St. Louis, Missouri-based Aurora Foods, a producer and marketer of food brands, has reached agreement with its banks and major investors on a plan to secure US$62.6m of additional financing and has signed an amendment to its credit facility.

The new financing and amendment will significantly improve the company's finances, ensure that the company is in compliance with its bank covenants and provide the liquidity it needs to conduct business and continue its recovery. The company expects to close this financing by mid July.

The financing package includes US$25m from entities affiliated with Aurora's major investors, Fenway Partners, and McCown De Leeuw & Co, in the form of unsecured, senior promissory notes. The investors will also receive warrants from Aurora to purchase 2,100,000 shares of common stock. The remaining US$37.6m of the financing will come from new term loans under an amendment to Aurora's existing credit facility with various lenders. The credit facility amendment also contains adjustments to certain financial and other covenants.

Aurora plans to use the new capital to reduce debt and for working capital purposes.

"Securing this financing is an important step forward for our company," said James T. Smith, chairman and CEO. "In the last 18 months we have built an almost totally new company. Our brands have shown renewed life and strong share growth, our costs have declined, and we now have the systems, processes and people that a company our size needs.

The new financing plan demonstrates the strong support of our banks and major investors, and is in recognition of both our progress and our commitment to increase shareholder value by decreasing our leverage going forward."

The company also said it is pursuing a number of additional ongoing initiatives to improve liquidity and reduce debt, including continuing to focus on cost effectiveness, which is yielding significant benefits. Aurora has retained Merrill Lynch and JP Morgan to explore strategic alternatives to further deleverage its balance sheet, including the sale of certain assets or businesses.

The notes will accrue interest at the rate of 12% per annum. Any unpaid interest will accrue at a default rate of the applicable interest rate plus 2% per annum and will be payable at maturity on 1 October 2006. The notes will be purchased by the investors at a US$750,000 discount. The warrants will be exercisable at any time during the ten years following issuance at an exercise price per share of US$0.01. The warrant shares will be entitled to registration rights in accordance with the terms provided in the company's Securityholders Agreement.

The bank financing will be on terms and conditions that are identical to the Tranche B Term Loans under the company's existing senior credit facility. In addition, an amendment provides additional flexibility under certain financial covenant ratios through 30 September 2003.

In consideration of the investors providing the US$25m, the Revolving Loan Subordinated Participation Agreement entered into among the investors and the company's senior lenders on 1 May 2002 will terminate. Under the Participation Agreement, the investors agreed to participate in the company's senior credit facility in the amount of US$10m to satisfy requirements of the company's senior lenders.

Aurora is mailing to all shareholders a letter notifying them of its intention to issue the warrant shares without seeking their approval based on the exception noted above.