10-K/A 1 ten-ka.txt 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] For the fiscal year ended June 1, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _________________ Commission file number 000-17896 -------------------- HANOVER FOODS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 23-0670710 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1486 YORK STREET, P.O. BOX 334 HANOVER, PENNSYLVANIA 17331-0334 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number including area code: (717) 632-6000 Securities registered pursuant to Section 12(b) of the Act: None Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Class A Nonvoting Common Stock ------------------------------ (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. [X] Indicate by check mark whether the Registrant (1) is an accelerated filer (as defined in Rule 12-b-2 of the Act). Yes[ ] No[X] Per the most recent independently appraised price, the estimated aggregate value of Class B Voting Common Stock held by non-affiliates of the registrant was $28,131,129 excluding 155,949 shares owned by the Employee Stock Trust and Employee Stock Ownership Plan. As of August 11, 2003, the estimated aggregate market value of Class A Nonvoting Common Stock held by non-affiliates of the registrant was $12,822,365. (The exclusion of the market value of shares owned by any individual or entity shall not be deemed an admission that such person is an "affiliate" of the registrant.) There were 582,198 shares of Class B Common Stock outstanding as of August 11, 2003, of which 155,949 shares were owned by the Employee Stock Trust and Employee Stock Ownership Plan. There were 288,062 shares of Class A Common Stock outstanding as of August 11, 2003. 1 PART I This Form 10-K/A is being filed to include a corrected independent auditor's report. ITEM 1. BUSINESS Forward Looking Statements When used in this Annual Report on Form 10-K, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "projected," or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, but not limited to, quarterly fluctuations in operating results, competition, state and federal regulation, environmental considerations, foreign operations, and a change of control as a result of the pending Warehime family litigation. Such factors, which are discussed in the Annual Report, could affect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from any opinion or statements expressed herein with respect to future periods. As a result, the Corporation wishes to caution readers not to place undue reliance on any such forward looking statements, which speak only as of the date made. OVERVIEW Hanover Foods Corporation (as used herein the term "Corporation" refers to Hanover Foods Corporation and its consolidated subsidiaries) was incorporated on December 12, 1924 in Harrisburg, Pennsylvania. The Corporation has six (6) wholly-owned subsidiaries, Tri-Co. Foods Corp., Consumers Packing Corporation, d/b/a Hanover Foods - Lancaster Division, Spring Glen Fresh Foods, Inc., Hanover Insurance Corporation, Ltd., Nittany Corporation and Bickel's Snack Foods, Inc. Tri-Co. Foods Corp. has three (3) wholly-owned subsidiaries: Alimentos Congelados Monte Bello, S.A., Sunwise Corporation and Mayapac, S.A. Originally, the Corporation was established to provide seasonal packing of locally grown peas, beans and other vegetables. See "Part I -- Item 1. Business -- Risk Factors -- Seasonality and Quarterly Fluctuations." From this beginning, the Corporation has grown to become one of the leading independent processors of canned vegetables, frozen vegetables, frozen meat products, frozen entrees, frozen soft pretzels, canned and frozen mushrooms, fresh foods and snack food products in the eastern United States. The Corporation's raw materials are readily available, and the Corporation is not dependent on a single supplier or a few suppliers. This growth has resulted from the Corporation's extended scope of operations, new product development and acquisitions. See "Part I -- Item 1. Business -- Risk Factors -- Industry Conditions and Price and Volume Fluctuations." The Corporation is a vertically integrated processor of food products in one industry segment. It is involved in the growing, processing, canning, freezing, freeze-drying, packaging, marketing and distribution of its products under its own trademarks, as well as other branded, customer and private labels. See "Part I -- Item 1. Business -- Risk Factors -- General Risks of the Food Industry." The Corporation enjoys its strongest retail sales in the mid-Atlantic states and Florida. Introduction of frozen ethnic blends, specialty vegetables, canned pasta, frozen soft pretzels, refrigerated food, canned and frozen mushrooms and snack food products has enabled the Corporation to increase and expand its distribution throughout the eastern seaboard. Distribution in the remainder of the United States is limited to food service, military and industrial customers. OPERATIONS The Corporation has operations at ten (10) plants in Pennsylvania, one (1) plant in Maryland, one (1) plant in Delaware, and two (2) plants in Guatemala. PRODUCTS The Corporation markets its products under the brand names HANOVER, HANOVER FARMS, MYERS, PHILLIPS, GIBBS, SUPERFINE, MARYLAND CHIEF, MITCHELL'S, DUTCH FARMS, SUNWISE, O&C (jarred onions only), SPRING GLEN FRESH FOODS, 2 SUNNYSIDE FOODS, NOTTINGHAM, BICKEL'S, BON TON, YORK SNACKS, CABANA and DRAPER KING COLE. The products sold by the Corporation under these brand names include canned vegetables, beans and pasta as well as frozen vegetables, frozen meat products, food entrees, refrigerated and fresh foods, canned and frozen mushrooms and potato chips. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year Ended June 1, 2003 Results of Operations Compared to Year Ended June 2, 2002" in the 2003 Annual Report attached hereto as Exhibit 13 (the "Annual Report"). DISTRIBUTION The Corporation's products are marketed under its brand labels and customer private labels to the consumer for home use and also to the food service trade which includes restaurants, fast food chains, hospitals and schools as well as military and other governmental uses. The Corporation's ten largest customers account for approximately 36% of the Corporation's net sales for the fiscal year ended June 1, 2003 and 30% of accounts receivable as of June 1, 2003. No single customer accounted for more than 10% of net sales for the fiscal years ended June 1, 2003, June 2, 2002, and June 3, 2001. The Corporation's products are distributed directly to its customers and indirectly via independent distributors. Sales activities are conducted via Corporation employed sales personnel and independent sales brokerage firms. The Corporation also manufactures private label food products for other food companies. COMPETITION The Corporation markets its food products to the retail and food service sectors in the northeastern, mid-Atlantic, southeastern and midwestern areas of the United States. See "Part I -- Item 1. Business -- Risk Factors -- Competition." The principal methods of competition within the food processing industry are: price, promotion, advertising, product quality and service. The Corporation competes with national processors such as Birds Eye Foods and Campbell Foods and regional processors such as Bush and Allen. TRADEMARKS The Corporation has various registered and unregistered trademarks, service marks and licenses which are of material importance to the Corporation's business. The principal trademarks of the Corporation are: Hanover, Myers, Gibbs, Phillips, Spring Glen, L.K. Bowman, Bickel's, Bon Ton and Cabana. BACKLOG OF ORDERS The Corporation manufactures against customer forecasts and orders. While at any given time there may be a backlog of orders, such backlog is not material to total sales, nor are the changes from time to time significant. RESEARCH AND DEVELOPMENT The Corporation engages in research and development of new products and improvement of existing products as well as the improvement and modernization of its operating plants and equipment. See Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. REGULATION The Corporation's operations, as is the case of all food companies, are subject to strict regulation by the U.S. Food and Drug Administration (FDA). The Corporation is also subject to inspection by the Food Safety and Quality Service Division (USDA), for its meat and poultry products. FDA regulates the safety of 3 the food product, the identity of the product, its purity and identification of ingredients therein. USDA establishes grades for products and regulates sanitation. The appropriate state agencies regulate the sanitation of the Corporation's plants and the manufacture of food products utilizing flour in any baking process. The Corporation is also regulated by many other federal and state governmental agencies such as Occupational Safety and Health Administration (OSHA), Federal Trade Commission and U.S. Environmental Protection Agency. See "Part I -- Item 1. Business -- Risk Factors -- Regulation." ENVIRONMENTAL CONSIDERATIONS The Corporation continually makes investments to comply with all federal, state and local laws, environmental rules and regulations. To date, such expenditures have not been material with respect to the Corporation's capital expenditures, earnings or competitive position, and are not expected to be in the future. See "Part I-- Item 1. Business-- Risk Factors-- Environmental Risks." SOURCES OF SUPPLY The Corporation maintains an intimate involvement in all phases of agricultural crop production as well as direct procurement of fresh vegetables. The Corporation procures all of its fresh vegetable requirements through direct contracts with farmers who cultivate and harvest the crops according to the Corporation's specifications. In addition, the Corporation directly procures beans, tomato based products, pasta, herbs and other ingredients, as well as containers and packaging materials from outside vendors throughout the world. No supplier provides more than 10% of the raw materials or packaging materials purchased by the Corporation. EMPLOYEES As of August 1, 2003, the Corporation, its divisions and subsidiaries employed 1,850 employees on a full-time and a seasonal basis. 1,451 employees are employed in the United States and 399 are employed in Guatemala. A total of 646 production workers at the Hanover, PA; Centre Hall, PA; and Clayton, DE plants are members of the United Food and Commercial Workers Union - Locals 1776, 72 and 56, respectively. The Hanover and Centre Hall, PA plants each have their own three (3) year contract beginning January 1, 2003 and ending December 31, 2005. The Clayton, DE plant has its own three (3) year contract beginning January 1, 2002 and ending December 31, 2004. There are no union contracts at any other plants or locations of the Corporation. The Corporation has never had any strikes or labor disputes interfering with its operations. Management considers labor relations to be excellent. FOREIGN OPERATIONS The Corporation's wholly-owned subsidiary, Tri-Co. Foods Corp., has three wholly-owned subsidiaries, Alimentos Congelados Monte Bello, S.A. and Mayapac, S.A., both of San Jose Pinula, Guatemala; and Sunwise Corporation, Lakeland, Florida. Alimentos Congelados Monte Bello, S.A. and Mayapac S.A. procure, process and ship vegetables produced in Guatemala. Alimentos Congelados Monte Bello S.A. and Mayapac S.A. contract with approximately 2,000 independent farmers in Guatemala for the growing and harvesting of broccoli, cauliflower, okra and Brussels sprouts. The raw vegetable product purchased by the Corporation is frozen at one of two Corporation plants located in San Jose Pinula, Guatemala; and Teculutan, Guatemala. Sunwise Corporation imports and distributes the Guatemalan product to the Corporation. The business of the Corporation in Guatemala is subject to the laws of Guatemala which may place restrictions and controls on such matters as ownership, imports and exports, prices, product lines and transfer of funds, and is also subject to the fluctuating exchange rate between the Guatemalan quetzal and the U.S. dollar. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Impact of Events and Commitments of Future Operations" in the Annual Report and "Part I -- Item 1. Business -- Risk Factors -- Risks Associated With Foreign Operations. 