director

/s/   Andrea Geisser
      --------------
      Andrea Geisser         Director

/s/   Peter Lamm
      ----------
      Peter Lamm             Director

/s/   Tyler T. Zachem
      ---------------
      Tyler T. Zachem        Director

                                       38
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------


To the Board of Directors and Stockholders
of Aurora Foods Inc.

In our opinion, the financial statements listed in the index appearing under
Item 14 (a) 1.a. and Item 14 (a) 2. on page 32 present fairly, in all material
respects, the financial position of Aurora Foods Inc. (the "Company") at
December 31, 1998 and December 27, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1998 and December 27, 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards 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
San Francisco, California
February 5, 1999

                                       39
<PAGE>
 
                               AURORA FOODS INC.
                                 BALANCE SHEETS
                (dollars in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                         December 31,          December 27,
                                                                             1998                  1997
                                                                         ------------          ------------
<S>                                                                     <C>                    <C>
ASSETS
Current assets:
     Cash and cash equivalents                                          $      354                   $  4,717
     Accounts receivable, net of $670 and $140 allowance,                   
      respectively                                                          86,539                     13,836 
     Inventories (Note 4)                                                   76,674                      6,902
     Prepaid expenses and other assets                                       6,517                      1,955
     Asset held for sale                                                     3,000                          -
     Current deferred tax assets (Note 10)                                   8,251                      2,966
                                                                        ----------                   --------
          Total current assets                                             181,335                     30,376
 
Property, plant and equipment, net (Note 5)                                153,167                     14,075
Goodwill and other intangible assets, net (Note 6)                       1,072,760                    315,241
Other assets                                                                26,620                     13,047
                                                                        ----------                   --------
          Total assets                                                  $1,433,882                   $372,739
                                                                        ==========                   ========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current portion of senior secured term debt (Note 8)               $   20,000                   $  4,375
     Senior secured revolving debt facility (Note 8)                        85,850                          -
     Accounts payable                                                       59,078                      6,443
     Accrued liabilities (Note 7)                                           49,836                     17,409
                                                                        ----------                   --------
          Total current liabilities                                        214,764                     28,227
 
Non-current deferred tax liabilities (Note 10)                                 649                      3,745
Other liabilities                                                           12,372                          -
Senior secured revolving debt facility (Note 8)                                  -                     37,500
Senior secured term debt (Note 8)                                          200,000                     35,625
Senior subordinated notes (Note 8)                                         402,242                    202,419
                                                                        ----------                   --------
          Total liabilities                                                830,027                    307,516
                                                                        ----------                   --------
 
Stockholders' equity:
     Preferred stock, $0.01 par value; 25,000,000 shares
      authorized; no shares issued or outstanding                                -                          -   
                                              
     Common stock, $0.01 par value; 250,000,000 and
      87,159,000 shares
        authorized, respectively; 67,016,173 and 29,053,000
         shares issued and outstanding, respectively                           670                        291
        
     Paid-in capital                                                       647,889                     63,912
     Promissory notes (Note 13)                                               (562)                      (215)
     (Accumulated deficit) retained earnings                               (44,142)                     1,235
                                                                        ----------                   --------
          Total stockholders' equity                                       603,855                     65,223
                                                                        ----------                   --------
 
Commitments and contingent liabilities (Note 15)
 
          Total liabilities and stockholders' equity                    $1,433,882                   $372,739
                                                                        ==========                   ========
</TABLE>

                See accompanying notes to financial statements.

                                       40
<PAGE>
 
                               AURORA FOODS INC.
                           STATEMENTS OF OPERATIONS
                    (in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                                 Years Ended
                                                                    ------------------------------------
                                                                    December 31,             December 27,
                                                                       1998                     1997
                                                                    ------------             ------------ 
<S>                                                                 <C>                      <C>
Net sales                                                           $ 789,193                $  143,020
Cost of goods sold                                                    317,547                    45,729
                                                                    ------------             ------------ 
     Gross profit                                                     471,646                    97,291
                                                                    ------------             ------------ 
Brokerage, distribution and marketing expenses:
     Brokerage and distribution                                        74,703                    17,096
     Trade promotions                                                 173,467                    26,075
     Consumer marketing                                                56,683                    15,142
                                                                    ------------             ------------  
Total brokerage, distribution and marketing expenses                  304,853                    58,313
 
Amortization of goodwill and other intangibles                         30,048                     5,938
Selling, general and administrative expenses                           25,043                     5,229
Incentive plan expense (Note 14)                                       56,583                     2,300
Transition expenses (Note 9)                                           10,357                     2,113
                                                                    ------------             ------------  
Total operating expenses                                              426,884                    73,893
                                                                    ------------             ------------ 
     Operating income                                                  44,762                    23,398
 
Interest expense, net                                                  64,487                    18,242
Amortization of deferred financing expense                              1,872                     3,059
Other bank and financing expenses                                         263                        83
                                                                    ------------             ------------   
     (Loss) income before income taxes and extraordinary item         (21,860)                    2,014
 
Income tax expense (Note 10)                                           14,306                       779
                                                                    ------------             ------------ 
     Net (loss) income before extraordinary item                      (36,166)                    1,235
 
Extraordinary loss on early extinguishment of debt,
   net of tax of $5,632                                                 9,211                         -
                                                                    ------------             ------------  
     Net (loss) income                                              $ (45,377)               $    1,235
                                                                    ============             ============ 
Basic and diluted (loss) earnings per share before
   extraordinary item                                               $   (0.68)               $     0.04
Extraordinary item per share                                             0.17                         -
                                                                    ------------             ------------ 
Basic and diluted (loss) earnings per share                         $   (0.85)               $     0.04
                                                                    ============             ============ 
Weighted average number of shares outstanding                          53,541                    29,053
                                                                    ============             ============   
</TABLE> 

                See accompanying notes to financial statements.

                                       41
<PAGE>
 
                               AURORA FOODS INC.
                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                                       Retained    
                                              Common                Additional                         Earnings    
                                              Stock                  Paid-in        Promissory       (Accumulated   
                                   ------------------------------                                 
                                       Shares           Amount        Capital          Notes            Deficit)       Total
                                   -------------    -------------  --------------   -------------    -------------   -----------
<S>                                <C>              <C>            <C>              <C>              <C>             <C>
Balance at December 31, 1996              29,053    $         291  $       32,979   $        (110)   $           -   $    33,160
Capital contribution                           -                -          28,633            (125)               -        28,508
Payments on officer promissory                                                                                      
     notes (Note 13)                           -                -               -              20                -            20
Incentive plan expense (Note 14)               -                -           2,300               -                -         2,300
Net income                                     -                -               -               -            1,235         1,235
                                   -------------    -------------  --------------   -------------    -------------   -----------
Balance at December 27, 1997              29,053              291          63,912            (215)           1,235        65,223
 
Capital contribution (Note 1)                  -                -          94,263            (473)               -        93,790
Shares issued for acquisition
     of business (Note 2)                 25,038              250         183,219               -                -       183,469
Shares issued (Note 1)                    12,909              129         254,702               -                -       254,831
Equity offering costs                          -                -          (5,062)              -                -        (5,062)
Employee stock
     purchases (Note 16)                      16                -             272               -                -           272
Payments on officer promissory
     notes (Note 13)                           -                -               -             126                -           126
Incentive plan expense (Note 14)               -                -          56,583               -                -        56,583
Net loss                                       -                -               -               -          (45,377)      (45,377)
                                   -------------    -------------  --------------   -------------    -------------   -----------
 
Balance at December 31, 1998              67,016    $         670  $      647,889   $        (562)   $     (44,142)  $   603,855
                                   =============    =============  ==============   =============    =============   ===========
</TABLE>

 
                See accompanying notes to financial statements.

                                       42
<PAGE>
 
                               AURORA FOODS INC.
                           STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                               Years Ended                     
                                                                                ----------------------------------------
                                                                                  December 31,             December 27,      
                                                                                      1998                     1997          
                                                                                ---------------           --------------   
<S>                                                                             <C>                       <C>                  
Cash flows from operating activities:                                                                                          
     Net (loss) income                                                          $     (45,377)             $     1,235         
     Early extinguishment of debt, net of tax of $5,632                                 9,211                        -         
     Adjustments to reconcile net (loss) income to cash provided by                                                            
      operating activities:                                                                                                    
         Depreciation and amortization                                                 41,343                   10,057         
         Deferred income taxes                                                         14,306                      779         
         Incentive plan expense (Note 14)                                              56,583                    2,300         
         Change in assets and liabilities, net of effects of                                                                   
          businesses acquired: 
             Increase in accounts receivable                                          (34,318)                 (13,356)        
             (Increase) decrease in inventories                                       (36,575)                   2,975         
             Increase in prepaid expenses and other current assets                     (3,400)                  (1,946)        
             Increase in accounts payable                                              43,284                    6,443         
             Increase in accrued liabilities                                            5,132                   14,624         
                                                                                ---------------            -------------
Net cash provided by operating activities                                              50,189                   23,111         
                                                                                ---------------            -------------

Cash flows from investing activities:                                                                                          
     Additions to property, plant and equipment                                       (39,799)                  (2,411)        
     Changes to other non-current assets and liabilities                               (4,164)                    (925)        
     Proceeds from sale of assets                                                      28,012                        -         
     Payment for acquisition of businesses (Note 3)                                  (462,784)                (225,930)        
                                                                                ---------------            -------------
Net cash used in investing activities                                                (478,735)                (229,266)        
                                                                                ---------------            -------------

Cash flows from financing activities:                                                                                          
     Proceeds from senior secured revolving and term debt (Note 8)                    864,350                   90,000         
     Proceeds from senior subordinated notes (Note 8)                                 200,000                  202,500         
     Repayment of borrowings                                                         (947,259)                (107,500)        
     Payment of redemption premium (Note 1)                                           (14,500)                       -         
     Proceeds from initial public offering                                            254,831                        -         
     Capital contributions, net of officer promissory notes                            94,188                   28,500         
     Debt issuance and equity offering costs                                          (27,427)                 (11,294)        
                                                                                ---------------            -------------
Net cash provided by financing activities                                             424,183                  202,206         
                                                                                ---------------            -------------

Decrease in cash and cash equivalents                                                  (4,363)                  (3,949)        
Cash and cash equivalents, beginning of period                                          4,717                    8,666         
                                                                                ---------------            -------------
Cash and cash equivalents, end of period                                        $         354              $     4,717         
                                                                                ===============            ============= 
Supplemental Cash Flow Disclosure:                                                                                             
        Cash paid for interest                                                  $      60,195              $    10,091    
        Cash paid for income taxes                                              $         337              $       195     
</TABLE>y

                See accompanying notes to financial statements.

                                       43
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY
--------------------

OPERATIONS

Aurora Foods Inc. (the "Company") produces and markets branded food products
that are sold across the United States. The Company groups its brands into two
general divisions: dry grocery division and frozen food division. The dry
grocery division includes Duncan Hines(R) baking mix products and Mrs.
Butterworth's(R) and Log Cabin(R) syrup products. The frozen food division
includes Van de Kamp's(R) and Mrs. Paul's(R) frozen seafood, Aunt Jemima(R)
frozen breakfast and Celeste(R) frozen pizza products. The dry grocery
division's products are manufactured under long-term co-packing agreements with
third parties and under a temporary co-packing agreement with The Procter &
Gamble Company ("P&G"). The Company's manufacturing equipment has been or will
be installed at certain production facilities of contract manufacturer partners.
The frozen food division's products are manufactured out of production
facilities that are owned and operated by the Company in Erie, Pennsylvania,
Jackson, Tennessee and Yuba City, California.

ORGANIZATION

The Company was incorporated in Delaware on June 19, 1998, as the successor to
Aurora Foods Holdings Inc. ("Holdings") and its subsidiary, AurFoods Operating
Co., Inc. (formerly known as Aurora Foods Inc.) ("AurFoods"), both of which were
incorporated in Delaware in December 1996. AurFoods was wholly-owned by
Holdings, which in turn was wholly-owned by MBW Investors LLC ("MBW LLC").
AurFoods was formed for the purpose of acquiring the Mrs. Butterworth's(R) syrup
business ("MBW") from Conopco, Inc., a subsidiary of Unilever United States,
Inc. ("Conopco"). AurFoods subsequently acquired the Log Cabin(R) syrup business
("LC") from Kraft Foods, Inc. ("Kraft") in July 1997 and the Duncan Hines(R)
baking mix business ("DH") from P&G in January 1998.

Van de Kamp's, Inc. ("VDK") was a wholly-owned subsidiary of VDK Holdings, Inc.,
a Delaware corporation ("VDK Holdings") which was incorporated in Delaware in
July 1995 for the purpose of acquiring the Van de Kamp's(R) frozen seafood and
frozen dessert businesses from The Pillsbury Company in September 1995. VDK then
acquired the Mrs. Paul's(R) frozen seafood business from the Campbell Soup
Company in May 1996 and the Aunt Jemima(R) frozen breakfast and Celeste(R)
frozen pizza businesses from The Quaker Oats Company in July 1996. VDK Holdings
was wholly-owned by VDK Foods LLC ("VDK LLC").

On April 8, 1998, MBW LLC and VDK LLC formed Aurora/VDK LLC ("New LLC"). MBW LLC
contributed all of the capital stock of Holdings and VDK LLC contributed all of
the capital stock of VDK Holdings to New LLC (the "Contribution"). In return for
these contributions, MBW LLC was issued 55.5% of the interests in New LLC plus a
right to receive a special $8.5 million priority distribution from New LLC, and
VDK LLC was issued 44.5% of the interests in New LLC plus a right to receive a
special $42.4 million priority distribution from New LLC. The amount and source
of consideration used by MBW LLC and VDK LLC for their acquisition of interests
in New LLC was their equity in Holdings and VDK Holdings, respectively. New LLC
accounted for the contribution of the ownership of Holdings at MBW LLC's
historical cost and the contribution of the ownership of VDK Holdings was
accounted for as an acquisition using the purchase method of accounting at New
LLC's cost. After giving effect to the Contribution, New LLC directly held 100%
of Holdings' capital stock and Holdings continued to hold directly 100% of
AurFoods capital stock and New LLC directly held 100% of VDK Holdings' capital
stock and VDK Holdings continued to hold directly 100% of VDK's capital stock.
On June 25, 1998, New LLC contributed to the Company all the issued and
outstanding stock of Holdings and VDK Holdings. Therefore, the Company's
financial statements, as it is the successor to Holdings, includes the
historical financial information of Holdings from its inception. New LLC was
then dissolved in connection with the IPO (defined below).

On July 1, 1998, Holdings, AurFoods, VDK Holdings and VDK merged with and into
the Company and the initial public offering of 12,909,372 shares of Common Stock
of the Company and 1,590,628 shares of the Company's common stock sold by New
LLC was consummated at an initial public offering price of $21.00 per share (the
"IPO" or "Equity Offering"). The proceeds received by New LLC were used to
satisfy the $8.5 million priority distribution to MBW LLC and, in combination
with common stock, also satisfied the $42.4 million priority distribution to VDK
LLC. Also, concurrently with the IPO, the Company issued $200.0 million
aggregate principal amount of 8.75% senior subordinated notes due 2008 (the
"Notes Offering" or "New Notes") and borrowed $225.0 million of senior secured
term debt and $99.0 million out of the total available of $175.0 million of
senior secured revolving debt under the Third Amended and Restated Credit
Agreement, dated as of July 1, 1998, among the

                                       44
<PAGE>
 
Company, as borrower, the lenders listed therein, The Chase Manhattan Bank, as
Administrative Agent, The National Westminster Bank PLC, as Syndication Agent
and Swiss Bank Corporation, as Documentation Agent (the "New Senior Bank
Facilities").

The Company used the net proceeds from the IPO, the Notes Offering and the New
Senior Bank Facilities to (i) repay $180.8 million of senior secured bank debt
under the Second Amended and Restated Credit and Guarantee Agreement, dated as
of July 9, 1996, among VDK Holdings, VDK, the banks and other financial
institutions parties thereto and The Chase Manhattan Bank, as agent, as amended
(the "VDK Senior Bank Facilities"), (ii) repay $467.0 million under the Aurora
Senior Bank Facilities (as defined in Note 3), (iii) redeem the 12% Senior
Subordinated Notes due 2005 issued under an Indenture dated as of September 15,
1995, between VDK and Harris Trust and Savings Bank, as Trustee (the "VDK
Notes") (redemption completed on July 31, 1998) in the principal amount of
$100.0 million and (iv) pay the $14.5 million redemption premium associated with
the VDK Notes (in whole or in part, the "Refinancings"). As a result of the
early extinguishment of the Aurora Senior Bank Facilities, the Company recorded
in the year ended December 31, 1998 an extraordinary charge of $7.3 million, net
of income tax of $4.4 million, for the write off of deferred financing charges.

As a consequence of the IPO, no additional incentive plan expense will be
recorded under the Aurora Plan (See Note 14 - Incentive Plan Expense). MBW LLC
satisfied its liability under the Aurora Plan by distributing shares of the
Company's common stock in connection with the liquidation of MBW LLC.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------

The policies utilized by the Company in the preparation of the financial
statements conform to generally accepted accounting principles and require
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities. Actual amounts could differ from these estimates and
assumptions. The Company uses the accrual basis of accounting in the preparation
of its financial statements.

FISCAL YEAR

The Company's fiscal year ends on December 31. The Company's prior fiscal year
ended on the last Saturday of December. Accordingly, the results of operations
and cash flows reflect activity for the period from December 28, 1997 through
December 31, 1998 and from December 31, 1996 (commencement of operations)
through December 27, 1997. The Company has presented balance sheets as of
December 31, 1998 and December 27, 1997. Certain prior year amounts have been
reclassified to conform with the current year's presentation.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid financial instruments with original
maturities of three months or less to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost or market value. Cost is determined
using the first-in first-out (FIFO) method. Inventories include the cost of the
Company's or the contract manufacturers' raw materials, packaging, labor and
manufacturing overhead.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the individual assets ranging from three to thirty years.  Costs
which improve an asset or extend its useful life are capitalized, while repairs
and maintenance costs are expensed as incurred.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets include goodwill, trademarks and various
identifiable intangible assets purchased by the Company.  Goodwill is being
amortized over forty years using the straight-line method.  Other intangible
assets are being amortized using the straight-line method over periods ranging
from five to forty years.  

                                       45
<PAGE>
 
Amortization of goodwill and other intangible assets charged against income for
the years ended December 31, 1998 and December 27, 1997 was $30.0 million and
$5.9 million, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

Upon commencement of operations, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 requires the Company to review long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  The assessment of impairment is based on the estimated
undiscounted future cash flows from operating activities compared with the
carrying value of the assets.  If the undiscounted future cash flows of an asset
are less than the carrying value, a write-down would be recorded, measured by
the amount of the difference between the carrying value of the asset and the
fair value of the asset.  Management believes that there has been no impairment
at December 31, 1998.