4 Information with respect to the revenue, cost of sales and identifiable assets for the Corporation's foreign operations is set forth in Note 10 to the Consolidated Financial Statements entitled "Foreign Operations" in the Annual Report. RISK FACTORS Industry Conditions and Price and Volume Fluctuations The Corporation's financial performance and growth are related to conditions in the food processing industry. The United States food processing industry is a mature industry. The Corporation's net sales are a function of product availability and market pricing. In the food processing industry, product availability and market prices tend to have an inverse relationship: market prices tend to decrease as more product is available, whereas if less product is available, market prices tend to increase. Product availability is a direct result of plantings, growing conditions, crop yields and inventories, all of which vary from year to year. In addition, price can be affected by the planting, inventory level and individual pricing decisions of the three or four largest processors in the industry. Generally, the market prices in the food processing industry tend to adjust more quickly to variations in product availability than an individual processor can adjust its cost structure; thus, in an over-supply situation, a processor's margins likely will weaken, as suppliers generally are not able to adjust their cost structure as rapidly as market prices adjust for the over-supply. The Corporation typically has experienced lower margins during times of industry over-supply. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report. Seasonality and Quarterly Fluctuations The Corporation's operations are affected by the growing cycle of the vegetables it processes. The Corporation's business can be positively or negatively affected by weather conditions nationally and the resulting impact on crop yields. Favorable weather conditions can produce high crop yields and an over-supply situation in a given year. This over-supply typically will result in depressed selling prices and reduced profitability to the Corporation on the inventory produced from that year's crops. Excessive rain or drought conditions can produce low crop yields and a shortage situation. This shortage typically will result in higher selling prices and increased profitability to the Corporation. While the national supply situation controls the pricing, the supply can differ regionally because of variations in weather. Because many of the raw materials processed by the Corporation are agricultural crops, production of products using these crops is predominantly seasonal. As a result, the Corporation needs access to working capital financing to meet its production requirements during these periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report. Competition All of the Corporation's products compete with those of other national, major and small regional food processing companies under highly competitive conditions. Many of the Corporation's major competitors in the market are larger and have greater financial and marketing resources than the Corporation. Continued industry consolidation also may increase the market strength of the Corporation's larger competitors making it more difficult for the Corporation to increase its market share. Regulation United States and foreign governmental laws, regulations and policies directly affect the agricultural industry and food processing industry. The Corporation is subject to regulation by the FDA, the USDA, the Federal Trade Commission, the Environmental Protection Agency and various state agencies with respect to production, packaging, labeling and distribution of its food products. The application or modification of existing, or the adoption of new laws, regulations or policies could have an adverse effect on the Corporation's business and results of operations. 5 General Risks of the Food Industry Food processors are subject to the risks of adverse changes in general economic conditions; evolving consumer preferences and nutritional and health-related concerns; changes in food distribution channels and increasing buying power of large supermarket chains and other retail outlets that tend to resist price increases; federal, state and local food processing controls; consumer product liability claims; and risks of product tampering. Environmental Risks The disposal of solid and liquid waste material resulting from the preparation and processing of foods are subject to various federal, state and local laws and regulations relating to the protection of the environment. Such laws and regulations have had an important effect on the food processing industry as a whole, requiring substantially all firms in the industry to incur material expenditures for modification of existing processing facilities and for construction of upgraded or new waste treatment facilities. The Corporation cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Enactment of more stringent laws or regulations or more strict interpretation of existing laws and regulations may require additional expenditures by the Corporation, some of which could be material. Risks Associated with Foreign Operations Foreign operations generally involve greater risks than doing business in the United States. Foreign economies differ favorably or unfavorably from the United States' economy in such respects as the level of inflation and debt, which may result in fluctuations in the value of the country's currency and real property. Further, there may be less government regulation in various countries, and difficulty in enforcing legal rights outside the United States. Additionally, in some foreign countries, there is the possibility of expropriation or confiscatory taxation, limitations on the removal of property or other assets, political or social instability or diplomatic developments which could affect the operations and assets of U.S. companies doing business in that country. Some of these risks are more pronounced in developing countries, such as Guatemala. At June 1, 2003, the total assets of the Corporation's foreign operations were approximately $10.0 million. Litigation Risks The Corporation is involved in litigation with the Warehime family (see "Part I -- Item 3. -- Legal Proceedings"). As a result of the pending litigation there may be a change of control of the Corporation. A change in control may not be in the best interests of shareholders and could have an adverse effect on the Corporation's business and results of operations. Impact of a Change in Control on the Corporation's Senior Debt A change in control of the Corporation would trigger a repayment obligation with respect to $22.5 million in aggregate principal amount of 7.01% Senior Notes due September 15, 2011 of the Corporation (the "Notes). In the event of any change of control of the Corporation, the Corporation has an obligation to prepay the Notes in the amount equal to 100% of the outstanding principal amount of the Notes and accrued interest thereon, together with a premium equal to the applicable Make-Whole Amount, as defined in the Note Purchase Agreement. A "change in control" as defined in the Note Purchase Agreement means the date on which (i) John Warehime ceases to hold the positions of Chairman, President and Chief Executive Officer of the Corporation or (ii) Gary T. Knisely ceases to hold the positions of Executive Vice President and Secretary of the Corporation. To the extent a change of control were to occur and the Lenders demand repayment of the Notes, the Corporation would be required to obtain an alternative funding source to repay this obligation. While the Corporation currently believes it would be successful in obtaining additional financing, no assurance can be given as to whether the Corporation will be successful in obtaining additional funding sources of if such financing will be on terms and conditions that are acceptable to the Corporation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" in the Annual Report. 6 WHERE YOU CAN FIND MORE INFORMATION The files, annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). You may read and copy our reports or other filings made with the SEC at the SEC's Public Reference Room, located at 450 Fifth Street, N.W., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our SEC filings are also available on the SEC's internet website, www.sec.gov. The reference to the SEC's website, above, is intended to be an inactive textual reference and no documents from the SEC website are intended to be incorporated by reference in this Annual Report. We will provide, at no cost, paper or electronic copies of our reports and other filings made with the SEC. Requests should be directed to: Gary T. Knisely Hanover Foods Corporation 1486 York Street P.O. Box 334 Hanover, PA 17331 Telephone: (717) 632-6000 7 ITEM 2. PROPERTIES The following is a list of the Corporation's manufacturing, processing and warehousing properties. The Corporation owns each of the properties. UNITED STATES Hanover, PA.................... Canned and jarred products processing, repackaging of frozen vegetables, frozen soft pretzels manufacture, and dry and frozen storage. Corporate research, new product development and quality assurance laboratory (corporate headquarters). Centre Hall, PA................ Frozen vegetable processing, frozen food entree and meat pie manufacturing. Dry and frozen storage. Lancaster, PA.................. Freeze-dried food and ice manufacturing. Dry and frozen storage. Nottingham, PA................. Canned mushrooms, dry storage. Ephrata, PA.................... Refrigerated, fresh foods and soups manufacturing. Dry, refrigerated and frozen storage. Manheim, PA.................... Dry storage and direct store distribution center. Ridgely, MD.................... Frozen peas, onions, peppers, zucchini and celery, frozen and blanched mushrooms. Dry and frozen storage. Clayton, DE.................... Frozen vegetables, breaded mushrooms & okra, frozen food entrees, meat pies and soup manufacture. Dry and frozen storage. York, PA (3 locations)......... Dry storage and distribution. Corn product manufacturer.Dry storage. Extruded corn product manufacturer. Dry storage. GUATEMALA San Jose Pinula................ Frozen vegetable processing, dry and frozen storage, research and quality assurance laboratory. Teculutan...................... Frozen vegetable processing, dry and frozen storage. 8 ITEM 3. LEGAL PROCEEDINGS Derivative Action On September 13, 1996, certain Class A shareholders filed a complaint in equity against six of the Corporation's directors and the estate of a former director in the Court of Common Pleas of York County, Pennsylvania (the complaint). The suit also names the Corporation as a nominal defendant. The suit sought various forms of relief including, but not limited to, rescission of the board's April 28, 1995 approval of John A. Warehime's 1995 Employment Agreement and the board's February 10, 1995 adjustment of director's fees. (Since the filing of this lawsuit, John A. Warehime's 1995 Employment Agreement was amended.) In addition, the plaintiffs sought costs and fees incident to bringing suit. On November 4, 1996, the complaint was amended to add additional plaintiffs. On June 24, 1997, the Court dismissed the amended complaint for failure to make a prior demand. An appeal was filed on the Court's June 24, 1997 Order. On December 2, 1998, the Superior Court of Pennsylvania held that the derivative plaintiffs had made adequate demand. On May 12, 1997, a written demand was received by the Corporation from the attorney for those Class A shareholders containing similar allegations and the allegations raised by the Class A common stockholders were investigated by a special independent committee of the Board of Directors and found to be without merit. The director defendants filed an Answer and New Matter to the amended complaint on March 17, 1999. On September 5, 2001, director defendants filed a Motion to Dismiss the Derivative Action. On September 20, 2001, plaintiffs filed an answer to director defendants' Motion to Dismiss. On May 17, 2002, the court entered an order denying defendants' Motion to Dismiss. On May 14, 2002, Albert Blakey, Esquire, counsel for certain of the derivative plaintiffs filed a Petition for Fees seeking an award of $1,585,716 in attorney's fees. Defendants filed a response in opposition to the request for fees. On January 29, 2003, Albert Blakey, Esquire, counsel for certain derivative plaintiffs filed a Motion for Reconsideration of the Court's December 31, 2002 denial of the Petition for Fees. A Response in Opposition to the Motion for Reconsideration of Plantiffs' Petition for Fees was filed with the Court on February 12, 2003. Warehime Family Litigation On February 13, 1997, the Board of Directors proposed an amendment and restatement of the Corporation's Articles of Incorporation (the "Amended and Restated Articles") which provides that if all of the following Class B shareholders (or their estates upon the death of such shareholders), Michael A. Warehime, John A. Warehime, Sally W. Yelland, J. William Warehime, and Elizabeth W. Stick (all members of the Warehime family, do not agree in writing to the composition of the Board of Directors or other important matters specified below on or after the 1998 annual shareholders meeting, the trustees of the Corporation's 401(k) Savings Plan (or a similar employee benefit plan), who qualify as disinterested directors acting as fiduciaries for the employees who participate in the Plan, and the Class A shareholders may become entitled to vote in the manner described in the document. The Amended and Restated Articles created a Series C Convertible Preferred Stock, which, in case of a dispute among the above mentioned members of the Warehime family on Board of Directors composition or other important matters, would be entitled to 35 votes per shares (a total of 350,000 votes based on 10,000 shares of Series C Convertible Preferred Stock issued to and held by the trustees of the Corporation's 401(k) Savings Plan); if Series C Convertible Preferred Stock were entitled to vote because of such dispute, each share of Class A Common Stock would be entitled to 1/10th of a vote per share. 