OTHER ASSETS

Other assets consist of deferred loan acquisition costs, systems software,
packaging design and plates, and other miscellaneous assets. Deferred loan
acquisition costs are being amortized using the interest method over the terms
of the respective debt. Aggregate amortization of deferred loan acquisition
costs and other assets charged against income for the years ended December 31,
1998 and December 27, 1997 was $1.9 million and $3.1 million, respectively.

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

For purposes of financial reporting, the Company has determined that the fair
value of financial instruments, other than the senior subordinated notes,
approximates book value at December 31, 1998. The fair market value of the New
Notes and the Notes (as defined in Note 8 Long Term Debt) at December 31, 1998,
based on market prices, was $186.4 million and $200.0 million, respectively.

CONCENTRATION OF CREDIT RISK

The Company sells its products to supermarkets, foodservice operators and other
retail channels.  The Company performs ongoing credit evaluations of its
customers and generally does not require collateral.  The Company maintains
reserves for potential credit losses and had no significant concentration of
credit risk at December 31, 1998.

INCOME TAXES

The Company records income taxes in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".  This
method of accounting for income taxes uses an asset and liability approach which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.

ADVERTISING

Costs related to advertising the Company's products are expensed in the period
incurred or expensed ratably over the year in relation to revenues.  Advertising
expense for the years ended December 31, 1998 and December 27, 1997 was $15.6
million and $4.1 million, respectively.

STOCK BASED COMPENSATION

Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock Based Compensation", allows companies to measure compensation cost in
connection with employee stock compensation plans either using a fair value-
based method or to continue to use the intrinsic value-based method prescribed
by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees", and its related interpretations, which generally does not
result in compensation cost.  The Company measures compensation cost in
accordance with APB 25.  The Company's stock-based compensation plans are
discussed in Note 16.

                                       46
<PAGE>
 
NOTE 3 - BUSINESS ACQUISITIONS
------------------------------

MRS. BUTTERWORTH'S

At the close of business on December 31, 1996, the Company acquired
substantially all the assets of MBW from Conopco. The Company manufactures the
products under co-packing agreements with third parties.

The Company acquired the inventories, manufacturing equipment and intangible
assets of MBW for a purchase price of $114.1 million.  The acquisition was
accounted for by using the purchase method of accounting.  The acquisition was
financed by (i) a net capital contribution from Holdings of approximately $33.2
million, (ii) term loans of $15.0 million and revolving loans of $30.0 million
borrowed under a $60.0 million senior secured debt facility and (iii) loans of
$50.0 million borrowed under a senior subordinated debt facility.  On February
10, 1997, the senior subordinated debt facility of $50.0 million and the senior
secured facilities of $15.0 million of term debt and $30.0 million of revolving
debt were repaid with proceeds from a $100.0 million senior subordinated note
offering.

The cost to acquire MBW has been allocated to tangible and intangible assets
acquired as follows (in thousands):

<TABLE>
          <S>                                               <C>         
          Cash paid to acquire assets                       $  114,132  
          Other acquisition costs                                3,663  
                                                            ----------
                                                               117,795  
          Costs assigned to tangible assets                     (6,138) 
                                                            ----------  
                                                                        
          Cost attributable to intangible assets            $  111,657  
                                                            ==========   
</TABLE>

LOG CABIN

On July 1, 1997, the Company acquired substantially all the assets of LC from
Kraft. The Company manufactures the products under co-packing agreements with
third parties.

The Company acquired the inventories, certain manufacturing equipment and
intangible assets of LC for a purchase price of $222.0 million. The acquisition
was accounted for by using the purchase method of accounting. The acquisition
was financed by (i) a capital contribution from Holdings of approximately $28.6
million, (ii) term loans of $40.0 million and revolving loans of $47.0 million
borrowed under a senior secured debt facility, and (iii) proceeds of $102.5
million received in a senior subordinated note offering.

The cost to acquire LC has been allocated to tangible and intangible assets
acquired, as follows (in thousands):

<TABLE>
          <S>                                               <C>
          Cash paid to acquire assets                       $  221,995
          Other acquisition costs                                4,169
                                                            ----------
                                                               226,164
          Costs assigned to tangible assets                    (15,266)
                                                            ----------
 
          Cost attributable to intangible assets            $  210,898
                                                            ==========
</TABLE>

DUNCAN HINES

On January 16, 1998, the Company acquired all the assets of DH from P&G for a
purchase price of $445.0 million.  The assets acquired by the Company include
(i) the Duncan Hines(R) brand and associated trademarks, (ii) substantially all
of the equipment used for the manufacture of Duncan Hines(R) products currently
located in P&G's Jackson, Tennessee facility, (iii) proprietary formulations for
Duncan Hines(R) products, (iv) other product specifications and customer lists
and (v) rights under certain contracts, licenses, purchase orders and other
arrangements and permits.  The Company uses the acquired assets in its
operations of DH.  The acquisition was accounted for by using the purchase
method of accounting.  The allocation of purchase price has not been finalized;
however, any changes are not expected to be material.

To finance the acquisition of DH and related costs, the Company refinanced its
previously existing senior bank facilities with $450.0 million of senior secured
term debt under the Second Amended and Restated Credit 

                                       47
<PAGE>
 
Agreement, dated as of January 16, 1998 by and among Holdings, the Company, the
lenders listed therein, The Chase Manhattan Bank, The National Westminster Bank
PLC, and Swiss Bank Corporation (the "Aurora Senior Bank Facilities"), and
received a capital contribution from Holdings of $93.8 million. As a result of
the new bank borrowings under the Aurora Senior Bank Facilities, the Company
incurred an early extinguishment of its pre-DH senior secured bank debt and the
write-off of the associated deferred financing charges was recorded in the
quarter ended March 28, 1998 as an extraordinary charge of $1.9 million, net of
income taxes of $1.2 million.

The cost to acquire DH has been allocated to tangible and intangible assets
acquired as follows (in thousands):

<TABLE>
          <S>                                               <C>
          Cash paid to acquire assets                       $  445,000
          Other acquisition costs                                9,343
                                                            ----------
                                                               454,343
          Cost assigned to tangible assets                     (40,672)
                                                            ----------
 
          Cost attributable to intangible assets            $  413,671
                                                            ==========
</TABLE>

VDK HOLDINGS, INC.

On April 8, 1998, the Company completed a stock purchase of VDK Holdings (See
Note 1 - The Company). The Company acquired all the capital stock of VDK
Holdings in exchange for $183.5 million of the Company's equity. The acquisition
was accounted for using the purchase method of accounting. The allocation of
purchase price has not been finalized; however, any changes are not expected to
be material.

The cost to acquire VDK Holdings has been allocated to tangible and intangible
assets acquired as follows (in thousands):

<TABLE>
          <S>                                               <C>
          Value of stock used to acquire VDK Holdings       $  183,469
          Liabilities assumed                                  381,212
          Other acquisition costs                                8,431
                                                            ----------
                                                               573,112
          Cost assigned to tangible assets                    (201,545)
                                                            ----------
 
          Cost attributable to intangible assets            $  371,567
                                                            ==========
</TABLE>

Had the VDK Holdings and DH acquisitions taken place January 1, 1998 and had the
VDK Holdings, DH and LC acquisitions taken place January 1, 1997, the unaudited
pro forma results of operations for the years ended December 31, 1998 and
December 27, 1997, respectively, would have been as follows (in thousands):

<TABLE>
<CAPTION>
                                                       Years Ended            
                                               ---------------------------    
                                               December 31,   December 27,    
                                                   1998           1997        
                                               ------------   ------------    
          <S>                                  <C>            <C>             
          Net sales                            $    946,984   $    874,230    
                                               ============   ============     
                                                                              
          Gross profit                         $    569,215   $    501,129    
                                               ============   ============
          Operating (loss) income              $     (4,533)  $    101,182     
                                               ============   ============     
</TABLE>
                                                                                

                                       48
<PAGE>
 
NOTE 4 - INVENTORIES
--------------------

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                  December 31,   December 27,
                                                      1998           1997
                                                  ------------   ------------
          <S>                                     <C>            <C>
          Raw materials                            $    17,982   $        270
          Work in process                                  271              -
          Finished goods                                54,640          6,632
          Packaging and other supplies                   3,781              -
                                                   -----------   ------------
                                                   $    76,674   $      6,902
                                                   ===========   ============
</TABLE>

At December 31, 1998, the Company had commitments to buy raw materials of $23.8
million.  No commitments existed at December 27, 1997.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

Property, plant and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                   December 31,   December 27,
                                                       1998           1997
                                                   ------------   ------------ 
          <S>                                      <C>            <C>           
          Land                                     $      2,300   $          -
          Machinery and equipment                       106,577         14,357
          Buildings and improvements                     14,339              -
          Furniture and fixtures                          2,163            416
          Computer equipment                              2,065            313
          Construction in progress                       36,421              -
                                                   ------------   ------------
                                                        163,865         15,086
             Less accumulated depreciation              (10,698)        (1,011)
                                                   ------------   ------------
                                                   $    153,167   $     14,075
                                                   ============   ============
</TABLE>

At December 31, 1998, the Company had commitments for facility construction and
related machinery and equipment purchases aggregating approximately $4.9
million.  No commitments existed at December 27, 1997.