9 The Amended and Restated Articles also classified the terms of the Board of Directors commencing with the election at the 1997 annual shareholders' meeting and permitted directors to be elected for four-year term as permitted by Pennsylvania law. Pursuant to the Corporation's Bylaws, as then in effect, nominations for directors must be submitted to the Corporation in the manner prescribed by the Bylaws no later than June 1 of the year in which the meeting is to occur. On February 21, 1997, Michael A. Warehime, a Class B shareholder, and certain Class A shareholders filed motions for a preliminary injunction against the Corporation, John A. Warehime, in his capacity as voting trustee, and certain directors of the Corporation in the Court of Common Pleas of York County, Pennsylvania against a Proposal of the Board of Directors to amend and restate the Corporation's Articles of Incorporation in the manner described herein. The motions for a preliminary injunction were dismissed by the Court on June 24, 1997. The Class B shareholders on June 25, 1997 approved the Amended and Restated Articles (John A. Warehime, being the sole Class B shareholder voting affirmatively in his capacity as voting trustee) and the Amended and Restated Articles became effective June 25, 1997. In August 1997, the Board of Directors proposed a further amendment (the "Amendment") to the Amended and Restated Articles to expand the definition of "disinterested directors" in the manner described below, and to approve certain performance based compensation for John A. Warehime solely for the purpose of making the Corporation eligible for a federal income tax deduction pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. A special meeting was scheduled for August 14, 1997 (the "Special Meeting") to vote on these proposals. On August 8, 1997, Michael A. Warehime filed a motion in the Court of Common Pleas of York County, Pennsylvania to prevent John A. Warehime, in his capacity as voting trustee from voting on these proposals and to enjoin the Amendment. This motion was denied by the Court on August 11, 1997. The Amendment and the proposal under Section 162(m) were approved by Class B shareholders (John A. Warehime was the sole Class B shareholder to vote affirmatively, in his capacity as voting trustee) on August 14, 1997 and the Amendment became effective on August 14, 1997. Under the Amendment, the definition of "disinterested directors" means a person who, in the opinion of counsel for the Corporation, meets any of the following criteria: (i) disinterested directors as defined in Section 1715(e) of the Pennsylvania Business Corporations Law of 1988, as amended; (ii) persons who are not "interested" directors as defined in Section 1.23 of The American Law Institute "Principles of Corporate Governance: Analysis and Recommendations" (1994); or (iii) persons who qualify as members of the Audit Committee pursuant to Section 303.00 of the New York Stock Exchange's Listed Company Manual. Michael A. Warehime filed an appeal from the denial of his motion to enjoin the previously described Amendment to the Corporation's Amended and Restated Articles. On December 2, 1998, a majority panel of the Superior Court of Pennsylvania issued a decision holding that although John A. Warehime had acted in good faith in voting for the Amendment to the Amended and Restated Articles as trustee of the Warehime voting trust, he had breached his fiduciary duty to the beneficiaries of the Warehime voting trust in voting for the Amendment. On November 29, 1999, the Supreme Court of Pennsylvania granted a petition for allowance of appeal, filed by John A. Warehime, and granted a cross-petition for appeal filed by Michael A. Warehime. On August 13, 1999, Michael A. Warehime filed a complaint in equity in the Court of Common Pleas of York County, Pennsylvania, naming as defendants Arthur S. Schaier, Cyril T. Noel, Clayton J. Rohrbach, Jr., John A. Warehime, and the Corporation. The complaint sought a court order declaring that the September 1999 election for the Board of Directors of the Corporation be conducted in accordance with the Articles of Incorporation of the Corporation as they existed prior to June 25, 1997, an order declaring that the Series C Convertible Preferred Stock cannot be voted, and an order that the following candidates for the Board of Directors of the Corporation proposed by Michael A. Warehime, Sally Yelland, Elizabeth Stick and J. William Warehime be accepted by the Corporation and listed on the ballot to be distributed at the annual meeting of shareholders of the Corporation to be held on September 16, 1999: Michael A. Warehime, Daniel Meckley, Elizabeth Stick, Sonny Bowman, and John Denton. The basis for the complaint was the December 2, 1998 decision of the Superior Court of Pennsylvania which held that John A. Warehime breached his fiduciary duties in voting for the Amended and Restated Articles as trustee of the Warehime voting trust. The requested relief was denied by the Court of Common Pleas of York County and Michael Warehime appealed to the Superior Court of Pennsylvania. On September 12, 2000, the Superior Court of Pennsylvania stated, in a Memorandum decision, that the June 25, 1997 shareholder vote, which adopted the Amended and Restated Articles of the Corporation should be set aside, and remanded the case to the Court of Common Pleas of York County to determine what further relief would be appropriate. On remand, the Court of Common Pleas of York County entered an Order on October 10, 2000 declaring that the Amended and 10 Restated Articles of Incorporation were set aside and that an election should be held without the Amended or Restated Articles. On October 11, 2000, the Supreme Court of Pennsylvania entered an Order staying the Order of the Court of Common Pleas of York County. On November 27, 2000, the Supreme Court of Pennsylvania reversed and remanded the Order of the Superior Court issued on December 2, 1998 and, in effect, the Order of the Superior Court issued September 12, 2000. In reversing the Superior Court's Order, the Supreme Court of Pennsylvania held that John A. Warehime, the trustee of the voting trust, did not breach his fiduciary duties in voting the trust shares in favor of the Amended and Restated Articles of Incorporation. The Supreme Court remanded the case to the Superior Court of Pennsylvania to consider other issues raised by Michael A. Warehime. On September 17, 2002, the Supreme Court of Pennsylvania granted defendant's Petition for Allowance of Appeal. On May 4, 2001, the Superior Court of Pennsylvania, on remand from the Supreme Court of Pennsylvania to decide several remaining issues, held that the 1997 amendments to the Corporation's Amended and Restated Articles of Incorporation "violated principles of corporate democracy" and should be invalidated even though the Superior Court found the directors acted in good faith and their actions in approving the amendments did not result in a breach of their fiduciary duties. A petition for allocatur was filed with the Supreme Court of Pennsylvania requesting that the Supreme Court of Pennsylvania review the Superior Court's May 4, 2001 ruling. On September 17, 2002, the Supreme Court of Pennsylvania granted the petition for allocatur and oral argument was heard in the matter on May 13, 2003. On September 17, 2002, the Supreme Court of Pennsylvania granted the petition for allocatur and oral argument was heard in the matter on May 13, 2003. On December 12, 2002, Michael Warehime filed a Motion for Relief under the Warehime v. Schaier caption in the York County Court of Common Pleas. Michael Warehime's motion requested, inter alia, that Hanover Foods Corporation's December 23, 2002 election be conducted according to the Articles of Incorporation as they existed prior to June 25, 1997. Following a hearing on December 20, 2002, the York County Court of Common Pleas denied Michael Warehime's Motion for Relief. On January 17, 2003 Michael Warehime appealed the Court's denial of his Motion for Relief to the Superior Court of Pennsylvania. On December 12, 2002, Michael Warehime filed an Emergency Application for Expedited Relief with the Pennsylvania Supreme Court in the Warehime v. Warehime appeal concerning the election of directors noticed for December 23, 2002. The Pennsylvania Supreme Court denied Michael Warehime's emergency application on December 20, 2002. The Corporation is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Corporation's consolidated financial position, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information contained under the caption "Market for the Registrant's Common Equity and Related Stockholder Matters" in the Corporation's Annual Report to Shareholders as of and for the year ended June 1, 2003, which is attached as Exhibit 13, is incorporated herein by reference in response to this item. See "Part III -- Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters -- Equity Compensation Plan Information" regarding the Corporation's equity compensation plans. 11 ITEM 6. SELECTED FINANCIAL DATA Information contained under the caption "Financial Highlights Five Years" in the Corporation's Annual Report to Shareholders as of and for the year ended June 1, 2003, which is attached as Exhibit 13, is incorporated herein by reference in response to this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Corporation's Annual Report to Shareholders as of and for the year ended June 1, 2003, which is attached as Exhibit 13, is incorporated herein by reference in response to this item. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information contained under the caption "Quantitative and Qualitative Disclosures about Market Risk" in the Corporation's Annual Report to Shareholders as of and for the year ended June 1, 2003, which is attached as Exhibit 13, is incorporated herein by reference in response to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements for Hanover Foods Corporation and Subsidiaries contained in the Corporation's Annual Report to Shareholders as of and for the year ended June 1, 2003, and quarterly financial data contained in the Corporation's Annual Report to shareholders as of and for the year ended June 1, 2003, which is attached as Exhibit 13, are incorporated herein by reference in response to this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES Controls and Procedures Quarterly evaluation of the Company's Disclosure and Internal Controls. The Company evaluated the effectiveness of the design and operation of its "disclosure controls and procedures" ("Disclosure Controls") as of the end of the period covered by this Form 10-K and any changes in internal controls over financing reporting that occurred during the last quarter of its fiscal year. This evaluation ("Controls Evaluation") was done under the supervision and with the participation of management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls. 12 Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that management is timely alerted to material information relating to the Company during the period when its periodic reports are being prepared. In accord with SEC requirements, the CEO and CFO conducted an evaluation of the Company's internal control over financial reporting ("Internal Controls") to determine whether there have been changes in Internal Controls occurred during the quarter that have materially affect or which are reasonable likely to materially affect Internal Controls. Based on this evaluation, there has been no such changes in Internal Controls during the quarter covered by this report. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION The following table sets forth the name, age and the present principal occupation or employment, and the name, principal business and address of any corporation or other organization in which such employment is carried on, of the directors of the Corporation.