NOTE 6  GOODWILL AND OTHER INTANGIBLE ASSETS
--------------------------------------------

Goodwill and other intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                   December 31,   December 27,
                                                       1998           1997
                                                   ------------   ------------ 
          <S>                                      <C>            <C>
          Goodwill                                 $    639,741   $    216,485
          Trademarks                                    342,162         99,600
          Other intangibles                             125,823          5,040
                                                   ------------   ------------
                                                      1,107,726        321,125
             Less accumulated amortization              (34,966)        (5,884)
                                                   ------------   ------------
                                                   $  1,072,760   $    315,241
                                                   ============   ============
</TABLE>

                                       49
<PAGE>
 
NOTE 7- ACCRUED LIABILITIES
---------------------------

Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                          December 31,   December 27,   
                                                              1998           1997     
                                                          ------------   ------------  
          <S>                                             <C>            <C>
          Accrued interest                                $     16,332   $      8,383
          Accrued marketing expenses                             8,869          5,092
          Accrued brokerage and distribution expenses            7,986          1,529
          Accrued acquisition costs                              6,059            895
          Other                                                 10,590          1,510
                                                          ------------   ------------
                                                          $     49,836   $     17,409
                                                          ============   ============
</TABLE>

                                       50
<PAGE>
 
NOTE 8 -- LONG TERM DEBT

Long term debt consists of the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                                               December 31,         December 27,
                                                                                   1998                 1997
                                                                               ------------         ------------ 
      <S>                                                                      <C>                  <C>               
      SENIOR SECURED DEBT
      Senior secured term debt; interest rate of 6.8% at December
      31, 1998; principal due in quarterly installments through
      June 30, 2005; floating interest rate at the prime rate plus
      0.50% or, alternatively, the one, two, three or six month
      Eurodollar rate plus 1.50% payable quarterly or at the
      termination of the Eurodollar contract interest period                   $   220,000          $        -
  
      Senior secured revolving debt; weighted average interest
      rate of 7.0% at December 31, 1998; principal due June 30,
      2005; floating interest rate at the prime rate plus 0.50%
      or, alternatively, the one, two, three, or six month
      Eurodollar rate plus 1.50% payable quarterly or at the
      termination of the Eurodollar contract interest period                        85,850                   -

      Senior secured term debt; weighted average interest rate of
      8.0% at December 27, 1997; principal due in quarterly
      installments through December 31, 2003; floating interest
      rate at the prime rate plus 1.25% or, alternatively, the
      one, two, three or six month Eurodollar rate plus 2.25%
      payable quarterly or at the termination of the Eurodollar
      contract interest period                                                           -              40,000
   
      Senior secured revolving debt facility; interest rate of
      8.0% at December 27, 1997; principal due December 31, 2003;
      floating interest rate at prime plus 1.25% or,
      alternatively, the one, two, three, or six month Eurodollar
      rate plus 2.25% payable quarterly or at the termination of
      the Eurodollar contract period                                                     -              37,500
 
      SENIOR SUBORDINATED NOTES
      Senior subordinated notes issued July 1, 1998 at par value
      of $200,000; coupon interest rate of 8.75% with interest
      payable each January 1 and July 1; matures July 1, 2008                      200,000                   -
 
      Senior subordinated notes issued July 1, 1997 at par
      value of $100,000 plus premium of $2,500; net of 
      unamortized premium of $2,242 and $2,419 at December 31, 
      1998 and December 27, 1997, respectively; coupon interest 
      rate of 9.875% with interest payable each August 15 and 
      February 15; matures on February 15, 2007                                    100,000             100,000
                                                                  
      Senior subordinated notes issued February 10, 1997 at  
      par value of $100,000; coupon interest rate of 9.875%
      with interest payable each August 15 and February 15;  
      matures on February 15, 2007                                                 100,000             100,000 
                                                                               -----------          ---------- 
                                                                                   705,850             277,500 
                                                                                  
      Add:   unamortized premium on senior subordinated notes                        2,242               2,419 
      Less:  current portion of senior secured term debt and                     
             senior secured revolving debt facility                               (105,850)             (4,375)
                                                                               -----------          ---------- 
                                                                                                           
      Long term debt                                                           $   602,242          $  275,544  
                                                                               ===========          ==========
</TABLE>

                                       51
<PAGE>
 
Annual principal payments for the next five years and thereafter consist of the
following (in thousands):

<TABLE>
<CAPTION>
                    <S>                                <C>       
                    1999                               $ 20,000  
                    2000                                 25,000  
                    2001                                 30,000  
                    2002                                 35,000  
                    2003                                 40,000   
                    Thereafter                          555,850
                                                       --------
                           Total                       $705,850 
                                                       ========
</TABLE>

SENIOR SECURED DEBT

On December 31, 1996, the Company entered into a Credit Agreement (the
"Agreement") with several banks for $15.0 million of senior secured term debt
and a $45.0 million senior secured revolving debt facility.

The Company amended the Agreement, dated as of July 1, 1997, to provide for
borrowings of $40.0 million of senior secured term debt and a $60.0 million
senior secured revolving debt facility. Together with a $100.0 million senior
subordinated note offering and capital contributed from Holdings, the Company
consummated the LC acquisition, paid fees and expenses and provided for the
working capital requirements related to the acquisition.

The Company amended the Agreement, dated as of January 16, 1998, to provide for
borrowings of $450.0 million of senior secured term debt and $75.0 million
senior secured revolving debt facility.  Together with capital contributed from
Holdings, the Company consummated the DH acquisition, paid fees and expenses and
provided for the working capital requirements related to the acquisition.

The Company amended the Agreement, dated as of July 1, 1998, to provide for
borrowings of $225.0 million of senior secured term debt and a $175.0 million
senior secured revolving debt facility.   Together with a $200.0 million senior
subordinated note offering, the Company completed the repayment of debt in
connection with the Refinancings.

The $175.0 million senior secured revolving debt facility is subject to
limitations based on letters of credit.  At December 31, 1998, the Company had
unused borrowing availability of $89.2 million.  The Agreement requires a
commitment fee of 0.375% per annum payable quarterly on the unused portions of
the revolving debt facility.

The Agreement includes restrictive covenants, which limit additional borrowing,
cash dividends, and capital expenditures while also requiring the Company to
maintain certain financial ratios.  The Company was in compliance with these
covenants at December 31, 1998.

SENIOR SUBORDINATED NOTES

On February 10, 1997, the Company issued $100.0 million of senior subordinated
notes (the "MBW Notes").  The proceeds from the MBW Notes were primarily used to
retire debt incurred to finance the MBW acquisition.  On July 1, 1997, the
Company issued $100.0 million of senior subordinated notes (the "LC Notes").
The LC Notes were issued at a premium in the amount of $2.5 million.  The
unamortized balance of the premium on the LC Notes at December 31, 1998 and
December 27, 1997 was $2.2 million and $2.4 million, respectively.  The proceeds
from the LC Notes were primarily used to fund the acquisition of LC  (together,
the MBW Notes and the LC Notes are the "Notes").

The Company may redeem the Notes at any time after February 15, 2002, at the
redemption price together with accrued and unpaid interest.  In addition, the
Company may redeem $35.0 million of the Notes at any time prior to February 15,
2000 subject to certain requirements, with the cash proceeds received from one
or more Equity Offerings (as defined), at a redemption price of 109.875%
together with accrued and unpaid interest.  Upon a Change in Control (as
defined), the Company has the option at any time prior to February 15, 2002 to
redeem the Notes at a redemption price of 100% plus the Applicable Premium (as
defined), together with accrued and unpaid interest.  If the Company does not
redeem the Notes or if the Change of Control occurs after February 15, 2002, the
Company is required to offer to repurchase the Notes at a price equal to 101%
together with accrued and unpaid interest.

                                       52
<PAGE>
 
On July 1, 1998, the Company issued the New Notes.  The proceeds from the New
Notes were used to repay senior secured debt and senior subordinated debt and
pay fees and expenses related to the repayment of the debt in connection with
the Refinancings.

The Company may redeem the New Notes at any time after July 1, 2003, at the
redemption price together with accrued and unpaid interest.  In addition, the
Company may redeem $70.0 million of the New Notes at any time prior to July 1,
2003 subject to certain requirements, with the cash proceeds received from one
or more Subsequent Equity Offerings (as defined), at a redemption price of
108.75% together with accrued and unpaid interest.  Upon a Change in Control (as
defined), the Company has the option at any time prior to July 1, 2003, to
redeem the New Notes at a redemption price of 100% plus the Applicable Premium
(as defined), together with accrued and unpaid interest.  If the Company does
not redeem the New Notes or if the Change of Control occurs after July 1, 2003,
the Company is required to offer to repurchase the New Notes at a price equal to
101% together with accrued and unpaid interest.

The indentures include restrictive covenants, which limit additional borrowings,
cash dividends, sale of assets, mergers and the sale of stock.  The Company was
in compliance with these covenants at December 31, 1998.

INTEREST RATE AGREEMENTS

The Company does not use derivative financial instruments for trading or
speculative purposes.  In accordance with the New Senior Bank Facilities, the
Company is required to enter into interest rate protection agreements to the
extent necessary to provide that, when combined with the Company's senior
subordinated notes, at least 50% of the Company's aggregate indebtedness is
subject to either a fixed interest rate or interest rate protection agreements.
Accordingly, the Company's interest rate agreements are as follows:

Interest Rate Collar Agreement - At December 31, 1998, the Company was party to
two interest rate collar agreements.  On August 22, 1996, the Company entered
into a three-year interest rate collar agreement with a notional principal
amount of $70.0 million, a cap rate of 6.5% (plus the applicable margin) and a
floor rate of 5.75% (plus the applicable margin).  On November 26, 1996, the
Company entered into a three-year interest rate collar agreement with a notional
principal amount of $50.0 million, a cap rate of 7.5% (plus the applicable
margin) and a floor rate of 5.5% (plus the applicable margin).

Under the interest rate collar agreements, the Company would receive payments
from the counterparty if the three-month LIBOR rate exceeds the cap rates and
make payments to the counterparty if the three-month LIBOR rate falls below
the floor rates.  The payments would be calculated based upon the respective
notional principal amount.  During fiscal 1998, the Company made payments
aggregating $0.1 million under the interest rate collar agreements.  At December
31, 1998, the three-month LIBOR rate was 5.28%.

Interest Rate Swap Agreement - The Company entered into an interest rate swap
agreement on March 17, 1998.  The notional principal amount covered under the
interest rate swap agreement is $150.0 million and the term is three years.  The
effective swap rate was 5.81%.  On November 30, 1998, the Company amended the
existing interest rate agreement whereby the counterparty received the option to
extend the termination date to March 17, 2003.  The new effective swap rate
through the termination date of the interest rate swap agreement is 5.37%.

Under the interest rate swap agreement, the Company would receive payments from
the counterparty if the three-month LIBOR rate exceeds 5.37% and make payments
to the counterparty if the three-month LIBOR rate is less than 5.37%.  The
payments would be calculated based upon the respective notional principal
amount.  During fiscal 1998 the Company made payments aggregating $0.2 million
under the interest rate swap agreement.

Risks associated with the interest rate agreements include those associated with
changes in market value and interest rates.  At December 31, 1998, the fair
value of the Company's interest rate agreements was immaterial and management
considers the potential loss in future earnings and cash flows attributable to
such agreements to be immaterial.

NOTE 9 - TRANSITION EXPENSES
----------------------------

Transition expenses consist of one-time costs incurred to establish the
Company's operations and integrate the acquired businesses, including relocation
expenses, recruiting fees, sales support and other unique transitional expenses.
Transition expenses for the years ended December 31, 1998 and December 27, 1997
were approximately $10.3 million and $2.1 million, respectively.

                                       53
<PAGE>
 
NOTE 10 - INCOME TAXES
----------------------

The Company is included in the consolidated federal income tax return of
Holdings for the year ended December 27, 1997 and the six months ended June 25,
1998.  State income tax returns are filed by Holdings and the Company on a
separate company basis or on a combined basis depending on the particular rules
in each state for the year ended December 27, 1997 and the six months ended June
25, 1998.  The Company will file short period federal and state returns for the
six months ended December 31, 1998.

The provision for income taxes is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                               Years Ended
                                                            ---------------------------------------------
                                                             December 31,                   December 27,
                                                                1998                          1997
                                                            -------------                  --------------
<S>                                                         <C>                            <C>       
             Current tax expense:
               Federal                                      $          -                   $           -
               State                                                   -                               -
                                                            -------------                  --------------
             Total current provision                                   -                               -
                                                            -------------                  --------------

             Deferred tax expense:
               Federal                                            12,348                             656         
               State                                               1,958                             123         
                                                            -------------                  --------------
             Total deferred provision                             14,306                             779         
                                                            -------------                  --------------
             Total provision for income taxes               $     14,306                   $         779          
                                                            =============                  ==============
 
Deferred tax assets (liabilities) consist of the
 following:
 
             Deferred tax assets - current:
               Loss carryforwards                           $          -                   $       1,230
               Accounts receivable                                 1,350                               -
               Asset held for sale                                 1,814                               -
               Coupon reserves                                     1,321                             844    
               Inventory                                           3,207                             325    
               Accrued expenses                                      340                             320    
               Other                                                 219                             247    
                                                            -------------                  --------------
             Total deferred tax assets - current                   8,251                           2,966
                                                            -------------                  --------------

             Deferred tax assets - non-current:
               Loss carryforwards                                 29,349                               -         
               Incentive plan expense                             19,773                             873        
                                                            -------------                  --------------
             Total deferred tax assets -  non-current             49,122                             873         
                                                            -------------                  --------------
 
             Deferred tax liabilities - non-current:
               Goodwill                                          (40,421)                         (4,237)        
               Depreciation                                       (9,350)                           (381)        
                                                            -------------                  --------------
             Total deferred tax liabilities -  non-current       (49,771)                         (4,618)         
                                                            -------------                  --------------
             Net deferred tax assets (liabilities)          $      7,602                   $        (779)
                                                            =============                  ==============   
</TABLE> 

The Company has not recorded a valuation allowance for its deferred tax assets.
Management believes the deferred tax assets are more likely than not to be     
realized.                                                                      
                                                                               
At December 31, 1998, the Company generated a federal net operating loss of    
approximately $78.3 million. These losses can be used to offset future taxable 
income through the year 2018.  The Company is a loss corporation as defined in 
section 382 of the Internal Revenue Code.  Therefore, if certain substantial   
changes of the Company's ownership should occur, there could be significant    
annual limitations of the amount of net operating loss carryforwards which can 
be utilized.                                                                    

                                       54
<PAGE>
 
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income as a result of the following differences (in thousands):

<TABLE>
<CAPTION>
                                                                                Years Ended
                                                         ---------------------------------------------
                                                          December 31,                   December 27,
                                                              1998                           1997
                                                         --------------                  -------------
        <S>                                              <C>                             <C> 
        (Benefit from) provision for income taxes
             at U.S. statutory rate                         $ (7,432)                    $       685
        Increase (decrease) in tax
             resulting from:
             Non-deductible incentive plan  expense           19,238                               -
             Non-deductible goodwill                             393                               -
             Other non-deductible expenses                       136                              13
             State taxes, net of federal benefit               1,293                              81
             Provision to return differences                     775                               -
             Change in net state tax rate                        (97)                              -
                                                         --------------                  -------------
                                                            $ 14,306                     $       779
                                                         ==============                  =============
</TABLE>

NOTE 11 - LEASES
----------------

The Company leases certain facilities, machinery and equipment under operating
lease agreements with varying terms and conditions. The leases are
noncancellable and expire on various dates through 2004.

Future annual minimum lease payments under these leases are summarized as
follows (in thousands):


<TABLE>
<CAPTION>
                                                                      Minimum
                                                                       Lease
             Years ending December 31,                                Payments
             -------------------------                            ----------------
             <S>                                                  <C> 
             1999                                                   $       1,290
             2000                                                           1,273
             2001                                                             788
             2002                                                             618
             2003                                                             590
             Thereafter                                                       139
                                                                   ---------------
                                                                    $       4,698
                                                                   ===============
</TABLE>

Rent expense for the years ended December 31, 1998 and December 27, 1997 was
$1.0 million and $0.1 million, respectively.

NOTE 12 - SAVINGS AND BENEFIT PLANS
-----------------------------------

The Company offers a retirement savings plan to employees in the form of 401(k)
and profit sharing plans.  Under the 401(k) plan, dry grocery division employee
contributions up to 6% of total compensation are matched 50% by the Company and
frozen food division employee contributions up to 3% of total compensation are
matched 100% by the Company, with vesting occurring ratably over a five year
period.  Profit sharing contributions of 2% of compensation are made on behalf
of all employees on an annual basis.  Profit sharing contributions also vest
ratably over a five year period.  The Company's contributions to the 401(k) and
profit sharing plans for the years ended December 31, 1998 and December 27, 1997
were $0.7 million and $0.1 million, respectively.

NOTE 13 - RELATED PARTY TRANSACTIONS
------------------------------------

The Company maintains business relationships and engages in certain transactions
as described below.

The Company entered into a Management Services Agreement, dated December 31,
1996 and terminated on July 1, 1998, with Dartford Partnership L.L.C.
("Dartford"), whose partners include Messrs. Ian R. Wilson, Ray Chung and James
B. Ardrey and Ms. M. Laurie Cummings (all are directors and/or executive
officers of the Company) pursuant to which Dartford provided management
oversight on financial and operational matters.  The Company 

                                       55
<PAGE>
 
paid fees to Dartford in connection with this agreement totaling $1.0 million
and $0.8 million for the years ended December 31, 1998 and December 27, 1997,
respectively. The annual management fee was $0.6 million prior to the
acquisition of LC, $0.9 million after the acquisition of LC but before the
acquisition of DH and $2.0 million after the acquisition of DH.

The Company entered into an Advisory Services Agreement, dated December 31, 1996
which terminated on July 1, 1998, with McCown De Leeuw & Co. III, L.P. ("MDC")
whose general partners and principal include Mr. David E. De Leeuw, Mr. Charles
Ayres and Mr. Tyler T. Zachem (all directors of the Company) pursuant to which
MDC provided certain advisory functions.  The Company paid fees to MDC in
connection with this agreement totaling $0.3 million for each of the years ended
December 31, 1998 and December 27, 1997.  The annual advisory fee was $0.2
million prior to the acquisition of LC, $0.3 million after the acquisition of LC
but before the acquisition of DH and $0.7 million after the acquisition of DH.

In connection with the acquisitions of MBW, LC and DH the Company paid to
certain members of MBW LLC, who are also represented on the Board of Directors
or officers of the Company and beneficial owners, fees for services rendered in
connection with the acquisitions and related financings.  The aggregate amount
paid to certain members of MBW LLC for the years ended December 31, 1998 and
December 27, 1997 was $4.0 million and $4.7 million, respectively, and was
funded by the proceeds of the financings.  Of this amount, $0 and $1.2 million
was paid to Dartford; $0 and $0.3 million in total was paid to Mr. Thomas J.
Ferraro (President, Dry Grocery Division) and Mr. C. Gary Willett (Executive
Vice President, Dry Grocery Division); $3.0 million and $2.7 million was paid to
MDC; and $1.0 million and $0.5 million was paid to Fenway Partners Capital Fund,
L.P. ("Fenway"), whose partners include Mr. Peter Lamm, Mr. Andrea Geisser and
Mr. Richard C. Dresdale (all directors of the Company) in 1998 and 1997,
respectively.  The fee amounts were negotiated among the equity investors.