----------------------- (1) Age as of August 11, 2003. (2) Mr. Noel served on the Board from May 1983 until June 1994 and from October 1994 to present. (3) Ms. Carter is the daughter of John A. Warehime. The Corporation's Bylaws, provide that the board of directors should consist of not less than seven and not more than fifteen directors. The Amended and Restated Articles of Incorporation and amendments thereto (the "Articles of Incorporation") of the Corporation provide that the board of directors is divided into four classes, having staggered terms of office, which are as equal in number as possible, and that the members of each class of directors are to be elected for a term of four years and will serve until their successors have been elected and qualify. The following information about the Corporation's directors is based, in part, upon information supplied by such persons. John A. Warehime has served as Chairman of the Board and Chief Executive Officer of the Corporation since 1989 and as a Director of the Corporation since 1985. Mr. Warehime has 50 years of experience in the food processing industry. Clayton J. Rohrbach is currently retired. Prior to his retirement, Mr. Rohrbach was employed at CPC International, a large New York Stock Exchange traded food company located in Englewood Cliffs, New Jersey, from 1975 through 1985 as Vice President of Marketing. Cyril T. Noel is currently retired. Mr. Noel was the Vice President of Finance of the Corporation from 1985 through 1994. Mr. Noel has served on the Board from May 1983 until June 15, 1994 and from October 18, 1994 to the present. 13 T. Edward Lippy has been the Vice President of Lippy Brothers, Inc., a family farming company located in Hampstead, Maryland, since 1994. Mr. Lippy has served as: Vice Chairman and Director of Farmers & Merchants Bank, a public company located in Fowblesburg, Maryland, since 1989. Additionally, Mr. Lippy, served as the Chairman of Baltimore Farm Credit Bank from 1990 through 1992 and as Chairman of the Farm Credit Council, Washington, D.C. from 1993 through 1997. Arthur S. Schaier has been a shareholder; President & CEO - Schaier Nissan, Schaier Honda, and Schaier Enterprieses, Inc., a retail car dealership headquartered at Long Beach, California since 2003. Prior to 2003, he was Corporate General Manager of Earnhardt's Dodge Motor Companies located in Gilbert, Arizona, since 1981. James G. Sturgill, CPA, CVA, has been the Managing Partner at Sturgill & Associates, LLP, a public accounting firm headquartered in Westminster, Maryland, since 1993. Prior to 1993, he was employed at Sturgill, Rager & Lehman, a firm located in Westminster, Maryland from 1980 to 1993. James A. Washburn has been the Chairman and Chief Executive Officer of Park 100 Foods, Inc., a food manufacturing company, located in Tipton, Indiana, since 1991. Mr. Washburn also is Chief Executive Officer of Hamilton Medaris Corporation and H.M.C. Transportation located in Fishers, Indiana. Jennifer W. Carter has been Sales and Marketing Facilitator at the Corporation since 1997 and Assistant to the Chairman of the Corporation since June 1, 2000. Ms. Carter is the daughter of John Warehime. T. Michael Haugh has been President of Hospitality Management Corporation, Abbottstown, Pennsylvania, a contract food service company including a fine dining restaurant and off-premises catering operation, since 1997. EXECUTIVE OFFICERS OF THE CORPORATION WHO ARE NOT ALSO DIRECTORS 14

(1) Age as of August 11, 2003. FAMILY RELATIONSHIPS OF DIRECTORS AND EXECUTIVE OFFICERS Director Jennifer W. Carter is the married daughter of John A. Warehime, Chairman, Chief Executive Officer and President of the Corporation. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires that directors and certain officers of the Corporation file reports of ownership and changes in ownership with the Securities and Exchange Commission as to the shares of the Corporation Class A Common Stock beneficially owned by them. Based solely on its review of copies of such forms received by it, the Corporation believes that during the Corporation's fiscal year ended June 1, 2003, all filing requirements applicable to its directors and officers were complied with in a timely fashion. BOARD OF DIRECTORS, COMMITTEES AND ATTENDANCE AT MEETINGS The Board of Directors held four meetings during fiscal 2003. Each director attended 75% or more of the meetings of the Board and committees of which they were members during fiscal 2003. The Board of Directors has a Compensation Committee to make recommendations to the Board of Directors concerning compensation for the Corporation's executive officers and take such other actions as may be required in connection with the Corporation's compensation and incentive plans. During fiscal 2003, the Compensation Committee held one meeting. Members of the Compensation Committee include Directors Rohrbach and Schaier. The report of the Compensation Committee is contained elsewhere herein. 15 The Board of Directors also has an Audit Committee which is responsible for among other things, reviewing the Corporation's audited financial statements, reviewing the accounting and auditing principles and procedures, approving all audit and permissible non-audit services performed by the independent accountants, appointing and compensating the Corporation's independent accountants, reviewing with the accountants the results of the audit engagement and considering the independence of the accountants. Members of the Audit Committee include Directors Noel, Rohrbach, and Schaier. The Board of Directors believes that all Audit Committee members are independent as required by the Listing Standards of the New York Stock Exchange. The Audit Committee met three times during fiscal 2003. On July 27, 2001, the Board of Directors adopted an Audit Committee Charter. The Board of Directors has not appointed a standing Nominating Committee. The function of the nominating directors is carried out by the entire Board of Directors. Pursuant to the Amended and Restated Bylaws, a shareholder may nominate persons for election as director, provided that the shareholder (i) is a holder of a class of stock entitled to vote for the election of directors at the meeting of shareholders, and (ii) complies with the notice procedures of Article III, Section 2 of the Amended and Restated Bylaws. This section as currently in effect provides that the nominating shareholder must deliver notice of the nomination to the Corporation's Secretary not later than June 1 of the calendar year in which the meeting to elect the director or directors is to be held. The required notice must contain certain information, including information about the nominee, as prescribed in the Bylaws. However, if the number of directors to be elected is increased subsequent to the June 1 deadline for submission of shareholder nominations, the deadline for the submission of nominations for director pursuant to this Section 2 of Article III of the Amended and Restated Bylaws is 15 calendar days after the Corporation mails notice of the meeting at which the additional directors are to be elected. DIRECTOR COMPENSATION During fiscal year 2003, each director of the Corporation was paid an annual retainer of $12,000 payable in equal monthly installments of $1,000. Board Members also receive a fee of $1,500 for each quarterly Board meeting attended in person and $750 for each quarterly Board meeting which the director participated in by telephone. Directors are paid $1,000 for each special Board meeting attended in person and $500 for each special Board meeting which the director participated in by telephone. In addition, an annual fee of $1,000 per year was paid for service as a committee chairman. Committee members also received a fee of $1,000 for each committee meeting attended in person and $500 for each committee meeting which the director participated in by telephone. In addition, prior to fiscal year 2002, James Sturgill, a director of the Corporation, provided consulting services on an hourly fee basis. AUDIT COMMITTEE REPORT On July 25, 2003, the Audit Committee met with management to review and discuss the audited financial statements. The Audit Committee also conducted discussions with its independent auditors, KPMG LLP, regarding the matters required by the Statement on Auditing Standards No. 61. As required by Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees," the Audit Committee has discussed with and received the required written disclosures and a confirming letter from KPMG LLP regarding its independence and has discussed with KPMG LLP its independence. Based upon the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Corporation's Annual Report on Form 10-K for the year ended June 1, 2003. This Audit Committee Report shall not be deemed incorporated by reference in any document previously or subsequently filed with the Securities and Exchange Commission that incorporates by reference all or any portion of this Annual Report on Form 10-K, except to the extent that the Corporation specifically requests that the Audit Committee Report be specifically incorporated by reference. 16 Members of the Audit Committee Cyril T. Noel Clayton Rohrbach, Jr. Arthur S. Schaier ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth certain information regarding the compensation paid to the Chief Executive Officer and each of the four other most highly compensated executive officers of the Corporation for services rendered in all capacities during the past three fiscal years ("Named Officers"). SUMMARY COMPENSATION TABLE

--------------- (1) Includes perquisites paid pursuant to the June 12, 1995 Employment Agreement, as amended, including the value of a company car and country club dues totaling $6,695. (2) Includes the Corporation's payment for premiums of $153,000 for two split-dollar life insurance policies on the life of Patricia M. Warehime,the wife of Mr. Warehime, and the accrual of $862,509 to reflect supplemental pension benefits to be paid pursuant to Mr. Warehime's Employment Agreement dated June 12, 1995, as amended. (3) Includes the Corporation's accrual of $171,425 to reflect supplemental pension benefits to be paid pursuant to Mr. Knisely's Employment Agreement, dated January 23, 1997. (4) Includes the Corporation's matching contributions pursuant to the 401 (k) Plan made to the accounts of Messrs. Warehime, Knisely, Young, Giraffa and Schuchart in the amount of $10,000. (5) On June 20, 2002, the Corporation granted stock options to purchase a total of 13,500 shares of the Corporation's Class B common stock to the executive officers and key employees, other than John Warehime. No options were granted to John Warehime. (6) Such options have a exercise price of $110.00 per share and vest at a rate of 12.5% of the initial award per year beginning June 20, 2004. On June 20, 2002, the Corporation granted stock opions to purchase 5,500 shares of the Corporation's Class B common stock to the Named Officers other than John Warehime. No options were granted to John Warehime. 17 2002 STOCK OPTION PLAN On June 20, 2002, the Corporation's Board of Directors adopted the Hanover Foods Corporation 2002 Stock Option Plan (the "Stock Option Plan"). 34,600 shares of the Corporation's Class B common stock, par value $25.00 per share, are authorized for issuance under the Stock Option Plan, and options to purchase 13,500 shares were granted during fiscal 2003. All officers and key employees of the Corporation and of any present or future parent or subsidiary of the Corporation are eligible to receive options under the Stock Option Plan, excluding John A. Warehime. No individual may receive options under the Stock Option Plan for more than 15% of the total number of shares of the Corporation's Class B common stock authorized for issuance under the Stock Option Plan. The Stock Option Plan will be administered by the Corporation's Board of Directors or by an option committee appointed by the Corporation's Board of Directors. The option committee will consist of a minimum of two and a maximum of five members of the Board of Directors, each of whom will be a "non-employee director" within the meaning of Rule 16b-3(b)(3) under the Exchange Act. Options issued pursuant to the Stock Option Plan will be non-qualified stock options. (An "incentive stock option" is an option that satisfies all of the requirements of Section 422(b) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder, and) a "non-qualified stock option" is an option that either does not satisfy all of those requirements or the terms of the option provide that it will not be treated as an incentive stock option. The option price for options issued under the Stock Option Plan will be equal at least to the fair market value of the Corporation's Class B common stock on the date of the grant of the option. Options will not be granted pursuant to the Stock Option Plan after the expiration of ten years from June 20, 2002. The number of shares available for award under the Stock Option Plan is subject to adjustment in the event of any change in the outstanding shares of the Class B common stock as a result of, among other circumstances, a stock dividend, stock split, recapitalization, merger, transfer of assets, or reorganization. OPTIONS/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS

------------------------- (1) Such options have a term of 10 years and vest over 8 years. (2) The Corporation utilized the Black-Scholes option pricing model. The Corporation's use of this model should not be construed as an endorsement of its accuracy for valuing options. All stock option valuation models, including the Black-Scholes model, require a prediction about the future movement of the stock price. The real value of the options in this table depends upon the actual performance of the Corporation's stock during the applicable period. The following Black-Scholes assumptions were utilized: 18 Risk-free interest rate 3.5% Dividend yield 1% Expected life 9 Market price at grant $114 Expected volatility 8.6 AGGREGATED OPTIONS/SAR EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES

------------------- (1) Represents the aggregate market value (market price of the Common Stock less the exercise price) of the options granted based upon the closing sales price per share of $114.00 on June 1, 2003. (2) The exercise price of options is $110.00 per share. EMPLOYEE STOCK TRUST The Hanover Foods Corporation Employee Stock Trust (the "Trust") was revised and restated effective June 20, 2002. The Trust is designed to fund contributions to employee benefit plans for non-union employees of Hanover (excluding John A. Warehime), including, but not limited to, the Hanover Foods Corporation Employee Stock Ownership Plan ("ESOP"), and the Stock Option Plan. Currently, stock held in the Trust is allocated to either the Employee Stock Ownership Plan sub-account or the Stock Option Plan sub-account and the stock in each sub-account is to be used exclusively to satisfy the Corporation's obligations under the applicable benefit plan. Stock held in the ESOP sub-account is voted by the trustee, Cyril T. Noel, pursuant to the instructions of active participants in the ESOP. Stock held in the Stock Option Plan sub-account is voted by the trustee pursuant to the instructions of holders of unexercised stock options. All voting instructions are made on a confidential basis. Shares for which no instructions are given are voted in the same proportion as shares for which instructions are given. The trustee is not required to obtain instruction for voting on procedural or ministerial matters such as shareholder meeting procedure. 19 Dividends and other distributions attributable to stock held in the Trust are to be used exclusively for the purpose of satisfying the Corporation's obligations under its various employee benefit plans. The Trust is irrevocable, provided however, no shares of stock held by the Trust may be transferred to any other employee benefit plan other than the ESOP or to satisfy obligations under the Stock Option Plan for a period of five years from the effective date of the Trust. Stock held in the Trust is governed exclusively by the terms of the Trust Agreement and is not directly or indirectly controlled by the Board of Directors. Concurrent with the revision and restatement of the Trust, the Corporation contributed an additional 13,500 shares of Hanover Class B common stock to the Trust for the purpose of funding obligations under the Stock Option Plan. EMPLOYEE STOCK OWNERSHIP PLAN On January 1, 2001, the Corporation adopted the Hanover Foods Corporation Employee Stock Ownership Plan. The ESOP is a defined contribution employee pension plan designed to invest primarily in securities of the Corporation. Non-union employees, except John A. Warehime, are eligible to participate upon completion of one year of service. Contributions may be made annually at the discretion of the Corporation. Contributions to the ESOP may take the form of cash or securities of the Corporation. It is intended that contributions will be made primarily by the transfer of Class B common stock of the Corporation from the Employer Stock Trust to the ESOP. Securities so contributed to the ESOP are allocated to the accounts of all "active participants" in the ESOP in proportion to each participant's compensation. "Active participant" is defined as each participant who has completed a year of service during the plan year or retired or was on leave as of the last day of the plan year. Although the ESOP is designed to invest primarily in Corporation securities, participants have the option to diversify their accounts after completing 10 years of participation and attaining age 55. Up to 50% of each such participant's account may be invested in securities other than Corporation securities. Corporation securities owned by the ESOP are voted by the ESOP trustee, Cyril T. Noel. Participants with Corporation securities allocated to their accounts are permitted to instruct the ESOP trustee as to the manner in which such shares are voted. All voting instructions are made on a confidential basis. The instruction so received are tabulated on a "one share one vote" basis. All shares held by the ESOP for which instruction is not received, including unallocated shares and shares allocated to the account of a participant who declines to instruct the trustee as to the manner in which such shares should be voted, are voted proportionately in accordance with the tabulation of the voting instructions received by the trustee. The trustee is not required to obtain instruction from ESOP participants for voting on procedural or ministerial matters such as shareholder meeting procedure. 401(K) SAVINGS PLAN On April 2, 1990, the Corporation adopted a defined contribution benefit plan, known as the Corporation's 401(k) Savings Plan (the "401(k) Plan"). The 401(k) Plan was amended on June 5, 1992, April 4, 1994, April 28, 1995, July 25, 1997, December 14, 1997 and July 25, 2002 to read in its present form. Non-union, full-time domestic employees and those employees who are members of Local 56 of the United Food and Commercial Workers Union are eligible to participate after completion of one year of service. Each eligible employee has the option to defer up to 16% of his or her total annual cash compensation per year. As of December 31st of each year, the Corporation, at its discretion, may make matching contributions equal to one hundred percent of each participating employee's account for the first five percent of compensation deferred by each employee. These contributions may be made in cash, Corporation stock, or a combination of cash and Corporation stock. The 401(k) Plan provides various investment options. The 401(k) Plan provides for loans to plan participants but does not permit early withdrawals. Matching contributions made by the Corporation to the accounts of the Named Officers are included in the Summary Compensation Table contained previously herein. Corporation securities owned by the 401(k) Plan are voted by the 401(k) Plan trustees: Cyril T. Noel, Clayton J. Rohrbach, and Arthur S. Schaier. All shares held by the 401(k) Plan are voted as a block according to the decision of a simple majority vote of the 401(k) Plan trustees who actually cast a vote. Each 401(k) Plan trustee is entitled to abstain from voting. If only one 401(k) Plan trustee chooses to cast a vote, the vote shall be legally effective, provided that such 401(k) Plan trustee is the chairman of the board (unless the chairman of the board elects in writing otherwise). None of the trustees currently serves as such chairman of the board. 20 EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL SEVERANCE AGREEMENTS On June 12, 1995, the Corporation entered into a five-year employment agreement with its Chief Executive Officer, John A. Warehime, at an annual base salary of $650,000 with such compensation payable retroactively from April 1, 1994 (the "1995 Employment Agreement"). The 1995 Employment Agreement was amended on February 13, 1997 ("Amended Employment Agreement"). The principal terms of Mr. Warehime's employment arrangements with the Corporation as amended by the Amended Employment Agreement are set forth below. The Amended Employment Agreement provides for annual increases (but not decreases) in the employee's annual salary equal to the greater of 5% of the prior year's salary or the annual percentage increase in the Consumer Price Index (CPI). Mr. Warehime's annual base salary for fiscal 2003 and 2002 was $737,095 and $701,995, respectively. Unless terminated by either party, the Amended Employment Agreement automatically renews annually on each anniversary date so that five years always remain on the term of the agreement. In the event the employee is terminated without cause, or in the event the employee terminates his employment after a reduction (without his written consent) of his duties or authority, compensation, or similar events, the Amended Employment Agreement provides for the payment of the salary and bonus (including all other benefits) over the remaining term of the agreement. In the event of termination due to death or disability, the Amended Employment Agreement provides for the same payment to the employee (or in the event of the death of the employee, his spouse, or descendants) for one year and thereafter the payment of supplemental pension benefits as described below. In addition, the Amended Employment Agreement provides for the reimbursement by the Corporation of the employee's legal and accounting fees up to $75,000 per year and reasonable business expenses incurred by the employee in connection with the business of the Corporation. The Amended Employment Agreement also provides the employee with various other benefits including the use of an automobile, disability and life insurance, and a club membership. The annual bonus payable to the employee under the Amended Employment Agreement is