Each of Fenway, MDC, and Dartford earned $1.5 million; UBS Capital LLC, whose
president is Mr. Charles J. Delaney (a director of the Company), earned $0.2
million; and each of Tiger Oats Limited, whose directors include Mr. Clive A.
Apsey (a director of the Company), and the California Public Employees
Retirement System, who granted the right to vote all of the public shares of
common stock of the Company it holds to MDC under an irrevocable proxy, earned
$0.1 million in fees in connection with the Contribution transaction.

The Company has entered into agreements pursuant to which it agreed to pay
transaction fees to each of Fenway, MDC, and Dartford of 0.333% of the
acquisition price for future acquisitions by the Company.  The acquisition price
is defined as the sum of (i) the cash purchase price actually received by the
seller, (ii) the fair market value of any equity securities issued by the
seller, (iii) the face value of any debt securities issued to the seller less
any discounts, (iv) the amount of liabilities assumed by the Company plus (v)
the fair market value of any other property or consideration paid in connection
with the acquisition, with installment or deferred payments to be calculated
using the present value thereof.

The Company has agreed to pay Dartford $0.8 million per year as reimbursement of
corporate headquarters expenses which include staff salaries, miscellaneous
office expenses related to the administration of the Company's corporate
headquarters, and rent for the space leased by Dartford and used by the Company
as its corporate headquarters for a term ending the earlier of July 1, 2000 and
the date that Mr. Wilson is no longer Chief Executive Officer of the Company.

On December 31, 1996 and January 16, 1998, Mr. Ferraro, executed promissory
notes in the amount of $60,000 and $131,000, respectively, in favor of the
Company to evidence monies borrowed to assist in the capitalization of his
limited liability company interests held in MBW LLC.  The promissory notes
mature December 31, 1999 and January 16, 2001. Interest is due and payable
quarterly at the rate of 8% per annum and there are required annual principal
payments.  The aggregate balance outstanding on his promissory notes was
$151,000 as of December 31, 1998 and was $40,000 as of December 27, 1997.

On September 19, 1995, Mr. Ellinwood, executed a promissory note in the amount
of $125,000 in favor of VDK to evidence monies borrowed to assist in the
capitalization of his limited liability company interests held in VDK LLC.  The
promissory note matures March 31, 1999.  Interest is due and payable quarterly
at the rate of 8.5% per annum.  The balance outstanding on his promissory note
as of December 31, 1998 and December 27, 1997 was $41,666.

                                       56
<PAGE>
 
NOTE 14 - INCENTIVE PLAN EXPENSE
--------------------------------

AURORA INCENTIVE PLAN

The Amended and Restated Limited Liability Company Agreement of MBW LLC
contained an incentive plan (the "Aurora Plan") as a means by which certain key
employees and other specifically designated persons ("Aurora Covered Employees")
of AurFoods and/or affiliated with AurFoods, were given an opportunity to
benefit from appreciation in the value of AurFoods.  Under the Aurora Plan,
Aurora Covered Employees were issued a specific class of limited liability
company member units ("Management Units"), at a nominal value, as a means to
participate in the appreciation of the equity value of AurFoods.  The Management
Units were subject to vesting requirements based on terms of employment or other
factors.

Prior to the closing of the Equity Offerings, the final value of all classes of
Management Units were determined based on the valuation of the Common Stock held
indirectly by MBW LLC, and upon the closing of the Equity Offerings all unvested
Management Units became fully vested.  The aggregate value of all Management
Units was $58.9 million.  Through December 27, 1997, the Company had recorded
estimated incentive plan expense of $2.3 million based on the estimated
valuation of the Company at that time. Additional incentive plan expense of
$56.6 million was recorded in the first and second quarters of 1998.

The incentive plan expense was recorded as a liability of MBW LLC as sponsor of
the Aurora Plan.  However, because the Aurora Plan was for the benefit of Aurora
Covered Employees, expense recognized under the Aurora Plan was pushed down to
the Company as incentive plan expense and as additional paid-in capital from its
parent.  No additional incentive plan expense will be recorded under the Aurora
Plan.

MBW LLC satisfied its liability under the Aurora Plan by distributing 4,152,417
shares of Common Stock of the Company based on the valuation of the Management
Units at the initial public offering price of the Company's Common Stock on the
dissolution of MBW Investors LLC.

VDK INCENTIVE PLAN

VDK LLC provided a compensation arrangement (the "VDK Plan") as a means by which
certain key employees, and other specifically designated persons ("VDK Covered
Employees") of VDK and/or affiliated with VDK, were given an opportunity to
benefit from appreciation in the equity value of VDK.  Under the VDK Plan, VDK
Covered Employees were issued a specific class of limited liability company
member units and/or performance-based units (collectively, "VDK Management
Units"), at a nominal value, as a means to participate in the appreciation of
the equity value of VDK.  The VDK Management Units were subject to vesting
requirement based on terms of employment or other factors.

Prior to the closing of the Equity Offerings, the final value of all classes of
VDK Management Units were determined based on the valuation of the shares of the
Company held indirectly by VDK LLC, and upon the closing of the Equity Offerings
all unvested VDK Management Units became fully vested. The aggregate value of
all VDK Management Units was $66.7 million. Through December 31, 1997, no
incentive plan expense had been recorded by VDK based on the estimated valuation
of VDK at that time.  Incentive plan expense of $66.7 million was recorded in
the first and second quarters of 1998.  The incentive plan expense was recorded
as a liability of VDK LLC as sponsor of the VDK Plan.  However, because the VDK
Plan was for the benefit of VDK Covered Employees, expense recognized under the
VDK Plan was pushed down to VDK as incentive plan expense and as additional
paid-in capital from its parent.  No additional incentive plan expense will be
recorded under the VDK Plan.

VDK LLC (or the Company as described below) will distribute a fixed number of
shares of Common Stock of the Company upon the dissolution of VDK LLC, based on
the valuation of the VDK Management Units at the initial public offering price
of the Company's Common Stock.

The VDK Plan provides for tax gross-up payments on certain distributions.
Because the Company will receive the tax benefit of such distributions and
related tax gross-up payments, and because the tax benefit is expected to exceed
the amount of the tax gross-up payments, the Company will bear the $12.4 million
liability for any such tax gross-up payments due. The tax benefit of the tax
gross-up payment and related distributions of $19.6 million, which more than
offsets the gross-up payments, has been recorded to income tax expense and as a
deferred tax asset.

                                       57
<PAGE>
 
To facilitate payment of the tax gross-up obligation and recognition of related
tax benefits, VDK adopted a new incentive plan (the "New VDK Plan" and together
with the VDK Plan, the "VDK Plans"), which was assumed by the Company in
connection with the Contribution.  Under the New VDK Plan, the Company is
obligated to distribute no later than July 1, 1999 1,801,769 shares of the
Company's Common Stock to VDK Covered Employees who were granted certain types
of VDK Management Units under the VDK Plan.  The issuance of such shares (the
"MC Shares") will not increase the number of outstanding shares of Common Stock
because the Company's obligations to issue the MC Shares is contingent upon the
Company's receiving from VDK LLC, as a contribution, a number of shares of the
Company's Common Stock owned by VDK LLC equal to the number of MC Shares.  The
Company will have no obligation to issue MC Shares unless it receives a
contribution of an equal number of shares from VDK LLC.  VDK LLC is obligated to
contribute such shares to the Company after the closing of the Equity Offerings.
The Company's obligation to make the tax gross-up payments referred to above is
subject to the Company being allowed a deduction for federal income tax purposes
with respect to the payment of the MC Shares and tax gross-up payment.

NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
------------------------------------------------

The Company is subject to litigation in the ordinary course of business. In the
opinion of management, the ultimate outcome of any existing litigation would not
have a material adverse effect on the Company's financial condition or results
of operations.

The Company has entered into manufacturing contracts, which require minimum
annual production orders.  The minimum annual production orders for all
contracts through the year 2002 are 5.8 million cases of product.  This volume
represents substantially less than the Company's current production
requirements.

NOTE 16 - STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
--------------------------------------------------------

The Company has a stock option plan and an employee stock purchase plan as
described below.  The Company applies APB 25 and its related interpretations in
accounting for its plans.  No compensation cost has been recognized for its
stock option plans because grants have been made at exercise prices at or above
fair market value of the common stock on the date of grant.

Prior to the Equity Offerings, the Board of Directors adopted the 1998 Long Term
Incentive Plan (the "1998 Option Plan") and the sole stockholder approved such
plan.  Under the 1998 Option Plan, the Company is authorized to grant both
incentive and non-qualified stock options to purchase common stock up to an
aggregate amount of 3,500,000 shares.  No incentive stock options may be granted
with an exercise price less than fair market value of the stock on the date of
grant; non-qualified stock options may be granted at any price but, in general,
are not granted with an exercise price less than the fair market value of the
stock on the date of grant.  Options are generally granted with a term of ten
years and vest ratably over three years beginning on either the first or third
anniversary of the date of grant.

As of December 31, 1998, the Company has granted 2,031,900 options under the
1998 Option Plan.  Exercise prices ranged from $15 to $21 per share.  The
weighted average option price for 1998 was $20.91.