equal to $100,000 plus 10% of the Corporation's pretax earnings over $5.0 million provided that no annual bonus is payable if pretax earnings of the Corporation are less than $5.0 million. The Amended Employment Agreement limits salary and the annual bonus payment described above to an aggregate of not more than $1.0 million annually. Annual bonuses can be paid in cash or Class A Common (non-voting) Stock at the option of the employee. For the years ended June 1, 2003, June 2, 2002, and June 3, 2001, the bonus accrued under this agreement was $262,905, $298,000, and $331,000, respectively. The Amended Employment Agreement also provides for the annual payment of a long-term performance bonus based upon the Corporation's performance over the prior five-year period as measured by its average sales growth and average increase in operating profits as compared to an industry peer group over the same period. The bonus payable is calculated based upon a formula matrix set forth in the Amended Employment Agreement, with such formula being recommended by an independent management consulting firm retained by the Corporation and approved by the Compensation Committee of the Board of Directors. For the years ended June 1, 2003, June 2, 2002, and June 3, 2001, the long-term performance bonus accrued under this agreement was $169,140, $157,000, and $144,000, respectively. The Amended Employment Agreement provides for annual supplemental pension benefits, commencing upon the earlier of (a) five years after termination of the employee (or one year following his death or disability) or (b) the date of retirement, payable during the life of the employee and upon his death for the life of his spouse. Such annual supplemental pension benefits are equal to 60% of average total compensation (including bonuses) over the latest three-year period prior to retirement, assuming retirement at age 65 or later. Supplemental pension benefits are reduced based upon an established formula to the extent the employee retires prior to age 65. The net present value of the cost of providing this future benefit is recognized by the Corporation over the remaining expected years of service. The expense recognized under this agreement was approximately $863,000, $773,000 and $628,000 for the years ended June 1, 2003, June 2, 2002, and June 3, 2001, respectively. The projected benefit obligation was approximately $4,447,000 and $3,584,000 at June 1, 2003 and June 2, 2002, respectively. The Amended Employment Agreement was revised effective as of August 1, 1997 to make certain clarifying changes and to require that bonus payments to Mr. Warehime in any taxable year in excess of $1.0 million would be subject to shareholder approval, which shareholder approval was given on August 14, 1997. 21 On January 23, 1997, the Corporation entered into a five-year employment agreement with Gary T. Knisely, Executive Vice President, Secretary, and Counsel of the Corporation, at an annual salary of $175,000 with such compensation payable retroactively from June 1, 1996 (the "Knisely Agreement"). Unless terminated by either party, the Knisely Agreement automatically renews annually on each anniversary date so that five years always remain on the term of the agreement. The Knisely Agreement provides for annual salary increases (but not decreases) equal to the greater of 5% of the prior year's salary or the annual percentage increase in the CPI, as well as incentive bonuses and various other benefits. As of June 1, 2003, the aggregate liability of the Corporation under this agreement for the next five years is estimated to be $1,410,452, excluding annual performance bonuses. In the event the employee is terminated without cause, or in the event the employee terminates his employment after a reduction (without his written consent) of his duties or authority, compensation, or similar events, the Knisely Agreement provides for the payment of the salary and bonus (including all other benefits) over the remaining term of the agreement. In the event of termination due to death or disability, the Knisely Agreement provides for the payment of salary and bonus (including all other benefits) to the employee (or his spouse or other descendants in the event of the employee's death) for the later of one year from the date of such termination or the death of the employee. The Knisely Agreement also provides for annual supplemental pension benefits equal to 60% of the employee's average annual compensation (including bonuses but excluding other benefits) over the three most recent fiscal years prior to the employee's termination if the employee is no longer employed by the Corporation and the employee has attained the age of 55. Such annual supplemental pension benefits are payable for the remainder of the lifetime of the employee. The net present value of the cost of providing this future pension benefit is recognized by the Corporation over Mr. Knisely's expected remaining years of service. The expense recognized for supplemental pension benefits under this agreement was approximately $171,000, $81,000, and $108,000, for the years ended June 1, 2003, June 2, 2002, and June 3, 2001, respectively. The projected benefit obligation was approximately $593,000 and $422,000 and at June 1, 2003 and June 2, 2002, respectively. On May 21, 1997, the Corporation entered into a change in control severance agreement with Alan T. Young which provides for termination compensation if Mr. Young's employment is terminated: (i) involuntarily, within 24 months of change in control or (ii) voluntarily, following a reduction in base salary, duties and responsibilities, within 24 months of a change in control. A "change in control" shall be deemed to occur if John A. Warehime ceases to be Chief Executive Officer of the Corporation or ceases to have the power and authority of the Chief Executive Officer. Pursuant to the terms of this agreement, any payment due thereunder shall be made over a two year period no less frequently than monthly and all payments during any twelve month period shall not in the aggregate exceed the officer's total cash compensation (salary and bonus) received from the Corporation during fiscal 2001. On October 17, 2001, the Corporation entered into a similar change in control severance agreement with each of the following eight officers: Mr. Pietro D. Giraffa, Jr., Mr. Edward L. Boeckel, Jr., Mr. Daniel E. Schuchart, Mr. William S. Gaugler, Jr., Mr. Timothy D. Mechler, Ms. Jennifer L. Carter, Mr. Jeffrey A. Warehime and Mr. J. Andrew Warehime. Jeffrey A. Warehime, Andrew Warehime and Jennifer Carter are the adult children of John Warehime, the Chairman of the Corporation. All payments made pursuant to any of these agreements are subject to the further conditions that: (i) the officer maintain the confidentiality of the Corporation's trade secrets, customer lists and other proprietary information of the Corporation; (ii) for a period of two years following the termination of the officer, neither the officer or his employer or business associate shall enter into or attempt to enter into any business relationship, solicit for employment or employ any person, employed by the Corporation or its affiliates at any time within six months prior to the officer's termination; and (iii) for a period of two years following the termination, the officer shall not directly or indirectly own, manage, operate, join or participate in any capacity, any entity which is primarily engaged in a business which competes with any significant business of the Corporation or its affiliates. If the executives were terminated on June 1, 2003, under circumstances entitling them to severance payments pursuant to these agreements, the aggregate amount due to each under the agreement would have been as follows: Mr. Young $387,810, Mr. Giraffa $331,472, Mr. Boeckel $240,626, Mr. Schuchart $313,326, Mr. Gaugler $217,648, Mr. Mechler $216,892, Ms. Carter $175,740, Mr. Jeffrey A. Warehime $240,500 and Mr. J. Andrew Warehime $123,678. 22 The Corporation is also committed to another employee, Patricia H. Townsend, under a previous employment contract, which provides for minimum salary levels, annual adjustments, as well as incentive bonuses and for a term, which ends in March 2004. Provisions contained in the agreement provide for continuation of the remuneration for the remainder of the term of the agreement in the event of termination, incapacity, death, or disability. The estimated commitment for future salaries through the duration of the agreement as of June 1, 2003 was approximately $64,699. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Hanover Foods has designed its executive compensation program to attract, motivate and retain talented executives. Toward this end, the executive compensation program provides: o A base salary program and benefits to attract and retain talented executives who demonstrate the qualities required in Hanover Food's business operations and who meet the Corporation's established goals and standards. o Annual incentive bonus payments that are highly variable based on the achievement of the Corporation's pre-tax earnings goals and pre-established individual goals. These incentive bonuses reward individuals whose performance contributes to achieving strategic and financial corporate objectives, which increase shareholder value. Additionally, the long-term component of the Chief Executive Officer's bonus is determined pursuant to a formula based on the Corporation's performance over the prior five years as compared to an industry peer group over the same period. The Corporation's officer compensation program is comprised of base salary, annual cash incentive compensation and various benefits generally available to all full-time employees of the Corporation, including participation in group medical and life insurance plans and a 401(k) plan. The Corporation seeks to be competitive with compensation programs offered by companies in the food processing industry and other companies of a similar size located in its market area based on formal and informal surveys conducted by the Corporation. Base Salary. The Corporation has entered into employment agreements with Messrs. Warehime and Knisely pursuant to which they were entitled to receive annual base salaries of $737,095 and $243,101 during fiscal 2003, respectively. Pursuant to the terms of the employment agreements, such salaries are adjusted each year in accordance with the Consumer Price Index. The Board of Directors believe that the compensation levels established in the employment agreements were consistent with competitive practices for executives at this level based upon an evaluation performed on these employment agreements by an independent management consulting firm. The Corporation also entered into change in control severance agreement with certain officers of the Corporation which are described under "Employment Agreements and Change in Control Severance Agreements." These agreements do not establish a base salary for these officers Annual Incentive Compensation. Under his employment agreement, Mr. Warehime is entitled to receive an annual bonus if the Corporation's pre-tax earnings are $5.0 million or more. Such bonus is equal to $100,000 plus 10% of all pre-tax earnings over $5.0 million. Such bonus, along with base salary, are limited to a maximum of $1.0 million per year. Mr. Warehime is also entitled to a long-term annual bonus based upon the Corporation's performance over the past five years as measured by its average sales growth percentage ("Sales Performance Index") and average percentage of operating profits to sales ("Profitability Index") as compared to the performance of companies in an industry peer group. The bonus amount is determined by a formula contained in Mr. Warehime's employment agreement as calculated by an independent management consulting firm retained by the Corporation. Annual cash bonuses of up to 100% of an officer's base salary are paid to the Corporation's officers, other than the Chief Executive Officer, based upon the Corporation's pre-tax earnings. In certain cases, bonuses are based on certain individual performance goals. In addition, Alan T. Young, Senior Vice President of Purchasing and Transportation received a bonus on incremental industrial sales. 23 Stock Options. On June 20, 2002, the Board of Directors approved a Stock Option Plan as a means of compensating its executive officers and key employees. Options were awarded to certain executive officers, excluding John Warehime. Compensation of Chief Executive Officer. Pursuant to his employment agreement, Mr. Warehime's annual base salary for fiscal 2003 was $737,095, which represents an increase of $35,100 from fiscal 2002. Mr. Warehime also was paid a bonus (which represents both short and long term components of Mr. Warehime's bonus) pursuant to his employment agreement as a result of the achievement of certain levels of pre-tax income by the Corporation and increases in the Corporation's sales performance index and profitability index as compared to its peers. Policy with respect to Section 162(m) of the Internal Revenue Code. Generally, Section 162(m) of the Internal Revenue Code of 1986, and the regulations promulgated thereunder (collectively, "Section 162(m)"), denies a deduction to any publicly held corporation, such as the Corporation, for certain compensation exceeding $1,000,000 paid during a taxable year to the chief executive officer and the four other highest paid executive officers, excluding, among other things, certain performance-based compensation. The Compensation Committee evaluates to what extent Section 162(m) will apply to its compensation programs. In order to bring bonus payments to Mr. Warehime under his Employment Agreement in excess of $1,000,000 into compliance with Section 162(m), shareholders of the Class B Common Stock approved such bonus payments at a meeting held in August 1997. Members of the Compensation Committee Clayton J. Rohrbach, Jr. Arthur S. Schaier ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth as of August 11, 2003 certain information with respect to the beneficial ownership of the capital stock by: (i) each person who is known by the Corporation to be the beneficial owner of more than five percent of any class of the Corporation's capital stock; (ii) each of the Corporation's directors; (iii) each of the executive officers; and (iv) the Corporation's directors and Named Officers as a group. Except as otherwise indicated, the beneficial owners of the capital stock listed below have sole investment and voting power with respect to such shares. The address of the directors and Named Officers is that of the Corporation. As of August 11, 2003, the following number of shares of each class of capital stock were outstanding: -------------------------------------------------------------------------------- Class of Capital Stock Number of Shares -------------------------------------------------------------------------------- Class A Common Stock 288,062 -------------------------------------------------------------------------------- Class B Common Stock 582,198 -------------------------------------------------------------------------------- Preferred Stock, Series A 6,228 -------------------------------------------------------------------------------- Preferred Stock, Series B 8,336 -------------------------------------------------------------------------------- Preferred Stock, Series C 10,000 -------------------------------------------------------------------------------- 24

--------------------------- * Less than one percent 25

---------------------------- * Less than one percent. (1) The securities "beneficially owned" by a person are determined in accordance with the definition of "beneficial ownership" set forth in the regulations of the Securities and Exchange Commission and, accordingly, include securities owned by or for the spouse, children or certain other relatives of such person as well as other securities as to which the person has or shares voting or investment power or has the right to acquire within 60 days after August 11, 2003. The same shares may be beneficially owned by more than one person. Beneficial ownership may be disclaimed as to certain of the securities. (2) Includes shares held by the Alan A. Warehime Intervivos Trust A. Voting and dispositive power with respect to such shares is shared by five trustees, each of whom has one vote. A majority vote of such individuals is required to vote or dispose of such shares. Trustees of such trust include John A. Warehime, Chairman, President and Chief Executive Officer of the Corporation, Cyril T. Noel, a director of the Corporation, Sally Yelland, Michael Warehime and the Allfirst Bank. (3) Includes shares held by the Alan A. Warehime Intervivos Trust B. Voting and dispositive power with respect to such shares is shared by five trustees, each of whom has one vote. A majority vote of such individuals is required to vote or dispose of such shares. Trustees of such trust include John A. Warehime, Chairman, President and Chief Executive Officer of the Corporation, Cyril T. Noel, a director of the Corporation, Sally Yelland, Michael Warehime and the Allfirst Bank. 26 (4) As reported by Heartland Advisors, Inc. ("Heartland") and William J. Nasgovitz, the President and a principal shareholder of Heartland, in Amendment Five to Schedule 13G dated December 31, 2000. Each of Heartland and Mr. Nasgovitz reported sole voting and no dispositive power with respect to the shares held. Such shares are held in investment advisory accounts of Heartland. The interests of one such account, Heartland Value Fund, relates to more than 5% of the class. (5) Represents shares held by the Employee Stock Trust and the Employee Stock Ownership Plan may be deemed to beneficially own the shares held by such trust. Includes 9,064 shares owned by the Employee Stock Ownership Plan and 13,500 shares contributed to the Employee Stock Trust for the purpose of funding the Corporation's obligations under the Employee Stock Option Plan. Shares held by the Employee Stock Trust are voted by the employee beneficiaries of the Employee Stock Ownership Plan and option grantees and the Stock Option Plan, on a confidential basis, except for procedural matters where the shares are voted by the trustee of such trust, Director Noel. (6) The 401(k) Plan may be deemed to beneficially own the shares held by such plan. The Series C Preferred Stock is currently convertible into shares of the Class A Common Stock on a one for one basis. The trustee of the 401(k) Plan is First Union National Bank. The trustees of the subtrust, which holds the Series C Preferred stock under the plan, are Directors Noel, Rohrbach and Schaier. (7) Excludes 10,000 shares of the Series C Preferred Stock held by the 401(k) Plan Trust. In their capacity as co-trustees of such plan, Directors Noel, Rohrbach and Schaier have shared voting and dispositive power over the 10,000 shares held by the 401(k) Plan Trust. Shares held by the 401(k) Plan Trust are voted by a majority of the plan trustees. The Series C Preferred Stock is convertible into Class A Common Stock on a one for one basis. (8) Shares of Series A or B Preferred Stock are convertible into Class A Common Stock on an equitable basis. The current conversion ratio is 5.07 shares of Series A or B Preferred Stock to one share of Class A Common Stock. Such conversion ratio is subject to change based upon current book value of the Class A Common Stock. (9) Includes 3,562 shares of Class A Common Stock owned jointly with spouse, 328 shares of Class A by Mr. Warehime's spouse and 8,558 shares of Class B Common Stock, and 183 shares of Series C Preferred Stock owned by Mr. Warehime through the 401(k) Plan. (10) Includes 88 shares of Class A Common Stock owned jointly with children, 160 shares of Series A Preferred Stock owned jointly with spouse. Also includes 138,191 shares of Class B Common Stock held by the Employee Stock Trust, of which Mr. Noel is the trustee, as to which Mr. Noel may be deemed to be a beneficial owner. (11) Includes 385 shares of Class A Common Stock owned jointly with spouse. (12) Includes 100 shares of Class A Common Stock owned jointly with spouse. (13) Includes 39 shares of Class B Common Stock owned by Ms. Carter through the Employee Stock Ownership Plan, 31 shares of Class B Common Stock owned by Mr. Carter's husband through the Employee Stock Ownership Plan, 84 shares of Series C Preferred Stock owned by Ms. Carter through 401(k) Plan, 5 shares of Series C Preferred Stock owned by Ms. Carter's husband through 401(k) Plan, and 500 shares of Class B Common Stock issuable upon the exercise of options, as to which Ms. Carter has voting power. See Footnote 5 above. (14) Includes (i) 103 shares of Class B Common Stock owned by Mr. Knisely through the Employee Stock Ownership Plan, as to which such officer may instruct the trustee how to vote such shares, (ii) 2,000 shares of Class B Common Stock issuable upon the exercise of options, as to which Mr. Knisely has voting power, (iii) 1,265 shares of Class A Common Stock, owned jointly with spouse, (iv) 227 shares of Class A Common Stock owned by Mr. Knisely's spouse, (v) 24 shares of Series B Preferred Stock, owned jointly with spouse, and (vi) 190 shares of Series C Preferred Stock owned by Mr. Knisely through the 401(k) Plan. (15) Includes 92 shares of Class B Common Stock owned by Mr. Giraffa through the Employee Stock Ownership Plan, as to which such officer may instruct the trustee how to vote such shares, 1,000 shares of Class B common Stock issuable upon the exercise of options, as to which Mr. Giraffa has voting power, and 188 shares of Series C Preferred Stock owned by Mr. Giraffa through the 401(k) Plan. 27 (16) Includes 98 shares of Class B Common Stock owned by Mr. Young through the Employee Stock Ownership Plan, as to which such officer may instruct the trustee how to vote such shares, 1,500 shares of Class B common Stock issuable upon the exercise of options, as to which Mr. Young has voting power, and 190 shares of Series C Preferred Stock owned by Mr. Young through the 401(k) Plan. (17) Includes 96 shares of Class B Common Stock owned by Mr. Schuchart through the Employee Stock Ownership Plan, as to which such officer may instruct the trustee how to vote such shares, 1,000 shares of Class B common Stock issuable upon the exercise of options, as to which Mr. Schuchart has voting power, and 161 shares of Series C Preferred Stock owned by Mr. Schuchart through the 401(k) Plan. (18) Ms. Stick, Mr. J. William Warehime and Ms. Yelland are directors and/or officers of ARWCO Corporation or Warehime Enterprises, Inc. The shares owned by Warehime Enterprises, Inc. and ARWCO Corporation are not included in the shares beneficially owned by the individual directors and officers. EQUITY COMPENSATION PLAN INFORMATION The following table indicates information regarding the Corporation's equity compensation plans.