For the purposes of calculating compensation cost under SFAS 123, the minimum
fair value of each option grant is estimated on the date of grant using the
Black-Scholes single option pricing model with the following weighted-average
assumptions:  dividend yield of 0%, expected volatility of 0.20, a risk-free
interest rate of 4.8% and expected option lives of three to five years.  Had the
minimum value of the options been calculated in accordance with SFAS 123, net
loss available to common stockholders would have been $46.2 million and loss per
diluted share would have been $0.86.

Prior to the Equity Offerings, the Board of Directors adopted the 1998 Employee
Stock Purchase Plan (the "1998 Purchase Plan") and the sole stockholder approved
such plan covering an aggregate of 200,000 shares of common stock.  Under the
1998 Purchase Plan, eligible employees have the right to purchase common stock
at 85% of the lower of the fair market value of the common stock on the
commencement date of each offering period or the date of purchase.  Purchases
are made from accumulated payroll deductions of up to 15% of such employee's
earnings.  During the year ended December 31, 1998, 16,193 shares were purchased
under the 1998 Purchase Plan at $16.84 per share.

                                       58
<PAGE>
 
NOTE 17 - EARNINGS PER SHARE
----------------------------

Basic earnings per share represents the income available to common stockholders
divided by the weighted average number of common shares outstanding during the
measurement period.  Diluted earnings per share represents the income available
to common stockholders divided by the weighted average number of common shares
outstanding during the measurement period while also giving effect to all
potentially dilutive common shares that were outstanding during the period.
Potentially dilutive common shares consist of stock options (the dilutive impact
is calculated by applying the "treasury stock method").

The table below summarizes the numerator and denominator for the basic and
diluted earnings per share calculations (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                                      Years Ended
                                                         -------------------------------------
                                                          December 31,           December 27,
                                                              1998                   1997
                                                         --------------         --------------
             <S>                                         <C>                    <C> 
             Numerator:
             Net (loss) income before                    
              extraordinary item                         $      (36,166)        $        1,235
             Extraordinary item, net of tax                       9,211                      -
                                                         --------------         --------------
             Net (loss) income                           $      (45,377)        $        1,235       
                                                         ==============         ============== 
 
             Denominator - Basic shares:
             Average common shares outstanding                   53,541                 29,053
 
             Basic earnings per share                    $        (0.85)        $         0.04
                                                         ==============         ==============  

             Denominator - Diluted shares:
             Average common shares outstanding                   53,541                 29,053 
             Dilutive effect of common stock                          
              equivalents                                             -                      -                                  
                                                         --------------         --------------
             Total diluted shares                                53,541                 29,053 
                                                         --------------         --------------
             Diluted earnings per share                  $        (0.85)        $         0.04 
                                                         ==============         ==============  
</TABLE>

NOTE 18 - SEGMENT INFORMATION
-----------------------------

The Company groups its businesses in two operating segments: dry grocery
division and frozen food division.  The operating segments are managed as
strategic units due to their distinct manufacturing methodologies, distribution
channels and dedicated segment management teams. The dry grocery division
includes Duncan Hines(R) baking mix, and Mrs. Butterworth's(R) and Log Cabin(R)
syrup products.  The frozen food division includes Van de Kamp's(R) and Mrs.
Paul's(R) frozen seafood, Aunt Jemima(R) frozen breakfast and Celeste(R) brand
frozen pizza products.

                                       59
<PAGE>
 
The following table presents a summary of operations by segment (in thousands):

<TABLE>
<CAPTION>
                                                                Years Ended
                                                   -------------------------------------
                                                   December 31,          December 27,
                                                       1998                  1997
                                                   --------------        --------------- 
         <S>                                       <C>                   <C> 
         Net sales                                         
            Dry grocery                            $      508,364        $       143,020
            Frozen food                                   280,829                      -
                                                   --------------        --------------- 
            Total                                  $      789,193        $       143,020
                                                   ==============        ===============
                                                                                 
         Operating income                                                        
            Dry grocery                            $       88,646        $        27,811
            Frozen food                                    22,783                      -
            Other                                         (66,667)                (4,413)
                                                   --------------        --------------- 
            Total                                  $       44,762        $        23,398
                                                   ==============        ===============
                                                                                 
                                                                                 
         Total assets                                                            
            Dry grocery                            $      958,129        $       372,739
            Frozen food                                   475,753                      -
                                                   --------------        --------------- 
            Total                                  $    1,433,882        $       372,739
                                                   ==============        ===============
                                                                                 
                                                                                 
         Depreciation and amortization                                           
            Dry grocery                            $       26,754        $        10,057
            Frozen food                                    14,589                      -
                                                   --------------        --------------- 
            Total                                  $       41,343        $        10,057
                                                   ==============        ===============
                                                                                 
                                                                                 
         Capital expenditures                                                    
            Dry grocery                            $       25,895        $         2,411
            Frozen food                                    13,904                      -
                                                   --------------        --------------- 
            Total                                  $       39,799        $         2,411
                                                   ==============        ===============
</TABLE>

The Other line item in operating income is comprised of one-time expenses
related to incentive plan expense (See Note 14-Incentive Plan Expense) and
transition expenses (See Note 9-Transition Expenses) that were incurred in the
respective periods.

                                       60
<PAGE>
 
NOTE 19- QUARTERLY FINANCIAL DATA
---------------------------------

Unaudited quarterly financial data for the years ended December 31, 1998 and
December 27, 1997 are as follows (in thousands except per share data):

<TABLE>
<CAPTION>
                                                  Quarter 1           Quarter 2           Quarter 3            Quarter 4
                                             ----------------     ----------------    ----------------    ----------------
       <S>                                   <C>                  <C>                 <C>                 <C>
       Year ended December 31, 1998:
       Net sales                              $    89,385          $   199,813         $   220,368         $   279,627
       Gross profit                                51,651              118,070             131,104             170,821
       Operating income (loss)                    (50,138)              25,562              28,215              41,123
       Adjusted operating income                   11,788               24,667              29,484              45,763
       Net income (loss)                          (64,832)               3,230                 654              15,571
       Basic earnings (loss) per share              (1.20)                0.06                0.01                0.28
       Diluted earnings (loss) per share            (1.20)                0.06                0.01                0.28
       Adjusted basic earnings per share             0.08                 0.03                0.12                0.28
                                                 
       Year ended December 27, 1997:             
       Net sales                              $    21,253          $    21,639         $    49,125         $    51,003
       Gross profit                                14,086               14,535              33,896              34,774
       Operating income                             4,826                3,346              10,146               5,080
       Adjusted operating income                    4,952                3,528              11,135               8,196
       Net income (loss)                              (71)                 415               1,923              (1,032)
       Basic earnings (loss) per share               0.00                 0.01                0.07               (0.04)
       Diluted earnings (loss) per share             0.00                 0.01                0.07               (0.04)
       Adjusted basic earnings per share             0.00                 0.02                0.09                0.03
</TABLE>
                                                                                

Adjusted operating income excludes incentive plan expense and transition
expenses for the respective quarters. Adjusted basic earnings per share exclude
the after-tax effect of incentive plan expense, transition expenses and
extraordinary items for the respective quarters.

                                       61
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------
                                        


To the Board of Directors
of CONOPCO, Inc.


We have audited the accompanying statement of operations for the year ended
December 31, 1996 of Mrs. Butterworth's Business, a component of CONOPCO, Inc.
(the "Business").  This financial statement is the responsibility of CONOPCO,
Inc.'s management.  Our responsibility is to express an opinion on this
statement based on our audit.

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

The accompanying financial statement was prepared to present the results of
operations of the Business pursuant to the purchase agreement between CONOPCO,
Inc. and MBW Acquisition Corp. (the "Buyer") as described in Note 1.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the results of its operations for the Business for the
year ended December 31, 1996, pursuant to the purchase agreement referred to in
Note 1, in conformity with generally accepted accounting principles.

PricewaterhouseCoopers LLP
San Francisco, California
March 14, 1997

                                       62
<PAGE>
 
                          MRS. BUTTERWORTH'S BUSINESS

                        (A COMPONENT OF CONOPCO, INC.)

                            STATEMENT OF OPERATIONS
                                (IN THOUSANDS)
                                        


<TABLE>
<CAPTION>
                                                                         Year Ended
                                                                      December 31, 1996
                                                                    ---------------------
<S>                                                                 <C>       
Net sales                                                               $  89,541
Costs and expenses:                                                     
    Cost of products                                                       
     sold                                                                  28,955 
    Brokerage and distribution                                              8,140
    Trade promotions                                                       17,672
    Consumer marketing                                                     10,835
    Selling, general and administrative                                     6,753
                                                                        ---------
 
    Total costs and expenses                                               72,355
                                                                        ---------
Income before taxes                                                        17,186
    Provision for income taxes                                              6,616
                                                                        ---------
Net income                                                              $  10,570
                                                                        =========
</TABLE>



  The accompanying notes are an integral part of the statement of operations.
  

                                       63
<PAGE>
 
                          MRS. BUTTERWORTH'S BUSINESS

                        (A COMPONENT OF CONOPCO, INC.)

                       NOTES TO STATEMENT OF OPERATIONS
                         YEAR ENDED DECEMBER 31, 1996
                                (IN THOUSANDS)


1.   DESCRIPTION OF BUSINESS

     In December 1996, CONOPCO, Inc. ("CONOPCO" or the "Company"), a subsidiary
     of Unilever United States, Inc., entered into an Asset Purchase Agreement
     (the "Agreement") with MBW Acquisition Corp., the predecessor of MBW Foods
     Inc. (the "Buyer").  The Agreement provides for the sale of certain assets
     of CONOPCO pertaining to its Mrs. Butterworth's Business (the "Business")
     and the assumption of certain liabilities relating to future commitments as
     defined (see Note 7).  The Business was operated as part of Van den Bergh
     Foods Company ("Van den Bergh"), a division of the Company.  The Business'
     products, which are distributed on a national basis, consist of syrup and
     pancake mix.  A significant portion of the Business' net sales are with
     major retailers.

     The sale was consummated on December 31, 1996, after the close of business
     but before the end of the business day.  Under the terms of the Agreement,
     CONOPCO, Inc. sold to the Buyer certain assets exclusively used in the
     Business, as defined in the Agreement, and retains the manufacturing
     plants, employees and the retained liabilities of the Business, as defined
     in the Agreement.

     Throughout the period covered by the financial statements, the Business
     operations were conducted and accounted for as a part of the Company.  The
     Statement of Operations has been carved out from the Company's historical
     accounting records.

     Under the Company's centralized cash management system, cash requirements
     of the Business were generally provided directly by the Company and cash
     generated by the Business was generally remitted directly to the Company.
     Transaction systems (e.g., payroll, employee benefits, accounts payable)
     used to record and account for cash disbursements were provided by
     centralized company organizations outside the defined scope of the
     Business.  Most of these corporate systems are not designed to track
     assets/liabilities and receipts/payments on a business specific basis.
     Given these constraints and the fact that only certain assets of the
     Business were sold, statements of financial position and cash flows could
     not be prepared.

     The manufacturing and distribution operations of the Business are conducted
     at sites where other Company manufacturing and distribution not included in
     the Business are present.  In addition, certain non-manufacturing
     operations of the Business share facilities and space with other Company
     operations.  At these shared sites, only the assets of the Business
     (inventories and machinery and equipment) were sold in accordance with the
     Agreement.

     Net sales in the accompanying Statement of Operations represent net sales
     directly attributable to the Business.  Costs and expenses in the
     accompanying statement of operations represent direct and allocated costs
     and expenses related to the Business.  Costs for certain functions and
     services performed by centralized Company organizations outside the defined
     scope of the Business have been allocated to the Business based on usage or
     sales of the Business, as appropriate, compared to total Van Den Bergh
     usage or sales.  The results of operations include expense allocations for
     (1) costs for administrative functions and services performed on behalf of
     the Business by centralized staff groups within the Company, (2) research
     and development expense and (3) CONOPCO's general corporate expenses
     including pension and certain other postretirement benefits costs (see Note
     2, 3 and 5 for a description of the allocation methodologies employed).
     CONOPCO maintains all debt and notes payable on a consolidated basis to
     fund and manage all of its operations.  Debt and related interest expense
     were not allocated to the Business.

     All of the allocations and estimates in the Statement of Operations are
     based on assumptions that Company management believes are reasonable under
     the circumstances.  However, these allocations and estimates are not
     necessarily indicative of the costs and expenses that would have resulted
     if the Business had been operated as a separate entity or future results of
     the Business.

                                       64
<PAGE>

                         MRS. BUTTERWORTH'S BUSINESS                           
                       (A COMPONENT OF CONOPCO, INC.)

                      NOTES TO STATEMENT OF OPERATIONS        
                        YEAR ENDED DECEMBER 31, 1996
                              (IN THOUSANDS)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Income recognition.  Sales and related cost of products sold are included
     in income and expense, respectively, when products are shipped to the
     customer.

     Inventories. Inventories are priced at the lower of cost or market with
     cost determined by the last-in, first-out (LIFO) method.

     Machinery and equipment ("M&E").  M&E is stated at historical cost.
     Alterations and major overhauls which extend the lives of its property or
     increase the capacity of M&E are capitalized.  The amounts for property
     disposals are removed from M&E and accumulated depreciation accounts and
     any resultant gain or loss is included in earnings.  Ordinary repairs and
     maintenance are charged to operating costs.

     Depreciation. Van Den Bergh calculates depreciation using the straight-line
     method over the useful lives of its property and M&E. Depreciation provided
     in costs and expenses is allocated to the Business based on sales of the
     Business compared to total Van Den Bergh sales.

     Cost of Products Sold. Cost of products sold includes direct costs of
     materials, labor, and overhead and allocated costs for facilities,
     functions and services used by the Business at shared sites. Overhead
     allocations are based on estimated time spent by employees, relative use of
     facilities, estimated consumption of supplies, and sales of the Business
     compared to total Van Den Bergh sales.

     Brokerage and distribution. Brokerage and distribution includes costs of
     the outside brokerage network and outbound freight.

     Trade promotions. Trade promotions represents promotional incentives
     offered to retailers.

     Consumer marketing. Consumer marketing is comprised of all costs associated
     with advertising coupons. Advertising expense is accrued as incurred.
     Production costs are expensed on the initial use of the advertisement.

     Selling, general and administrative.  Selling, general and administrative
     consists solely of allocated selling, administration and research and
     development expenses.  The Business is allocated these expenses based on
     sales of the Business compared to total Van den Bergh sales.

     Income taxes.  The taxable income of the Business was included in the tax
     returns of CONOPCO.  As such, separate income tax returns were not prepared
     or filed for the Business.  The provision for income taxes included in the
     accompanying Statement of Operations has been determined based upon
     statutory rates applied to pre-tax income.

     Pensions.  The Company has noncontributory defined benefit plans covering
     substantially all U.S. employees, including the employees of the Business.
     The benefits for these plans are based primarily on employees' years of
     service and employees' compensation during the last years of employment.
     It is the Company's policy to fund at least the minimum amounts required by
     the Employee Retirement Income Security Act of 1974.  The Company maintains
     profit-sharing and savings plans for full-time employees who meet certain
     eligibility requirements.  The costs allocated to the Business relative to
     the aforementioned plans are based on sales of the Business.

     Other post retirement benefits.  The Company provides certain health care
     and life insurance benefits (post retirement benefits) to substantially all
     eligible retired U.S. employees and their dependents.  These benefits are
     accounted for as they are earned by active employees.  The post retirement
     costs allocated to the Business are based on sales of the Business.

                                       65
<PAGE>
 
                        MRS. BUTTERWORTH'S BUSINESS                           
                       (A COMPONENT OF CONOPCO, INC.)

                      NOTES TO STATEMENT OF OPERATIONS        
                        YEAR ENDED DECEMBER 31, 1996
                              (IN THOUSANDS)


     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.  Actual results could differ from
     these estimates.  Also, as discussed in Note 1, the Statement of Operations
     includes allocations and estimates that are not necessarily indicative of
     the costs and expenses that would have resulted if the Business had been
     operated as a separate entity or future results of the Business.

3.   Related Party Transactions

     The Statement of Operations includes significant allocations from other
     Company organizations involving functions and services (such as finance and
     accounting, management information systems, research and development,
     legal, human resources and purchasing) that were provided to the Business
     by centralized CONOPCO organizations outside the defined scope of the
     Business.  The costs of these functions and services have been allocated to
     the Business using methods that CONOPCO's management believes are
     reasonable.  Such allocations are not necessarily indicative of the costs
     that would have been incurred if the Business had been a separate entity.
     Total cost of products sold includes $2,656 in allocated costs for the year
     ended December 31, 1996.  Selling, general and administrative expenses
     include $6,753 of allocated costs for the year ended December 31, 1996.

4.   PROVISION FOR INCOME TAXES


     Taxes computed at the U.S. statutory rates are summarized below:

<TABLE>
<CAPTION>
                                                        1996
                                               -------------------------
                                                  Amount            %
                                               -----------      ---------   
       <S>                                     <C>              <C> 
       Federal                                 $   5,843           34.0
       State (net of federal tax benefit)            773            4.5
                                                   -----           ----
       Provision for income taxes              $   6,616           38.5
                                                   =====           ====
</TABLE>

5.   INVENTORIES

     The Company's application of LIFO is not attributable to individual
     business units.  Accordingly, the results of applying LIFO have been
     allocated to the Business based on relative inventory values.  Management
     believes such allocations are reasonable, but may not necessarily reflect
     the cost that would have been incurred if LIFO had been applied on a
     business specific basis.

6.   DEPRECIATION EXPENSE

     Depreciation provided in costs and expenses was $277 in 1996.

7.   COMMITMENTS AND CONTINGENCIES

     The Business is currently subject to certain lawsuits and claims with
     respect to matters such as product liability and other actions arising in
     the normal course of business.  Such lawsuits and claims, as defined in the
     Agreement, are the responsibility of CONOPCO.

     In the normal course of its operations, the Business has informal
     agreements with two suppliers to provide the Business with its glass bottle
     requirements.  These informal agreements contain no specified duration and
     are subject to price adjustments.  If these agreements were to terminate,
     the Company expects that the Business would acquire any on-hand inventory
     of the suppliers.

                                       66
<PAGE>
 
Schedule IX - Valuation Reserves
---------------------------------

<TABLE>
<CAPTION>
                Column A                       Column B           Column C                   Column D     Column E         
                                                                                                                             
                                                                  Additions                                            
                                                           -----------------------------                                     
                                              Balance at    Charged to       Charged to                   Balance at         
                                              Beginning     Costs and          Other                         End             
         Description                          of Period     Expenses          Accounts       Deductions    of Year           
------------------------------------         ------------  -----------       -----------   ------------- -------------
<S>                                          <C>           <C>               <C>           <C>           <C>  
December 27, 1997
Allowance for doubtful accounts              $        -    $  140,000        $       -     $        -    $    140,000
                                             ==========    ==========        =========     ==========    ============
 
December 31, 1998
Allowance for doubtful accounts              $  140,000    $  202,000        $ 419,000     $  (91,000)   $    670,000
                                             ==========    ==========        =========     ==========    ============
</TABLE>

                                       67