---------------- (1) Amounts reflect options granted during fiscal 2003. (2) Reflects weighted average exercise price of options granted on June 20, 2002. (3) Represents shares available for issuance under the Stock Option Plan approved by the Board of Directors following award of options on June 20, 2002. (4) Does not include shares held by the Employee Stock Trust. The Employee Stock Trust is designed to fund contributions to employee benefit plans for non-union employees of the Corporation (excluding John A. Warehime), including, but not limited to, the Employee Stock Ownership Plan and Stock Option Plan, and holds shares available for issuance (i) under the Employee Stock Ownership Plan, (ii) pursuant to outstanding options issued under the Stock Option Plan, and (iii) to fund other employee benefit plans. 28 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During fiscal 2003, the Corporation and its subsidiaries, in the normal course of business, purchased and sold goods and services to related companies. These transactions are summarized below. During fiscal 2003, the Corporation rented equipment from Park 100 Foods, Inc. The rental payments pursuant to such lease agreements totaled $12,000 during fiscal 2003. As of June 1, 2003, the Corporation had an accounts receivable of $160,000 from Park 100 Foods, Inc. for food products sold and shipped to Park 100 Foods, Inc. During fiscal 2003, the Corporation sold approximately $1.9 million of frozen food products to Park 100 Foods, Inc., Tipton, Indiana. James A. Washburn, a director of the Corporation, owns approximately 80% of the outstanding stock of Park 100 Foods, Inc. During fiscal 2003, the Corporation leased a two story farm house, adjoining one story guest house and adjoining ground located on Trolley Road, R.D. #3, Hanover, Heidelberg Township, Pennsylvania, for customer housing and temporary new employee housing from John A. and Patricia M. Warehime for a total of $36,000. During fiscal 2003, the Corporation leased a barn for seed storage, located in Heidelberg Township, Pennsylvania for $4,000 from Warehime Enterprises, Inc. J. William Warehime, a shareholder of the Corporation, and John A. Warehime, Chairman of the Corporation, own 44.4% and 14.8% of the outstanding stock of Warehime Enterprises, Inc., respectively. During fiscal 2003, the Corporation purchased $1.1 million of vegetable crops from Lippy Brothers, Inc., T. Edward Lippy, a director of the Corporation owns approximately 37% of the outstanding stock of Lippy Brothers, Inc. During fiscal 2003, the Corporation, via its subsidiary, Alimentos Congelados Monte Bello S.A., sold its condominium real estate, located in Naples, Florida to John A. & Patricia M. Warehime for $127,500, which approximates fair market value. During fiscal 2003 the adult children of the Corporation's Chairman, John Warehime, were employed by the Corporation, including Jennifer Carter, Director, who is employed as Assistant to the Chairman, Jeffrey Warehime, who is employed as Director - Fresh Produce, and Andrew Warehime, who is employed as Special Sales Manager. Jennifer Carter, Jeffrey Warehime and Andrew Warehime are employed by the Corporation at annual salaries of $92,314, $97,919, $62,129, respectively. See "Part III -- Item 11. Employment Agreements and Change in Control Severance Agreements." Ms. Carter also receives director compensation customary for the Corporation's directors which totaled $18,000 during fiscal 2003. See "Part III -- Item 10. Directors and Executive Officers of the Corporation -- Director Compensation." On June 20, 2002, each of Jennifer Carter, Jeffrey Warehime, and Andrew Warehime were granted an option to purchase 500 shares of Class B common stock. Andrea Kint, the daughter of Pietro Giraffa, Vice President and Controller of the Corporation, is employed as Assistant Production Manager -- Hanover, PA Frozen Operations at an annual salary of $46,350. STOCK PERFORMANCE GRAPH The following graph shows a comparison of the cumulative total return for the Corporation's Class A Common Stock, the NASDAQ Stock Market and the Hanover New Peer Group (defined below) and the Old Peer Group (defined below), assuming an investment of $100 on May 31, 1998 and the reinvestment of all dividends. The New Peer Group includes Seneca Foods Corporation, J.M. Smuckers Company, Maui Land and Pineapple Co., Del Monte Foods, Inc and J & J Snack Foods. The Old Peer Group included: Seneca Foods Corporation, J.M. Smuckers Company, Maiu Land and Pineapple Company, Del Monte Foods Inc and Odwalla. Odwalla was deleted from the Corporation's Peer Group in fiscal 2003 as it was acquired and stock price information was no longer available. The data points used for the performance graph are listed below. The following graph is required to be included in this Annual Report by SEC regulations; however, in reviewing these materials shareholders are advised that since the Corporation's Class A Common Stock is not actively traded, it can not be properly compared to companies whose securities are traded on an exchange or the NASDAQ Stock Market. 29 TOTAL RETURN TO STOCKHOLDERS (Assumes $100 investment on 5/31/98)

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees. The aggregate fees billed by KPMG, LLP for professional services rendered for the audit of the Company's financial statements for the fiscal year ended June 1, 2003 and June 2, 2002 and the reviews of the financial statements included in the Company's Form 10-Qs for fiscal years 2003 and 2002 totaled $140,000 and 96,300, respectively. Audit-Related Fees. The aggregate fees billed by KPMG, LLP for assurance and related services that are reasonably related to the performance of the audit or review of the registrant's financial statements for the fiscal years ended June 1, 2003 and June 2, 2002, respectively, were $15,000 and $28,000. Tax Fees. The aggregate fees billed by KPMG, LLP for tax compliance, tax advice and tax planning for the fiscal years ended June 1, 2003 and June 2, 2002, respectively, were $68,000 and $61,790. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: Hanover Foods Corporation and Subsidiaries The following financial statements of Hanover Foods Corporation and Subsidiaries are incorporated herein by reference to the Corporation's Annual Report to Shareholders for the year ended June 1, 2003. Independent Auditors' Report Consolidated Balance Sheets as of June 1, 2003 and June 2, 2002. Consolidated Statements of Earnings for the Years Ended June 1, 2003, June 2, 2002, and June 3, 2001. 30 Consolidated Statements of Comprehensive Income for the Years Ended June 1, 2003, June 2, 2002, and June 3, 2001. Consolidated Statements of Cash Flows for the Years Ended June 1, 2003, June 2, 2002, and June 3, 2001. Consolidated Statements of Stockholders' Equity for the Years Ended June 1, 2003, June 2, 2002, and June 3, 2001. Notes to Consolidated Financial Statements for the Years Ended June 1, 2003, June 2, 2002, June 3, 2001. 2. Financial Statement Schedules None. All schedules are omitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto. 3. Exhibits The following exhibits are filed herein or have been previously filed with the Securities and Exchange Commission and are incorporated by reference herein.

*Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K None. 34 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. DATE: September 9, 2003 HANOVER FOODS CORPORATION By: /s/ John A. Warehime ------------------------- JOHN A. WAREHIME Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: September 9, 2003 HANOVER FOODS CORPORATION EXHIBIT INDEX

---------------------------- * Management contract or compensatory plan or arrangement.

HANOVER FOODS CORP /PA/ 10-K/A